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The Forgotten Legacy of the Excess Profits Tax

Thursday, July 21st, 2011

Behind all the ideological posturing going on in Washington over the debt ceiling, there is a surprising amount of consensus on the wrongheaded proposition that corporations need more tax relief.

The bipartisan Gang of Six plan that has recently been at the center of attention provides for the reduction of the statutory corporate tax rate from 35 percent down to as low as 23 percent. It also calls for moving to a “competitive territorial tax system,” which, as Citizens for Tax Justice points out, would make it even easier for companies to exploit offshore tax havens. A reported new plan being discussed by President Obama and Speaker Boehner as this is being written would probably include something similar.

Corporate domination of our political discourse makes it all but impossible for national leaders to suggest that large companies, which have been enjoying abundant profits while much of the country suffers from high unemployment and other forms of economic distress, should be paying more, not less to keep the USA afloat. Behind many of the protestations against special tax breaks for the oil industry and ethanol producers are agendas that call for lowering the statutory corporate rate for all companies.

It wasn’t always this way.  The United States has a history, now largely forgotten, of imposing higher taxes on corporations during times of national emergencies. Excess profits taxes were imposed at various times to put a check on profiteering during wartime.

The first excess profits tax was enacted in 1917, less than a decade after the basic corporate income tax came into being. It remained in place through the World War I, and in 1919 President Wilson recommended that it be made part of the permanent tax system. Congress demurred, but the tax was not eliminated until 1921, well after the end of the war.

Interest in an excess profits tax was revived in the 1930s.The National Industrial Recovery Act of 1933 used a form of excess profits tax to prevent evasion of the declared-value capital stock tax. Later in the decade, as war seemed imminent, a broader based excess profits tax began to be discussed. In 1940 President Roosevelt, insisting that government should ensure that “a few do not gain from the sacrifices of many,” sent a message to Congress calling for a “steeply graduated excess-profits tax.”

There was little disagreement on the need for such a tax. The debate centered, instead, on how the levy would be calculated—especially the question of what base would be used to determine the excess. The tax remained in effect through 1945. Only five years later, Congress returned to an excess profits tax to help pay for the Korean War.

Writing in the Journal of Political Economy in 1951, economist George Lent wrote that the tax had “been accepted as an essential part of a broad system for the equitable distribution of the cost of defense.” Unfortunately, that acceptance turned out to be short-lived. The excess profits tax enacted in 1950 was terminated in 1953, and despite an ongoing Cold War and then large-scale intervention in Vietnam, corporations were no longer expected to shoulder a significant portion of U.S. military costs.

During the past decade the situation has grown even worse. Despite the existence of two expensive wars and a trend toward privatization of military functions that makes the conflicts extremely profitable to the private sector, no one talks of higher corporate taxes.  On the contrary, the demand for lowering those taxes has been relentless.

The justification for excess profits taxation need not be linked only to military costs and the profits of Pentagon contractors. Today we are seeing excessiveness of another kind in relation to corporate profits. Most large companies are enjoying bloated bottom lines by refusing to return their workforce back to pre-recession levels. They can do this because unemployment is high, unions are weak and those with jobs find it difficult to resist demands for intensified workloads.

Along with the wars in Iraq and Afghanistan, there is a war at home—a war against workers that amounts to a form of profiteering. If the leaders of this country were not in thrall to corporations, we would be talking about an excess profits tax focused on employers that keep their staffing levels artificially low.

It could very well turn out that higher, not lower taxes are what would induce companies to begin hiring again. Those companies which resist would at least be helping reduce the national deficit rather than further enriching the investor class.

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Posted in Corporate Power, Tax avoidance/evasion, Unions | No Comments »

Amazon’s Anti-Tax Crusade

Thursday, June 30th, 2011

When large companies complain about taxes, they are usually talking about levies they have to pay out of their own deep pockets. Amazon.com is engaged in a battle to make it easier for its customers to avoid paying their taxes – their sales tax, that is, on what they purchase from the giant online retailer.

The outcome of this dispute will have broad consequences for a U.S. economy in which state and local governments face ongoing revenue shortfalls and commerce increasingly takes place online.

At the center of the dispute is the question of whether web-based retailers such as Amazon have the same obligation as brick-and-mortar stores to collect sales tax from their customers. Sales taxes are essential to the finances of state governments, accounting for nearly half of all their tax revenue. Widespread corporate income tax dodging and business property tax breaks have made the sales levy all the more important.

While traditional retailers have no choice about collecting the sales tax mandated by state and local authorities, the story is more complicated when it comes to e-commerce. A 1992 U.S. Supreme Court opinion barred states from requiring catalogue and internet sellers to collect sales tax unless they had a physical presence (“nexus” in legalese) such as a distribution center in the customer’s state. The argument was that forcing merchants to keep track of varying tax rates across thousands of jurisdictions was too onerous.

