Excerpt: The Buying of the President 2004

The following is an excerpt from the book, The Buying of the President 2004.

In July 2002, as Congress hastily prepared to authorize creation of the Department of Homeland Security, Representative Rosa DeLauro offered an amendment designed to bar the new department from granting contracts to American companies that incorporate overseas to dodge U.S. taxes. "Corporate expatriates should not continue to benefit from government largess, but they do, billing $2 billion a year in government contracts," DeLauro, a Connecticut Democrat, said in House floor debate.

The amendment was denounced by the Republican leadership, who argued that it would cost American jobs, but a rebellion among the rank and file ultimately precipitated a lopsided vote: 318 yeas to 110 nays. Six weeks later, the Senate approved a similar amendment introduced by Senator Paul Wellstone, Democrat of Minnesota.

As the issue gained visibility, George W. Bush deftly played both sides of the fence. On July 31, 2002, when asked whether the practice of moving corporate headquarters to foreign tax havens should be outlawed, Bush replied: "I think we ought to look at people who are trying to avoid U.S. taxes as a problem. I think American companies ought to pay taxes here, and be good citizens." But Bush never pressed the issue, and his Administration's preferred line, courtesy of the Treasury Department and presidential spokesman Ari Fleischer, was that the convoluted American tax code -- rather than the questionable behavior of American corporations -- was the real culprit.

The exodus offshore, be it for the tax advantages or other reasons, has at times resembled a stampede. The roll call includes Halliburton, which under the leadership of Dick Cheney dramatically increased its subsidiaries located in offshore tax havens (the firm, which has defended such behavior as both legal and ethical, claimed at least twenty subsidiaries in the Cayman Islands alone). The private banking divisions of Citibank, Merrill Lynch, and other financial titans, which profit handsomely by managing hundreds of billions of dollars for so-called high-net-worth individuals, stash much of this client wealth offshore.

And others taking advantage of lax offshore regulations and favorable tax rates include more obscure companies like The Carlyle Group, a private global investment firm based in Washington, D.C. Carlyle, oversees $16 billion in investments for more than 550 individuals and institutions from fifty-five countries. In August 2001, the firm filed paperwork with the Securities and Exchange Commission that revealed an interest in U.S. Technologies Inc., a venture capital firm based in Washington, D.C. Carlyle's stake in U.S. Technologies was held by eight limited partnerships based in the Cayman Islands, all of which listed their "principal business office" as c/o The Carlyle Group at its Washington headquarters, six blocks from the White House.

So far, the Bush Administration has been loath to spoil the party for those venturing offshore as a means to avoid taxes. And those interests are in a position to press their case about maintaining the status quo, thereby keeping details of their clients' investments and financial transactions away from state and federal regulators. A number of the nation's largest banks and brokers, for example, were among the top contributors to Bush's 2000 campaign, a Center analysis shows.

The list includes Credit Suisse First Boston ($178,650 in contributions), UBS Paine Webber ($149,700), Morgan Stanley Dean Witter & Co. ($136,050), Merrill Lynch & Co. ($128,700), Goldman Sachs Group ($117,899) and Bank of America Corp. ($111,000). As for Carlyle, its access may be unmatched: The chairman emeritus is Frank Carlucci, secretary of defense under Ronald Reagan and former college wrestling teammate of Donald Rumsfeld, the current secretary of defense. James A. Baker III, who was secretary of state for the elder George Bush and oversaw George W.'s recount effort in Florida, is Carlyle senior counselor. And if Carlyle really wants the President's ear, it counts George H.W. Bush as a senior advisor.