Ted Cruz and the Stop Tax Haven Abuse Act

I once wrote how Trevor Potter, Stephen Colbert's lawyer (on The Colbert Report, September 29, 2011) helped Stephen create his own shell corporation so that he can obtain secret donations for his Super PAC.

When a government allows a business to "incorporate" as a legal entity, the owners of the business enjoy many advantages, such as limited liability laws to deflect criminal and negligent actions, whereas the "corporation" just might be fined. But the corporate officers can also manipulate the income tax laws with a whole laundry list of tax schemes.

Incorporating a business is one of the first steps to forming a holding company, so that a business can operate out of one country, but for tax purposes, could be domiciled in another -- such as offshore tax havens like Switzerland or the British Virgin Islands. Warren Buffett owns a holding company: Berkshire Hathaway, a multinational conglomerate holding company. Senator Ted Cruz also owns a holding company.

According to TIME, more than a decade ago, Ted Cruz co-founded a holding company with a college roommate called CEP Investments Holdings Limited that operates out of Jamaica, but is domiciled in the British Virgin Islands. Cruz told TIME that he initially deferred (and later paid) the real low capital gains tax rate on his profits from the investment. (Cruz says he failed to include a promissory note from his partner among his assets on his first financial disclosure form in July 2012 when he was a candidate for the U.S. Senate because he had "forgotten" his $100,000 in profits.)

One of the firms listed on Ted Cruz's divestiture certification was Caribbean Equity Partners Limited (Jamaica), the firm in which Cruz was a director and in which he held ordinary and preferential shares. The other was Caribbean Equity Partners Limited (British Virgin Islands), an entity about which little is known. Cruz says it is not the same as CEP Investment Holdings Limited, the company on which Cruz currently holds a promissory note.

Kenneth Thomas writes in U.S. News and Business Insider, "The [TIME] story is of more interest to me for Cruz's use of a tax haven company:

Cruz's ownership of a firm with a tax haven-based unit does not augur well for him to oppose tax havens, as some Republicans have in the past. Notably, former Sen. Norm Coleman, R-Minn., co-sponsored the Stop Tax Haven Abuse Act of 2007. Moreover, we find from OpenSecrets.org that Cruz has received campaign contributions from Goldman Sachs (where his wife now works) and Credit Suisse, in addition to tens of thousands of dollars from employees of the two companies. According to the Government Accountability Office, as of 2009 Goldman Sachs had 29 tax haven subsidiaries, including 15 in the Cayman Islands and one in the British Virgin Islands. Credit Suisse, of course, is a Swiss bank under criminal investigation for assisting at least some of its American clients to commit tax evasion. Bottom line: Cruz is likely a vote against tax haven reform.

The Stop Tax Haven Abuse Act (now the Levin-Whitehouse-Begich-Shaheen Stop Tax Haven Abuse Act, S. 1533) would do several things, including, but not limited to:

Stop offshore tax abuse by allowing Treasury to take steps against foreign jurisdictions or financial institutions that impede U.S. tax enforcement.
Shift to the U.S. taxpayer, who takes advantage of loopholes, the burden of proving: who controls an offshore entity when money sent to or received from offshore is taxable income.
Stop companies incorporated offshore but managed and controlled from the United States from claiming foreign status and avoiding U.S. taxes on their foreign income.
Establish a penalty on corporate insiders who hide offshore holdings.
Require anti-money laundering programs for private funds.
Eliminate incentives for offshoring jobs and operations by deferring corporate tax deductions for expenses related to deferred income.

So far 538 organizations have called on U.S. Senators to support the Stop Tax Haven Abuse Act, the legislation that would close tax loopholes that encourage U.S. corporations to move jobs, profits and operations offshore and avoid paying their fair share of taxes.

U.S. PIRG, a consumer advocacy group, reports:

"Some tax loopholes allow corporations to use complex accounting schemes to make it appear that profits earned in the United States are actually generated in other countries, often a tax haven with little or no tax on profits. This enables those corporations to substantially lower the amount of U.S. income taxes they pay. By closing some of these loopholes, the Levin bill would raise $220 billion over ten years, according to the Joint Committee on Taxation."

