The Tax Cuts and Jobs Act: Corruption by Another Name? Or Just Ordinary Law-Making?

Last December, the U.S. Congress passed, and President Trump signed, the Tax Cuts and Jobs Act. The debate over this law—characterized as the most “consequential tax legislation in three decades”—and the reaction to its passage was polarized and acrimonious. This is usually the case with tax debates, perhaps especially in the U.S. What was more notable and less typical, though, was the extent to which critics of the Act used the language of corruption to characterize both the Act’s substance and the process through which it was passed. (See here, here, here, and here). For example:

  • At several stages of the process, the votes of key Republican Senators seem to have been secured (some might say “purchased”) with special provisions. In fact, Texas Senator John Cornyn, the majority whip, openly admitted that provisions designed to appeal to individual Republican Senators were included in the final bill in an effort to “cobble together the votes we needed to get this bill passed.” That by itself may not be so unusual, even though many would find it distasteful. But in some cases, the special provisions were not only ones that these Senators favored on ideological grounds, or that would benefit their constituents (and hence the Senators’ re-election hopes); these special provisions also provided substantial personal financial benefits to the holdout Senators. For example, Wisconsin senator Ron Johnson was the first Republican to oppose the bill, on the basis that it would double the gap between corporate tax rates and the rates applicable to individuals receiving income from “pass-through entities”. Ultimately, the bill was amended to accommodate Senator Johnson’s concern by incorporating a 20% tax deduction for such entities. As it happens, Senator Johnson himself has millions of dollars invested in four such entities. Or consider Tennessee Senator Bob Corker, a critic of early versions of the bill who had asserted that he would not approve of adding even “one penny” to the “rapidly growing national debt.” Yet Corker ended up voting for a revised version of the bill that would add over $1 trillion to the deficit. What accounts for the change of heart? Critics point to the fact that the revised bill also included a new tax break that would increase Senator Corker’s personal income by up to $1.2 million every year (dubbed the #CorkerKickback on Twitter). Senator Corker claimed ignorance of how the bill would personally benefit him, though the fact that he reportedly earned a total of more than $8 million of income from the entities that were granted the tax break make this ignorance highly unlikely.
  • And then there’s President Trump. The Tax Cuts and Jobs Act could reduce President Trump’s personal tax bill by tens of millions of dollars. President Trump reportedly earned between $41 million and $68 million of income from 25 pass-through entities (which were granted the new tax break which also benefited Corker). He has not divested, in any meaningful way, from his investments. He has also refused to release his taxes on the pretext that he cannot do so as he is under audit, even though no such rule exists. The passage of a tax bill that confers such enormous benefits on the President seems to many like a form of “legalized corruption.”
  • In addition, Republican Party leaders admitted that passing the Tax Cuts and Jobs Act was necessary to ensure that the party continued to receive funding from its donors, who stood to gain millions of dollars in tax breaks—another quid pro quo of sorts. Indeed, the Republican Party has been unabashedly open about this, with Senator Lindsay Graham stating that if the party failed to push the tax bill through, “financial contributions will stop,” and Congressman Chris Collins justifying his support for the unpopular bill on the grounds that his “donors [were] basically saying, ‘Get this done or don’t ever call me again’.” That may not meet the legal definition of corruption in the United States, but to many voters and commentators it certainly seems corrupt.

Is “corruption” the right way to characterize the unsavory politics of the tax bill? Continue reading

What Will It Take To Pass the Sri Lankan Audit Bill?

Regular, effective auditing of public programs by an independent body is widely recognized as a crucial anticorruption tool. Yet in Sri Lanka, the legal framework that would enable such effective auditing is still not in place. Although Sri Lanka’s Auditor General’s Department (AG) has been in operation for more than 200 years, it derives most of its functions from executive practice and regulations, rather than legislation. For this reason, the office is largely toothless: It cannot take any action to enforce its findings beyond submitting reports to two parliamentary committees, but these have little to no impact, as any follow-up actions are largely dependent on executive discretion. For years, experts and citizens alike have recognized the urgent need for a National Audit Law to govern and empower the Auditor General’s Department.

Yet despite repeated efforts and a constitutional mandate, the government has still not succeeded in enacting such a robust statutory framework to govern public audits. A National Audit Bill has been in the process of “being drafted” since the early 2000s, but an actual draft bill didn’t appear until 2013. No further action was taken on that bill. When President Sirisena took office in January 2015, he declared that the government would pass a National Audit Act by March 2015 as part of his 100-day programme. But although a new Audit Bill was proposed to Cabinet in April 2015, the proposal was deferred by the Cabinet a shocking 24 times, up until October 2017. Eventually, there were encouraging reports that the “impasse” had ended and that the Audit Bill had been approved by the Cabinet. But it was not to be: it turned out that what had been approved were amendments to the proposed bill, and not the bill itself. Subsequently, the government stated that it will not be submitting the Bill to Parliament – back to square one.

