Dodging Unions and Taxes

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.

Can Corporate Tax Dodgers Be Socially Responsible?

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.

Billionaires, Blowhards and Bribery

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 — 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.

Challenging Corporate America’s Hiring Freeze

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.

Public Employees and the Public Interest

Chicago Tribune, January 29, 1900

Well before Wisconsin Gov. Scott Walker began his unholy crusade, the Right was heavily promoting its claim that public employee unions are a threat to the public. The title of a 2009 book by conservative ideologue Steven Greenhut said it all: Plunder! How Public Employee Unions are Raiding Treasuries, Controlling Our Lives and Bankrupting the Nation.

What the union bashers are trying to obscure is that public employees have a long history of supporting policies that promote the broad public interest. This goes back to the very roots of the public employee union movement.

In the 1890s teachers in Chicago created a federation that became the first real teachers union and one of the pioneers of public employee unionism in general. When the federation, led by Margaret Haley and Catherine Goggin (illustration), was confronted with a move by the board of education to cut teacher salaries because of a purported fiscal crisis, the teachers responded to the claim of a revenue shortfall in a creative way. They launched an intensive investigation of tax dodging by some of the largest corporations in the city, finding that property tax underpayments amounted to some $4 million a year (serious money back then).

Tax officials were reluctant to crack down on powerful business interests, so the teachers sued, eventually winning a favorable ruling in the Illinois Supreme Court (though the U.S. Supreme Court later went the other way).

A cynic might say that the teachers were simply acting in their self-interest by finding a new revenue source that would help restore their lost wages. Yet their goal was also to find funds that could improve conditions in the schools—and those conditions were truly abysmal. In his 1975 history of the American Federation of Teachers, William Edward Eaton writes that in the 1890s:

The teachers of Chicago daily faced the horrors of overcrowded, unsanitary buildings stuffed with too many children and controlled by an impersonal bureaucratic structure. This they did with poor pay, no job security, and no pension system.

The efforts of teacher organizations to address these problems, through collective bargaining as well as tax justice campaigns, also redounded to the benefit of the students and their families.

The Chicago teachers were also an important force in the passage of the Illinois Child Labor Law of 1903. That cynic might say this was aimed at boosting school enrollment and increasing the demand for teachers. Maybe so, but can anyone deny that banning child labor was also a boon for society as a whole, aside from sweatshop proprietors?

In the decades that followed, unions of teachers and other government employees have been among the strongest advocates of a vibrant public sector. They have continued to be leading critics of corporate tax dodging and opponents of efforts to gut public services. Unions such as AFSCME have been at the forefront of campaigns to stop the contracting out of government functions and the privatization of public assets such as highways—practices that usually work to the detriment of taxpayers as well as public employees.

The state and local public employee unions accomplished this against all odds. Denied the protection of the National Labor Relations Act, they had to get states one-by-one to recognize their right to organize—the right that is at risk in Wisconsin and elsewhere. It took a period of remarkable militancy in the 1960s and 1970s—including defiance of laws banning strikes by public employees—before they made significant progress. Among those strikes was the 1968 walkout by sanitation workers in Memphis, where Martin Luther King Jr. was visiting to show his support when he was assassinated.

And even then there were often severe fiscal limits on the ability of public employees to bargain for substantial wage gains. To compensate, many public unions put more emphasis on securing better retirement benefits for their members. These pension rights—in effect, deferred wages—are now under attack as if they were some giant giveaway.

The real giveaways are the lavish business tax cuts and corporate subsidies that the likes of Gov. Walker promote at the same time that they are demanding severe concessions from government workers. The great confrontation of 2011 comes down a question of whose interests are more closely aligned with those of the public at large: those who teach our children, drive our buses and put out fires in our homes—or superwealthy individuals and large corporations that are reluctant to create new jobs.

With each passing day, the momentum is moving in favor of the descendants of the 1890s Chicago teachers who are fighting for their rights and for the public interest in Madison, Columbus and other capitals across the nation.

Note:  A new movement called US Uncut is organizing actions around the country calling for a crackdown on corporate tax dodging as an alternative to harmful cuts in government programs such as education.

Punishments that Fit BP’s Crimes

Few things enrage the American public more than hearing about a criminal who is given a light sentence and then commits another offense. This scenario is not limited to murderers and rapists. Corporations can also be recidivists.

We’re currently contending with such a culprit in the (corporate) person of BP. The oil giant’s apparent negligence in connection with the ongoing disaster in the Gulf of Mexico comes on the heels of two previous major accidents in which the company was found culpable: a 2005 explosion at a refinery in Texas that killed 15 workers and a 2006 series of oil spills at its operations in the Alaskan tundra.

