SENATOR LEVIN PROPOSES GOING AFTER "UNJUSTIFIED" TAX LOOPHOLES

The following excerpt is from the Senator Carl Levin website:

February 7, 2012
“WASHINGTON – Two Senate committee chairmen introduced legislation today to help reduce the budget deficit and pay for important priorities by closing tax loopholes.
Sens. Carl Levin, D-Mich., chairman of the Senate Armed Services Committee and the Senate Permanent Subcommittee on Investigations, and Kent Conrad, D-N.D., chairman of the Senate Budget Committee, introduced the Cut Unjustified Tax Loopholes Act, or CUT Loopholes Act. The bill, S.2075, would crack down on offshore tax abuses, close tax loopholes that encourage corporations to move jobs offshore and end a corporate tax loophole that allows corporations to claim a stock option tax deduction that is greater than the stock option expense shown on their books.

Based on estimates from the Joint Committee on Taxation and the Office of Management & Budget, the CUT Loopholes Act would yield at least $155 billion in deficit reduction over 10 years. That is more than enough to cover the $100 billion cost of a full-year extension of the payroll tax cut, and could contribute to the kind of balanced deficit reduction agreement that the nation needs.

“With federal tax revenue at its lowest level in decades and economists warning that more draconian budget cuts could damage the recovery, it is clear that we can’t achieve significant deficit reduction and meet important priorities by focusing on spending cuts alone,” Levin said. “Many in Congress have refused to consider revenue measures to meet our budget challenges, but there should be bipartisan support for closing these indefensible tax loopholes.”

“The CUT Loopholes Act is a win-win as it promotes tax fairness and it will help reduce the budget deficit,” said Conrad.  “This legislation identifies a series of steps we can take now to end egregious tax loopholes and offshore tax abuses.  The revenue raised by cutting these tax loopholes will reduce the deficit and help pay for pressing domestic needs, such as an extension of the payroll tax cut.  I commend Senator Levin and his Permanent Subcommittee on Investigations for their excellent work identifying and seeking to change unjust tax policies.”

The bill would take steps to close offshore tax havens identified by the Permanent Subcommittee on Investigations. This portion of the bill is based primarily on the Stop Tax Haven Abuse Act, S. 1346, authored by Levin and cosponsored by Conrad and six others. President Obama, as a senator, supported a similar measure. Among other measures, the bill would:

Give Treasury authority to take tough new actions to combat tax haven banks and tax haven jurisdictions that help U.S. clients hide assets and dodge U.S. taxes.
Stop offshore corporations that are managed from the United States from claiming foreign status and thereby dodging taxes on their non-U.S. income.
Eliminate tax incentives for moving U.S. jobs offshore and transferring intellectual property offshore.

Establish in law the presumption that, unless a taxpayer proves otherwise, an offshore corporation that is formed by, receives assets from or benefits a U.S. taxpayer is considered under the control of that taxpayer for U.S. tax purposes.
Based on estimates from the Joint Committee on Taxation and the Office of Management and Budget, the offshore tax provisions of the bill would reduce the deficit by at least $130 billion over 10 years.

The second major focus of the bill is closing a corporate tax loophole that provides a tax subsidy to corporations that compensate executives using stock options. Under current law, corporations are allowed to take a larger income tax deduction for stock option expenses than is recorded on their financial books. Between 2005 and 2009, this loophole allowed U.S. corporations to take between $12 billion and $61 billion annually in excess tax deductions.

The bill would:
Prohibit corporations from taking a larger income tax deduction for stock-option grants than the expense shown on their books.
Preserve current tax treatment for individuals who receive stock options and for incentive stock options commonly used by start-up companies.
Apply to stock options the same $1 million overall limit on corporate tax deductions for executive pay that applies to other forms of compensation.

This portion of the bill is based primarily on the Ending Excessive Corporate Deductions for Stock Options Act, S. 1375, authored by Levin and cosponsored by Sens. Sherrod Brown, Claire McCaskill and Sheldon Whitehouse. The Joint Committee on Taxation has estimated that these provisions would reduce the deficit by $25 billion over 10 years.

