Mayor Bloomberg’s Off-shore Tax Havens: Legal, and Wrong

It has been revealed that New York City Mayor Michael Bloomberg’s family foundation makes extensive use of off-shore tax havens and hedge funds in the Cayman Islands, avoiding U.S. taxes that other major foundations choose to pay. You know the Cayman Islands: that’s where the criminal law firm in John Grisham’s novel The Firm helped its Mafia clients hide their income. I’m not suggesting that Bloomberg is ripe for a takedown by Tom Cruise. I am suggesting that it looks terrible, and leaders have a duty to avoid looking terrible.

Off-shore tax havens are legal, but only because the U.S. hasn’t found a way to close the loop-holes in the tax laws that allow them to persist. Elected officials rail about the use of tax havens by wealthy Americans to avoid millions in taxes (that they use such strategies is not unrelated to why they got rich in the first place,) and even call them “tax cheats.” You’re not cheating if you’re sticking to the rules, however, even when the rules are flawed or unfair. This is good enough for some otherwise respectable institutions, such as Yale and Duke Universities, to gladly avail themselves of the benefits offered by off-shore hedge funds; others, like Bill Gates’ foundation, regard such tax dodges as unethical. As the Gates Foundation’s Web site puts it,

When instructing the investment managers, Bill and Melinda also consider other issues beyond corporate profits, including the values that drive the foundation’s work. They have defined areas in which the endowment will not invest, such as companies whose profit model is centrally tied to corporate activity that they find egregious.”

Different strokes for different folks, you might say, except when the different folk is a high-profile big city mayor who complains loudly about the misallocation of Federal taxpayer funds and the unfair tax burdens on ordinary Americans. Except when the “folk” has a duty as a leader to exemplify the best in citizenship—to do what’s best for the city, state, and country—rather than the bare minimum, which is to do whatever the current state of the law will allow, as long as it pays. The latter approach, it is worth noting,  was the model followed by Mr. Bloomberg’s Wall Street, which rode legal but unconscionably risky investment strategies to near financial ruin, requiring bakers and candlestick-makers to give their hard-earned cash to bankers and investment executives to stop an explosion of apple vendors in the streets of America.

The New York Observer article about the shady investments of the Bloomberg fortune quotes tax expert Dean Zerbe, a former staffer at the Senate Finance Committee: “Is (using the loophole) allowable under the law? Yes. Is it something that is a best practice, particularly by an elected official? I think they should look very hard when they are engaging in this kind of activity. What does it say to the average New Yorker?”

I suspect it says to the average New Yorker what it says to me. It says, “The Mayor of New York City, like so many other elected officials, gives lip service to values like patriotism, integrity, responsibility and civic responsibility, but he neither believes in these things, nor practices them, unless they involve no personal sacrifice.”

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