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 of 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.

Yet even in the Democratically controlled Senate, liberals realize that exposing their corporate patrons to more tax liability will go over like a dieting booth at the county fair. Leahy's bill never made it out of committee.


Facebook founder Mark Zuckerberg took advantage of a multibillion-dollar tax scam during his company's IPO.
Guillaume Paumier
Facebook founder Mark Zuckerberg took advantage of a multibillion-dollar tax scam during his company's IPO.
Thanks to the luxury-sailing industry, taxpayers helped subsidize Octopus, the $200 million yacht belonging to Microsoft cofounder Paul Allen.
Wikimedia Commons
Thanks to the luxury-sailing industry, taxpayers helped subsidize Octopus, the $200 million yacht belonging to Microsoft cofounder Paul Allen.

2. Delaware, the Cayman Islands of America.
Just outside of Philadelphia sits a tax haven so egregious the Cayman Islands complains about 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 junkies in 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, questions the state's unscrupulous 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, of University of Texas, 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" 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, because 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 such as 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."

Nonsense, indeed. 

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12 comments
fancypants
fancypants

@i #have @a hard time #understanding #what you idiots @are talking %about, $why can't *you write a thought !without hitting #shift@one$through*nine?

Mike_a_Mike
Mike_a_Mike

@BobJanz @CaptYonah and Obama has outsourced jobs as president.

Mike_a_Mike
Mike_a_Mike

@BobJanz @CaptYonah he released them. And the IRS would no better than a senator. They have no interest in his taxes.

egolterman
egolterman topcommenter

There are tax loopholes and Tax 'Grand Canyons'. Hundreds of millions a year pour into the Zoo and Museums and Science Center and Gardens for big tax write offs. The money grows and grows in their profit centers (parties, events, banquets) all tax-sheltered. On top of this, to promote and staff this, the taxpayers of St. Louis County layer on $70 million a year. End the Tax, they wont close, they wont charge admission, they wont miss a beat.  

BobJanz
BobJanz

@Mike_a_Mike @CaptYonah Really? Show me one! #Sensata. Trust this over #Fox #Koch Lies and Propaganda http://t.co/XJccE048 #tcot #TPP #GOP

jason1079
jason1079

 @egolterman Burn the museum!! Slaughter the zoo animals!! They are all dragging society down the drain!

mathmagician
mathmagician

 @egolterman

 Yep, Zoos are what is bankrupting this country. Hard hitting journalism... idiot.

Mike_a_Mike
Mike_a_Mike

@BobJanz @CaptYonah simply having an off shore account does mean tax evasion. If u know about the accounts, so does the IRS.

egolterman
egolterman topcommenter

 @jason1079

 No, end the corruption. That's all. End the corruption. Return money to the taxpayers. End the crooked deals. Actually take care of the animals at the Zoo not party guests. Go to the Museum but the Museum is not used to kill MUNY.

Just end the corruption.

 
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