Tax Dodge Makes for Great Vacationing

By :: July 8th, 2011

I’ve been collecting shells on the beaches on the beautiful barrier island Assateague and marveling at those famous marsh-dwelling ponies for about fifteen years. Until my most recent visit over the 4th of July, I’d believed that those ponies arrived there via shipwreck. Great story. Turns out, though, the whole thing was probably a tax dodge.

According to a brochure at the Visitor’s Center, the ponies were brought to the island 300 years ago to avoid a British tax imposed on livestock. Stockmen sought a place where their horses could roam and graze tax-free. Some found Assateague Island – where there appeared to be lots of food and no worry of escape.  It was, in the end, a nice colonial tax- avoidance scheme—sort of an equine tea party, if you will.

Corporate America learned something from these early colonists – avoiding taxes can be as simple as keeping your valuables offshore. In today’s tax system, if you bring those assets back, you owe tax. But corporate America is now looking for a tax break in the form of a repatriation holiday, akin to what they received in 2005. They’d still pay some tax, but a much reduced rate – probably around 5 percent rather than 35 percent.

Last time Congress served up this treat. Policy makers were led to believe that returning overseas corporate income to the U.S. would be great for job creation and revenue. Trouble is, the money went mostly to shareholders, not new hires. As my colleagues William Gale and Benjamin Harris have pointed out – along with lots of other tax experts – it’s a terrible idea.

 I guess some things never change. At least in Assateague, a tourist attraction was born. Not sure what benefit – other than lining the pockets of corporations – this modern tax dodge might yield.