Now he's the one making the tax rules

As a lobbyist, Mark Weinberger was paid millions by corporations to win tax breaks and keep loopholes open. He says that won't influence him in his new Treasury job.

By SYDNEY P. FREEDBERG
© St. Petersburg Times
published March 17, 2002

In the boom days of the 1990s, Mark Weinberger earned a handsome living helping dozens of the world's wealthiest corporations reduce their taxes.

As a lawyer-lobbyist in Washington, he built a reputation for winning corporate tax breaks and helping preserve tax loopholes for corporate clients.

And while he never exactly defended tax shelters, he strongly objected to proposed rules to curb them.

"Unnecessary . . . premature, exceedingly vague and far reaching," he called those proposals in congressional testimony in 1999.

Now, Weinberger has a new role in Washington. As assistant secretary of the treasury for tax policy, he is President Bush's top tax adviser.

In the wake of Enron, looming Social Security deficits and a surge of post-9/11 patriotism, his Office of Tax Policy is under increasing scrutiny.

Is a fox in the henhouse?

Absolutely not, he says, bristling at the suggestion that the Treasury Department has given corporations undue tax breaks.

Yet since the Bush administration took office in January 2001, the department has promoted policies that critics in Congress say favor the multinationals, including some of the same companies and business coalitions that once employed Weinberger or some of his top aides.

The department crippled an international effort to crack down on offshore tax havens, the critics say. It narrowed rules designed to help the IRS shut down corporate tax shelters. And the department made it easier for companies to win tax breaks for research.

Weinberger, 40, isn't the only business-friendly official at Treasury. The Bush administration filled other top department posts with a number of corporate lawyers and lobbyists who once worked for big companies with a stake in decisions they are now making.

Recent publicity about the offshore tax havens of Enron and other companies has triggered calls on Capitol Hill for a crackdown on corporate shelters, which let some companies avoid billions in taxes every year.

Last month Sen. Charles Grassley, R-Iowa, asked Treasury Secretary Paul O'Neill why the administration hasn't done more to fight corporate shelters.

In an interview with the St. Petersburg Times, Grassley also blasted accountants who devise and market shelters, lawyers who write letters to help them pass IRS muster and a "powerful lobbying interest that has grown up, justifying these shelters and industrializing the whole process.

"It may not be illegal, but it's immoral and unethical," says Grassley, the ranking GOP member on the Senate Finance Committee.

Some Democrats are more blunt. They say Bush administration policy gives the impression of a stacked tax system, where corporations on chummy terms with government officials get breaks at the expense of less wealthy taxpayers who pay more as a result.

"This administration believes every major corporation should be able to follow the Enron example by paying little or no taxes," says Rep. Lloyd Doggett, D-Texas. "Instead of closing loopholes, it wants to widen them."

Weinberger, whose former lobbying firm made $22-million in three years, calls such complaints ridiculous.

The Bush administration, he says, is "vigilantly" continuing the Clinton-era crackdown on corporate shelters and soon will announce even tougher antishelter measures.

What's more, the Treasury Department is studying how often corporations use tax shelters and whether flaws in U.S. tax laws are driving corporations to set up shell units offshore.

When he approved changes in antishelter rules, Weinberger says, he wasn't watering them down. He was simply trying to make the regulations fairer and more manageable for overworked IRS agents.

"I took an oath to work for the taxpayers," he says, adding that he has complied scrupulously with ethics rules designed to bar officials from using public office for private gain. "If I didn't believe I could do that, I wouldn't have taken the job."

Lucrative work

A bright, genial father of four who is known for his workaholic lifestyle, Mark Alan Weinberger came to Washington in 1987, the year he earned his law and MBA degrees at Case Western University.

He began his career in the tax department of the international accounting firm Ernst & Young, spent 31/2 years in government posts and eventually cofounded a lobbying firm, Washington Counsel, in 1996.

It was lucrative work. The company quickly became one of Washington's top tax lobbying firms.

