Canada and the World
Current Events with a Canadian Perspective
Last update
01 December 2011
Tax Cheating a Growing Problem
Which is the bigger threat to government
revenues, welfare cheats or tax evaders?
Many conservatives hold the view that people on welfare are too lazy to work and
prefer to spend their social assistance cheques on beer rather than go out and look
for work. As with all stereotypes this one is inaccurate.
No doubt some people on social assistance are slothful wastrels and probably some want to work but are trapped in a cycle of welfare dependency.
No doubt, there are also some very rich people with inherited wealth who idle away their time on useless pursuits, while others among their number work incredibly long hours to achieve their level of comfort.
Ronald Reagan Creates the Welfare Queen
Former U.S. President Ronald Reagan often wove into his speeches the story of someone he called the “Welfare Queen.”
She was supposed to live in Chicago, and she had created a slew of different identities as well as a clutch of deceased spouses who happily cashed their monthly government cheques.
This elaborate scheme was cooked up, said the President, so that she could bilk the system and keep up the payments and maintenance on the Cadillac she drove.
But, Reagan’s Welfare Queen was a work of fiction. The Washington Post dug into the story and the worst it could find was a fraud of $8,000; no Cadillac, no multiple personalities, a no dead husbands getting government cheques.
Proving the Welfare Queen to be the figment of some speechwriter’s imagination didn’t bother Reagan; it was too good a yarn to leave out of his speeches and he repeated it so often it is now part of folklore.
Level of Welfare Cheating is Low
Numbers on the extent of welfare fraud are hard to come by but a York University
study (March 2005) in Toronto found that: “The number of convictions for 2001-
Suppose each person ripped off the maximum (that would be $7,020 in 2009 and would have been less in 2001 when the study was done); the accumulated total of the swindle could not be more $2.7 million. In the world of tax evasion this is chump change.
In October 2010, ChannelOnline TV reported that the British “government is to spend
an extra £900m ($1.4 billion) on winkling out tax evaders who are cheating the country
out of an estimated £7bn ($11 billion) a year.”
Tax Havens
Coming under Scrutiny
Liechtenstein is a tiny country (population 34,000) in Europe that is sandwiched between Switzerland and Austria.
Among its claims to fame are that it is a prolific issuer of postage stamps and one of the world’s largest suppliers of false teeth and sausage casings.
But, the country’s considerable wealth comes from its banks that are legendary for being discreet and accommodating with depositors and which live behind an impenetrable wall of bank secrecy laws.
In a profile of the country, the BBC writes that Liechtenstein is a tax haven where about “75,000 companies have their nominal ‘letter box’ offices…” because “business tax rates are very favourable.”
That’s more than two companies for each Liechtensteiner. But, the fun may be about to end.
The BBC’s Ian Pollock wrote (September 2009) that an investigation by his news organization “revealed how Lloyds Bank’s offshoot in Jersey has been less than scrupulous in its advice to potential tax dodgers.”
The U.K.’s tax authorities “gave people a second chance to come clean and pay tax, plus interest and limited penalties, on money they may have been hiding in bank accounts abroad.”
Canadians Hiding Money Offshore
Similarly, in Canada, the Globe and Mail and the CBC have ferreted out some high rollers that the Canada Revenue Agency would like to talk to regarding their bank accounts in places such as Liechtenstein and Switzerland.
Greg McArthur reported in the Globe and Mail that RBC Dominion Securities had been
helping its well-
In the fall of 2010, news popped up that HSBC accounts in Switzerland’s normally
deeply secretive banking system had been penetrated by investigators.
This follows similar revelations about accounts at the UBS bank from which Revenue Canada expects to recoup more than $30 million.
The Kingston Whig-
Tax Cheating and the Wealthy
More and more cases are being uncovered. According to Janet Novack at Forbes (October
2008), tax authorities in 
the U.S. estimate “that taxpayers whose true income was
between $500,000 and $1 million a year understated their adjusted gross incomes by
21 percent overall in 2001, compared to an eight percent underreporting rate for
those earning $50,000 to $100,000.”
Novack was quoting from a study by University of Michigan economics professor, Joel Slemrod, and Andrew Johns from the Internal Revenue Service.
As governments all over the developed world are struggling to balance their books they are taking a closer look at the accounting practices of some of their better off citizens. There would appear to be a tax windfall in the offing.
Sources
“The Mendacity Index.” Washington Monthly, September 2003.
“Welfare Fraud: the Constitution of Social Assistance as a Crime.” Prof. Jane Mosher et al, York University, March 2005.
“Country profile: Liechtenstein.” BBC News.
“Canada’s Largest Brokerage Firm Linked to Alleged Tax-
“19 Canadians Reveal Offshore Accounts.” The Kingston Whig-
“Rich Cheat on their Taxes more, Study Shows.” Janet Novack, Forbes, October 22, 2008.
© Canada and the World, December 2011
All rights reserved
Ancient Rome had an inheritance tax of five percent, later 10%; however, close relatives of the deceased were
exempted. Perhaps it was felt they had already suffered enough in the
loss of their loved one.
According to Ferdinand Grapperhaus, author of Tax Tales, the origins of modern taxation can be traced to wealthy subjects paying money to their monarch in order to avoid military service.
“Taxes are what we pay for a civilized society”
U.S. Justice Oliver Wendell Holmes
TAX HAVENS
The Cayman Islands in the Caribbean offer sun, sand, surf, and bankers who don’t ask a lot of questions. There are three islands in the group, which is a British protectorate.
The 36,000 permanent residents enjoy the services of more than 600 banks.
The tax and banking laws of the Caymans ensure complete confidentiality, and this has encouraged many people to place large amounts of money on deposit in local banks; a recent estimate was $770 billion.
A great deal of that money is put there to keep it out of sight from inquisitive tax inspectors and law enforcement officers.
In recent years, Cayman banks have yielded to international pressure to allow the police to have a peek at some of their customers’ accounts.
These are those of suspected organized crime figures and drug traffickers who use
the banks in the Caymans to hide money generated by illegal activities. But, the
bankers remain tight-
But, the Cayman Islands is just one of many places that show a curious lack of interest in where their clients’ money comes from.
It’s said there are 45 tax havens around the world with total deposits estimated at $5 trillion. That’s equal to one third of the world’s international money supply.
“Income tax has made more liars out of Americans than golf.”
American humourist Will Rogers