Offshore Tax Havens Still Abound
ROBERT SIEGEL, host:
Tomorrow is tax day. And if you owe the government money, or are just acutely aware of how much you paid in taxes this year, you might be annoyed by our next story. It's about tax shelters. Wealthy individuals and multinational corporations have been using them for years: Malaysia, Costa Rica, the Dutch Antilles, Switzerland, on a smaller scale, perhaps Delaware, the list goes on.
But with a global recession slashing government revenues, there are growing calls to tighten the tax rules that allow these havens to do what they do. David Cay Johnston is a Pulitzer Prize winning journalist. His most recent book is called "Free Lunch." He writes a column for Tax Notes magazine and teaches tax law at Syracuse University. Welcome to the program.
Mr. DAVID CAY JOHNSTON (Author, Columnist): Hello, Robert.
SIEGEL: If I made a lot of money, where could I shrewdly put it to avoid paying a lot of taxes?
Mr. JOHNSTON: Well, a number of countries have rules that are helpful in this way. Those little islands off of England, Jersey, the Isle of Man, Liechtenstein, which is basically a family posing as a country.
(Soundbite of laughter)
Mr. JOHNSTON: In those places it is not a crime to evade taxes you owe in another country like the U.S.
SIEGEL: There are no reciprocal tax treaties that govern income in those countries here?
Mr. JOHNSTON: Well, there are lots of reciprocal tax treaties, but many of them are full of holes. And let me give you the Cayman Islands as an example. You get a paycheck, the government takes the taxes out before you get it and the government gets a report at the end of the year of how much you were paid. If we used the Cayman Island's rules, the government would have to figure out, does Robert Siegel have some kind of income?
Once they've established probable cause that you probably work for NPR, they would then have to go to the authorities and get records of NPR by court order to find out how much you were paid. It's not an efficient, effective system. It's a system to enable and help tax cheats.
SIEGEL: Now, within our own borders, obviously, people in all the states and the district pay the same kind of federal income taxes, but states have different rules as to their own state income taxes or their corporate taxes. The best places in the country to try to reduce your tax bill?
Mr. JOHNSTON: Well, there are several states that don't have a corporate income tax, if you're a business, including Nevada and Wyoming. Delaware is a very popular place. And many companies license their intellectual property there and then charge their local operating units fees to use, say, the logo, the company name, the advertising and they send the money to Delaware where there's no tax on those profits. There is no question that in the U.S. we have internal tax competition among the states. But that's relatively small. And the tax haven problem, while it affects all large wealthy countries of the world, is an American problem. It's much bigger a problem than for the French, the Germans and the British, for example, relative to the size of the economies of those countries.
SIEGEL: You mean, we - our government is foregoing more potential revenue due to tax havens overseas than are those other countries?
Mr. JOHNSTON: That's correct. And if you take the latest estimate from the Treasury, that we're losing $123 billion a year to tax havens and applied that to income taxes, everybody in America could have their income tax bill cut about 12 percent.
SIEGEL: Well, David Cay Johnston, thank you very much for talking with us.
Mr. JOHNSTON: Thank you, Robert.
SIEGEL: David Cay Johnston, author and columnist spoke with us from Rochester, New York.
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Correction April 15, 2009
We said, "Everybody in America could have their income tax bill cut about 12 percent ... so one month a year you wouldn't have to pay income taxes, all else being equal." But 12 percent is not the same as 1/12; a 12 percent cut would be equivalent to not paying taxes for more than six weeks.