America’s Real Robber Barons: The Congress of the United States

by | Sep 15, 2002

As we write, both Democrats and Republicans are introducing legislation to seek a moratorium on re-incorporations to tax havens — and some of the bills include a retroactive repeal of the right of companies that have already accessed havens. But Congressional action against havens — like the Treasury’s actions — began a few years ago. […]

As we write, both Democrats and Republicans are introducing legislation to seek a moratorium on re-incorporations to tax havens — and some of the bills include a retroactive repeal of the right of companies that have already accessed havens.

But Congressional action against havens — like the Treasury’s actions — began a few years ago. In 1999 Congressman Jim Leach (R-Iowa) introduced a bill that would “bar U.S. institutions from providing correspondent banking services for a whole class of banks that are licensed in offshore jurisdictions.”36 And soon thereafter Senator Charles Schumer (D-New York) proposed that foreign financial institutions incorporating in areas with bank secrecy laws (like Switzerland) “should not be allowed to participate in the U.S. financial system or transact with U.S. financial institutions.”37

In 2000, again in 2001 and again more recently — Representatives Nancy Johnson (R-Connecticut) and Richard Neal (D-Massachusetts) introduced legislation, at the request of their “constituents” (huge campaign contributors such as Chubb, the Harford and Liberty Mutual) to have Congress raise taxes on their competitors, the re-insurers in Bermuda. Why does no one in Washington or at The New York Times describe this corporate lobbying as an “unpatriotic” act of “greed?” Because, instead of boosting shareholder wealth by their own efforts, the executives of these firms are spending it on politicians and working diligently to fill the government’s coffers.

More recent Congressional hostility toward havens — especially by politicians running tax committees — indicates that a punitive response is likely. Representative Charles Rangel (D-New York), chairman of the House Ways and Means Committee, impugns the patriotism of tax payers. In McCarthy-ite fashion, he says:

Some companies choose profits over patriotism. Supporting America is more than about waving the flag and saluting — it’s about sharing the sacrifice. That’s true of soldiers, citizens and it should be true of big companies, too.38 (emphasis added)

At least the soldiers he refers to enter the armed services voluntarily; that’s not true of taxpayers subject to the U.S. tax code. And what about “sharing the sacrifice?” Apparently it doesn’t apply to people like Mr. Rangel — and all the other pork-spending, budget-busting cohorts at his side in Congress. They need not sacrifice by getting less tax revenue. Instead we’re told that the productive must sacrificefor the greater good of parasitic Congressmen.

Representative Dick Gephardt (D-Missouri) is also using “patriotism” to pave the way for additional, un-patriotic tax burdens to be imposed on the nation’s most successful individuals and firms:

There is a gaping hole in the tax code that allows clever opportunists to go offshore to escape paying taxes, at the expense of our nation’s well-being. . . . It is an unpatriotic act that has no place in a country that demands responsibility from all while seeking to promote opportunity for all. While these corporations prosper, patriotic taxpayers lose billions out of the Federal Treasury due to these loopholes. And the system is eroding people’s faith and trust in a tax code already riddled with preferences for special interests and corporate welfare. . . . We need to close these corporate loopholes, restore faith in our markets, increase economic efficiencies and generate revenues for national priorities like Medicare prescription drugs.39 (emphasis added)

Notice how Gephardt assumes that anyone who pays less in taxes (Gephardt’s play-money) is somehow taking it from someone else who does pay taxes — even though Gephardt himself is the Robber Baron here — and even though it’s totally within his power to respond by lowering the taxes on other burdened taxpayers. But that’s not Gephardt’s aim. He couldn’t care less about lightening tax burdens; he only worries that tax resistance will build, nationwide. Then he’d be lost — unable to pursue his main goal of building up the welfare state.

