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Friday, April 12, 2013

Good News on Tax Havens

The mega-research project on tax havens I told you about in November has borne its first fruit. In a data dump 160 times the size of that which put Bradley Manning and Julian Assange in jail, the International Consortium of Investigative Journalists (ICIJ) has used over 2.5 million documents to publish the names of beneficial owners of numerous offshore accounts, based primarily in the British Virgin Islands.

According to the New York Times, the report "disclosed confidential information on more than 120,000 offshore companies and trusts and nearly 130,000 individuals and agents, including 4,000 Americans." The headlines at the ICIJ website tell the story (though you should read them yourself):

"Dutch Banking Giants Help Clients Go Offshore"
"Billionaires Among Thousands of Indonesians Found in Secret Offshore Documents"
"The Swiss Lawyers Who Help Europe's Richest Families Park their Wealth Offshore"
"French Banks Traded in Secrecy"
"Lawyers and Accountants Help Rich Manage Their Money"

The list goes on and on. Besides naming the names of the clients, however, the stories frequently highlight the enablers -- global banks, accounting firms, tax lawyers, and so forth -- without whom none of this would be possible.

This story is having special resonance in France, long a critic of tax havens and low-tax jurisdictions like Ireland. Prior to the ICIJ release, the country's budget minister, Jérôme Cahuzac, had been forced from office after it was revealed that he had offshore accounts and lied about it. Bad as it was to have the minister in charge of investigating tax fraud himself be a fraudster, the ICIJ release revealed that President Francois Hollande's campaign treasurer, Jean-Jacques Augier, had secret accounts in the Cayman Islands, though Augier denied any wrongdoing.

In response, Hollande on Wednesday announced a series of steps to deal with the scandals (via Tax Research UK), ordering his cabinet ministers to disclose their finances, appointing a special prosecutor, demanding country-by-country financial reporting by French companies (long proposed by the Tax Justice Network), and calling for the "eradication" of tax havens "in Europe and worldwide."

The data dump and French initiatives are not the only good news on tax havens. Luxembourg, one of the world's pre-eminent secrecy jurisdictions, announced that it would begin automatic account information exchange with the European Union, and that it was negotiating the same thing with the United States under the Foreign Account Tax Compliance Act (FATCA). Previously, Luxembourg had only been willing to withhold taxes on foreigners' accounts and pay them anonymously to their respective EU national tax authority.

Tuesday, France, Germany, Italy, Spain, and the United Kingdom announced that they would begin automatic account information exchange with each other.

Finally (via Tax Research UK), the European Union agreed to country-by-country reporting for EU companies in the extractive industries worldwide. According to the report, this is similar to, but stronger than, Dodd-Frank rules requiring publicly-held oil, gas, and mining companies to report all payments to foreign governments above $100,000 to be reported to the Securities and Exchange Commission. The EU rules go further by including the logging industry as well as privately-held companies.

As if all this news weren't good enough, Richard Murphy at Tax Research UK says "there is more to come next week." Stay tuned.

Wednesday, April 10, 2013

How High Does Senior Poverty Have to Go?

It's official: President Obama has proposed cutting Social Security by replacing the program's current inflation adjustment with the stingier "chained" Consumer Price Index. As I've discussed before, this risks undoing all the progress made against senior poverty since the passage of Medicare and Medicaid in 1965. 25% of seniors were poor according to official poverty line in 1968, compared to just 9.4% in 2006. Note, however, that the Supplemental Poverty Measure, which includes things like out of pocket health care expenses which hit seniors disproportionately, already shows a 16.1% rate by 2009. And our senior poverty rate, measured by the international standard of 50% of median income, is already 25%, much higher than most developed countries, more than three times Sweden's rate and over four times as high as Canada.

Why is Obama doing this? We just rejected the candidate who wanted to cut Social Security and Medicare. Perhaps, as Krugman (link above) suggests, he chasing the fantasy of "being the adult in the room," but this is a losing proposition. As Brian Beutler points out:
Just like that, Chained CPI morphs from a thing President Obama is willing to offer Republicans into a thing Republicans dismiss as a “shocking attack on seniors.”
We've seen this game before. The Heritage Foundation's health care plan became "death panels" when President Obama endorsed it.  And, as Beutler's title makes clear, we have plenty of examples of the President negotiating with himself to bad effect, most notably in the 2011 debt ceiling battle.

If this cut really happens, Social Security benefits will steadily fall in true inflation-adjusted terms due to the magic of compounding. Moreover, with 49% of the workforce having no retirement plan at work and another 31% with only a grossly inadequate 401(k), the cuts will worsen the coming retirement crisis. The only question will then be: how high will senior poverty have to go before we do something about it?

Cross-posted at Angry Bear.