RAINING ON TAX HAVENS

One of the ways corporations have gotten away with cheating shareholders and taxpayers is to make their structures so opaque and complex that only the most diligent regulators can understand how the business is making money. One of the ways to build support to counter this strategy is for politicians to present broad concepts of fairness then work hard to ensure a proposal’s details anticipate the many ways these corporations will try to avoid the law.

Senate candidate Chellie Pingree offered the beginnings of such a plan last week as a portion of her proposal for improving corporate behavior. While recognizing that a lot more work was needed to produce the specifics of a bill, she presented the owners of small Maine businesses who pay more in corporate taxes than certain mega-corporations do. “Ending tax loopholes that allow big corporations to evade taxes by using an overseas P.O. box is the right thing to do,” she said.

Former state Sen. Pingree’s opponent, Sen. Susan Collins, doesn’t disagree, and has held hearings on offshore tax avoidance schemes and sponsored legislation to bar companies from changing their place of incorporation merely to hide from the IRS. Ms. Pingree’s press conference on the issue last week, however, was useful because it highlighted the inequity of the current laws and emphasized the effect it has on the federal deficit. The U.S. Treasury estimates the breaks from overseas tax shelters are worth as much as $150 billion a year.

It isn’t just that companies such as Enron and WorldCom pay too little in taxes; it is that they not only pay no taxes but qualify for government subsidies. Enron, for instance, received $382 million in income tax refunds from 1996-2000 yet paid no income tax in four of the last five years, according to The New York Times. WorldCom paid no tax in 1998, received government rebates anyway and spent some of that money lobbying Congress to cut regulatory oversight.

As part of a larger plan for corporate responsibility, Ms. Pingree used her press conference to discuss two issues in particular: a proposal to clarify the rules used by tax courts to distinguish between legal tax-reduction strategies and illegal tax shelters; and to restrict government contracts to only American-based corporations. With the former, she wants the courts to make a stronger distinction between businesses with legitimate economic interests in incorporating overseas and those doing it merely for tax purposes. With the latter, she hopes to use the contracts as a lure to avoid the incentive to go overseas in the first place.

These issues have been debated in Congress many times before, but it takes a crisis of some level to pass anything substantial because the details

of fairly reworking these laws are hugely complicated. What is important in a political race is for candidates to expose the unfairness in the current tax system and demonstrate a commitment to getting rid of it. Ms. Pingree’s press conference shows she is on the right track.