Out of State Corporations Fighting to Keep Tax Loophole Are Top U.S. Tax Dodgers, Says Consumer Watchdog

Companies With Major Sales in California Can Game Current System to Pay Lower Taxes Than Many In-State Businesses

Three of the five global corporations behind a coalition aimed at protecting $1 billion a year in California tax loopholes are among the nation’s top tax evaders, said Consumer Watchdog. They are:



• International Paper Co., whose outlandish deductions and credits gained through Congressional earmarks left it with less-than-zero federal taxes on $198 million dollars in 2010 profit. The company’s refund of $249 million exceeded its profits.
• Procter and Gamble, described by Fortune Magazine as in a class with GE when it comes to tax manipulation. It structured more than $6 billion in sell-offs since 2002 to avoid billions in federal tax and hundreds of millions in state taxes.
• GM, which is still partly owned by taxpayers and paid only $570 million in federal taxes on a net profit of $9 billion-a 6% corporate tax rate. That made it one of the lowest-taxed among high-profit corporations, according to Forbes Magazine.

The other two members of the deceptively named “California Employers Against Higher Taxes” are bailout recipient Chrysler and Kimberly Clark, which Wisconsin researchers found was evading state taxes. (See details on all members below)

“The real business of this coalition is to protect global corporations’ unfair and lucrative tax loopholes that deprive Californians of good schools and services,” said Judy Dugan, research director of Consumer Watchdog. “It’s especially galling coming from tax evaders or automakers that abandoned their plants and employees in California, took billions in taxpayer bailout money and in Chrysler’s case, kept $4 billion of it as a gift.”

The out-of-state coalition was recently organized to fight proposed legislation that would eliminate a two-tiered system in California, passed in 2009 over consumer objections, that allows national corporations to pick which California tax calculation they use. By picking one or the other based on how much profit they made in California, companies can evade millions of dollars in state corporate taxes. A 2009 study by the state legislative analysts’ office found the system unfair to many in-state companies, confusing and subject to corporate gaming.

LAO report

“It’s like letting children pick which parent they’ll obey, or companies to pick which regulator will oversee them,” said Dugan. “Obviously they’ll go for the most lenient.”

The current legislative plan (Perez, AB1500) would shift California to the system used in all major states–a single tax calculation that is primarily dependent on the amount of sales a company made in California. Consumer Watchdog said it does not support any particular proposal to fix the loophole, as long as it stops the gaming of the state tax code.

The aim of the “California Employers” is obvious in their corporate histories:

International Paper: A study by the Institute for Policy Studies found that in 2010 the company paid zero taxes on $198 million in profits, and in fact ended up with a $249 million credit. At the same time, CEO John Faraci got a 75% pay hike to $12.3 million. The company’s tax deductions came from two subsidiaries in tax havens and from large deductions and credits for its longtime use of a waste byproduct at paper mills, known as “black liquor,” for fuel. The company lobbied heavily for this boondoggle, even though it did not reduce International Paper’s use of fossil fuels. Conservationist and environmental groups cried foul, but the company prevailed. While the company has several locations in California, they are mostly low-paid box-making facilities and warehouses. It is trying to sell but could also close a pulp plant with higher-paying industrial jobs in Port Hueneme.

Bloomberg on “black liquor” earmark

IPS study

Chrysler: The automaker took $13 billion in federal taxpayer bailout money in 2009. It kept $4 billion as a gift in its Chapter 11 bankruptcy proceedings. Another $3.5 billion that was counted as Chrysler payback was actually a loan to the Italian company Fiat in a complicated deal. Most galling, Chrysler’s bankruptcy deal gave it a free pass on liability for defects in pre-2009 vehicles. For instance, a California family badly injured in fire that destroyed their Jeep vehicle was banned from seeking any accountability for or damages from Chrysler. Chrysler’s only significant presence in California is its franchise auto dealers, many of which were shut down by the company in its bankruptcy. Chrysler’s auto assembly plant in Los Angeles, which once made 40,000 vehicles a year, closed in 1971.

Liability cancellation

Fiat loan

Procter and Gamble: The global corporation is also a giant in tax avoidance. It evaded $2 billion in U.S. federal taxes and hundreds of millions in state taxes since 2002 through complex manipulation of its more than $6 billion in sell-offs of brands. The buyers also evaded taxes at least temporarily and perhaps permanently. Procter and Gamble has subsidiaries and some plants in California, but its U.S. jobs are concentrated near its Ohio corporate headquarters.

