The Fayette Tribune, Oak Hill, W.Va.

June 24, 2013

‘Corporate cannibalism’

Companies are forcing enhanced poverty

Dr. John P. David

— The recent testimony by Apple’s Chair Tim Cook  to the U.S. Senate’s Permanent Subcommittee on Investigations again brought into focus how major companies avoid taxes. Apple uses the “Double Irish,” a technique that involves a paper subsidiary in Ireland (taxed at 5%) to which Apple gifts all patents and intellectual property. This “First Irish” then invoices Apple enormous sums as royalties. This permits Apple to pay this as a deductible business expense and investment income, creating the “Second Irish.” Thus, Tim can testify that Apple pays all taxes owed — which is technically correct and morally wrong.

The actual amount is little or no corporate taxes on at least $74 billion over the past four years. Senator John McCain (R-Ariz.), according to the Wall Street Journal, described Apple as the “most egregious offender” among the many U.S. corporations successfully avoiding taxes.

Corporations that utilize tax havens deprive parent countries like the U.S. of tax revenue while enhancing profits for shareholders. They also cause impoverishment among low income people. For example, the budget sequestration that is causing cutbacks in various social and survival programs would not be as significant if taxes were fairly paid. In essence, we are witnessing a enormous wealth shift from the ‘have-nots’ to the ‘haves’ in this manner.

Tax avoidance shenanigans are not unique to the U.S. Tax havens are also causing poverty to become worse in the Third World. According to Reuters, Associated British Foods “has used tax haven conduit companies to legally avoid enough Zambian tax to put 48,000 children in school.” Kofi Annan, the Ghanaian former Secretary General of the United Nations, chairs an African Progress Panel that found  two other multinationals which, according to the Guardian (UK), “have deprived the Democratic Republic of Congo of an estimated $1.36 billion — almost twice the country’s education and health budgets combined.”

In West Virginia, the tax scam has another twist. While we are witnessing what coal miner Dwight Siemiaczko calls “corporate cannibalism” by Patriot Coal as it sheds negotiated contractual obligations for coal miner’s health care and pensions, we are also witnessing massive corporate property tax avoidance.  In Fayette County, for example, a bankrupt coal company is listed for $1.8 million in delinquent property taxes from last year of which a lion’s share should support schools. In essence, in a county struggling to support its school system, its wealth has been taken and children will suffer since it is unlikely the tax will ever be paid. Even if an assessor files as a creditor, the county would eventually be paid only pennies on the dollar, if at all. The delinquencies of bankrupt coal companies are commonplace over time and represent significant lost revenue for public schools and social services.

Whether use of foreign tax havens or bankruptcy law for corporate cannibalism coupled with property tax avoidance, we are witnessing a significant new redistribution of wealth to a privileged few. While those few then complain about more crime, increased substance abuse and the failure of public education, their solution is to devise more legally devious and clever ways to grab more, thereby relegating those who have the least, been hurt the most, and are victimized by powerlessness to a future of increased poverty and functional distress in the struggle for survival.

(David, director of the Southern Appalachian Labor School, is a professor of economics at WVU Tech.)