As I See It: Dare to Be Rich

Published: June 25, 2007

by Victor Rozek

Let me preface this by saying that what I'm suggesting may be illegal. Which is not to say that there aren't a lot of wealthy people and corporations doing it. It's called sheltering income and those who shelter theirs do so because they can; and they can because wealth provides them with a level of immunity from the laws they find restrictive-an exemption not generally available to toi and moi. So if you want to join the chorus singing Gimme Shelter, it may be necessary to adopt the same swagger and contempt for equity exhibited by the ruling class. In other words: Dare to be rich. There's no reason why IT professionals shouldn't keep a little more of what they earn.

Showing the way, the Big Dog of IT has certainly figured out ways of keeping more of its money. In 1999, Microsoft reported $12.3 billion in U.S. income, but paid exactly zero-zip-zilch in federal taxes. (OK, so I'm jealous.) More recently, during a two year span, the software giant paid a whopping 1.8 percent in taxes on earnings of $21.9 billion. Now that's a tax burden the rest of us could live with.

And since dogs are pack animals, the Big Dog was not alone. Clever corporations manage to make many hundreds of millions in profit and still qualify for rebates! As Lucy Komisar (an unfortunate name for someone representing an oversight group) of the Tax Justice Network reports: "In 1996 to 2000, Goodyear's profits were $442 million, but it paid no taxes and got a $23 million rebate. Colgate-Palmolive made $1.6 billion and got back $21 million." Amazingly, three oil companies and a weapons manufacturer also qualified for rebates during that period.

Where do we sign up for that program?

The schemes for avoiding taxes are varied and, for the most part, legal because corporations are often invited to write the laws that govern their activities. (Another program we'd like to sign up for.) Many involve "transfers" of one sort or another, an economic alchemy that turns black ink into red. Microsoft, says Komisar, is able to transfer software that was written in America to, say, Ireland. There it adds a shamrock and declares it an Irish product so it can be taxed in the Emerald Isle at 11 percent instead of here at 35 percent.

Then there's transfer pricing. Companies set up a trading companies in offshore tax havens. They sell their products to the trading company for under market price (truck tires are sold to Britain for $11.74 each, color video monitors go to Pakistan for $21.90, entire prefabricated buildings are sold for $1.20 a unit to Trinidad) and the trading company resells them at market value. Thus, the profits are recorded offshore where taxes are negligible or nonexistent, says Komisar, "not where they really were generated."

The game can also be played in reverse. Products are purchased from offshore subsidiaries for outrageous amounts and resold ostensibly at a loss. You may be surprised to learn that hard-nosed Yankee traders are buying "plastic buckets from the Czech Republic for $973 each, tissues from China at $1,874 a pound, cotton dishtowels from Pakistan for $154, and tweezers from Japan at $4,896 each!" Those Japanese must really know how to make superior tweezers.

Apparently, about half of what is euphemistically called "world trade" actually occurs between various parts of the same corporations. The Tax Justice Network estimates that about $500 billion each year is sheltered from taxation in that manner. And that's only the legal stuff. If you count illicit money laundering, the International Monetary Fund estimates that as much as $1.5 trillion is laundered annually. With all that sheltering and laundering going on, you'd think a few thousand dollars socked away by a programmer in Iowa would hardly raise an eyebrow.

Which is why the number that may be most relevant to IT professionals was reported by Robert Reich, former Secretary of Labor. Reich recently suggested that "the stratospheric earnings of equity-fund managers ought to be considered income rather than capital gains and therefore taxed at 35 percent rather than 15 percent." That would never work, came the warning from Wall Street, because fund managers would simply take their money out of the country.

They wouldn't be the first. Reich reports that "Congress's Joint Committee on Taxation recently estimated that America's super-rich already sock away more than $100 billion a year in offshore tax havens." That's just private lucre, not corporate profit, and the good news is the government is doing next to nothing about reclaiming its share. From which we can conclude that the government is on our side. Look at the record: the administration cuts taxes at every opportunity, provides loopholes for corporations, and winks at electronic transfers that send private money scurrying for cover in overseas vaults. On some level, the government knows that whether legal or illegal, much of that money will eventually make its way back to Wall Street for reinvestment. So in a strange Orwellian way, cheating the country is good for the country. Therefore, my fellow financially stressed IT professionals, ask not what your country can do for you, ask what you can do for your country.

Besides, one reason that people of all economic strata want to keep more of their money these days is because the money they do keep is worth substantially less than it once was. The dollar has fallen nearly 25 percent against the Euro and has weakened against gold and other hard assets. Some oil providers, for example, no longer accept payment in dollars. Ken Miller, chairman and CEO of merchant bank Ken Miller Capital, LLC concludes: "You could say that at $65 per barrel, oil is getting more valuable, or you could say the value of the dollar has declined as measured by oil."

However you measure it, the resulting problem hobbling those chasing a middle-class lifestyle is that we've been forced to stretch our dollars so far they're beginning to squeal. Inflation, we are repeatedly told, is low, but economists appallingly do not include food and fuel prices in their calculations. This is akin to being assured your medical checkup is accurate while ignoring conspicuous warning signs of cancer and heart disease. Additionally, employers are dumping pension and healthcare obligations, the costs of which are transferred to employees. America is the last of the developed democracies without a national healthcare system and for many, family healthcare is the single biggest monthly expense. Plus, whatever taxes are avoided by those with special privilege must be made up by those without prerogative. And all of this at a time when wages are getting the bends from the incessant downward pressure caused by importing low wage workers and exporting high wage jobs.

So what's an IT professional to do? Well, start by taking a vacation to one of dozens of exotic places like Belize, the British Virgin Islands, the Cayman Islands, the Isle of Man, Panama, St Kitts and Nevis, or the Bahamas, willing and eager to prove the veracity of USA Today's headline, which declares "Offshore Tax Shelters Not Just for the Rich."

And if you don't fancy travel, you can do your research right from your laptop "Hundreds of companies and promoters," reports USA Today, "now use the Internet to guide Americans and others who transfer assets to offshore banks or trusts. . . . . Money moves from domestic accounts to offshore tax havens such as Belize or the Bahamas, at times without any meetings between promoter and client."

Why, with a few keystrokes and a modest investment, you too, just like corporations and the mucho wealthy, can set up companies, trusts, bank and brokerage accounts. Of course, none of this would be done in order to avoid taxes. Oh, no, of course not. That would be illegal. I'm not at all suggesting that anyone should do something illegal. But the game is rigged and getting more so by the day, and until the government gets honest, it should hardly have an expectation that its hardest working citizens will indefinitely endorse their own fleecing.

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