Investigators: Enron taxes 'eye-popping'

WASHINGTON -- Congressional investigators will reveal "eye-popping" details today about executive compensation practices at Enron Corp., as they walk lawmakers through the elaborate strategies the company used to manipulate its taxes and accounting, a key lawmaker said Wednesday.

Staff member from the Joint Committee on Taxation will present their findings from a yearlong examination of Enron's tax records to the Senate Finance Committee. These congressional tax experts were asked to determine whether Enron's Byzantine tax strategies were legal.

Senate Finance Committee Chairman Charles Grassley, R-Iowa, said he has been told by the staff the report will be an "absolute barn-burner."

"In addition to an eye-popping account of executive compensation, the report provides for the first time the complete story of Enron's efforts to manipulate its taxes and accounting," Grassley said at a confirmation hearing for two Bush nominees for seats on the U.S. Tax Court. "The report is very disturbing in its findings."

Finance committee staffers declined to provide further details about the report. Grassley has said lawmakers hope to use investigators' analysis of Enron's tax strategies to help shape future legislation aimed at curbing questionable tax practices.

A study by the watchdog group Citizens for Tax Justice found in January 2002 that Enron paid no federal taxes in 2000 and received a $278 million rebate on a tax break from stock options cashed in by employees.

The Washington-based group claims Enron avoided paying taxes in four of five years from 1996 to 2000, during which the company collected $381 million in tax refunds.

While Enron's financial reports reflect that it paid millions in taxes in recent years, the footnotes indicate the company used its network of offshore subsidiaries and stock-option deductions to reduce its tax liability to zero.

"The number that is featured, and is what most people see, bundled together all of the taxes they paid and didn't pay," said Robert McIntyre, who analyzed Enron's reports for Citizens for Tax Justice. "But when you get to the footnotes, you see that a lot of those taxes were paid to foreign governments and a lot of those taxes were deferred. You see that they did not include stock-option credits."

Enron received $382 million in tax refunds between 1996 and 2000 by taking advantage of stock-option deductions. In this strategy, when employees exercise stock options, the company can claim a tax deduction.

In addition, McIntyre's analysis indicates that Enron avoided paying some taxes by funneling profits through subsidiaries based in countries exempt from U.S. taxes.

The joint taxation committee's inquiry was among more than a dozen congressional investigations into Enron's collapse.

According to Enron's former top tax executive, Robert Hermann, the Houston-based company boosted its reported profits by another $1 billion or so by using tax schemes between 1995 and 2001. Hermann has defended the practices as legal.

Some experts say that even if that is the case, the complex transactions may have helped Enron paint a false picture of its financial situation and profits.

If companies could automatically raise their prices for taxes, what's stopping them from raising them for no reason?

What stops them is the fundamental law of supply and demand. Almost every company raises their prices as high as the market will allow. Optimized pricing sometimes requires complex econometrics, but even small businesses practice the theory, by pricing a product, then if sales are slow having "sales" to discount the price to increase demand. Businesses that don't do this well go out of business.

You think that you pay your taxes because you have made the simple error of thinking your money belongs to you. The mere fact you earned the money doesn't make it yours--just ask the government.

Every tax is ultimately payed by a person. When you "tax" a corporation, it is paid by one of more of the customers (higher prices), employees (lower wages), or shareholders (lower profits).

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