The 50-Year Swindle
by Ben Bagdikian
The Progressive magazine, April 2002
The Enron scandal is simply a case of the big guys making
it easier to dramatize the bag of tricks that hundreds of members
of the Fortune 500 dip into all the time. As far as mainstream
media were concerned, these, by and large, were arcane matters
of international trade and finance-nothing to worry the citizenry
about. But when reports surfaced that Enron did not pay corporate
income taxes in four of the last five years, suddenly The New
York Times managed to put on page one a story noting that a "growing
percentage of large companies pay no income taxes."
If Secretary of the Treasury Paul O'Neill has his way, that
percentage will grow to 100 percent, since he favors abolishing
corporate income taxes. What would this mean for average American
taxpayers? Simple, he says. The ordinary taxpayers would make
the usual payments. On top of that, they would pay what would
have been the corporations' taxes. Continuing to tax corporations,
O'Neill told the Financial Times, is "an abomination."
O'Neill's candor is almost touching. "Abolishing the
corporate tax would inevitably lead to higher personal income
tax," the Financial Times of London reported on May 20, 2001,
after interviewing him, "but Mr. O'Neill believes such a
move would reduce the overall tax burden and promote economic
His absolutist vision sounds radical, but it really isn't.
It is merely the logical last step in a fifty-year process of
successful corporate lobbying. Year by year during the last half
of the twentieth century, Congress and the Internal Revenue Service
have shifted the national tax burden away from corporations and
onto the backs of individuals and families.
The numbers are painfully simple. After World War II, corporations
and individuals carried the tax burden together. Year by year,
this has been altered until the corporate-individual split is
now closer to 20-to-80-and guess who pays the 80 percent?
In 1953, if you count only income taxes, not various other
excises, sales taxes, and special duties, individuals and families
paid 59 percent of federal revenues and corporations 41 percent,
according to The Statistical Abstract of the United States. By
the latest confirmed figures in the Abstract, the corporate share
has dropped from 41 to 20 percent, while that of individuals has
increased from 59 to 80 percent.
Part of the fifty-year stealth attack has been the compression
of the progressive income tax brackets. Today there is the smallest
difference in our income tax history between the rates paid by
unrich individuals and those paid by corporations and the wealthy.
Until the Reagan Administration, the top rate had been 70 percent.
Reagan got the official top rate down to 50 percent. The top rate
is now 39.6 percent, but like the top bracket historically, those
individuals and corporations rich enough to be in that bracket
seldom pay that rate because they can afford the most skilled
accountants to avoid taxes. Bus drivers and store clerks, like
millions of other ordinary taxpayers, seldom own subsidiaries
in the Cayman Islands or have the huge deductions of "foreign
The income tax history in our time has, with the silence of
most of the news media, shifted the burden regressively to sales
taxes, which hit the disposable income of ordinary families the
hardest. As local sales and property taxes have grown to carry
the national burden, it has caused state and local tax rebellions.
The most notorious was Proposition 13 in California, which froze
property taxes and created havoc with the California civic system.
For example, the state's student achievements that, pre-Proposition
13, were among the highest in the country are now among the lowest.
The problem is not just in California. It is national. The
corporate tax con game required shifts to sales taxes in a growing
number of states and in ever-higher percentages. The shifts have
created immeasurable local and state hardships all over the country,
starved our local educational systems, and left a permanent crisis
in the economics of American cities and counties.
On the flip side, it has made corporations steadily larger
and more powerful. This has led to the "legal corruption"
of huge campaign contributions that accelerated the ability of
corporations to avoid more and more of their responsibility for
keeping the country's civic system in decent economic health.
The half-century of stealth attacks have had the insidious
effect of conditioning most of the public to accept seemingly
unconnected annual changes that, with time, look like acts of
God or some force of economics beyond human intervention.
Throughout our history, taxes have been the favorite whipping
boy of editorial cartoons and political stump speeches. It's a
safe subject for candidates because few people really love to
pay taxes. But by treating taxes generically as a sin with simplistic
sound bites, politicians undercut the importance of providing
the federal funds for services needed by the country's communities
This sloganeering represents a disconnection between fairly
distributed taxes and what the majority of the public says it
wants from its government-good educational systems for their children,
universal health care, adequate affordable housing for the whole
population, and properly financed civic services like public health
regulations and safe streets.
"It's your money," said President Bush.
Yes, Mr. President, but that money is also what buys our schools,
our health system, and is supposed to subsidize a decent level
of affordable low-cost homes. Not all of us can, like you, go
to Walter Reed Army Hospital and pay nothing when we're sick,
or have special health coverage like every member of Congress.
And isn't it true, Mr. President, that it's also our money
that's paying the Department of Defense bills, and that will be
paying for the world's most thoroughly proven rat hole of federal
funds: Star Wars revisited, your idea of building a "nuclear
shield" over America? Isn't it our money that will be covering
all the other costs of your abandonment of the ABM treaty and
your contempt for the danger of global warming? And isn't it also
our money that paid for Vice President Dick Cheney's Energy Commission,
whose contents and consultants he will not disclose?
Why do I have the sneaking suspicion that, while President
Bush tells us all that "It's your money," he is giving
"our money" to some of his corporate friends?
By now, in the American political lexicon, all taxes are bad,
bad, bad. When localities and states have to raise taxes for indispensable
services, the bills or referenda have to be written in Orwellian
English, perform semantic acrobatics, or entail a kind of legislative
Choctaw that embeds new taxes in phrases only a certified public
accountant could love.