That ruling, which was handed down before Amazon.com was founded, did not mean that online transactions were tax-free. Many states require residents to voluntarily report their online purchases and pay taxes directly to the government. Most people are unaware of these rules or choose to ignore them. The failure of online retailers to collect taxes thus results in revenue losses that a University of Tennessee study estimates will reach $11 billion next year.

The Supreme Court hinted that a solution to the problem should come in the form of federal legislation sanctioning sales tax collection on remote transactions along with efforts by the states to streamline and simplify their sales tax practices. Progress on these fronts has been slow.

As people spend more and more of their money in cyberspace, some states feel they cannot wait. They have been devising creative ways to establish nexus. New York led the way in 2008 with legislation, dubbed the “Amazon law,” that requires online retailers to collect taxes if they have affiliate websites in the state promoting sales on their behalf. A few other states followed suit in 2009 and 2010.

This year the issue has mushroomed. More than a dozen state legislatures have taken up the matter, and Amazon laws have been enacted in Illinois, Connecticut and California. Amazon is furious. It responds to the new laws by vowing to terminate its relationship with affiliates in the affected states and by threatening legal action.

The company’s aversion to sales tax collection is so strong that it carries over into states in which it should have a nexus obligation. As Michael Mazerov of the Center on Budget and Policy Priorities points out, Amazon has put ownership of its physical facilities in the hands of subsidiaries and then claimed there was no basis for the parent company to collect taxes. When that has not worked, the company has sought special exemptions by what amounts to bribing the state with promises of job creation. Such an effort just failed in Texas, but Amazon prevailed in a drawn-out dispute in South Carolina.

In early June, South Carolina legislators reversed themselves and approved a bill that gives Amazon a five-year exemption from its sales tax collection duties. The move came after the company upped to 2,000 the number of jobs it promised to create in the state in the course of building a $125 million distribution center.  Amazon had also been offered subsidies such as income tax credits and property tax breaks, but it is significant that the sales tax collection issue was the deal breaker for the company.

Despite all evidence to the contrary, Amazon claims that its opposition to collecting sales tax is not driven by a desire to gain a price advantage over its competitors. Instead, the company insists that collecting sales tax in every state would be excessively burdensome.

It would be one thing for that claim to be made by a mom-and-pop operation. But this is Amazon—the online service that not only sells its customers a vast array of merchandise but also anticipates what they may want to purchase by offering an endless stream of targeted recommendations and by listing what customers who bought a particular item also purchased.

A company that has the computing power to predict the consuming habits of each of its tens of millions of customers could easily handle a few thousand different sales tax rates.

At stake are not only Amazon’s convenience and state revenue loss. By taking a hard line on sales tax collection, Amazon is contributing to the anti-tax sentiment that is doing so much harm to the country. Everyone likes a bargain, but it should not come at the expense of revenues needed to sustain vital public services.

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Posted in Retail, Subsidies, Tax avoidance/evasion | 1 Comment »

Corporate America’s Paid Holiday

Thursday, June 23rd, 2011

According to the old saying, insanity can be defined as doing the same thing repeatedly and expecting different results. But what do you call corporate executives who want the country to adopt a business tax policy that has failed miserably in the past? Crazy like a fox.

Such self-serving fiscal delusion is on full display in the current push for a “repatriation holiday.” A slew of major U.S.-based corporations are proposing that they be allowed to bring home many billions of dollars in largely untaxed overseas profits and, for a limited time, pay only a fraction of the statutory rate. According to a corporate front group called Working to Invest Now in America, or WinAmerica, this is “a common sense solution that will immediately inject up to $1 trillion into our economy and provide businesses with the security and certainty they need to help get Americans back to work.”

The group should really be called ConAmerica. The corporate titans are proposing a scheme that was tried and failed miserably only a few years ago, not to mention the fact that it would reward big business for practices that already deprive the country of huge amounts of tax revenue and countless jobs.

First, a bit of background. Although the U.S. Internal Revenue Code is designed to tax corporations on their worldwide profits, it contains a provision that allows companies to defer paying domestic taxes on overseas earnings as long as they stay with a firm’s foreign affiliates.

That may sound reasonable to some, but what corporate giants designate as overseas profits actually includes disguised domestic earnings. That’s because corporate tax dodging frequently takes the form of accounting gimmicks that shift reported earnings to subsidiaries in tax haven countries like the Cayman Islands and Bermuda.

