The Tax Justice Network has recently released its list of the most secretive financial jurisdictions in the world. And who topped the list? Luxembourg? Switzerland? Hong Kong? Caymans?
Nope, it’s the United States. Yeah, of America.
But don’t get too excited with your finger pointing. It has little to do with most of the US. It’s all about Delaware (you don’t hear that very often).
The Tax Justice Network has identified what they consider “a number of key contributors to global financial secrecy on a jurisdiction-by-jurisdiction basis.” They then map that data and it’s published as the Financial Security Index (FSI).
Delaware’s status as the “incorporation haven of the USA” and its, well, *favorable* tax laws, have contributed to its ranking. The TJN noted, for example, that “the growth of private individual deposits by non-residents was most robust in the United States outranking other popular financial jurisdictions such as the Cayman Islands, United Kingdom, and Luxembourg with total non-resident deposits equalling $2.6 trillion in 2007.”
Banking crisis in the US? What banking crisis?
The TJN considered the data substantial enough to place Delaware ahead of Luxembourg (2nd), Switzerland (3rd), the Cayman Islands (4th) and the United Kingdom (5th).
Of course, anyone familiar with Delaware already knows about its favorable laws. Many of our international clients approach us about a Delaware incorporation and often, they have already been advised by their local counsel abroad to incorporate in Delaware to avoid certain state and local taxes. Of course, what they’re often not advised is that merely being incorporated in one state doesn’t offset physical presence tests in other states that might eventually drag them into other states for tax purposes. The classic example is a manufacturing company which is advised to incorporate in Delaware even though they may be, say, building a facility in New Jersey. The presence of the building in NJ will subject them to NJ state tax, irrespective of their Delaware “tax home.”
Delaware also has laws and courts which promote asset protection and dynasty trusts inside the state. I should know since I used to work for a trust company in Delaware. I reviewed and helped administer many high dollar trusts, including a number of family trusts for names that definitely rang a bell. Again, sticking a trust inside Delaware is much like incorporating inside of Delaware – you have to know what you’re doing to take advantage of the tax laws. You can’t just throw money in a trust and yell, “Ha!”
What does this mean for the US and its reputation as it attempts to foil banking secrecy laws in other jurisdictions? Absolutely nothing. Zero.
It makes for a bunch of fun headlines but I don’t think it changes the US’ standing in the world in terms of financial secrecy. Truth be told, the TJN arranges its data as it sees fit but there’s just no comparing the secrecy of incorporation records (which can be public anyway) to the strict, no holds barred secrecy of Luxembourg and Swiss banking laws. It’s just not the same thing.
I also think the TJN has a way to go in terms of making its data mean something to those outside of its network. A relatively young organization, it was formed in March 2003. According to its website, “[i]t is dedicated to high-level research, analysis and advocacy in the field of tax and regulation. We work to map, analyse and explain the role of taxation and the harmful impacts of tax evasion, tax avoidance, tax competition and tax havens.”
As a tax geek, I have to say that I enjoy the research and data. I just think you have to make it mean something beyond a sound byte.
With revenues plummeting and federal aid in short supply, many states are scrambling to fill holes in their budgets. The easiest way to do it? Raise taxes.
At least ten states are considering major increases in the near future. They are:
- Arizona
- Connecticut
- Delaware
- Illinois
- Massachusetts
- Minnesota
- New Jersey
- Oregon
- Washington
- Wisconsin
Two states have already implemented significant increases: California and New York.
That means that at about a quarter of all states are raising taxes to meet budget shortfalls. If you take those that don’t have income taxes out of the equation, it’s closer to a third. The bad news is that number is expected to climb.
Adding to the income tax woes are shortages in sales tax revenue. Sales tax revenues are at their lowest in years, fueled by a general decline in the sales of taxable goods across the country. Some experts worry that increasing income taxes will only contribute to the drop in sales tax, creating even more problems.
It will be interesting to see what states follow… The number of federal mandates (like No Child Left Behind) has not decreased while funding for those programs has. Add that to increasing jobless claims and foreclosures (and those related costs) and many states will have bigger problems, not fewer. Is your state next?
