Hiding Corporate Money

by Molly Ivins

The New York Times reports a "megatrend" among American companies to incorporate in Bermuda in order to sharply reduce their taxes. Assorted financial advisers are encouraging these "moves," which involve nothing more than setting up a mail drop and paying a few fees. It's not necessary to have an office or to hold meetings there. One tax partner with Ernst & Young did cite patriotism as "the only potentially troubling issue," according to the Times, but concluded that profits trump patriotism. "We are working through a lot of companies who feel that it is (the right time to move offshore), that just the improvement on earnings is powerful enough that maybe the patriotism issue needs to take a back seat to that," said the partner's memo quoted in the Times.

Just a few years ago, Americans were quite famous for paying their taxes: no one has ever paid taxes happily, but they were regarded as one of life's inevitabilities, famously in the same category as death. But we seem to be entering a "taxes are for suckers" era: Perhaps we should call it the Leona Helmsley Movement after the hotelier who observed, "Only little people pay taxes."

A recent report by the Internal Revenue Service says the number of Americans with million-dollar incomes more than doubled from 1995 through 1999, but the percentage of their income that went to federal income taxes fell by 11 percent because of capital gains tax cuts. The same study shows that the incomes of Americans who make less than a million grew as well, though only slightly, and the share of their incomes that went to taxes also rose slightly. Think there's a connection? These numbers will become even more disproportionate when the Bush tax cuts for the rich kick in.

Republicans advocating tax cuts for the rich and corporations often say that they pay a bigger share of the income tax tab than the rest of us. That's because A) they have much more money, and B) their reasoning does not include payroll taxes. Citizens for Tax Justice reports that payroll taxes are the largest federal tax for three out of four taxpayers. It's like saying, "Rich folks pay more than you do, if we don't count most of what you pay."

So, why would a corporation bother to set up a shell company offshore in order to avoid taxes, since many of them, like Enron, pay zero taxes now? Enron paid no taxes in four of the past five years, yet was due to get a $254 million tax rebate from the U.S. government under President Bush's ridiculous economic stimulus package, now fortunately defunct. The company paid $17 million in taxes in 1997, but during the four years it paid nothing, it also got a total of $381 million in tax rebates by using more than 874 offshore accounts.

The Times reports the Stanley Works company of Connecticut is saving $30 million a year by moving offshore; Tyco international of New Hampshire's move helped them dodge more than $400 million in taxes last year. Ingersoll-Rand pays $27,653 a year to maintain a mail drop in Bermuda, which allows the company to avoid at least $40 million a year in taxes. You can see why this is a megatrend.

The Catch-22 is that the rest of us get stuck with making up for the missing money. We're in a fiscal mess now -- the federal budget's back in the red, we're raiding Social Security, the R's have a hissy fit whenever anyone suggests rolling back last spring's tax cuts, which, of course, benefit the rich more than everybody else to a staggering extent -- a whopping 38 percent to the richest 1 percent of Americans.

A new Zogby poll shows voters overwhelmingly support a rollback if it means more money for government programs like education, prescription drugs, environmental protection, deficit reduction and so forth. Imagine how much worse it will get when every corporation in America has moved offshore to avoid taxes. Then there will be nobody here to pay taxes but us chickens.

Mother Jones magazine reported two years ago on how easy it is to set up an offshore shell company. "It's fast and cheap. All that's required is filling out a one-page form and providing a photocopy of my passport and driver's license. The entire incorporation process -- which costs $1,000 plus $750 in annual renewable fees of $750 -- can be completed within 48 hours." I predict this process will be available on the Web any minute now, you won't even have to go to Bermuda or the Caymans to do it, and then nobody will have to pay taxes. Won't it be great?

And if you think there's no connection between the tax laws that permit this thievery and big campaign contributions to politicians, I know some people who'd like to sell you their Enron stock.