Monday, January 26, 2009

Letter from Washington

Today's blogger has just returned home from a trip to the United States, where the high point of the trip involved standing on the Mall in a chilly Washington D.C. on January 20 watching the inauguration of President Barack Obama. Next to me an experienced and Iraq-hardened British wire agency journalist stood silently, tears welling up in his eyes. Later, seeking to catch the Amtrak train down to New York City, the crowds were far stiffer than they had been on the Mall: police with megaphones directed hordes of us back and forth, trying to get us squeezed through the tiny choke points allowing us into Union Station. Most of us missed our scheduled trains. The crowd was extraordinarily good-natured. Almost no pushing, no shoving, but a lot of chanting: "We can't hear you!" (to the police with megaphones, competing with the news helicopters overhead) and "Trains We Can Believe In!" and the like.

We are encouraged by the change, of course: as you may know, Obama was one of three co-signatories of the Stop Tax Haven Abuse Act. This blog looks at some very early indications to see how the wind is blowing so far.

In conclusion: we are modestly encouraged, but there are some grounds for concern. First of all, the presence of Bono, the tax-dodging Irish musician, as a star performer at the even chillier pre-inauguration on January 18th, jarred with us. Much of Obama's inauguration speech, while not focussing specifically on tax, might as well have been (some of the pundits are saying that it was designed to appear to be all things to all people.) Shared sacrifice, the common good, and the relationships of trust between rulers and their people which build citizenship - these were all common themes, and taxation lies at the heart of each.

"We come to proclaim an end to the petty grievances and false promises, the recriminations and worn out dogmas, that for far too long have strangled our politics . . . what the cynics fail to understand is that the ground has shifted beneath them - that the stale political arguments that have consumed us for so long no longer apply. The question we ask today is not whether our government is too big or too small, but whether it works.
. . .
Nor is the question before us whether the market is a force for good or ill. Its power to generate wealth and expand freedom is unmatched, but this crisis has reminded us that without a watchful eye, the market can spin out of control - and that a nation cannot prosper long when it favors only the prosperous.
. . .
What is required of us now is a new era of responsibility - a recognition, on the part of every American, that we have duties to ourselves, our nation, and the world, duties that we do not grudgingly accept but rather seize gladly, firm in the knowledge that there is nothing so satisfying to the spirit, so defining of our character, than giving our all to a difficult task. This is the price and the promise of citizenship."

Whatever you thought of the speech, there are some more specific, subsequent matters that bear consideration. A key early indicator is that of his appointments. Here we see cause for concern, mixed with some positive signals -- especially with respect to Obama's pick of Tim Geithner as Treasury Secretary. Of particular concern here is his own personal tax affairs, as has been widely reported. The Washington Post put it like this:

"A 2006 IRS audit informed Geithner that he had failed to pay self-employment taxes in '03 and '04, when he directed the International Monetary Fund's policy development and review department. While being vetted for Treasury secretary late last year, he was told he made the same errors on his '01 and '02 returns. He calls them "careless mistakes" that he should have caught and has paid $42,702 in back taxes."

We won't dawdle on this issue - not because it isn't absolutely, screamingly important - it is, and we are horrified that this should have been allowed to stand, given that independent sources have said, looking at what's in the public domain, that Geithner probably participated in nothing short of outright tax evasion - but for the fact that this has been widely discussed and it's slightly old news already.

On a more positive note, we are somewhat reassured by Geithner's testimony at his confirmation hearing on January 21. Here are a few of the question and answer sections:

Question: The Finance Committee has had a number of hearings on the offshore tax evasion issue and I believe the next step is to pass legislation cracking down on offshore tax evaders, and I will be introducing a bill early in this session of Congress to address this problem. Mr. Geithner, I hope you will take a close look at this legislation and help us to pass it from your new perch at the Treasury Department. Will you commit to setting aside time to help us develop a solution to this problem?

Geithner: Yes, Senator Baucus, as soon as my tax team is fully in place, I look forward to setting aside time to review your forthcoming legislation and helping you, your staff, and other members of the Senate develop a solution to the problem of offshore tax evasion. I share the President’s commitment to aggressively address the problem of offshore tax evasion and complement you and other members of the Senate for the work you’ve already done on this important issue. If confirmed, I will treat offshore tax evasion as a high priority issue and examine a wide range of policy options to address these abuses, including increasing IRS enforcement efforts, requiring greater disclosure and taxpayer accountability, and changing the presumption for transactions in tax-secrecy jurisdictions.

Question: What can the IRS do to stem the tide of scams and schemes – offshore arrangements like UBS, and abuses like the Madoff Ponzi scheme - that result in folks hiding their income from Uncle Sam?

I share the President’s commitment to closing down tax loopholes. I look forward, if confirmed, to working with the committee to examine this issue. If confirmed, I will be a strong advocate for the Internal Revenue Service and its efforts to secure sufficient funding to carry out its mission successfully. Tax enforcement is a key priority for the IRS and I look forward to working with IRS Commissioner Doug Shulman to ensure that the compliance and enforcement mission of the IRS receives the necessary support and funding."

These are encouraging words, and there are various other answers Geithner gives on taxation generally, which are a little vague, unfortunately, but don't raise any specific red flags at this stage. You can read a little more, mostly on non-tax issues, here. Still, we wish it weren't a tax-dodger in this terriffically important job.


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