Tax evasion:

GM: Taxpayers shoveled nearly $60 billion into bailing out General Motors, and are still on the hook for up to $27 million, depending on the future price of GM stock. And in 2011, GM paid only $570 million in federal taxes on a net profit of $9 billion-a 6% corporate tax rate. Taxpayers also still own at least a quarter of the company, which puts its opposition to fair taxation in California in a darker light. As for being a “California Employer,” GM exited its last auto plant in the state, a joint venture with Toyota in Fremont, in 2009.

Kimberly Clark: State researchers in Wisconsin found that Dallas-based Kimberly Clark paid Wisconsin state taxes in only three of the 10 years from 2000 through 2009, despite a large corporate presence in the state. At the same time, its CEO pay soared 339%, from $2.6 million to $12.4 million. The current tax system makes it easier for the Kleenex giant to do the same in California.

Wisconsin

Ever wonder if your water is contaminated with toxic runoff from local industry? What about if your kids are safe playing in the dirt at home or at school?  California regulators should be able to eliminate that fear.  We’re at the confirmation hearing for the new director of the CA Dept. of Toxic Control to make sure she answers the tough questions and outlines her plans to hold companies accountable if their hazardous waste and manufacturing facilities are spewing toxins into our air and water.

And just this morning, the Sacramento Bee published an opinion piece that further illustrated the need for regulations that have teeth and for regulators who are strong enough to stand up to industry power brokers.

The underbelly of industry in California is toxic waste, from the arcane chemicals used to manufacture computers to contaminated engine oil left behind after an an oil change at a service station. The state has strict rules and regulations on how such waste can be disposed of or recycled – governing storage, transportation and reprocessing to protect air, soil and water…Yet too many middle- and working-class families in this position are plagued by odors, toxic dust, fiery accidents and worries about their drinking water.” -Judy Dugan & Doug Heller, Special to the Sacramento Bee 4/11/2012

Read more of the Sacramento Bee opinion piece here

Small Businesses Stuck With Unjustifiable 8% Rate Hike, 30% Increase Over Last 24 Months Says Department of Insurance

The California Department of Insurance has announced that Aetna is imposing an 8% annual health insurance rate hike on its small business customers despite state actuaries’ findings that the increase is “unreasonable” and not supported by data.  Consumer Watchdog Campaign says this demonstrates the urgency of voters passing its proposed ballot measure to make health insurance companies justify their rate hikes and get permission before raising rates.  The initiative, which is currently being circulated for signatures to place it on the November 2012 ballot at grocery stores and online at JustifyRates.org, would allow the Insurance Commissioner to reject a rate hike such as Aetna’s if state experts find it unreasonable.

“Until the Commissioner is allowed to say no to unjustified and excessive rate hikes, small businesses and families in California will continue to pay more than they should for health insurance,” said Jamie Court, proponent of the proposed allot measure and a director of Consumer Watchdog Campaign.  “Aetna’s rate hike is the poster child for why health insurance should be required to get approval before rate hikes take effect.”

According to the Department of Insurance, the Aetna subsidiary that sells health insurance in California earned huge profits in 2011 and paid a $1.7 billion dividend to its parent company last year.  Additionally, while the insurance company claims that it needs the rate increase to cover increasing medical costs, Aetna’s own data and documents don’t support that claim, which also conflicts with national data about medical cost inflation.

The ballot initiative being circulated by Consumer Watchdog Campaign would require insurance company CEOs to justify under penalty of perjury that rate hikes are necessary and allow the Insurance Commissioner to reject any hike determined to be excessive.  Similar rules have applied to auto and home insurance in California and have saved motorists in California over $62 billion since 1988 when that law took effect.  The initiative also prohibits the use of unfair rating factors in health, home and auto insurance.

“Insurance companies like to say that there is already regulation of health insurance in California, because insurers are required to make their rate increase plans public.  But if a company can ignore official findings that a rate hike is unreasonable and jack up rates whenever they want, then the law needs to change,” said Court.

The petition to place the initiative on the ballot can be signed outside supermarkets or by going to www.JustifyRates.org and downloading the one-page petition.

Over the weekend The Los Angeles Times published a new poll suggesting that we may have reached the tipping point on online privacy, finally forcing policymakers to take notice and react to ease people’s concerns.

The USC Dornsife/Times poll found a stunning 82 percent of Californians say they are very or somewhat concerned about “companies collecting your personal information when you visit their websites or use their services.”