The two most influential members of the Senate Finance Committee are also paving the way for a tax crackdown: Senator Max Baucus (D-Montana) and Senator Charles Grassley (R-Iowa). According to Baucus, anyone who seeks to minimize his tax burden is effectively a criminal who’s engaged in robbery:

When a criminal gets off because of a technicality in the law, people are outraged. Well, I want to be clear — I am just as outraged when a corporation takes a technical, manipulative reading of the tax code and robs the rest of the tax-paying public.”40 The companies reincorporating in tax haven countries and their executives are still physically located in the U.S. They and their employees enjoy all the privileges afforded honest U.S. taxpayers. We need to continue to step up efforts to ensure that they pay their fare share.41 (emphasis added)

Senator Grassley has been even more vicious in his attacks — threatening tax-minimizers by saying they “proceed at their own peril” and using such imagery as a fall in the “dominoes” (as if he’s fighting Communist insurgencies) and the need for a “noose” to be cinched around their necks (as if he’s a KKK member):

I want tax havens to fall like dominoes as we approach January 2004, but two years is too long to wait for the noose to be cinched on tax havens.42 There is no business reason for doing this, other than to escape U.S. taxation. I believe the Finance Committee needs to investigate this.43 From what I have seen, these deals look like shams. I have also heard there may be an effort to rush these deals to market before Congress cracks down on them. Let me be clear to everyone developing or contemplating one of these deals: you proceed at your own peril.44 During a war on terrorism, coming out of recession, everyone ought to be pulling together. If companies don’t have their hearts in America, they ought to get out.”45 We ought to be able to expect American companies to have their heart in America. I think in time of war, you ought to have your heart in America and your properties here and pay your fair share of taxes.46 (emphasis added)

Grassley – the Senator with a “heart.” If we translate what he means by “pulling together” it comes to this: it means lining Grassley’s pockets — and budgets — with money for pork-barrel spending. And when he tells firms they “ought to have their properties” in America, we might ask: Where? The World Trade Center? If they don’t stay and fund Grassley’s projects, the Senator says “they ought to get out.” Well, they have been “getting out” — and they’ll continue doing so, as long as politicians like Grassley exist. He need only impose a still greater tax burden — and in time they’ll all be gone (see, for example, the Soviet Union, Cuba and North Korea).

Senator Grassley also proposes barring tax haven corporations from contracting with the government (Stanley Works has 300 such contracts as a supplier to government). He has told Americans to boycott the company’s products, saying it “is evading U.S. taxes and making profits off the taxes of middle-class Americans who are paying their taxes honestly. This is corporate greed.”47 (emphasis added)

This political invective is making some executives less willing to maximize shareholder value by accessing havens. A tax expert at Lehman Brothers says many firms could benefit but choose not to, because:

The political considerations sometimes prevail and companies are understandably reluctant to do something like this because it will not necessarily be properly construed in the marketplace. It may be seen as not patriotic and in the wake of September 11, that is not a good posture for a company. (emphasis added)48

But don’t expect the tax advisors and lawyers to fully defend wealth-maximizing corporations — or call in the American Civil Liberties Union. They’re often in cahoots with the rich-bashers and the tax-raisers. Richard Andersen, tax lawyer at Arnold and Porter and author of a leading book on tax treaties said: “If Congress wants to say this is a time of war and you can’t do this anymore and if you do we will put you in handcuffs and throw you in prison that is fine with me.49

According to The New York Times, Gephardt and the Democrats are “trying to burnish their credentials as the champions of underdogs and the scourge of the privileged.”50 Is that what Senator Grassley and the Republicans are doing, too? Who in Washington — or in the nation’s editorial pages — stands up for the Atlases? No one. So they leave on their own. With all the name-calling, the Times actually defends and bolsters people like Grassley — and claims that firms like Stanley Works are the ones being uncivil:

Whether the tax codes treatment of overseas earnings should be revised to level the playing field between American companies and foreign competitors is worth debating. But in our democracy, fleeing to Bermuda is not a constructive way of participating in a national dialogue (sic).51

This is the same Times that screamed bloody murder in summer of 2001 — when personal income tax cuts were being enacted (and which the Times opposed) — about the slightest hint that corporate taxes might by cut as well. The Times opposed such cuts even after September 11. Yet it wonders why companies are fleeing the U.S. It’s not unlike a thug who’s been beating his wife for years: she finally starts walking out the door to leave him for good and he says “Hey, what’s wrong? Aren’t you willing to participate in a dialogue about this?”

