There are lies, damned lies and politics as usual. Before we toss a brick through our TV screen (Howard Cosell gave us that idea), allow us to set the record straight.
The “$19 million tax break” alleged by the Michigan Democratic Party has been a confirmed crock since 1997. The people making the charges know they are lies —but one look at the calendar tells us all we need to know about why they will spread them anyway.
Let’s review the record. A “Passive Foreign Investment Company” (PFIC) is defined in the tax code as a foreign investment company without tangible assets. Some rich individuals had set up such companies in foreign tax havens to escape paying U.S. taxes. By virtue of its success and some ambiguity in the PFIC language, Amway Japan, Ltd. (AJL), became subject to the PFIC rules. Dividends paid to shareholders were taxed at rates above the highest personal and corporate rate.
Amway could have eliminated the PFIC tax penalty by building a manufacturing facility – a tangible asset under the PFIC rules – in Japan. We explained to the Clinton Administration and to Members of Congress that we did not want to ship jobs to Japan. We simply asked that the PFIC rules be clarified so that they did not penalize us or other successful U.S. manufacturers.
The Clinton Administration agreed that it was bad public policy to penalize a company for exporting successfully. Democratic Senator Daniel Patrick Moynihan, the author of the original PFIC provisions of the tax code, agreed. A majority of the Members of the House and Senate agreed. Once the controversy broke, Senator Carl Levin, who understood the facts, told reporters that the PFIC rule changes saved jobs in Michigan.
This is all on the record. The rules were changed because reasonable people realized that it was wrong to impose a tax penalty on a company that was exporting products, not jobs.
So now it’s just a question of classification. Since everything about PFIC has been on the record for a decade, is the charge a lie, a damned lie or politics as usual?