Tax Analysts Blog

Carl Levin Changed the Face of Tax Enforcement

Posted on Mar 11, 2013
Not long ago, I pointed out that Sen. Carl Levin was determined to continue his quest to end offshore tax abuse by U.S. individuals and corporations. The Michigan senator had reintroduced the Cut Unjustified Tax Loopholes Act, a follow-up to his stalled Stop Tax Haven Abuse Act. Unless something happens in the next two years, Levin’s crusade will end in failure -- he announced last week that he would not seek reelection in 2014.

Although Levin’s signature pieces of tax enforcement legislation have not made it into law, his role in tax policy should not be understated. As chair of the powerful Senate Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations, the Democratic senator played a key role in highlighting the tax evasion schemes being used by international banks. Levin’s hearings embarrassed Treasury and the Justice Department enough that they finally ended their tacit acceptance of Swiss banking secrecy and brought down UBS’s global wealth management practice (and nearly eliminated UBS’s presence in the United States). The Foreign Account Tax Compliance Act was drafted and introduced by Senate Finance Committee Chair Max Baucus partly to protect banks from the possible enactment of the Stop Tax Haven Abuse Act after the outrage over the UBS scandal. FATCA, which is far less onerous to banks than Levin’s alternative, will redefine information reporting and how the financial sector works with governments to prevent tax evasion. Levin deserves a great deal of the credit for that.

But the senator’s accomplishments as chair of the PSI don’t begin and end with FATCA and offshore evasion. Levin has long been a vocal critic of leaky transfer rules and aggressive income shifting by U.S. multinationals. At times, Levin seems to be the only one in Congress who is concerned about how the tax rules are being bent -- and possibly broken -- by companies that manage to report virtually no income in the United States. Unlike President Obama, who uses vague anti-offshore tax proposals to create political sound bites, Levin actually laid the groundwork for exposing abusive multinational tax practices. It was another series of PSI hearings that called attention to the infamous Ugland House, supposedly the headquarters of 19,000 corporations registered in the Cayman Islands. The Ugland House became a symbol of how multinationals pretend to be based in tax havens to avoid paying U.S. tax. Levin repeatedly called attention to the fact that tax shenanigans like these cost the United States up to $100 billion a year. In 2011 he said that lost revenues from tax havens dwarfed the $70 billion in cuts that Congress was fighting over.

Lee Sheppard has pointed out that tax havens are an integral part of the U.S. financial system and that the government has no real interest in shutting them down. That is why Switzerland, the Cayman Islands, and others have been able to operate so efficiently for so long. The failure of many of Levin’s proposals to come up for a vote, even during periods of Democratic control of both houses of Congress, seems to support that notion. But Levin’s very public hearings and the outrageous acts he uncovered shamed the United States into taking action. Levin, although not a taxwriter, has had a more powerful impact on tax policy than any other Democratic senator in the chamber today. He will be missed by those who believe in tougher tax enforcement and those who enjoyed seeing tax cheats and multinational tax minimizers squirm just a little during congressional hearings.

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