U.S. SENATOR CARL LEVIN ON EXTENDING THE "PRODUCTION TAX CREDIT" THAT BENEFITS ALTERNATIVE ENERGY

Senator Carl Levin

FROM:  MICHIGAN'S WIND ENERGY INDUSTRY

Wind Production Tax Credit
Tuesday, November 27, 2012

Sen. Carl Levin, D-Mich., today entered the following statement in the Congressional Record, thanking Sen. Mark Udall of Colorado for his Senate floor speech on Michigan’s wind energy industry and the need to extend the Production Tax Credit that expires at the end of this year.

I want to thank Senator Udall for his work bringing attention to this important issue.

To me, this issue is simple: Alternative energy, including wind power, is not only a vital component of our environmental protection efforts, but to growing our economy and creating jobs for the middle class.

Michigan is the state that put the world on wheels. Through innovation and dedication, entrepreneurs, engineers and Michigan workers combined their efforts not just to revolutionize transportation, but to create an explosion of manufacturing employment that helped create and sustain the American middle class.

Today, a new generation of Michigan innovators is harnessing the power of wind, the promise of biofuels, the power of advanced batteries. Earlier this year, I visited a wind farm in Breckenridge, Michigan, that is a marvel of technology, as far removed from the farmstead windmills of days past as a jet fighter is from the Wright Brothers’ plane. That wind farm is a textbook example of how the advance of technology is helping Michigan’s economy, enabling us not just to recover from the setbacks of the past, but to lead us into a brighter economic future.

Wind power is an important part of that advance. It’s a rapidly growing sector of our state’s electrical generating system: Wind generating capacity more than doubled in 2011, and projects under construction or in the development pipeline could increase capacity 10-fold or more. The more power we generate from wind, the more affordable, clean energy is available to our state and nation.

Michigan also has an important role in building advanced wind generation equipment, not just for our state, but for the United States and the world. Roughly 40 Michigan facilities are engaged in this business, many of them businesses that have turned expertise developed in the automotive industry to this new and growing field. Already wind is responsible for hundreds of good manufacturing jobs, and the potential is nearly as limitless as the wind itself.

That’s why renewal of the Production Tax Credit is so important. The PTC has been an important factor in helping this new industry grow. If it is allowed to expire at the end of the year, it would not only hamper efforts to generate more clean energy for Michigan homes and businesses, but also dampen the potential for new manufacturing jobs tied to wind power. That’s not a good outcome for our environment, for Michigan families or for the American economy.

So again I thank Senator Udall for his focus on this issue. I hope as we work to address the many pressing issues we must resolve before the end of the year, we can resolve this one as well, and maintain the momentum of clean energy to help our environment and our economy.

SENATOR CARL LEVIN'S STATEMENT ON OFFSHORE TAX HAVENS

FROM: U.S. SENATOR CARL LEVIN'S WEBSITE:
Opening Statement at PSI Hearing: Offshore Profit Shifting and the U.S. Tax Code

Thursday, September 20, 2012

America stands on the edge of a fiscal cliff. This challenge lends new urgency to a topic this subcommittee has long investigated: how U.S. citizens and corporations have used loopholes and gimmicks to avoid paying taxes. This subcommittee has demonstrated in hearings and comprehensive reports how various schemes have helped shift income to offshore tax havens and avoid U.S. taxes. The resulting loss of revenue is one significant cause of the budget deficit, and adds to the tax burden that ordinary Americans bear.

U.S. multinational corporations benefit from the security and stability of the U.S. economy, the productivity and expertise of U.S. workers and the strength of U.S. infrastructure to develop enormously profitable products here in the United States. But, too often, too many of these corporations use complex structures, dubious transactions and legal fictions to shift the profits from those products overseas, avoiding the taxes that help support our security, stability and productivity.

The share of federal tax revenue contributed by corporations has plummeted in recent decades. That places an additional burden on other taxpayers. The massive offshore profit shifting that is taking place today is doubly problematic in an era of dire fiscal crisis. Budget experts across the ideological spectrum are unified in their belief than any serious attempt to address the deficit must include additional federal revenue. Federal revenue, as a share of our economy, has plummeted to historic lows – about 15 percent of GDP, compared to a historic average of roughly 19 percent. The Simpson-Bowles report sets a goal for federal revenue at 21 percent of GDP.

The fact that we are today so far short of that goal is, in part, due to multinational corporations avoiding U.S. taxes by shifting their profits offshore.

More than 50 years ago, President Kennedy warned that "more and more enterprises organized abroad by American firms have arranged their corporate structures aided by artificial arrangements … which maximize the accumulation of profits in the tax haven … in order to reduce sharply or eliminate completely their tax liabilities." So this problem is not new.

But it has gotten worse, far worse. What is the result? Today, U.S. multinational corporations have stockpiled $1.7 trillion in earnings offshore.

It is not a pretty picture. It’s unacceptable. Today we will try to shine a light on some of the transactions and gimmicks that multinationals use to shift income overseas, exploiting tax loopholes and an ineffective regulatory framework.

We will examine the actions of two U.S. companies – Microsoft and Hewlett-Packard – as case studies of how U.S. multinational corporations, first, exploit the weaknesses in tax and accounting rules and lax enforcement; second, effectively bring those profits to the United States while avoiding taxes; and third, artificially improve the appearance of their balance sheets.

