Two truths are evident in the debate over President Bush’s tax plan. First, it is clear that expressed concerns about fiscal imbalance risked by the magnitude of the tax cuts are genuine and valid. Second, it is also clear that the dividend tax cut would lead to a much-needed reordering of the perverse incentives in our tax code that have contributed to the corporate outrages of recent months. Perhaps, in this debate, we can have our cake and eat it too.

The 10-year cost difference between the tax plan the Senate would accept ($350 billion) and what the House has approved ($550 billion) is $200 billion, or roughly $20 billion per year. This is a gap that can be bridged through two means: 1) cutting corporate welfare, and 2) closing the loophole which facilitates multinational corporations to move their revenues to offshore tax havens.

Corporate welfare

Thinkers as diverse as the Cato Institute and Rep. Bernie Sanders, I-Vermont, have pegged subsidies to corporations at upward to $125 billion per year. Indeed, the Bush administration has expressed a willingness to take the knife to such programs as provide grants, loans and other welfare to particular businesses and industries, which amount to picking winners and losers in a free-market economy. Many of the beneficiaries of this largess are highly profitable companies in their own right. Others are failing businesses in dying industries that we really should not prop up with an artificial promise of prosperity.

The tens of billions of dollars spent each year on corporate welfare is not about need; it is about political influence. Do we really need to be subsidizing Boeing, General Motors, and Archer Daniels Midland while we are again entering an era of deficit spending? Should we continue paying $90 million per year for the Market Access Program for Big Agribusinesses’ overseas marketing?

Or how about the Advanced Technology Program that gives $187 million per year to high-tech companies to conduct research that could be funded by venture capital? How about the Export-Import Bank that spends $1.2 billion per year making loans to such corporations as Enron to help them sell their wares overseas? Putting a halt to the most wasteful 25 projects of the Army Corps of Engineers would save taxpayers $6 billion, according to a joint report of Taxpayers for Common Sense and the National Wildlife Federation.

The list goes on and on. While the definition of much of corporate welfare may be subject to interpretation, clearly at least $20 billion available per year is available to the reform-minded. If Congress is not up to the task, perhaps we should pick a certain level of dollar savings to achieve and empanel a new version of the Base Closing Commission. The commission could present a list of corporate welfare for elimination to Congress for a simple up-or-down vote.

Tax haven loophole

The Internal Revenue Service has reported that at least $70 billion per year could be retrieved by closing the loophole of American companies incorporating in offshore tax havens. Called “corporate inversions,” this skullduggery works most often like this: A company creates an offshore subsidiary and then takes itself over, recasting itself as a foreign company in name only.

Sometimes having the subsidiaries themselves, without the inversion, are enough. Simply having offshore subsidiaries have “saved” corporations billions. Enron created 881 offshore subsidiaries to avoid U.S. taxes for most of the last years of the company’s existence. Indicted former CEO Dennis Kozlowski’s Tyco saved $400 million in 2001 through use of its Bermuda “headquarters” – sort of a gargantuan legal version of his alleged criminal act of pretending to ship valuable art to New Hampshire to avoid the New York sales tax.

Senator Chuck Grassley’s Tax Shelter Transparency Act is a step in the right direction. A similar bill has been introduced in the House. Those wanting to use the euphemism “tax motivated expatriation” ought to pay a real price. But let’s resist creating a moratorium on the practice as a compromise: there ought to be penalties felt not only by the recent expatriates but by the early movers, as well.

In its own right, eliminating the dividend tax would go a long way to reducing the motivation for these tax avoidance schemes. If shareholders only get taxed on their income once, they are less likely to vote – as Tyco’s shareholders did recently – to maintain the P.O. box in Bermuda, or to consult Cayman corporate counsel in the first place. Certainly, reforming the tax code to disallow what are essentially U.S. companies from sticking it to American taxpayers would be a worthwhile reform on its own – better yet if it could “pay for” a real reduction in retirees’ taxes elsewhere.

A sense of justice and moral outrage demands an end to the corporate abuses we’ve seen paraded on perp walks over the past months. Our economy has been bodyslammed by the perverse incentives and conflicts of interest allowed by Congress over past years. Trillions of dollars of value has been lost in the market. That’s trillions of dollars of hopes, dreams, college plans and retirement savings for millions of Americans.

Let’s eliminate the dividend tax, and find the money to pay for it with overdue closing of corporate tax loopholes and cuts in corporate welfare.

State Sen. Richard A. Bennett (R) is a former president of the Maine Senate and is a specialist in corporate governance and shareholder activism at Lens Governance Advisors.