Tax Cheats Rule, OK?

By Steve Weissman, Reader Supported News

08 June 13

re you pissed off by Apple, Google, Starbucks, GE, Exxon, and all the other multinational giants that rake in multi-billions every year and pay little or nothing in corporate income taxes, either in the United States or anywhere else?

Do you feel disgusted by all the corporate and personal taxes you've had to pay to finance the Internet, the education, transportation and legal infrastructures, the medical and scientific research, and the military and diplomatic interventions that made possible all those multi-billions in corporate profits, and now have to pay again to make up for what the multinationals fail to pay in current corporate taxes?

I've expressed these feelings in my columns for years. But the time has come for those of us who share the disgust to follow some Boston Irish advice attributed to either Joseph P. or Robert F. Kennedy: "Don't get mad. Get even!"

The global tax cheats - a precise description, as the evidence will show - may look too big to beat. They certainly appear especially well-connected to strategically placed officials like Obama's new Commerce secretary Penny Pritzker, the head of the Senate Finance Committee and Joint Committee on Taxation Max Baucus, and the often feuding leaders of the United Kingdom and European Union.

They multinationals have the cleverest legal hacks, gold-plated bean-counters, and a sophisticated new breed of in-house bankers to shift their corporate money from wherever they actually earn it back and forth between Ireland, Luxemburg, the Netherlands, Bermuda or whatever other mix of tax havens with or without palm trees and sandy beaches.

They pay polished PR flacks to teach them to say "transparency" and "good governance" without giggling, and they can always count on learned free market economists to explain to the rest of us

• Why legally avoiding taxes is not at all the same as illegally evading taxes
• Where corporate executives have a legal responsibility to maximize returns to shareholders and pay as little in taxes as possible
• How all this brilliantly thought-out chiseling grows stable economies and creates lasting jobs.

It's all blarney that can easily corrupt entire societies, as the Irish learned when their once-envied Celtic Tiger turned belly up. But any movement for truly democratic change in the trans-Atlantic world will have to cut through a lot of crap, and - like it or not - we will not find much help from the writings of Karl Marx or the contributions of modern-day anarchists like the indispensable Noam Chomsky.

The best place to start, in my opinion, is to listen again to the tax-cheating corporate executives testifying to legislative committees in both the U.S. and the U.K. Hear them utter as if in unison, "We pay every cent of the taxes we owe." What brass balls! The execs never mention the fortune they spend on lawyers, lobbyists, and legislators to write highly favorable tax laws full of so-called "loopholes." The multinationals pay to get those loops and holes written into law precisely to reduce or eliminate their corporate tax bills. This is where their cheating begins, though many politicians and journalists can't wait to join the tax cheats in proclaiming that no one is breaking any laws.

Talk about a rush to non-judgment!

Such denials, however hurried, contain a kernel of truth. Why should the multinationals bother breaking laws tailor-made to their specifications? The cheating here comes from the routine working of "political democracy" when its excesses are not dampened by strong social and economic democracy. This is the situation now in the U.S. - and in most of Europe, where once vigorous labor unions, left-wing political parties, educational systems, cooperative movements, and public media are generally losing their independence and strength.

A more awkward kind of cheating is even more obvious, though often complex and confusing, as its creators intend it to be. To move their money to a low- or no-tax haven, the multinationals generally have to perform outright fraud in a series of traceable steps:

1. The executives and their accountants redefine as much of their business operations as they can in expanded terms of intellectual property (IP), which includes patents, copyrights, and trademarks. For example, Starbucks might place greater value on its brand name and less on its coffee beans, or place greater value on its knowledge of where, how, and from whom to buy their beans, how to process them, even how to transport and store them.

2. The multinational then sells its greatly expanded IP to one or more of its foreign subsidiaries, but for how much? U.S. tax law requires the multinational to charge itself a "transfer price" no lower than it would charge a separate company in an arms-length transaction. But most analysts believe that the multinationals charge themselves far less, which greatly reduces the profits on which they have to pay corporate taxes. It's even doubtful that the IRS has the resources or the will to make the multinationals pay what they should.

3. Once the multinational has its profits overseas, they no longer have to pay any U.S. taxes on that money or how they use it, unless and until they return it to the U.S. In another form of cheating, corporate lobbyists convinced Congress to pass the American Jobs Creation Act of 2004, which allowed the multinationals to repatriate their money at a bargain basement rate of 5.25%. The corporations promised to use the money to create jobs. They did not, according to a report from the left-leaning Institute for Policy Studies. "Instead of creating jobs, the biggest beneficiaries downsized," wrote IPS. "Pfizer, for example, cut more than 10,000 US jobs in the six years after it repatriated $40 billion."

This is how the tax cheats rule. When will the rest of us reject their lies, take away their tax benefits, and - as former labor secretary Robert Reich has suggested, refuse them access to our market and consumers? That is the way to get even. More important, it's the way to force the cheats to change their ways and pay their fair share.

A veteran of the Berkeley Free Speech Movement and the New Left monthly Ramparts, Steve Weissman lived for many years in London, working as a magazine writer and television producer. He now lives and works in France, where he is researching a new book, "Big Money: How Global Banks, Corporations, and Speculators Rule and How To Break Their Hold."

Reader Supported News is the Publication of Origin for this work. Permission to republish is freely granted with credit and a link back to Reader Supported News.