The new poll confirms a Consumer Watchdog’s poll findings nearly two years ago when we were battling to raise privacy issues as a priority that 84 percent of Americans favor preventing online companies from tracking personal information or web searches without your explicit approval. Ninety percent supported more laws to protect privacy.

The most damning aspect of the USC Dornsife/Times poll is the lack of trust shown in some of the tech world’s biggest brands.  Respondents  were asked to rate six on whether they trusted the companies to be responsible with personal information, with 0 meaning no trust and 10 meaning complete trust.

In a clear blow to the tech giants, none scored above 5.  Apple was highest with a score of 4.6, followed by Google at 3.8, LinkedIn at 3.0, YouTube (owned by Google) at 2.8.  Facebook was 2.7, just ahead of last place Twitter, 2.4.

Those are not numbers that any company who relies on consumers can possibly be pleased with, no matter how you spin it.  As Linda DiVall, president of American Viewpoint, the firm conducting the poll, told the Times:

“I thought the ratings were strikingly low. If I were involved with the branding image of those companies, I would be very concerned.”

That may be a reason industry is scrambling to appear more privacy friendly. A number of key players are participating in the W3C (World Wide Web Consortium) effort to set a standard for a Do Not Track mechanism and what the obligations would be for a site to be compliant if it receives a DNT message.  Yahoo! last week said it will honor the standard and Google has finally agreed to offer the DNT option its browser, Chrome.  Firefox, Safari and Internet Explorer already give users the option; the problem is that websites are under no obligation to honor the message.

But, as I said, I think we may have reached a tipping point on privacy.  In February the White House offered its privacy proposal, calling for a Consumer Privacy Bill of Rights.  Last week the Federal Trade Commission released its privacy report and strongly endorsed Do Not Track.

Conservative Rep. Joe Barton, (R-TX) told the Times that the poll “reaffirms my opinion that privacy is a big deal – and it’s becoming a bigger deal.” He is partnering with liberal Rep. Ed Markey (D-MA) in sponsoring privacy legislation.

Silicon Valley’s premier companies have earned our distrust by continually playing fast and loose with our information. Google unilaterally changed its privacy policy and announced it will combine data across all its services.  It was then caught deliberately circumventing the Safari browser’s privacy settings. The point is that we’ve reached a tipping point, precisely because the companies have continued to invade our privacy.

We need to continue pushing back and demanding action from policymakers until we finally have regained control of our information. FTC Chairman Jon Leibowitz got it right when he said nobody has the right to put something on your computer without your permission. Now we need to make sure the Administration, Congress and the FTC enact laws and regulations to protect our privacy. If they don’t, in California at least, there is another option: a ballot initiative in 2014.

( – promoted by Brian Leubitz)

As 2nd Anniversary of Federal Health Reform Law Approaches, CA Ballot Measure Seeks to Control Skyrocketing Health Insurance Rates.

Anthem Blue Cross will raise health insurance rates for nearly 600,000 Californians by as much as 20% on May 1. A ballot initiative to make health insurance more affordable by regulating premium increases is necessary to protect Californians from excessive rate hikes, said Consumer Watchdog Campaign today.

Friday is the 2nd anniversary of the federal health reform law, which will require every American to have health insurance by 2014 but does not control what private health insurance companies can charge. The ballot initiative proposed by Consumer Watchdog Campaign would require health insurance companies to publicly justify rates, under penalty of perjury, and get rate increases approved before they take effect.

“Every time insurance companies force another double-digit rate increase on consumers they make the case for our ballot initiative to rein in excessive rate hikes. If Anthem had to include a copy of our petition in the rate increase notice it mailed to more than half a million consumers, we’d already have the 505,000 signatures necessary to qualify the measure for the November ballot,” said Carmen Balber with Consumer Watchdog Campaign.

The ballot measure would regulate health insurance policies that cover 5.3 million Californians. 35 states have the power to reject excessive rate increases, but California does not.

“The Affordable Care Act ends some of health insurers’ worst abuses – like cancelling coverage when patients get sick, or charging women more just for being women. But the law falls short on cost control. Health reform cannot succeed if we don’t put the brakes on skyrocketing insurance premiums. Strong rate regulation will lower premiums, give insurers incentives to cut spending and save health reform,” said Balber.

On Monday, the U.S. Supreme Court will begin hearing oral arguments in a case that will determine whether the law’s mandate that individuals purchase insurance violates the Constitution. Regardless of what the court decides, the experience with health reform in Massachusetts shows that consumers will need the protection of rate regulation to hold down insurance prices, said the group.

