Congressional Cowardice

While a panicky Congress has rushed in recent days to reform the business world, it has not entirely lost its well-developed instinct for catering to special interests. On two issues critical to cleaning up corporate malfeasance, Congress has opted to put the preferences of big business — and big campaign contributors — ahead of the public good.

The first involves the notorious Bermuda tax loophole that allows companies to avoid paying taxes by nominally moving their headquarters to Bermuda, even while they continue to operate from the United States. This is a blatant scam that should be eliminated. Closing the loophole would bring in an estimated $6.3 billion over 10 years.

Democrats and Republicans in the House have introduced dueling bills. The Republican version would temporarily close the tax loophole, but it is also larded with special-interest tax breaks that add up to almost 10 times the amount that would be realized from doing so. General Motors and Ford would be among the big winners under the Republican bill, which would make it easier to accumulate untaxed profits overseas.

Congress is also fearful of challenging corporate practices in the awarding of stock options, intimidated by the possibility that wealthy corporate executives will withhold campaign contributions from lawmakers who dare to tinker with the current system. Now that Coca-Cola and a few other companies are moving to reform the system themselves by counting stock options as an expense, Congressional action could speed the changeover to a more responsible approach.

Senator Carl Levin, Democrat of Michigan, introduced an amendment that would require the Financial Accounting Standards Board to review the issue within a year. It is likely that the standards board, which sets the rules for corporate accounting practices, will force companies to report options as expenses. But amid intense lobbying by corporations — particularly Silicon Valley companies, which rely heavily on options — the Levin amendment was blocked earlier this week.