-Caveat Lector- [Lots of good stuff on Rich is in the last half of the below. --MS] Part 1 of 2 ---------- Let's make the Rich-U. S. government associations perfectly clear: // Rich sells copper to the U. S. Mint, a branch of the Treasury Department, while the Internal Revenue Service, another branch of the Treasury Department, and the Department of Justice, are, in theory, seeking to bring him to trial on tax-evasion charges. // But not seeking too hard. // In fact, Rich, now in his eighth year on the run, seems to have faded from the memories of law enforcement officials. // When an Inquirer reporter called the FBI in Washington to ask if there was a "wanted" poster for Marc Rich, the reporter had the following exchange with a specialist on fugitives: // FBI representative: "I've heard the name before. I don't believe so. Is he wanted in this country?" http://interactive.philly.com/packages/america90/1023.htm Why the world is closing in on U.S. economy Foreign investors find the U.S. a very congenial place. They buy firms, play the market, and get tidy tax breaks. Published Wednesday, October 23, 1991 By Donald L. Barlett and James B. Steele Inquirer Staff Writers Want to take advantage of the stew of rules, regulations and laws that govern the U.S. economy and the conduct of business in America? And maybe make a few million dollars and cut your taxes along the way? Here are a few tips. * Become a fugitive from justice and set up operations in a foreign country to conduct business, even to deal with government agencies back home. * Become a citizen of a foreign country, in order to play American stock and bond markets, or even to buy and sell American businesses, at lower tax rates than you'd get staying at home in the United States. * Form an American subsidiary of a foreign-owned company so you can pay lower taxes than your U.S.-owned competitors. * Start an American company, and then move your factory, jobs and investment dollars offshore. Any one of those setups is now to your advantage because of the way the rules that govern business in this country have been written and rewritten over the last 20 years. Why would the U.S. government rig the game that way? In part because of the influence exercised by special interests in Congress and in federal agencies. In part because of good intentions gone awry. One of the consequences: American companies, and companies worldwide, are now conducting a replay on a global scale of a business practice that became common here in the 1960s. That was the decade that U.S. companies began playing off one region of the United States against another, one state against another, one city against another. The objective was to locate a new plant or relocate an existing one in whatever area would offer the greatest tax incentives - so the company would have to pay the smallest amount of local and state taxes - and where employee wages and fringe benefits could be held down the most. Now that practice has gone global, as corporations and financiers play off one country against another, one national tax system against another, one country against its possessions. President Bush put a glowing light on it in February in his annual report on the state of the economy: "The benefits of global economic integration and expanded international trade have been enormous, at home and abroad. U. S. firms gain from access to global markets; U. S. workers benefit from foreign investment in America. . . . Competition and innovation have been stimulated, and businesses have increased their efficiency by locating operations around the globe." The aptly named Marc Rich quite likely feels the same way. You may not recognize his name. But you quite likely have used one of his products. Rich, a member of Forbes magazine's directory of the 400 richest Americans, operates a highly secretive and successful commodities business around the world. Through a maze of closely controlled companies, he buys and sells billions of dollars worth of oil, copper, nickel, wheat, alumina and other commodities. What makes this remarkable is the fact that Marc Rich is a fugitive from the U.S. government. Back in 1983, Rich; two associates, and one of his companies, Clarendon Ltd., were accused by the federal government of failing to pay taxes on profits from rigging the price of crude oil during the 1979-80 energy shortage, then hustling the money out of the country. In order to continue doing business, Clarendon pleaded guilty to the charges and paid $172 million in taxes and penalties. Rich fled the country, apparently unwilling to risk the possibility of a trial, conviction and a sentence that could add up to more than 300 years in prison. Ever since the indictment, Rich has been operating from Zug, Switzerland, where he lives in a multimillion-dollar mansion. Except, of course, when he is relaxing at his multimillion-dollar estate at Marbella on the coast of Spain. That's the estate, according to published accounts, with the swimming pool carved into a cliff overlooking the Mediterranean. Whether in Switzerland or Spain, Rich directs the buying and selling of assorted commodities - he virtually controls the aluminum market - in the United States and around the world. He also has had an impact on the jobs of American aluminum workers. People like Joseph Gladden of Ravenswood, W. Va., who, along with 1,700 other employees, has been locked out of the aluminum smelting plant