Cayman Islands Tax Dodgers: Max Baucus Is Coming After You

For many years, we've read that the Cayman Islands are the place to be for a company seeking a tax haven. Now some members of Congress are finally trying to peel some layers off the onion to find out what's inside.

Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee, and others are trying to get to the bottom of this. S. 681, the proposed Stop Tax Haven Abuse Act, was referred to Baucus' committee in February 2007. More recently, congressional investigators went to the islands the first week of this month to check into allegations that over $100 billion in uncollected federal income taxes are related to corporate tax havens.

CNN.com reported March 4:

By establishing bogus headquarters in the British territory and in other nations, some American businesses are avoiding paying their share of federal taxes, according to the Senate Finance Committee, which requested that Government Accountability Office investigators visit the Caribbean islands. ...

As much as $300 billion a year in taxes goes uncollected by the government, and by some estimates more than a third of this may be related to corporations' reliance on offshore tax havens, according to some lawmakers.

"We know that some of the gap is the responsibility of entities breaking the law by funneling money to offshore locations at the expense of honest, hard-working Americans who pay their taxes," Sen. Max Baucus, D-Montana, said in a statement. "We need the GAO to determine fairly what's really happening with U.S. companies going offshore."

However, the GAO has noted problems with investigating offshore tax compliance in the past. In May, the investigative arm of Congress reported that such investigations were so time-consuming that they often outlasted the three-year statute of limitations for taxpayers involved in offshore financial activity.

The GAO suggested in the report that Congress make an exception to the statute of limitations for these types of probes. ...

One focus for the GAO this week will be Ugland House, a five-story building in George Town that is listed as the headquarters for thousands of U.S. and international companies.

Baucus said last year that while Ugland House is home to 12,748 companies, "this building does not house the operations of 12,748 companies." He asked the GAO, among other things, to find out "what business, if any, these corporations carry on in the Cayman Islands."

In requesting the GAO probe in June, Baucus called Ugland House "one of the most likely places shady tax transactions could be sheltered."

Let's see -- that would be an average of 2,549.6 companies per story crammed into Ugland House. I wonder how many private offices are there?

WashingtonWatch.com gives this summary of the Senate bill, which has a House companion:

... Amends Internal Revenue Code provisions relating to tax shelter activities to: (1) establish legal presumptions against the validity of transactions involving offshore secrecy jurisdictions (i.e., foreign tax havens identified in this Act and by the Secretary of the Treasury); (2) impose restrictions on foreign jurisdictions, financial institutions, or international transactions that are of primary money laundering concern or that impede U.S. tax enforcement; (3) increase the period for Internal Revenue Service review of tax returns involving offshore secrecy jurisdictions; (4) require tax withholding agents and financial institutions to report certain information about beneficial owners of foreign-owned financial accounts and accounts established in offshore secrecy jurisdictions; and (5) disallow tax advisor opinions validating transactions in offshore secrecy jurisdictions.

Amends the Securities Exchange Act of 1934 and other federal enactments to impose a penalty for failure to disclose holdings or transactions involving a foreign entity.

Requires the Secretary of the Treasury to publish a final rule requiring unregistered investment companies, including hedge funds or private equity funds, to establish anti-money laundering programs and to submit suspicious activity reports. ...

Increases penalties for promoting abusive tax shelters and for aiding and abetting the understatement of tax liability. ...

It's been 13 months since this bill was referred to committee, but sometimes good things are worth the wait. Sen. Charles "Chuck" Grassley, R-Iowa, the ranking GOP member of the Finance Committee, has said he shares some of Baucus' concerns, so there are good bipartisan prospects for the bill.

Reactions to the bill on WashingtonWatch.com, though, were discouraging. It's no scientific polling sample, but the site seemed beset by Ron Paul cultists who tried to argue that if the U.S. had a federal income tax rate that was both low and "flat," corporations would not be setting up "shop" in offshore havens.

Questions for the libertarian Reynolds Wrap hat club: Would your "flat" tax on personal income include the income of corporate "legal persons"? Would it include income from dividends and interest? These are the people who bought into Ronald Reagan's wigged-out notion that corporate taxes are "hard to justify" because of double taxation.

So, a corporation should enjoy all the benefits of being a "legal person," but then not have to pay income tax like one? It's good ta be da king -- all the privilege, none of the responsibility.

