A Times Editorial

Shoulder fair share of taxes

Last week, stockholders of Stanley Works, a hardware manufacturer that has operated out of New Britain, Conn., for 159 years, voted to move the company's headquarters offshore to Bermuda and change its legal residence to Barbados. The vote was later invalidated due to alleged problems in the balloting; the company says a new vote will be held. Stanley's corporate relocation would require no new physical structure. Instead, it would be a matter of opening a couple of mailboxes.

This corporate expatriation would occur for one reason: tax avoidance. By rechartering in Bermuda, Stanley stands to save about $30-million a year in taxes. Profits from sales abroad would be tax-free because Bermuda has no corporate income tax. Even some of Stanley's U.S. profits could be shipped to Barbados and retooled into tax deductions.

If the sole purpose of business is to make money for its stockholders without any other considerations, Stanley Works' move should be uncontroversial. But most of us would agree that American businesses have a duty not only to operate ethically as well as legally. That includes giving back to the communities and nation that provided the environment in which they could flourish. Rather than shifting the tax burden to hard-working Americans, Stanley Works has an ethical duty to shoulder its fair share.

The trend, though, is in the other direction. Companies are lining up to take advantage of the loophole. Tyco International, a New Hampshire manufacturer, claims to have saved $400-million by incorporating in Bermuda. Ingersoll-Rand, one of Stanley Works' competitors, incorporated there last year.

Market forces and personal greed are pushing businesses offshore. It is up to government to step in to prevent our nation's tax base from being significantly eroded.

Sen. Charles Grassley, R-Iowa, has joined with Senate Finance Chairman Max Baucus, D-Mont., in filing legislation to address the problem by eliminating the tax savings for corporate expatriation. Any company that reincorporates offshore to avoid taxes would be taxed as though it was still American. Congressional support is building, but the White House has been oddly silent. Is President Bush's distaste for corporate taxes translating into quiet assent for corporate flight.

Previously, Congress tried to discourage U.S. businesses from rechartering overseas by directing the Internal Revenue Service to view such moves as stock sales and charge capital gains taxes to shareholders. But as the stock market declines, those costs become less of a barrier. Congress has to offer a stronger disincentive now. Otherwise, American businesses will continue to flee from our shores and their responsibilities.

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