This is done in a variety of ways. A company may transfer ownership of valuable patents and trademarks to a tax haven subsidiary, which then collects royalties from other parts of the company. Earnings stripping is a similar ploy that involves bogus interest payments. And then there’s the big daddy of multinational tax schemes: transfer pricing. This is the practice of exchanging goods and services among parts of a corporation at rates that have little relation to real costs.

The objective of all these tricks is to maximize reported income in countries that subject profits to minimum taxation—or none at all. Thanks to the deferral rule, a lot less is paid to Uncle Sam. It is estimated that transfer pricing costs the U.S. Treasury more than $28 billion a year.

Having engaged in this brazen tax dodging, corporations now want the right to bring the profits back home and get another tax break through the repatriation holiday. Their complaints about the need from relief from U.S. tax rates sound a lot like those of the proverbial murder who kills his parents and then pleads for sympathy as an orphan.

What makes the chutzpah quotient of the repatriation holiday advocates even higher is that they are promoting the idea in the face of documented evidence of its ineffectiveness. In 2004 a similar big business campaign succeeded in getting Congress to enact a repatriation holiday that brought the statutory tax rate on the returning profits down to 5.25 percent for the following year only. The plan was dressed up as the Homeland Investment Act, which was part of the American Jobs Creation Act.

The 2005 tax holiday was hailed as a success by corporate apologists for repatriating some $312 billion in profits for more than 800 large companies led by pharmaceutical giants Pfizer, Merck and Eli Lilly.

What they don’t emphasize is that the plan was a dismal failure in its stated purpose of generating jobs and investment in the United States. This should not have come as a complete surprise, since Congress allowed companies to use the repatriated profits for other purposes such as acquisitions and repayment of debt. Another factor was the old problem of the fungibility of money.

According to an analysis produced for the National Bureau of Economic Research, the 2005 repatriation holiday did not lead to an increase in domestic investment, domestic employment or R&D spending. The biggest impact, the report found, was an increase in stock buybacks by corporations, which was not one of the intended purposes of the legislation.

In other words, the tax holiday was a scam. Instead of stimulating job growth, it served as yet another way for large corporations to continue shrinking their contribution to the costs of running the U.S. government that serves them so well. In fact, some of the companies that benefited most from the holiday—such as Merck—carried out large-scale layoffs of U.S. workers during the time they were bringing those profits home.

Six years later, the same misleading claims are being made for repeating the practice that did so little good. What makes this especially frustrating is that it is taking place not long after Barack Obama made the issue of deferred taxes an issue in his presidential election campaign and then sought to increase taxation of foreign profits during his first year in office.  Those plans have been forgotten, and now the repatriation holiday proponents are riding high, despite estimates that the scheme would result in a loss of $78 billion in federal revenues over the next decade.

Fortunately, not everyone is being taken in by WinAmerica. Along with stalwart critics such as Citizens for Tax Justice—which calls the idea “amnesty for corporate tax dodgers”—the repatriation holiday is being attacked by newer groups such as US Uncut, whose main target is WinAmerica ringleader Apple Inc.

One of US Uncut’s slogans is “Tax Dodging. Is there an app for that?” Actually, no app is necessary as long as Congress goes on buying the tax-break snake oil of Corporate America.

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Corporate Taxes and Corporate Power

Thursday, June 2nd, 2011

CTJ's 1985 report

In his 2009 utopian novel Only the Super-Rich Can Save Us, Ralph Nader conjures up a scenario in which a group of enlightened retired U.S. billionaires spark a populist uprising against excessive corporate power. One of the prime issues in the revolt is widespread tax dodging by big business, aided by the various forms of corporate welfare inserted in the tax code by compliant members of Congress.

Among the real-life characters in Nader’s fantasy is Bob McIntyre (misspelled as MacIntyre), head of Citizens for Tax Justice. For more than 30 years, CTJ has been shining a light on the inequities in the U.S. tax system. During the 1980s CTJ issued a series of reports that documented the disastrous consequences of the Reagan business tax cuts and paved the way for the Tax Reform Act of 1986. That law closed many of the loopholes and cracked down on tax shelters, reversing the precipitous decline in corporate tax payments—until George W. Bush came along.

Alas, Nader’s vision has not come to pass, though a funhouse-mirror version of it can be seen in the pseudo-populist Tea Party movement instigated by some very different billionaires, the rightwing Koch Brothers. Yet McIntyre and CTJ are still on the scene and re-fighting the battles of the 1980s. Now, as then, CTJ stands out for naming names—listing the specific large corporations that pay little or no federal income taxes.

CTJ has just released a preview of its new study of corporate tax avoidance that identifies a dozen major companies—including the likes of General Electric, DuPont and Wells Fargo—that together paid less than nothing in federal income taxes over the past three years. The dirty dozen had total U.S. pretax profits of $171 billion for the period but had a combined effective tax rate of negative 1.5 percent.

