Financial Transparency Coalition

On Tuesday this week, six-term Senator Max Baucus (D-MT) announced he would not seek reelection next year. The decision will end his thirty-six year long and influential career in the Senate; one which included over a decade as the top democrat in the Finance Committee and a co-authorship of the 2010 health care law. In his planned retirement, Senator Baucus will join other senior Democratic senators, including Senator Carl Levin (MI) and Senator Tom Harkin (IO).

In the wake of Senator Baucus’ announcement, the pundits, commentators, and even some Democrats have been calling his legacy “mixed.” Democrats are quick to note all of the times the Senator broke rank, for example over gun restrictions, President Bush’s tax cuts in 2001, and the estate tax. He’s even been quick to speak against the party, just this month saying the implementation of the health care law is headed toward “a train wreck.”

Despite a sometimes controversial career within his party, we should recognize Senator Baucus as one of the pioneers of U.S. legislation aimed at reducing what he has called the “tax gap” – the estimated hundreds of billions in legally owed tax dollars that go unpaid each year. As he puts it: “Offshore tax evasion costs the U.S. jobs and billions of dollars each year, and it puts an unfair burden on the average American taxpayer to make up the difference. In an era when budgets are tight, it’s critical for the I.R.S. to have the resources it needs to root out tax cheats.”

Senator Baucus has pursued many routes to reducing that shortfall, from improving voluntary compliance, to sponsoring a slew of relevant legislation aimed particularly at offshore centers and tax havens, to working with the Treasury to manage the issue. One of his most notable successes in this arena was his work (and coponsorship) of the Foreign Account Tax Compliance Act (FATCA). Along with House Ways and Means Committee Chairman Charles Rangel and then-senior Senate Finance Committee member John Kerry, Senator Baucus cosponsored FATCA in 2009 and Congress enacted it in 2010. The law targets non-compliance by U.S. taxpayers using foreign accounts by allowing the IRS and Treasury to require U.S. taxpayers holding financial assets on foreign soil to report those assets. FATCA also requires foreign financial institutions to report certain information about U.S. taxpayers directly to the IRS. Originally, Treasury planned to work with financial institutions to implement FATCA, but has since modified its approach.

Under FATCA now, Treasury will work directly with governments, establishing bilateral agreements that will allow for automatic exchange of tax information. Ideally, these would require both the U.S. and partner governments to collect data from their own financial institutions on income, gains, and property paid to non-resident individuals, corporations, and trusts and then automatically provide that data to the partner country.

Senator Baucus has, for the most part, also proved very tough on the antics tax havens and offshore jurisdictions. For example, in 2008, Senator Baucus and Ranking Member Charles Grassley (R-Iowa), worked alongside the Government Accountability Office in an investigation of potential offshore tax evasion by U.S. companies and individuals in the Cayman Islands. During the U.S.-Panama Free Trade Agreement discussions in 2009, Senator Baucus was also quick to point out the problems with Panama’s tax laws and practices. Though I would be remiss not to mention that the Senator still supported the agreement, without addressing the issue of Panama as a tax haven in it.

Before he leaves the U.S. Senate, Senator Baucus still hopes to tackle one last, big ticket item: tax reform, including “simplifying and improving the tax code.” Senator Baucus’ framework for tax reform includes four big goals: job creation, competitiveness, innovation, and opportunity. And while he hasn’t provided all the details on his ideas, he has said part of his strategy will include making “sure companies can’t avoid paying taxes on income they earn in the U.S. by pretending that they earned it in an overseas tax haven instead.” On this front, retirement may make Baucus’ job easier, or, according to some pundits, harder. Either way, before we celebrate Senator Baucus many successes—and certainly before we decide his legacy is nothing but mixed—let’s support the Senator on this massively important issue. And, perhaps, his last tax haven hurrah.