The first step in shifting profits offshore takes place when a U.S. company games the transfer pricing process to sell or license valuable assets that it developed in the United States to its subsidiary in a low tax jurisdiction for a price that is lower than fair market value. Under U.S. tax rules, a subsidiary must pay "arm’s length" prices for these assets, but valuing assets such as intellectual property is complex, so it’s hard to know what an unrelated third party would pay. These transactions transfer valuable intellectual property to wholly owned subsidiaries. Multinational companies and the legions of economists and tax lawyers advising them take full advantage of this situation to set an artificially low sale price to minimize the U.S. parent company’s taxable income. The result is that the profits from assets developed in the United States are shifted to subsidiaries in tax havens and other low tax jurisdictions.

It is generally accepted that the transfer pricing process is widely abused and has resulted in significant revenue loss to the U.S. government. In a 2010 report, the Congressional Joint Committee on Taxation wrote that a "principal tax policy concern is that profits may be artificially inflated in low-tax countries and depressed in high-tax countries through aggressive transfer pricing that does not reflect an arms-length result from a related-party transaction."

Here is a chart depicting Microsoft’s transfer pricing agreements with two of its main offshore groups. As we can see from the chart, in 2011 these two offshore groups paid Microsoft $4 billion for certain intellectual property rights; Microsoft Singapore paid $1.2 billion, and Microsoft Ireland $2.8 billion. But look what those offshore subsidiaries received in revenue for those same rights: Microsoft Singapore group received $3 billion; and Microsoft Ireland, $9 billion. So Microsoft USA sold the rights for $4 billion and these offshore subsidiaries collected $12 billion. This means Microsoft shifted $8 billion in income offshore. Yet, over 85% of Microsoft’s research and development is conducted in the United States.

Another maneuver by Microsoft deserves attention: its transfer pricing agreement with a subsidiary in Puerto Rico. Generally, transfer pricing agreements involve the rights of offshore subsidiaries to sell the assets in foreign countries. The U.S. parent generally continues to own the economic rights for the United States, sell the related products here, collect the income here, and pay taxes here. However, in the case of Microsoft, it has devised a way to avoid U.S. taxes even on a large portion of the profit it makes from sales here in the United States.

Microsoft sells the rights to market its intellectual property in the Americas (which includes the U.S.) to Microsoft Puerto Rico. Microsoft in the U.S. then buys back from Microsoft Puerto Rico the distribution rights for the United States. The U.S. parent buys back a portion of the rights it just sold.

Why did Microsoft do this? Because under the distribution agreement, Microsoft U.S. agrees to pay Microsoft Puerto Rico a certain percentage of the sales revenues it receives from distributing Microsoft products in the United States. Last year, 47% of Microsoft’s sales proceeds in the U.S. were shifted to Puerto Rico under this arrangement. The result? Microsoft U.S. avoids U.S. taxes on 47 cents of each dollar of sales revenue it receives from selling its own products right here in this country. The product is developed here. It is sold here, to customers here. And yet Microsoft pays no taxes here on nearly half the income. By routing its activity through Puerto Rico in this way, Microsoft saved over $4.5 billion in taxes on goods sold in the United States during the three years surveyed by the Subcommittee. That’s $4 million a day in taxes Microsoft isn’t paying.

It’s also important to note that Microsoft’s U.S. parent paid significantly more for just the U.S. rights to this property than it received from the Microsoft Puerto Rico for a much broader package of rights.

That’s the first step: shifting assets and profits out of the U.S. to a low tax jurisdiction. Next, we move to a second realm of tax alchemy, featuring structures and transactions that require a suspension of disbelief to be accepted.

Once again, the basic rule is pretty straightforward. If a company earns income from an active business activity offshore, it owes no U.S. tax until the income is returned to the United States. This is known as deferral. However, as established under Subpart F of the tax code, deferral is not permitted for passive, inherently mobile income such as royalty, interest, or dividend income. Subpart F should result in a significant tax bill for a U.S. parent company’s offshore income. Once the offshore subsidiaries acquire the rights to the assets, they sublicense those rights and collect license fees or royalties from their lower tier related entities – exactly the kind of passive income that is subject to U.S. tax under the anti-deferral provision of Subpart F. But this straightforward principle has been defeated by regulations, exclusions, temporary statutory changes and gimmicks by multinational corporations, and by weak enforcement by the IRS.

On January 1, 1997, the Treasury Department implemented the so-called "check-the-box" regulations, which allow a business enterprise to declare what type of legal entity it wanted to be considered for federal tax purposes by simply checking a box. This opened the floodgates for the U.S. multinational corporations trying to get around the taxation of passive income under Subpart F. They could set up their offshore operations so that an offshore subsidiary which holds the company’s valuable assets could receive passive income such as royalty payments and dividends from other subsidiaries and still defer the U.S. taxes owed on them.

The loss to the U.S. Treasury is enormous. During its current investigation, the Subcommittee has learned that for Fiscal Years 2009, 2010 and 2011, Apple has been able to defer taxes on over $35.4 billion in offshore passive income covered by Subpart F. Google has deferred over $24.2 billion in the same period. For Microsoft, the number is $21 billion.

In March 1998, a little over a year after it issued the check the box regulations, the Treasury Department issued a proposed regulation to end the check the box option. The proposal was met with such opposition from Congress and industry groups that it was never adopted. In 2006, in response to corporate pressure to protect this lucrative tax gimmick, Congress enacted the "Look through Rule for Related CFCs," which excludes certain passive income, including interest, rents and royalties, from Subpart F. This provision is currently up for extension.

Now we come to a third level of tax gimmickry. After multinational corporations transfer their assets and profits offshore and place them in a complex network of offshore structures to shelter them from U.S. taxes, some still want to bring those earnings back to the United States without paying taxes.

A U.S. parent is supposed to be taxed on any profits that its offshore subsidiaries send to it. If a foreign subsidiary loans money to a related U.S. entity, that money also is subject to U.S. taxes.

