Rachel's Democracy & Health News #888

"Environment, health, jobs and justice--Who gets to decide?"

Thursday, January 4, 2007...............Printer-friendly version
www.rachel.org -- To make a secure donation, click here.

Featured stories in this issue...

Stepping Back from the Brink of Global Warming
  Global warming is the greatest threat to human well being and the
  greatest issue of justice on the planet. To fix the problem, we just
  have to dive in.
Jan. 9 in Chicago -- Global Warming: What Can You Do?
  If you live in the Chicago region, you'll want to attend this
  town-hall meeting to learn more about the challenges and
  opportunities of global warming. This is a great chance to connect
  with local grassroots groups and learn about local and regional
  initiatives to curb global warming.
Carry on Polluting
  To reduce global warming, wealthy nations like the U.S. favor
  pollution trading. Larry Lohman argues that it won't work.
Our Futile War on Cancer
  After 35 years of waging a "war on cancer" maybe it's time to take
  stock. If progress continues at the present rate, cancer deaths in the
  U.S. should be entirely eliminated by the year 3508, a little more
  than 1500 years from now.
Diesel Construction Equipment Creates 'Staggering' Pollution
  Diesel soot from construction equipment is blamed for thousands of
  illnesses and premature deaths.
How Corporations Evade Their Fair Share of Taxes
  A former drug company official blows the whistle on corporate
  techniques for evading taxes.
Correction -- the Real Scoop on Biofuels
  The story 'The Real Scoop on Biofuels' by Brian Tokar in last
  week's Rachel's News was originally published in
  Synthesis/Regeneration Winter 2006 edition. We credited
  ww4report.com, where a revised version of the story was published. We
  apologize for the error.


From: Rachel's Democracy & Health News #888, Jan. 4, 2007
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By Tim Montague and Peter Montague

Scientists now agree that we have to make huge reductions in
greenhouse gas emissions for the next twenty five years and beyond
if we want to limit, then reverse, global warming. This means burning
fewer fossil fuels (oil, natural gas and coal). It also means
acknowledging that global warming is not mainly a technical problem,
but a social and political problem -- primarily an issue of global

Humans, worldwide, currently use a steady 13 trillion watts of power.
By 2050, an additional 30 trillion will be needed, according to U.S.
government energy experts. Even if these projections are exaggerated
because they fail to account for conservation opportunities, the
challenge of our era is to provide sufficient power without creating a
climate catastrophe -- or covering the planet with nuclear power
plants, which create opportunities for nuclear weapons. Unfortunately,
so far, the people most affected by global warming have generally been
excluded from the discussions of how to solve it.

Global warming will increase the average global temperature but it
will also cause the sea level to rise, change agricultural patterns,
and increase the size and frequency of "natural" disasters such as
floods, droughts, intense storms, and epidemics of disease like
malaria and dengue fever.

As hurricane Katrina showed us, the impacts of these changes will
disproportionately affect women, youth, coastal peoples, local
communities, indigenous peoples, fisher folk, small island states,
poor people and the elderly. Hardest hit will be people in the global
south and in the southern part of the global north -- the people who
are least responsible for creating the problem. As a result, a
people's movement for "climate justice" is now growing worldwide.

Time is getting short for devising solutions. In September, 2006 NASA
scientist James Hansen warned "I think we have a very brief window
of opportunity to deal with climate change... no longer than a
decade, at the most," to limit the increase in global temperatures to
1 degree Celsius (1.8 degrees Fahrenheit).

The main global warming gas is carbon dioxide (CO2). CO2 levels in
the atmosphere are now 382 ppm (parts per million) up from pre-
industrial levels of 280 ppm -- a 36% increase. If we pursue business
as usual, CO2 levels are expected to pass 500 ppm by mid-century,
which would could cause warming of 2 to 5 degrees Celsius (3.6 to 9
degrees Fahrenheit). If this happens, many parts of the earth will
become unpleasant -- even deadly -- places to live.

