'Unbridled Greed'
The New York Times
Editorial
February 24, 2003
The time-honored practice of tax avoidance is also an invitation
to abuse. Two particularly egregious cases of tax avoidance
involved our old friend Enron and executives at the telecom giant Sprint.
Both provide regulators and Congress with powerful incentives to crack down on tax
shelters that deprive the Treasury of an estimated $50 billion a year.
The Sprint case should be enshrined in the Executive Compensation
Outrage Hall of Fame. First, the company's two top executives - William Esrey
and Ronald LeMay - awarded themselves stock options worth up to $311
million in return for thinking up a merger that they couldn't pull off. Next
they tried to protect this undeserved windfall from Uncle Sam,
using a complex tax shelter devised by Ernst & Young, Sprint's auditor.
The Internal Revenue Service has now questioned the deal, and both men
could face financial ruin. Not surprisingly, they've sued Ernst & Young for
selling them bad advice. But the accounting firm had no business
giving them advice in the first place. Auditors should be protecting shareholders,
not peddling tax schemes to the companies they audit, or their officers.
Banning such obvious conflicts of interest should be one of the first orders of
business for the Securities and Exchange Commission's new chairman, William Donaldson.
Meanwhile, a report from Congress's Joint Committee on Taxation
provides new detail about the lengths to which Enron went to avoid taxes -
efforts that were so successful that from 1996 to 1999 the company
did not pay a dime to the I.R.S. on reported profits of $2 billion. The report is not
just about flogging a dead horse. Enron may be gone, but many of those
who were complicitous in its tax shenanigans - the prestigious law firms,
investment banks and accounting firms - are still making big money instructing
companies on how to beat the taxman.
Charles Grassley, who heads the Senate Finance Committee,
has decried the "unbridled greed" of those responsible and has vowed to end these
abuses. Since he will almost surely face an army of determined lobbyists,
the White House must join him in making this a top priority.
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