Bankers' Trillion-Dollar Crime Scene

For most of our nation's history, individual taxpayers rarely had any significant contact with Federal tax authorities as most of the Federal government's tax revenues were derived from excise taxes, tariffs, and customs duties. However, the federal, state, and local tax systems in the United States have been marked by significant changes over the years in response to changing circumstances and changes in the role of government. The types of taxes collected, their relative proportions, and the magnitudes of the revenues collected are all far different than they were 50 or 100 years ago. Some of these changes are traceable to specific historical events, such as a war or the passage of the 16th Amendment to the Constitution that granted the Congress the power to levy a tax on personal income. Other changes were more gradual, responding to changes in society, in our economy, and in the roles and responsibilities that government has taken unto itself...

When the Civil War erupted, the Congress passed the Revenue Act of 1861, which restored earlier excises taxes and imposed a tax on personal incomes... The need for Federal revenue declined sharply after the war and most taxes were repealed. By 1868, the main source of Government revenue derived from liquor and tobacco taxes. The income tax was abolished in 1872. From 1868 to 1913, almost 90 percent of all revenue was collected from the remaining excises...

Following the Supreme Court's 1895 ruling on the income tax, debate on alternative revenue sources remained lively... Proposals to reinstate the income tax were introduced by Congressmen from agricultural areas whose constituents feared a Federal tax on property, especially on land, as a replacement for the excises... The income tax debate pitted southern and western Members of Congress representing more agricultural and rural areas against the industrial northeast. The debate resulted in an agreement calling for a tax, called an excise tax, to be imposed on business income, and a Constitutional amendment to allow the Federal government to impose tax on individuals' lawful incomes without regard to the population of each State. [One of the problems with the new income tax law was how to define "lawful" income. Congress addressed this problem by amending the law in 1916 by deleting the word "lawful" from the definition of income. As a result, all income became subject to tax, even if it was earned by illegal means.]...

By 1913, 36 States had ratified the 16th Amendment to the Constitution. In October, Congress passed a new income tax law with rates beginning at 1 percent and rising to 7 percent for taxpayers with income in excess of $500,000. Less than 1 percent of the population paid income tax at the time...

Prior to the enactment of the income tax, most citizens were able to pursue their private economic affairs without the direct knowledge of the government. Individuals earned their wages, businesses earned their profits, and wealth was accumulated and dispensed with little or no interaction with government entities. The income tax fundamentally changed this relationship, giving the government the right and the need to know about all manner of an individual or business' economic life. Congress recognized the inherent invasiveness of the income tax into the taxpayer's personal affairs and so in 1916 it provided citizens with some degree of protection by requiring that information from tax returns be kept confidential. - Department of the U.S. Treasury

What the 25 Top U.S. Companies Pay in Taxes

April 1, 2010

Forbes - How can it be that you pay more to the IRS than General Electric?

As you work on your taxes this month, here's something to raise your hackles: Some of the world's biggest, most profitable corporations enjoy a far lower tax rate than you do--that is, if they pay taxes at all.

The most egregious example is General Electric. Last year the conglomerate generated $10.3 billion in pretax income, but ended up owing nothing to Uncle Sam. In fact, it recorded a tax benefit of $1.1 billion.

Avoiding taxes is nothing new for General Electric. In 2008 its effective tax rate was 5.3%; in 2007 it was 15%.

The marginal U.S. corporate rate is 35%.

Ranked No. 2: ExxonMobil [Rothschild-owned]
Sales: $311 billion
Pretax income: $35 billion
Income taxes: $15 billion
Tax rate: 47%

None of ExxonMobil's income taxes were paid in the U.S. In 2008 the company's income tax bill was $36 billion.

Exxon tries to limit the tax pain with the help of 20 wholly owned subsidiaries domiciled in the Bahamas, Bermuda and the Cayman Islands that (legally) shelter the cash flow from operations in the likes of Angola, Azerbaijan and Abu Dhabi. No wonder that of $15 billion in income taxes last year, Exxon paid none of it to Uncle Sam, and has tens of billions in earnings permanently reinvested overseas.

Likewise, GE has $84 billion in overseas income parked indefinitely outside the U.S.

