Why Not Either Accept Corruption or Push for a Users’ Gratuity Tax Deduction?

Imagine getting a “gratuity deduction” on taxes for tips at restaurants, barbershops, taxis, apartment maintenance staffers or governmental services (state, federal, local) rendered to us. Or “gifts” to expedite any kind of license, permit or ear of a public official. Or, if the move were to go global, reimbursements to the rural poor for having to pay private water companies.

Equally, why not permit a deduction for companies now forced to pad bids as “business expenses” to win government contracts? Collectively, they’d save themselves (and taxpayers) billions and perhaps become welcome low bidders. Or why not a deduction, say, to US taxpayers for Pentagon payoffs ensuring safe passage for vehicles carrying supplies to mountainous outposts in Afghanistan or bribes to the locals to serving armed forces all over the world?

Despite the veneration given morality and penalties for venial sin, no one seems willing to suggest this draconian and practical action anywhere of stopping the historic prevalence and power of corruption. Obviously, most have always “had the wisdom to accept the things they cannot change” as the common-sense approach. Small or large “tokens of appreciation” indicate corruption still greases wheels to an objective, no matter how rationalized or pejoratives. The words are well known: bribe, graft, kickbacks, extortion, influence-peddling, reward, embezzlement, money laundering, nepotism, ghost payrollers, monetary incentives, soft credit, or the 15th century’s “barratry.”

Corruption’s basic definition where government is concerned is never the blunt truth of grifters stealing people’s tax money, but the euphemistic phrase “use of public office for private gain.” That it’s rampant is shown by Google’s 157,000,000 links to “corruption” on one July day alone – including a list of the “top” 30 political documentaries. Because of its clandestine nature, only estimates are possible on even one day’s “take” from the public and private purse. The World Bank put it at $1,600,000,000,000 in 2010 alone.

Common Types of Governmental Corruption

A global finance expert says the commonest forms of governmental corruption around the world are:

• Issuing licenses, permits, customs and border-crossing documentation, banking licenses.

• Implementing price controls.

• Blocking new firms/investors from entry, yet providing monopoly power to other multinationals.

• Awarding public procurement contracts.

• Granting subsidies, soft credits, tax exemptions and allowing tax evasion.

• Imposing foreign-exchange controls.

• Allocating real estate.

• Selectively enforcing socially desirable regulations.

• Maintaining obscure or secret budgetary accounts by government officials.

Unfortunately, corruption probably has existed since the second human was pulled from the primordial ooze by the first – who then possibly demanded “baksheesh” for services rendered. Its first mention in recorded history seems to have been by the prophet Jeremiah 2,600 years ago, lambasting listeners with: “the heart is deceitful above all things, and desperately wicked” (Jer. 17:9).

Yet who is bold enough to admit corruption is irresistible and unconquerable? That it must be built into human DNA, especially because of financial insecurity and/or the desire to live like the 1% (the “emulative ethic”).

A few have tried valiantly but vainly to eradicate its root and branch. Most efforts have been punitive and futile: execution, lifetime exile, long prison sentences, restitution, forced resignations, public-office bans and public shaming.

Permanent exile was decreed in 1302 for Italy’s major poet Dante Alighieri, found guilty of corruption when he was a young superintendent of Florence’s roads. His public penance has to have been the epic poem The Divine Comedy, whereby the corrupt were thrown into a boiling waterway of sticky tar in Hell’s eighth circle. In case readers missed his point, that fate was enhanced by terrifying illustrations of Paul Gustave Doré that still might give pause to the tempted.

Public outrage over government corruption may simmer for years, but never erupts until (accompanied by contempt) it reaches astronomical levels and most people are starving. It triggered the French revolution and is endemic in Latin America.

Corruption Protests Break Out in Honduras and Guatemala

This spring, tens of thousands of Hondurans and Guatemalans started weeks of demonstrating to oust corrupt government officials. Honduran demands are for resignations of the president and others for letting businesses steal $330,000,000 from social security funds and public hospitals.

In Guatemala, it was customs-house corruption involving at least $120,000,000 in import/export taxes and inflated contracts with Mexico’s Pisa Pharmaceutical ($14,500,000). The president just lost an appeal to answer corruption charges; the vice president, her aide and four cabinet ministers have resigned; several judges, law firms and dozens of minor officials either are under arrest or investigation.

