I’d been meaning to post this earlier, but the Government Accountability Office produced another OVDP report in February: “IRS’s Offshore Voluntary Disclosure Program: 2009 Participation by State and Location of Foreign Bank Accounts”. This was in response to a request by Carl Levin, and follows up on their previous demonisation of people who don’t want to enter the OVDP.
Naturally, most media sources noticed only the high-profile facts that Carl Levin & the GAO want them to: OVDP participants are located in high-income states and many of them had Swiss bank accounts. Forbes, for example, ran it under the sensationalistic and deeply-misleading headline “Where Offshore Tax Evaders Live and Bank”. However, as we’ve repeatedly emphasised here at the Isaac Brock Society, the major effect of the OVDP has been to terrorise minnows with personal connections to foreign countries — immigrants, emigrants, and their spouses and children — who innocently organised their financial lives around their personal connections.
A bit of digging and calculator work with the GAO’s latest report offers even more evidence to support what we’ve been saying here all along. The U.S. states with the most OVDP participants were precisely the states with the highest foreign-born population. And besides Switzerland, the countries where most OVDP participants had their bank accounts were precisely those countries where high proportions of American emigrants have gone to live or those countries whence high proportions of foreign workers in the U.S. have come.
Distribution of domestic OVDP participants closely matches distribution of foreign-born population
Statistics on foreign-born population by state are from the American Community Survey report “The Foreign-Born Population in the United States: 2010”, specifically Figure 2 on page 5. However, note that there are some limitations to the analysis of OVDI participants based on their tax return address. Many non-U.S. residents used U.S. law firms to enter the OVDP. These new filers are quite likely to have preferred law firms whose staff have language proficiency relevant to the country in which they live — either because the participants themselves prefer using that language, or because all of their financial documents are in that language — and such law firms are most likely located in areas of the United States with large foreign-born populations.
| State | OVDP participants with domestic addresses | Foreign-born population (as percentage of total U.S. foreign-born population) |
|---|---|---|
| California | 25.0% | 25.4% |
| New York | 18.3% | 10.8% |
| Texas | 5.1% | 10.4% |
| Florida | 10.0% | 9.2% |
| New Jersey | 6.3% | 4.6% |
| Illinois | 2.9% | 4.4% |
| Massachusetts | 3.0% | 2.5% |
| Georgia | 1.4% | 2.4% |
| Virginia | 1.8% | 2.3% |
| Washington | 2.3% | 2.2% |
| Other states | 23.7% | 26.0% |
Foreign addresses not even broken out as separate category
The hilarious “Table 1: 2009 Offshore Voluntary Disclosure Program Participants by State” includes the following footnote:
“Other addresses” include, for example, returns filed (1) from Army Post Office and Fleet Post Office addresses by members of the armed forces stationed overseas; (2) by other U.S. citizens abroad; and (3) by residents of Puerto Rico with income from sources outside Puerto Rico or with income earned as U.S. government employees.
“Other addresses” formed 457 of the 10,533 OVDP participants whose tax returns the GAO obtained. It would not have been difficult at all to separate PR addresses from actual foreign country addresses, and to separate out APO addresses by continent, but the GAO simply couldn’t be bothered.
Migrants keeping bank accounts in countries where they live or used to live
Many OVDP participants reported accounts from Switzerland. These were mostly the people who knew that they were likely to be caught in the ongoing UBS & similar disclosures if they did not join the OVDP. The GAO, of course, focuses on the whales among them:
Consistent with IRS’s enforcement efforts and the design of the 2009 OVDP, we found that the population of participants was more likely to report offshore accounts in Switzerland than other locations.
But what about the minnow bycatch? Even in Switzerland there are minnows who have been affected, but let’s pretend to be Homelanders for a moment and assume that everyone with an account at a bank in Switzerland is a tax-evading whale. So what happens when you exclude those 5,427 participants? You get a very different picture.
The GAO analysed 12,889 FBARs from 2008 filed by OVDP participants. Among the other countries and territories where the remaining 7,462 OVDP participants had non-Swiss accounts, none of the next ten (besides Hong Kong) is a major offshore financial center, none of them (again besides Hong Kong) had a secrecy score that was even in the upper half of the Financial Secrecy Index, and all of them except Hong Kong and Taiwan are among the top 10 either for countries of origin for employment-based green card holders in the half-decade preceding the OVDP, or estimated number of Americans abroad in 1999 (the most recent year for which the State Department provided a by-country breakdown).
