Goldmark: End corporate tax avoidance

The federal budget deficit is a huge issue for the tea party, whose candidate, Richard Mourdock, ended the career of Sen. Richard Lugar (R-Ind.) in Tuesday's primary. And there's a huge, obvious step we ought to be taking to help cut that deficit. It is fair, legal and economically sensible.

That is to crack down on tax avoidance and evasion by U.S. corporations that keep money parked overseas or shuffle profits among subsidiaries to reduce their U.S. tax bill.

There are two broad categories of shady corporate overseas dealings: the first is tax evasion. This is criminal activity (for example, many investors in Bernie Madoff's Ponzi scheme remain unidentified to this day because they operated through offshore tax havens) and, as former Manhattan District Attorney Robert M. Morgenthau wrote recently in The New York Times, it can involve money-laundering for sales of arms to terrorists. But the big money is in tax avoidance. It's legal -- and it takes lots of smart lawyers to pull it off. General Electric, for example, reported profits of $14 billion in 2010, and paid not one cent in U.S. taxes.

That word "avoidance" makes it sound like a fast running-back dodging tacklers on a football field. But in this case, every dollar the multinational corporations avoid in taxes you and I, in theory, have to make up.

You'd think a country where everyone worries about the yawning deficit would crack down on this flagrant shell game. What many U.S. companies do is keep large amounts of their profits overseas, usually in low-tax countries, because if they brought them back to the United States they'd have to pay higher taxes on them to the U.S. government.

As one former international banker put it: If you're a multinational, "you can generate profits wherever you want through intercompany billing." So if you're a technology or pharmaceutical company (two categories that do a disproportionate amount of this overseas juggling), you buy and sell things across your own stable of controlled companies so the profit winds up in Liechtenstein or Ireland, where tax rates are low to zero, rather than in the United States or Germany, where they are higher.

This kind of money-shuffling exploits loopholes in the tax law. Most big corporations are cautious. They tell the squads of lawyers they hire to minimize their taxes that they want to stay on the right side of the law. And that means it should be possible to get some of the tax revenue on those hidden overseas profits by amending the tax law and closing loopholes.

That's where we run into the really painful sore spot in this equation: The power of the large corporations, through lobbying and campaign contributions, to influence Congress to leave existing loopholes in place is immense. And if a corporation feels it needs a new loophole to really be safe in its shenanigans, it can often get it.

A lot of these loopholes appear in the wee hours of the morning when a tax bill is finally reported out of a congressional committee and rushed through for a vote, or in committee reports that interpret the law and shape the implementing regulations, so they're not usually subject to serious public scrutiny. This process, which essentially amounts to legalized bribery, is all permitted under existing law. So we have a vicious circle of loopholes, tax avoidance and campaign contributions that only public outrage can overturn.

Pay attention and see if any of our national leaders say they've got a plan to end this new and nasty variety of "insider trading." You and I are paying for it today, and if it's not ended, our children will go on paying for it tomorrow.

Peter Goldmark, a former budget director of New York State and former publisher of the International Herald Tribune, headed the climate program at the Environmental Defense Fund.