Archives for November 2004

In Montana, a Corporation Corrupts the Purest Form of Democracy

By Jeff Milchen
Updated November 3, 2004

Editor’s note: Canyon Resources’ $3 million investment bought a lot of ads, but not enough votes on Election Day as Initiative 147 was defeated by a 58 to 42 percent margin. Congratulations to all who worked to stop this corporate assault.

When Montanans first employed the ballot initiative in 1912, all four measures passed had a common aim: revoking the corrupting political power of mining behemoth Amalgamated Copper. So it’s no small irony that, in 2004, a mining corporation is using the initiative process to try reversing the expressed will of Montana citizens.

Executives at Colorado-based Canyon Resources, Inc. (CRI) dislike Montanans’ 1998 decision to pass Initiative 137 and become the first state to ban the practice of spraying cyanide over ore piles to chemically extract gold and silver. CRI remains eager to build a new cyanide heap mine on the Blackfoot River that I-137 prevented, so the company already has invested $3 million (about 98% of all funds) to qualify and market I-147 — an initiative to reverse the ban. That’s a huge sum in a state where 30 second prime-time TV ads in the state’s largest media market cost just $900.

CRI promises new jobs and tax revenues, while opponents warn that the practice inevitably will poison our water supplies, as happened at the company’s notorious CR Kendall mine near Lewiston.

Arguments on those points will rage in the weeks ahead, but let’s not forget a more fundamental issue: why do we allow the citizens’ initiative – theoretically democracy in its purest form – to be used against us by non-citizens (corporations)?

Of course, one could argue that we’ve tried and failed to stop the practice. In 1996, Montanans passed I-125, banning direct corporate funding of initiatives, only to have it struck down in 1998 by a federal judge, based on the notion that corporations possess free speech rights just like you and me.

But saying, “we tried, and the courts wouldn’t let us,” is akin to blaming the Supreme Court for racism before it abolished segregated schools in 1954. The more difficult truth is we’ve failed to protect our rights to self-governance that many Americans died to establish and defend. Like in 1954, public pressure must compel the courts to change — this time to restore necessary limits to corporate power.

When American colonists declared independence from England in 1776, they also freed themselves from control by English corporations that dominated domestic businesses (thanks to preferential treatment by the king ) and extracted colonial wealth. After fighting a revolution to end this exploitation, our founders retained a healthy fear of corporations’ power and limited them to strictly business activities. For decades, states typically prohibited corporations from spending any money to influence politics or even public opinion.

In the 1800s, corporations gradually dismantled those barriers, and by century’s end, their lawyers had persuaded the U.S. Supreme Court that corporations legally were persons entitled to constitutional rights, thus creating “corporate personhood.” The activist judges were undeterred by the fact that corporations are unmentioned in the U.S. Constitution.

Soon, corporations had perverted the Bill of Rights itself by winning its protections — even before women and minorities had full personhood rights — and used this power to deny political rights to real human beings.

Yet corporations’ did not secure a legal privilege to participate in ballot initiatives until the Supreme Court’s 5-4 decision in First National Bank of Boston v. Bellotti (written by former corporate lawyer Lewis Powell in 1978) toppled one of the last barriers to corporate dominance of government.

Today, corporations face no legal limits to influencing or running ballot initiatives in the 24 states (and many local governments) that permit them. The Bellotti precedent also applies to referenda (used in three states), whereby state legislators may refer an issue to a vote by state citizens.

Montanans are not alone in facing corporate attempts at direct lawmaking. In California, a corporate consortium is advancing Proposition 64 to dramatically weaken the nation’s strongest consumer protection law.

Wal-Mart executives have repeatedly used ballot initiatives to overrule local laws that would prevent enormous new “supercenters.” The company lost a high-profile battle in Inglewood, California last spring by literally trying to exempt itself from all local planning and environmental regulations, but as corporations continue molding our law and culture, what was an outrage one year becomes the law soon after. Often, the threat of a costly initiative battle is sufficient to intimidate a community into bending or breaking its rules.

Citizens still win a few skirmishes (let’s hope keeping cyanide out of our rivers and aquifers will be one), but the larger struggle — to determine whether citizens or corporations will control the future of our communities and country — will depend on changing the rules of engagement.