Weinberger himself earned $650,000 as a lobbyist in 2000, according to a financial disclosure report he filed a year ago. The report doesn't disclose the full extent of his dealings with corporations, and Weinberger declines to elaborate on them or his financial affairs.

But the report suggests his assets, including stock holdings, were valued at between $2,420,098 and $9,301,000. Some of the stock was in companies he used to represent.

Ethics rules don't prevent government officials from promoting policies they once advocated as paid lobbyists. Likewise, Treasury spokeswoman Tara Bradshaw notes, Weinberger wasn't required to sell his stock because his decisions focus on broad policy issues, not actions benefiting specific companies.

About 10 months before he joined Treasury, his lobbying firm was acquired by his old employer, Ernst & Young, and became Ernst & Young Washington Council.

Weinberger directed Ernst's national tax department, reporting $1.5-million in income from May 2000 until February 2001, when Bush nominated him for the Treasury post.

Then, he says, to avoid even the perception of impropriety, he carefully followed a self-imposed policy: During his first year in public office he did not discuss tax business with his old firm or any of his former clients.

A fuzzy line

At the Treasury Department, where Weinberger makes $130,000 a year, he and his staff of 110 lawyers and economists issue a mass of fine-print orders, minute regulations and guides interpreting the 9,510-page tax code.

While many of their actions go unnoticed by the public, each move is normally dissected by megacompanies looking for a sentence or word that justifies a tax loophole.

Increasingly, that puts Weinberger in the white-hot center of the debate over tax shelters.

Not only is he President Bush's key tax spokesman. He also plays a crucial role in defining what is -- and what is not -- an illegal corporate shelter.

Now, Weinberger says he always thought corporate tax shelters were a problem. He is even signaling the administration's willingness to support new antishelter legislation.

But when he was a lobbyist testifying before Congress, he put the words "corporate tax shelters" in quotation marks and attributed controversy over them to rhetoric, anecdotal evidence and press accounts.

It's a fuzzy line. Some corporate tax shelters are legal, but others stretch the boundaries of the law.

Pat O'Brien, a corporate lawyer in Fort Lauderdale and former U.S. Customs agent, says some of his clients draw the line this way: "If you go to prison at the end, it was tax evasion; if you don't, it was tax avoidance."

In the simplest terms, the aim of many shelters is to reduce a company's taxes by shifting some taxable profit to a place where it won't be taxed.

Typically, tax shelters capitalize on arcane quirks in the tax code. They involve fantastically complex foreign transactions that are extremely hard for the IRS to track or for ordinary taxpayers to understand.

Sen. Bob Graham, D-Fla., worries that with an ever-more complex code offering companies lots of loopholes to devise shelters, more and more revenue will be lost offshore.

Companies that don't manipulate the system get penalized, Graham says, and that "creates a general environment where there is an acceptance for people to avoid their tax obligations."

A Who's Who of clients

Offshore tax shelters have been an issue in Washington and America's corporate boardrooms for at least three decades. Laws and regulations have evolved over the years, but the framework of the debate has remained the same.

On one side are the reformers, who lament that a complicated, inequitable tax code favors multinational corporations, costing the federal government billions of dollars and penalizing everyday wage earners.

"The entire tax system has come to mirror Washington itself," President Ronald Reagan said in a 1985 radio address, "a complicated, frustrating, unfair mystery of legalistic gobbledygook and loopholes never designed, it seems, to help everyday wage earners, only those who can afford high-priced attorneys and accountants."

On the other side are the corporations. They complain that they are at a disadvantage because many of their overseas competitors pay lower taxes in their own countries. What's more, U.S. companies face double taxation, with two countries imposing taxes on the same income.

Those inequities, compounded by complexities in the tax code itself, encourage companies to seek tax shelters and, in some cases, move their headquarters overseas.

As the economy boomed in the mid 1990s, big companies and their accountants stepped up their efforts to make tax laws more favorable.

Using fancy computer models, big accounting firms began to offer corporations ever-more complex tax-minimization strategies. They sold the plans in return for a chunk of the tax savings.

