I have often said that tax reform is like the weather – everyone talks about it, but no one does anything about it. With Donald Trump about to become president, and his Republican allies in control of Congress, it would seem to many that tax reform is all but a done deal.
Tax Analysts Blog
Stuart joined the staff at Tax Analysts in 2014. Before that he worked in the tax division of the United States Department of Justice for almost 30 years, retiring in January 2013. He also recently authored a chapter of Saltzman & Book, IRS Practice and Procedure, 3rd ed.. He is a member of the Minnesota Bar.
Come January 20, a lot of Americans will miss some of the people in the current administration who have made our government run during the last eight years. I am among them. But unlike the millions who are lamenting the imminent departure of President Obama, my eyes will be trained on the building next door – the one with the statue of Alexander Hamilton on the south portico – the Treasury Department.
OK – I admit it. I hold a bias in favor of law enforcement, particularly when it comes to taxes. Thirty years of litigating civil tax cases for the U.S. Department of Justice, and seeing the myriad ways that taxpayers use to avoid paying what they owe, will do that to a person. While abuse of the tax laws cuts across most income levels and demographics, I found that the wealthiest people often came up with the most “creative” explanations for why they didn’t follow the tax laws.
Suppose a country’s leaders asked citizens to vote on how to achieve a complex policy goal -- for example, how to make the country’s tax system fairer, or how to reform the immigration system or entitlement programs. And because it is difficult to incorporate nuance into this kind of question, suppose the leaders were able to draft a ballot referendum that posed a binary choice: yes or no, up or down. And then, just for good measure, suppose the leaders told the public that they would honor the results of the referendum.
On June 23 British voters decided to leave the European Union. For the better part of the following week, turmoil reigned in the U.K. political system. Prime Minister David Cameron abruptly – and appropriately – resigned. Curiously, the leaders of the victorious Leave campaign – including UKIP head Nigel Farage and putative Cameron successor Boris Johnson – followed him to the exits. All three have since left public life – normal for the loser, bizarre for the winners.
The two-year battle between the United States and the European Commission over the latter’s state aid investigations harkens back to legendary boxing matches, like the 1975 “Thrilla in Manila” between Joe Frazier and Muhammad Ali. During their third and final match, the two heavyweights slugged it out until Frazier’s corner threw in the towel before the start of the 15th round. Ali won a technical knockout, but both fighters emerged battered and bruised.
What is Congress’s goal? If it expects to improve taxpayer service by starving the IRS budget, impeaching its leader, and berating its employees, Congress will be disappointed. The longer the beatings continue, the harder it will be for the IRS to attract great – or even competent – leaders and employees, and the longer it will take for Americans actually to receive the service they deserve from the IRS.
There’s an old expression in politics, “where I stand depends on where I sit.” In the world of international taxation, this can mean that when sitting in the U.S., it is easy to express outrage over the European Commission’s state aid investigations into tax rulings that EU member states issued to U.S.-based multinationals. But it also means that when viewed from a seat in Europe, those investigations are not only acceptable, they are necessary to preserve the integrity of the single market.
Not content with routing all of its sales from Europe, Africa, the Middle East, and India through subsidiaries in Ireland – and paying a 12.5 percent corporation tax on the profits – in 1991 Apple negotiated an even better deal with Ireland. That deal, and its 2007 version 2.0, reduced Apple’s tax rate on those profits to just five one-thousandths of 1 percent (.005!) in 2014.
There is something very wrong with our priorities as a nation when our elected officials fast- track tax relief for Olympic athletes – many of whom are well-paid professional athletes – and place funding for a serious threat to public health on the back burner. Congress should be ashamed of itself.
In April, while many people were celebrating the arrival of spring, the International Consortium of Investigative Journalists disclosed the existence of 11.5 million private documents it had obtained from Panamanian law firm Mossack Fonseca. In disclosing the Panama Papers, the consortium exposed to the public the secret world of financial dealings that the wealthy, the powerful, and the criminal underworld use to hide money from, and evade taxes owed to, governments worldwide.
On the morning of June 24, Europe woke up with a bad hangover. The continent didn’t know whether the events of the previous day and evening were real, or just the remnants of a long, bad dream. Then, like on most post-binge mornings, the sun hit Europe in the eye, and reality began to sink in – the voters of Great Britain had decided they wanted to leave the European Union.
In many small shops customers see a sign advising, “If you break it, you’ve bought it.” This warns shoppers to take extra care when handling the merchandise. Unfortunately, voters in the U.K. received no such simple warning before they voted to leave the European Union, effectively dropping their country on the concrete like a cheap ceramic souvenir – likely breaking it into three pieces.
On the streets of many major cities, you can often find small groups of people huddled around a card table while a charming young man quickly explains the game he is about to play to separate some unsuspecting suckers from their money. Called the shell game, the venture involves a wager in which the sucker must pick under which of three walnut shells a small pea is sitting. A variant, three-card monte, involves the same con, but with playing cards instead of shells.
Given the economic and political stakes, here is one question that Americans should want Donald Trump to answer: If elected, will he exercise the nuclear option and blow up Europe?
When U.S. politicians like Bernie Sanders propose to expand Americans’ access to healthcare and higher education, they are met with the reflexive criticism that the U.S. should not aspire to be like Europe, citing (among other things) the high taxes that Europeans pay for these services. While Americans may disagree about whether the Danes and the Dutch are getting their money’s worth, they cannot disagree about the level of civility that many European elected officials display as they go about doing the people’s business, and the level of engagement of the citizens they represent.
Because of the LuxLeaks scandal, the world knows that Luxembourg granted secret tax rulings to about 340 multinational clients of global accounting firm PwC. The leaks caused Europe to revamp its entire tax ruling regime, increasing transparency accordingly.
Former Tax Court Judge Diane L. Kroupa and her husband were recently indicted in Minnesota on multiple tax charges, including conspiracy to defraud the United States, tax evasion, subscribing to false tax returns, and attempting to obstruct an IRS audit. According to the indictment, between 2004 and 2010 Kroupa and her husband deliberately concealed $1 million in taxable income, on which they failed to pay nearly $400,000 in income taxes.
Even though governments have been exchanging financial and tax information for decades, the volume, frequency, and regularity of those disclosures has begun to grow exponentially, and will soon grow logarithmically. If past intergovernmental information exchanges reflected the pace of a horse, and current exchanges have begun to approach the speed of a Ferrari, the exchanges on the near-term horizon will resemble the warp-speed travel known to fans of Star Trek.
Every so often these days, it looks like the member states of the European Union might unite on tax administration and policy issues. Building upon a fairly successful coordinated VAT regime, the EU is considering coordinating other tax policies. These include a financial transactions tax and the European fiscal Holy Grail, the common consolidated corporate tax base.