continued The subcommittee probed some offshore deals by prominent American entrepreneurs now under investigation by government agencies. Their enablers included Wall Street's Lehman Brothers, Bank of America, and renowned law firms such as Morgan Lewis & Bockius, Cravath Swaine & Moore, and Jones Day.
Blue-chip corporations set up offshore operations that are useful in tax avoidance and evasion. In the 1950s, corporations anted up 28 percent of federal revenues; now it's 11 percent, even though profits are a much higher percentage of the total economy. It's called "profit laundering," notes investigative reporter Lucy Komisar. Entities are created so that profits appear to be earned where taxes are low, while losses are shifted to places where taxes are high. According to the publication Tax Notes, more profits of U.S. companies are reported to have been earned in tax havens than in the areas where the companies actually do business. Offshore banking centers constitute 1.2 percent of the world's population but hold 31 percent of the assets and 26 percent of the stocks of American multinationals, according to Komisar.
The subcommittee noted that hedge funds, most of which are based offshore, are exempt from U.S. anti-money-laundering laws. Tax avoidance by hedge funds is legal. Last month, top government officials recommended that these hedge funds remain essentially unregulated.
As Rossotti wrote, the IRS "picks on the little guy" over niggling sums while "largely overlooking an ocean of money hidden in business entities for which the owners, rather than the businesses themselves, were supposed to pay taxes." As the subcommittee pointed out, taxes dodged by the aristocracy have to be paid by the little people.
But the moneybags skirting their taxes are backing politicians financially. So Congress does nothing.