Had these companies paid the full 35 percent statutory corporate rate, CTJ notes, their combined tax bill would have been about $60 billion. Instead, they got $2.5 billion from Uncle Sam. The $62 billion difference exacerbated the country’s budget deficits and national debt.

It would be comforting to imagine that brazen corporate tax avoidance is leading us to a replay of the backlash of 1986, with changes to the tax code that force big business to pay something closer to its fair share of the costs of running a government that treats it so well.

Unfortunately, that now seems as unlikely as Nader’s rebellion of the billionaires—and the reason is not just the intransigence of Republicans. The Obama Administration has adopted the bizarre position that any revenue gains from the elimination of business tax subsidies should be used to fund new reductions in the statutory corporate tax rate, which virtually no large companies pay.

In other words, the debate over corporate tax reform within the Washington establishment is between the Obama Administration’s “revenue-neutral” approach and the desire of the Republicans to shrink corporate tax liability to a point at which it can be given the Grover Norquist drowning-in-the-bathtub treatment. Corporate taxes account for less than 9 percent of federal revenues, so we have already moved far in that direction.

CTJ, to its credit, is calling for a revenue-positive approach to corporate tax reform to help alleviate the country’s fiscal problems, as are other progressive groups such as the new US Uncut movement. But there are more fundamental reasons to make business pay more.

The windfall profits produced by tax dodging also serve to enhance the overall power of large corporations and make it easier for them to engage in anti-social behavior. It is telling that CTJ’s list of major tax avoiders includes several companies—including Boeing and Verizon—that are leading foes of unions and several others—including Exxon Mobil and American Electric Power—that are key environmental villains.

A fatter bottom line for such companies means they have more money to fight stricter regulation and consumer protection, more money to undermine labor organizing drives, more money for dubious mergers and acquisitions that reduce competition, more for lavish executive compensation packages, and of course, more for lobbying and public relations efforts to make sure that overall public policy continues to serve the needs of corporations above all else.

Restoring corporate tax payments to more appropriate levels will not by itself reform big business, but it would make it easier for the rest of us to accomplish that without waiting for a group of retired billionaires to come to the rescue.

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The $100 Million Stickups

Thursday, May 19th, 2011

According to the FBI, the typical bank robber escapes with about $7,600. It would take more than 13,000 such capers to reach the amount that some individual corporations are netting in their own holdups, though of a legal variety.

This year has seen a series of cases in which large companies secure big subsidy packages by hinting that they may move their corporate headquarters to another state, and in several instances those packages have turned out to be worth an eye-popping $100 million.

The fact that state and local governments around the country continue to face severe budgetary shortfalls has not prevented them from offering—and companies from taking—these huge payoffs. Here are some new members of the $100 Million Club:

Motorola Mobility Holdings—one of the two spinoffs from the split-up of the old Motorola Inc. earlier this year—recently extracted $100 million in EDGE tax credits from Illinois as the price for keeping its headquarters and approximately 3,000 employees in the Chicago suburb of Libertyville. EDGE credits normally apply to corporate income tax payments, but the state legislature allowed the smart-phone company to keep employee income tax withholding payments instead. Motorola Mobility was awarded several million dollars more in job training and other grants.

When Panasonic Corporation of America let it be known it was considering moving its headquarters out of New Jersey, the state offered the company a tax credit worth just over $100 million to stay. But it couldn’t remain at its existing site in Secaucus. The Urban Transit Tax Credit required a relocation, so the state’s Economic Development Authority got the Japanese electronics firm to agree to move a few miles down the road to Newark. The arrangement was expected to provide a big boost in tax revenue for Newark (money in effect poached from Secaucus), but the struggling city for some reason decided it was necessary to give back a portion of that to Panasonic in the form of more subsidies, the amount of which has not yet been determined.

After raising the possibility of moving out of state in response to an increase of one half of one percent in local income taxes, American Greetings agreed in March to keep its corporate headquarters in northeast Ohio. All it took was a state package of grants, tax credits and low-interest loans worth an estimated $93 million over 15 years. Once the greeting card company settles on the exact site, it is likely to get additional local assistance that will put its total subsidies above $100 million.

A few weeks after the American Greetings deal, ATM manufacturer Diebold, which had made similar noises about a possible move to another state, was also induced to keep its headquarters in northeast Ohio. It, too, is slated to get total subsidies of about $100 million—$56 million in refundable tax credits from the state and anticipated local “incentives” of more than $40 million.

