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 Supreme Court (natch!) slashed that figure to $500 million in 2008.

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

Last year, Senator 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.

U.S. Rep. Dave Camp (R-Michigan) has taken huge contributions from the financial sector. What did they get in return? Camp blocked legislation reforming the capital gains tax rates.
Michael Jolley/Creative Commons
U.S. Rep. Dave Camp (R-Michigan) has taken huge contributions from the financial sector. What did they get in return? Camp blocked legislation reforming the capital gains tax rates.
Sheryl Crow benefited to the tune of $2 million on a loophole put in place by Tennessee, Kentucky and Texas lawmakers.
Kevin W. Burkett/Creative Commons
Sheryl Crow benefited to the tune of $2 million on a loophole put in place by Tennessee, Kentucky and Texas lawmakers.

Yet even in the Democratically controlled Senate, liberals realize that exposing their corporate patrons to more tax liability would 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 that the Cayman Islands complain about us. 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 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 last 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 commonplace 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.

"The answer is, if you're a corporation, that's exactly what you do."

1. The corporate blackmail exemption

In 2006, Starbucks chieftain Howard Schultz sold the Seattle Supersonics to Clay Bennett for $350 million — with the "understanding" that he would keep the team in Seattle.

Almost immediately, Bennett — who made his money by marrying the daughter of billionaire Edward Gaylord, owner of Country Music Television — asked Seattle to pony up $300 million for a new arena. The city wasn't eager, since it had already spent $75 million renovating the existing arena a decade before.

Bennett decided to blackmail Seattle, using Oklahoma City as leverage. Oklahoma had no major sports team of its own. So its otherwise conservative legislature offered Bennett a huge welfare package: $120 million for arena renovations and a new practice facility.

Seattle balked. Oklahoma had a new basketball team.

Yet according to the tax code, not all entitlements are created equal. While a laid-off electrician still pays taxes on his $500-a-week unemployment check, Bennett didn't pay a dime on his $120 million welfare bonanza.

This exemption only sweetens corporate incentive to blackmail states and cities whenever they consider moving. Take Toyota.

In 2002, it decided to build an assembly plant for its Tundra pickup, taking advantage of cheap labor in the South. Just like Oklahoma, otherwise anti-entitlement states like Alabama, Arkansas, Mississippi, Tennessee and Texas stumbled over each other with monstrous welfare packages.

Texas ultimately won by offering $227 million in subsidies. The state had purchased the right to host 2,000 workers at a plant in San Antonio — at a cost of $110,000 per job.

Yet for America as a whole, the deal was a spectacular loss.

It wasn't long before Toyota closed a similar plant in California, killing 4,700 jobs and shifting production to San Antonio and Canada.

The net result: Texas taxpayers forked over $227 million so America could lose 2,700 jobs. The only winner was the Japanese automaker, which walked away with a tax-free welfare package.

Still, Congress continues to offer blackmailers this lucrative break, though it provides no benefit to the country.

"There isn't one bit of improvement whether the Toyota plant goes north or south of the Tennessee-Alabama border," says Johnson. "Yet they will make money off the fact that there is a line between them. It's just nonsense."

Unfortunately, nonsense is the calling card of the tax code. Surely even Mitt Romney can see that.

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10 comments
TruthHurts
TruthHurts