We in the U.S. have a special role to play -- we are 5% of the global
population producing 25% of all global warming gases. To make room
for needed economic growth in other parts of the world, we will need
to shrink our carbon footprint drastically. Right now the United
States is a global outlaw -- we have refused to endorse the Kyoto
Protocol (the United Nations [U.N.] strategy to reduce greenhouse
gas emissions) through improvements in energy efficiency, public
transit, and clean energy production). As China and India
industrialize and seek the good life -- a new coal burning power
plant goes online each week -- we could be reducing our energy use

Despite the absence of leadership at the federal level, some locales
in the U.S. are starting to take action:

** From Boston to Seattle, city governments are pursuing plans to
meet and beat the Kyoto Protocol

** Boulder Colorado recently adopted a 'climate tax' -- an extra fee
on electricity use (also called a carbon tax, because most of our
energy produces carbon dioxide). Seattle has imposed a new parking
tax and the mayor hopes to charge tolls on major roads to discourage
driving (if you want to enter the city in a car, you pay a toll).
Boston recently passed a green building ordinance requiring all
new buildings over 50,000 sq. feet to meet strict energy efficiency

We can create a climate safe economy through organized collective
action at all levels of society from the neighborhood and
community to the national and international policy level.

Global warming is the result of unsustainable economic practices. To
make our economy sustainable, our per capita consumption -- energy,
forest products, metals, plastics, etc. -- has to shrink roughly five-
fold. Those changes will only happen when organized residents send a
resounding message to their elected officials. The size of the needed
commitment is similar to the effort the U.S. made in World War II.
The changes in energy, transportation and food systems we discuss
below are changes that will require national solidarity and
collective sacrifice.

Energy efficiency

According to the World Resources Institute energy accounts for
65% of U.S. greenhouse gas emissions (this includes electric
utilities, transportation, industrial, residential and commercial
uses). Much of this is used for heating, cooling and lighting
buildings, which together make up 12% of U.S. greenhouse gas
emissions. Switching to energy efficient fluorescent lighting which
uses 75 percent less energy (and last ten times as long as
incandescent bulbs) is a first step consumers and businesses can take
immediately. Much greater savings are achieved by upgrading a
building's thermal insulation, machinery and appliances -- applying
what Amory Lovins of the Rocky Mountain Institute calls 'whole-
system' design -- whereby buildings can be made 75 to 90 percent more
energy efficient. Lovins reports that energy efficient homes in
Davis California cost $1,800 less to build and $1,600 less to
maintain over their lifetime than a conventional home of the same
size. Energy efficient building designs allow us to build homes
and offices without a furnace or other traditional heating system,
even in cold climates (and vice versa with air conditioning in warm
climates). There are high tech solutions like using thick layers of
polystyrene insulation and triple layered windows; and low tech
solutions like building strong, beautiful homes out of straw-

Switching to energy efficient buildings and consumer devices will not
only reduce greenhouse gas emissions, but will also create huge
dollar savings. Industry, which accounts for 17% of U.S. emissions,
is already cashing in on advances in energy efficiency by installing
energy efficient motors and other machinery. According to Lovins,
DuPont has reduced its heat-trapping emissions by 72 percent over the
last decade, saving more that $2 billion so far. All said, we could
easily reduce greenhouse gas emissions by at least 50% in the
residential, commercial and industrial sectors applying today's know


Transportation generates a third of our nation's greenhouse gas
emissions. The Union of Concerned Scientists reports that the fuel
efficiency of the U.S. auto fleet improved by 70 percent between 1975
and 1988, saving American consumers $92 billion. Federal corporate
average fuel economy (CAFE) standards have since stagnated. Doubling
the fuel efficiency of our cars and trucks is doable and would reduce
total heat-trapping emissions by 10 percent. That improvement could
be made today if everyone drove a vehicle getting 55 miles per
gallon, as some cars can now do.

Simply driving less is a cheaper and healthier alternative. We could
reduce our greenhouse gas emissions again by 10 percent by driving
half our normal annual distance of 10,000 miles and taking public
transit, biking and walking instead. (Public transit accounts for
less than 1 percent of American's miles traveled according to the Pew
Center on Global Climate Change.) Emissions from U.S. light
trucks and cars are the fifth largest global source of greenhouse
gases -- more than many large countries -- according to the Union of
Concerned Scientists.

