We should know that we're in trouble when bureaucrats make up words to describe behavior which, if stated literally, would incite consternation and outrage. Just in time for Spring Training for
pastime, we've added yet more accountability shifting phrases to the lexicon of
irresponsibility: "Base Erosion" and the more descriptive
"Profit Shifting". The former
is especially cool because you really have little clue what it actually
means. We know that erosion is usually
considered to be bad but, if we're chemistry minded for example, we could
imagine that this could refer to some precise form of surface etching using a
caustic substance which could be good.
Profit shifting feels like it should be good - particularly if profits
are being shifted towards social benefits.
Imagine if a company realized that it had been extracting excessive
returns; the idea that they'd shift their profits for supporting community
needs would be great. This nomenclature
is reminiscent of one of my favorite jargon artifacts:
"anti-dumping". Having grown
up during the birth of eco-awareness, the idea that you'd recycle more and dump
less sounds quite good. That is, until
you find out that anti-dumping actually has nothing to do with limiting what
goes into landfills. Quite to the
contrary, 'dumping' is an over supply of goods (usually in excessive amounts)
to flood markets and drive down domestic produced prices. And anti-dumping practices - for which the General
Agreements on Tariffs and Trade organization (the forerunner to the WTO) formed
committees and policies - actually were protectionist measures to support price
support and, at times, inflation in domestic markets. "Sequestration", "Base
Erosion", somehow I feel like we're in Oz.
I want to see the Wizard because every time we add a word or phrase to
mask what's really going on, I feel like there's a Wicked Witch hiding in a
tornado and we'll end up a long way from Kansas
wearing really weird shoes.
Base Erosion, a term re-introduced at a G-20 gathering in
several days ago refers to tax evasion.
When companies like Google, Starbucks and Apple - stalwarts of the
American capitalist ideal - declare their businesses to be variously domiciled
in Ireland, Bermuda, or other 'tax-friendly' jurisdictions, investors
have been encouraged to applaud these moves as a means of keeping revenue
remote from the long arm of the tax collector.
Nearly $200 billion in corporate collections at the Federal and State
level are lost each year by relocating the official domicile of businesses and
profits to off-shore jurisdictions. In
2011, over 1/2 of the U.S. Fortune 500 companies used off-shore tax havens with
an estimated $1.6 trillion in profits being declared outside the U.S. for
business exclusively done in the U.S. by U.S. consumers. On its face, it's quite easy to suggest that
the tax-aggressive companies are corrupt.
In many cases they are. While
establishing corporations purely for tax evasion is a violation of U.S. and
many international laws, both the perpetrating companies and their accounting
firms do so with impunity in part because of a lack of enforcement and in part
because of complicity purchased each election cycle which sidelines credible
But corporate Base Erosion is a symptom of a deeper pathology, not the disease itself. We just passed the 74th anniversary of the Internal Revenue Code of 1939 which was the refinement and restatement of the 1874 taxation statutes in the Revised Statutes of the
United States. The 1939 Act has been substantially altered
with major revisions in 1954, 1986, and minor revisions in nearly every
Congress. Whether you're a bootlegger in
during Prohibition or the modern day outlaws further West, the incentive to
evade taxes is fueled not as much by greed and profit motives but by
sociopathic contempt. This contempt
extends to (and emanates from) the government seen to be both incapable of
effectively stewarding the public interest and maintaining integrity when
challenged. Additionally, this contempt
is directed towards consumers and shareholders who are both asked to pay
premiums for goods and services and accept that profit-sharing or dividend
distribution is beneath the role of enterprise.
This week, Federal District Judge Richard Sullivan sided with Greenlight
Capital's David Einhorn who brought a lawsuit against Apple for seeking to
change it's corporate charter to shield its profits from its shareholders! Yes, this is the same Apple who famously in
1984 promoted non-conformity from the Orwellian machine. That same Apple, now rotten to its core, has
become a nightmare even Orwell couldn't have imagined. Contempt.
Disdain. Derision. As if seeking not to be outdone, the U.S.
Congress this week evidenced the same contempt for the U.S. and global economy choosing
the blunt object of sequestration of expenditures rather than addressing the accountability
demanded to reform our national fiscal position.
Ireland to blame for establishing a
tax regime that provides predictability and simplicity to corporate tax
planners? Probably not: they're probably
simple opportunists. Are tax havens a natural byproduct of contempt for one's
own public sector dysfunction? Probably
yes: in a world where money is the preferred arbiter of power, its movement
with contempt and impunity speaks volumes.
This week the
will be subject to the theatrics of self-imposed tragedy yet again. Having created the illusion of a temporal milestone
of fiscal accountability, we'll watch as markets shudder and stress under the
weight of timely Lenten guilt. But as
with Lent, odds are good that our prayers for mercy and forgiveness for our
indiscretions will soon be once again drowned in the cacophony of
consumption. Debating Base Erosion -
today's version of dumping only this time with money - is futile until we
address the root of public contempt. And
public contempt will remain unexamined until we address its root entangled in
our manic surrogacy - our demand for a redeemer to absolve the consequences our
It's time that we realize that treating symptoms of contemptuous neglect is itself an exercise in futility. It's time we turn our attention to a foundation for productive engagement which calls for our best in the common interest of the ecosystems in which we operate. Only then will we shore up the eroding base and begin to build again.