Today our stock markets are in free fall, formerly respected CEOs of famous
corporations are "taking the fifth" before Congressional committees, and the
smell of "cooked books" permeates Wall Street. In the timely The Cheating of America we learn that corporations and super rich individuals
have also long been avoiding and evading taxes on their loot.
The tax collector has historically been the villain; the tax evader, the
hero. In the 1776 classic The Wealth of Nations Adam Smith believed the
tax evader is "in every respect, an excellent citizen...." This idea is
being reexamined as thoughtful people come to realize that the balance of
power between government and corporations has shifted.
Few Americans will be surprised by all this, in view of the recent
revelations concerning Enron, Worldcom, and a growing list of others
cheating their employees and stockholders, but the extensive
investigation of IRS records begun in 1996 by the Center for Public
Integrity, reveals that "cooking the books" is not new to corporate
America and is more widespread than previously imagined. The results of
their investigations read like tomorrow's headlines, with numerous and
detailed case studies ranging from individuals like Leona Helmsley, to a
parade of Fortune 500 corporations and banks. In 1998 IRS Commissioner
Charles O. Rosotti, testified that tax avoidance and evasion cost each
taxpayer $1,600 plus a year:
"...thousands of the most affluent individuals and corporations routinely
avoid and evade paying billions of dollars in taxes each year. And the
level of unabashed greed seems to be increasing. Everyone from the
principals of the largest accounting, law, and brokerage firms to the
sleaziest, fly-by-night Internet shysters are promoting offshore,
cyberspace, and other avoidance schemes, and many of the most respected
corporations and individuals are heeding their advice."
As Plato said: "Where there is an income tax, the just man will pay more
and the unjust less on the same income." And many Americans are
reconciled to the words of Oliver Wendell Holmes Jr. (the former Supreme
Court Justice) engraved atop the entrance to IRS headquarters in
Washington, that "Taxes are what we pay for civilized society." But, the
authors warn, "...unless something is done very soon, we may lose even
the pretense of maintaining the equilibrium between the wealthiest and
the poorest segments of American Society. Cynicism about the United
States as a government of the people, by the people and for the people
will rise inexorably."
Charles Lewis, a former investigative reporter for ABC and CBS news, and
producer for "60 Minutes," is founder and executive director of the Center
for Public Integrity (www.publicintegrity.org), a nonprofit, nonpartisan
research group concentrating on ethical and public service issues. Coauthor
Bill Allison is a former researcher for the Philadelphia Inquirer.
They were aided by a team of investigators who for two and one-half years
combed IRS files and tax court records, interviewed government officials
and traveled from Beverly Hills to Belize to find the individuals and
corporations profiled in the book. Lewis and the Center have also
published The Buying of the President, The Buying of Congress and The
Buying of the President 2000.
Helmsley, whose sins seem paltry in comparison to today's offenders, was
convicted in 1989 of 33 counts of tax evasion, sentenced to four years in
prison, and fined $7.1 million. "Your conduct was a product of naked
greed," U.S. District Judge John M. Miller told her.
The next examples of naked greed the authors cite are the "Benedict
Arnold billionaires" who took foreign citizenship, relocating offshore to
legally escape corporate taxes, leaving their unpaid tax burden to be
made up by the rest of Americans.
Then there are the corporations. For example, after a huge government
bailout 20 years earlier, Chrysler Corporation in 1998 bailed out of
America, becoming a German company, joining a long line of American
companies switching countries to avoid U.S. taxes.
Furthermore, the super wealthy, when caught illegally evading taxes, can
settle with the IRS for pennies on the dollar, unlike less affluent
citizens without political clout or large legal teams.
The unfairness persists in Medicare and Social Security taxes as well.
Following the colorful and convoluted career of Roy M. Speer, founder of
the Home Shopping Network, the authors note he paid just 1.2 percent of
his income into the trust funds in 1989.
Movie industry moguls are right up there with oil producers (who could
give lessons to Enron in fleecing shareholders) utilizing offshore trusts
and tax shelters to generate millions, but end up with no profits through
accounting illusions. The taxing policies of Ireland, Aruba, Belize and
other countries have also become a powerful lure to prominent movie stars
as well as underworld characters.
Joe Conforte, when owner of Nevada's (in)famous Mustang Ranch, led the
trend followed by firms like Microsoft and Xerox, saving millions in
Social Security taxes, health insurance and pensions by reclassifying the
employees of his brothel as Independent Contractors, shifting the tax
burden to them.
Many of these profiles are fascinating, especially those dealing with
well-known companies and individuals. Some of the intricate and detailed
manipulations read more like a legal treatise, but for those engrossed in
the financial world who want to know about these scams and scammers (and
that should include everyone who owns a share of stock or pays taxes),
this book makes for fascinating reading. Movie fans, too, will learn why
their favorite stars chose to settle in countries like Ireland.
The investigators found various ominous trends. In 1995, for example,
more than 39,700 millionaires, representing 3 of every 10,000 taxpayers,
claimed 38 cents of every dollar in deductions for investment interest
expense. And so it goes, in every aspect of finance. As the corporate
percentage of federal income taxes decrease, the tax burden upon
non-millionaire, individual taxpayers increases.
Charities did not escape their scrutiny. In 1999 more than 1.5 million
non-profits, including 350,000 religious organizations, controlled $l.3
trillion in assets, and engaged in many businesses.
Although the book's subtitle promises to tell you what you, the
individual taxpayer, can do about all this greed and corruption, the
answer, they confess, is little:
In an Epilogue to the Paperback Edition, the authors focus on corrupt
banking and money laundering.
- You can refuse to pay cash for services ($29.3 billion in revenue is
lost yearly that way).
- You can be leery of schemes that promise tax savings too good to be
true, such as the ever-popular line: "The IRS doesn't want you to know
- Stockholders can demand to receive copies of each corporation's 10K,
the annual report filed with the Securities Exchange Commission (for what
we now know it's worth).
"The rule of law is one of the greatest inheritances of civilization, the
great bulwark against anarchy and barbarism. And the perils of having a
financial Wild West, operating alongside the regulated, legitimate
economy, are all too real. Osama bin Laden reportedly boasted that his
followers had used to their advantage 'the cracks inside the Western
financial system' .... It seems the world can no longer afford to neglect
mending those cracks."
The authors' exhaustive details in this book seem, in some cases, a
little too exhaustive -- but the widespread pattern of corruption is
intriguing and tends to grow upon the reader as chapter after chapter
reveals more of the tax aspect of the tangled web of corporate greed
which is today being played out before Congress and TV audiences.
There is fodder here for several more Center books.