Wow, just wow. What uneducated drivel. Why hasn't Obama told us about these tax loopholes? Just hasn't done a good job of telling the story? We have one of the most progressive tax policies in the world, on average the more one makes, the more taxes they pay. The buffet/secretary line has proven to be incorrect (look up what an effective tax rate is), stop pandering to the lies. #10. If the US corporate tax rate was competitive (ie. lower) corporations wouldn't do this. The same happens when a state with a higher income tax sees citizens move to one with a lower rate. #9. Capital gains are not taxed the same as dividends, maybe do some research. Dividends are taxed lower because as profit (ie. earnings) they are already taxed once at the corporate level. Looks like you forgot to mention that Senior citizens (anyone over 60) are the largest group of citizens dependent on dividends for income, that is why this has not changed and has actually been lowered over time (buying votes). #8. Agreed, that's just nonsense, this shows how corrupt Congress is. #7. While yes, the corporation gets the write-off, the individuals will pay taxes on the capital gains. This money does not just get handed out freely as you infer. #6. Yes, it is absurd Yacht's can be claimed, but there are still restrictions on how much interest can be claimed (both monetary and on only up to 2 homes) and there are habitation restrictions as well. Agreed this is dumb. #5. Agred, end all energy subsidies. Solyndra, A123, wastes of money. Let China do it cheaper and better than America can (as is the case already). #4. "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." Wow, thanks for the insight, what a joke you are. There are no tax breaks for shipping jobs overseas, only MUCH cheaper costs vs paying payroll taxes of 20%+ of salary/employee in taxes (Medicare/SS/SUTA/FUTA), not to mention healthcare costs that are rapidly rising. #3. Agreed, this is bullshit. #2. See #10. Maybe more states should follow Delaware's lead to be competitive? Sounds like a lot of whining, especially from the caymen islands. #1. Moving a business to a state willing to work with you, instead of against you is blackmail? Im sure California's higher taxes and pro-union atmosphere had nothing to do with this decision. Typical liberal bullshit, read a book or two Chris, maybe start with the tax code if you're going to pretend to know what you're talking about.

RouseMouse
RouseMouse

We can only assume those off shore companies, that have recently been declared individuals by the supreme court, at their request for political reasons, are paying common personal income tax or the AMT (alternative minimum tax) on their personal income like the rest of the individuals living in the country allowed to use the same forms, and those stating their residence out of the country have the appropriate work visas for their business dealings inside the U.S. like any other individual needs and are no longer able to finance any U.S. election campaigns and are registered as foreign lobbies?

 

Does Apple have a work Visa to do business in the U.S.? and do they have to leave in 3 to 6  months or some time limit like every other foreign individual must comply with?

cowade45
cowade45

So the many years the Democrats had control of both houses and the White House they couldn't have eliminated these loopholes. Sounds like a lot of "Loopholes" in your article. Your bias was definitely on display.

raktmn
raktmn

Unfortunately the only way to get rid of this tax code problem is to get rid of the lobbyists.  The problem is that the 5 Republican-leaning US Supreme Court justices keep ruling over and over (like Citizen's United) that businesses can use unlimited money to influence politicians.  They claim that buying off the government is "free speech".  A claim that is tantamount to claiming that bribery is the same as writing a newspaper.

 

There is no way to solve this problem without getting rid of these Supreme Court justices who derail all legislation designed to remove corporate influence from government.  Once this is solved, only then can the lobbyists be defeated.  Only after the lobbyists have been dealt with can we make meaningful changes to our tax code.  Otherwise we are just playing whack-a-mole trying to eliminated individual tax loopholes, and 100 new loopholes will be added for every 1 loophole that gets public ridicule like the loopholes in this story.

 

Elect people who will fix the Supreme Court, or don't bother complaining about the results...

trollmeat
trollmeat

Romney 2012. The president had 4 years to fix this and he hasn't so whats that really say?

Mary Durocher
Mary Durocher

Great article!! Just wish others could read it without thinking someone must be "lying"....since lying has just become the new "truth"....

cowade45
cowade45

 @trollmeat So the many years the Democrats had control of both houses and the White House they couldn't have eliminated these loopholes. Sounds like a lot of "Loopholes" in this article. Chris Parker's bias was definitely on display.

moreliberalthanjesus
moreliberalthanjesus

 @trollmeat Of course you choose to ignore the many references to Congress trying to close these loopholes, with zero success.  The president can't just change the tax code on a whim.  

 

“If you vote against Obama because he can’t get stuff done, it’s kind of like saying ‘This guy can’t cure cancer. I’m gonna vote for cancer.’”~Chris Rock  

 
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