Sears Holdings could soon join the club as well. Actually, Sears is already a leader in it. Back in 1989 it got a subsidy package of $178 million for moving its headquarters from downtown Chicago to exurban Hoffman Estates, 29 miles away. The state and local tax subsidies from that deal are set to expire next year. Playing the we-might-move-out-of-state game, Sears has set off a frantic effort by Illinois officials to extend the company’s subsidies for another 15 years. No deal has yet been announced.

It is frustrating to see one company after another get away with job blackmail. If only we could get the FBI to take an interest in this kind of stickup.

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Capping the Oil Profits Gusher

Wednesday, April 27th, 2011

You know the gas price problem is getting bad when even leading Republicans need to make noise about petroleum industry tax breaks.

John Boehner caused a stir the other day when he seemed to be telling an interviewer from ABC News that he was in favor of cutting federal subsidies for the oil giants. “It’s certainly something we should be looking at,” he said.

My initial reaction was that a Boehner look-alike working with the Yes Men had made the remarkable statement. Alas, it turned out to be a tease or a case of temporary sanity, for Boehner’s people later clarified that the Speaker was not actually calling for reductions in the giveaways. Perhaps he meant to say that we should examine the subsidies to be sure they are high enough.

Before Boehner’s true position became clear, President Obama seized on the moment to remind Congress about the Administration’s proposal to do away with “unwarranted” oil industry tax breaks. Such a move would be welcome but far from adequate.

Consider the size of those tax breaks. The Administration’s 2012 budget estimates that the repeal of eight oil & gas tax preferences would save all of $3.5 billion in 2012. The amount would rise to $5.4 billion in 2013 and then fall to $4.6 billion by 2016. The total increase in federal revenues over five years would be only $23 billion.

Compare these amounts to the profits being reported by the U.S.-based oil supermajors. For 2010, Exxon Mobil alone posted total profits of $30 billion, up 58 percent from the year before. Chevron’s net income was $19 billion and that of ConocoPhillips $11 billion. This year those amounts are expected to soar again.

If the entire loss of tax breaks were to be shouldered by these three companies alone, their combined profits would sink by only a couple of percentage points.

Rather than simply eliminating some subsidies, now is the time to revive the push for a windfall profits tax. That will not be music to the ears of Obama, who had made the idea a centerpiece of his 2008 presidential campaign, only to drop it shortly after being elected. That plan was expected to collect $65 billion over five years—much more than the savings from eliminating current tax breaks—and the proceeds were meant to help people pay for higher energy costs, not to make a small dent in the national debt.

Corporate apologists say that the federal government has no reason to complain about galloping oil industry profits because it collects more in tax revenues. Unfortunately, that federal share has been shrinking. In 2008 Exxon Mobil paid about $3 billion to Uncle Sam on pretax U.S. earnings of $10.1 billion, or about 30 percent. Last year Exxon’s domestic federal tax rate was only 16 percent. The rates paid by Chevron and ConocoPhillips also fell sharply. Moreover, Exxon and Chevron pay meager amounts of state income tax.

Rather than mitigating the profits windfall, the tax system—as manipulated by the oil giants—is exacerbating the problem.

It’s difficult to believe, but an oil industry windfall profits tax was once part of the mainstream policy agenda, even in the Republican Party. In his 1975 State of the Union Address, President Ford promoted the idea to compensate for the elimination of controls on domestic oil prices. In 1980 Congress enacted such a tax (actually an excise tax on crude oil) that remained in place for eight years.

Conventional wisdom these days is that aggressive tax policies—not to mention price controls—are counter-productive. Yet even Big Oil seems somewhat uncomfortable about its good fortune.

The American Petroleum Institute issued a press release the other day that used an unusual argument to try to blunt popular anger over the industry’s embarrassment of riches. API touted a new study purporting to show that oil and gas stock holdings have been providing a big boost to public pension funds.

Those would be the same public pension funds that are said to be desperately underfunded because of shortfalls in, among other things, corporate tax payments by the likes of the oil giants. Rather than depending on a bit of indirect capital appreciation, we would be much better off if the petroleum industry paid higher federal and state tax rates, especially when oil prices—and thus profits—are going through the roof.

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Dodging Unions and Taxes

Thursday, April 21st, 2011

Boeing is used to getting its own way. Earlier this year, for instance, it emerged the surprise victor in a long-running battle for a massive Air Force tanker plane contract.

That charmed existence is now facing a setback potentially much more serious than the bad press the company faced recently when a hole ripped open in one of its old 737s during a Southwest Airlines flight from Phoenix to Sacramento. The National Labor Relations Board is charging the company with a violation of federal labor law for its 2009 decision to locate a second Dreamliner aircraft assembly line at a non-union facility in South Carolina.

