From Sleazy Tax Gimmicks
Before you send off your check to the IRS this year, try not to think about Walter C. Anderson. It might just make your blood boil.Anderson was a Washington-based telecommunications entrepreneur and for years was among the country's richest men. According to the Department of Justice, between 1995 and 1999 alone, he made at least $450 million buying and selling telecom companies. America was very good to him. In return, he paid virtually no taxes on his earnings.
Anderson used his riches to buy exotic paintings by artists like Salvador Dali, a 19,000-square-foot mansion in Madrid and a $21 million private jet. He even invested in a private group seeking to lease Russia's troubled Mir space station. But at the same time, he hid his wealth from the IRS.
Anderson paid a mere $495 in taxes one year on a reported income of $67,939, yet he'd actually raked in more than $126 million.
Anderson cheated the country through a web of tax gimmicks as complex as they were sleazy. In one scheme, according to the Justice Department, Anderson concealed millions in profits by transferring his holdings to offshore shell companies in Panama and the Virgin Islands. Because he hid his ownership of these companies, the feds didn't know about the massive profits that were loaded into his pockets. In addition, Anderson set up offshore bank accounts that he kept hidden from the IRS in order to dodge taxes.
Fortunately, after years of operating his businesses under false names, Anderson was finally nabbed by the Justice Department at Washington's Dulles Airport, fresh off a flight from London. He later pleaded guilty to tax evasion charges and faces up to ten years in prison.
For every Walter Anderson who gets caught, however, plenty of other moguls are getting off scot-free. They enjoy all the benefits of being American citizens -- like the protection of our military and police, public education, and other social services -- without paying for them.
And the lost tax revenue isn't exactly chump change. According to a Senate report released last August, the cheaters' practice of stashing assets in secret offshore accounts may cost the Treasury up to $70 billion in unpaid taxes per year.
Seventy billion bucks. That's more than 11 times the annual budget for the National Cancer Institute. Or enough money to repair New Orleans's levees and rebuild much of the city. "You have people making billions of dollars who ought to be paying many hundreds of millions in taxes but aren't paying anything. That money has to be made up somewhere else, and it's the average working guy who has to do it," says Bob McIntyre of Citizens for Tax Justice.
Shirking Responsibility
It's not terribly hard for rich guys to shift the tax load onto the rest of us. After all, the government knows what most of us owe, thanks to what's called third-party reporting: W-2 and 1099 forms that go straight to the IRS, making wages and interest income impossible to hide from Uncle Sam. It's much harder to track income from complex real estate or business deals because the government doesn't get automatic reports of these transactions. If profits are parked in offshore accounts that don't get reported to the government, which is flat-out fraud, then it can be virtually impossible for the IRS to keep tabs on the earnings.
Hiding money in offshore accounts is not the only ripoff ploy used. Another complex tax-shelter technique was marketed by Quellos Group, a Seattle-based securities firm. Five clients, including billionaires Robert Wood Johnson IV, owner of the New York Jets, and television mogul Haim Saban, creator of the Mighty Morphin Power Rangers and other hit shows, benefited from a ruse that faked capital losses to erase more than $2 billion in taxable gains. That allowed them to avoid around $300 million in taxes, or enough to give a $10,000 bonus to 30,000 of our best public schoolteachers.
Johnson and Saban both testified to the Senate that they had been advised by lawyers that the transactions were legal. For his part, the CEO of Quellos, Jeffrey Greenstein, told the Senators that "leading tax lawyers ... gave tax opinions approving the transactions" and that, in any case, his firm no longer provides that "tax-advantaged strategy."
Everyone wants to shirk responsibility for tax evasion, and Congress will keep letting it happen if they don't speed up legislative reforms.
Two Senators, however, have reached across the aisle to target the problem seriously. Democrat Carl Levin of Michigan and Republican Norm Coleman of Minnesota have proposed applying financial sanctions to nations with tax laws that encourage fraud in the United States, and requiring American financial institutions to automatically file 1099 reports to the IRS if they know the owner is a U.S. taxpayer.
Now that we have a new Congress pledging an ethics crackdown, we should hold them to it -- and put fat-cat tax dodgers high on the docket.