Even when carbon-neutral hydrogen powered vehicles become available,
living on less land with better public transit and pedestrian-
friendly designs is the obvious way to go. And don't get swept up by
the biofuel craze (ethanol from corn and biodiesel from soy). Brian
Tokar of the Institute for Social Ecology reports, "The entire
corn and soy harvest combined would only satisfy 5.3% of our current
[fuel] needs." Converting precious food crops to fuel for hugely
inefficient cars and trucks just doesn't make economic or ecological
sense. Conservation is by far the cheapest, easiest way to reduce our
contribution to global warming.

The food we eat

When asked what's wrong with our food system today, Berkeley
professor Michael Pollan answers, "I'd have to say the most serious
problem with the food system is its contribution to global warming."
Our food production system is unsustainable for many reasons. How
we grow our food, how far it travels and what kind of food we eat all
impact the environment. Agriculture (not counting transportation
costs) generates 8% of our greenhouse gas emissions.

The Worldwatch Institute reports that our food regularly travels
1,500 to 2,500 miles from farm to plate. Growing our own food and
buying it from local farmers and community supported agriculture
(CSA) farms are first steps to reducing our food footprint. Cuba
is a good example of a country that has developed urban agriculture
and alternative energy for food crops.

The Crossroads Resource Center reports that in Minnesota if
consumer's purchased just 15 percent of their food from local farmers
it would generate as much income for farming communities as two-
thirds of farm subsidies. Community supported agriculture (CSA)
programs that offer consumers a variety of fresh, locally grown
fruits and vegetables are a great way to support the local food
economy. The CSA Learning Center on Chicago's south side educates
youth and residents about local farming and helps low-income families
get healthy food.

Meat is a major contributor to greenhouse gas emissions too.
Methane is 21 times more powerful a greenhouse gas than CO2, and
livestock are a major source -- about one sixth -- of atmospheric
methane. According to the United Nations Food and Agriculture
Organization, livestock's contribution to global warming is
greater than that of transportation on a global basis. Global meat
production is expected to double in the next 45 years. So it's clear
that reducing meat in our diet is a key step as well as
localizing our food sources.

Clean, renewable energy

Energy from wind and sunlight is abundant and relatively clean, and
it reduces global warming. Wind energy is the fastest growing source
of electricity in the world today. According to the Institute for
Energy and Environmental Research (IEER) we could meet all our
electricity needs if we harnessed the wind resources of just three
states -- North Dakota, Texas and Kansas.

Solar photovoltaic cells have considerable potential too. More solar
energy hits the earth in 60 minutes than all of humanity consumes
in a year. However, harvesting that energy will not be simple or
easy. We could meet 10% of our electricity needs by putting solar
cells on existing rooftops, according to a report in Science
magazine. State programs like the California Solar Initiative aim
to make electricity from solar cells cost-competitive with coal and
nuclear -- industries that have collected more than $500 billion in
subsidies over the past fifty years according to Environment
Illinois. In the next ten years California is expected to more
than triple its solar power capacity to 3,000 megawatts, but even
this is a still drop in the bucket.

If we converted our economy to 100% wind and solar power -- which we
might be able to do in 30 to 50 years if we made it a national
emergency goal -- we could avoid at least 50% of today's greenhouse
gas emissions and vastly reduce fine-particle air pollution, which is
killing 60,000 Americans per year. As Coop America's report on
making the transition to a climate safe economy suggests, this
requires an immediate moratorium on all new coal and nuclear power
plants, something corporations are not prepared to do without
enormous pressure from community groups.

Luckily, community groups are on the case. The international climate
justice movement has established a set of principles to guide its
work, and the movement is growing.

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From: Eco-Justice Collaborative, Jan. 9, 2007
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Town Hall Meeting: Global Warming -- be part of the solution
Saturday, January 20, 10:00 AM to 12:30 PM
Whitney Young High School, Chicago
211 South Laflin Street, Chicago IL 60607

Take part in this engaging town-hall style meeting about real
solutions to curbing global warming, participate in Q & A with
panelists, and connect with dozens of grassroots organizations.

