No, there is no class warfare here in the US.  While we hear about fights against raising the minimum wage, and while I have written about the shrinking middle class as well as how lower income families pay more for services than their higher income counterparts, we hear about how the estate tax must be eliminated or reduced because it is oh-so-unfair to the wealthiest of the wealthy.

And now, a new Senate report has been released by the Permanent Subcommittee on Investigations which outlines how the super-wealthy are using tax shelters (both legal and illegal) to cheat the IRS out of approximately $70 billion per year.
Seventy Billion Dollars Per Year.  Enough for health care for how many millions of US citizens?  A healthy sum towards closing the massive budget gap each year.  Enough to make a significant dent into fixing the issues associated with Social Security AND Medicare.

The report itself, entitled Tax Haven Abuses: The Enablers, The Tools and Secrecy is around 400 pages and is linked above, however there is a good article in today’s NY Times which summarizes some of the low points.  There is a hearing set for today which accompanies the report, and some of the billionaires who are cited in the report are set to testify at the hearing today.

Included in the list of wealthy cheats are Jets owner Robert Wood Johnson IV as well as Texas businessmen Charles and Sam Wyly.  The Wyly’s case is interesting in that there are around 220 pages of the report dedicated to their case and situation.  What makes it more interesting is that the Wyly’s were the ninth largest contributor to Dear Leader, according to a 2000 report by the Center for Public Integrity.  Additionally, there is detail in the report of one company based in Seattle (the Quellos Group) used nearly $10 Billion in fake securities to generate billions in fake capital losses.

Not to bore you with the details, but the report gets into a few different areas which were popular for our wealthiest tax cheats, including the following:

  • Offshore Tax Haven Abuses;
  • Anti-money Laundering Abuses;
  • Securities Abuses;
  • Stock Option Abuses; and
  • Hedge Fund Abuses.

So how bad is it?  Well, for starters we have agreement by Democrats and Republicans as to the severity of the issue.  Senator Carl Levin (D-MI) had some choice words about the abuses, and Norm Coleman (R-MN) had adopted the entire report (a minority drafted report) as if it were from the entire subcommittee:

“The universe of offshore tax cheating has become so large that no one, not even the United States government, could go after all of it,” said Senator Carl Levin, the Michigan Democrat whose staff ran the investigation.


Senator Levin said that when investigators asked for trading records they were first told the trades were private, over-the-counter transactions. He said investigators asked for trading tickets or other evidence of who owned the $9.6 billion worth of stock and were told the stocks were never owned by the parties involved.

“They just wrote down numbers on paper and claimed losses,” he said. “It was just like fantasy baseball, except the taxes not paid were for real.”


“I get incensed by people who use tax havens to not pay their taxes while the average guy has to pay his taxes because they are taken out of his pay before he gets it,”

Of course, Quellos disagreed with the report, even though there is no evidence of a paper trail or that these securities were (1) real or (2) ever owned or traded by those who the losses were generated for.

Although there were five or six cases highlighted in the report, there were nearly 2 million documents reviewed, 80 interviews conducted and took around a year and a half.  Additionally, the report does make recommendations for prospective changes.  The changes include the following:

Presumption of Control. This basically means that there is a presumption that the person who benefits is in control of the holdings.

Disclosure of U.S. Stock Holdings. Essentially, this means that all holdings need to be disclosed.

Offshore Entities as Affiliates. This will require that such entities not be treated separately from those who are in control of them – this makes the tax cheating more difficult, at least in theory.

1099 Reporting. This would require a paper trail with respect to these entities.

Real Estate and Personal Property. This would make the receipt of other property from a foreign entity taxable for US purposes.

Hedge Fund AML Duties. This would require hedge funds to report any suspicious activities to the US Government.

Stock Option-Annuity Swaps. This would require certain transactions to be taxable for US purposes.

Sanctions on Uncooperative Tax Havens. This would move towards eliminating some of these tax shelters.

Now, as noted in hekebolos’ diary, the Bush Administration is looking to cut its enforcement of certain tax collections and agents.  This includes estate tax auditors, which of course are to benefit the ultra wealthy anyway.  What is worse is that the report cites many financial institutions as being in on the schemes:

Senator Levin said he might propose limiting or barring the transferring of executive stock options to others, as well as more disclosure when they are exercised.

The report says that Credit Suisse First Boston, Lehman Brothers and Bank of America “all knew that the offshore entities” for which they made trades were associated with the Wylys, but ignored rules requiring disclosure of these transactions and helped them hide the true ownership of the assets. Only when Robert M. Morgenthau, the New York District attorney, issued subpoenas in 2004 did Bank of America close the Wyly accounts.

Just lovely.  Whether these recommendations are implemented, and even if they are, whether they will accomplish anything meaningful remains to be seen.  However, I am certainly not confident that the super rich will sit back and not look for other ways to cheat the US, and to continue to screw the rest of We the People over.

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