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Who Pays $25,000 For A Fax Machine? You


Up Front: TAX FOLLIES

WHO PAYS $25,000 FOR A FAX MACHINE? YOU

Does importing tweezers at $150 a pair sound like a good business proposition? How about bringing in fax machines from Japan priced at $25,000 each? Or exporting U.S.-made stoves to Colombia for $76 each? Well, such deals are costing U.S. taxpayers plenty.

In a comprehensive look at U.S. trade trans-actions, two Florida International University professors found evidence of egregious artificial pricing practices to evade U.S. taxes. Say a company imports a $50 item to the U.S. and sells it for $100. It pays about $17 in taxes on the difference. By inflating the import price to $99, it would pay only 34 on the $1 difference. Similarly, prices of exported goods are artificially deflated.

Overall, John Zdanowicz and Simon Pak estimate such phony deals cost $28.7 billion in lost tax revenues in 1992--and possibly as much as $109 billion. "We've confirmed mathematically what individuals had suspected for some time: that there is significant over- and under-invoicing of international trade," says Zdanowicz, who directs FIU's Center for Banking & Financial Institutions.

While the data did not identify the companies involved, Zdano-

wicz and Pak say that the biggest losses--$4 billion--involved trade with Japan.Gail DeGeorge


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