Offshore Tax Evasion

How does Loss of Revenue Hurt the US

Like many other countries of the world, each citizen is required to pay taxes which are used by the government in bringing about development in a country.  This study will examine the aspect of tax evasion and how it affects the economy of the United States of America. Additionally, this study will outline how the United States of America is hurt by loss of revenues which mostly is lost through tax evasion. Tax evasion is penalized through different ways especially through legal process and hence this study will shed more light on this matter. The aspect of tax evasion is not harmful only to the United States of America but the rest of the world is still affected and hence this study addresses how the United States of America can get other countries to stop offering tax haven. In general terms, all individuals are liable to tax in their residential places with all their world wide earnings

In order to avoid some misconception about the issue of offshore tax evasion and tax haven, it is very imperative to offer some brief definitions of the terms used in this study. Tax haven is a term that is normally used in denoting a state, territory, or a country where taxes are levied at very low rates or it is not levied at all. Individuals or companies can therefore find it profitable and attractive to move to these areas where there is no taxation. This usually leads to a process whereby governments start competing for taxation in the pursuit of attracting more and more investors. According to Meinzer (2008, p. 4), the term offshore is very confusing as its use is different especially when used in relation to tax evasion. In this respect, offshore refers to a place that is legally created and supported by nation states, freed, and overtly removed regulatory as well as sovereign control. For an offshore to exist within this definition, there must be a state that provides laws either deliberately or accidentally which reduce efficient regulation and taxation over the whole state. Tax evasion is equivalent to a crime committed by a person who breaches the laws ands rules set by a country. In this respect, all individuals in the United States of America are required by the law to pay taxes and hence tax evasion is a transgression that can be either administratively fined or criminally prosecuted depending on either quantitative or qualitative criteria. When these terms are combined, they give the general definition of offshore tax evasion. In this case, offshore tax evasion is the unlawful lack of payment of due taxes involved at any stage offshore judicial spaces.

According to Delaney (2009), a report released in the year 2008 indicated by the United States of America looses approximately $100 billion in tax revenue. Currently, offshore tax evasion and havens hold trillions of dollars in the assets offered by people of other countries inclusive of the United States of America. It is therefore of critical importance to know and identify the extent to which the United States of America loses huge amounts of money in the name of tax evasion. Latour (2007, p. 91) outlines that the government usually bring about developments in a country from the money paid by tax payers and hence it is illegal for some people or companies to evade paying taxes. Levin and Coleman (2008, p. 1) reveal that, on average when estimating tax evasion by individuals in the United States of America, about $40 to $70 billion are lost annually. This indicates that this country is losing a lot of money through tax evasion and hence something needs to be done about it. The government is trying to make sure that offshore tax evasion is cracked down but this has not made significant impacts as even in the current situation the economic condition of this country is deteriorating partly because of failure of some people to pay taxes. In the year 2004, as depicted by Levin and Coleman (2008, p. 1), approximately $60 million in U.S. tax revenues were reported to be lost as a result of corporate offshore pricing abuses. This is very huge amount of money that could lead to decreased economic power of the country.

The money that is paid by tax payers is used by the federal, local, and state government in paying the civil servants, in military power, and in importing essential products from other countries among others. These aspects bring about increased development in the United States of America and hence if some people do not participate in paying taxes, the country loses a lot of money. In May 2008, as depicted by Levin and Coleman (2008, p. 2), there was an international tax scandal where the United States of America arrested a private banker who was charged as having conspired with an American citizen to defraud the IRS of $7.2 million in taxes that were owed on #200 million of assets that were hidden in Switzerland and Liechtenstein offshore accounts. This is an indication that this country is losing large amounts of money through offshore tax scandals.

Economic consequences in the United States of America have been identified to be driven by the fact that many people do not like the aspect of paying taxes. It should be noted that large levels of progressivity usually discourages offshore tax evasion. This is because people are able to see the developments that are brought about by the amount of taxes they pay to the government. Kalin and Goldsmith (2007, p. 5) detail that, the United States of America is the superpower in the whole world in terms of economic power but it is threatened by the offshore tax evasion. This means that if this trend continues for sometime, America will collapse economically as many corporations will be evading paying taxes. The American economy is heavily affected by the illegal transaction of money where individuals and corporations are increasingly evading from paying taxes. This has been brought about by the aspect of tax haven where corporations deposit their incomes in countries where tax levy rate is relatively low or it is literally not there.  

The Internal Revenue Service (IRS) has reported that the United States of America will not be able to venture into foreign businesses and other aspects if the increasing loss of money through offshore tax evasion continues. In support of this, as a percentage the Gross Domestic Product (GDP), in the year 1992 tax evasion in the United States of America reached 2.0% as compared to 1.6% in the year 1981. This indicates that this country’s gross domestic product is heavily affected by offshore tax evasion. Based on the figures provided by Internal Revenue Service (IRS), the offshore tax evasion in the United States of America is on the rise where within a period of 11 years, it has increased by 67%. It is therefore the role of the United States Justice Department, the Department of Commerce, and the Internal Revenue Service to make sure that they crack down offshore tax havens since they deprive large amounts of American money (Latour, 2007, p. 91).

The United States of America suffers economic decline as most of the money that is supposed to be paid as tax is deposited in other countries which does not charge high rates of tax. It should be noted that the federal government has provide good health, education, employment, and other social amenities to its citizens and this can only happen if the citizens are willingly paying taxes. In this relation, when some corporations or individuals use the country’s resources but do not contribute to the development of the country through paying taxes, this leads to the country incurring huge losses as it uses money but the rate of getting that money through taxation is low. When some people and corporations do not pay taxes, the rest of the citizens and companies will be forced to pay higher amounts of money in order to compensate the lost money. This is a good indication that if the United States of America loses approximately $100 million on annual basis, the rest of the citizens will be required extra higher in order to compensate the $100 million lost through offshore tax evasion. This results in the cost of living of the Americans increasing being caused by a small group of people in the country.