Why the seemingly interminable delay? It appears that the main reason for the impasse, at least since 2015, is a contentious section which vests the AG with the power to impose a surcharge—that is, to disallow public expenditure and require monies found to have been used improperly to be refunded by the guilty parties. This has met with resistance, mainly because it would take decisions concerning enforcement out of the hands of politicians. (Opponents of the bill also claim that it would hinder the carrying out of public duties by politicians, such as when urgent funds are required to respond to natural calamities.) Yet many reformers insist that giving the AG the surcharge power is necessary and non-negotiable.

If progress on the Audit Bill is to move forward, something has got to give. In my view, despite all the policy arguments for granting the AG the surcharge power, it’s better to move ahead and enact an Audit Act that lacks this provision, rather than allowing this sticking point to further hold up its passage. This is one of those situations where we can’t let the perfect become the enemy of the good. Continue reading

Can Sri Lanka Clean Up Its Elections?

Schools bags, school books, seed and fertilizer, clothes, sewing machines, clocks, calendars, and mobile phones – these are just some of the items that were distributed to the public during the 2015 Sri Lankan Presidential election campaign as “election bribes”. Indeed, this election was plagued by widespread violations of election law and the blatant misuse of state resources, including the illegal display of cut-outs, distribution of money during political meetings, the use of vehicles belonging to state institutions for propaganda purposes, and the construction of illegal election offices. Moreover, overall spending on election activities by the two main candidates was colossal. Incumbent Mahinda Rajapaksa (the losing candidate) is reported to have spent over 2 billion Rupees (approximately US$13 million) of public funds on his advertising campaign alone, excluding the cost of production, while the winning candidate, Maithripala Sirisena, is reported to have had a budget of 676 million Rupees (approximately US$ 4.4 million) for electronic and print media.

In this context, reports that the Cabinet of Sri Lanka has unanimously approved a proposal to amend the country’s election laws in order to place more controls on campaign-related expenditures is good news. Such reform would address a gaping void in the existing legal framework: although Sri Lanka has laws prohibiting vote-buying and similar practices, there are currently no laws regulating campaign finance. The specifics of the approved Cabinet Memorandum are still not publicly available, and it is therefore not yet possible to offer a detailed evaluation of the proposed changes. Nonetheless, given what we already know about election campaigns in Sri Lanka—especially regarding the corruption risks associated with the lack of adequate regulation—it is possible to offer a few general observations and recommendations. Continue reading

Fake News: An Emerging Threat to Anticorruption Activists

The reputation of the Anti-Corruption Action Centre (ANTAC), a Ukrainian anticorruption NGO, was called into question in May 2017, when a video featuring a report from the American “News24” network appeared on YouTube; the video reported on investigations into the finances of Vitaliy Shabunin, the head of the ANTAC board. A few months later, in September 2017, Ukraine’s NewsOne featured a live broadcast of a sitting of the US Congressional Committee on Financial Issues in relation to alleged corruption in the National Bank of Ukraine (NBU). The hearing focused largely on the conduct of Valeriya Hontareva, who had championed reforms of the banking sector to prevent misuse of the system by business tycoons. The panelists suggested that Ms. Hontareva was herself corrupt and being investigated by the US Congress.

Reports that leading figures fighting for more integrity in Ukraine might themselves be corrupt are, of course, disturbing. What’s even more disturbing is the fact that both of these stories were completely fabricated. News24 does not exist. The news anchor who appeared in the purported News24 video was an American actor named Michael-John Wolfe, hired through the site Fiverr.com. As for the broadcast of the hearing before the “US Congressional Committee on Financial Issues”—there is no such committee. The so-called “hearing” was in fact a private event organized by lobbyists (including former congressman Connie Mack), held in a room in the basement of the US Capitol without the attendance of any current members of Congress. (Representative Ron Estes (R-KS) sponsored the room’s booking, apparently in violation House ethics guidelines.)

Although attempts to tarnish the reputations of activists and reformers are not new, the two incidents described above reveal that anti-anti-corruption forces are beginning to deploy the “fake news” tactics that garnered so much attention in recent elections, especially though not exclusively in the United States. And while in these incidents fake news was used as an offensive strategy, fake news has also been deployed defensively, for example by the wealthy and influential Gupta family in South Africa, to shake off allegations of corruption.

Although these efforts in Ukraine seem clumsy and easily exposed, it is likely that fake news will be an increasingly difficult challenge for anticorruption efforts in the years to come. The fake news phenomenon threatens to undermine anticorruption efforts in a variety of ways: Continue reading