Slowing The PACE: The Intersection Of Influence Peddling And Tax Reform

Our guest bloggers are Lisa Gilbert, U.S. PIRG Democracy Advocate, and Nicole Tichon, U.S. PIRG Tax and Budget Reform Advocate.

PACE Coalition The topic on everyone’s lips over the last three months has been health care: how the system will work, who will benefit from it, and how we will pay for it.

Congress is now considering important tax reforms that would not only help pay for health insurance reform, but also close offshore tax haven loopholes, which force American taxpayers to make up for over $100 billion per year in lost revenue.

One of the most vocal opposition groups to this reform has been the coalition called Promote America’s Competitive Edge, or PACE.

The U.S. Public Interest Research Group (U.S. PIRG) conducted an investigation into corporations who work with PACE and support their positions to better understand why it is so important to them to fight these tax reforms and maintain the status quo.

U.S. PIRG found that a group of 12 prominent corporations that have signed onto PACE letters to Congress rank among the top 100 largest publicly traded contractors that also maintain a significant presence in tax haven countries. In 2008, these 12 corporations received over $10 billion in government contracts, and they collectively have 443 subsidiaries in tax haven countries, where they pay minimal, if any, taxes.

So, why is the status quo important to these “dirty dozen”?

Because currently, these dozen corporations generate profits on taxpayer dollars through lucrative government contracts without contributing back in taxes. They leave that unwelcome burden to other businesses and ordinary taxpayers to pick up.

Maintaining the status quo is hard work. Thankfully for these companies, they have various means to influence our politicians. The same 12 corporations spent nearly $6 million in Political Action Committee (PAC) expenditures for 2008, over $37 million lobbying in 2008, and over $33 million so far in 2009. (See U.S. PIRG Report)

“We’re going to spend whatever it takes,” Brigitte Schmidt Gwyn of the Business Roundtable –- a member of the PACE coalition –- told Politico earlier this year when asked about defeating tax reforms.

In our electoral system, politicians are forced to endlessly reach out to major donors, like the 12 we cite here, to keep their coffers full. These corporate entities know that contributing to campaigns and lobbying officials can help reap valuable dividends in policy decisions. It’s a damaging cycle for average taxpayers, who pick up the tab for corporations that use tax havens.

Tax reform that addresses bank secrecy and tax schemes is a common sense solution to the loss of billions of dollars each year due to tax haven abuse. When individuals and corporations abuse the system, the rest of us — ordinary taxpayers and Main Street businesses — must pick up the tab. The necessary reforms can be found in the Stop Tax Haven Abuse Act S. 506, H.R. 1265. This is a comprehensive bill that addresses offshore shell companies, includes strong enforcement mechanisms and calls for common sense reporting. The Foreign Account Tax Compliance Act of 2009, introduced this week, contains a weaker subset of these reforms, and focuses more narrowly on holding foreign banks and corporations accountable for their clients.

We should make it law that transactions must have some real economic purpose other than the reduction of tax liability, and permanently eliminate the appeal of moving “headquarters” to a post office box in the Cayman Islands.

As important as the above reforms would be in revenue saved for Americans, we also need long-term campaign finance reform, including a voluntary system of small donor-focused fair elections. (The types of reform that are required can be found in the Fair Elections Now Act S. 152, H.R. 1826). When candidates for Congress can run for office without relying on large contributions and big money bundlers, they will be forever freed from a corrosive system in which big business is seen to dictate public policy.

Reforms to give taxpayers a greater voice in electing officials, to give lawmakers greater incentives to put taxpayers first, and to level the playing field for Main Street businesses and Main Street families are long overdue.

We need to slow the PACE of these types of corporate activities and push for real reforms to our system.