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Deficit reduction made simple, catch the cheats

January 22, 2011

Those who insist that the budget deficit is tremendously out of whack today are correct. But they need to make their argument fast, because in two to three years, finances in this country will be back to what passes as normal.

Federal revenues are running $43 billion ahead of a year ago, which is mostly attributable to the early stages of an economic recovery. Spending for the same period is up too, but "only" by $26 billion.

So in this quarter, the deficit is shrinking, and, according to the Congressional Budget Office, it will continue to shrink rapidly through 2014 (barring any unforeseen tax cuts or major government expenses). At that point, the deficit is projected to be less than half of what it is now, and more than $40 billion less than when President Bush left office. As a percentage of GDP, the budget deficit of the teens isn't going to be much different from the budget deficits of the '80s.

So we're cool, right? Not really. At better than $400 billion, the deficit will (or should) remain an important concern. Deficits in and of themselves cost a lot of money because of interest that must be repaid on borrowed funds. This isn't to mention the sea anchor on the economy, which is real, even if not to the extent that some panting cable-TV commentators would have you believe. (And this doesn't even begin to consider the national debt, which now has more figures than we have fingers.)

But wouldn't it be nice if we could just whisk away, say, a quarter of that deficit with no pain whatsoever? No new taxes, no cuts to programs that provide food for starving infants?

In theory, we could.

Imagine you were renting a house, and you were tired of paying income tax on all that rent money you collected. It would make sense, in an illegal sort of way, to sell that house to a foreign company ... you don't own the house anymore, so no more taxes. But you yourself do own that foreign company, which does nothing but act as a shell for your assets. If you're really feeling your oats, you can have your foreign company buy fictitious equipment, then pay yourself for it and take the depreciation off your U.S. tax form on property that never existed in the first place.

Hard? Hardly. Uncommon? Sadly not. According to the IRS, "Some tax haven banks, trust companies, attorneys, and accountants operate virtual factories making false documents to create paper trails to confound auditors. A taxpayer or his foreign representative can easily create front corporations inside or outside the United States to carry out the taxpayer's instructions."

But of course we're not talking about rent on a house. The government estimates that as much as $5 trillion in assets is held in off-shore tax havens, costing the treasury (that is, you and me) at least $70 billion in annual revenue.

These tax cheats must love it when some reporter on the nightly news talks breathlessly about the "government waste" involving a $5,000 horseshoe pit, or something. As long as we chase after these monetary wisps, we will never devote the time and gumption we need to go after money in amounts that matter.

The real question is whether these cheats will "allow" intrusion into their affairs.

Last time we heard from the admittedly weasely leader of Wikileaks, he was clucking about how he was going to blow all these off-shore tax cheats out of the water, and how there would be recognizable names, including some members of government.

It has since gotten very quiet, very fast. Wikileaks now says it is holding off for the moment, in order to be "fair."

Wikileaks being concerned about fairness is like coal companies being concerned about safety.

Of course I have no knowledge of what's going on. But I do strongly suspect that Wikileaks is going to find out that there is a big difference between reputation and money. When governments' reputations were on the line, its material was publishable. When unfathomable amounts of money are on the line, Wikileaks may find out that there are forces that are a lot more determined and a lot more powerful than governments.

As noted, the U.S. government knows, or suspects, how much money is at stake. Yet the government seems strangely hesitant to close loopholes and police fraudulent, offshore shenanigans. And if the U.S. government can't elicit change, what chance does Wikileaks have? We'll see.



Tim Rowland is a Herald-Mail columnist. He can be reached at 301-733-5131, ext. 6997, or by e-mail at timr@herald-mail.com. Tune in to the Rowland Rant video under opinion@herald-mail.com, on antpod.com or on Antietam Cable's WCL-TV Channel 30 at 6:30 p.m. New episodes are released every Wednesday.

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