Archive for Sunday, May 19, 2002

It’s time to close tax loophole of ‘overseas’ U.S. companies

May 19, 2002


I am moving to Bermuda. I have never been there, but I've wanted to live in those islands ever since I saw Nick Nolte and Jaqueline Bissett ride mopeds and dive for treasure in "The Deep."

And if it doesn't turn out that well, what's to lose? I don't need to spend much time there. Just a few days a year is all it takes, I understand, to slash your U.S. tax bill.

Most of the time, I'll be right here as usual at my assigned seat at The Inquirer. But I'll be taking more of my paycheck home, so I'll enjoy a better life in my unofficial but virtually full-time residence in Bucks County, Pa. I'll have you to thank for the boost in my lifestyle, since you'll be picking up the tab.

Somebody, after all, will have to pay the taxes I would have paid had I not moved my official address to a post office box in Bermuda. But don't worry, it won't be much, since it'll be spread among millions of U.S. taxpayers. You won't notice a thing.

Besides, if you're dumb enough NOT to move to Bermuda, you should pay for it.

Stanley Works provides example

Sound familiar? It should that's the big raspberry that toolmaker Stanley Works directed at American taxpayers recently.

At the behest of management, Stanley shareholders voted to reincorporate Stanley as a Bermuda company. It's just a paperwork thing the company will still be based in New Britain, Conn.

By incorporating in Bermuda and holding one meeting there a year, the company expects to reduce its U.S. corporate tax rate on profits to 24 percent from 32 percent.

That should save the company about $30 million a year.

Granted, everyone hates paying taxes. Come April 14, even the most committed tax-and-spend liberal can be found poring over the return hunting for deductions. But Stanley's tax-cutting scheme, though legal, clearly goes too far.

Defending itself from critics who called the maneuver unpatriotic, the company said it had to cut tax expenses to compete on a global market and save American jobs.

Sounds reasonable. But why stop with tax-cutting? If the idea is to put American companies on an equal footing with foreign competitors, let's cut the minimum wage to 50 cents a day, scrap all those prissy workplace safety rules, let companies dump waste anywhere they want and use bribery to cut red tape ... There are all sorts of things we could do to make the United States more like those low-tax nirvanas overseas.

Indeed, we could offer all worried companies a tax break, without forcing them to go to all the hassle of getting shareholders to vote on a paperwork sham, as Stanley did.

Changes are needed

For an American company, global competition can be a real problem, no doubt about that. If it's cheaper to make shoes or laptops overseas, some companies will move. It's sad, but that's life.

But a company that chooses to really move operations overseas to shut factories here and open new ones there shoulders great expense and risk. While wages may be lower overseas, there are hidden costs for corruption, poor transportation, political instability, currency fluctuations, war ...

Stanley isn't taking any of that risk. It wants a freebie. It will keep operating here in the United States, safe from all those nasty developing-world problems.

Yet it won't have to pay its fair share for the good life and safe business climate we have created here.

It shouldn't be allowed to get away with this. It's time to slam this loophole shut for Stanley and other companies that have the so-called inversion strategy.

Several congressmen have proposed legislation to do so. Rep. Richard Neal, D-Mass., would make a company subject to full U.S. taxes if it reincorporates in another country without actually doing any business there, or if a majority of its shareholders are U.S. citizens.

Another approach would bar companies such as Stanley from U.S. government contracts. The sponsor of that, Sen. Charles Grassley, the top Republican on the Senate Finance Committee, says Stanley earned nearly $24 million from federal contracts from 1997 through 2001.

Which bill is best? Each is good. Passing both would be better.

And maybe it's a good time for us ordinary tool and hardware buyers to dust off that quaint old practice called "Buy American."

If Stanley doesn't want to be an American company, fine. Lots of real American companies make chisels and tape measures.

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