Both uprisings may have triggered demonstrations in Brazil, Chile, Ecuador and Mexico.

It’s often said that the poorer the country and the fewer the watchdogs, the greater the corruption. Yet others claim that the richer the country, the more complex the tax structures and the more people “involved in transactions, the more risk … for corruption.”

Case in point: Though the largest corporations have little difficulty auditing operations to the penny, the US Department of Defense for years has evaded auditing because of “serious financial management problems.” That verdict strongly hints that goods and services continue to be overpriced because contractor gratuities are included. But if they applied for a corruption deduction, this ruinously, long-time, expensive game that taxpayers are forced to play would be over. All parties might save billions.

At present, multinational and local business payoffs for government contracts and services mean less profits for stockholders and staff which, in turn, curtail sales and development. Ultimately, that spells stagnation in the shark-filled waters of competition. So whistleblowers are few – even with rewards of recovered-sum percentages or maintaining integrity – because retaliation is swift whether shunning, separation packages or physical retribution.

De Tocqueville Notes Corruption in Early US History

French historian and writer Alexis de Tocqueville, in his nine-month 1831 visit to the United States noted corruption’s ever-present existence wherever he stopped. He never visited Chicago, of course. This year, that city again was ranked as the nation’s “capital ofcorruption” by the University of Chicago’s political science department. Four of Illinois’ last seven governors have gone to prison forcorruption, the most recent being the flamboyant, fiery and jaded Rod Blagojevich now doing 14 years in federal prison.

Most people seem to shrug off or defend corruption with the usual rationalizations that “it’s how business gets done” or “they’ll never miss the money.” When a City of Portland, Oregon, subordinate confronted the now ex-finance director what he would do if his money-moving around bureaus were discovered, he quipped: “If it comes up, I’ll say ‘oops!'”

It’s a given that revenue skimming or bureaucratic money shifting to “protect” allocations inevitably leads to budgetary shortfalls for people’s basic needs: police, firefighting, roads, pensions, healthcare, food and water supplies, garbage pickup and aid to the disabled and destitute. The latest study on Chicago malfeasance pointed out that:

Corruption is not funny and it is not free. Its costs are steep. We all pay a staggeringly high corruption tax and we suffer from diminished government services. In addition, we are handicapped by a poorly functioning democracy because a large number of our citizens – with good reason – have lost faith in the honesty and fairness of government.

When corruption causes destruction, deaths and lifetime injuries, excusing it as cultural custom is criminal. For example, in the 2010 Haiti earthquake, more than 300,000 were killed in collapsed buildings, chiefly because bribes paid to governmental officials meant ignoring construction codes. Yet how many have those responsible wound up in prison? Have inspections become more rigorous? Did this calamity change building codes around the world?

LIBOR’s $9 Billion Fine for Corruption

In the private sector, six global banks – among them, Citi, JPMorgan Chase and Barclays – just pleaded guilty to years of collusion in rigging worldwide interest-rates off LIBOR (the London Interbank Offered Rate) on such things as car loans and mortgages from a $5,000,000,000,000 “cookie jar.” It took at least two years of investigations by several federal departments and British regulators. Insider corruption extended from 2008-2013, so payoffs had to have been astronomical. Another suspicion still is why financial experts around the world, quick to detect a scam, did nothing back in 2008 when rate collusion had to have seemed obvious.

Though underlings doing the actual manipulations were fired or fled, several are facing possible 30-year sentences. Total collective fines and penalties are nearly $9,000,000,000, but between insurance coverage and business-reverses tax write-offs, the actual amount paid will seem like chump-change to executives condoning super-grand larceny. Who says crime doesn’t pay?

Throughout the world, the wealthy might sue public or private entities, but most people have had to grudgingly accept such corruption in local governments. They revolt only when the amounts reach astronomical heights and they are starving to death. Mostly, they shrug or sigh, knowing that if justice gets done at all, it will proceed at the speed of swimming upstream in a Dante-like tar pit. They’ve learned that corruption requires thousands of tax dollars for investigation and prosecution, too often for no conviction. Additionally, many think sums stolen from their taxes are minuscule or a small price to pay for safety on the streets, fire protection and running water.

