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A Times Editorial
© St. Petersburg Times, published February 24, 2003
From 1995 to 2001, the now-bankrupt energy trading giant, Enron, paid outside advisers from the banking, accounting and legal professions nearly $88-million to help it find $2-billion in reduced tax liability and inflated profits. The manipulations contributed to Enron's house of cards, which all came tumbling down in late 2001. The company's undoing caused devastation for employees and shareholders and a created a whopping financial loss for the government in uncollected taxes.
These machinations were described in a 2,700-page report by the congressional Joint Committee on Taxation. The greed uncovered by the report shocked even some veterans of the tax avoidance game. Lindy Paull, the committee's chief of staff, said she was "stunned" by the investigation's revelations, and Sen. Charles Grassley, R-Iowa, chairman of the Senate Finance Committee, vowed to introduce legislation to keep other companies from playing the same tricks. The report detailed how Enron sheltered its money from taxes by moving assets in ways so complicated that the Internal Revenue Service couldn't unravel them. For the years 1996-1999, Enron posted a profit on its financial statements of $2.1-billion. These are the numbers it provided the Security and Exchange Commission, investors and shareholders. Yet, during those same years, it reported a loss to the IRS of $3-billion, and paid no taxes.
Enron's schemes were facilitated by such businesses as Bankers Trust Corp. (which is now part of Deutsche Bank), Arthur Andersen LLP accounting firm and Deloitte & Touche LLP. Law firms such as Akin, Gump, Strauss, Hauer & Feld LLP helped Enron shelter huge sums by signing off on the transactions, even when it was clear that the only point was to avoid taxes. Accountants and attorneys, who were supposed to be looking out for the interests of investors and taxpayers, instead colluded to deceive them.
Sen. Grassley is promising to see that legislation is passed to shut down these abusive tax shelters -- a source of immense profits for the financial sector. Reports are that business lobbyists are circling the wagons and will do everything in their power to defeat the senator's efforts.
Tax shelters peddled by Wall Street's biggest players degrade trust in the fairness of the tax system and reinforce the perception that only working stiffs pay their fair share of taxes. Congress has done little to alter that perception. Some of the most essential reforms recommended following the collapse of Enron and WorldCom have failed to be adopted -- kept at bay by an influential accounting industry. And the same influence doomed John Biggs, an aggressive watchdog of business ethics, who was passed over for the chairmanship of the newly created accounting industry oversight board.
The Bush administration has shown itself less interested in going after corporate tax cheats and shutting down loopholes than in cutting taxes for these deep-pocket interests. It is up to the Democrats and moderate Republicans in Congress to take up the charge.