The event features Sadhu Johnston, Commissioner for the Chicago
Department of Environment, with Rev. Calvin S. Morris Ph.D., Exec.
Director of Community Renewal Society moderating, and panelists Rev.
Clare Butterfield, Director of Faith-in-Place, Center for
Neighborhood Technology's Steve Perkins, Sr. Vice-President,
Lori Morrison Contreras, Vice-President of Little Village
Environmental Justice Organization, and James Thindwa, Executive
Director, Jobs With Justice.

Download the event flier here

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From: New Scientist (pg. 18), Dec. 2, 2006
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By Larry Lohmann

Of all the schemes under discussion to stop or limit catastrophic
climate change, one of those getting most attention is pollution
trading. This popular but little-tried idea lies at the heart of some
of the most prominent international approaches to the problem,
including the Kyoto protocol and the European Union's Emissions
Trading Scheme (EUETS). The trouble is, it won't work.

Pollution trading was developed in the U.S. in the 1980s and 1990s
to make reducing emissions cheaper and more palatable for heavy
polluters. The idea is that if business A can reduce emissions more
cheaply than business B, then B can pay A to make reductions for both
of them. Moreover, by putting a price on emitting greenhouse gases,
trading is meant to encourage businesses to invent new technologies to
replace fossil fuel use.

This approach is misguided. Arguably, the U.S. sulphur dioxide
trading programme of the 1990s helped businesses save money in meeting
modest short-term reduction targets for a single substance. But global
warming requires a more radical solution: nothing less than a
reorganisation of society and technology that will leave most
remaining fossil fuels safely underground. Carbon trading can't do
this. It just encourages the industries most addicted to coal, oil and
gas to carry on much as before. Why bother making expensive long-term
structural changes if you can meet your targets by buying pollution
rights from operations that can cut their carbon cheaply?

What's more, carbon trading schemes have tended to reward the heaviest
polluters. Heavily polluting industries and nations are being granted
roughly as many free pollution rights -- which they can trade
lucratively -- as they need to cover current emissions. Under the
EUETS, some of the worst greenhouse offenders, such as the German
utilities group RWE, have earned hundreds of millions of euros in
windfall profits just for pursuing business as usual. Meanwhile
ordinary citizens suffer higher electricity prices, and renewable
energy developers must beg for funds.

The EUETS and the Kyoto protocol are further weakened by loopholes
that allow big polluters to buy cheap "offset" credits from abroad. A
British cement firm or oil company lacking enough EU permits to cover
its emissions can make up the shortfall simply by buying credits from,
say, a wind farm in India, a scheme to destroy HFC refrigerants in
Korea, an energy efficiency programme in South Africa or a project to
burn landfill gas to generate electricity in Brazil.

Such projects are merely supplementing fossil fuel use; they are not
replacing it. The institutions most eager to set up offset projects -
from the World Bank to Tokyo Power -- are precisely those most
committed to burning up more and more fossil fuel. Covering the land
with windmills and biofuel plantations will be of little use unless
fossil fuel extraction is stopped.

The damaging effects of carbon trading schemes are felt severely in
poor countries. The Durban Group for Climate Justice has documented
that almost all the carbon credits are generated by polluting
companies, while communities that follow climate-friendly practices
such as preserving local forests or defending their lands against oil
exploitation are ignored. Only big firms can afford to hire carbon
accountants, liaise with officials and pay the costs of getting
projects registered with the UN. Yet these are often the companies
that local people battle hardest against in defence of their
livelihoods and health.

The U.S. wrote carbon trading into the Kyoto protocol before
abandoning the treaty to its fate. The sclerotic market apparatus that
resulted does not serve anyone's best interests. It helps keep an
oppressive, fossil-centred industrial model going at a time when
society should be abandoning it.

There are better ways of tackling climate change than by privatising
the Earth's carbon-cycling capacity. Public investment, shifting
subsidies away from fossil fuels and toward renewables, conventional
regulation, support for the work of communities already following or
pioneering low-carbon ways of life, requiring that businesses pay the
costs their competitors incur in developing green technologies -- all
these are stronger and more direct ways of bringing about the
structural change required.

Historians of science tell how scientists who supported the old
European astronomical model that placed the Earth at the centre of the
universe had to add more and more elaborate, ad hoc refinements or
"epicycles" to their calculations in order to account for planetary
movements. Carbon trading is like one of those epicycles. It's time it
was replaced.