Those earlier cases are not just another blot on BP’s blemished track record. In both instances the company was compelled to plead guilty to a criminal charge and not only heavily fined but also put on probation for three years. On a single day in October 2007, the U.S. Justice Department announced these plea agreements along with the resolution of another criminal case in which BP was charged with manipulation of the market for propane. In the latter case, prosecution of BP was deferred on the condition that the company pay penalties of more than $300 million and be subjected to an independent monitor for three years.

In other words, at the time that BP engaged in behavior that contributed to the Gulf catastrophe, it was under the supervision of federal authorities for three different reasons. Although the terms of the probation and independent monitor agreements refer to the parts of BP’s business involved in the offenses, federal law (18 USC Section 3563) requires that “a defendant not commit another Federal, State, or local crime during the term of probation.”

Given the distinct possibility that BP will face new criminal charges, the question arises: what would be a suitable punishment? When an individual violates his or her probation by committing a new offense, the usual result is imprisonment. Federal sentencing guidelines say that when an organizational defendant commits such a violation, the remedy is to extend the period of the probation.

That hardly seems adequate in the case of an egregious repeat offender such as BP. Just as an individual loses certain rights when imprisoned, so should a corporate probation violator face serious consequences. Here are some possibilities:

  • Ineligibility for federal contracts. BP is among the top 30 federal contractors. That privilege should be suspended.
  • Ineligibility for federal drilling leases. BP has shown itself to be reckless when it comes to drilling. It should no longer be able to obtain leases to drill on public lands or in public waters.
  • Ineligibility for federal tax incentives. Like other oil companies, BP receives a variety of special tax advantages such as writeoffs of intangible drilling costs. It should be denied such benefits.
  • Suspension of the right to lobby. According to the Open Secrets database, BP spent nearly $16 million last year on federal lobbying. As a probation violator, it should be barred from trying to influence public policy.
  • Moratorium on image-burnishing advertisements. As the Gulf debacle continues, BP is spending heavily on advertising to convey the message that it is doing everything in its power to address the problem. Once it is designated a probation violator, it should be barred from that sort of crisis marketing.
  • Public admission of fault. At the point that BP pleads guilty to another criminal offense, an appropriate penalty might be to force it to take the money now being spent to repair its image and use it to run ads admitting its misbehavior. Nothing would be more satisfying than hearing BP admit that its purported devotion to corporate social responsibility has been a sham.

No doubt there are legal barriers to such measures, but we need to go beyond the current wrist-slapping approach to the punishment of corporate crime and create deterrents that once and for all get the likes of BP to take safety and environmental regulations seriously.

Bad Karma in the Gulf of Mexico Oil Disaster

British Petroleum is, rightfully, taking a lot of grief for the massive oil spill in the Gulf of Mexico, but we should save some of our vituperation for Transocean Ltd., the company that leased the ill-fated Deepwater Horizon drilling rig to BP. Transocean is no innocent bystander in this matter. It presumably has some responsibility for the safety condition of the rig, which its employees helped operate (nine of them died in the April 20 explosion).

Transocean also brings some bad karma to the situation. The company, the world’s largest offshore drilling contractor, is the result of a long series of corporate mergers and acquisitions dating back decades. One of the firms that went into that mix was Sedco, which was founded in 1947 as Southeastern Drilling Company by Bill Clements, who would decades later become a conservative Republican governor of Texas.

In 1979 a Sedco rig in the Gulf of Mexico leased to a Mexican oil company experienced a blowout, resulting in what was at the time the worst oil spill the world had ever seen. As he surveyed the oil-fouled beaches of the Texas coast, Gov. Clements made the memorable remarks: “There’s no use in crying over spilled milk. Let’s don’t get excited about this thing” (Washington Post 9/11/1979).

At the time, Sedco was being run by Clements’s son, and the family controlled the company’s stock. The federal government sued Sedco over the spill, claiming that the rig was unseaworthy and its crew was not properly trained. The feds sought about $12 million in damages, but Sedco drove a hard bargain and got away with paying the government only $2 million. It paid about the same amount to settle lawsuits filed by fishermen, resorts and other Gulf businesses. Sedco was sold in 1984 to oil services giant Schlumberger, which transferred its offshore drilling operations to what was then known as Transocean Offshore in 1999.

In 2000 an eight-ton anchor that accidentally fell from a Transocean rig in the Gulf of Mexico ruptured an underwater pipeline, causing a spill of nearly 100,000 gallons of oil. In 2003 a fire broke out on a company rig off the Texas coast, killing one worker and injuring several others. As has been reported in recent days, a series of fatal accidents at company operations last year prompted the company to cancel executive bonuses.  It’s also come out that in 2005 a Transocean rig in the North Sea had been cited by the UK’s Health and Safety Executive for a problem similar to what apparently caused the Gulf accident.