that is owned by a company called Ravenswood Aluminum Corp. Gladden, 41, began working at the plant in 1971, when it was owned by Kaiser Aluminum & Chemical Corp. Those were the days when American business operated in a way that came to seem hopelessly antiquated and naive to the wheeler-dealers who moved in during the 1980s, with the federal government paving every step of the way. The days when a company actually built a plant and ran it for the long term. For Gladden, those days ended in 1986. That's when the first of a dizzying series of changes ensued. Joseph Gladden was about to meet the global economy. It began that year when British takeover artist Alan E. Clore seized control of the company. Clore lasted until the stock market crash of October 1987, when he defaulted on bank loans. The next buyer was an American takeover artist, Charles E. Hurwitz of Houston. To pay down the debt incurred when he bought Kaiser Aluminum, Hurwitz sold off pieces of the old company, including the Ravenswood plant. Enter the third set of new owners in three years - bankrolled by a mysterious company with multiple ties to Marc Rich. How is it possible for a fugitive to conduct business-as-usual in the United States? The answer, simply, is the government rule book. As The Inquirer has reported over the last three days, that rule book rewards the sort of dismantling of companies that forces middle-class workers into lower-paying jobs or, in many cases, eliminates their jobs altogether. As a result, the middle class is shrinking, and its standard of living is falling while, at the same time, ever more jobs are being created in the $100,000 and up income group. The authors of that rule book, a succession of lawmakers and presidents, regulators and administrators, have chosen to write the rules in favor of special interests - from wealthy individuals such as Marc Rich to influential businesses - rather than create a level economic playing field for everyone. Nowhere is the imbalance more evident than in the rules - or, more accurately, the absence of rules - relating to foreign investment in the United States, foreign trade, the conduct of U. S. businesses abroad, unrestrained imports, and the global economy. The transformation of once-American-owned businesses such as the Ravenswood plant into outposts controlled from abroad is part of a larger picture that is unfolding across America. The blockbuster movie you went to see or rented at the video store, Home Alone, was distributed by Twentieth Century Fox, which is owned by Australia's News Corp., the media conglomerate of Rupert Murdoch. The television game show that you watch faithfully every evening, Jeopardy, is produced by Columbia Pictures Entertainment, which is owned by Japan's Sony Corp. The bestseller that you read, Stephen King's The Stand: The Complete and Uncut Edition, was published by Doubleday & Co., owned by Germany's Bertelsmann AG. Even your favorite fast-food hamburger place, Burger King, is owned by Britain's Grand Metropolitan PLC. The deep-heating ointment used to ease your aches and pains is made by the Mentholatum Co. Inc., which is owned by Japan's Rohto Pharmaceutical Co. The Arrow shirts that you buy are made by Cluett Peabody, which is owned by France's Biderman Group. The Tropicana orange juice on your breakfast table is made by the Tropicana Co., which is owned by Canada's Seagram Co. Ltd. The Stroehmann bread you like so much is made by Stroehmann Bakeries, which is owned by Canada's George Weston Ltd. The locks on your doors are made by Yale, which is owned by Britain's Valor PLC. And your favorite vacation golf course, the Pebble Beach (Calif.) Golf Course, is owned by a Japanese investor, Minoru Isutani. Once, all were American-owned. To be sure, foreign-controlled corporations in America are still a comparatively small slice - 7 percent - of total U.S. business receipts. But from 1979 to 1987, the revenue of foreign-controlled corporations rose from $242 billion to $685 billion - an increase of 183 percent. The revenue of U.S.-owned companies went up only 52 percent. While the 1987 statistics are the latest available, it is believed, given the large number of foreign acquisitions of U.S. businesses since then, that their annual revenue has reached $1 trillion. The growing presence of foreign goods and foreign-owned properties in the United Sates has been accompanied by generous tax breaks that Washington has extended to foreign corporations and foreign investors. Internal Revenue Service data show that companies owned by the Japanese, Germans, British and other foreign interests are claiming far larger deductions on their U. S. tax returns than American companies do. The oversized writeoffs mean that foreign-owned companies are more likely than American companies to file a tax return showing little or no profit. This allows them to pay little or no U. S. income tax. In 1987, only 41 percent of foreign-owned companies reported a profit on their U.S. tax returns. By comparison, 55 percent of U. S. companies showed a profit. Revenue of foreign-controlled companies in the United States rose 50 percent from 1984 to 1987. Their taxes went up 2 percent. Japanese-controlled companies in this country have done well, both in boosting their sales and avoiding U. S. income taxes. Their revenue rose 64 percent from 1984 to 1987, going from $113 billion to $185 billion. Yet the federal income taxes paid by