The Taxonomist

By McIntyre, Robert S. | The American Prospect, April 24, 2000 | Go to article overview

The Taxonomist


McIntyre, Robert S., The American Prospect


CORPORATE TAX SCAMS

For corporate America, tax sheltering is all the rage these days. Big accounting firms like PricewaterhouseCoopers, investment banks like Merrill Lynch, and a legion of unscrupulous tax advisers are aggressively marketing their services to otherwise "respectable" companies by promising to help them abuse the tax laws with little chance of detection by the IRS.

In 1998 PricewaterhouseCoopers bragged to Forbes magazine that it was promoting some 30 "mass-market" corporate tax shelters, plus specialty items for big firms willing to pay extra. It said that it had hired 40 salespeople to push its corporate shelters.

We know a little about how some of these shelter deals purport to work because a few of the tax abusers, such as UPS, Colgate-Palmolive, Compaq, and AlliedSignal, have actually been caught. The courts threw out their tax shelters as "sham" transactions, entered into for no purpose other than to escape taxes. But these cases, although very recently decided, all date back to shelters from the early 1990s or earlier. Since then the issue has gotten much worse.

The scope of the problem can be gleaned by looking at income tax collections. From fiscal 1996 to the current fiscal year, total federal income taxes are up by about 36 percent. That's good in many ways; it's how the government has finally balanced its budget. But while personal income taxes are up by 44 percent, corporate income taxes have risen by only 10 percent, despite a huge rise in profits. Indeed, last year, corporate income tax payments actually fell by $4 billion.

Had corporate taxes risen at the same rate as overall income taxes, then corporate income taxes this year would be $45 billion higher. That's $45 billion that could go for enhanced public programs, more debt reduction, or individual tax relief--to the tune of about $500 each for the average income taxpayer.

In 1996 corporations paid 21 percent of total income taxes, and individuals paid 79 percent. This year, the corporate share is down to only 17 percent, while individuals will pay 83 percent. …

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