Safety is not the only blemish on Transocean’s record. It is one of those companies that engaged in what is euphemistically called corporate inversion—moving one’s legal headquarters overseas to avoid U.S. taxes. Transocean first moved its registration to the Cayman Islands in 1999 and then to Switzerland in 2008. It kept its physical headquarters in Houston, though last year it moved some of its top officers to Switzerland to be able to claim that its principal executive offices were there.

In addition to skirting U.S. taxes, Transocean has allegedly tried to avoid paying its fair share in several countries where its subsidiaries operate. The company’s 10-K annual report admits that it has been assessed additional amounts by tax authorities in Brazil and that it is the subject of civil and criminal tax investigations in Norway.

In 2007 there were reports that Transocean was among a group of oil services firms being investigated for violations of the Foreign Corrupt Practices Act in connection with alleged payoffs to customs officials in Nigeria. No charges have been filed.

An army of lawyers will be arguing over the relative responsibility of the various parties in the Gulf spill for a long time to come. But one thing is clear: Transocean, like BP, brought a dubious legacy to this tragic situation.

AIG and other Bailed-Out Companies Fight IRS on Taxes

Rep. John Lewis has come out with the remarkable news that 13 corporate recipients of federal bailout money under the Troubled Asset Relief Program (TARP) are federal tax deadbeats, together owing more than $220 million to Uncle Sam. The Georgia Democrat said he cannot reveal the names of the companies, thus setting off a tantalizing guessing game as to which TARP participants apparently lied on forms requiring all recipients to certify they were not significantly in arrears on their tax payments.

Assuming Lewis is talking about companies in disputes with the Internal Revenue Service, there are some likely suspects—beginning with the country’s favorite villain these days: American International Group. AIG has been battling with the IRS over the disallowance of foreign tax credits associated with cross-border financing transactions. In the notes to the financial statements in its 10-K annual report filed with the Securities and Exchange Commission earlier this month, AIG says that it received a “notice of deficiency” from the IRS for the years 1997-1999 and acknowledged it is likely that the feds will go after the credits for subsequent years as well.

AIG paid the assessed taxes and penalties, but then it turned around and demanded its money back. Last month, AIG filed suit in federal court in Manhattan (SDNY Case 09-CV-1871) against the United States of America seeking the recovery of $306,102,672 that it claims was “erroneously and illegally assessed.” The fact that AIG paid the extra taxes while disputing them may not have qualified it for the list assembled by Rep. Lewis. Yet it is still quite remarkable that, after receiving a $170 billion bailout, AIG did not think there was anything wrong with hauling its rescuer into court to pursue a $300 million tax claim.

AIG is not an isolated instance. In its recent 10-K filing, Citigroup states it is “currently at IRS Appeals for the years 1999–2002. One of the issues relates to the timing of the inclusion of interchange fees received by the Company relating to credit card purchases by its cardholders. It is reasonably possible that within the next 12 months the Company can either reach agreement on this issue at Appeals or decide to litigate the issue.” Here’s another ward of the state that does not hesitate to sue its benefactor.

Then there’s Bank of America. Like AIG, it has been at odds with the IRS over foreign tax credits. According to its recent 10-K, B of A faces an “unagreed proposed adjustment” for the years 2000-2002, which sounds like it is at an impasse with the feds. The bank doesn’t mention litigation, but it does not waver from its position, insisting that “the Corporation continues to believe the crediting of these foreign taxes against U.S. income taxes was appropriate.” Receiving $45 billion in TARP funds does not seem to have affected its position.

JPMorgan Chase, the recipient of $25 billion in TARP capital infusions, discloses that it has administrative appeals pending with the IRS. The same goes for some banks in the second tier of bailout recipients. SunTrust Banks ($4.9 billion from TARP) reveals that it is sparring with the IRS over its tax returns for the period from 1997 to 2004. Its 10-K states that “the Company has paid the amounts assessed by the IRS in full for tax years 1997 and 1998 and has filed refund claims with the IRS related to the disputed issues for those two years.”

Capital One Financial ($3.5 billion from TARP) is still pursuing suits filed against the government in U.S. Tax Court in 2005 contesting tax assessments for the period 1995-1999. “At issue,” the company says in its 10-K, “are proposed adjustments by the IRS with respect to the timing of recognition of items of income and expense derived from the Company’s credit card business.”

Under normal circumstances, companies are within their rights to contest IRS assessments. But it is a different story when a company is being kept afloat by the generosity of the U.S. taxpayers. If it is now unacceptable for bailed-out companies to pay lavish employee bonuses, shouldn’t it also be taboo for them to pursue aggressive tax avoidance cases against the IRS? Shouldn’t there be a moratorium on such actions while a company continues to dine at the public trough? AIG, at least, should have the decency to drop its lawsuit and stop biting the hand that has fed it so much.

Pump and Slump: Will Citi Sleep with the Fishes?