| Country of bank account | % of OVDP participants (except holders of Swiss accounts) | Employment-based green cards granted, 2004–2008 | Americans abroad (1999 estimates) | FSI secrecy ranking | ||
|---|---|---|---|---|---|---|
| Percentage | Rank | Percentage | Rank | |||
| United Kingdom | 14.2% | 4.1% | #7 | 5.4% | #3 | #75 |
| Canada | 7.5% | 4.4% | #6 | 16.5% | #2 | #61 |
| France | 7.1% | 1.0% | #21 | 2.4% | #9 | #74 |
| Israel | 6.8% | 1.1% | #19 | 4.4% | #5 | #60 |
| Germany | 6.5% | 1.4% | #15 | 5.1% | #4 | #58 |
| China | 5.3% | 8.4% | #3 | 1.6% | #14 | N/A |
| Hong Kong | 4.9% | 0.4% | #40 | — N/A — | #40 | |
| Taiwan | 4.1% | 1.5% | #13 | 0.9% | #18 | N/A |
| India | 4.1% | 17.7% | #1 | 0.3% | ?? | #70 |
| Italy | 2.5% | 0.5% | #33 | 4.0% | #6 | #77 |
In total, there were 68 countries (including Switzerland) in which at least 10 OVDP participants had accounts. Among participants, 42% reported accounts in Switzerland, 7.3% reported accounts in others jurisdictions with top-half FSI secrecy scores, and 53% reported accounts in jurisdictions with bottom-half FSI secrecy scores or unranked jurisdictions like mainland China and Taiwan. (These numbers do not add up to 100% because some participants had accounts in more than one jurisdiction.)
If the OVDP were narrowly targeted at flushing out bad actors who established genuine offshore accounts with the aim of evading taxes, we’d expect to see a far higher proportion of top-half FSI secrecy score jurisdictions. Instead, the giant “shock-and-awe” publicity surrounding the high-profile Swiss data disclosures simply served to scare immigrants and emigrants, but barely any people hiding money in other tax havens besides Switzerland.
About the data sources
Statistics on employment-based green cards come from the Department of Homeland Security’s Yearbook of Immigration Statistics, in particular the tables on “Class of Admission and Region and Country of Origin” (links: 2004, 2005, 2006, 2007, 2008). The State Department also offers a more-detailed Report of the Visa Office going back to 2000, but their statistics are only published in PDF format and are not easily converted into Excel tables. Estimates on Americans abroad come from a 1999 State Department report republished by American Citizens Abroad, which did not break out Hong Kong separately from China.
The Financial Secrecy Index is a publication of the Tax Justice Network which ranked 82 jurisdictions by both their weight in the world financial system and a score for the level of secrecy they offer, which they combine to form a weighted ranking. That weighted ranking aims to demonstrate to tax authorities which jurisdictions to investigate or pressure in order to get the most “bang for their buck”; however, for an individual bad actor seeking to evade taxes, the absolute level of secrecy would be the main concern, and so in the table above I give the secrecy ranking rather than the weighted ranking.
Concluding rant
The most basic responsibility of a journalist, or a scholar, or an analyst, is to be able to use information in ways other than that intended by those who publish it. If the extent of the “journalism” you do is to look at a data set and note precisely what the authors of that data set want you to note about it, the word for your profession is not journalist, but propagandist; you are being paid to disguise the press releases of the powerful as “fact-checked” newspaper quotes. As Glenn Greenwald put it:
Literally every day, one finds major news stories that consist of little more than the uncritical conveying of official claims, often protected by journalists not only from critical scrutiny but — thanks to the shield of anonymity they subserviently extend — from all forms of accountability …
This stenographic treatment by journalists — of simply amplifying what someone claims without any skepticism or examination — is not available to everyone. Only those who wield power within America’s political and financial systems are entitled to receive this treatment. For everyone else — those who are viewed as ordinary, marginalized, or scorned by America’s political establishment — the exact opposite rules apply: their statements are subjected to extreme levels of skepticism in those rare instances when they’re heard at all.
Emigrants from the U.S. will go on filing their “anti-money laundering reports” on ordinary bank accounts used to buy groceries and pay the rent, under threat of life-altering IRS fines. You so-called “media professionals” should hope that no one ever calls you all to account on those same terms for your acts of information laundering.
Great analysis, Eric. Maybe you should publish an article!
Yes, immigrants are along with Americans abroad big victims of OVDI. And they’re in bigger number.
I hope Jim Bopp brings this to light when they start suing the USG.
I am somewhat surprised that the % from India and China is relatively low, compared to France and Germany. These populations are bigger in proportion. And with the UBS actions in India, I would have expected a bigger % of Indian people, especially since they are the ones often on their parents accounts and sending money back to their home country. But also maybe they know how to recognize corruption better than others and are used to ignore the IRS rhetoric…
and yes, I would hope that some smart journalist exposes the OVDP extortion for what it is.
Amy Feldman had an article a couple years ago – the only one I read that mentioned immigrants.
@Eric
Interesting as ever.
I am not sure that it will change things. There was an OVDP report done and presented to the Senate Finance Committee in the run-up to FATCA showing that a previous OVDP had caught a lot of ordinary people, such as a missionary who had returned from abroad and some teachers. The U.S. also knows that there is a problem with immigrants and accounts, it is even known that specific ethnic tend to hoard cash abroad, but it doesn’t seem to do much to head off the problem.
Switzerland was the place Americans stashed money in the 1960s when it was clear that the U.S. did not have enough gold to maintain the value of the dollar and has been on the U.S.’s radar ever since. Neil on another thread highlighted an ongoing case where a Florida man has been found guilty and faces a fine of 150% on his Swiss bank account dating from the 1960s and is raising the excessive fine issue.
http://www.bloomberg.com/news/2014-05-28/florida-man-87-owes-150-of-swiss-account-jury-says.html
Scary article, Publius. Tax cheats are demonized. This is not a case you want tried in front of a Jury.
