It’s a bird, it’s a plane, it’s . . . a Tax Penalty!

One of the big political stories yesterday was Republican presidential candidate Mitt Romney correcting his top advisor, Eric Fehrnstrom, thus giving us the accurate description of how the individual mandate to purchase health insurance will be enforced.  Yesterday Mr. Romney called it a tax and on Monday of this week Mr. Fehrnstrom called it a penalty.  So it’s a “tax penalty”.  Neither Mr. Romney nor President Obama has ever promised not to create a new tax penalty that is needed to promote the common good. 

Many people and businesses have experience with a tax penalty.  Don’t pay your taxes on time or file the proper tax forms on time and you get a tax penalty?

And just like existing tax penalties, relatively few ever have to pay them.

Citizens for Tax Justice estimates that “less than three percent of households”, ones that can afford to buy health insurance but choose not to accept personal responsibility (“free riders”), will face this tax penalty. 

The other big political story yesterday was my friend Nick Shaxson’s article in the August issue of Vanity Fair.  Nick, Rebecca Wilkins (Senior Counsel on Federal Tax Policy at Citizens for Tax Justice) and I gave a Congressional staff briefing on offshore tax haven abuse in April last year.  That briefing was sponsored by the Financial Accountability and Corporate Transparency (FACT) Coalition.  

The three of us in this photo taken on the Capitol steps are joined by another friend, Chuck Collins (naturally on the left), a senior scholar at the Institute for Policy Studies.

In the Vanity Fair piece, Nick “delves into the murky world of offshore finance” and discusses Mr. Romney’s “familiarity with foreign tax havens” such as his assets sitting in Bermuda, Luxembourg and the Cayman Islands.  Nick specifically points to the example of a “Bermuda-based entity called Sankaty High Yield Asset Investors Ltd.” formed in 1997, a corporation wholly owned by Mr. Romney.  The fact that Mr. Romney failed to report this business on his financial disclosure statements prior to 2010 and that Mr. Romney continues to not reveal the value of the corporation has reignited interest in the use of offshore tax havens to avoid paying U.S. taxes. 

And as we should all know by now that when the wealthy and multinational corporations hide their money to avoid paying our taxes, the rest of us end up subsidizing all the benefits of America—our infrastructure, education, military, courts, etc.—that have helped these “free riders” be financially successful.

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