A couple of years ago, the mighty Citigroup traded at around $50 a share. Today, March 5, the price hovered around $1 and for a while was below a buck. In other words, one of the largest financial institutions in the world is in effect a penny stock. At one time, a descent to that level would have been enough to get a company delisted from the New York Stock Exchange, but standards have been relaxed.

Penny stocks have traditionally been associated with unscrupulous brokerage practices, such as the “pump and dump” scheme graphically illustrated during some episodes of The Sopranos (photo). A look back at the record of Citi during the past decade does not suggest a moral compass much different from the wise guys of Northern New Jersey. As U.S. PIRG Education Fund notes in its recent report Failed Bailout, Citi helped crooked companies such as Enron carry out deceptive transactions and itself set up scores of entities in offshore tax havens such as the Cayman Islands in order to avoid both taxes and oversight.

Citi’s actions had an impact beyond its own unjust enrichment. As Multinational Monitor editor Rob Weissman and his colleagues show in their new report Sold Out, Citigroup played a key role—thanks to $19 million in campaign contributions and $88 million in lobbying expenditures—in bringing about the demise of the Glass-Steagall Act and other deregulatory moves that paved the way for the current meltdown of the financial system.

Yet Citi’s management is, to a great extent, no longer in control of the company’s fate. Today it is the federal government that is in effect trying to pump up the bank and its stock. The Obama Administration, regrettably, is perpetuating the idea that Citi is too big to fail and thus requires a seemingly unlimited commitment of public resources.

Unfortunately for U.S. taxpayers, the pumping will not be followed by a timely dumping of the federal holdings in Citi at a fat profit. In fact, the federal capital infusions, loss-sharing agreements and loan guarantees are not stabilizing the company and pushing up its stock price. The more the feds put into the bank, the less the market seems to think it is worth. This downward move is attributed in significant part to short-selling of Citi’s common stock by hedge funds. At one time, those funds were apparently in cahoots with Citi. Last fall the Senate Permanent Subcommittee on Investigations charged that Citi was one of the banks that had helped offshore hedge funds engage in tax avoidance. I guess there really is no honor among thieves.

The U.S. government is now in the ridiculous position of having made commitments potentially costing hundreds of billions of dollars to a bank that the stock market, as of today, thinks is worth a total of only about $5 billion. As long as the Administration avoids the seemingly inevitable need to nationalize and reorganize Citi and the other large zombie banks, its strategy amounts to little more than “pump and slump.” Despite the efforts of the feds, the bank whose motto is “the Citi never sleeps” may soon be sleeping with the fishes.

Tax-Avoidance Gimmicks, Secret Bank Accounts at Risk

Jesse Drucker, the Wall Street Journal reporter who broke the story about Wal-Mart’s use of captive real-estate investment trusts to avoid an estimated $2.3 billion in state corporate income taxes, had another piece in the Journal Monday illustrating how the rich and powerful don’t seem to feel an obligation to pay their fair share of taxes.

The subject of the new article is Philip Anschutz, the professional sports tycoon whose net worth was pegged at $7.6 billion in the last Forbes 400 list. Anschutz is dueling with the Internal Revenue Service in U.S. Tax Court over $143.6 million the feds say he owes in capital-gains taxes in connection with the transfer of shares in Union Pacific (obtained by selling the company several railroads he had accumulated) and in Anadarko Petroleum (which purchased Union Pacific Resources, an oil properties subsidiary of the railroad).

Anschutz claims capital gains taxes do not apply because the deals were technically not completed stock sales. Instead, they are what the tax-avoidance lawyers call “variable prepaid forward contracts.” They involve an agreement to sell a block of shares to an investment bank at a future date. In the interim, the individual lends the same number of shares to the bank and receives an up-front payment. On paper, ownership of the shares has not changed, so it is claimed that no capital gains are due until the actual sale some time in the distant future.

It turns out, Drucker writes, that these arrangements are quite common and are being used by executives at companies such as Starbucks, Costco and Tyson Foods. The only encouraging part of the story is that the IRS is cracking down on these deals and in some cases may be seeking substantial penalties.

Wealthy U.S. tax avoiders are also nervous these days about possible revelations by Swiss bank UBS about accounts that the IRS believes are being used to hide as much as $20 billion in assets and to dodge some $300 million in taxes. The New York Times reported on Friday that UBS is being pressured by federal investigators to divulge information that until now has been strictly guarded by Swiss bank secrecy laws. Some account details have already come to light in cases such as the prosecution of property developer Igor Olenicoff, a UBS client.

UBS, which for so long helped rich Americans cheat Uncle Sam, may now be forced to implicate its own clients. It is refreshing to see the affluent, wondering when the IRS may lower the boom, experience some of the insecurity usually felt only by the likes of undocumented workers anticipating an immigration raid.