It should come as no great surprise then that George Bush has openly voiced his intention to continue adding to corporate welfare legislation by reducing the capital gains tax by more than 50%. The Joint Committee on Taxation said that the capital gains tax proposal passed by the House on Sept 28 1989 would cost $35 billion dollars in lost revenue over the next 10 years. This largesse would go almost exclusively to the richest 10%. {B48}

The previous statement ought to give you a chilling appreciation for the continuing success of the super rich, in their drive toward total immunity from taxation.

On General Motors' 1987 Income Statement, a footnote indicated that the federal tax for 1987 was minus $1.3 billion, thus intimating that the automobile giant may have received a tax rebate for that amount. Citizens for Tax Justice had figured that GM would end up getting a tax rebate for $742 million. In any case, it should be a little clearer just where the money comes from that enables car manufacturers to offer such huge cash rebate incentives for new car buyers. {B49}

Citizens for Tax Justice (a group backed by Ralph Nader, which monitors tax abuses and lobbies the government for fairer taxation) pointed out that the average reader paid more tax last year than AT&T, Du Pont, Boeing, Merrill Lynch, Dow Chemical, and Walt Disney paid collectively from 1982 through 1985!!

Do yourself a favor and reread the above paragraph.

In fact, of the 250 companies that they were monitoring, 108 of them had an average tax rate of 1.6%. {B50}

Neither government nor economic smooth talkers are now able to mask the social effects of taxation changes favoring the richest 1% introduced during the Reagan administration. As a result of fiscal policy initiated by Paul Volcker and James Baker, the number of billionaires began skyrocketing. From a relatively stable 13, their numbers all of a sudden doubled in 1986, quadrupled by 1987, and have (since 1987) increased an additional 50 to their present level of 99. This unethical shift of wealth from the poorest to the richest 1% simultaneously caused shelters for the homeless and grocery handout centers to spring up in practically every city in the nation. The more the reader appreciates the tremendous scale of corporate welfare, the less apt he or she will be to blame the deficit on the increasing numbers who are forced to collect unemployment or welfare. The crime and drug abuse epidemics are additional visible manifestations of the anger and desperation felt by the policy's victims.

In case you had noticed that the Reagan administration seemed virtually unconcerned with the huge national debt. Here's why:

The ballooning deficit, which can only be paid back through taxation, will continue to translate into a declining standard of living for "those who pay the taxes", and most for those who are hit hardest by taxation.

Contrary to their continued displays of concern over the increasing deficit, the elite and their functionaries in congress will in reality become less and less concerned about the growing deficit because their share of the tax burden diminishes with every new tax reform!! In future, billionaires and multimillionaires will accumulate ownership of the national wealth at an even faster rate than at present.
For those who pay little or no taxes, the growing national debt is scarcely a concern!
The elite are not at all affected by cuts to social welfare programs. The only social welfare that affects them is corporate welfare and it has been increasing non-stop since the 50's. However, for the so-called working middle class and their children, the ballooning deficit will translate into a significant loss of social benefits, poorer education and health facilities, etc., in short, a continuing drop in standard of living.

If the corporations and wealthy elite don't pay their share of taxes, why should the working class?

The three trillion dollar Star Wars military expansion program is being funded directly out of the taxpayer's pocket. There is simply no rationale for the so-called middle class taxpayer to pay the bulk of the defense bill, when the majority of the wealth and property being defended belongs to the economic elite, who take every opportunity to excuse themselves from sharing the tax burden.

In case you have wondered why the deficit is ballooning so rapidly, here's at least one atrocious reason.


Undermining America with Leveraged Buyouts

One of the most scandalous causes of lost tax revenue (from corporations) is currently sweeping the nation, and is referred to as the leveraged buyout, also known in the industry as an LBO. During the 80's, LBOs have been the focus of Wall Street activity. To understand how they work, let us begin by considering a recent LBO.

The RJR Nabisco corporation was purchased for a sum of about 25 billion dollars. Prior to its takeover, Nabisco made an annual profit of about $2.5 billion dollars, on which they pay about $700 million in taxes. {B51} As a result of the buyout, the new owners will most likely pay NO TAXES. Not only that, they will probably claim billions of dollars back (from the government, i.e. the taxpayers) in tax rebates! Surely this is not possible, you might be saying to yourself. As unbelievable as this sounds, it is true. START GETTING CONCERNED. The new owners will still produce their shredded wheat and cigarettes, etc., at the same prices and with the same manufacturing costs. Right? ...Right! So their profits should be expected to remain around 2 and a half billion dollars. Right? ...Wrong! The new owners are now eligible for tax deductions that the former owners did not have. The new owners borrowed most of the $25 billion dollars to purchase Nabisco. Why? ...because the interest (that they pay on the money they borrowed to buy the giant) qualifies as a tax deduction! (Thanks to Section 163 of the Internal Revenue Code)

Tax avoidance rears it's ugly head. The cost of borrowing the $25 billion could quite conceivably be around $3 billion dollars per year, but the operating profits, as before, would be only 2 and a half billion.

