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Our Most Corrupt Tax Breaks: 10 Loopholes to Close Right Now 

Wednesday, Oct 10 2012
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5. Big Oil's Cadillac welfare.

Last month, Mitt Romney traveled to Iowa, where wind energy has become an economic force, responsible for 7,000 jobs and 20 percent of the state's electricity. He announced that, as president, he would kill the $3.3 billion in tax incentives that now go to this nascent form of electricity. In Romney's eyes, the industry has had more than enough time to stand on its own two feet.

"He will allow the wind credit to expire, end the stimulus boondoggles, and create a level playing field on which all sources of energy can compete on their merits," Romney spokesman Shawn McCoy told the Des Moines Register.

It's a laughable position. After all, Romney has announced no similar crackdown on a much older and larger welfare queen: Big Oil.

The five largest U.S. oil companies collect $20 billion a year in tax breaks. And they'd prefer that wind farms not compete for that lucrative welfare money. During this year's presidential race, the industry has paid Romney $3.4 million to ensure wind goes away.

Technically, the oil giveaway is supposed to defray the cost of searching for new sources. But even George W. Bush realized the industry didn't need subsidies back in 2005, when the price of a barrel was $55. "We don't need incentives to oil and gas companies to explore," he said at the time. "There are plenty of incentives."

These days, the price of a barrel routinely hovers around $100. But the five biggest companies — BP, Chevron, ConocoPhillips, ExxonMobil, and Shell — still get their breaks, despite collective record profits of $137 billion last year.

"The oil industry is doing fine," says Johnson, the University of Texas tax expert. "They don't need or deserve a dime of subsidy. It's all money thrown away to make shareholders richer. The private market will provide any subsidies by increasing the price. It's time to get the government out of the business of special subsidies. It's like Cadillac welfare."


4. A break for shipping your job to China.

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

Steelworkers in Stevens Point, Wis., 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, Ill., 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 20 percent tax credit to companies that bring work back to America. 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 upwards 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, caking wildlife in oil. The remote locale made cleanup difficult. Twenty-three years later, fish stocks have yet to return to their pre-spill levels.

A court would eventually level $5 billion in 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 slashed that figure to $500 million 2008.

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, Sen. Patrick Leahy (D-Vt.) introduced the Protecting American Taxpayers from Misconduct Act. If a court orders damages for malfeasance, U.S. taxpayers would no longer be forced to foot part of the bill.

Yet even in the Democratically controlled Senate, liberals realize that exposing their corporate patrons to more tax liability will go over like a salad booth at a 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 looks askance at 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 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.

About The Author

Chris Parker

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