Most proposals that seem to spread the tax burden more fairly
are quietly perforated with myriad arcane loopholes for the wealthy
and corporations. They simply achieve the giveaway in language
that conceals rather than clarifies. Or sometimes the government
decides to offer some new public service by making it cost-free
because people can pay for it and then get their money back by
using it as a tax deduction. The problem is that the service is
useful only to those with high taxes, because those are the people
who can make deductions.
According to the General Accounting Office, 42 percent of
all taxpayers use the single-page Forms 1040EZ or 1040A, with
no deductions. Most of these taxpayers are the ones most in need
of many of the new services.
The big swindle that shifts taxes from corporations to individuals
is concealed by another myth that politicians keep drumming into
the American consciousness: The citizens of the United States
are being crushed by ever-rising tax burdens. We are told that
we're all taxed to the eyebrows and this must be changed. It is
almost mandatory rhetoric in every election campaign.
But, according to the Century Foundation (formerly the middle-of
-the-road Twentieth Century Fund) and the Organization for Economic
Cooperation and Development (OECD), of all the industrialized
democracies, the United States is near the bottom in paying taxes
when calculated as a percentage of the country's total wealth,
its Gross Domestic Product. Our total taxes as percentage of our
GDP are 29.7 percent, Britain's are 33.6 percent; Canada's are
33.6 percent; Germany's are 39 percent; and Sweden's are 49.9
percent. If that makes us feel lucky, we need to add that all
those other countries provide health, housing, and other services
we do not.
Despite all that, the gravy train for corporations seems never
to end. Last year, the Bush IRS offered amnesty to big companies
that will admit they committed a crime by hiding revenues in illegal
tax shelters. Ninety-five companies admitted they had cheated
the country of $15 billion, and the IRS said there were an estimated
413 other illegal shelters remaining. No penalties. Ordinary taxpayers
should be so lucky.
As a result, with the passage of time, what would have been
unthinkable a generation ago was seriously proposed by Bush last
year: The government actually paying back corporations in real
dollars what had been the corporations' legally paid taxes for
the past fifteen years. Touted by President George W. Bush as
an imaginative "tax reform" to create jobs ( joblessness
has been increasing ever since), the proposal that passed the
House would have paid back fifteen years of the Alternative Minimum
Tax. The government imposed the tax years ago on corporations
that made healthy profits but sheltered their incomes to avoid
taxes and even get rebates. The House bill would have rebated
$1.4 billion for IBM, $833 million for General Motors, $671 million
for General Electric, $572 million for Chevron Texaco, and $254
million for Enron, among others.
While that bill did not pass the Senate, corporations can
look to the courts for a helping hand. This year a New Orleans
appellate court decision in a case involving Compaq computers
made It easier than ever for corporations to find even more tax
shelters for avoidance. The court reduced the number of deals
that the IRS can categorize as having been done with the sole
purpose of avoiding taxes. David A. Weisbach, a professor of law
at the University of Chicago (not an institution famous for wild
liberals), called the decision "disastrous" because
other corporations will use the decision to avoid their share
A specific method of corporate tax avoidance came o me twenty
years ago when I got a phone call from Ed Roby, a UPI financial
correspondent in Washington. In his annual study of corporate
revenues for the year, Roby noticed that American oil companies
had extraordinarily low tax rates considering their large revenues.
When he probed, he discovered something that cost him his beat.
In the early 1950s, the Saudi royal family, from whom we imported
most of our oil, realized that after World War II the American
love affair with the automobile and industry's dependence on fossil
fuels knew no bounds. It was at the same time that the Saudi royal
family was having a growth of sisters and brothers and cousins
and aunts and uncles, each with a desire for billions a year in
The royals had been charging Aramco, the U.S. oil consortium,
12 percent royalties, so they raised that to 50 percent. Aramco,
alarmed, made a deal with the Saudis: Don't call them "royalties"
any longer; call them "income taxes." That way the U.S.
companies could deduct income taxes paid to a foreign country
from their U.S. taxes. Thus, the Saudi royal family, along with
their favorite contractors, like Osama bin Laden's father, became
incomparably richer with their 12-to-50 percent increase, and
American oil companies got a windfall from the spectacular low
tax rate that caught Ed Roby's eye.
When Roby put his story on the wire, Mobil and other oil companies
organized a publicity assault on Roby personally and on UPI as
his employer. The coordinated attacks so rattled UPI that it took
Roby off the financial beat. Eventually Roby left the news service.
There has been one small change for the better. While the
White House and our courts have made it easier for corporations
to avoid taxes, a touch of relief has come from, of all unlikely
sources, the World Trade Organization, of which the United States
is a party. At a recent meeting in Geneva, the WTO said that the
extent of tax havens for American corporations was so huge that
global firms like General Electric, General Motors, Microsoft,
and Boeing escaped more than $4 billion in taxes. According to
The New York Times, the WTO said it amounted to an illegal government
subsidy to those corporations. The action was affirmed by Pascal
Lamy, Trade Commissioner of the European Union. It has become
the largest trade case in history.
It is a sad time when our own government is so eager to forgive
corporate taxes that we have to depend on the WTO, a group of
global bankers and financiers, to cry, "Foul!"
We need not look to the WTO to be our white-hat hero riding
to correct the tax injustice that befalls American citizens. Instead,
we should rely on popular public protest. We need to pressure
candidates during campaigns, and keep that pressure on once they
are in office.
The time has come to end the fifty-year stealth campaign that
has swindled the public and hornswaggled the news media, that
has permitted politicians to prattle on about "tax reform"
and then continue to cheat the majority of ordinary Citizens every
Ben Bagdikian is the author of "The Media Monopoly"
(Beacon Press, sixth edition, 1997), a former dean of the Graduate
School of Journalism at the University of California-Berkeley.