Lawyers, Guns, and Money

Al Capone once said, "A good lawyer with a briefcase can steal more than ten men with machine guns." Some of today's corporate tax lawyers might agree.

Today's Wall Street Journal ($) quoted Scarface Capone in describing how Merck saved $1.5 billion -- that's with a "b" -- by aggressively exploitating international tax loopholes.

Merck did it by transferring its drug patents to a Bermuda subsidiary and then paying its subsidiary for their use. The deal "allowed some of the profits to disappear into a kind of Bermuda triangle between different tax jurisdictions," as the Journal put it.

True, they finally got Capone on tax evasion, and Merck has had to set aside $2.3 billion for its litigation with the IRS. But the Merck case is only one -- albeit one very large -- example of an increasing problem.

Other pharmaceutical and technology are also transferring their patents overseas to reduce their U.S. profits. In fact, these and similar tactics have helped U.S. multinationals reduce their tax bills by $7 billion a year, according to a recent article by Rosanne Altshuler and Harry Grubert.

Of course, when corporations pay less, everyone else must pay more. The tax burden is shifted onto regular families, the ones without fancy tax lawyers.


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