But once again, that simple concept is subverted in practice. The tax code includes a number of exclusions and limitations in the rule governing loans. Short term loans are excluded if they are repaid within 30 days, as are all loans made over the course of a year if they are outstanding for less than 60 days in total. This exclusion allows offshore profits to be used for short term lending – no matter how large the amount – without being subject to U.S. tax.

What’s more, if a CFC makes a loan to a related U.S. entity that is initiated and concluded before the end of the CFC’s quarter, the loan is not subject to the 30 day limit, and doesn’t count against the aggregate 60 day limit for the fiscal year. In addition, the IRS declared that the limitations on the length of loans apply separately to each CFC of a company. So when aggregated, all loans for all CFCs could be outstanding for more than 60 days in total.

Companies have used these loopholes to orchestrate a constant stream of loans from their own CFCs without ever exceeding the 30 and 60 day limits or extending over the end of a CFC’s quarter. Instead of being a mechanism to ensure taxes are paid for offshore profits returned to the U.S., the rule has become a blueprint on how to get billions of dollars back into the U.S. tax free.

Take a look at Hewlett-Packard. It has used a loan program to return offshore profits back to the United States since as early as 2003-2004. In 2008, Hewlett-Packard started a new loan program called the "staggered" or "alternating" loan program. Funding for the loans came mainly from two H-P sources, or pools: the Belgian Coordination Center ("BCC") and the Compaq Cayman Holding Corp ("CCHC"). The loans from these two offshore entities helped fund HP’s general operations in the U.S, including payroll and repurchases of HP stock.

HP documents indicate that the lending by these two entities was essential for funding U.S. operations, because HP did not have adequate cash in the U.S. to run its operations. In 2009, HP held $12.5 billion in foreign cash and only $0.8 billion in U.S. cash and projected that in the following year that it would hold $17.4 billion in foreign cash and only $0.4 billion in U.S. cash.

The loan program was designed to enable Hewlett-Packard to orchestrate a series of back to back to back to back loans to the U.S. and provide a continuous stream of offshore profits to the United States without paying U.S. taxes. In fact, Hewlett-Packard even changed the fiscal year and quarter ends of one of the lending entities. That way, there could be a continuous flow of loans through the whole year without extending over the quarter end of either of the lending entities.

Just look at the loan schedule that was outlined in a Hewlett-Packard document. Every single day is covered by a loan from a CFC. In FY 2010, for example, HP’s U.S. operations borrowed between $6 and $9 billion, primarily from BCC and CCHC, without interruption throughout the first three quarters. There does not appear to be a gap of even a single day during that period where the loaned funds of either BCC or CCHC were not present in the U.S. A similar pattern of continuous lending appears for most of the period between 2008 through 2011.

And what were the loans used for? One Hewlett-Packard power point characterized the loan program as "the most important source of liquidity for repurchases and acquisitions." That doesn’t sound like a short term loan program. It was closely coordinated by the Hewlett-Packard Treasury and Tax Departments to systematically and continually fund Hewlett-Packard’s U.S. operations with billions of dollars each year since 2008, and likely before that. This loan program is the ultimate example of form over substance. In fact, this is so blatant that internal Hewlett-Packard documents openly referred to this program as part of its "repatriation history" and a "repatriation strategy" – contrary to the notion that this was a short-term loan program.

This scheme mocks the notion that profits of U.S. multinationals are "locked up" or "trapped" offshore. Rather, some of them have effectively and systematically been bringing those offshore profits back by the billions for years through loan schemes like the one described here, and doing so without paying taxes.

The IRS has stated that the substance – not just the form - of offshore loans should be reviewed. So it will also be interesting to hear from the IRS about this loan scheme, and from H-P’s auditors at Ernst & Young who approved it.

The subcommittee has examined a fourth level of offshore shenanigans. It involves an accounting standard known as APB 23, which among other things addresses how U.S. multinationals should account for taxes they will have to pay when they repatriate the profits currently held by their offshore subsidiaries.

Under APB 23, when corporations hold profits offshore, they are required to account on their financial statements for the future tax bill they would face if they repatriate those funds. Doing so would result in a big hit to earnings. But companies can avoid this requirement and claim an exemption if they assert that the offshore earnings are permanently or indefinitely reinvested offshore. Multinationals routinely make such an assertion to investors and the Securities and Exchange Commission on their financial reports.

And yet, many multinationals have at the same time launched a massive lobbying effort, promising to bring these billions of offshore dollars back to the United States if they are granted a "repatriation holiday," a large tax break for bringing offshore funds to the United States. On the one hand, these companies assert they intend to indefinitely or permanently invest this money offshore. Yet they promise, on the other hand, to bring it home as soon as Congress grants them a tax holiday. That’s not any definition of "permanent" that I understand.

While this may seem like an obscure matter, it is a major issue for U.S. multinational corporations. A 2010 survey of nearly 600 tax executives reported that "60 percent of the respondents indicate that they would consider bringing more cash back to the U.S. even if it meant incurring the U.S. cash taxes upon repatriation, if their company had to record financial accounting tax expense on those earnings regardless of whether they repatriate."

In 2011, more than 1,000 U.S. multinationals claimed this exemption in their SEC filings, reporting more than $1.5 trillion in money that they say is or is intended to be reinvested offshore.

This build up has started to create some problems for many companies. With such a large percentage of their earnings offshore – and a lot of those designated as indefinitely reinvested - they need to figure out ways to finance operations here in the United States without drawing on those earnings. But as the amount of earnings stashed overseas has reached $1.5 trillion, and the need for financing grows back home, there is a real question whether companies can continue to defend their assertions that they have legitimate plans and the intent to continue to indefinitely reinvest those funds, and billions and billions more, overseas.

