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Chrysler Opted Out Of Taxes Adapted From The Book, The Cheating Of America Bill Allison is senior editor at the Center for Public Integrity and co- author of The Cheating Of America. Charles Lewis is the founder and executive director of the Center for Public Integrity. The Center for Public Integrity is a Washington, D.C.-based, non-profit, non-partisan organization that provides the public with findings of its investigations and analyses of public service, government accountability, and ethics-related issues. Editor's Note: The following was excerpted from The Cheating of America by Charles Lewis and Bill Allison. It is used with the permission of HarperCollins Publishers, Inc.</ The triumphs of the pioneers of the automobile industry -- like Henry Ford's assembly line and the first workingman's car, the Model T -- have attained an almost mythical quality in American history. Part marketing chutzpah, part technological innovation, the stories are as old as the country's love affair with the car. Chrysler has been one of the blue chip names in that storied history. ... The company introduced the first aerodynamic car, the Airflow, in 1934 (Orville Wright, the aviation pioneer, helped design it), the first car with power steering in 1951, and one of the first muscle cars, the 300-C, in 1955. During the Second World War, the company ceased production of automobiles and made everything from Pershing tanks and engines for the B-29 bomber to 40 mm antiaircraft guns. In all, the company handled 66 military projects, valued at some $3.4 billion, between 1940 and 1945. Chrysler remained a defense contractor for years after the war, but its close relationship with the government didn't end there. Struggling against Japanese imports, its own bad management practices, and new fuel-economy standards mandated by the federal government, Chrysler was tottering on the verge of bankruptcy in 1979. It lost $1.1 billion that year, and $1.7 billion the next -- at the time a record for corporate ineptitude. The company was bailed out by Congress and the Carter administration, which put together the Chrysler Corporation Loan Guarantee Act of 1979, a $1.5 billion package of aid that kept the struggling carmaker afloat. Lee Iacocca, the brash, straight-talking CEO, took the government aid package and turned around the company. ... In 1998, six years after Iacocca left the helm of the company, Chrysler merged with Daimler-Benz A.G., the German manufacturer of Mercedes Benz cars and trucks. The inherent patriotism of the "Made in America" advertising campaign became as obsolete as the Chrysler Six, at least as far as the company's willingness to continue playing by America's rules. "The U.S. tax system puts global companies at a decisive disadvantage," John Loffredo, the vice president and chief tax counsel for Chrysler and its successor, DaimlerChrysler, told a hearing of the House Ways and Means Committee on June 30, 1999, just 20 years after his predecessors had gone, hat in hand, to beg Congress for a bailout. "This issue became a major concern and when the time came to choose whether the new company should be a U.S. company or a foreign company, management chose a company organized under the laws of Germany." So Chrysler, one of the Big Three American carmakers, opted out of the U.S. tax system and ceased to be an American business. For the record, Chrysler's effective federal tax rate under that disadvantageous U.S. tax system through the 1990s was a mere 18 percent -- slightly more than half of the statutory rate of 35 percent. The huge net operating losses that Chrysler incurred helped the company avoid paying taxes altogether some years, and steeply reduced its tax bill other years. Adding insult to injury, Chrysler filed a petition in U.S. Tax Court in 1997 claiming it was owed a refund of $49.8 million from 1983 to 1985. The bulk of write-offs the car manufacturer claimed were related to costs associated with the government bailout of 1979. In effect, Chrysler was asking other taxpayers to subsidize the bailout a second time. That case is still pending. By choosing to become a German corporation, Chrysler will no longer owe U.S. taxes on its overseas profits. From 1990 until it merged with Daimler-Benz AG, Chrysler had taxable overseas income of $3.5 billion. After adjusting for foreign taxes paid, Chrysler still would have owed $590 million on those profits to the U.S. Treasury, assuming that the company paid at the statutory rate set by Congress. Thanks to its choice to be a German company, all the company's future foreign profits -- earned by selling