Panama FTA Could Negate Effects of Bush Tax Cuts Expiring
President Barack Obama claims he wants to let the Bush tax cuts for the richest Americans expire. However, at the same time, he is pushing for a bilateral trade agreement with the known tax haven of Panama – a deal which could negate the effects of allowing those tax cuts to expire, according to The Huffington Post.
“Raising taxes on wealthy Americans, of course, will have little effect if those same citizens can simply hide funds from the IRS in Panama,” The Huffington Post says.
Panama is well-known as a tax haven. It was one of 13 countries listed on all of the major tax-haven watchdog lists that also does not have U.S. tax transparency treaties. Panama also happens to be the only country on that list with which the American government is currently seeking to finalize a “free trade” agreement. If it does, the U.S. would be ceding potentially trillions of dollars.
A report by the U.S. Public Interest Research Group Education Fund found that the U.S. Treasury Department loses approximately $100 billion each and every year due to American businesses utilizing tax havens.
There are 350,000 foreign subsidiaries located in the country to take advantage of the nation’s lax tax laws, usually in the form of offshore shell companies and fake headquarters. That makes it the second most popular destination in the world for multinational corporations seeking to avoid taxes, behind only Hong Kong.
The U.S. recently signed a tax information sharing agreement with Panama, but that is likely to be inadequate to prevent tax evasion by American citizens and companies.
“The Tax [information] Exchange Agreement that we’ve executed with Panama is really weak,” Rebecca Wilkins, senior counsel with Citizens for Tax Justice, told The Huffington Post. “There’s just a lot of reasons why it’s not going to be very effective.”
The tax agreement will allow the U.S. to request banking information for American citizens with accounts in Panama. The problem is, the U.S. Treasury first has to know that an individual is skirting tax laws to obtain the information. A similar but much more stringent agreement with Canada allows the U.S. to automatically obtain banking information for any American who makes a deposit there. That makes it nearly impossible for an American citizen to hide money in Canada.
“It directly undermines Obama’s putative domestic agenda of job creation, cracking down on tax havens and collecting revenue from tax-dodging corporations,” Lori Wallach, Director of Public Citizen’s Global Trade Watch, told The Huffington Post. “The [free trade agreement] would forbid future use of existing policy tools to combat financial crime.”