Tuesday, November 25, 2008

Corporations Evade $250 to $300 Billion in Taxes Per Year

From 1950 to 2000, corporations contributed an average of 17% of the U.S. tax revenue. Currently corporations contribute 7% of the U.S. tax revenue.

Why are corporations paying less taxes? In the last 7 years a very sophisticated industry of selling "tax shelters" has become big business for bankers and accountants. What is a "tax shelter" and how does it help corporations steal? A simplified explanation goes something like this:

Corporation A makes $100 Million in profit during 2008. A consulting group like KPMG calls up Corporation A and says, "we can save you $7 Million in taxes if you pay us $1 Million." Corporation A agrees. KPMG then uses $20 Million from Corporation A to lease land in China from Corporation B (a friend of KPMG). Corporation B then leases the land back to Corporation A for $20 Million.

In the end, Corporation A no longer has profits of $100 Million. Instead they have profits of $80 Million, a lease from Corporation B for $20 Million, a lease to Corporation B for $20 Million, and taxes (at 35% tax rate) of $28 Million ($35 Million - $7 Million).

How do corporations get away with this? The truth is, the IRS is too underfunded and lacking in resources to prosecute corporations that evade taxes. The result has been that corporations are evading between $250 & $300 Billion in tax dollars a year.

How does this effect you or I? Have you ever bought food with your coworkers and someone doesn't pay? Well, in this case, your coworkers are American Corporations and since they won't pay, you and I pay 15% more in taxes every year. How much did Corporate America steal from you this year?

(statistics from PBS Frontline: Tax Me if You Can)

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How Will You Measure Your Life?

I recently read this article by Clayton Christiansen out of Harvard entitled, “How will you measure your life?” It is what he tells his students on the final day of his class.

One of the items that he mentions sticks out to me. It reads as follows:

“One of the theories, . . . . . how to be sure we find happiness in our careers—is from Frederick Herzberg, who asserts that the powerful motivator in our lives isn’t money; it’s the opportunity to learn, grow in responsibilities, contribute to others, and be recognized for achievements. I tell the students about a vision of sorts I had while I was running the company I founded before becoming an academic. In my mind’s eye I saw one of my managers leave for work one morning with a relatively strong level of self-esteem. Then I pictured her driving home to her family 10 hours later, feeling unappreciated, frustrated, underutilized, and demeaned. I imagined how profoundly her lowered self-esteem affected the way she interacted with her children. The vision in my mind then fast-forwarded to another day, when she drove home with greater self-esteem—feeling that she had learned a lot, been recognized for achieving valuable things, and played a significant role in the success of some important initiatives. I then imagined how positively that affected her as a spouse and a parent. My conclusion: Management is the most noble of professions if it’s practiced well. No other occupation offers as many ways to help others learn and grow, take responsibility and be recognized for achievement, and contribute to the success of a team. More and more [people think] that a career in business means buying, selling, and investing in companies. That’s unfortunate. Doing deals doesn’t yield the deep rewards that come from building up people."

I’m sure you can see why it sticks out.