THE BLOG
11/12/2010 01:22 pm ET Updated May 25, 2011

Corporate Tax Evasion Strategy WIll Irk Middle Class

This is a rant.

I've been taught that in America, we live by the Rule of Law. This is beginning to sound increasingly mysterious to me lately.

How come I have to live by the Rule of Law, but others do not?
How come I have to put my dog on a leash in the park, when he's not bothering anybody else?
How come I can risk jail for smoking a joint?
How come when the IRS calls me, I have to come in for an audit and pay $35,000 in back taxes I don't have and can't afford to fight?

Because the "other half" does not have to live under the Rule of Law: rather, it makes the law.

Google Inc. cut its taxes by $3.1 billion in the last three years using a technique that moves most of its foreign profits through Ireland and the Netherlands to Bermuda.

Google's income shifting -- involving strategies known to lawyers as the "Double Irish" and the "Dutch Sandwich" -- helped reduce its overseas tax rate to 2.4 percent, the lowest of the top five U.S. technology companies by market capitalization, according to regulatory filings in six countries.

"It's remarkable that Google's effective rate is that low," said Martin A. Sullivan, a tax economist who formerly worked for the U.S. Treasury Department. "We know this company operates throughout the world mostly in high-tax countries where the average corporate rate is well over 20 percent."

The U.S. corporate income-tax rate is 35 percent. In the U.K., Google's second-biggest market by revenue, it's 28 percent.

Google, the owner of the world's most popular search engine, uses a strategy that has gained favor among such companies as Facebook Inc. and Microsoft Corp. The method takes advantage of Irish tax law to legally shuttle profits into and out of subsidiaries there, largely escaping the country's 12.5 percent income tax.

As a result of these tax strategies, a small number of people make big money as Google investors, and a somewhat larger number are on salaries and free food working for Google. And I'm not picking on Google, because many other countries use the "double Irish" strategy, or the office in the Cayman Islands strategy.

The rest of us, about 290 million of us, shoulder both the tax burden and the burden of the service cuts when the tax revenues fall short.

All it takes to avoid the "rule of law" is to have the money. Yesterday, the President's Budget Commission reported that

75 percent of the deficit reduction effort should come from spending cuts and 25 percent from revenue increases.

[Erskine] Bowles also called for capping government spending at 21 percent of the overall economy. Government spending now accounts for 24 percent of the economy and could rise to 27 percent, according to Republican Senator Judd Gregg, who is also a panel member.

He said he would also like to see a broadening of the tax base and simplifying of the tax code which would require hundreds of individual and business tax breaks to be eliminated.

These so-called tax expenditures, such as the mortgage interest deduction, are a popular way for lawmakers to direct economic activity and encourage investment in housing and other areas such as ethanol production.

Those tax benefits, however, cost the federal treasury about $1 trillion a year and generally result in higher income tax rates for everyone else.

"I would like to see us take a hard look at tax expenditures," Bowles said, adding that they amounted to government spending by a different name. Bowles said he favors lowering corporate and individual income tax rates and putting in place a tax on consumption.

Here we go. The middle class is going to take it in the shorts again.

How long before the riots begin in the streets? How long before I refuse to put my dog on a leash while the big dogs in the Caymans run free?