This situation is also creating a dilemma for their auditors, who sign off on those assertions and plans. In one document, an auditor at Ernst & Young wrote to a colleague:

"Under the APB 23 exception, clients are presumed to repatriate foreign earnings but do not need to provide deferred taxes on those foreign earnings that are ‘indefinitely or permanently reinvested.’ … If Congress enacts a similar law and companies repatriate earnings that it previously had needed to be permanently reinvested in foreign operations, what effect does that second repatriation have on a future assertion that any remaining earnings are indefinitely or permanently reinvested. An assertion of indefinite or permanent investment until Congress changes the law allowing cheaper repatriation again doesn't sound permanent."

The issue he raises isn’t theoretical. Another chart provided by one of the expert witnesses we will hear from today shows what happened to the indefinitely re-invested earnings of the S&P 500 companies after the repatriation holiday was passed in 2004. It shows that the total amount of permanently re-invested earnings declined by $84 billion after the repatriation bill passed. Then, as soon as the repatriation period ended, the total amount of offshore earnings these companies claimed as permanently or indefinitely reinvested skyrocketed again – increasing by 20 % or more in almost every year since 2005.

What does that say about the true intent of those companies? To me, it says this money isn’t held offshore for permanent reinvestment. It’s there to avoid taxes.

Yet, the auditors who must pass off on the validity of a company’s assertion, and the Financial Accounting Standards Board have appeared to go along.

This is an issue we will discuss with them today.

The bottom line of our investigation is that some multinationals use our current tax system to engage in shams and gimmicks to avoid paying the taxes they owe. It is a system that multinationals have used to shift billions of dollars of profit offshore, and avoid billions of dollars in U.S. taxes, to their enormous benefit. Who are the losers in this shell game? There are many:
The U.S. government, which provides the services and security that help many of those multinational corporations grow and prosper, and then watches them shift their profits offshore to avoid paying taxes;
Other citizens and business who must shoulder a greater tax burden;
domestic industries that do not exploit the tax code to shift profits offshore and avoid U.S. taxes;
the integrity and viability of our tax system.
So today we will take a detailed look at how this system works, the legal contortions on which it is based, its gimmicks and charades, and hopefully, we'll generate some enthusiasm to fix it.

U.S. SENATOR CARL LEVIN'S STATEMENT ON CITIZENS UNITED RULING

FROM: SENATOR CARL LEVIN'S ONLINE NEWSLETTER
Levin Floor Statement on DISCLOSE ActMonday, July 16, 2012

Mr. President, the genius of our Founding Fathers was to establish a system of government in which the governed determine who represents them. It’s easy for us, more than two centuries removed from their achievement, to lose sight of just how remarkable that achievement was. They overturned untold centuries of human history during which those with wealth and power made the decisions, and everyone else had little or no chance to influence how they were governed.

The remarkable system the Founders created has endured through war, crisis, depression and doubt. But we should not mistake that endurance for automatic permanence. Democracy requires that we maintain the vital connection between the people and their elected representatives. It must be the voters, and not the influential few, who choose our nation’s leaders. If the people begin to doubt their central role in our government, it will be corrosive to democracy.

In recent months, there has been reason for just such doubt. A Supreme Court ruling has opened our system to a flood of unlimited and secret special-interest money. Inexplicably, a one-justice majority of the Court decided in the Citizens United case that such unlimited donations "do not give rise to corruption or the appearance of corruption."

Now, many of us believed from the moment that decision was handed down that the Court’s majority was badly mistaken. But events since that day have left little doubt. We have in recent months seen the dangerous consequences of the Court’s ruling: a deluge of unregulated funds that has threatened to upend the election campaign for our nation’s highest office, a flood whose organizers vow will upend congressional campaigns across the nation this summer and fall. Through "Super PACs" and through supposedly regulated, but in fact, actually unregulated nonprofit organizations, the conduits through which this flood of secret money flows, millionaires and billionaires already have made massive donations to fund a barrage of attack ads drenching, smothering the voices of those who are to make the decisions in our democracy – the people.

According to the Center for Responsive Politics, an independent watchdog group, as of mid-July these Super PACs have raised more than $244 million to influence elections. Individuals and corporations can make unlimited donations to these Super PACs, whose donations are supposed to be disclosed. But the Court’s decision opened the door not just to individuals and corporations seeking to influence elections with unlimited contributions. This ruling, combined with the IRS’s failure to strictly enforce our laws on the operation of nonprofit groups organized as social welfare organizations under Section 501(c)(4) of the Internal Revenue Code, allows them to seek this influence with spending that is not only unlimited, but also secret, because there is no requirement that donations to those 501(c)(4) organizations be disclosed to the public. Donors can seek to influence an election with huge sums of money and can do so without even having to disclose their involvement. They do so covered by a fig leaf that the nonprofit groups to which they donate are dedicated to "social welfare," rather than partisan politics. That fiction dissolves the moment one looks at these "social welfare" attack ads that the IRS is so far blind to. According to an analysis of TV ad spending data by the Campaign Media Analysis Group, two thirds of all ad spending by outside groups so far during this election cycle has come from nonprofits subject to no federal public disclosure rules. More, much more, is on the way as Election Day approaches this fall.

The organizations now spending millions of dollars to influence elections were set up for that explicit purpose – to campaign for candidates they favor and against candidates they oppose. And yet they preserve their nonprofit status, and their secrecy, by relying on a contradictory regulation and guidance from the IRS.