Consumer Watchdog released a report last year demonstrating how rate regulation has begun to curb insurance premiums in Massachusetts, where the mandate that people buy health insurance — the model for the 2010 federal reform law — failed to control costs. Other states that instituted or strengthened state laws requiring rate review and approval of health insurance rates, including New York, Oregon and Maine, have also seen cost-control results. States without regulation of health insurance rates have seen massive and unjustified rate increases take effect with no power to stop them.

A new report from the California HealthCare Foundation finds that 38% of Californians say the cost of their health insurance went up in 2011, and 37% delayed getting health care they needed because of costs.

“The reality is that consumers will not purchase insurance they cannot afford, and insurance prices become more out of reach for families every year,” said Balber. “Experience in states from California to New York has shown that rate regulation is the only way to force insurance companies to open their books, justify spending, and block excessive profits.”

The Centers for Disease Control and Prevention reported last week that 1 in 5 Americans are burdened by medical debt and half of them are unable to pay the debt at all. Health insurance premiums in California increased at a pace five times the rate of inflation in the last decade, according to the California HealthCare Foundation.

Download the Consumer Watchdog Report, “Health Reform and Insurance Regulation: Can’t Have One Without The Other”.

Read more about the initiative at www.JustifyRates.org.

What Chutzpa! The four health insurance companies that control 71% of the California market today attacked Consumer Watchdog as “a special interest group.” Their press release below only acknowledges in the fine print that the attack is “Paid for by Anthem Blue Cross, Kaiser Foundation Health Plan, Inc., Health Net, Inc., and Blue Shield of California.”

The insurance companies are scared because we are on the road to qualify our ballot measure that forces them to publicly justify their rate hikes and lets the insurance commissioner reject unreasonable rates. Still, it’s Orwellian to see the big insurance companies hiding behind the lab coats of doctors and trying to smear a consumer group with a two-decade history of saving consumers tens of billions of dollars on their insurance bills.  

You can see the type of opposition we’re up against, and it’s only March. Think of what they’ll say and do between now and November.

Please help us remind Californians who is on their side and who is ripping them off every day. Donate now to the “Justify Rates” ballot measure campaign.

A report out today shows the health care industry generated $35.7 million in lobbyist spending in 2011, more than any other industry in California, and Kaiser was the largest spender at $3.5 million. Our ballot initiative would prohibit insurance companies like Kaiser from passing on lobbying expenditures to policyholders as premium increases, the same way current law prohibits auto and homeowners insurers from passing on those costs.

That’s why health insurance companies are scared and are willing to do anything to avoid regulation.

Will you make a contribution to the ballot measure campaign to fight back today?

Initiative To Allow Regulators to Reject Excessive Rate Increases Would Give California Families Protection

The first large-scale survey of Americans about their problems with medical debt show 1 in 5 are burdened by medical debt and half of them are unable to pay the debt at all. Having health insurance is a key to being able to pay for medical care, said the Consumer Watchdog Campaign, but spiraling insurance rates have left millions of Americans uninsured or badly underinsured. A ballot initiative proposed in California would make health insurance more affordable by regulating premium increases, and give the state the ability to curb excessive rates before they go into effect.

The report released today by the federal Centers for Disease Control found that medical debt hit hardest at younger families and the working class, people who are least likely to be able to afford insurance.

“When one in five Americans are in medical debt it’s clear that we’re not doing enough to make health insurance affordable. Soon, federal law will require every American to have insurance, but nothing controls what health insurers can charge. States need the power to say no to excessive health insurance premium hikes,” said Carmen Balber with the Consumer Watchdog Campaign. “The California ballot initiative will allow the state to rein in out-of-control spending on insurance bureaucracy, executive salaries and profits that is driving the up cost of health care and driving consumers out of coverage and into medical debt.”

Lead report author Robin Cohen, of the CDC’s National Center for Health Statistics, said insurance, public or private, frequently determines whether families can pay their health care expenses.

“But even among people with private insurance, about 16 percent had trouble paying medical bills and 6 percent couldn’t pay at all,” Cohen told Health Day.

A ballot initiative sponsored by Consumer Watchdog Campaign and aiming for the November California ballot would require insurance companies to justify rate increases, under penalty of perjury, before they take effect. Regulators would have the power to reject or modify unreasonable premium rates, and limit the amount of wasteful overhead, profit and executive compensation that insurance companies may pass on to consumers. The measure would add health insurance policies sold to 5.3 million Californians to the state’s rate regulation law. It also prohibits health, auto and home insurers from using Californians’ credit history or prior insurance coverage to increase premiums or deny coverage.