The Big Five accounting firms also gave millions to candidates for national office, especially to lawmakers who served on congressional tax-writing committees.

Enter Mark Weinberger. A couple of years after leaving his job as tax counsel for then-Sen. John Danforth, a member of the Senate Finance Committee, he and a bipartisan group of onetime Capitol Hill lawyers, legislative aides and federal agency officials founded the lobbying firm, Washington Counsel, in 1996.

They signed up a star-studded cast of clients that read like a Who's Who of corporate America, including Aetna, Anheuser-Busch, AT&T, General Electric, General Motors and Microsoft.

Weinberger says he can't imagine that any of his former clients paid less than their fair share of taxes.

Just because a corporation takes advantage of tax rules doesn't mean it is a tax dodger, he adds. "Making the assumption these companies did something abusive is unfair," he said.

A study of corporate tax lobbying shows that eight corporations on the client list of Weinberger's firm got $18-billion in tax breaks from 1996 to 1998. Four of those firms paid no taxes at all in 1998, according to the study by three research advocacy groups, including the labor-backed Institute on Taxation and Economic Policy.

Many of Weinberger's clients also paid handsomely for lobbying help.

For example, Merrill Lynch & Co., the giant brokerage house, paid Weinberger's firm more than $1.6-million in lobbying fees from 1997 to 1999, according to the Center for Responsive Politics, a group that tracks money in politics.

At the time, Merrill was embroiled in a dispute with the IRS over tax shelters that the company marketed almost a decade earlier to big-name clients.

Last August, Merrill agreed to make a "substantial payment" to the IRS to settle the controversy. The company neither admitted nor denied that the shelters were illegal, but according to CFO.com, a newsletter for financial executives, Merrill avoided civil sanctions.

Weinberger says he never discussed the tax-shelter controversy with anyone at Merrill. He also takes great exception to the suggestion that as a lobbyist, he worked to preserve existing tax loopholes or open new ones.

"I represented taxpayers on issues where they had a right to be heard by the members of Congress who were writing the laws that would impact them," he says.

Notice 98-11

From time to time, President Clinton's Treasury Department voiced concern over corporate tax avoidance. But it wasn't until well into his second term that the department got aggressive about it.

Consider the fight over a department proposal known as "Notice 98-11." It started in 1998, when Treasury officials grew alarmed about a fast-growing tax-avoidance maneuver. It allowed U.S. corporations to use tax havens to reduce their U.S. and foreign taxes on profits from overseas operations.

When the department moved to close the loophole by issuing Notice 98-11, Weinberger and other tax lobbyists swung into action. They formed coalitions of multinational corporations with names like the Global Competitiveness Coalition and the 98-11 Coalition.

It's impossible to know which companies were in the coalitions because lobbyists for such groups aren't required to disclose who their clients are or how they spend their money.

Weinberger and the other lobbyists argued that the government hadn't proved a single case where a company did anything wrong. Besides, they said, Treasury was stepping on Congress' turf.

The corporations got a bipartisan group of tax-writing lawmakers to write letters to Treasury Secretary Robert Rubin, urging him to withdraw Notice 98-11.

He did. The department killed the loophole-closing provision.

To critics, the incident proved the government couldn't stand up to the corporations. To supporters, 98-11 was a bad idea from the start, evidence of a tax code in desperate need of simplification.

Showing muscle

After the 98-11 episode, the Clinton administration grew more concerned about companies manipulating the tax system to shift money overseas.

Though corporations were making record profits, IRS data suggested that the share of profits that was taxed might be going down. While the tax burden on many companies was falling, reformers said, the burden on many individuals was rising.

Yet on Capitol Hill, the corporate tax lobby showed its muscle time and again.

With Weinberger at the helm, a group called the R&D Credit Coalition pushed to renew a corporate tax credit for research and development.

In a climate of intense international competition, he contended, the United States should do everything within its power to encourage research and development. Critics countered that drug corporations and other firms were getting a costly tax break on research they would have done anyway.

