There has been a lot of talk about offshore tax evasion in the news lately. Especially in regards to UBS and new offshore tax evasion enforcement efforts between the U.S. and Switzerland.
Unfortunately, many taxpayers do not pay much attention to these issues, as they do not think that offshore tax issues have anything to do with them personally. However, that is not the case. Offshore tax evasion actually affects nearly every American. And here is how:
National Tax Compliance
The IRS is having a hard time collecting tax debts during the economic crisis. According to recent studies, Federal tax revenue plunged $138 billion—or 34% from last year—which is the biggest drop in almost three decades. A large amount of the lost revenue can be attributed to offshore tax evasion. This leaves the rest of us law-abiding citizens to foot the bill.
While government officials are hoping to generate additional revenue from increased tax compliance, they know that it alone will not cover our expenses. Thus, they anticipate raising taxes on the wealthiest Americans. Plans to raise taxes has left thousands of Americans—rich and poor—disgruntled and willing to protest. In addition to the Tea Parties that were carried out in April, tax protestors are hoping to carry out additional events this July.
Economic Recovery Prevention
Despite lots of effort, the country’s economic recovery is taking some time. As the economy continues to stall, more and more taxpayers are looking for any way possible to reduce their tax liability. A whopping $250 billion of missing revenue from the past decade is said to be missing due to offshore bank accounts. This missing money is essentially preventing the country from making a faster recovery as it prevents the federal government from investing the money into other programs.
President Barack Obama has already taken great strides to recover some of this lost revenue by evoking legal action with popular offshore bank UBS. "Nobody likes to pay taxes, particularly in times of economic stress," Obama said. However a crackdown on "illegal overseas tax evasion" was necessary in order to provide "meaningful relief for hardworking families." He continued to explain that "the way to make American businesses competitive is not to let some individuals and businesses dodge their responsibilities and let ordinary Americans pick up the slack."
Not only does offshore banking affect Federal tax revenue, in many instances it drastically affects local and State governments. According to a recent study observed in Montana's Clark Fork Chronicle, "non-residents who have Montana earned income fail to pay income taxes at an astonishing rate of 78%". This statistic seems staggering, but is actually not as uncommon as you would think. Some states do not have very strong tax enforcement agencies, which can quickly lead to millions of dollars in lost revenue. Montana and other States in similar situations cite offshore banking as a large contributor to the problem, claiming that they simply cannot keep track of all of their out-of-state taxpayers so easily, let alone investigate their offshore bank accounts.
Organized Crime Ties
While not all offshore bank accounts are being managed illegally, even the more humble ones can unknowingly foster criminal activity. It is a well-known fact that organized crime uses offshore bank accounts to disguise their criminal activity. Offshore banking protects the "underground economy". The most common of crimes is of course money laundering, which is made all the easier with offshore bank accounts that are highly protected and usually well disguised.