Open Notebook: Tax Havens


Just a few odds, ends and bits of reporting that didn’t make it into this post that relies on data from the Foreign Lobbying Influence Tracker that we collaborated on with our friends from ProPublica:

Numbers: I really hesitated to use the administration’s claims of $210 billion in tax revenue raised (there’s a fairly good breakdown of which proposals raise what part of the $210 billion in the New York Times here). Tax havens offer secrecy, so even if the government knows how much money they hold (I doubt that it does) it can’t determine who owns it. Plus, as Andy Quinlan of the Center for Freedom and Prosperity pointed out, lots of the numbers on tax havens are squishy, as the linked Congressional Research Service document shows (it’s short–just one page–with no higher math! It also says a lot about the uncertainties of estimating revenues from offshore tax revenues).

The real money in politics: Whether we’re talking about extending health benefits to the uninsured, cap and trade, or the deficit spending in general, tax revenue (or lack thereof) forms a major part of the discussion (as it does in the long range problems forecast for Medicare and Social Security). There are exceptions, obviously, but not many politicians seem interested in talking about additional taxes to pay for new spending.

Obama’s tax proposals: The administration’s reforms seem to be mostly directed at U.S. corporations and individuals, and not necessarily at tax havens (there is a provision that would require Qualified Intermediaries — foreign institutions or foreign branches of U.S. institutions — to “share as much information about their U.S. customers as U.S. financial institutions do”). It’s much easier to change the rules for U.S. taxpayers (corporations and individuals) and foreign private entities than it is to change the rules for sovereign nations. (See below.)

Stop Tax Haven Abuse Act: This bill could in effect bar entities within jurisdictions labeled as tax havens by the Treasury Secretary from doing business with the United States. It has all of five cosponsors in the Senate, and a more respectable 65 cosponsors in the House. Neither bill has made it out of committee.

Foreign lobbyists as diplomats: The data in Foreign Lobbying Influence Tracker made us think that a lot of smaller countries used lobbyists to supplement or in lieu of traditional diplomats. Ted Bravakis, the public affairs officer for the Cayman Islands Ministry of Financial Services, offered some confirmation for that theory: “The Cayman Islands, as a UK Overseas Territory, approaches international relations similar to a private sector organisation. This means we take a very ‘hands on’ approach — rather than relying on a diplomatic corps which is not afforded to us — to build and reinforce relationships with foreign countries. This is especially the case with the U.S. government, as we continually seek to reinforce our ties in relation to the Cayman Islands financial services sector and the long-standing commercial relationship between the U.S. and the Cayman Islands.”

Revolver at Fleishman-Hillard: The key lobbyist for the Cayman Islands was former Texas Rep. Max Sandlin, who served in Congress from 1997 to 2005. He was on the Ways and Means Committee and in the House Democratic leadership — his bio is here.

On the OECD effort: Found a great book on something I followed pretty closely at the time it was going on: the Organization for Economic Co-operation and Development’s effort in the late ’90s–early aughts to isolate countries that engaged in “harmful tax competition.” Havens in a Storm: The Struggle for Global Tax Regulation, by J.C. Sharman, recounts that effort, what was behind it, and why it failed. Sharman did a lot of field work, and comes to some interesting conclusions, among them: that corporations that benefit from the use of offshore tax havens were not at all involved in the effort against the OECD, either domestically (the U.S. pulled out of the effort in 2001) or internationally (he contrasts the lack of corporate involvement in the tax haven issue to robust corporate involvement in OECD efforts to regulate e-commerce).

The power of blacklisting: Sharman argues that the main power of the OECD initiative was its ability to label tax havens as bad actors, making them potentially less attractive destinations for capital: “…once jurisdictions were blacklisted, their reputations were changed. They were left vulnerable to capital flight because third party investors were more likely to either avoid or withdraw from listed states.” Blacklist turns up in the Foreign Lobbying Influence Tracker as an issue of concern.

Inconsistencies: Sharman also points out many internal problems with the OECD initiative–not the least of which was omitting from its list of harmful tax competitors Switzerland and Luxembourg, both of which are OECD members. Rich tax havens in Europe were let off the hook, while poorer tax havens in the Caribbean, Central America, the South Pacific and Africa were blacklisted.

The role of ideology: Sharman mainly credits the Center for Freedom and Prosperity for turning back the OECD effort, with an assist from the havens themselves (although it’s also worth noting that there was no unified response from tax havens: The Cayman Islands very quickly got on board with OECD effort, for example, while Barbados held out–despite its financial services industry’s preference for cooperation with the OECD). Andrew Quinlan, Dan Mitchell and Veronique de Rugy played the pivotal role in redefining the argument from “harmful tax competition” to “global tax regulation,” arguing that the OECD was attempting to impose some of its members’ preferences for high taxes on the rest of the world. Sovereignty became the issue, rather than the OECD’s preferred narrative of a harmful “rush to the bottom” caused by tax competition. One thing Sharman doesn’t get into enough–Quinlan, Mitchell and de Rugy had much easier going with a Republican Congress and the Bush administration.

Current scene: With a Democratic Congress and the Obama administration, it would seem that tax havens might have less room to maneuver, and the Center for Freedom and Prosperity–which is lobbying on several fronts, and having multiple meetings on the Hill with members to oppose the Stop Tax Haven Abuse Act–would find less sympathetic ears. Quinlan told me that “there’s not much of a lobbying effort by the countries themselves,” and that, in the current climate havens “are willing to go along to get along and do whatever they can to survive.” I have to admit, I was skeptical when Quinlan told me that “it’s not like the British Virgin Islands or Antigua can afford to pay a $50,000 a month retainer to a Washington representative,” since we were seeing payments higher than that from some (but not all) tax havens, but now I see, via InstaPundit, that the Cayman Islands have their own budget crisis. They might have to raise taxes…

Also: I’m going to keep following tax haven issues here and on My Political Notebook on our Open Congress platform.