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Federal Tax Loopholes: They're Like a Mafia Protection Scheme Where Big Corporations Profit

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4. A break for shipping your job to China.

In April, 750 workers at a Kimberly-Clark paper mill in Everett, Washington, lost their jobs when the company shipped those jobs to lower-cost facilities overseas.

Steelworkers in Stevens Point, Wisconsin, suffered the same fate. Their mill's owner, Joerns Heathcare, took away 150 jobs last month by moving operations to Mexico.

Another 170 people making auto sensors at a Sensata Technologies plant in Freeport, Illinois, will be out of work by year's end. Their jobs are being carted off to China.

In each case, American taxpayers will subsidize the evacuation.

It's not just cheap labor that pushes work overseas. The U.S. tax code allows companies to expense every last cost of sending your job abroad.

At a time of 8 percent unemployment, one would think Congress would rush to kill a loophole that actually encourages economic misery. One would be wrong.

This summer, Senate Democrats introduced the Bring Jobs Home Act, which would kill the loophole and offer a tax credit to companies that bring work back to America. The credit would cover 20 percent of their costs from bringing those jobs back.

Republicans filibustered the bill to death. Sen. Orrin Hatch (R-Utah) went so far as to call the measure "a joke," ensuring another nervous Christmas for the country's blue-collar workers.

3. The behaving-like-an-asshole deduction.

In 1989, third mate Gregory Cousins was negotiating the 986-foot Exxon Valdez through Bligh's Reef in Alaska while Capt. Joe Hazelwood slept off a bender below deck.

The vessel crashed, spilling upward of 25 million gallons of oil into Prince William Sound. The disaster could have been avoided if the ship's collision avoidance radar was working. It had broken a year before, but Exxon chose not to fix it due to the cost of repair and operation.

Overnight, 1,300 miles of pristine shoreline turned to blacktop. Wildlife caked in oil looked like a Hollywood casting call for an Al Jolson biopic. The remote locale made clean-up difficult. Twenty-three years later, fish stocks have yet to return to their pre-spill levels.

A court would eventually level $5 billion punitive damages against Exxon — equal to a single year's profit at the time. The company appealed, chipping away at the sanction until the U.S. Supreme Court (natch!) slashed that figure to $500 million in 2008.

Yet through the miracle of the tax code, Exxon would end up paying only about $325 million. No matter how negligent a company is, court judgments are considered nothing more than a business expense and are therefore tax-deductible.

Last year, Sen. Patrick Leahy (D-Vermont) introduced the Protecting American Taxpayers From Misconduct Act. If a court orders damages for malfeasance, U.S. taxpayers would no longer be forced to grab a piece of the tab.

Yet even in the Democratically controlled Senate, liberals realize that exposing their corporate patrons to more tax liability will go over like a dieting booth at the county fair. Leahy's bill never made it out of committee. 2. Delaware, the Cayman Islands of America.

Just outside of Philadelphia sits a tax haven so egregious the Cayman Islands complain about it. It's called Delaware, a tiny state that allows American companies to set up fake headquarters so they can avoid taxes in their own states.

Delaware does it by asking fewer questions than at a needle exchange. Like the Caymans, it doesn't tax assets like royalties, leases, trademarks, and copyrights. So U.S. companies create shell firms in Delaware, then "sell" their intellectual property to them. By leasing their own inventions from these fake companies, corporations have dodged $9.5 billion in state taxes over the past decade.

The trailblazer for such schemes was WorldCom, the famed telecommunications company that imploded in 2002 after being caught cooking its books. In one scam, WorldCom pretended to pay its Delaware shell company $20 billion in royalties for the questionable asset of "management foresight." Though there were no managers in Delaware and no real money changed hands, WorldCom was able to reduce its state taxes by hundreds of millions.

Such scheming is so common that Delaware is home to more corporations (945,326) than it is people (897,934). Even the patron saint of tax evasion, the Cayman Islands, sniffs over the state's corrupt practices.

"There should be a level playing field, and Delaware should have to comply with the same standards as the Caymans," says Anthony Travers, chairman of the Cayman Islands Stock Exchange.

Johnson likens the Delaware strategy to one first professed by Clyde Barrow, the Depression-era bank robber.

"Near the end of Bonnie and Clyde, they're lying around in bed after making out, and Bonnie says, 'Anything you'd do different?' And Clyde says, 'I think we shoulda lived in one state and done our bank robbery in another state,' " says the professor.

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Chris Parker
Contact: Chris Parker