Now this is how it works. In order to keep their tax-exempt status, and keep donor names and donation amounts secret, organizations are set up as "social welfare" organizations under section 501(c) of the Internal Revenue Code. For example, Section 501(c)(4), which is a very popular section of the code for these organizations to claim, requires that an organization be "operated exclusively," I repeat, "exclusively for the promotion of social welfare." Yet in the regulation implementing this statute, the IRS says, "An organization is operated exclusively for the promotion of social welfare if it is primarily engaged in promoting in some way the common good and general welfare." Under this regulation, according to the IRS, to qualify as "exclusively" dedicated to social welfare, you need only be "primarily" interested in social welfare. That doesn’t fit any reasonable definition of "exclusively" that I know of.

I have expressed my concern to the IRS about this. I pointed out to the IRS that the IRS took a stand on this issue before. In 1997, it denied nonprofit status to an organization called the National Policy Forum. The IRS position then was that "partisan political activity does not promote social welfare."
Yet the IRS determination of a group’s tax exempt status can take a year. Therefore, even if the IRS determines that these organizations are not legitimately "social welfare" organizations, it will likely be too late. The secret money will already have been donated, and spent, and the elections will be over.

The contradiction in the IRS regulation is reflected in IRS literature designed to guide the operations of nonprofits. IRS officials pointed me to information on the agency’s Internet site that states flatly, "The promotion of social welfare does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate." But in the very next sentence on that same website, the guidance says, "a social welfare organization may engage in some political activities, so long as that is not its primary activity." That contradicts the plain assertion in the previous sentence that "social welfare" advocacy does not include campaigning.
It also then leaves open the question of the definition of "primary activity."

An IRS publication on nonprofit organizations contains the same contradiction. It says: "Promoting social welfare does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office. However," it goes on to say, "if you submit proof that your organization is organized exclusively to promote social welfare, it can obtain an exemption [from taxes] even if it participates legally in some political activity on behalf of or in opposition to candidates for public office." Now that makes no sense. If partisan activity does not meet the IRS definition of "promoting social welfare," how can an organization that participates in partisan activity possibly be "organized exclusively to promote social welfare?" So, rather than providing clarity, the IRS is perpetuating ambiguity. It should promptly end this ambiguity.

But Mr. President, we also have a responsibility to act. The Senate and the Congress should act to prevent these organizations from continuing to benefit from their tax-exempt status and hide their donor information. They should be required to disclose the donor and contribution information, and stop hiding behind their nonprofit status. The facade of these TV ads not being partisan politics needs to be swept away. It’s that simple.

We have seen repeatedly the corrosive effects of secret money on the political process. We need to look to history. The Watergate scandal, the single incident in modern U.S. history that most damaged public confidence in honest government, involved burglaries and dirty tricks that were paid for using secret campaign donations. Even by the weak standards of the time, much of this secret money was illegal; more than 20 corporations and organizations were fined, and some executives went to jail, because their secret payments to the Nixon campaign violated the law. Now, a donor can make such secret donations, dedicated to who-knows-what nefarious purpose, and spend unlimited amounts in secret, with what has to this point been the acquiescence of the IRS.

Post-Watergate history warns us as well. We’re all familiar with the revelations about former Senator John Edwards. His personal failings got most of the media attention, but let’s not forget the financial heart of his problem: While running for president, he sought and received secret amounts of cash from a major campaign donor in order to conceal embarrassing facts that might damage the campaign. Yet huge secret payments to campaigns at this moment in our history are rife.

We need look no further this capital city in which we work to see the dangers of secret money. Residents of Washington, D.C., have learned in recent weeks that the current mayor benefitted from what federal prosecutors have called a "shadow campaign" of huge secret donations from a major city contractor. The chief federal prosecutor has said, "the 2010 mayoral election was corrupted by a massive infusion of cash that was illegally concealed from the voters of the District." If true, these charges mean that a campaign donor with a major financial interest in city government decisions sought to influence the election of the city’s mayor using huge secret payments that concealed his involvement.

Mr. President, do any of us doubt that individuals and corporations with a vested interest in federal government outcomes are spending huge sums of money to influence those outcomes, without ever having to disclose their involvement to the public? People may go to jail for such spending in the Washington, D.C., election, and yet secret spending is common practice in campaigns for the highest offices in our country.

This is not the democracy that men and women have fought to protect throughout our history. It’s not the democracy the Founders adopted in our Constitution. As Adlai Stevenson, once put it: "Every man has a right to be heard; but no man has the right to strangle democracy with a single set of vocal chords." Yet this torrent of unregulated money threatens to strangle the voice of the people.

Mistaken though it may have been, the Supreme Court’s decision stands until it is reversed. We are committed to uphold the rule of law even when we disagree with the Supreme Court’s interpretation of the law. But we must be equally committed to the fight for a vibrant, open, representative democracy, one in which elections are determined not by the secret spending of billionaires, but by the will of the people.

The bill we seek to vote on would take an important step toward mitigating the damage of the Citizens United decision. The DISCLOSE Act of 2012 would help shine the light of day on what has been, since the Court’s ruling, an underground sewer flow of hundreds of millions of dollars. It would require nonprofits engaged in partisan political activities to disclose their major donors and their expenditures. It would not stop the flow of unlimited money, because we cannot under the Citizens United ruling, but it would at least ensure that the people know who is trying to influence elections.
The Supreme Court has consistently maintained that requiring disclosure is constitutional. Even in the Citizens United case, the Court’s majority said, "Disclosure permits citizens and shareholders to react to the speech of corporate entities in the proper way. This transparency enables the electorate to make informed decisions and give proper weight to different speakers and messages." Indeed, the majority’s reliance on disclosure is key to their argument that unlimited spending from corporations would not create corruption or its appearance. The same Supreme Court that has allowed this flood of money has said Congress can require it to be disclosed. We should do so, and so so promptly.