Jeeps and Chrysler minivans overseas -- will escape U.S. taxation. According to Loffredo, the companies considered choosing the United States as their home, but rejected the notion of forming "Chrysler-Daimler." "Daimler being a subsidiary of Chrysler would have opened up for review all of Daimler's operations worldwide to the IRS," he told the Center for Public Integrity. "That's something no one should volunteer." Chrysler will still owe some U.S. taxes. The carmaker will join the nearly 60,000 other corporations with 50 percent or more foreign ownership doing business in the greatest consumer market on earth. In 1995, the last year for which statistics were available, there were some 60,157 returns filed by such corporations. Of those,19,962 -- or slightly more than 33 percent -- owed some federal income tax. "I want to make it clear that the former Daimler-Benz has been a good corporate citizen in the U.S. and has paid all taxes believed legally due on its U.S. operations," Loffredo testified before Congress. "The same is true for the former Chrysler Corporation. In addition, Daimler and Chrysler will continue to be subject to the U.S. tax laws on their U.S. operations and will continue to pay their fair share of U.S. taxes." The key word in his statement is "believed." In 1994, Daimler-Benz filed a petition in U.S. Tax Court claiming that the fines it paid to the National Highway Traffic Safety Administration for selling cars that failed to meet minimum standards for fuel efficiency should be deductible as "ordinary and necessary business expenses." Throughout much of the 1980s, most of the Mercedes Benz luxury sedans that the company sold guzzled more gas than federal regulations permitted. Rather than meet the fuel-economy standards, which have both reduced air pollution and helped to reduce demand for gasoline -- thus helping to make it cheaper -- Daimler-Benz chose to pay a fine to the government. That is an option the company had under the Energy Policy and Conservation Act of 1975, which required manufacturers to meet certain mile-per-gallon averages. But nowhere does the act say that a company that chooses not to meet the standards should be able to pass along the costs of that failure to other taxpayers -- something that Daimler-Benz argued in its court petition. Think of it this way: Daimler-Benz was arguing that ordinary taxpayers should foot part of the bill for those wealthy enough to afford a Mercedes Benz. In 1988 and 1989, Daimler-Benz's U.S. subsidiary, Mercedes Benz of North America Inc., made payments to the National Highway Traffic Safety Administration totaling $65 million; the company deducted those payments on its federal income tax return. "The amounts MBNA paid to NHTSA in 1988 and 1989 are ordinary expenses incurred by MBNA in carrying on its trade or business," the company argued. "The amounts MBNA paid to NHTSA in 1988 and 1989 are necessary expenses incurred by MBNA in carrying on its trade or business. ... The amounts MBNA paid to NHTSA in 1988 and 1989 are deductible under section 162 as ordinary and necessary business expenses." Mercedes Benz of North America "engaged exclusively in the importation and distribution of Mercedes Benz passenger automobiles and parts in the United States," according to the company's petition in Tax Court. Those cars, of course, are beyond the means of the average American; in the 1980s, the price for one of those finely engineered German automobiles ranged between $30,000 and $70,000. In 1984, Mercedes Benz of North America sold more than 79,200 cars in the United States. That year, Mercedes paid $156 million in U.S. taxes. The next year, 1985, Mercedes sold more cars in the United States -- just over 86,900 of them. It paid about a third less in taxes -- just $99 million. The following year, 1986, Mercedes had its best year in the 1980s, with more than 99,300 new car sales in the United States. The company's taxes totaled a mere $5.4 million. Copyright (c) 2001 by Charles Lewis, Bill Allison, and the Center for Public Integrity. Used by permission of HarperCollins Publishers, Inc. Published: Apr 09 2001 ------------------------ Yahoo! Groups Sponsor ---------------------~--> Get your FREE credit report with a FREE CreditCheck Monitoring Service trial http://us.click.yahoo.com/ACHqaB/bQ8CAA/ySSFAA/FGYolB/TM ---------------------------------------------------------------------~-> Biofuel at Journey to Forever: http://journeytoforever.org/biofuel.html Please do NOT send "unsubscribe" messages to the list address. To unsubscribe, send an email to: [EMAIL PROTECTED] Your use of Yahoo! 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