Are you sitting down?

As a result of a leveraged buyout, a firm like Nabisco can be transformed from a profitable company making 2.5 billion dollars profit, and contributing $700 million annually to Federal and state tax revenues, ...to a firm which could draw billions out of the Federal tax pot because it would be "technically" operating with an annual loss of a half billion dollars due to the tax write-off for money borrowed to purchase the giant.

With no taxable income, the new owners would pay no taxes!!!

There's $700 million a year that won't get used to repair the roadways they buckle when delivering their goods. There's also $700 million per year that won't help to clean up the rivers and lakes corporate America has polluted, and continues to pollute.

Taxpayers must come to appreciate that their standard of living will progressively worsen as unemployment rises, and corporations contribute less tax in future than they have in the past. Even though the taxpayer has been secretly robbed (thanks to the gagging of the press), the corporate raider has just begun his assault.

As unbelievable as it may be (that elected congressmen would allow corporations to stop contributing taxes), they even allow the taxation avoidance to be retroactive! Here's how.

Tax losses can be carried back 3 years, and forward 15 years. In other words, corporate raiders who make their new companies run in the red are able to claim back as a tax refund the legitimate taxes previously paid in the previous three years by the former owners. In a case like Nabisco's, this could amount to billions. The LBO tax avoidance loophole must be the single most significant cause of reduced Federal and State tax revenue from corporations for at least the last decade.

Because it is so important for the average person to fully understand LBOs and their destructive social consequences, and because many readers may be unfamiliar with the world of stock trading and Wall Street jargon, a more in-depth explanation is in order.

First of all, a leveraged buyout refers to the transaction that takes place when an individual or group of investors (outside a corporation) manages to take over the decision making function of a corporation by buying up enough shares of the company to assume controlling interest. The term "leveraged" refers to the fact that most of money used to purchase the corporation is borrowed or on credit. In all LBOs, the purchasers borrow as much as they can from banks, by using as collateral the equity of the corporation to be purchased. The remainder of the money required is normally raised through the sale of "junk bonds", which are issued by the purchasers (the corporate raiders), and promoted and sold (underwritten) by certain brokerage houses or investment banks which specialize in corporate takeovers. Junk bonds can attract investors because they normally offer a significantly higher rate of interest than other bonds and normal bank interest. Usually the part of the operating profits that formerly went to pay taxes, are now freed up to pay the interest on these junk bonds, so the junk bond holders can feel relatively safe.

For example, in a case like RJR Nabisco's, the $700 million that normally would have gone to pay taxes is now capable of paying the interest on about $5 billion dollars worth of borrowed money. The real significance is that the taxpayer is effectively footing the bill for $5 billion of the purchase price!

Combine that initial subsidy of $5 billion with the $2 billion they can receive in tax rebates, and the loss of tax revenue could effectively amount to about $7 billion on that single takeover.

In case you think this is not typical of what is happening, consider Safeway which went from paying $122 million in taxes, to being a tax rebate recipient of over $10 million. Macy's collected a $32 million rebate instead of paying a normal tax bill of over $200 million. Before its leveraged buyout, Unocal paid over $500 million in taxes. After the leveraged buyout its tax bill dropped to $68 million. But the above is unfortunately only half of the picture. {B52}

So far we have only discussed how LBOs have caused a drastic reduction in taxes paid by corporations. Next we will look at how and why the corporate raiders use LBOs to skim hundreds of


{B48} "Why Bush's trickle-up theory is sailing through Congress" BusinessWeek (Oct 16 1989): p47
{B49} "Who got reformed?" Forbes (Jan 9 1989): p298
{B50} "Some big companies did a strange thing in '87: They paid taxes" BusinessWeek (Dec 26 1988): p40
{B51} "How the government subsidizes leveraged buyouts" Forbes (Nov 28 1988): p194
{B52} "How the government subsidizes leveraged buyouts" Forbes (Nov 28 1988): p194