Larry Lohmann works for the UK-based NGO The Corner House. He is
editor of Carbon Trading: A critical conversation on climate change,
privatisation and power, published last month by the Dag Hammarskjold
Foundation, the Durban Group for Climate Justice and The Corner House.

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From: New Scientist (pg. 19), Dec. 16, 2006
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By Ralph Moss

Next week will mark the 35th anniversary of the National Cancer Act,
the opening salvo of the US government's battle to eradicate cancer.
In those 35 years, the US has spent tens of billions of dollars on
cancer research, and we are frequently told that this has won us
significant progress. Look at the data, though, and the picture is
more confusing. Are we really winning the war on cancer?

In 1971, when the National Cancer Act was signed, we were assured that
cancer would be cured by 1976. Since then this and other targets have
come and gone, leaving the ultimate goal as distant as ever. Until
recently, the National Cancer Institute (NCI) in Bethesda, Maryland,
stuck by the astonishing claim that all suffering and death due to
cancer would come to an end by 2015, and continues to quote a former
director as saying that every benchmark of the 1971 congressional
mandate has been achieved.

In the US, the number of people diagnosed each year with cancer stands
just shy of 1.4 million, nearly double what it was 35 years ago, and 1
in 2 men and 1 in 3 women are expected to get cancer at some time in
their lives. Those who wish to continue on the course we have followed
till now naturally present the situation in as favourable a light as
possible. We are told that while a cancer diagnosis 35 years ago was
inevitably a death sentence, many cancers today are curable. Yet it
has been known for 100 years that cancers are generally curable if
they can be removed while still in their early stages. When somebody
dies of cancer it is usually because it has spread from one site in
the body to another, yet over the past 35 years the death rate from
most of these metastatic cancers has remained largely unchanged.

Similarly, apologists for current strategies often cite improvements
in five-year survival figures as proof of progress. While only half of
those diagnosed with cancer in the 1970s survived five years, today
two-thirds survive to the five-year mark. On the surface, this sounds
like a big step forward, but it ignores a statistical artefact known
as "lead-time bias". Thanks to widespread screening, people are often
now diagnosed with cancer earlier in the course of their disease than
they would have been in the past. However, the natural history of the
disease has not changed at all: the time of death is typically the
same as it would have been had the disease been diagnosed later.

It is also important to examine what exactly the term "cancer" is
being used to describe. The introduction of sensitive screening tests
has meant that more patients are being diagnosed with pre-symptomatic
forms of the disease. Up to 30 per cent of all breast cancer
diagnoses, for example, are now of the pre-cancerous (in situ or non-
invasive) type, a large proportion of which -- perhaps the majority,
according to some cancer specialists -- might never progress to
invasive cancer. Many of these people are being labelled as cancer
patients and counted as having been cured of a condition that would
never have killed them.

Or take the example of prostate cancer. Over the past two decades,
largely as a result of the widespread use of prostate specific antigen
(PSA) testing in the US, there has been an enormous upswing in the
diagnosis of early-stage prostate cancer. Most of the abnormalities
discovered in this way are clinically unimportant, and would rarely
progress to become life-threatening malignancies. Obviously, the more
people who are labelled as prostate cancer patients, yet who have
forms of the disease that are essentially non-invasive and not life
threatening, the better survival statistics look.

We also need to examine precisely how cancer statistics are kept.
Cancer registries, such as the NCI's SEER database, rely solely on
information provided by death certificates. Yet cause of death is
often recorded as, for example, pneumonia or liver failure, when in
fact the underlying cause is advanced disseminated cancer. Another way
in which cancer mortality is underestimated arises from the steady
decline in the number of routine autopsies done on patients who die in
hospital. In the US, for example, the autopsy rate has plummeted from
around 45 per cent several decades ago to approximately 11 per cent
today. Some hospitals now perform autopsies on fewer than 5 per cent
of patients who die there.

