Finance Comm hearing: 3/17 10 am Ponzi Schemes and Offshore Tax Evasion

[TayTay]

Tax Issues Related to Ponzi Schemes
and an Update on Offshore Tax Evasion Legislation

March 17 , 2009 , at 10:00 a.m., in 215 Dirksen Senate Office Building
http://finance.senate.gov/sitepages/hearings.htm

Witness Statements:

The Honorable Douglas H. Shulman, Commissioner, Internal Revenue Service, Washington, DC

Michael Brostek, Director of Tax Issues, General Accountability Office, Washington, DC

William Josephson, Esq., Fried, Frank, Harris, Shriver & Jacobson, LLP, New York, NY

[karynnj]

1. Geitner speaking of how people will report losses on their taxes

He also said they are taking aggressive, unprecedented actions on people hiding assets off shore. That will be a multi year effort. Hired international experts. Signed agreement with (UBS) and working to get more info. Data sharing internationally to help on this. Increase info required on US systems. Looking towards working with the committee on this.

Brostek gave more info on off shore problem. Some have evaded huge amounts. Some inadvertently when they don't provide info inherited from overseas. Problem is that compliance is voluntary and depends on self reporting. Advisers help people hide their activity. An offshore examination takes far longer - often ending after the 3 year time period. (wants exception for this wrt the deadline.)

[karynnj]

2. Baucus asked about how they can use taxes to

deal with AIG bonuses.

[beachmom]

3. Slightly OT, yet related. This is something the Finance Committee can do:

http://politics.theatlantic.com/2009/03/what_congress_can_do_to_stop_the_aig_bonuses.php

As recounted below, there's not so much that the executive branch can do -- and should do -- to prevent AIG from handing out loopy bonuses. But why can't Congress pass a law requiring that bonuses granted by a company that has taken bailout money from the Federal Reserve or TARP be taxed at a very high rate? Obviously, Congress would have to find some way to distinguish between legitimate performance pay and illegitimate bonuses, but a one-year tax hike on all such bonuses might not be unpalatable. It's a much saner alternative than to give the Treasury the instruction to root through contracts to find ways of breaking them.

[Mass]

4. Why is it so bad to have AIG contracts broken, but no problems when it is GM or Ford?

Also, many of these contracts are with a company based in London. For those people who are not US nationals, they would not pay taxes in the US.

[beachmom]

7. I don't know the particulars of both situations, Mass.

This seems to be the talking point of the liberal blogosphere today, but I haven't a clue if the situation is exactly the same.

Good point if they are British. Perhaps the British will coordinate with the Americans? Regardless, I did not realize that this is, in fact, what is in the works:

http://politicalticker.blogs.cnn.com/2009/03/17/senate-to-explore-taxing-controversial-aig-bonuses/?ref=fp1

Did you guys see the picture of the guy who has been tasked to clean up the AIG Financial Products division?

http://www.talkingpointsmemo.com/archives/2009/03/che.php

[Mass]

8. Apparently, the tax passed the house and will pass the senate.

I have nothing against it per se (though I am curious how it will go for non US employees living out of the United States?). But still it would be better to work on the underlying problems: What justify the salaries that many highly placed executives get in the finance business (and I am not talking about the bank teller here), and is there not a basic problem with bonuses who reflect short term benefits?

I am not saying I know the solution. I do not. Just that somewhere, it bothers me to see that these issues will be left untouched and that people will rush to make ad hoc measures to calm people anger, but not look at the longer term.

[beachmom]

9. I used to work in the financial industry but obviously the low, low rungs of it.

I knew no one taking big giant bonuses like that. I agree it needs to be reformed. I hate to sound like a free marketeer, but in a sense, the market may partially solve the problem -- I just don't think the financial industry will ever go back to what it was before the crash. I think there will not be as much money to be made, and therefore, less money to throw around. It is weird to me -- what made these people so great that they earn a thousand times what the rest of us earn? I don't think these people added much value to our country; now that they have blown up our economy, perhaps things will change.

I agree that this stuff needs to be reformed big time. I don't think the Obama Administration, or really most Democrats, get it yet. I think they will but as the crap credit default swaps are unwinding, so shall the mentality in DC unwind, albeit slowly.

[karynnj]

5. Kerry up now

Referenced the work he did in th elate 1980s and said that on the SRFC he will investigate some of the international treaties. He spoke of the hearing last summer where Jack Blum spoke of the problems. Gordon Brown said when he spoke in the Congress of needing to end the off shore refuges. Kerry asked if anything planned for g7. Shulman said there is no one magic bullet and that individuals are different than corporations. Said that countries compete on tax rates.

(From Carper's questions, Shulman is a Bush appointee.)

[ProSense]

6. Senator Snowe made an interesting point

She mentioned that the bonus legislation that was stripped from the recently passed package would have addressed this very issue had it been signed into law.