Tax havens have been used by American businesses for many years, and many commercial banks have successfully prevented legislation to stop tax haven activities (Francis, 2008). This is primarily because banks make money by placing private financial accounts in tax havens like the Cayman Islands and Bermuda. This has been an increasing trend over the past few decades.

There is growing international pressure to outlaw the secretive practices of tax havens as a key part of reforms to the world's battered financial system," said Mathiason and Stweart (2008). "Obama, whose approval will be key to any reform package over the next 12 months, was one of the signatories of the Stop Tax Haven Abuse Act, legislation put to Congress last year that blacklisted Jersey, Guernsey and 32 other jurisdictions. Key aides to Obama said he will introduce a similar law as part of a wide-ranging revenue-raising and tax-reform package, within weeks of taking power."

Experts in Washington believe that banking and accounting firms have already hired lobbyists in anticipation of Obama's reform proposals, as they will likely put up a fight.

According to Mathiason and Stewart (2008): "Key measures are likely to include: revealing the beneficial owners of secretive trusts; prohibiting accountants from charging fees on specific tax services; and identifying 'offshore secrecy jurisdictions' that 'unreasonably restrict U.S. tax authorities from obtaining needed information' the measures could end years of financial secrecy that have protected the super-rich and international businesses as they move money from one jurisdiction to another."

Conclusion

Reporter Scott Cohn wrote a story about Enron, which created more than 600 partnerships in the Caymans, a British colony, but employed no one there and built no facilities (Irvine, 2002). But the tax havens themselves are not the reason that Enron failed. Cohn visited the Caymans and reported that many companies find them attractive.

According to Cohn (2002), "Companies and investors come here for secrecy - a hallmark of Cayman law. The government and the legal system of this British colony are stable. But perhaps most important, the Caymans have no taxes. No wonder most major U.S. companies have some sort of presence here."

Congressman Lloyd Doggett was one of many government officials who believe this was wrong. He said (Irvine, 2002): "There are billions and billions of dollars that we all have to make up for as ordinary taxpayers that are being lost to the Treasury, and it's really unfortunate." Doggett sponsored legislation that would make offshore incorporation more difficult.

However Cohn (2002) proposed a different solution, "Rather than penalize companies for moving offshore, some U.S. officials would prefer to amend U.S. tax laws, encouraging businesses to stay put."

Wealthy Americans avoid paying billions of dollars a year in U.S. taxes through offshore havens that could be curbed with mandatory financial reporting and stronger penalties, argued a Senate investigative report in 2006 (Smith, 2006).

The report, which was published by the Senate Permanent Subcommittee on Investigations, called out the...

law to assume that offshore trusts and companies used by Americans are under the Americans" control, and subject to U.S. taxation. Currently, the IRS is responsible for proving the link. However, policymakers are trying to change this.
Government investigators believe that offshore tax havens support a major economy of for-hire officers, directors and trustees who establish front companies under the explicit control of tax avoiders.

In one probe, Senate investigators alleged that U.S. citizens transferred assets to independent offshore entities that redirected the assets to a hedge fund under the Americans' personal control," according to Smith (2006). "In another example, U.S. corporate insiders allegedly used offshore entities to trade their company's stock, circumventing inside-trading laws."

Martin Sullivan, a contributing editor to Tax Notes magazine, said, "The time is right" for legislative reform, citing the strain of a federal deficit on the Treasury. "Before you can increase taxes, the first thing you have to do is make sure you shut down the loopholes. Otherwise, nobody is going to be receptive to a tax increase," he added.

In conclusion, tax havens are attractive because of high corporate taxes in the United States. Tax havens appear to make companies more profitable and keep prices of products lower for consumers. While legislation to better control tax havens, it is unlikely that they will be eliminated in the near future. However, it will be interesting to see the changes that will occur when Obama takes office.

Works Cited

Almeida, Aloisio. (April, 2004). Tax Havens: An Analysis of the OECD Work with Policy Recommendations. Ford School of Public Policy. Retrieved from the Internet at http://209.85.173.132/search?q=cache:J5uNj3XQ4rEJ:www.receita.fazenda.gov.br/Publico/estudotributarios/TrabAcademicos/Textos/AloisioTaxHavens.pdf+almeida+%22tax+havens%22&hl=en&ct=clnk&cd=3&gl=us.

Desai, Mihir a., C. Fritz Foley and James R. Hines Jr. 2006b. The demand for tax haven operations. Journal of Public Economics 90, 513-531.

Hines, James R., Jr. 2005. Do tax havens flourish? In Tax Policy and the Economy, Vol. 19, ed.

Hines, James.(May 31, 2007). Tax Havens. University of Michigan: Product Number WP 2007-3.

Irvine, Reed. Kincaid, Cliff. (April 2, 2002). The Benefits of Tax Havens. Accuracy in Media. Retrieved from the Internet at http://www.aim.org/media-monitor/the-benefits-of-tax-havens/

Mathiason, Nick. Stewart, Heather. (November 9, 2008). Obama backs crackdown on tax havens. The Observer: A1.

Tax Policy Group of Deloitte Tax LLP. (November, 2008). Tax policy decisions ahead: President-elect Obama's call for change. Retrieved from the Internet at http://public.deloitte.com/media/0163/us_tax_decisionsaheadobama110508.pdf

The OECD 1998 Report on Harmful Tax Practices." Available at www.oecd.org/dataoecd/60/28/2664438.pdf.site visited on April 08, 2004.

Francis, David. (June 9, 2008). Tax havens in U.S. cross hairs. Christian Science Monitor.

Smith, Elliot. (July 31, 2006). Report targets offshore tax havens. USA TODAY: 23.