When Treasury Secretary Lawrence Summers launched a crusade to stamp out a blizzard of corporate tax shelters, Weinberger spoke out against it.

In Clinton's 2000 budget, the administration unveiled steps to radically change the way the Treasury Department dealt with corporate shelters. Summers called shelters "the most serious compliance issue threatening the American tax system."

Instead of trying to find, understand and stop the transactions after they occurred, Summers wanted to make them so risky and costly that companies would not use them.

Among other things, the plan called for doubling the penalty imposed on corporations using improper shelters. It also targeted accountants and lawyers who promoted abusive shelters.

Summers' actions came after several prominent attorneys acknowledged that accounting firms sometimes paid lawyers hefty fees for legal opinions to make shelter schemes sound legitimate.

Some accountants, too, had admitted they felt pressure to match tax-avoidance strategies of competitors, even if they were shams.

In a March 1999 appearance before the House Ways and Means Committee, Weinberger questioned how big the problem really was.

He called for better enforcement of rules already on the books. The Clinton proposals were so ill-defined that they would sweep perfectly legitimate business transactions into the net while "restricting the ability of corporate taxpayers to operate efficiently," he said.

The lobbying, much of it by big accounting firms, worked. A bill by Rep. Doggett languished. With an election approaching, the Senate Finance Committee didn't push legislation either.

Summers scrapped his more sweeping proposals, and some corporate spokesmen called it a victory for aggressive tax planners and good news for many on Wall Street.

Back to government

Weinberger's return to government service began in October 2000, when Clinton appointed him to serve on the Social Security Advisory Board. Four months later, when President Bush asked him to be his top tax policy adviser, the onetime lobbyist jumped at it.

He wanted to make the tax system better, he says, and his wife, Nancy, was supportive, even though she knew it meant longer hours and less pay.

"She was also excited about meeting the president," he says.

With his wife and two of their four young children in the audience, Weinberger read a short speech at his confirmation hearing before the Finance Committee.

The hearing lasted 20 minutes. Only two senators, Grassley and Montana's Max Baucus, a Democrat, were present, and both praised Weinberger.

On March 1, 2001, the Senate voted unanimously to confirm him.

Shortly thereafter, Weinberger and the Treasury Department were put on the defensive after they seemed to waver in their support of a yearslong effort to crack down on offshore tax havens. Treasury Secretary O'Neill said at the time that the antihaven initiative by the Paris-based Organization for Economic Cooperation and Development could unfairly force some countries to raise taxes.

Weinberger vehemently denies the administration tried to gut the antihaven initiative. He calls it a "roaming and aimless effort" that needed to be refocused. Now, he notes, the Bush Treasury Department has done what the Clinton administration never did: sign agreements to exchange tax information with three tax-haven countries as part of a broad attempt to expose tax cheats. More treaties are on the way, he adds.

Last August, Weinberger signed off on proposed regulations that critics say narrow the definition of an illegal tax shelter.

He counters that the rules were simply clarified and "tightened" so they didn't trigger reporting of legitimate business transactions.

And late last year, in keeping with a campaign promise by President Bush, the Treasury Department proposed new rules broadening the research tax credit, which the Clinton administration had restricted in its last days.

Companies that could get an added break are a pantheon of American capitalism. Among them: Boeing, Microsoft, General Motors, Pfizer, all former clients of Weinberger's firm.

The changes already were in the works when Weinberger arrived at Treasury. The administration wanted to make the rules less confusing, for companies and IRS auditors, he says.

Weinberger says he resents any suggestion that his corporate background -- or that of his aides -- influences how they run the tax-policy office.

These days, he arrives at his office overlooking the White House by 7 a.m. His cell phone rings constantly, but he rarely hears from old clients, he says. If he does, he's usually too busy to take the calls.

What will he do when he leaves government?

"I don't plan on doing any lobbying," he says.

-- Times researchers Kitty Bennett and Barbara Oliver contributed to this report.