Judging from the popularity of movies and television comedies with Robin Hood-like plots, millions take vicarious pleasure at what likeable thieves get away with. Witness the secret admiration for longtime felonious tyrants such as Indonesia’s late president Mohamed Suharto, or dupes like US President Ulysses S. Grant, the Civil War hero, or Italy’s tough tycoon, ex-premier Silvio Berlusconi. Prison was waived because of his age (78), and the four-year sentence was reduced to one for community service in a care center where he’ll probably charm residents into supporting a return to politics.

It’s true that many US presidents have been rigorously honest, even stingy, like Calvin Coolidge. Thomas Jefferson did wipe out Barbary pirates demanding “tribute” from US merchants. But more than a dozen years later, Andrew Jackson embraced the spoils system by ousting sitting civil servants for new ones, launching no end of nepotism, inflated salaries and influence peddlers.

Take foreign aid, for example. Despite perennial Congressional outrage at such spending, no president has ever dispatched a ruthless, eagle-eyed IRS team abroad to wipe out modern governmental pirates siphoning sums from taxpayer dollars. Last year’s allocation was $23,400,000,000. It was topped off by the $13,500,000,000 contribution to the World Bank to spread around its client countries.

The Advent of Anti-Corruptive Organizations

Interestingly, one phenomenon since the 1960s has been the advent of the anti-corruption “industry.” To date, at least seven nonprofit international semi-policing organizations have started since the increase in global commerce and resource extraction. They operate on the assumption that multinational companies need a blacklist of the most corrupt countries and eradication methods. Corruptive deeds are collected annually by local interviewers, surveys, case studies, media reports, thousands of documents and field visits. Located in major cities, these groups have from 37 to 178 participating nations and are funded by institutions, businesses and governments.

They range from the UN’s Convention Against Corruption and Britain’s Serious Fraud Offices and Global Witness organizations, tothe Rand Corporation and the US Justice Department’s agency pursuing violators of the Foreign Corrupt Practices Act.

Annual conferences are in luxurious settings – Paris, Vienna, Prague, St. Petersburg, Bali, Manila, Doha, etc. Data is pooled from participating nations and corporations about corruption prevention, detection and enforcement. Workshop agendas involve hostage-takings, waste, safety, delays, governmental response and prosecution, ancient enforcement ideas (shaming public officials) and new ones. Structural-system changes, an essential to fight corruption, don’t seem to be included probably because they’ve never worked for long. Annual reports contain discussion content and participant recommendations.

Blacklists with rankings of offending nations are a specialty of the Berlin-based Transparency International. Out of 174 nations it investigated in 2014, North Korea and Somalia were ranked as the most corrupt. The most corrupt leader in history so far has been Suharto, who from 1967-98, embezzled $35,000,000,000 from Indonesia’s treasury. Arizona was the United States’ most corrupt state in 2014, with California and Kentucky as runners-up.

The bribery wing of the 54-year-old Paris-based Organisation for Economic Cooperation and Development reported that only 217 people went to prison from 1999-2014, though 390 investigations were ongoing.

Transparency International’s Blacklist of Corrupt Countries

Transparency International’s (TI) blacklist requires a 74-member staff and an operating budget of $26,557,685.39 (FY 2014), of which $25,439,558.30 came from “governments and multilateral donors.” Only $513,558.37 was allocated for research.

Its annual study is focused on transparency, accountability and corruption levels, and depends on reliable field interviews by various firms, but lacks uniform questions mandated in quantitative research. None asked questions as specifically definitive as TI’s Economist interviewers:

• Are there clear procedures and accountability governing the allocation and use of public funds?

• Are public funds misappropriated by ministers/public officials for private or party political purposes?

• Are there special funds for which there is no accountability?

• Are there general abuses of public resources?

• Is there a professional civil service or are large numbers of officials directly appointed by the 
government?

• Is there an independent body auditing the management of public finances?

• Is there an independent judiciary with the power to try ministers/public officials for abuses?

• Is there a tradition of a payment of bribes to secure contracts and gain favors?

At least this new industry provides jobs, superb résumé credentials, five-star travel perks and hobnobbing with national leaders, as well as furnishing income for conference cities, annual-report designers, and print shops.

