OLEAN -- Sometimes I think I'm dreaming, and keep trying to wake myself up to escape the subtle nightmare of what is happening to this once-beautiful country. Then my heart falls, because I realize I really am awake, and it's no dream.
When I tell people this, they look at me like I'm crazy. When I tell them I expect eventual blood in the streets if things keep going the way they are, they shrug and mumble some version of "So what, we can't do anything about it." I think about that, and realize they are probably right. That's part of the nightmare.
The latest destroyer of peaceful sleep arrived last week in the form of an Associated Press story by alert business reporter Jennifer C. Kerr, who got her hands on a study by the Government Accountability Office (GAO) showing that, as of 2005, fully two-thirds of American corporations -- some 1.2 million companies -- had paid no federal income taxes since 1998. Zippo. Nada.
What is up with that? The same GAO figures showed a slightly higher percentage of foreign firms doing business in the United States -- more than 38,000 companies -- also avoided corporate taxes over the same period. With corporate greed multiplying exponentially these days, it is safe to assume those percentages have increased at warp speed over the last three years.
When I read the story, the outrage welled so fast my head almost exploded. The GAO said these companies had combined sales of about $2.5 trillion. With a T. If these corporations had been forking over federal income taxes at the same rate you and I have as individual Americans over the past decade, they could have reduced our national debt by more than $300 billion. Who knows? We could have invaded several small countries with that.
Further, these were not just penny-ante firms. The GAO bombshell showed that about a quarter of these companies averaged at least $250 million in assets and $50 million in annual receipts -- measurements that make them "big" companies in the eyes of the Internal Revenue Service, where the GAO dug up the numbers. No names were made available to the public, of course. Behavior like this must remain anonymous, lest we all lose faith in the unassailable correctness of our system. What a festering pile of crap.
The GAO is a separate federal division used by Congress as a research watchdog whenever a rare right-thinking member gets suspicious that things aren't just peachy-keen in America, or going as smoothly as the White House tells us. In this case, the two right-thinking congressmen were Democrat senators Byron Dorgan of North Dakota and Carl Levin of Michigan, both fairly constant critics of the way things are going in this nation.
In the days following the article, I looked in vain for public outrage, or even mild protests from the political sector. Oh, there was some tsk-tsking from the requesters of the study. Dorgan called the corporate avoidance of taxes "shameful." He and Levin both complained about the arcane maneuver of big multinational firms manipulating "transfer prices" by using subsidiaries to shift income and assets from higher to lower tax jurisdictions.
But a general outcry? Not a whimper. That surprised me. This is, after all, a presidential election year, with many seats in the House and Senate also open. I mean, if I were running for national office, or even city council, for that matter, I would seek to impress potential voters with the promise to introduce, as my first act after swearing in, legislation making all corporate tax records -- national, state and local -- matters of public record.
You want to do business here? Fine. Then tell us how you're conducting that business.
Maybe I'm not paying close enough attention, but I haven't heard a peep out of Obama or McCain on this subject. Understandable, I guess, when you don't want to offend powerful business lobbyists or the bundlers of corporate campaign contributions -- the mother's milk of modern politics. Might be a good question for debate moderators, or even your local congressman and aspiring opponents.
Since when did income taxes -- individual or corporate -- become the third rail of American electoral politics? Everyone seems afraid to even discuss it.
Oh, Dubya got some praise when his operatives succeeded in getting the capital gains rates reduced to some sane figures -- good news for big players of the stocks and bonds markets, but not on the radar screen of millions of Americans who rely solely on stretching an hourly paycheck. Back in the Clinton administration, when 85 percent of Social Security benefits questionably got taxed -- a real and unfair hit on the elderly -- it produced much compliant shoulder-shrugging and scant public outcry.
I have noticed massive public ignorance on the subject of income tax, despite its presence in all of our lives. Most Americans I've conversed with seem to think it's been around since George Washington, that it automatically came with the Constitution. Not true.
