As a fiscal conservative, I have long championed taxpayer rights and worked to reduce the tax burden on working men and women in America. In the late 1990s, when testimony provided to Congress shed light on an overzealous federal agency trouncing on the rights of citizen taxpayers, I led an effort to reform the way the IRS does business and to make more efficient use of its resources. In my view, the IRS exists to help taxpayers fulfill their financial obligations to the federal government and fairly and fully enforce the nation’s tax law. At the same time, individual and corporate taxpayers need to fulfill their end of the bargain: pay every dime owed, but not a penny more.
Since taking over leadership of the Senate Finance Committee in January of 2001, I have worked hard to reduce the tax burden on working men and women and have been able to enact two major tax breaks to help Iowans and jump start our economy. While I consider myself a tax cutter, one thing I can't stand is a tax cheat. Since taking the reins of the Finance Committee, I have also made it my mission to close down the abusive tax shelters that are used by corporate America to avoid paying their share to the federal treasury.
Following on the heels of recent corporate scandals that have shaken the U.S. stock markets and wiped away the retirement savings for tens of thousands of Americans, the revelations of bone-deep corporate greed corrupting the tax code exposes a major rift in corporate citizenship that requires immediate, sustained attention. As chairman of the Senate Finance Committee, which has legislative jurisdiction over the federal tax code and oversight authority over the IRS, I've been working to clamp down on corporations using abusive tax shelters and I plan to keep the pressure on for as long as I’m in the U.S. Senate.
In October, I led a Finance Committee hearing to study whether illicit tax shelter schemes are still thriving even in light of increased government enforcement and imminent legislation that would help flush them out and shut them down. What I found was a staggering mindset among the most respected financial, legal and accounting institutions in America. My hearing was held to examine abusive tax shelters and ended up uncovering a gross breach of ethics, where greed and green trumps all else, including a decaying moral code of professional conduct.
Witnesses at my hearing exposed tax lawyers and accountants not just stretching the tax law to find loopholes, but twisting the facts to fit those loopholes. It showed companies leasing subway systems and other public works, including bridges and water mains, in Washington, D.C., Boston, Chicago, New York City and even foreign cities, to receive hefty tax breaks in return. Domestic and foreign public works projects, financed by taxpayers, are being exploited by tax lawyers and accountants to benefit fortune 500 companies at the expense of average taxpayers.
These lease-in, lease-back arrangements represent an increasingly sophisticated and calculated means of skirting the tax laws for the purpose of lining the pockets of those designing the shelters but what in the end cheats the government. Some of the most prestigious law firms and accounting companies in America are abusing the system and using their good name to lure clients into trusting their advice based on their expertise and reputation. In return for sizable tax savings, the architects of these abusive tax shelters are making a fortune, and the taxpayers are subsidizing it.
In an effort to avoid taxes via leasing scams on taxpayer-funded projects, the tax shelter promoters and their clients seem to have sunk to a new low to pad profits. Meanwhile, the federal government dips into the red ink to pay for the war on terrorism, reconstruction in Iraq, homeland security, and other domestic priorities including health care, transportation upgrades and energy needs.
At my hearing, the non-partisan General Accounting Office released a report estimating abusive tax shelters had cost the federal government $85 billion as of Sept. 30. That’s roughly the amount of money requested by the president to continue reconstruction work in Iraq.
So how can Congress and the administration shut down increasingly innovative tax evasion schemes? Despite beefed up government enforcement since Enron’s house of cards came tumbling down, we obviously need to move more aggressively to flush them out.
That’s why I’ve worked to pass bipartisan legislation that aims to close loopholes in the tax code used to hide billions of dollars from the federal government. My bill has passed the Senate three times and would create a mandatory disclosure system to ensure the IRS has better information about these transactions to distinguish between legal tax arrangements and illicit tax shelters. It also imposes huge penalties against those who contrive and uses these elaborate shelters.
It’s time to let the sun shine in on the process to expose members of the accounting, banking and legal industries who peddle these slick schemes like the snake oil sales folks pitched their wares a century before them.
Abusive tax shelters are a slap in the face to individual taxpayers and small business owners who play by the rules and pay their fair share to Uncle Sam. No-nonsense enforcement, stiffer penalties and relentless oversight are required to prevent such "snake oil" from poisoning the entire system.