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Multinational Tax Deform: The Problem's Not Just the Corporations-It's the Republicans Who Actively Support Them. (the Taxonomist)

By McIntyre, Robert S. | The American Prospect, August 26, 2002 | Go to article overview

Multinational Tax Deform: The Problem's Not Just the Corporations-It's the Republicans Who Actively Support Them. (the Taxonomist)


McIntyre, Robert S., The American Prospect


IN RESPONSE TO PUBLIC OUTRAGE, CONGRESSIONAL Democrats are clamoring for a crackdown on offshore tax dodges. They've focused particularly on the notorious Bermuda loophole, whereby unpatriotic companies such as Tyco, Stanley Works, Accenture (formerly Andersen Consulting) and PricewaterhouseCoopers Consulting have or plan to set up mail drops in Bermuda to avoid taxes on their U.S. profits.

Sensing the public mood, Bill Thomas, the California Republican who chairs the Committee to Bankrupt America (formerly the House Ways and Means Committee), says Republicans also want to address the problem. But while the GOP bill offers lip service to halting multinational tax abuses, it consists mainly of measures that go in exactly the opposite direction.

A little background: Over the past several years, the World Trade Organization has repeatedly ruled that a foolish $5 billion per year U.S. tax subsidy for Boeing, General Electric, Caterpillar and a handful of other big exporters violates our international trade agreements. Various attempts to rewrite the tax break to make it legal have failed to impress the WTO, and U.S. companies now face significant trade sanctions unless the subsidy is repealed. Even most backers of the tax break have finally conceded that it has to go.

That should be good news, because not spending the $51 billion the subsidy would cost over the next decade would make at least a modest dent in the huge Bush budget deficits. But that's not how the Committee to Bankrupt America thinks. Under the rubric of "competitiveness," it's insisted that every penny gained from ending the export subsidy must be funneled back into other costly multinational tax loopholes.

Politics forced Republicans to pretend to attack the Bermuda loophole, but their bill does as little as possible. For starters, they significantly watered down a Democratic proposal to disallow sham Bermuda reincorporations--and then provided that even that limited reform will expire after three years! Although the change may at least temporarily stop Stanley's Bermuda plans, it explicitly grandfathers companies such as Tyco that set up their mail drops early.

Another of the GOP'S Bermuda-related measures would limit schemes to shift profits offshore through interest write-offs, but would not curb similar deductions for the use of patents, trade names and so forth. That seems to have been carefully designed to protect the Bermuda tax-sheltering activities of Accenture and PWCC--who remonikered themselves ("Monday" for PWCC) to get around a law forbidding expatriate companies from charging their American operations hefty deductible fees for the use of pre-existing trade names.

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