Jonathan P. Baird: Tax avoidance, the Paradise Papers and the GOP game plan

Friday, 01 December 2017, 03:33:24 PM. As the Republicans push to pass their tax plan, so much remains unsaid. You have to ask: Why at a time of unprecedented economic inequality are the Republicans promoting a discredited trickle-down scheme that is widely seen as a massive give-away to...

As the Republicans push to pass their tax plan, so much remains unsaid. You have to ask: Why at a time of unprecedented economic inequality are the Republicans promoting a discredited trickle-down scheme that is widely seen as a massive give-away to the rich?

Greed by the super-rich is one immediate answer. The rest of us are being played for suckers.

However, I think there is a deeper context. By using taxes to balloon the federal deficit, Republicans will tie the hands of Democrats for years to come. The Democrats will be forced to address deficit reduction rather than the promotion of bold and popular programs. On the agenda will be shrinking entitlements and greatly reduced federal spending.

If this is a game of field position, the Democrats are getting outfoxed, playing deep in their own territory with little chance of scoring. Republican ball control dominates.

Fundamentally, this tax bill, in either the House or Senate incarnation, is about creating new ways for the wealthiest corporations and individuals to protect and expand their wealth. High-income people by far get the largest benefits while many middle- and lower-income households will end up worse off.

The Republicans tout crumbs falling off the table as they reduce the corporate tax rate from 35 to 20 percent. This is a movie we have seen before. The rich get much richer and the trickle-down never trickles down.

Curiously, at the same time this spectacle is going on, we have had the release of the Paradise Papers. For those unfamiliar with the Paradise Papers, they are leaked documents that show the world’s biggest businesses, heads of state and global figures in politics, entertainment and sports have sheltered their wealth in secretive tax havens. A German newspaper, Suddeutsche Zeitung, obtained the Paradise Papers and then shared the information with the New York Times, the Guardian and the BBC.

Among other revelations, the Paradise Papers show extensive offshore dealings by Donald Trump’s Cabinet members, advisers and donors, including Commerce Secretary Wilbur Ross. Through a chain of offshore investments, Ross has received substantial payments from Navigator Holdings, a firm co-owned by Vladimir Putin’s son-in-law. Ross now says he will divest in Navigator.

Among Trump insiders, Ross has not been alone in using offshore tax shelters. The Paradise Papers name Trump’s chief economic adviser Gary Cohn, Treasury Secretary Steve Mnuchin, and SEC Chairman Jay Clayton as all having significant history with tax havens.

The Paradise Papers also show aggressive tax avoidance by multinational corporations like Nike and Apple. They show some of the biggest names in the film and TV industries protecting their wealth through offshore schemes. The worst offending tax havens are Bermuda, the Cayman Islands, the Netherlands, Switzerland and Singapore, although they are not the only ones.

Tax avoidance is a major contributing factor in understanding why economic inequality has mushroomed not just in the United States but internationally. When vast sums of money disappear offshore, support for basic infrastructure – including hospitals, roads, schools, and clean air and water – dries up. The Paradise Papers show England is having the same problem with this as we are in the United States.

Maybe it is stating the obvious, but laws should not allow profits to be shifted away from where they are generated to another country with no taxes or a negligible tax rate.

Poverty and inequality are dramatically and adversely affected by tax avoidance. The super-rich, who absolutely can afford to pay, sleaze out of paying their fair share. By not paying, they maximize their profits while undermining the revenue needed for critical human needs.

When Donald Trump ran for president, he promised to address offshore tax havens and bring trillions of dollars back to the U.S.. Just on Nov. 1, Trump reiterated this concern: “Finally our plan will bring back trillions of dollars from offshore . . . that will come pouring back into our country that will be put to work and will be spent by our companies that could never get the money back for many years. Bring the money back. We’re rebuilding America.”

The concern about tax havens was short-lived. House Republicans, at the behest of the Koch brothers and other large corporations, have now effectively squashed any plan to seriously tackle tax avoidance. In their new tax bill, House Republicans have almost entirely scaled back the tax avoidance provision.

Considering that Trump, who still has not released his own taxes, and his circle have made a career of tax avoidance, this reversal can hardly be considered surprising. Any idea of a public good does not enter into Trumpworld.

It is hard to conceptualize what the loss of what Trump calls “trillions of dollars” means to us. My imagination first calls up less homelessness, universal health care including adequate opioid addiction treatment programs, and timely hurricane response unlike what has happened with Puerto Rico.

The super-rich have been great at having a flotilla of lobbyists, apologists and paid propagandists to justify and obscure their tax evasion. Americans invariably get more upset about the poor person on food stamps than the self-dealing billionaire stashing loot in the Caymans.

It seems to be easier to hate on the poor person you see in the supermarket whom you believe to be a scammer than the billionaire who lives a luxury life completely removed from any personal frame of reference. Yet the harm perpetrated by the billionaire tax cheat is immensely worse than any food stamp fraud.

The Congressional Budget Office has stated that the Republican tax plan will instantly trigger $400 billion in automatic cuts to Medicare in the next 10 years, including $25 billion in the first year after the bill is enacted. The reason is that the tax bill will increase the deficit more than $1.5 trillion.

Under the provisions of a law known as Statutory PAYGO, there must be an automatic cut in spending when Congress increases the deficit this much. Medicare will not be the only government program to face the squeeze. A wide array of other government programs will also be strangled.

Statutory PAYGO allows the White House Office of Management and Budget the sole power to decide how to implement the Medicare cuts. The current director of OMB, Mick Mulvaney, is no friend of Medicare or government spending. A self-described “right-wing nutjob,” former House Freedom Caucus member and Ayn Rand admirer, Mulvaney is a man on a mission. If he stays at OMB, it is a safe bet Mulvaney will ax Medicare as much as he can. Even if he is not there, his replacement will probably be a clone.

Democrats, progressives, independents and moderate Republicans need to fight tooth and nail against the Republican tax plan. There is more going on here than first meets the eye. The decreased revenue from the tax changes will be used to justify cuts in essential programs for a generation. The damage will be felt far into the future.

(Jonathan P. Baird of Wilmot works at the Social Security Administration. His column reflects his own views and not those of his employer.)

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