U.S. citizens and permanent residents who invest offshore resemble the recently departed Osama bin Laden more than they might wish to admit.
Osama kept a very low profile at his estate in Pakistan. He had no telephone or Internet service. He even burned his trash, rather than set it out for collection. News reports claim (not that I believe them) that even Pakistani intelligence authorities knew nothing about his presence in their country.
But in the end, the United States found him. Yesterday morning, a team of Navy Seals broke into his barricaded home, assassinated him (along with several other household occupants), and then unceremoniously dumped his body in the Indian Ocean.
And just how do offshore investors compare to Osama? Allow me to present my case…
For nearly a decade, politicians of every ilk vowed to find and kill Osama. Only a few months short of the 10th anniversary of 9/11/01, the Obama administration scored a huge political victory by fulfilling that promise.
Offshore investors are in an even weaker position than Osama was. (In the 1980s, he actually received CIA funding to fight the Soviet invasion of Afghanistan.) In contrast, no politician would dare ever defend a U.S. investor who moves money outside the United States. Indeed, for decades, U.S. politicians have accused offshore investors of engaging in the crimes of narcotics trafficking, money laundering, tax evasion, and child sex slavery, just to name a few.
In today's environment of "fiscal responsibility" and "shared sacrifice," accusing offshore investors of tax evasion has once again become politically expedient. A recent case in point is the comment last week by Sen. Carl Levin (D-Mich.) that,
"The revenues lost to tax havens might have—all by themselves— resolved the [budget] problem.”
Levin was referring to his longstanding claim that tax evasion costs the U.S. economy more than $100 billion annually. If Levin is correct, then the untaxed (but taxable) income that the $100 billion represents would come to about $350 billion annually. (This assumes these taxpayers are all in the 35% tax bracket). Assuming an average rate of return of 5% tax-evading Americans have nearly $7 trillion in untaxed assets offshore.
Now, if this is true, then the amount of money Americans illegally keep offshore represents a sum roughly equal to 50% of the entire U.S. economy ($14 trillion, according to a 2009 estimate by the OECD).
Obviously, Levin's claim is preposterous. But what's positively frightening is not a single financial journalist criticized it. Even the conservative Washington Times (where I saw the quote) repeated it without questioning its authenticity.
Now, if the mainstream media accepts such over-the-top claims as Levin's without a peep of criticism, is there any reason to think they'll question any other claim of the alleged misdeeds of those impenitent U.S. taxpayers who unpatriotically invest offshore?
Of course not. And that's what makes the comparison with Osama relevant. The mainstream media—and mainstream America—views anyone who invests outside U.S. borders as the financial equivalent of Osama bin Laden. Anything the government does to these treasonous offshore investors is perfectly acceptable.
If Obama sent SWAT teams into the homes of anyone suspected of having an unreported offshore bank account, most Americans—and the media—would support him.
Warrantless eavesdropping? No problem, since offshore investors are in essence financial terrorists.
Withdraw passports? Since offshore investors are supposedly costing the United States $100 billion annually in tax revenues, why not?
My point is that bad as things are now for U.S. persons investing offshore, it's likely to become worse in the days ahead, especially for those who aren't 100% tax-compliant.
And if you do want to be 100% tax-compliant? That's not at easy to do, because Congress, the IRS, and Treasury have made offshore tax and reporting obligations a moving target. The one unmistakable trend is toward greater and greater disclosure.
Stay tuned. And in the meantime, when you look in the mirror, realize that the image looking back at you is one of a financial terrorist.
Copyright © 2011 by Mark Nestmann
(An earlier version of this post was published by The Sovereign Society, https://banyanhill.com/)
