Pulitzer prize winning reporter, David Cay Johnston, recently wrote a featured article in the January/February issue of Mother Jones magazine.  Johnston, who also was the opening speaker at our Accounting Seminar this past October, proposes 14 ways to reengineer our economy for future success.  It all starts with the invasion of a few islands in the Caribbean…

1-”Invade the Caymans”

These three small islands located in the western Caribbean are now the fifth-largest banking center in the world.  A 2008 report by the U.S. Government’s Accountability Office, stated the Cayman Islands has almost $2 trillion in bank liabilities.    Much of this liability is a result of tax havens for hedge funds and corporate profits.

Tax evasion takes millions and millions of dollars from the government that could be used to boost our economy.  Johnston states, “…since the island nation’s total armed forces consists of about 300 police officers, it shouldn’t be hard for technicians and auditors, accompanied by a few marines, to fly in and seize all the records.”  In all seriousness, Johnston concludes, “Barring gunboat diplomacy (tempting as it is), there is no reason we cannot pass laws to block financial transactions with tax havens…”

2-”Wean Wal-Mart (and the Yankees)”

Many big retail chains, like Wal-Mart, receive sales-tax givebacks to pay for the cost of building new stores, as well as exemptions from property taxes.  This results in as much as 9 percent extra profit for new retailers.  This gives them a big advantage over more established, and often locally owned businesses.  It’s also a direct hit to the local economy since that 9 percent is going back into Wal-Mart’s pocket instead of the local government.

Similarly, professional sports teams receive over $2 billion a year in taxpayer subsidies according to Forbes.  When you consider that annual operating profits are only $1.6 billion, “taxpayers literally provide all the profits of the MLB, NFL, NBA, and NHL combined.”

3-”Quit Cooking the Books”

Companies keep a set of books for income tax purposes and another for financial reporting.  Many devices, such as tax shelters and offsetting income with losses from previous years causes decreases in income for tax purposes and increases in income for reporting purposes (and investor purposes).  “It’s time to require companies to use the same accounting rules across the board-and then demand immediate payment of unpaid taxes.  This would align the interests of investors with those of taxpayers while eliminating the obvious moral hazard of keeping two sets of books.”

4-”Save Our Savings”

Eliminate taxes on the first $500 of savings account interest earned.  If Congress applied this change “people could set aside almost $17,000 with tax-free interest (assuming 3 percent interest) to cushion the shock of a layoff, accident, or illness.”

5-”Stop Indenturing Students”

The cost of public colleges has skyrocketed in recent years.  Many students are entering the work-force burdened with debt from student loans.  Putting so much debt on the next generation ultimately weakens the economy.  “Indenturing the brightest young minds in an information society is the equivalent of eating your seed corn in an agrarian one.  In the long run, you’re doomed.”

6-”Drag the IRS into the 21st Century”

Johnston summarizes his article with this statement, “At a deeper level, it’s time for a national debate about how we can go from our existing federal tax system, which was well designed for the 20th century but now throws sand into the economy’s gears, toward an efficient, effective system for sustaining a 21st century democracy.”

Mr. Johnston’s other 8 suggestions can be found at the following link to the full-article:

“Fiscal Therapy” by David Cay Johnston

What do you think?  Would revolutionizing the tax code really save our economy?  Where should we start?  Wal-Mart?  The NFL?  Or is it time to invade the caymans?