Enron: No Taxes . . .
Washington Post
By Richard Cohen
Tuesday, January 22, 2002; Page A15
I recently had dinner with a very rich man -- a multimillionaire for sure, maybe a billionaire.
He described one of his recent deals, how he had taken a small company, added all sorts
of doodads to it, done this and done that (pardon the technical
terminology) -- and sold it for an astounding amount of money. He then confided his business
philosophy: Pay no taxes.
As it happens, that's precisely my own business philosophy. Only I have been unable to implement it.
All the years I've been in business, which is to say working for a living, I have paid federal, state
and local taxes -- and I resent, loathe and even hate anyone who manages not to.
I am talking Enron here. It paid no federal corporate income taxes in four of the past five years.
It managed that while reporting profits that turned its stock from a stodgy performer to a Wall
Street high-flyer, enabling its executives and board members to sell more than $1 billion in
stock in that period. Most of that time, Enron paid nothing to Uncle Sam.
How did it manage to do this? Let me count the ways. Enron set up almost 900
subsidiaries in tax havens. I am referring to the Cayman Islands, the Turks and Caicos,
Mauritius and Bermuda, places with nice beaches and banks that ask no
questions. Using those secret partnerships we now know about, the company buried
its profits under the palm trees, like the pirates of old.
At the same time, Enron was able to deduct the cost of stock options.
So the many millions that Enron's executives and board members received in options
were deducted for tax purposes.
In the year 2000, for instance, a tax bill of $112 million
turned into a refund of $278 million.
Enron billed itself as the quintessential American company.
It adapted to the new era and the New Economy. It traded in a
virtual intangible, energy -- by taking electricity from there and selling it here.
But it was quintessentially American in another way: It talked rugged individualism,
but when things got tough, the tough didn't get going. They put out their
hand.
The taxes that Enron did not pay -- that's YOUR MONEY. (You had to make up for it.)
The $254 million in the Republican-sponsored stimulus plan -- that would have been
your money, too,had it become law. It was awfully good of you, Mr. and Mrs. America,
to subsidize the stock options that Enron's biggies got for their hard work or,
in the case of its board, for merely showing up and asking no questions.
What we have here is an updated form of feudalism. Enron supported many
charities and cultural institutions -- but only the ones it chose. It put its
name on a stadium -- but, again, only the one it chose. It basked in the gratitude
it received for such largess -- All hail Enron -- and it felt it owed nothing to the
community at large. This is what taxes are about. You even support institutions that don't
have your name on them -- the welfare department, for instance.
I am about to get letters of reprimand. Enron did nothing illegal. I know that.
Avoiding taxes was smart -- and, while not commonplace, not unknown, either.
I know that, too. Some other Fortune 500 companies also paid no federal taxes.
In fact, I sense that everything Enron did was legal and that an entire company can collapse,
some people getting very rich and others losing everything they had, and no one will
ever go to jail. Enron failed because "the economics didn't work." So said Joseph Berardino,
the chief executive of Arthur Andersen, the accounting firm that ought to make the three monkeys
its corporate symbol.
But legal is not the same as right. It is simply not right that Enron paid no taxes while,
just to pick an example, its now-broke former employees did. It's not right that an
American company -- and oh, how American Enron was -- should act
like a drug dealer, laundering its money so that a profit somehow becomes a loss.
This is clever accounting, I grant you. It is, however, obscene.
For so much of what Enron and Arthur Andersen did, the phrase it is not right
seems apt. And the more you hear the likes of Berardino explain how everything
done was legal and up to the highest ethical standards, the more you understand that
this is not a scandal about a single company, but a reflection of a society in which the rules
you think apply to everyone actually don't. Most people pay taxes,
but some don't -- and the ones who pay subsidize the ones who don't.
I suppose you can call that a business philosophy. I call it a rip-off.
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