By now some Americans are likely aware of the news that the leaked records in the Panama Papers exposed a world of what should be considered unlawful tax avoidance by the rich and powerful. What is less likely known is that in 2007 European and American leaders were already starting to work in concert with Panama to rein in the practices that were depriving many of the world’s nations of tax revenue and it is an important fact.
As if the topic needed more drama, the release of the Panama Papers somehow became “a hot issue” on the presidential primary campaign. At issue is the free trade pact with Panama that is curiously being portrayed as “the disaster that created Panama’s booming offshore banking business and tax haven for wealthy international tax avoiders.”
One presidential candidate took advantage of the leaked Panama Papers covered here and here to condemn President Obama and members of his Administration for helping the uber-rich and corporations evade paying taxes by contributing to the expansion of Panama’s tax havens with a free trade deal.
“I predicted that the passage of this disastrous trade deal would make it easier, not harder, for the wealthy and large corporations to evade taxes by sheltering billions of dollars offshore. I wish I had been proven wrong about this, but it has now come to light that the extent of Panama’s tax avoidance scams is even worse than I had feared.”
The only problem with that criticism against the President and the trade pact in general is that it is not founded in any kind of reality. Contrary to the negative “prediction” and “stated facts,” evidence in the Panama Papers themselves informs “that the truth is nearly the opposite of the assertions.” It is why the course of wisdom is always vetting one’s facts before making bold proclamations or criticizing the President, even if it means taking a minute to look at the readily-available empirical data. That is what an international group of 190 investigative journalists did.
The International Consortium of Investigative Journalists (ICIJ) culled through reams of data from the Panama Papers and presented several charts and graphs on the consortium’s website. The charts show that the Panama-based law firm whose specialty was setting up offshore accounts and shell companies for the rich and corporations has steadily reduced its activity in Panama; for nearly a decade. In fact, the reduction started slowly close to the time Panama and the Bush administration first began discussing a free-trade pact. But after the deal actually took effect during President Obama’s first term, the reduction in “offshore incorporations” accelerated incredibly and rapidly when the trade deal was enacted. Don’t believe it?
In 2005 there were 4,741 offshore incorporations in Panama to evade taxes, and by early 2015 the number fell to 835. What is more important is that the law firm setting up the lion’s share of “incorporations” has “nearly completely ceased incorporating the least transparent form of company known as ‘bearer shares’ which typically does not register under an owner’s name.”
As noted above, long before the free-trade deal was in place, Panama was under pressure from both the United States and Europe to clean up its tax-haven act. After the Republican financial crisis in 2008, the Obama Administration intensified pressure on Panama with a Democratic Congress’ support. The President made it abundantly clear to Panama that if they really wanted a free-trade deal as badly as they claimed, they would agree to his conditions; sign a separate agreement “granting U.S. tax authorities nearly unfettered access to Panama’s financial system.”
President Obama’s particular insistence was that Panama immediately “plug the bearer shares loophole” and change its laws. Panama agreed to meet President Obama’s terms, granted access to American tax authorities, and changed its laws well in advance of the free-trade agreement even reaching the Senate for final approval. Still, some Senators voted no because they knew “it would make the tax haven problem much worse.” The Panama Papers prove that prediction to be blatantly wrong and it is curious why President Obama is still getting criticism for an action that reduced not increased, offshore tax havens in Panama.
It is true that there is no such thing as a perfect trade agreement, international treaty or pact, or finely-tuned and well-crafted legislation for that matter. It is, frankly, quite like “the perfect candidate;” they just do not exist. However, there was a monumental reduction in tax shelters in the free trade deal with Panama making it clear that although “not perfect,” President Obama’s approach to the tax haven issue improved considerably on the status quo; he certainly did not make it worse and his approach was more effective than doing what the Congress proposed, nothing whatsoever.
There is only so much a President can do to affect tax avoidance schemes, particularly in a foreign country, without Congress behind them. This President has made progress on his own such as the Treasury deal reining in pharmaceutical giant Pfizer’s attempt to change its corporate address to avoid American taxes. As no small number of pundits are saying about the President’s handling of trade deals and tax cheats, “far from selling out to corporations, President Obama has consistently made the right calls to create progress on an important and outrageous issue such as tax evasion.”
In the case of the Panama free trade deal, the President made the right call that reduced the economic damage of tax evasion to more than just America. And for that he is getting wrongly criticized because “he missed an opportunity to completely eradicate tax havens.” No, what the President did, without any assistance from Republicans and without Panamanian officials ceding control of its government and becoming part of the United States, is make significant and real, measurable progress to reduce tax avoidance by the rich and corporations; and he did it using a free trade deal that has enriched America.
As one pundit noted, politics cannot be about “allowing the perfect to be the enemy of the practical, or opposing an improvement to the status quo when there is no clear alternative in the works.” Everything detailed in the Panama Papers is abominable and must be addressed and it has to be addressed by more than the President. Hopefully now that the world is aware of the issue there will be more progress made on an international scale. But in this dysfunctional American political environment, any chance of achieving real progress cannot be thwarted by anybody’s idea of “perfection.”
President Obama’s trade deal with Panama is not perfect, but it engendered real progress by drastically reducing Panama’s tax shelters. The Panama Papers fairly proved once again that trade deals are not inherently evil, and that it is a good idea to check the data before condemning President Barack Obama or anyone in his Administration for being a corporate sellout when he effectively did the exact opposite.