these Japanese-controlled companies went down, rather than up - falling 14 percent, from $1.1 billion in 1984 to $951 million in 1987. If you enjoyed the same increase in income that the Japanese companies achieved, your annual salary would have gone from, say, $30,000 to $49,200 in those three years. Simultaneously, the federal income taxes you paid would have dropped from $2,729 to $2,347. Residents of foreign countries who buy and sell stocks, bonds and government securities in this country do even better. In 1988, residents of Japan collected $8.4 billion from their investments in this country, mostly in interest and dividends. They paid $510.6 million in U. S. income taxes on that money. That is a tax rate of 6.1 percent. By contrast, American workers with incomes between $40,000 and $50,000 paid taxes at an 11.6 percent rate. Residents of the United Arab Emirates fared even better. They collected $312.9 million from their American investments. They paid $443,000 in U. S. income taxes. Their tax rate: One-tenth of 1 percent. American workers struggling to achieve a middle-class lifestyle, on the other hand, were taxed at 53 times that rate. Individuals and families with incomes between $13,000 and $15,000 paid taxes at a 7.4 percent rate. But take a closer look at the deal the U.S. government has arranged with the United Arab Emirates and other countries. In theory, foreigners are taxed lightly on their income in the United States because it is assumed they pay income taxes in their home countries. That's the theory. Reality is quite different. The United Arab Emirates, for example, imposes no income taxes on its citizens. It does levy a religious tax. But, as one U.S. tax official explained: "They have no enforcement mechanism. No reporting. You're just supposed to pay it because (of) your conscience. My understanding is it's a rather modest tax in terms of collection." Overall, wealthy residents and corporations in foreign countries collected $31.8 billion, mostly in interest and dividends, from their U. S. investments in 1988. They paid $1.7 billion in U. S. income taxes That's a tax rate of 5.3 percent - less than the 5.8 percent rate paid by Americans who earn $7,000 to $9,000 a year. Viewed another way: American workers who earned between $30,000 and $40,000 in 1987 paid, on average, $3,708 in income tax. If they had been taxed at the same rate that Congress granted residents of the United Arab Emirates, their average tax bill would have totaled $35. * How is all this possible? There are a number of interwoven reasons, all related to the government rule book: Enactment of laws and regulations to encourage an uncontrolled global economy. Outdated tax-treaty concepts. The State Department's long practice of catering to special foreign interests. The IRS's inability to commit sufficient resources to audit corporate tax returns in general, and foreign- owned corporations in particular. And the complexity of the Internal Revenue Code. For some measure of that complexity, consider one aspect of a business that operates globally - the pricing and sale of products among affiliated companies. Let's say the Global Widget Co. manufactures a part used in making widgets at a factory in a country with a low corporate tax rate, say 10 percent. It costs Global Widget $5 to make the part, which it sells to its U. S. subsidiary for $50. The U. S. subsidiary, in turn, sells the part to the American public for $55. The U.S. subsidiary books a profit of $5 on the widget part and pays taxes, after deduction of expenses, at a 34 percent rate. Global Widget's plant reports a profit of $45 in the low-tax country, where the part is produced, and pays taxes, after deduction of expenses, at a 10 percent rate. So it is that corporations constantly shift their costs to countries with high tax rates, in order to maximize their deductions, while they shift their profits to low-tax havens to keep tax payments down. Diverting operations and tax writeoffs to the best possible locale is hardly peculiar to foreign-owned companies. In fact, it was invented by U. S. companies, with the assistance of members of Congress who rewrote the government rule book in 1976 to encourage the practice. They did so when they amended the Internal Revenue Code to provide tax credits for U.S. firms that established subsidiaries in U. S. possessions, notably Puerto Rico, where the islanders are U.S. citizens. In essence, the provision allows subsidiaries to transfer profits from Puerto Rico to their parent companies in the United States - without paying taxes on those profits. Thus, the U. S. government will provide a tax break to a company if it terminates the jobs, say, of 800 workers in Elkhart, Ind., who earn an average of $13 an hour. That is, the company will get the tax break if, at least in part, it replaces the $13-an-hour workers in Elkhart with $6-an-hour workers at a plant it builds in Puerto Rico. * --continued... ================================================================= Kadosh, Kadosh, Kadosh, YHVH, TZEVAOT FROM THE DESK OF: *Michael Spitzer* <[EMAIL PROTECTED]> ~~~~~~~~~~~~~~~ The Best Way To Destroy Enemies Is To Change Them To Friends ================================================================= <A HREF="http://www.ctrl.org/">www.ctrl.org</A> DECLARATION & DISCLAIMER ========== CTRL is a discussion & informational exchange list. 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