Slippery corporations: how to capture their wealth.

• Author: Peirce, Neal R.
• Position: Commentary

Big shifts in corporate taxation--federal and state--suggest the time is ripe for the radical cure some business circles have long asked for: elimination of double taxation on corporate earnings. Tax the money just once: when it reaches individuals' pocketbooks as dividends and increased stock value.

To do that, we needn't bankrupt our governments. Why not restructure federal and state income taxes to match the losses, targeting compensating tax hikes at the corporate executive and shareholding classes?

So why a big shift now?

Just check what some corporations are up to. They're fleeing to Bermuda or the Cayman Islands to avoid paying any state or federal income tax at all. No matter that they depend on the United States for their work forces, for road and air and rail systems, for environmental protection, even for security from foreign attack. They think they can offload all their tax liability on the rest of us.

At a recent congressional hearing, Sen. Charles Grassley, R-Iowa, held up a saw made by Stanley Works, a 159-year-old Connecticut toolmaker that's intent on opening paper headquarters in Bermuda. The firm has government contracts, Grassley noted, but will end up "evading U.S. taxes and making profits off the taxes of middle-class Americans who are paying their taxes honestly."

Among other firms that have "moved" to offshore mail drops, saving themselves tens or hundreds of millions of dollars yearly, are Seagate Technology, Tyco International, Ingersoll-Rand, and Nabors Industries. Such moves are little short of unpatriotic in light of the September 11 terrorist attacks and the need for expanded defense and homeland security outlays, says Rep. Richard Neal, D-Mass.

Yet in a globalized economy, the temptation to shift profits offshore will only grow.

And raw campaign cash politics only makes things worse. Don't think that wasn't related to President Bush endorsing and Congress passing huge depreciation write-offs--$114 billion worth in the recently enacted "anti-recession" bill.

That's one reason corporate income tax payments will plummet to only 1.3 percent of gross domestic product this year, the second-lowest figure in 60 years.

And the first victims will be the already deficit-plagued states that linked their corporate taxes to the federal formula. They stand to lose $14 billion in anticipated revenues in the next three years.

Even more serious, the states are suffering a virtual "collapse of the corporate income tax,"...