The Bermuda Triangle: Where Corporate Taxes Disappear


Bermuda Triangle:
Where Corporate Taxes Vanish

The Bermuda Triangle is the place where taxes on US corporations and the wealthy disappear. But there is nothing mysterious about the cause of the revenues’ disappearance, or where they are winding up. Even in the wake of post-9/11 sentiment about loyalty to America, corporations and the super-rich are benefiting from the Bush administration’s tenacious defense of the right of the privileged few to secede from paying taxes to the Homeland.

Bermuda has become the best-known of some 32 tax havens, nations that have specialized in offering corporations and wealthy individuals a convenient means of stashing their money away from Uncle Sam at sharply reduced tax rates. One method: corporations set up "mailbox" operations and re-incorporate in a haven, typically hiring only one part-time employee .

Another ploy: corporations place valuable assets like patents or other "intellectual property rights" in their Bermudan or Bahamian subsidiary. So then the corporations will charge their US subsidiary fees or royalties imposed on itself by the tax-haven branch, and claim a tax deduction. Result: enormously reduced taxes.

Likewise, super-rich individuals have a variety of maneuvers to employ. They can renounce their US citizenship, while counting on zealously "anti-tax" congressmen to justify this drastic step and defend their remaining assets in the US from retaliatory government action. Less dramatically, they can send their assets to a haven, safe from taxation or even disclosure to the IRS, and then use credit cards to pay for lifestyles worthy of the rich and famous. The shift to other taxpayers: about $70 billion a year, the IRS states.

Several elements are striking about the tax haven loopholes: The staggering scale of the money cached offshore: A full one third of global GDP is nested away in tax havens, estimates Oxfam. An International Monetary Fund study estimates that the tax-haven vaults expanded from $3.5 trillion in 1992 to $4.8 trillion in 1997. The Cayman Islands alone hold $800 billion, an amount about equal to one-third of domestic US bank deposits, according to Federal Reserve data.

A gift of leverage: The havens confer enormous power to the wealthy and corporations to further ratchet down their taxes by pitting the tax havens versus the advanced nations. With a few keystrokes, wealthy investors can instantaneously cast a veto of a government’s policy direction.

Further, the secrecy afforded those banking in the tax havens has made them highly attractive for major distributors of illicit products like drugs and weapons.

Be there or be square

Many big names have shifted their incorporation offshore outright, most often to Bermuda: Ingersoll-Rand (saves at least $40 million annually); Cooper Industries; Foster Wheeler; and the already-notorious Tyco Industries (saves $400 million a year) are among them. Latecomer Stanley Works, the toolmaking firm, generated enormous unfavorable publicity when it tried to incorporate in Bermuda, triggering challenges from workers, investors and the state of Connecticut. Stanley had already cast aside some 90% of its 5,000-member blue-collar workforce in New Britain, Conn. in favor of sites like Mexico and China.

Meanwhile, DaimlerChrysler, GE, GM, AlliedSignal, RJ Reynolds, Caterpillar, and other Fortune 500 corporations had been enjoying the fruits of the "foreign sales corporation" loophole that allowed them to funnel the paperwork on their exports through tax-haven subsidiaries. But European corporations recently forced the World Trade Organization to put an end to this "uncompetitive" subsidy. The FSC loophole alone has cost US taxpayers $5 billion a year. according to Citizens for Tax Justice.

The next step in investor-rights globalization. First, corporations abandoned unionized workers for neo-slave labor in low-wage, high-repression nations. In an earlier time, executives like Henry Ford would have worried that if you laid off workers, you also laid off consumers.

However, Corporate America now has a better idea than Ford’s: any stagnation of domestic buying power can pretty well be covered by selling products to elites across the globe. Even nations like Brazil, Mexico, and India have tens of millions of prosperous consumers.

So, corporate leaders finally wondered, why pay domestic taxes when they can be evaded so easily? While federal US taxes have long been declining — they provided 25% of federal revenues in 1960 compared to a mere 7% now, the use of tax-haven loopholes further hollows out the burden.

Homeland defenders defend shifting money from Homeland

Costly though it may be, the war on terrorism apparently doesn’t demand a contribution from the tycoon sector, unlike past wars that actually drove up individual taxes to 91% on the richest Americans. "Low taxes uber alles" became the rallying cry of outgoing Treasury Secretary Paul O’Neill, Rep. Dick Armey and a coterie of extreme free-market fundamentalists at the Heritage Foundation. They have thus far fended off congressional, OECD, efforts to tamper with the tax havens.

The right of the super-rich and corporations to exploit tax is portrayed as heroically defending one’s family from the confiscatory intrusions of the taxman into the family homestead. Most grotesquely, Daniel Mitchell of Heritage has actually compared the moral courage of tax evaders to that of Rosa Parks when she refused to step to the back of the bus.

The most recent stage of this selfless crusade to preserve tax havens: After grudgingly agreeing to dump a provision that would allow tax-haven-based corporations to bid for "Homeland Security" contracts, the House Republicans secretly re-inserted the vital language, thereby infuriating some moderate Senate Republicans who felt duped. But the new provision remained part of the Homeland Security Law signed by President Bush Nov. 25.

However, Americans insecure about their economic futures need not worry, say those defending the abandonment of America, its workers, and communities.

The corporate secessionists leave us with this comforting insight provided by a Stanley Works executive: "Wealth still comes home back to the country (the US) in the form of dividends to shareholders, who are mostly Americans."

Roger Bybee is a Milwaukee-based writer and activist.

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