“In his budget for FY 2005 the President promises to close loopholes, halt several abusive tax avoidance transactions, and simplify the tax code.”
US President George W. Bush has made a name for himself with his efforts to root out and bring to justice the legions of evildoers, wrongdoers and general miscreants who threaten to undermine the smooth running and harmony of the United States. But those familiar with the general thrust of the President’s policies might be surprised to find he has now trained his sights on a whole new class of wrongdoers— big business. Not just any big businesses, of course, but those that are taking advantage of loopholes in the tax code to shelter their gains from the grasping hands of the tax authorities.
In his budget for fiscal year 2005 the President promises to “close loopholes, halt several abusive tax avoidance transactions, and simplify the tax code.” The President’s pledges bear a startling similarity to proposals put forward by the Senate finance committee in fall 2003 targeting, among other things, offshore tax shelters and leasing arrangements that are devised purely for tax purposes (see Milestones, November 2003).
At the time, there was concern among taxation authorities that the problems they faced were not only with the tax code but with their own capacity to pursue those who abused it. Bush appears to have taken their concerns to heart. As part of the budget proposals the IRS would receive an additional $300 million to support its efforts to encourage or enforce compliance.
The IRS attributes Bush’s promise to his “administration’s continuing commitment to ensuring that all taxpayers pay their fair share of taxes,” something that may raise some eyebrows even among his supporters. Many of those big businesses that will find themselves on the sharp end of some nasty questioning from the IRS are among Bush’s biggest fans—and they will be none too pleased to see their tax burdens grow. His political opponents, however, will almost certainly be more upset.
SNOW TALKS UP THE DOLLAR TO AVOID A CRASH
US treasury secretary John Snow visited the New York Stock Exchange in mid-January, a week after the dollar plunged to a record low against the euro, and said what he always does about the greenback.“A strong dollar is in the national interest,” he asserted.“But the best way to establish the relative values of currencies is through open, competitive currency markets.”Analysts note that the Bush administration’s sole spokesperson on currency questions has never mentioned the dollar in any prepared remarks and has only discussed it in response to questions from reporters and conference attendees. In fact, the tone of his response to the obligatory dollar question is often one of annoyance, suggesting,“Why are you asking? You know the answer,” says David Gilmore, partner and economist at Essex, Connecticut-based Foreign Exchange Analytics.
“Snow could not have been any more benign in his comments on the dollar in light of where it had fallen in the previous three weeks,” Gilmore says of the treasury secretary’s address to the US Chamber of Commerce in early January. By repeating the “strong-dollar mantra” made famous by his predecessor Robert Rubin, Snow is paying a premium on an insurance policy against a dollar crash, Gilmore says. This is because the weak defacto dollar policy behind a façade of a strong-dollar policy has some risks, Gilmore notes.The dollar’s slide could get out of control and become difficult to stop.
The dollar fell 17% against the euro last year, following a 15% decline in 2002. If it were left to the open, competitive currency markets to decide its fate, a similar decline is likely this year, analysts forecast. Throughout the dollar’s slump, they note, the Bush administration has repeatedly voiced its support for a strong dollar while letting it twist in the wind.