Mr. President, it is difficult to understand why members of the Senate could oppose these simple, straightforward disclosure requirements. It is difficult to imagine that we would be comfortable telling our constituents that we voted to uphold the veil of secrecy that now shields this flood of money from public view. And it is even more remarkable that some of us would vote, not just to maintain that secrecy, but to prevent the Senate even from debating it. The filibuster of this legislation, if successful, will signal shocking acquiescence to a system in which the wealthy, fortunate few can seek to shape the outcome of elections in secret, without the Senate even voting on whether to continue that secret system.

There are those in this body who defend the flood of secret cash in our politics. It is hard for this senator to understand how those senators explain to their constituents that they do not deserve to know who is spending millions to influence elections. But it is doubly difficult to accept the refusal of my colleagues to allow us to vote on this bill by filibustering the motion intended to let us proceed to that vote.

SENATOR CARL LEVIN ON HSBC BANK AND IT'S TERRORIST/DRUG KINGPIN CONNECTIONS

FROM: U.S. SENATOR CARL LEVEN'S NEWSLETTER
How a Global Bank Brought Big Risks to the U.S.07-20-2012

For today’s sprawling international banks, access to the U.S. financial system is a must. Global banks want access to U.S. dollars, and U.S. wire transfer systems. And they want the safety, efficiency, and reliability that are the hallmarks of U.S. banking.

But some banks abuse that access. The Senate’s Permanent Subcommittee on Investigations, which I chair, recently released a report and held a hearing on how one such global bank, HSBC, exposed the U.S. financial system to abuse by money launderers, drug kingpins, terrorists, and rogue nations such as Iran.

HSBC, headquartered in London, has been among the most active banks in Asia, the Middle East, and Africa. It first acquired a U.S. presence in the 1980s; today its leading U.S. affiliate is HSBC Bank USA. The bank has more than 470 branches across the United States and 4 million customers.

But HSBC’s history in the United States is one of poor protections against illicit money flows. In 2003, the Federal Reserve and New York State Banking Department required the bank to revamp its anti-money laundering program. And in 2010, the Office of the Comptroller of the Currency again demanded changes. The OCC cited massive failures in HSBC’s monitoring system.

To examine these issues, the subcommittee issued subpoenas, reviewed more than 1.4 million documents, and conducted extensive interviews with HSBC officials from around the world, as well as officials at other banks, and with federal regulators. Our evidence showed five key areas in which HSBC exposed the U.S. financial system to abuse:
HSBC’s U.S. bank failed to adequately monitor transactions with HSBC banks in nations at high risk of financial crime. For example, the U.S. unit allowed millions of dollars of transactions with its sibling in Mexico, despite warnings from law enforcement agencies in the U.S. and Mexico that there was a high risk of involvement with drug kingpins.
HSBC units in Europe and the Middle East conducted transactions with the U.S. unit while hiding the fact that the transactions involved rogue regimes such as Iran, Sudan and North Korea. From 2001 to 2007, HSBC units overseas sent 25,000 transactions involving Iran, worth $19 billion, and in 85 percent of those transactions, concealed the links to Iran.
HSBC’s U.S. bank did business with offshore banks linked to terrorist financing. For example, it opened an account for a Saudi Arabian bank with known links to terror groups when the Saudi bank threatened to pull its business from HSBC worldwide unless it could open a U.S. account.
HSBC cleared hundreds of millions of dollars in suspicious bulk travelers cheques. One Japanese bank regularly sent HSBC’s U.S. bank $500,000 or more a day in such cheques, all sequentially numbered and signed with the same illegible signature –sure signs of wrongdoing. When regulators forced HSBC to investigate, the Japanese bank could provide no information about the mysterious Russian clients behind the transactions.
HSBC offered bank accounts to what are known as bearer-share corporations, a form of corporation prone to money laundering and other illicit activities because it can be used to conceal the true owners of the corporation. One such HSBC account was used by a father-son team of Florida developers who later were convicted of tax fraud.
It’s deplorable that a bank would demonstrate such weak defenses against terrorists, drug money and rogue regimes. But making matters worse is the poor effort by the Office of the Comptroller of the Currency, HSBC’s main U.S. regulator. The OCC knew of and tolerated HSBC’s unacceptable performance for more than five years without taking a single enforcement action.

Our report includes a number of recommended changes, for both HSBC and the OCC. Officials at the bank and the regulatory agency have promised improvements, and the steps they have announced so far are welcome. HSBC cooperated with our investigation, and its leaders apologized at our hearing. But promised changes have failed to materialize in the past. This global bank, and the agency that oversees it, must do a better job of protecting Americans from the illicit flows of money that enable crime, terrorism and weapons proliferation.

SENATORS URGE OBAMA ADMINISTRATION TO INVESTIGATE FOREIGN TRADE PRACTICES

Photo Credit:  Wikipedia.
FROM:  U.S. SENATOR CARL LEVIN’S WEBSITE
Ohio, Michigan Senators Urge Obama Administration to Investigate Foreign Trade Practices, Defend Manufacturing Jobs at Whirlpool Corporation
Whirlpool, based in Benton Harbor, has largest U.S. factory in Clyde, Ohio
Tuesday, June 5, 2012

WASHINGTON, D.C. – Ohio and Michigan U.S. Senators Sherrod Brown (D-OH), Rob Portman (R-OH), Carl Levin (D-MI), and Debbie Stabenow (D-MI) this week urged the Obama Administration to investigate unfair foreign trade practices and defend manufacturing jobs at the Whirlpool Corporation.

