NEW YORK - Saying that offshore tax havens deprive the US Treasury of tens of billions of dollars of revenue a year, two senior Democratic senators are pushing to help reduce the federal deficit by tightening rules that allow hedge funds, derivatives traders, and corporations to skirt federal taxes.
A bill unveiled yesterday by Senator Carl Levin, chairman of the permanent subcommittee on investigations, would change Internal Revenue Service regulations that allow US traders of credit-default swaps to avoid paying federal taxes on many transactions that begin in the United States. It would also tighten rules that enable some hedge funds and corporations based in the United States to reduce their federal tax liabilities by declaring themselves foreign companies and moving a small part of their operations overseas.
Levin, a Michigan Democrat, has spent years investigating tax avoidance schemes and estimates that abuse of offshore havens costs the Treasury more than $100 billion a year. He said his proposal could provide a breakthrough in the stalled deficit-reduction negotiations between President Obama and Congress. Obama has refused to approve a deal that does not include increased revenues, and Republicans have said they will oppose any measure that increases taxes. Levin said his plan offers a compromise.
The chairman of the Senate Budget Committee, Kent Conrad, Democrat of North Dakota, introduced a plan Monday to cut $4 trillion from the deficit through spending cuts and revenue increases. Conrad said that by taking aim at tax shelters the federal government could reduce the deficit and lower the corporate rate to 29 percent from 35 percent without increasing taxes on the middle class or imposing severe cuts on Medicare or Social Security benefits.