Amazingly, for all the hatred expressed toward tax havens and the wealthy — for all the risks to prosperity associated with ending the havens and jailing their users — “success” in doing so would only raise enough revenue ($70 billion) to run the U.S. government for thirteen days.52 Of course, a tax crackdown that raised ten times that amount would be no more legitimate. But the willingness of Congressmen to fling invective at the wealthy and inflict such harm on them and the economy — with such little revenue gain — only underscores how much they’re driven by envy.

References:

37 Cited in Mitchell, “An OECD Proposal to Eliminate Tax Competition Would Mean Higher Taxes and Less Privacy,” p. 17.

38 Cited in “U.S. Corporations Are Using Bermuda to Slash Tax Bills,” The New York Times, February 18, 2002.

39 “Gephardt Statement on Democratic Legislation Preventing Corporations from Using Offshore Tax Havens to Escape Taxes,” U.S. Newswire, April 24, 2002.

40 Cited in “Senators Assail Corporate Use of Bermuda as Tax Shelter,” The New York Times, March 22, 2002, p. C1.

41 Cited in “Tax Treaties With Small Nations Turn Into New Shield for Profits,” The New York Times, April 16, 2002.

42 Cited in “Manhattan Prosecutor Criticizes Caymans Tax Pact,” The New York Times, December 8, 2001, p. C3.

43 Cited in “U.S. Corporations Are Using Bermuda To Slash Tax Bills,” The New York Times, February 18, 2002.

44 Cited in John McKinnon, “Senators To Curb Relocations to Bermuda,” The Wall Street Journal, March 22, 2002.

45 Cited in Jim McTague, “Tax Havens Make Senators See Red, White and Blue,” Barron’s, April 22, 2002. The actual color is green — for envy and for the color of the money they seek to confiscate.

46 Cited in “O’Neill Urges Tax Fix to Stem Offshores,” Reuters, May 17, 2002.

47 Cited in “Senators Assail Corporate Use of Bermuda as Tax Shelter,” The New York Times, March 22, 2002, p. C1.

48 Cited in “U.S. Corporations Are Using Bermuda to Slash Tax Bills,” The New York Times, February 18, 2002.

49 Cited in “Tax Treaties With Small Nations Turn Into New Shield for Profits,” The New York Times, April 16, 2002.

50 “Democrats Take Aim at Offshore Tax Havens.” The New York Times, May 5, 2002, p. A17.

51 “The Bermuda Tax Triangle,” Editorial, The New York Times, May 13, 2002, p. A18.

52 Cited in David Cay Johnston, “Treasury Chief: Tax Evasion is on the Rise,” The New York Times, July 19, 2001, p. C1. Senator Carl Levin (D-Michigan) cited an IRS estimate that the U.S. government “loses $70 billion in taxes annually from tax evasion.” It’s not clear whether by “evasion” the IRS includes the use of tax havens. Nevertheless, since the U.S. government takes in almost $2 trillion per year in tax revenues, $70 billion is a mere 3.5% of that – equivalent to about 13 days per year.

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Dr. Salsman is president of InterMarket Forecasting, Inc., an assistant professor of political economy at Duke University and a senior fellow at the American Institute for Economic Research. Previously he was an economist at Wainwright Economics, Inc. and a banker at the Bank of New York and Citibank. Dr. Salsman has authored three books: Breaking the Banks: Central Banking Problems and Free Banking Solutions (AIER, 1990), Gold and Liberty (AIER, 1995), and The Political Economy of Public Debt: Three Centuries of Theory and Evidence (Edward Elgar Publishing, 2017). In 2021 his fourth book – Where Have all the Capitalist Gone? – will be published by the American Institute for Economic Research. He is also author of a dozen chapters and scores of articles. His work has appeared in the Georgetown Journal of Law and Public Policy, Reason Papers, the Wall Street Journal, the New York Times, Forbes, the Economist, the Financial Post, the Intellectual Activist, and The Objective Standard. Dr. Salsman earned his B.A. in economics from Bowdoin College (1981), his M.A. in economics from New York University (1988), and his Ph.D. in political economy from Duke University (2012). His personal website is richardsalsman.com.

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