The measure is based on the insurance reform law, Proposition 103, that regulated auto and homeowners insurance in California. That law has saved drivers $62 billion in premiums since 1988, according to a 2008 Consumer Federation of America report.

The campaign is using a mixed paid and volunteer effort to gather the 505,000 signatures necessary to qualify for the November ballot. U.S. Senator Dianne Feinstein, who was the first person to sign the petition, authored an email to millions of California voters asking them to download, print, sign and return the official ballot petition online at www.JustifyRates.org.

The federal health reform law requires review of some health insurance rate increases, but does not give any state regulator the authority to modify or deny rate increases even when they are found to be excessive or unreasonable.

It’s stunts like this that drive Consumer Watchdog’s efforts to beat back the insurance lobby and regulate untenable health insurance premiums.

When I first noticed the ad below while hunting for cookie recipes, I was surprised to see a health insurance company buying a full page in the first pages of a cooking magazine. But reading it was another surprise. The headline touts “Free Annual Checkups,” and the text of the Anthem Blue Cross ad takes credit for this brand-new benefit: “100% coverage for checkups, flu shots and other preventive services.”

Anthem, however, had nothing to do with the prevention benefit. It’s a requirement of the federal health reforms passed last year. Blue Cross, along with every other major health insurer, fought to eliminate such mandatory benefits and later falsely blamed the law for outrageous, unjustified double-digit premium increases. (The prevention benefit is just one of the things that will disappear if the courts or Congress succeed in voiding the health reform law.)

Anthem must figure a deceptive claim of “free” care will make us feel better about insurance payments bigger than our mortgage.

It’s stunts like this that drive Consumer Watchdog’s efforts to beat back the insurance lobby and regulate untenable health insurance premiums.

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Posted by Judy Dugan, research director for Consumer Watchdog, a nonpartisan, nonprofit organization dedicated to providing an effective voice for taxpayers and consumers in an era when special interests dominate public discourse, government and politics. Visit us on Facebook and Twitter.

It is a masterful spin by the self-described not-for-profit Blue Shield of California to announce that it is returning all but two percent of its profits to its customers, as though this were some act of humble generosity.  It’s a little like a supermarket announcing that from now on it’s going to give back (almost) all of your change.  (It’s actually worse than that, as I’ll explain.)

It is a masterful spin by the self-described not-for-profit Blue Shield of California to announce that it is returning all but two percent of its profits to its customers, as though this were some act of humble generosity.  It’s a little like a supermarket announcing that from now on it’s going to give back (almost) all of your change.  (It’s actually worse than that, as I’ll explain.)

All told, Blue Shield will have returned about $475 million in profits – $283 million that Blue Shield is crediting back in December plus about $167 million credited back earlier in the year for 2010 premiums as well as the $25 million the company distributed to doctors, hospitals and an as yet unnamed “community investment.”  But this should not be thought of as a sincere gift from a community-oriented nonprofit.  Rather, it’s nearly half a billion dollars that Blue Shield overcharged its policyholders and then held onto for months.  

Worse still, Blue Shield had to be pushed and prodded to do anything; this refund didn't just happen.  Blue Shield is only giving some money back because there was huge public pressure this year – from California Insurance Commissioner Dave Jones, from nurses and consumers who protested at their corporate offices, from lawmakers like Assemblyman Mike Feuer carrying legislation to regulate insurance companies and from news reporters investigating their rates and salaries.  

What’s more, the $283 million that will go to reducing policyholders’ December premium payments is utter chump change when given a full context:

Blue Shield, according to documents it files with the state of California, has more than $3 billion in excess surplus (“Tangible Net Equity excess” is the formal term).  That massive and ever growing pot of money is a profit account that Blue Shield uses to take policyholder premium out of the healthcare system so they can come back and charge those same policyholders high rates again next year.  Blue Shield could give back $280 million a month for an entire year and still have a enough money on hand to run a stable insurance company.  Or, to think of it a little differently, instead of giving families back a few hundred dollars for Christmas, they could just sell insurance at a reasonable premium and not stuff their own stockings with surplus.

To be sure, Blue Shield is angling for a feel good story it can tell politicians and voters when they next consider whether to enact a law or initiative regulating the premiums health insurance companies can charge.  That story may work with some politicians in Sacramento, but I doubt voters who are stuck overpaying for health insurance will be so easily spun.

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Doug Heller is the Executive Director of Consumer Watchdog. Visit our website at: www.ConsumerWatchdog.org.