Friday, August 11, 2006


Billions Of Dollars Lost To Tax Evasion By Multinational Firms And Rich Investors

Eminent tax expert Martin Lobel scolds the press for underreporting 40 to 70 billion dollars lost per year through offshore accounts and foreign tax loopholes. The media has, for example, ignored the findings of the Senate Permanent Investigations Subcommittee, which estimates that U.S. corporations and wealthy American citizens have over 1.6 trillion dollars in offshore accounts. That vast sum includes most hedge funds, risky and popular financial instruments that account for more than 50 percent of the trades on the New York Stock Exchange. Lobel believes that speculation in these funds is partly to blame for the inflation in the price of oil, among other effects disruptive to the economy.

The massive tax evasion of wealthy investors has shifted the tax burden to middle class families, which spend more than they earn and keep themselves afloat largely by refinancing their homes. As interest rates rise, mortgages - very much like the hedge funds - will increasingly exceed the value of the properties that secure them, which will in turn weaken the banks that own the mortgages.

Small businesses competing against big corporations also suffer because many of those firms are multinational, and can therefore exploit a wide variety of offshore shelters to keep their tax bills low. Lobel cites the case of Microsoft, which saved itself 300 million dollars in taxes simply by occupying a desk at a law firm in Ireland.

Even if hedge funds didn't exploit tax shelters, they tend to destabilize the economy by their very nature. Hedge funds, which employ mathematical tools called derivatives to overproject the expected profits of an industry, are speculation at its purest. Reminding us that the recent pension reform bill would allow more pension dollars to be channeled into hedge funds, Lobel warns what might happen if one of these funds were to collapse - and take your pension along with it.

Overall, Lobel describes a complex but depressingly coherent scenario of an economy based on speculation, borrowing and tax evasion, each factor colluding with the others to push our future farther and farther out on a limb.

"Tax analyst sees press failure as partly to blame for looming economic crisis" from Neiman Watchdog
Definitions of "Hedge Fund" from

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