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Congress tax havens { July 30 2002 }

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Congress Targets Tax Havens
House Vote Shows Perception of Corporate Abuse

By Juliet Eilperin and Jonathan Weisman
Washington Post Staff Writers
Tuesday, July 30, 2002; Page A01

With major corporate responsibility legislation passed, elected officials are turning to a new target -- business tax evaders -- in a scramble to convince voters they are cracking down on corporate wrongdoing.

Senate hearings today will touch on the topic, but House members got a head start last week. First, they overwhelmingly approved a corporate responsibility bill drafted largely by Senate Democrats. Then, while debating a less-noticed provision in the president's homeland security proposal, 110 Republican members defied their party's leaders to confront another brand of questionable corporate behavior: companies locating overseas to escape U.S. taxes.

The question was whether to deny federal contracts related to homeland security to companies that establish such offshore tax havens. House GOP leaders opposed the move as a heavy-handed job killer.

But in an extraordinary turnabout, scores of Republicans changed their votes at the last minute, after it became clear that an obscure Democratic procedural motion on the issue would pass. The 318 to 110 vote underscored politicians' eagerness to show they are battling perceived corporate wrongdoing, and suggests seekers of tax shelters may be the next target.

The issue gained momentum in May, when Stanley Works Inc. -- a New Britain, Conn., toolmaker -- decided to reincorporate in Bermuda. It was the latest in a raft of reincorporations by such American mainstays as Ingersoll-Rand Co., Tyco International Ltd. and Fruit of the Loom Inc.

While House leaders scramble for a legislative response, Democrats have already found a political response. They have forced Republicans to vote repeatedly on whether to crack down on what the Democrats call "corporate traitors."

"It is a values issue," said Rep. Rosa L. DeLauro (D-Conn.), who offered Friday's motion on expatriate corporations. "People want to see accountability, across the board."

Many Republicans -- such as Rep. Nancy L. Johnson (Conn.), in whose district Stanley Works is based -- portray themselves as equally eager to go after tax-evading firms.

"Until we get this problem solved legislatively, we've got to send strong signals to manufacturers that this is intolerable and immoral," said Johnson, noting she sided early with the Democrats on Friday's vote. "There's tremendous unity in the House that dodging American taxes is un-American."

Rep. Bill Thomas (R-Calif.), chairman of the House Ways and Means Committee, has drafted legislation that includes modified Democratic bills designed to address offshore tax havens and corporate tax shelters.

The bill would codify a rule of thumb now used by tax courts to distinguish between legal tax-reduction strategies and illegal tax shelters. That rule, first proposed legislatively by Rep. Lloyd Doggett (D-Tex.), holds that any tax-avoidance scheme with no legitimate economic benefit is illegal.

But large U.S. exporters such at Caterpillar Inc. and Boeing Co. oppose Thomas's bill, and House Speaker J. Dennis Hastert (R-Ill.) has privately told him it will not reach the House floor, according to lobbyists and aides. Instead, GOP leaders hope to bring up a narrowly tailored measure aimed at blocking companies from registering overseas, something Thomas opposes.

Barring tax-haven seekers from federal contracts could deeply injure some companies, such as Accenture Ltd., a former subsidiary of Andersen Worldwide that incorporated in Bermuda last year. By one Democratic tally, Accenture reaped nearly $282 million in federal contracts last year, at least half of them related to defense and homeland security.

Rep. Thomas M. Davis III (R-Va.) said the measure could eliminate 2,000 Accenture jobs in his district. "Debarring companies that are acting legally is a terrible precedent," he said. "As usual, Congress overreacts to any crisis."

One lobbyist, however, said such companies could simply reincorporate in another low-tax country, such as Ireland, which has political protection under existing tax treaties and which would make for less tempting political targets than Caribbean vacation hideaways.

Still, if last week's House vote was a guide, Democratic pressure appears to be wearing down Republicans.

Toward the end of the homeland security debate, DeLauro offered a "motion to recommit," which included language barring companies that reincorporate overseas from securing contracts with the new department. While such procedural motions from the minority party rarely win, enough Republicans sided with Democrats that the vote stood at 210 to 205 as time ran out.

House Majority Whip Tom DeLay (R-Tex.), renowned for his ability to turn votes around in the final minutes, was unable to get any of 10 targeted Republicans to budge.

With the vote essentially lost, DeLay relented. Within moments, 100 Republicans changed their votes from "nay" to "aye."

"It's clear it was going to pass," Hastert spokesman John Feehery said. "I think a lot of members decided if it was going to pass, they were going to vote for it."

Several GOP lawmakers who have been accused of going easy on corporations switched sides, including Shelley Moore Capito (W. Va.), Mike Ferguson (N.J.), George Gekas (Pa.) and Jim Leach (Iowa).

GOP pollster Glen Bolger said it made sense that lawmakers would dodge a tough vote when given the opportunity.

"It's a pretty simple message [for political opponents] to drive home: companies go to places like the Bahamas and don't pay any taxes, and Congressman Jones allowed that to happen," Bolger said.

Friday's action marked the first time that Democrats have prevailed on this issue on the House floor. Rep. James Maloney (D-Conn.), thrown into a new district with Johnson, has made Stanley's efforts to move to Bermuda a central part of his campaign and predicted further sanctions will be pursued.

"We are going to continue to push ahead," said Maloney, who hopes to deprive corporations of any tax benefits they would reap from reincorporating overseas. "We now have the support of the majority of the House. The only thing standing in our way is the Republican leadership."

2002 The Washington Post Company

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