Steve Forbes saddled up that Trojan horse during his pathetic attempts to run for president. Fortunately, the man has zero charisma. But an astonishing number of people, from what I recall, bought into his idea at face value. The sleight of hand was that it was really a tax proposed only on salaries and wages -- no dividends or interest. Even Pat Buchanan dismissed it as something that the boys at the country club would come up with.

The corporate income tax used to be a huge chunk of federal revenue, and that was during better times than these, mind you. In 1959, 39% of federal revenue came from corporate taxes (source: Internal Revenue Service statistics, via Barlett and Steele's now-classic America: What Went Wrong? (1992)) By 1989, that was down to 17%, and it's less now.

Raising taxes on the corporate titans is going to be a monumental quest for some future president and Congress. For now, an extra $100 billion would do a lot to cut the deficit. Go, Max, go.

Crossposted at Manifesto Joe.

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Your Corporate Media at Work

Just noticed this from Reuters:

A former "Dateline NBC" correspondent claims that in the aftermath of September 11, the network diverted him from reporting on al Qaeda and instead wanted him to ride along with the country's "forgotten heroes," firefighters...

...Another bombshell is Hockenberry's claims that General Electric, NBC's parent company, discouraged him from talking to the Bin Laden family about their estranged family member. Hockenberry asked GE, which does business with the Bin Laden family company, to help him get in contact with them. Instead, a PR executive called Hockenberry's hotel room in Saudi Arabia and read a statement about how GE didn't see its "valuable business relationship" with the Bin Laden Group as having anything to do with "Dateline."

Media consolidation and corporate ownership contribute so much to a well-informed populace, don't they?

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American Airlines Fights To Halt Worker Pay Raises, Even As CEO Pockets Millions

By MARC MCDONALD

Workers at American Airlines agreed to wage and benefit cuts worth $1.6 billion when the company was on the verge of bankruptcy a few years ago. Thanks to the workers' sacrifice, American Airlines is profitable again.

Now, instead of rewarding its employees, American Airlines wants to halt worker pay raises.

However, there's one group of American Airlines employees who aren't being asked to share in the pain: the executives. Over the past couple of years, American Airlines gave stock bonuses worth $250 million to the company's executives and managers.

So much for "shared sacrifice."

American Airlines' CEO Gerard Arpey did particularly well last year. Arpey pocketed a $581,534 salary last year, along with $39,769 in other compensation. But that was chump change, compared with the $4.8 million in stock and option awards that Arpey received last year. And in April 2007, he pocketed a bonus of $6.6 million.

The American Airlines saga is just another chapter in the skyrocketing inequality that has taken place in America since Ronald Reagan declared war on labor unions in the 1980s. Indeed, the American labor movement never really recovered from Reagan's firing of 11,345 striking air traffic controllers in 1981.

Reagan, a former union man himself, stabbed the workers of the Professional Air Traffic Controllers Organization in the back. But worse than that, he gave a green light to corporate America to bust unions, ignore labor laws, and screw workers---a process that continues to this day.

As a result, America has been increasingly economically polarized since 1980s. The middle class is shrinking and inequality is at its highest level since the Robber Baron era of the late 1800s.

CEO salaries tell the story. In 1980s, the CEOs of Fortune companies earned about 42 times as much as the average worker. By 2000, CEOs were making over 500 times what the average worker earned. In 2004, the average CEO of a major corporation received over $9.8 million in total compensation.

This economic gulf is unique to America, by the way. In Japan, for example, CEOs only make around 17 times what the average worker earns. In Continental Europe, the multiple is around 22.

But if a U.S. CEO making more than 500 times what the average worker earns sounds like a wide gulf to you, it's nothing compared to what one sees in the airline business these days.

For example, United Airlines executive Glenn Tilton makes 1,000 times what a United flight attendant at the top of the scale earns. Tilton's total compensation in 2006 was estimated at $39 million. By contrast, United flight attendants earn an average salary of about $31,000.

No doubt, I will soon be hearing from this blog's NeoCon visitors, who will start lecturing me about how CEO pay is all part of the "free market." No doubt, they'll lecture me about how "liberals just don't understand capitalism."

Well, they're entitled to their viewpoints. But I wonder where these Republican-voting "capitalists" were in 2001, when the Republicans and the Bush White House bailed out the airline industry with $15 billion of taxpayer money (including a cash gift of $5 billion). If Bush supporters think this is "capitalism," they need to go back and re-read Adam Smith.

Crossposted at BeggarsCanBeChoosers.com

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