The senators sent a letter to the U.S. Commerce Department asking the agency to enforce trade laws that level the playing field for companies like Whirlpool. In December 2011, Whirlpool—which is based in Benton Harbor, Michigan, and whose largest American factory is in Clyde, Ohio—filed a case with the Commerce Department regarding the dumping of large residential washers, made in South Korea and Mexico, into the U.S. market. These unfairly dumped imports place companies that manufacture their product in America, like Whirlpool, at an unfair disadvantage.

“In order to create an environment to encourage [the] repatriation [of jobs], we must ensure that companies that do bring jobs home to the United States, such as Whirlpool, are not handicapped by unfair trade practices perpetrated by their foreign competitors,” the senators wrote. “When companies engage in dumping and benefit from unfair foreign government subsidies, it harms American companies and workers and the communities in which they operate.”

“Whirlpool Corporation has nine manufacturing plants in the United States – and five of them are located in Ohio. We know why—because of our state’s strong manufacturing heritage and because our workers are second-to-none.  And our companies, like Whirlpool, can compete with anyone in the world when there is a level playing field,” said Brown, who visited Whirlpool’s Clyde plant this week. “But what’s happening to Whirlpool has happened to too many American industries—our manufacturers are being undermined and undercut by illegal trade practices carried out by our trading partners. Unfairly-subsidized imports harm our ability to innovate and compete.

“Our workers don’t mind competition. Competition is healthy. It breeds innovation, and it’s the American way. But it’s not competing when foreign competitors dump their products in our market, undercutting the products made here in Clyde—it’s cheating,” Brown added. “Today, I am urging the Obama Administration to be aggressive in investigating the unfair trade practices of Whirlpool’s competitors, who make their products in South Korea and Mexico. If we want to encourage companies like Whirlpool to continue moving jobs back to the U.S., then we also have to get tough on countries that don’t play by the rules.”

“Ohio companies who play by the rules should not be penalized by the unfair practices of foreign competitors,” said Portman. “Manufacturers such as Whirlpool, who provide good jobs for hardworking Ohioans, can compete with anyone as long as trade rules are being enforced. The Obama administration should continue to investigate the harmful practices of foreign companies who cut corners and put domestic companies at a competitive disadvantage.”

“Workers at Whirlpool and other American manufacturers can compete and win against any in the world – if the playing field is level,” Levin said. “Taking action against foreign competitors engaged in dumping is vital to maintaining that level playing field for companies and their workers making products in the United States.”
“American workers and businesses can out-compete anyone as long as there is an even playing field,” said Stabenow.  “Michigan-based Whirlpool became the global leader in major home appliances through hard work and innovation.  We need to make sure foreign competitors are playing by the rules and not engaging in anti-competitive trade practices that undermine our businesses.”

The senators asked the Commerce Department to strongly enforce trade law in Whirlpool’s case, applying antidumping and countervailing duties on these washers if need be, in order to create a level playing field and ensure that Whirlpool’s American manufacturing footprint can be preserved. In the letter, the senators state that in order to encourage the creation of new jobs, Whirlpool—which has previously brought jobs to the United States from overseas—should be able to trade on a fair global market. According to the company, the Whirlpool Corporation has more U.S. manufacturing jobs than all its major competitors combined, and more than 80 percent of the products it sells in America are made in the U.S.

The text of the letter is below.
The Honorable John Bryson
Secretary of Commerce
U.S. Department of Commerce
Washington, D.C. 20230
Dear Secretary Bryson,
We write to urge the strong enforcement of trade laws in the ongoing antidumping and countervailing duty investigations requested by Whirlpool Corporation involving U.S. imports of large residential washers (“LRWs”) from South Korea and Mexico.

Whirlpool – which has more than 22,000 employees in the United States -- celebrated its l00th anniversary of manufacturing in the United States in 2011. Whirlpool has long been known as a leader in the home appliance industry, and with its signature quality products and innovation, has been the largest major appliances manufacturer for many years.  While Whirlpool is a global company, in recent years it has increasingly repatriated production to the United States.  Today, 80 percent of what Whirlpool sells in America is manufactured in America, while its foreign competitors make no appliances here.

LRWs are a case in point.  In 2010, Whirlpool brought the production of front load washer production home to its plant in Clyde, Ohio.  In a volatile period, that move secured 500 jobs on the line and more in support in the nearby communities. Clyde employment reached approximately 3,600 at the end of 2010.

Manufacturing lies at the heart of the economies of Ohio and Michigan.  The continued repatriation of manufacturing jobs is essential to strengthening our states’ economies and creating opportunities for workers and their families in our communities.

However, in order to create an environment to encourage repatriation, we must ensure that companies that do bring jobs home to the United States, such as Whirlpool, are not handicapped by unfair trade practices perpetrated by their foreign competitors.
It is imperative that the Department of Commerce vigorously and carefully enforce the trade laws to ensure that companies like Whirlpool are provided a level playing field on which to compete -- both for their current U.S. production, and when they bring overseas production home and invest in America.

When companies engage in dumping and benefit from unfair foreign government subsidies, it harms American companies and workers and the communities in which they operate. The Department’s work on these cases has important real world implications with substantial consequences for workers and communities in our states.  While there will no doubt be many issues that will arise as these cases move forward, at this stage in the proceedings, we encourage the Department to focus closely, as required under the antidumping and countervailing duty laws,  on:

Ensuring that the Respondent companies fully and accurately report their prices net of all rebates and discounts, as well as their costs of production and adjustments to price.
Exploring the ways in which the Korean chaebol system and the relationships between the large South Korean conglomerates and their much smaller suppliers may mask the true measure of prices and costs.
Utilizing whatever public information that the Department gleaned in the recently completed bottom mount refrigerator freezer (“BMRF”) investigations to inform and advance the Department’s efforts to develop a full and transparent record in these investigations.