The eminently surviving quote from the American Revolution, you will remember, was "No taxation without representation." If George Washington had tried to institute a federal income tax, however meager, there would be three guys on Mount Rushmore. He got in trouble just trying to enforce a tax on whisky. The concept is relatively new. My grandfather didn't have to pay federal income tax until he was 36 years old.
There was a levy during the Civil War to support the Union military costs, but the 16th Amendment wasn't ushered in and approved until 1913. Ultimately, it gave the federal government dominance over almost every aspect of our lives. It states:
"Congress shall have the power to lay and collect income taxes from whatever source derived, without apportionment among the several states and without regard to any census or enumeration."
In the 95 years since, of course, this has spawned -- literally -- a truckload of justifiable and unjustifiable revisions and exemptions and variances and loopholes and givebacks and add-ons and deductions and impossibly confusing algebra and a whole new business sector of specialists and fiscal priests who interpret the omnipresent babble for us.
As if the big business tax avoidance story was not galling enough, another piece around the same time period by Wall Street Journal writers Ellen Schultz and Theo Francis rubbed financial salt in the wound by revealing something we already knew at heart -- that corporate greed, especially for keeping executives happy, knows no bounds.
At a time when companies are freezing worker pensions all over the place, or finagling them into reduced lump-sum payments upon departure, many firms "are quietly converting their pension plans into resources to finance their executives' retirement benefits and pay."
It's confusing, but clever. The financial wizards at big firms are moving hundreds of millions of dollars' worth of obligations for executive benefits into the rank-and-file pension funds. This lets the companies take advantage of substantial tax breaks the government intended to encourage pension set-asides for regular workers. Instead, the money is being diverted to supplemental pension benefits and increased compensation for top executives.This is intricate money-shuffling, but a simple headline could be:
Good News for CEO, But For Worker: See You Later
The Wall Street Journal says the maneuver, "besides being a dubious use of tax law, risks harming regular workers. It can drain assets from pension plans and make them more likely to fail. Now, with the current bear market in stocks weakening many pension plans, this practice could put more in jeopardy." If the corporate-worshipping Wall Street Journal is blowing the whistle on CEOs, you know something is up in the field of business ethics.
Federal law seeks to encourage employers to offer generous pensions by giving businesses a tax deduction for cash contributed to plans, and by allowing the money in the plan to grow tax free. Executives can legally participate in pension plans, but their benefits cannot be "disproportionately" large, nor "discriminate in favor of highly compensated employees."
The corporate numbers jugglers have found a way to get around that seemingly clear language.
Increases in executive pensions, under tax law, are not supposed to carry any tax advantages for the companies. Taxes on paying the deferred compensation to executives are normally due when the firms actually pay it, which is usually many years after the obligation is incurred on the company books.
But conniving consultants and hotshot accountants are quietly moving the big money intended for CEOs and their executive toadies into the worker pension plans as, in essence, deferred compensation IOUs -- then taking the deductible immediately as if they had made a real contribution to the rank-and-file pension.
According to Jonathan Tasini on the Huffington Post site, the big computer chip maker Intel boasted a tax savings of $65 million the first year it did this. In other words, Intel avoids having to pay retiring executives out of a cash fund from which such payments are taxable. The retired big wigs instead get paid out of the regular untaxed "worker" pension fund.
Plain and simple, this is a tax dodge, and a working federal government would prosecute. Plain and simple, you and I -- as individual taxpayers -- are unwillingly and unwittingly helping finance the egregious corporate executive compensation we're always bitching about. The big corporations, the Huffington Post site correctly notes, have finally found a way to fleece both their workers and the taxpayers in one act of tricky bookkeeping.
I keep thinking there must be a tipping point to all this -- at which juncture American society will rebel in some fashion to being treated by both government and business as submissive turkeys dumb enough to stare up at all this financial rain until they drown.
But I'll be damned if I know where that tipping point is. Frankly, I thought it would have occurred years ago.
| Niagara Falls Reporter | www.niagarafallsreporter.com | Aug. 19 2008 |