The South Carolina move was not just a blow to aerospace workers in the Seattle area, Boeing’s traditional manufacturing base. It was also an egregious example of a large corporation riding roughshod over communities and labor by employing two socially irresponsible practices at the same time: avoiding unions and dodging taxes. It is reassuring that at least one of those ploys may now be backfiring.

Boeing’s dual avoidance strategies started well before it became enamored of the Palmetto State. Although the company’s Washington State operations were unionized long ago, Boeing has for years tried to weaken those unions by seeking two-tier wage structures and by steadily outsourcing portions of the work to foreign contractors.

When the company was ready to begin production of its much-anticipated Dreamliner, it forced Washington to compete with around 20 other states for the work and agreed to stay there only after the legislature in 2003 approved a package of research & development tax credits and cuts in Business & Occupation taxes (the state’s substitute for a corporate income tax), sales taxes and property taxes that together were estimated to be worth $3.2 billion over 20 years. The state also overhauled its unemployment insurance system to reduce costs for Boeing and other employers and tightened up on workers compensation claims.

All those giveaways did not satiate Boeing. Rather than showing its appreciation to Washington, the company went shopping for a better deal for the second Dreamliner production line. In South Carolina it was rewarded with both a subsidy package that has been valued at more than $900 million (click on illustration for details) and a “right to work” law that all but guarantees to keep out unions.

The cumulative effect of Boeing’s practices can be seen in the details of its 10-K annual filings. As a result of those subsidies, the company estimates its total 2010 state tax bill at less than zero—it expects to receive a net refund of $137 million—despite pretax U.S. profits of $4.3 billion. (Thanks to other forms of tax avoidance, it is paying only $13 million in federal taxes.) At the end of 2010, 34 percent of Boeing’s employees were covered by collective bargaining agreements, down from 47 percent a decade earlier.

While Boeing may be a particularly flagrant case, it is far from the only large corporation that dodges unions and taxes at the same time. Unfortunately, the movements addressing these two problems tend to operate separately from one another. Few of the many groups that have recently been chastising General Electric for its tax avoidance mentioned the company’s assaults on unions, while those criticizing Verizon for its anti-union practices rarely note its meager state and federal tax payments.

There are exceptions. With help from my colleagues and me at Good Jobs First (among others), the United Food and Commercial Workers has made Wal-Mart’s tax avoidance one of the issues in its campaign to reform the company and ultimately respect the collective bargaining rights of its workers.

Linking the two issues has been made more urgent by the fact that the Right is taking the offensive on both fronts. This year has seen more attacks on worker rights at the state level and more attempts to lighten the tax obligations of corporations (and the wealthy) at both the state and federal levels than at any other time in modern U.S. history. Beating back both of those campaigns is the only way to protect any semblance of a just economy.

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Can Corporate Tax Dodgers Be Socially Responsible?

Thursday, April 7th, 2011

In much the same way that Wisconsin Gov. Scott Walker reinvigorated organized labor, General Electric is reigniting the movement for tax justice. The revelation in a March 25 New York Times front-page story that GE arranged things so that it owes nothing to the Internal Revenue Service on its $5 billion in 2010 U.S. operating profits—in fact, it expects to claim a refund of $3.2 billion—has sparked a firestorm of protest.

GE, of course, is not the only high-profile corporate tax dodger. The new US Uncut campaign is also targeting Bank of America, Verizon and FedEx. Other offenders include Google and Amazon.

What tends to get overlooked in the furor over big business tax avoidance is that the companies involved are usually ones that profess to adhere to the principles of corporate social responsibility.

Take General Electric. Like many other large firms, GE tries hard to present itself as a good corporate “citizen.” It has a website dedicated to the subject, and its board of directors has a Public Responsibilities Committee. GE also publishes an annual Citizenship Report.

In the 44 pages of that report, taxes are mentioned only in passing—and then mainly to cite the total amount GE pays to governments worldwide. It uses a figure of $23 billion, but that is over the course of a decade, whereas the other numbers in the report tend to be annual ones. Nor does GE compare the number to the more than $160 billion it earned in profits during the ten years.

GE goes on at length about its commitment to “Community Building,” stating that “Governments and national institutions are vital to progress. The quality of public institutions is therefore crucial.” Yet when it comes to explaining what it does to support a strong public sector, the company changes the subject. It highlights its charitable contributions, its investments in “human capital” and its involvement in environmental and trade policy issues.

GE, like many other companies, is able to get away with this because issues such as fair taxation and tax compliance are largely absent from the discourse of corporate social responsibility (CSR). Given the lack of a standardized definition of what is and is not socially responsible, corporations can pick and choose. We thus end up with cases such as Wal-Mart, which maintains its Neanderthal labor practices while touting environmental initiatives as evidence of its high level of ethicality.

