Inversions, Panama schemes mean the ordinary wage-earner gets stuck paying the taxes: Don Pittis

After the Panama Papers were released I spotted thistweet:"Wife calling .... wants to know why we are the only morons apparently still paying taxes."

It's not just a joke.

• Panama Papers: Iceland's PM resigns amid protests over offshore tax haven revelations
• Pfizer-Allergan merger in doubt as new U.S. tax inversion rules proposed

Paying your taxes used to be a moral duty, but primed by growinganti-tax rhetoric, the moral rules havechanged. As tax avoidance becomes morerespectable and its legal methods more labyrinthine, governments are going after the soft option, ignoring the hard nuts to focus on taxing theaverageshmo.

Inversion crackdown

The threat yesterday by U.S. Treasury Secretary Jack Lew to crack down on tax inversionscame as a shot across the bow of a deal by drug giantPfizer. It wantsto merge with another companyas a scheme toslash its tax bill by pretending it is actually Irishfor tax purposes.

Irish business taxes are 12.5 per cent. In the U.S. they are 35 per cent.

A day later, the Pfizer-Allergan deal is deadbecause the Treasury Department's newrules would make trying to exploit that tax loopholenot worth the effort. And that's a good thing, the White House says.

Stuck with the tab

"It sticks the rest of us with the tab," said President BarackObamaata news conference calling on Congress to push through the tax inversion changes.

Despite presidentialattention over inversions, plusthis week's ruckus over thePanama Papers which have already claimed atleastone high-profile victimthe world's governments have been paralyzed in their attempts to capture escaping tax revenue.

"While lawmakers have introduced anti-inversion bills, none have been passed," said one U.S. news report in a line buried at the bottom of a story trumpeting the crackdown,"and the chance that Congress will embark on business tax reform this year is very slim."

The fact is, governments are in an unequal battle. In an earlier era, even the biggest corporate giants were under the power of the one or sometimes two countries where they didmost of their business.

Huge and unattached

In the years since, corporations have become huger andless nationally attached. Theymanufacture orbuyparts in many placesaround the world while beingable to run much of their day-to-day operations telemarketing, billing, IT, administrationanywhere there are computers. National residency becomes a mere formality.

Meanwhile, governments have been intentionallyweakening themselves, whetherunder the starve-the-beastprincipleor simply to try to get their budgets under control in an era ofshrinking revenue.

While business growth stagnates, finding legal ways to pay lower taxes has been a bumper source of revenue for corporations and rich people. Money in offshore tax havens is estimatedin thetrillions of dollars.

The staggering power of that kind of moneyto buy accounting expertise, to lobby governments at home and abroad, to get the best legal helpor even to hire the best crookedhelp, maybe literally overwhelming. Governments find themselves unable to pass laws fast enough toclose the freshly devisedloopholes.

Revenue agency cuts

It used to be considered slightly shady to skip out on your taxes. Of course, in the world oftax consultantsthere has always been a view that getting your taxes down using any legal means possible was not onlyacceptablebut ideal.Thatview is now becoming almostuniversal.

If you're really rich your tax experts will tell youyou're crazy to be a resident of Canada at all. Just live in a nice warm tax shelter six months of the yearand fly to Canada when you need to visit the grandkids or do business.

'Folds like a cheap suit'

"If you have enough money to move your funds overseas, you have enough money to retain lawyers and accountants and, rather than fight, because of a lack of resourcesthe revenue agency folds like a cheap suit," saidPEI Senator Percy Downe in a CBC interview.

Governments need revenue to go on operating.If corporate tax goes abroadand rich people's taxesgoabroad, who is left paying the taxes?

Well, you and me, of course.

Coming down hard on middle-class Canadians is cheap and easy.Income taxes on salaries and pension income, consumption-based sales taxes, property taxes andfees for government services are all hard to escape.

This is one more reason to set aside all the scare talk of frighteningawaythe rich people with high tax rates. More effort should be put into closing the loopholes to make sure they pay their share.

Meantime, governments need tofigure out ways of raisingwages to make moreCanadiansmiddle class. At this rate, soon we'll be the only ones left paying taxes.

Follow Don on Twitter@don_pittis

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