6th Recommendation -- About Tax Havens

I've written about tax havens in the past, but I don't see any posts in my list, so I may have written on social network sites. Anyway, I just read an interesting article which helps elucidate the topic and clarify much of the issue.

The US love affair with tax havens helps solve an economic mystery -- Quartz

It's a great article. Here's one of the most important statements from it: "The economists make a counter-factual calculation that, if US corporations couldn’t shift profits to tax havens and were forced to pay the normal US corporate tax rates on their foreign profits (less credits for taxes paid abroad) it would reduce the US investment advantage by 1.2 percentage points, on average."

My proposal is to allow the IRS to examine off-shore tax havens to determine if a corporation is actually doing business there (as oil corporation divisions clearly would be) or if it is merely a "place" to hide money from the tax collector. Clear rules would have to be in place for this to be well done. The issue of whether a patent or copyright was created in a tax haven or merely "shifted there" would have to be solved too.

When the IRS can declare an off-shore tax haven corporate division is (essentially) phony, then the corporation would be given a chance to rebut that argument and challenge the decision. But, when all is said and done, a lot of off-shore tax havens would become illegal for Americans and American corporations.

If eliminating ALL off-shore tax havens would reduce the US foreign investment advantage by 1.2 percentage points, then this more limited reduction in the use of off-shore tax havens would probably reduce it by no more than .5 percentage points. Someone with better access to data and analytic abilities than me could determine that. However, it would also increase government revenues to pay down the federal debt or be used for defense, infrastructure bank, or any other government spending.