Mad About the Wrong Thing

It always confounds me how my dad can heap all this country's woes on lazy welfare queens and illegal immigrants, but is completely unfazed by egregious stories of abuses by the wealthy. Two juxtaposed stories in the news today reminded me of this.

The first one recounts how a whistleblower got a $104 million reward for exposing tax evasion that resulted in the Swiss bank UBS AG paying a $780 million fine. This is the sort of tax scam that Republican president candidate Mitt Romney may well have gotten amnesty for, considering his "investment strategy" using Cayman Island and Swiss banks. But since he won't release his tax returns for those years we can't know for sure.

The second story on tax fraud hits closer to home, as the perp lives in the same suburb I do.

A onetime Shakopee businessman has been sentenced to the workhouse for diverting nearly $1 million in taxes due to the IRS from his company over a time when he earned a healthy six-figure annual income and collected vintage cars and motorcycles. 

Stephen P. Clough, 65, of Minnetonka, was sentenced in federal court in St. Paul to four months in the workhouse, three years of probation and fined $25,000 for failing from 2003 to 2010 to pay federal income and employment taxes from workers at Gamma Vacuum, which makes industrial pumps and vacuums.

Clough's long-running crime resulted in losses to the IRS totaling more than $944,000. He pleaded guilty in May, and the company paid the employment portion of the total. 

In arguing to the court for prison time, prosecutors noted that Clough's personal wealth grew to more than $2 million and his income at Gamma was about $500,000 for each of last three years he worked there. He also owned two homes, several vintage cars and motorcycles and had a personal cash reserve.

Clough's defense countered in a presentencing motion that Clough should receive home confinement because his crime was motivated by trying to keep the company viable. 

His argument is that he had to commit $1 million worth of tax fraud to keep his company afloat while earning $1.5 million in salary. Didn't it ever occur to him to reduce his own compensation and that of his management team to make up the difference? He could have paid those taxes all by himself and still took home $160,000 a year, more than three times the median salary of the average American household.

A million dollars worth of tax fraud here in Minnesota, a few billion there in Switzerland, pretty soon we're talking real money. The IRS estimates that it loses more than $300 billion a year to tax fraud. This country has a huge debt, due in large part to all those wars we've been fighting in the Middle East and the Bush tax cuts, which mostly benefited people like Clough, Romney and other wealthy people who deposit their money in Swiss banks.

Clough's story is emblematic of what's wrong with American business. Though most execs don't blatantly cheat on their taxes, many — GE and Apple, for example — are abusing the system and pay next to nothing in taxes. But like Clough, when their companies are hit by hard times, it rarely occurs to them to take a cut in their multimillion-dollar paychecks. Instead, they slash employee wages, fire workers and close plants to prove to shareholders that they've got balls. And then they take home a big fat bonus.

That's what my dad should be getting mad about.