Democrats target hedge fund offshore tax shelters
WASHINGTON, Oct 18 (Reuters) - U.S. Congressional Democrats offered legislation on Thursday to try to stop highly paid executives from dodging taxes by sheltering income offshore.
Sen. John Kerry and Rep. Rahm Emanuel introduced the bill and called for more parity between tax-deferral schemes for average workers and the rich, such as hedge fund managers.
"Middle-class taxpayers that are saving for college or their retirement can't avoid paying taxes by deferring millions offshore," said Emanuel, who is from Illinois.
"Congress needs to reform the tax code to assure all Americans that they are on a level playing field," he said.
To comply with reinstituted pay-as-you-go budget rules, congressional Democrats are searching high and low for tax loopholes to close to bring in more government revenue.
In a statement, Kerry and Emanuel specifically targeted a handful of super-rich hedge fund managers who reportedly shelter billions of dollars in deferred income offshore.
Massachusetts' Kerry, the unsuccessful Democratic candidate for president in 2004, said he was focused on "the 'separate and unequal' system in America, where those at the very top get all the benefits and loopholes to avoid paying their fair share of taxes, and working families get stuck with the bill."
Most Americans can avoid some taxes by deferring limited amounts of income into pension plans such as a 401(k) or an Individual Retirement Account. Money in these accounts is sheltered from taxes until taken out in retirement.
This year an individual can defer up to $15,500 in income into a 401(k) and an additional $4,000 into an IRA.
But some highly paid executives who operate offshore investment funds can defer unlimited amounts of pay, Emanuel and Kerry said in their statement.
These offshore deferrals are legal, but the lawmakers said: "There is a clear inequity between the amounts that middle-class Americans can defer ... and what high-income taxpayers can defer through offshore corporations."
The bill would make taxable any pay that is deferred above 401(k) and IRA limits that comes from a foreign corporation and that does not depend on future job performance, they said.
If adopted, the legislation would apply to pay deferred in taxable years beginning after Dec. 31, 2007. (Reporting by Kevin Drawbaugh)