Selective business ethics is especially problematic when it comes to taxes. Business apologists say that corporations have a duty to their shareholders to minimize tax payments and that there is nothing wrong with using all legal means to do so. But how far does that go? The Times pointed out that GE’s tax department has a staff of 975 dedicated to finding every last trick, and the company spends millions each year lobbying for even more loopholes.

What about Wal-Mart’s use of a device known as a captive real estate investment trust to avoid billions of dollars in state income taxes by essentially paying rent to itself and then deducting the cost? And how about those companies that create paper subsidiaries in offshore tax havens? A 2010 study published in the journal Corporate Governance found that even companies that move their legal headquarters to such havens go on claiming to be socially responsible.

Another obstacle is that the governments that are victimized by business tax dodging often fail to take strong measures, thus reinforcing the idea that it is not a significant offense. In the United States, criminal tax prosecutions of large corporations are few and far between. In a rare instance last December, Deutsche Bank paid $553 million in fines and admitted to criminal wrongdoing for helping U.S. customers make use of fraudulent tax shelters. Deutsche Bank, of course, professes a strong commitment to corporate social responsibility.

One place where CSR-spouting corporate tax dodgers are starting to be challenged is Britain. Over the past few years, human rights groups such as Christian Aid have criticized tax avoidance and evasion by transnational corporate operations in developing countries, arguing that these practices keep those nations stuck in a poverty trap. More recently, the UK Uncut campaign (which inspired US Uncut) has targeted tax dodging in Britain itself by corporations such as the European cellphone giant Vodafone. Cyberactivists hacked into Vodafone’s CSR website to post messages about the firm’s dubious tax practices.

Actions such as these help cut through the corporate obfuscation and make it clear that the failure of a large company to comply with a shared responsibility such as taxes is socially irresponsible.

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Billionaires, Blowhards and Bribery

Friday, March 11th, 2011

Billionaire Sheldon Adelson

The bond between David Koch and Scott Walker is not the only relationship between a reactionary billionaire and a rightwing politician contaminating the U.S. political scene. Attention also needs to be paid to what’s going on between Sheldon Adelson and Newt Gingrich.

Adelson — the fifth wealthiest person in the United States, with a net worth estimated by Forbes at $23 billion — has made a major bet on Gingrich. Since 2006 he has contributed $7 million to Gingrich’s fundraising entity American Solutions for Winning the Future. Through this 527 vehicle (and a regular political action committee with the same name), Gingrich is raking in loads of cash as he teases the country about whether he plans to run for President while mouthing off with a variety of reckless policy pronouncements.

The American Solutions website has a section labeled Corruption. In January a post there announced a new feature called Corrupt Report that was supposed to monitor news of misbehavior “regardless of political party.” Somehow the site has failed to cover the recent disclosure by Adelson’s company, Las Vegas Sands, that it is being investigated by both the Securities and Exchange Commission and the U.S. Justice Department for possible violations of the Foreign Corrupt Practices Act. The Nevada Gaming Control Board is also said to be looking into the matter.

The investigations presumably involved Adelson’s four casinos in Asia — three in China-controlled Macao and one in Singapore — where Las Vegas Sands has branched out from its U.S. gambling operations.

It will be interesting to see how a gambling-related bribery scandal affects the political prospects of Gingrich, who already has the burden of reconciling his “family values” rhetoric with the fact that he has been twice divorced.

Adelson’s support for Gingrich is far from his only foray into conservative politics. Like a number of other billionaires, he seems to have built his reactionary views on a foundation of anti-union animus. This began in the late 1990s, after Adelson purchased the Sands hotel and casino in Las Vegas — the former hangout of Frank Sinatra and the Rat Pack — and tore it down to make way for the gargantuan Venetian gambling emporium.

The Sands had been a unionized operation, but Adelson refused to recognize the Culinary Workers at the Venetian. When union supporters picketed in front of the casino, he tried to have them arrested, setting off a legal battle that lasted for a decade. More recently, Adelson was an outspoken foe of the Employee Free Choice Act, and today the Las Vegas Sands brags in its 10-K filing that none of the workers at its casinos are covered by collective bargaining agreements.

In 2007 Adelson founded  Freedom’s Watch, an advocacy group that tried to build support for the Bush Administration’s surge strategy in Iraq, beat the drum on what it called the “Iranian Threat” and which in 2008 was being touted as the right’s answer to MoveOn.org — a claim that somehow missed the distinction between a group funded by large numbers of small contributions and one bankrolled mostly by a single multi-billionaire. Despite that money, Freedom’s Watch was a short-lived flop.