I hope this goes all the way to the Supreme court. Can’t wait till Jim Bopp takes the case.
This is unconstitutional and has to stop.
Brilliant! Explains why the term “FBAR Fundraiser” is appropriate.
Somebody should forward this post to L. Saunders at the Wall Street Journal.
I think this report provides more evidence the purported $100B loss to the US Treasury is fantasy, more like $8B. Most of the loss tax revenue has been offset by Foreign Tax Credits, and the Foreign Tax Exclusion.
The FATCA dragnet is not about getting revenue but giving the USG more information on US persons abroad so at the border they know more about you than ever. FATCA is being sold as a tool for tax evaders while the reality it’s an exercise in NSA data gathering.
Excellent, although I have no hope that any of the journalist living in “This Town” will do anything to jeopardize their standing on the annual Correspondence Dinner where Politicians, celebrities and journalist mix.
http://www.amazon.com/gp/aw/d/0399161309?pc_redir=1401330801&robot_redir=1
ACA made following remarks yesterday:
http://bit.ly/1nZsm86
Thanks for that ACA report, dude.
The US’s attitude is never how they can make life better for its non-residents, but instead would rather examine if they should make life worse for us. What’s next, axing the NTA’s office because she’s ineffectual?
@Don, although FATCA is about identification and control over US citizens abroad, I do think it is mainly about revenue — forcing expats into either becoming compliant with US tax reporting requirements or giving up their US citizenship and paying final taxes. Either way, the US stands to get a lot of money from expats.
The NSA has its own methods for gathering information. I don’t know to what extent FATCA reporting would be stored in NSA databases.
this is how:
http://www.theregister.co.uk/2013/09/18/nsa_banking_cybersnooping/
The GAO is a load of Homelander tosh. ‘Tax expenditure’?? Well let’s look on the flip side of that coin, what contribution does the US make to foreign countries keeping the lights on, roads paved, schools open, and quality medical care? Answer zero.
The bottom line is still the US wishes to ‘skim’ off any excess it can claim after foreign tax credits etc. and give nothing back in return.
FEIE only gives USCs abroad a $95,000 buffer while dollar $95001 starts at the marginal rate at that income. The US Congress is not really giving much away.
If they scrap FEIE another good reason to renounce.
Homelanders see us as a cost, but don’t consider they pay out zero as well. It’s all mental health territory.
btw. is everybody aware that from those 7-8 million expats approx. 15% owe income tax to the IRS and we are talking about 1 million taxpayers that would have the “power” to vote with their 1040s against CBT.
@Sharktank
Assuming any of these statistics are true, how does one vote with their 1040?
7 – 8 million expats is a widely accepted number as of today and so is that approx. 85% of expats do not owe any tax beyond FEEI…
I know this is a blog and protest movement with regards to mainly canadian duals,expats,accidentals etc. but the power that we all together have as one voice is kind of laying bare and untouched so far.
For 2014 the FEIE is $99,200 and here is the risk going forward that this will disappear at some point which necessarily could not be only a bad thing LT.
Maybe someone here can educate me (maybe Shadow Raider or Badger) who would be lobbying in Congress for still keeping the FEIE .
Now back to Bubblebustins question how we can vote using our 1040s.
I think I mentioned this example of mine here about 2 years ago how I did protest against the double taxation of the US and the current country I am living and working in. We all know here that the US tax sytem does not go well with most other foreign tax systems which means for example what can be deducted in my foreign country cannot be deducted on my 1040 etc. Now legally it is totally up to me to decide if I maximize my deductions on my foreign return or not – basically the more taxes I pay abroad the less I owe to the IRS and of course vice versa. In my example it was the renovation/replacement of my roof. In my foreign country 50% of the total cost was deductible in the year of the expense and 50% was value added which will be deductible when the property is sold. In the US I would have to wait for 100% of the cost to be deductible when the property is sold. In my case I decided not to claim the deduction and forego the refund (maximized my local tax liability) but with the consequence that the IRS did not receive $22,499.00 in extra income taxes from me. Now this was a one time example but what I do every year and this would be possible for the other 1 million of expats all over the world that owe the IRS income tax beyond the $99,200 FEIE is that they have legally the power to not claim certain local tax deductions (work expenses, travel costs, mileage, education supplements, child care, child deductions , private medical cost and premiums, private insurance premiums etc. )
Conservatively without going overboard anybody of those 1 million expats could refuse to take $3-6,000.00 worth of deductions and increase their local taxable income by this amount which in return will reduce their US-1040 income tax liability by at least $1-2k (marginal tax rates outside the US > 35%). The economic damage could be 1mio X $1-2K or $1-2 billion per year for the US.
Personally I am done doing my foreign tax return in under 15min. now and refuse to claim local tax deductions of approx. $15K p.a. I still owe income taxes to the US but they have legally been missing out on > $6K p.a . Is this unpatriotic ? Yes of course but why should I support CBT ?