Our next presidential candidate to be featured in our series of interviews is Joe Biden, a Democrat and Delaware Senator.
Here are his unedited answers to my six questions:
1. What’s the single most important tax issue facing Americans today?
As I travel across this country, I see the middle class in trouble. For the past six years, the middle class has been burdened by an unfair tax code that doesn’t do anything to help working families at the same time it rewards the super-wealthy. It is bad tax policy and bad economic policy. A strong middle class is what drives our economy. Our tax policy should reflect that instead of betting that enormous tax breaks for the most wealthy will trickle down to the rest of us and not disappear into an offshore account. We should give tax breaks to those who need them and pay for it by taking back the tax cuts from those who don’t – those in the top one percent who make an average of $1.4 million dollars a year.
2. If you could only make one “quick fix” in terms of an extra credit, a disallowed deduction, whatever – what would it be?
I would repeal the billions in tax breaks that the oil industry gets for exploration and drilling. These companies will even admit they don’t need the money. In the Senate Judiciary Committee, I asked six executives from the largest energy companies in America if they needed the tax incentives. Not only did they all say they didn’t need the tax incentives, but they also said they would support my bill repealing President Bush’s handouts. It is an example of wasteful tax incentives. Instead we should be spending the money on research into renewable energy, new battery technology to build highly efficient vehicles here in the United States and other programs that would reduce our dependence on fossil fuels and oil.
3. Which is a more egregious tax on the American public: the AMT or the federal estate tax?
The AMT must be fixed. Tax Policy Center estimates that in coming years nearly 90 percent of married couples with two or more children and incomes between $75,000 and $100,000 will be subject to AMT. It is a stealth tax on middle class families.
4. It has been suggested that the IRS should be eliminated. Do you believe that this makes sense, and if you do, what would you establish in its place?
I would not eliminate the Internal Revenue Service. The real problem is not the organization, but the policies the organization must implement. Reversing President Bush’s unfair tax policy is the first step in improving the way we view our tax structure.
5. Do you think that significant tax cuts are possible considering the current state of the economy, specifically the escalating cost of the war in Iraq?
First, we can save revenue by ending the war in Iraq and bringing it to a responsible conclusion. We are spending $100 billion a year on Iraq, and we will have to address this boulder in the road before we can deal with other critical issues like healthcare and education. In addition, I would protect tax relief that benefits the middle class, but I would roll back
President Bush’s tax cuts for those in the top 1% income bracket in America – those making over $435,000 a year.
As President, I won’t spend $1 trillion dollars to repeal the estate tax for millionaire heirs like Paris Hilton. Instead, I would exempt estates up to $7 million dollars and leave the tax in place for the remaining 7,000 or so estates that would have to pay it.
I would also roll back tax cuts on dividends and capital gains. In the 1990s, there was no lack of incentive to invest under the tax rates that were then in place. The current rates on capital gains and dividends were enacted as a short-term stimulus and then were extended. Allowing them to expire would not harm our economy.
Finally, we should eliminate tax loopholes. If someone owes taxes on investments, they should pay them. I would promote legislation that clarifies the definition of offshore tax shelters and imposes tougher requirements on U.S. taxpayers using secrecy definitions.
6. And just for fun, if Uncle Sam handed you a huge refund check right now, what would you do with it?
(left blank)
–
Thanks, Senator!
For more information on Senator Biden’s policies, visit his website.
Or any other resident of a state where there is no sales tax.
But the rest of you? Listen up.
You have the option of claiming your local and state income tax or sales tax as deductions on your federal income tax return. Most folks automatically go for the income tax because it is easily figured. However, the IRS is now making the sales tax calculation a little easier, too.
On the one hand, you could save all of your receipts and add up the tax. Don’t laugh, this makes a lot of sense if you’ve purchased several big ticket items during the year. Consider whether you renovated your home with new appliances, furniture, etc. or whether you bought a new car.
But if you didn’t save those receipts, all is not lost. You can use the IRS’ handy sales tax calculator. They don’t collect or save personal information, so give it a whirl. You might be surprised at the results.