“We can’t afford to use taxpayer dollars to subsidize offshore schemes and loopholes,” said Levin.  “Closing down offshore tax havens that tax dodgers use to get out of paying their fair share is not only the right thing to do, it can help us pay our bills while boosting the economy and reducing the deficit. The CUT Loopholes Act offers a way to provide additional revenue that should get bipartisan support.”

SENATOR CARL LEVEN ON THE FALL OF ENRON REMINDERS

The following excerpt is from U.S. Senator Carl Leven's website:

Important Reminders from Enron's Fall

12-09-2011

Ten years ago this month, Enron collapsed, bankrupting the seventh largest U.S. corporation at the time and ripping away the mask from a massive and damaging corporate fraud.

This is a good time to reflect on what happened a decade ago and how many of the misdeeds that led to Enron’s collapse are still far too prevalent today. We shouldn’t forget how the culture of Enron – built on outsized corporate pay, conflicts of interest, tax evasion, financial engineering, and hidden debt – did so much harm to so many, and nearly brought the global economy to its knees. That culture is still too big a part of our financial system.

The Senate Permanent Subcommittee on Investigations, which I chair, released reports on the failure of Enron’s board members to safeguard shareholder interests; actions taken by major financial institutions to help Enron cook its books; and Enron’s use of financial engineering to make its financial results look better than they were, while evading taxes.

The findings we reached in the aftermath of Enron’s demise are worth keeping in mind as we consider our economic future. Why should we remember Enron?

• Runaway executive pay.  Enron paid its CEO Ken Lay $140 million in 2000, including $123 million in stock options. Enron set the standard for outrageous CEO pay, and demonstrated how, in search of ever-larger paychecks, CEOs can lead companies into ever-riskier schemes that endanger not just shareholders, but the economy as a whole.

• Tax evasion.  Despite reporting huge profits, Enron paid no taxes in four of its last five years and used tax scams and offshore shell entities to dodge paying its fair share.  Today, dozens of U.S. corporations use similar tactics not only to dodge Uncle Sam, but claim huge tax rebates. Enron was a catalyst for today’s corporate tax cheats.

• Corporate conflicts of interest. Enron’s chief financial officer profited by using his own company, LJM, to do deals with Enron to cook its books. Heedless of Enron’s example, banks such as Goldman Sachs and Citi later set up synthetic securities, sold shares to clients, and profited by betting against their own clients.  Enron helped create a culture of corporations failing to do right by their clients.

• Accounting conflicts.  Enron’s accounting firm, Arthur Andersen, approved financial statements loaded up with fraud. Despite Enron’s cautionary tale, so did accountants for Madoff Securities, Olympus, and other firms that have collapsed in years since, damaging investors, consumers and market stability. Enron showed how accountants reliant on revenues from clients can be convinced to look the other way. It’s still happening today.

• Credit rating conflicts. Credit rating agencies gave Enron AAA ratings until it collapsed. They have given the same AAA ratings to toxic securities, failing corporations, and deadbeat banks, often because issuing tougher ratings would cost them business. Enron exposed the unreliability of credit rating agencies that place the search for market share above the need for objective analysis. 

• Excessive speculation.  Enron speculated and manipulated electricity prices for big profits. Today, speculators whipsaw the American economy with roller coaster energy, metal, and food prices.  Enron jacked up the commodity business to everyone’s detriment but the speculators; and without tough enforcement of anti-speculation laws, the damage will continue.

• Financial engineering. Enron designed countless financial engineering gimmicks that served its financial interests but endangered clients and investors.  Today, financial firms rave about financial “innovations,” while pushing toxic products like auction securities, naked credit default swaps, and worse.  Enron showed how financial engineering creates weapons of mass destruction; a decade later, exotic financial products helped bring the U.S. economy to its knees.

• The need for regulators to stop the madness.  In response to Enron, the Sarbanes-Oxley Act banned multimillion-dollar corporate loans to corporate insiders, forced CEOs to certify their internal financial controls, and created new accounting oversight.  Those changes helped curb Enron-style abuses. Congress continued the cleanup in 2010 with Wall Street reform legislation, but much more needs to be done.  All of us should keep Enron in mind as financial regulators work to turn the law we passed into strong rules that can build new protections for consumers and the economy.