Meanwhile, the unembellished statistics speak for themselves. In 2002,
for example, the number of cancer deaths in the US was 557,272. In
2003, it dropped to 556,902, an absolute decline of 370 deaths. Hardly
a cause for wild celebration, one would think. Yet this blip on the
epidemiological radar screen set off a chorus of self-congratulation
in the US media. "It proves that our expectation of continued progress
against cancer is well-founded," said Andrew von Eschenbach, then
director of the NCI.

Really? If progress continues at this rate, cancer deaths in the US
should be entirely eliminated by the year 3508, a little more than
1500 years from now.

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From: Los Angeles Times, Dec. 6, 2006
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By Janet Wilson, Times Staff Writer

The effects of air pollution from construction equipment in California
are "staggering," according to a report by the Union of Concerned

The environmental group concluded that at least 1,100 premature deaths
and half a million work and school absences in 2005 were caused by
people breathing emissions from older tractors, bulldozers and other
diesel equipment -- at an estimated public health cost of $9.1

The report was one of two studies released Tuesday on the severe
health hazards of exposure to the soot in diesel emissions.

"This is the first time the health and economic impacts of
construction-related air pollution in California have ever been
analyzed," said Don Anair, author of the report by the Union of
Concerned Scientists. The report urged state regulators to quickly
require owners to retrofit or replace older equipment.

"Construction equipment being used to build our hospitals shouldn't
fill them up.... This is a bill being footed by everyone in
and particulate pollution is a silent killer," Anair said, citing
asthma attacks, cancer and heart disease.

The Los Angeles air basin fared the worst among 15 statewide, with 731
estimated premature deaths, both in the city and in suburban areas
such as Santa Clarita, Temecula and Murietta, where there has been
large-scale construction to accommodate fast-growing populations.

Heavily populated and fast-growing parts of the San Francisco Bay
Area, San Diego and the San Joaquin and northern Sacramento valleys
also experienced high health costs from construction equipment, the
union of scientists' report found.

The second study, by Brigham Young University professor Arden Pope and
a team of doctors, found a sharply elevated risk of heart attacks for
people with clogged arteries after just a day or two of exposure to
diesel soot pollution.

The study was published in Cardiology, the nation's leading peer-
reviewed journal of heart science. One coauthor said the results
should prompt heart doctors to advise those with coronary disease to
stay indoors as much as possible on particularly sooty days, or even
to change jobs or move.

The fine particulate matter that is spewed from diesel engines and
tailpipes lodges "like tiny razor blades" deep in human lungs, said
Kevin Hamilton, a Fresno-based respiratory therapist who reviewed the

Clouds of soot emitted by 750-horsepower excavators can travel
downwind for miles, then drift into heavily populated areas, Anair

An estimated 70% of California's construction equipment is currently
not covered by federal and state regulations because it is too old,
state officials said.

Although federal rules adopted in 2004 require cleaner-emitting new
equipment, the regulations don't cover existing engines. Anair said an
average excavator or tractor can last 20 or 30 years, meaning it could
be decades before all the dirty equipment is replaced.

Calling the timing coincidental, the California Air Resources Board on
Monday released a draft of new regulations for older engines. The
proposal would require all construction, mining and other industrial
off-road equipment to be replaced or retrofitted between 2009 and 2020
as part of an effort to reduce diesel particulate emissions by 85% and
nitrogen oxide, a key ingredient in smog, by 70%, said Erik White,
chief of the board's heavy-duty diesel branch. Public workshops on the
plan will be held this month, and the board is expected to vote next

White said estimated compliance costs could top $3 billion over 11
years but maintained that the $60 billion-a-year construction industry
"is certainly capable of absorbing the impacts."

He added, however, that both cost and a lack of readily available
retrofitting devices -- combined with the need to include smog-
reduction as well as soot-control devices -- meant cleanup would occur

John Hakel, vice president of the Associated General Contractors,
which represents construction equipment fleet owners and general
contractors, said late Tuesday that he had just received the report
and could not comment on specifics. But he said the industry is
dedicated to cleaning up equipment. He agreed it would be a costly and
lengthy process and said state officials and the Union of Concerned
Scientists report appeared to underestimate the sheer volume of
construction equipment, which he estimated at 250,000 to 300,000
machines. The second study found that for every additional 10
micrograms of soot in a cubic meter of air, there was a 4.5% increase
in heart attacks.