Ranked No. 4: General Electric
Sales: $157 billion
Pretax income: $10.3 billion
Income taxes: (-$1.1 billion)
Tax rate: N/A

GE's financial services unit, GE Capital, keeps the overall tax bill so low. Over the last two years, GE Capital has displayed an uncanny ability to lose lots of money in the U.S. and make lots of money overseas, where tax rates are lower.

Ranked No. 7: Bank of America
Sales: $120 billion
Pretax income: $4.4 billion
Income taxes: (-$1.9 billion)
Tax rate: N/A

How did Bank of America not pay any taxes on $4.4 billion in income? Because of deductions like $860 million in tax-exempt income, $670 million in low-income housing credits, and a $600 million loss on shares of foreign subsidiaries. With a provision for credit losses of $49 billion, Bank of America probably won't be paying taxes for a long time.

Ranked No. 8: Ford Motor
Sales: $118 billion
Pretax income: $3 billion
Income taxes: $69 million
Tax rate: 2.3%

Ford's tax rate is so low because of past years' losses from U.S. operations.

Ranked No. 9: Hewlett-Packard
Sales: $115 billion
Pretax income: $9.4 billion
Income taxes: $1.75 billion
Tax rate: 18.6%

HP's low tax rate is due to lower tax rates in foreign countries. The company says in its annual report that President Obama's proposals to end tax deferrals on international operations would mean a big tax hike.

Ranked No. 11: JPMorgan Chase
Sales: $100 billion
Pretax income: $16 billion
Income taxes: $4.4 billion
Tax rate: 27.5%

Chief Executive Jamie Dimon has spoken out against an Obama proposal to levy a special tax on banks to recoup bailout costs. "Using tax policy to punish people is a bad idea," said Dimon. "All businesses tend to pass costs on to customers."

Ranked No. 12: Verizon
Sales: $108 billion
Pretax income: $11.6 billion
Income taxes: $1.2 billion
Tax rate: 10.5%

Verizon's low tax rate is due to its $42 billion wireless joint venture with Vodafone, which draws off much of Verizon's income.

Ranked No. 16: IBM
Sales: $96 billion
Pretax income: $18 billion
Income taxes: $4.7 billion
Tax rate: 25%

Big Blue pays 49% of its income taxes overseas. In Japan it is appealing a $330 million tax assessment that followed an investigation into alleged tax evasion.

Ranked No. 19: Citigroup
Sales: $80 billion
Pretax income: ($7.8 billion)
Income taxes: ($6.7 billion)
Tax rate: N/A

With $17.5 billion in future tax deductions and credits on the books, and a $39 billion provision for loan losses, Citi has many tax-free years ahead of it.

Ranked No. 20: Procter & Gamble
Sales: $79 billion
Pretax income: $15.3 billion
Income taxes: $4 billion
Tax rate: 26.3%

More than half of P&G's business is overseas.

MasterCard, Visa, and the Card Sharks

There are some things money can buy, and one of them is a license to issue credit cards from MasterCard and Visa. Some questionable banks do just that, gaining credibility from the brands

April 1, 2010

Business Week - ...Visa and MasterCard authorize tens of thousands of banks around the world to issue a total of more than 1 billion cards.

On its Web site, Visa highlights its anti-fraud technology, saying its highest priority is "protecting merchants, cardholders, and financial institutions from payment card fraud."

MasterCard, based in Purchase, N.Y., says on its site: "Consumers worldwide use MasterCard cards for more than 16 billion transactions a year, and all but a minute percentage of those transactions are fraud-free."

Still, credit-card misuse crops up not only at obscure Caribbean banks but at large mainstream ones as well. UBS (UBS), the Swiss titan, agreed in February 2009 to pay $780 million to avoid prosecution by the U.S. Justice Dept. for allegedly helping wealthy Americans evade taxes on roughly $20 billion. Most of the UBS accounts in question had credit cards attached to them, which allowed customers to gain access to the sheltered money, according to prosecutors.

Jeffrey P. Chernick of New York, one of the first to be individually charged with evading taxes through a UBS account, pled guilty last July to hiding $8 million from U.S. tax authorities. In his plea agreement, Chernick admitted to using a credit card to avoid taxation. The brand of the card wasn't specified in court papers. Chernick received a reduced sentence of three months in jail in exchange for cooperating with authorities ...