Members of Congress have met the enemy, and it is them.
When members of a U.S. Senate investigating committee held a hearing this week, they anticipated delivering a public flogging to the Caterpillar corporation for not paying enough in taxes.
Unfortunately, Caterpillar witnesses declined to cooperate, rejecting suggestions of impropriety by stating emphatically that the company paid what the law said it owed. Sure, they acknowledged, Cat took advantage of complicated accounting moves that allowed it to pay a lower tax rate in Switzerland than it would have paid in the United States. But they argued that their action was legal and noted that it went unchallenged by the Internal Revenue Service.
The turn of events prompted U.S. Sen. Carl Levin, a Michigan Democrat and one of the leaders of the planned inquisition, to state, "If Caterpillar is right, then our tax laws need even more reform than I thought they did."
Gee, maybe members of Congress aren't ineducable after all.
The same Congress that created these so-called tax loopholes — loopholes are the tax breaks others invoke — can always rewrite or repeal our tax laws.
Then major corporations like Cat, Google, Apple and every other corporation that does business on a worldwide scale wouldn't have the legal ability to shift profits from one country to another in order to pay reduced tax rates. Congress could even lower our corporate tax rates so they would be more competitive with those in other countries, reducing the incentive for the kind of accounting gamesmanship now in play.
It's no sin for individuals or businesses to arrange their affairs in ways that minimize their tax obligations. Or, to put it another way, it's not illegal for individuals and businesses to follow the rules set out by Congress when they do their taxes.
The Cat case is common. Companies have been able to shield more than $2 trillion in cash by channeling their most profitable operations through overseas subsidiaries. Some call it fraud. Others call it a sound business practice.
But until the IRS finds otherwise and the courts agree or Congress changes the law, it's legal and will continue.