NJ.Com reports a few examples:

"Microsoft keeps about $60 billion offshore, on which it would owe nearly $20 billion in U.S. taxes; Pfizer uses accounting gimmicks to shift the location of taxable profits offshore, allowing them to report no federal taxable income in the U.S. in five years; and Google achieved an effective tax rate of just 2.4 percent on its overseas profits between 2008 and 2010. This corporate abuse of offshore tax havens allows corporations to avoid an estimated $90 billion in federal income taxes every year, plus $40-70 billion evaded by wealthy individuals who shift money offshore."

U.S. PIRG reports $150 billion in U.S. taxes in lost each year, while the Wall Street Journal reports $100 billion is lost every year. The Cordova Times reports that Senator Mark Begich (D-Alaska) says he wants to close offshore tax loopholes to make the federal tax code fairer for small businesses, and raise as much as $200 billion as the foundation for a balanced deficit-reduction package. (However much, closing the corporate tax loopholes could pay for all the food stamps we need --- and much more.)

From the Huffington Post:

By using accounting tricks and taking advantage of our inefficient and loophole-ridden tax code, many large U.S.-based multinational corporations make their profits appear to be generated in offshore subsidiaries, thereby avoiding paying U.S. taxes. These subsidiaries are often nothing more than P.O. boxes - and in the Cayman Islands, nearly 19,000 of them are registered to a single address.

Other than corporations, the Government Accountability Office (GAO) says, "Tax evasion by individuals with unreported offshore financial accounts was estimated by one IRS commissioner to be several tens of billions of dollars, but no precise figure exists."

When wealthy individuals and large corporations (and politicians like Ted Cruz) abuse offshore tax havens, Americans and small businesses are forced to shoulder the burden. Every dollar that corporations avoid in taxes is balanced by average citizens paying higher taxes and coping with cuts to public programs, not to mention a higher federal deficit.

You can sign a petition that says,

"I'm standing up for Sen. Levin's Stop Tax Haven Abuse Act -- to make sure that we close the special tax loopholes that let big corporations dodge their taxes, and that subsidize shipping American jobs overseas."

A few of my related posts on corporate tax dodgers and tax evasion:

May 29, 2013 - Rand Paul Protects American Tax Dodgers
http://bud-meyers.blogspot.com/2013/05/rand-paul-protects-american-tax-dodgers.html

April 18, 2013 - Crocodile Dundee's Offshore Tax Shelter
http://www.dailykos.com/story/2013/04/18/1202937/-Crocodile-Dundee-s-Offshore-Tax-Shelter

April 10, 2013 - Republicans Advocate Offshore Tax Havens
http://bud-meyers.blogspot.com/2013/04/republicans-advocate-offshore-tax-havens.html

April 4, 2013 - Tax Havens: Owners of Anonymous Companies Exposed
http://www.dailykos.com/story/2013/04/04/1199221/-Tax-Havens-Owners-of-Anonymous-Companies-Exposed

April 4, 2013 - The Wyly Brothers' Offshore Accounts
http://www.dailykos.com/story/2013/04/04/1199231/-The-Wyly-Brothers-Offshore-Accounts

April 4, 2013 - Clinton's ties to Offshore Tax Havens
http://www.dailykos.com/story/2013/04/04/1199332/-Clinton-s-ties-to-Offshore-Tax-Havens

February 25, 2013 - Coke: The Tax Dodger that Sued a Sovereign Nation
http://bud-meyers.blogspot.com/2013/02/coke-tax-dodger-that-sued-sovereign.html

February 7, 2013 - A Bill is Introduced to End Offshore Tax Havens
http://bud-meyers.blogspot.com/2013/02/a-bill-is-introduced-to-end-offshore.html

March 20, 2013 - 64 Major U.S. Corporations Only Paid 8.1% in Taxes
http://www.dailykos.com/story/2013/03/20/1195554/-64-Major-U-S-Corporations-Only-Paid-8-1-in-Taxes

January 30, 2013 - IRS Budget Cuts Creates More Tax Cheats
http://bud-meyers.blogspot.com/2013/01/irs-budget-cuts-creates-more-tax-cheats.html