But most businesses already know which countries are the most/least corrupt. One known factor about developing nations is that one set of corrupt officials ousted by army coups or risings will just be replaced by another. For the most part, this industry’s dismal statistics indicate nothing much is going to stop world population to whom corruption is second-nature. As one expert explained this reality:

Anti-corruption discourse has a limited political horizon. It tends to focus on the individual immorality of corrupt officials, rather than the structural contradictions that make corruption a ubiquitous feature of political life. At the heights of wealth and power, the law can be bought or intimidated… In the poorest villages, corruption is an inevitable consequence of engaging with these same powerful entities that demand complicity, and who distribute insufficient resources to structurally impoverished communities for political support. Anti-corruption reforms rarely seek structural change and disproportionately criminalize the most vulnerable.

What is needed on the corruption front is that its angriest opponents either accept it as a given in life, or lobby legislatures to permitcorruption deductions from taxes, whether for restaurant tips or buried within bids by major Pentagon contractors such as Lockheed Martin or Halliburton.

Advantages of a Corruption Tax Deduction

Think of the advantages of a tax deduction in this country.

Corporations such as General Electric and Bell Helicopter Textron might curtail inflated prices for goods and services. It could mark an end of ripoffs unquestioned by Pentagon purchasing officers – e.g., $10 aluminum sleeves for $2,286, a $295.57 bushing, $205.57. Most have price data that couldn’t be pried from those military vendors. Because all contractors would be affected equally, previous inducements could be shifted into significant company earnings, benefiting management and stockholders. If “no-bid” contracting also stopped, selections might be based on performance.

The Department of State certainly could certify and deduct documented baksheesh demanded of US businesses by foreign government officials. To offset lost revenues, the department could deduct them from a country’s foreign aid and military goods. Or cut off aid altogether until recipients permit an IRS inspection team to track its distribution. How much would be retained in the federal vaults? This year’s allocations for Honduras and Guatemala are a collective $107,099,000. Such draconian action might well force foreign aid recipients to fire the light-fingered or at least deduct corruption totals – on a percentage basis – from paychecks of presidents to parking attendants and army privates.

The US Justice Department would save millions on terminating hot pursuit of Foreign Corrupt Practices Act violators, thus ending complaints by US and UK businesses about hobbling competition. After all, all those involved in the years of investigating and prosecuting LIBOR corruption were not working for the federal minimum of $7.25 an hour. A telling factor about corruption is that Blagojevich’s conviction was a federal effort that took nearly six years of US taxpayer dollars to the day Blagojevich donned prison garb, and now, bills for his “three-hots-and-a-cot.”

Justice Department personnel could be shifted, say, into prosecuting and convicting bank officials responsible for past and future market crashes. And both US and UK governments would fill treasuries with billions in fines.

So amounts saved taxpayers would not be chump-change. They would involve court recoveries, potential savings in foreign aid, the US share of LIBOR’s $9,000,000,000 fine, and $9,000,000 from Pentagon excess payments. They could address today’s critical domestic needs such as infrastructure repair, public schools and housing, or indigents’ health care and food supplies.

Consider also the stress relief for scrupulously honest accountants, auditors and attorneys worried about serving time for perpetrators at the top. For once, these subordinates would have some power and influence in refusing to cook the books. Think, too, of alleviating fears and monetary losses of those involved in collaring corruption kingpins Suharto, Berlusconi and Blagojevich. How many informants, witnesses, attorneys and judges put careers and lives in jeopardy for such feats. Retaliatory risk – even years afterconviction – explains why so few whistleblowers exist and why thousands would appear if corruption were tax deductible.

What about lost governmental revenues from those corruption deductions, as well as non-public services such as restaurant tips?

Any additional shortfalls could be covered by deductions from all public employee paychecks – including the armed services – on that across-the-board percentage basis. By applying the law-of- large-numbers precept, the millions on that payroll would mean individual loss would be nickels and dimes. A side benefit would be an army of jealous snitches keeping coworkers honest.

The mechanics of documenting those deductions are already in place. Hotels and restaurants in foreign countries always have listedgratuity charges. Credit-card receipts have spaces for tips, and today’s cash registers even offer choices on those percentages. For big-ticket goods or services, whether public or private, customers would have only to submit original invoices with documents of perhaps three comparative prices. That might even curb impulse buying.

True, some tax collectors here and abroad might be on the take, but people with sizable deductions – especially those ferociously opposed to corruption – can be counted on to become equally ferocious whistleblowers. Above all, this kind of deduction could eradicate most corruption. Everything else has been tried and, mostly, without success.