Adelson also became active in Israel, where he started a conservative newspaper and became a leading backer of rightwing politicians, especially Prime Minister Benjamin Netanyahu. He has also been an apologist for the repressive Chinese government, which allowed him to build his lucrative casinos in Macao.

At times Adelson has been called the Right’s answer to George Soros. The difference is that Adelson’s political views serve his financial self-interest, especially when it comes to paying taxes. According to a 2008 profile of the gambling magnate in The New Yorker, Adelson once said to an associate: “Why is it fair that I should be paying a higher percentage of taxes than anyone else?”

It’s amazing that Adelson, whose only higher education came from a stint at the tuition-free City College of New York, can forget that progressive taxation (or what’s left of it) is what pays for the public institutions and infrastructure that help people like him succeed.

Even more dismaying than billionaires’ deluding themselves into thinking that they are completely self-made is the fact that they can now use large amounts of their undertaxed wealth to promote policies that make life ever more harsh for the rest of us.

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Posted in Campaign Contributions, Corporate Crime, Foreign Investment, Gambling industry, Tax avoidance/evasion | No Comments »

Challenging Corporate America’s Hiring Freeze

Thursday, March 3rd, 2011

You would never know it from the preoccupation with budget deficits and the attack on public unions, but there is still a severe jobs crisis in the United States.

The focus on the state and federal fiscal situation has deflected attention from what should be a major scandal: the failure of big business to accelerate hiring in step with the emerging recovery in overall economic activity.

In recent weeks the dimensions of that scandal have become increasingly apparent as corporations report lush earnings for 2010 while hiring remains depressed. To highlight this incongruity, I looked at the top 50 companies on the most recent Fortune 500 list. Twenty-nine of them have recently reported their annual profits while also disclosing the size of their payroll as of the end of the fiscal year.

On the earnings side, it is truly fat city. The 29 posted aggregate net income of $239 billion, a whopping 48 percent increase from the year before. Oil companies, of course, are raking it in. Exxon Mobil was up 58 percent and Chevron 81 percent. Service sector giants are also reporting much richer bottom lines. UPS showed an increase of 62 percent and AT&T 63 percent. Some blue chip industrials more than doubled their earnings. Boeing soared 152 percent and Ford Motor 141 percent.

By contrast, the employment figures are pitiful. Together, the 29 corporations reported a decline of about 3,500 positions in their aggregate head count of some 4.6 million. While most of the companies showed little change—and some banks increased their hiring a bit—a few of the corporate giants slashed payrolls. Telecommunications behemoth Verizon Communications reduced its workforce by 28,500 jobs while boosting its profits more than 13 percent. General Electric, whose CEO Jeff Immelt is advising the Obama Administration on job creation, got rid of 17,000 net positions during 2010 while enjoying a 6 percent rise in earnings. (GE is one of the few companies that provide a geographic breakdown of their workforce. In the U.S. GE’s head count was down by 1,000.)

It’s interesting that the percentage decrease in head count at Verizon and GE is almost identical to the percentage increase in profits at each of the companies.

Given these numbers, why is big business facing little criticism for its hiring freeze? There is a tendency to regard even large corporations as helpless in the face of economic conditions, and they are not expected to resume hiring until the market mandates it. Yet the overall economy is picking up and still there is a resistance to hiring.

Corporate apologists such as the U.S. Chamber of Commerce would have us believe that the reason is excessive workplace regulation. The Chamber has just come out with a report making the preposterous claim that if state governments would only curtail their employment rules to the lowest common denominator, 746,000 new jobs would magically materialize.

A major reasons hiring is anemic is that workplace rules—and union presence—are too weak rather than too strong. Companies can do more business and garner more profits without increasing their head count largely because there is nothing stopping them from squeezing more work out of the same number of employees. Stricter protections and more collective bargaining would result in higher employment levels.

One of the favorite policy prescriptions for high joblessness is to offer tax credits to companies to hire more people. The existence of those programs at the state and federal levels is, however, contributing little to job creation.

Rather than thinking up more incentives, perhaps there we should create a disincentive for corporations to continue their hiring boycott. There is a growing awareness these days that big business is not paying its fair share of taxes.  We could begin to address this problem by creating tax penalties for profitable companies that refuse to use their earnings to alleviate understaffing.

Pressuring corporations to do more hiring would not only improve life for the overworked employed and reduce the ranks of the unemployed. The additional tax revenue that comes in—whether from the penalties or the withholding paid by the newly hired—would also alleviate the state and federal fiscal crunch and make it easier for us to ignore those who insist that cutting the size of government is the solution to everything.

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Posted in Corporate Profits, Employee Rights, Employment, Tax avoidance/evasion | 1 Comment »

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