Prices, costs, supplier relationships, and accurate reporting are always important issues in antidumping and countervailing duty cases, and these cases are no exception.  With the Department’s vigilance, however, a clear record can be developed and any unfair trade practices can be effectively addressed.
Thank you for your careful consideration of this matter.

SENATORS OPPOSE QUICK WITHDRAWAL FROM AFGHANISTAN

Photo:   Sandstorm In Afghanistan.  Credit:  U.S. Navy.
FROM:  U.S. SENATOR CARL LEVIN’S WEBSITE:
Senators: Avoid 'premature' cuts of Afghan forces

Thursday, April 26, 2012
WASHINGTON – Four senior members of the Senate Armed Services Committee have written to President Obama regarding the prospect of reductions to the end-strength of the Afghan National Security Forces, urging him to reject “premature and militarily unjustified reductions” in those forces.

Sen. Carl Levin, D-Mich., the committee’s chairman; Sen. John McCain R-Ariz., the ranking Republican; Sen. Joe Lieberman, I-Conn.; and Sen. Lindsey Graham, R-S.C., wrote the letter in response to public reports that the United States and its NATO allies are considering reductions of roughly one-third in troop levels for Afghanistan’s army and police after the planned handover of security responsibility to the Afghans in 2014.
“A key part of our Afghanistan strategy has been that, as U.S. and coalition forces draw down, increasing numbers of capable Afghan forces will be available to sustain and expand the hard-won gains that U.S., coalition, and Afghan forces have secured at great cost in blood and treasure,” the senators write. “Achieving this objective requires correctly sizing the ANSF to provide enduring security for their country, and ensuring the funding necessary to support that end-strength.”

The letter encourages the president to base Afghan force structure decisions “on a realistic assessment of the conditions they will be facing” when Afghan security forces have the security lead throughout the country and to urge the international community to provide the financial support needed to field adequate Afghan forces.

SENATOR LEVIN ON FACEBOOK TAX LOOPHOLE

FROM:  U.S. SENATOR CARL LEVIN'S WEBSITE

SPEAKING FROM THE SENATE FLOOR

Thursday, May 17, 2012Mr. President, tomorrow will be a day in tax history – when Facebook goes public, it will get a $16 billion tax deduction, which is the largest tax deduction ever taken by any corporation exploiting the stock option tax loophole.

Facebook's recent filings in anticipation of its upcoming stock offering provide new facts about its plans to use stock option tax deductions, not only to help it avoid future taxes for years and years to come, but to get a refund of taxes it's already paid.

Facebook’s recent registration statement shows that, due to hundreds of millions of stock options handed out to its founders and top executives, it plans to claim stock option tax deductions worth a whopping $16 billion.  That’s more than twice as much as estimates a few months ago, and many, many times larger than the stock option expenses shown on Facebook’s ledgers.
 
Facebook is a booming, successful company.  Its securities filing boasts of double-digit increases in Facebook’s average revenue per user, citing a 32 percent increase in 2010, and another 25 percent increase in 2011, with “growth across all regions.”  Despite trumpeting those revenue increases to investors, Facebook is planning at the same time to tell Uncle Sam it has no taxable income, offsetting its revenues with stock option tax deductions.

Facebook’s $16 billion stock option tax deduction is so huge, it will enable Facebook to claim a $500 million refund of taxes paid over the prior two years and wipe out this year’s tax bill.  The company says it will also use its deduction to create a “net operating loss” that can be used to eliminate its profits and its taxes for up to 20 years into the future.

As with so much of our tax code, it’s not the law-breaking that shocks the conscience, it’s the stuff that’s allowed.  For years, my Permanent Subcommittee on Investigations has identified this stock option tax loophole and tried to explain its cost, its unfairness, and why the loophole should be closed.  Facebook’s $16 billion tax deduction brings the issue into sharp focus.
 
This profitable corporation will stop paying any federal corporate income taxes, simply because it gave hundreds of millions of stock options to its executives.  It will go from a corporate citizen that paid its taxes, to one that not only pays no taxes to Uncle Sam on its profits, but gets a tax refund.

Some Facebook defenders claim the company’s nonpayment of taxes is offset by the taxes paid by its executives.  But first of all, Facebook demands and receives government services that its executives don’t – from patent protection to cybersecurity to trade enforcement.  Second, the fact that executives pay taxes doesn’t mean corporations shouldn’t pay taxes.  Facebook should be paying its fair share, and it’s only through a tax loophole that it won’t be.  Adding insult to injury is that one of its founders recently renounced his U.S. citizenship just to avoid paying his taxes.

Facebook is an American success story.  Its ability to use a stock option loophole to zero out its U.S. tax bill, despite ample profits, makes no sense.  It also isn’t fair to the rest of American taxpayers who will have to pay more because Facebook pays nothing.

In these tough economic times, Congress needs to make choices about where to spend taxpayer dollars.  The stock option tax deduction, as demonstrated by Facebook, fuels excessive executive pay, shifts the tax burden from corporations to other taxpayers, and enables profitable corporations to get out of paying a dime toward the country that helped make their success possible.

What could our nation do with the billions of dollars it will lose when Facebook uses the stock-option loophole?  Well, we could reduce the federal deficit.  Or we could pay for programs to help kids go to college, or programs that protect our seniors and veterans, put cops on the beat, or teachers in classrooms.

The stock-option loophole should have been closed long before Facebook’s stock option bonanza.  But surely the case of Facebook illustrates to the Senate, to the Congress, and to the American people why we should close this loophole.   If Congress were to enact the Levin-Sherrod Brown bill, S. 1375, it would close an unjustified corporate tax loophole that boosts executive pay at the expense of everybody else.  

Mr. President, I thank the Chair and yield the floor.