Obama & Levin Face an Unexpected "Reality-Check"

By Bob Bauman

I served with U.S. Senator Max Baucus (D-MT) (left) when he was a member of the U.S. House of Representatives during the 1970s. I always found him to be a reasonable legislator and a gentleman willing to work with others who had different perspectives.

Now, he is the powerful chairman of the U.S. Senate Finance Committee...with jurisdiction over legislation affecting offshore financial activity in general and tax havens in particular.

I note this background because a private memorandum from one of the Senator's Finance Committee aides reveals what appears to be a split on "The Stop Tax Haven Abuse Act," (S.681) introduced in 2007 and re-introduced this year.

The bill is a pet project of the notorious anti-tax haven demagogue, Senator Carl Levin (D-MI). The bill is deceptively titled "A bill to restrict the use of offshore tax havens and abusive tax shelters to inappropriately avoid Federal taxation, and for other purposes."

Isolationist Thinking

As a Senator from Illinois, President Obama co-sponsored this legislation that would allow the U.S. Treasury to control, and even ban, offshore private capital flows and investments by Americans. This nonsense comes at a time when the U.S. government desperately needs foreign capital and offshore investors to finance Obama's trillion dollar deficits.

But Senator Levin insists he will make this bill a legislative priority this year.

Among other enormities, the bill creates an unprecedented "blacklist" of 34 offshore jurisdictions (Switzerland included) that would be presumed to be "tax evasion" sites. This presumption is based mainly on the fact these jurisdictions have high degrees of financial secrecy guaranteed by law.

The bill also gives the U.S. Treasury secretary, the dynamic Tim Geithner, free reign, "to take special measures against foreign jurisdictions and financial institutions that impede U.S. tax enforcement." It also requires all U.S. financial institutions to report to the IRS any offshore financial activity by clients and to impose taxes on offshore trust income.

Difference of Opinion

But smooth sailing for Levin's radical proposal, even in a heavily Democrat controlled Congress, may have hit a major snag.

The legislation comes under the jurisdiction of the Senate Finance Committee and it appears that Chairman Baucus isn't all that happy about Levin's scattergun approach attacking all tax havens.

Last week a left-wing blog revealed that a Finance Committee aide had released a memorandum stating Baucus' position...one that differs with many aspects of Levin's blunt force approach. In fact, Baucus is working on his own bill to address offshore tax issues.

According to the statement, Baucus favors a more targeted approach that would give the IRS added power to detect individual American tax cheats, rather than universally condemning all offshore financial centers.

Senator Baucus and his staff are reportedly working with the Treasury and the IRS to impose additional reporting requirements that would determine when a U.S. taxpayer uses a tax haven and the identity of the user. (At present taxpayers are required to report the existence of offshore accounts and account activity over US$10,000 each year).

Guilty Until Proven Innocent?

The Baucus approach is consistent with a more reasonable past IRS practice in which individual, named taxpayers are audited or investigated and proceeded against on a case-by-case basis.

Levin's ham-handed bill would condemn all users of tax havens and the havens themselves, creating a radical presumption that any American engaging in offshore financial activity is a tax cheat.

With President Obama repeatedly railing against jobs being shipped offshore and against greedy businessmen and bankers, some legislation may well be enacted this year. But it appears the Senator from Montana may inject some much needed common sense into the final product.