The judges who overturned previous attempts to get corporations out of the initiative process handed us painful defeats, but take heart — each great human rights advance in American history has had to overcome some lost battles before winning. The struggle by citizens to reclaim our rights and return giant corporations to strictly business activities will be no exception.

Jeff Milchen founded ReclaimDemocracy.org, working to revitalize American democracy and restore citizen authority over corporations.

* Every one of 22 donors to the I-147 campaign as of 10/18/04 was a corporation.

Related Resources

Montana’s initiative history is based on research by David Schmidt in “Citizen Lawmakers: The Ballot Initiative Revolution.”

Roots of Rebellion: Why Montana is the Only State to Reject Citizens United

Corporations share of taxes lowest since World War II

NEW YORK — The effective tax rate for America’s largest and most profitable corporations has sharply declined in recent years, and one third of such companies paid zero taxes–or less–in at least one of the last three years, according to a study released yesterday.

At the same time, IRS data indicates that the overall share of federal taxes paid by corporations in now less than 10%, down from nearly 13% in 1997.

The study released yesterday by Citizens for Tax Justice and the affiliated Institute on Taxation and Economic Policy finds that in 2003 alone, 46 of the 275 companies it reviewed paid no taxes at all in 2003, despite reporting a total of $42.6 billion in pre-tax profits. Indeed, these companies received $5.4 billion in tax rebates that year. In the last three years, 82 of the country’s largest profitable corporations paid no federal income tax for at least one year of the Bush administration’s first three years, the study found.

The overall effective tax rate for these companies was 17.2% in 2003 and 2002, down from 21.4% in 2001. The current effective rate is about half the putative 35% tax rate on the profits of large companies.

This trend occurred against a backdrop of rising corporate earnings. The study attributes the trend to the widening availability of offshore tax shelters and other lawful avoidance techniques. Together the companies reported profits of $1.1 trillion over the three-year period and paid about $189 billion in taxes. The reduction from nominal rates was caused by the companies’ abilities to shelter $540 billion in the pre-tax profits reported to shareholders.

The recent drop in effective corporate tax rates is also underscored by the declining share of all taxes paid by corporations. In 1998, corporations paid 12.1% of all federal taxes, according to IRS data. That year, individual taxes accounted for 52.5% of taxes paid and employment taxes accounted for 31.5% of the total. For 2003, corporations paid 9.9% of the total and individuals paid 50.6%. The biggest change was in the percentage covered by payroll taxes (Social Security and Medicare), which jumped to 35.6% of the total.

Over the longer term, the percentage of taxes paid through individual returns has, since 1980, fluctuated between 49% in the low year of 1992 and 56% in the high year of 1982. The corporate tax share has gone up and down within a narrower 10% to 12% range. But in 2001, corporate taxes were just 8.8% of the total; they rose to 10.5% in 2002 before falling to 9.9% last year, according to IRS data.

What the Citizens for Tax Justice terms “loopholes and other tax subsidies” led to savings of $71 billion for the biggest companies in 2003, up from 43.4% in 2001. Half of the “tax-break dollars” over the three-year period went to just 25 companies, the study says. All told, 82 companies paid zero or negative taxes in at least one of the last three years and 28, including Boeing (nyse:BA), paid negative taxes for the entire period.

The largest beneficiaries were some of the most profitable companies: General Electric, SBC Communications, Citigroup, IBM and Microsoft. Of the 10 most profitable U.S.-based companies on the Forbes 2000, only Wal-Mart and Freddie Mac do not appear on the study’s list of top 25 tax break beneficiaries.

The primary reason for the decline in corporate tax payments was changes in the law allowing for accelerated depreciation of investments. This rule “is technically a tax deferral, but so long as the company continues to invest, the deferral tends to be indefinite,” the study says. It also points to the deduction for tax purposes of stock option grants, which companies do not deduct for the purpose of reporting profits to shareholders, though there has been much talk about changing the rule for profit accounting purposes as well.

Bruce Schaefer, a New York corporate tax lawyer and author, cites another reason for the reduction in tax payments by companies. “There used to be no deductions for any intangible asset for which you could not prove a useful life, with goodwill being the primo example; now there is.”

The study says that the changes in corporate tax laws rules have not had their desired effect of spurring investment. Since 2003, the 25 companies that saved the most from the new rules actually reduced their investment in property, plant and equipment by 27%. The remaining 250 companies surveyed reduced their investments, too, but by much less, 8%.

© 2004 Forbes Inc.