If you have never heard of Vanuatu, or the economics of Andorra and Labuan, then you’re one of us millions of ordinary citizens of the United States who, each year, pay a higher percentage of federal income tax revenues than is our true share.
The three places above are tax shelters for corporations and the very rich whose accountants do their homework the tax code of the United States and have the money to hire the shelter experts on the best hiding places in the world and the tax code loopholes for corporations and the truly rich in.
There has been jiggling of obscure tax code language accomplished by lobbyists and the unrestrained greed of the free market ideologues over the years, especially since the deregulation hysteria that started 30 years ago and has continued as a religious mission right up to the time that Enron turned belly-up. We’re all stuck with the cost of cleaning up the mess left by billionaires and compliant politicians.
The Enron scandal made the Cayman Islands front page news. But the Caymans are only one of the many places that make it possible for some of the less disreputable corporations of the country to cut, eliminate or even get tax refunds in years when they make large profits.
It was the Caymans that Enron used in a reverse of the usual tactic. They ping-ponged subsidiary accounts among their subsidiaries, padding the expenses with each stroke until they had built up a “cost of operation” that let them sell electricity to, for example, California, for billions above the real cost and do it with the helpless gesture, “What can we do? Our costs have gone up.”
Offshore tax sheltering is the more common corporate attraction. Recently it has been front page news that a company usually described as “venerable”
[Dictionary: "worthy of reverence by virtue of dignity, character...or age."], Stanley Works, maker of the universally known yellow-and-black measuring tapes, and other common tools. It has announced that it is ending 150 years in New Britain, Connecticut in order to move to Bermuda where there is no income tax. That will save the company and its top executives billions of dollars while still selling their goods to the American householders, carpenters and other people who work for a living and pay taxes to their own government.
A complex of companies offer corporations special services in finding the best offshore tax havens and doing all the paper work. In some cases, all it takes is less than $1,000 to open a maildrop, postoffice adddress, and small incorporation fee.
Other companies do more. One will offer tax forms that let you do it all on line. The firm will get you incorporation papers, provide some boilerplate by-laws, a letter specifying the officers and directors of the offshore paper front, an offshore banking address, a “virtual” (strictly Internet) e-mail address, fax, answering machine, signature stamp, and the other paraphernalia of a business and operation on an island you have never seen. The deluxe service, if you’re interested, costs $4,000.
For Stanley Works, for example, according to the Multex Financial Investing Reports, the tax-free Bermuda move presumably will apply to the compensation of the following Stanley officers: John Trani, chairman and CEO, receives $2.9 million compensation a year, and the annual revenue of his company in 2001 of $2.6 billion, on which the many common corporate deductions, left Stanley Works with income before taxes of $237 million, on which the company paid $78 million corporate income tax.
According to Taxpayers for Common Sense, because of this and other special tax breaks and loopholes, “many of the biggest corporations in the U.S. pay few or no taxes on their profits.”
A study by the Institute on Taxation and Economic Policy of the 250 larrgest corporations in the country found that the corporations paid an average of 20.1 percent on their 1996-1998 profits. That is close to half the “required” 35 percent corporate rate demanded by the U.S. tax code.
These largest companies should have owed $257 billion, but in fact paid $159 billion. Some of the most profitable companies in the period got tax refunds of $3.2 billion. The biggest winner in tax breaks was General Electric. Cisco Systems, second.
Most profitable had $2.7 billion in net earnings and paid no taxes. Texaco reported $3.4 billion in profits and received $304 million in rebates. Oil companies in general are major dodgers of normal income taxes.
Stock options, the favorite paper in the go-go dot-come spree, are the fastest growing winners in tax breaks. According to the Institute they do this by taking the difference between what an employee, including executives, pay for the issued options and what the options are worth. Most options are given as additions to or in lieu of pay but most for companies still in profitable business are in fact worth far more than the cost to the recipient.
Similar changes over the years have radically altered the ratio of what corporations pay into the total federal income tax pool compared to ordinary taxpayers. It has been a steady process of fleecing ordinary working people. Before World War II, the federal income tax receipts were 50-50, corporate-versus-individuals. It is now 20 corporate and 80 individuals.
Ben H. Bagdikian is a Berkeley writer, and author of The Media Monopoly.