The Obama administration is looking into offsetting some of the costs of likely tax break extensions by cracking down on international tax evasion. Democrats in Congress are also interested, yesterday introducing legislation that would require more information from both foreign banks and citizens with accounts overseas, a move that could boost tax collections by an estimated $8.5 billion over 10 years (estimation done by the JCT).
This is a small amount when put in perspective; the government loses tens of billions of dollars each year because of overseas tax evasion. Data from the BIS, IMF and OECD shows that somewhere around $5 - $7 trillion could be held offshore world-wide.
The bill fights offshore tax cheating by levying on customers with money in foreign banks a 30% withholding tax on income from U.S. assets. That would be waived if the bank agreed to disclose the identities of its U.S. customers, as well as report on their account activity to the IRS.
Some believe that the bill does not go far enough. One more stringent proposal would nail some offshore corporations by treating them as U.S. firms for tax purposes if their senior management were located in the U.S. Representative Lloyd Doggett and Senator Carl Levin are interested in beefing up regulations, and have sponsored competing legislation (HR 1265, S 506) that would provide heavier scrutiny of shell corporations’ owners. They hope to add some of the provisions in their bill as amendments.