The clients

Washington Counsel, the lobbying firm co-founded by Mark Weinberger, reported receiving $22,098,000 in lobbying income from 1997-99. The firm or Weinberger provided services to the following companies or groups.

• 98-11 Coalition
• Aetna
• AIG Financial
• Allegiance
• Allegiance Healthcare
• Allen Holding
• Amcor Task Force
• American Express
• American Insurance Association
• American Oncology Resources
• American Staffing Association
• Anheuser-Busch
• APL Ltd.
• ARC Spectrum
• Associated Group
• Association of American Railroads
• AT&T
• AT&T Capital
• Avco Financial Services
• Aventis
• Baxter International
• Bear Stearns
• Bell Atlantic
• Beneficial Management
• Bertelsmann AG
• BHC Communications
• Boeing
• BP Amoco
• Bond Market Association
• Buffett Foundation
• California Biomass Energy Alliance
• Cash Balance Coalition
• Caterpillar
• Central Gulf Lines
• Champion International
• Chase Manhattan
• Charles Schwab
• Citigroup
• Coalition to Preserve Tracking Stock
• Commonwealth Edison
• Connell
• Coordinating Committee for International Tax Reform
• Crowley Maritime
• CSX
• CTec Services
• Directors Guild of America
• Disney
• Donaldson Lufkin & Jenrette
• Doris Duke Charitable Foundation
• DuPont
• Eaton Vance
• Eaton Vance Management Co.
• EDS
• Enterprise Foundation
• ExxonMobil
• Fannie Mae
• Farrell Lines
• FedEx
• Food Distributors International
• Ford Motor
• Gaylord Entertainment
• GE Capital Assurance
• GE Mortgage Insurance
• General Electric
• General Motors
• Gila River Indian Community
• Global Competitiveness Coalition
• Goldman, Sachs & Co.
• Goodyear Tire & Rubber
• Grassland Water District
• Greater Media
• Group Health
• Gulfcoast Transit Co.
• Haz-X Compliance Verification Services
• Hercules
• Hewlett Packard
• HP Bulmer Holding
• Hyatt, Gilbert P.
• IBM
• International Tax Reform Group
• Investment Company Institute
• JM Family Enterprises
• Johnson & Johnson
• Large Public Power Council
• Limited
• Local Initiatives Support Coalition
• Lockheed Martin
• MacAndrews & Forbes
• Maersk
• MCG Northwest
• McLane
• Marsh & McLennan
• MCI Communications
• Merrill Lynch
• Microsoft
• Monsanto
• Mutual of Omaha
• NAREIT
• National Association for Home Care
• National Association of Health Plans
• National Association of Professional Employer Organizations
• National Association of Real Estate Investment Trusts
• National Association of State Farm Agents
• National Association of Temporary & Staffing Services
• National Cable Television Association
• National Defined Contribution Council
• National Foreign Trade Council
• National Multi Housing Council
• Neptune Orient Lines
• Neu Holdings
• Pfizer
• Piedmont Environmental Council
• Procter & Gamble
• R&D Credit Coalition
• R&D Regulatory Reform Coalition
• R&D Tax Credit Coalition
• R&D Tax Regulations Coalition
• Recording Industry Association of America
• Rhone-Poulenc Rorer Pharmaceuticals
• RJR Nabisco
• Rubber Manufacturers Association
• Skadden, Arps, Slate, Meagher & Flom
• Sea-Land Service
• Securities Industry Association
• Sierra Pacific Industries
• Straddle Rules Tax Group
• Swap Funds Coalition
• Tax Fairness Coalition
• Tele-Communications
• Texas Utilities
• Texas Utilities Services
• United Airlines
• United Technologies
• U.S. Chamber of Shipping
• US Oncology
• Vanderbilt University
• Viaticus
• Willkie, Farr & Gallagher
• Working Group on Tax Reform
• Ziff Investors Partnership

-- Sources: Center for Responsive Politics, U. S. Senate, U.S. Office of Government Ethics

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