In areas like Salt Lake City or Greater Los Angeles, which can
experience wide swings in air quality based on weather patterns, the
risk of heart attack can be 10 times higher than normal on a bad air
day, said Pope, who has done extensive research on the health effects
of fine particles produced by diesel engines. Coauthor Dr. Jeffrey
Anderson, a cardiologist whose patients were among more than 12,000
people with heart disease who participated in the short-term exposure
study, said he was already changing his advice to patients based on
the results, urging them to stay inside on bad air days or, in severe
cases, to move to a more favorable climate.

"By a more favorable climate," Anderson said, "I don't mean Southern
California. I mean in terms of air pollution, a less-polluted



The construction pollution report can be found online at

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From: Counterpunch, Nov. 21, 2006
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How Multinational Corporations Avoid Paying Their Taxes

By Peter Rost, MD

Drug companies and other multinational companies based in the U.S.
systematically avoid paying tax in the U.S. on their profits. The
companies elect to realize profits in low-tax countries and because of
this the rest of us have to pay billions of unnecessary taxes to make
up for the shortfall, writes Peter Rost, an ex-pharmaceutical

The biggest tax scam on earth has a very innocent sounding name. It is
called "transfer prices." That almost sounds boring. It is, however,
anything but boring. Abuse of transfer prices is a key tool
multinational corporations use to fool the U.S. and other
jurisdictions to think that they have virtually no profit; hence, they
shouldn't pay any taxes.

Corporations involved in this scam are "model corporate citizens," or
so they would like us to believe. The truth is that they rob us all
blind. The money we lose can be estimated in the tens of billions, or
possibly hundreds of billions of dollars every year. We all end up
paying higher taxes because rich corporations make sure they don't.

But don't take my word for this.

A few weeks ago U.K.-based GlaxoSmithKline (GSK), one of the largest
pharmaceutical companies in the world, together with the Internal
Revenue Service (IRS) announced that GSK will pay $3.4 billion to the
IRS to settle a transfer pricing dispute dating back 17 years. The IRS
alleges that GSK improperly shifted profits from their U.S. to the
U.K. entity.

And U.K. pharmaceutical companies are not alone with these kinds of
problems. Merck, one of the largest U.S. drug companies, also this
month disclosed that they face four separate tax disputes in the U.S.
and Canada with potential liabilities of $5.6 billion. Out of that
amount, Merck disclosed that the Canada Revenue Agency issued the
company a notice for $1.8 billion in back taxes and interest "related
to certain inter-company pricing matters." And according to the IRS,
one of the schemes Merck used to cheat American tax payers was by
setting up a subsidiary in tax-friendly Bermuda. Merck then quietly
transferred patents for several blockbuster drugs to the new
subsidiary and then paid the subsidiary for use of the patents. The
arrangement in effect allowed some of the profits to disappear into
Merck's own "Bermuda triangle."

So what's going on here, how have multinational drug companies been
able to gouge us for years selling expensive drugs and then avoid
paying tax on their astronomical profits?

The answer is simple. For companies in certain businesses, such as
pharmaceuticals, it is very easy to simply "invent" the price a
company charges their U.S. business for buying the company's product
which they manufacture in another country. And if they charge enough,
poof; all the profit vanishes from the US, or Canada, or any other
regular jurisdiction and end up in a corporate tax-haven. And that
means American and Canadian tax payers don't get their fair share.

Many multinational corporations essentially have two sets of
bookkeeping. One set, with artificially inflated transfer prices is
what they use to prepare local tax returns, and show auditors in high-
tax jurisdictions, and another set of books, in which management can
see the true profit and lost statement, based on real cost of goods,
are used for the executives to determine the actual performance of
their various operations.

Of course, not every multinational industry can do this as easily as
the drug industry. It would be difficult to motivate $6,000 toilet
seats. But the drug industry, where real cost of goods to manufacture
drugs is usually around 5% of selling price, has a lot of room to
artificially increase that cost of goods to 50% or 75% of selling
price. This money is then accumulated in corporate tax-havens where
the drugs are manufactured, such as Puerto Rico and Ireland. Puerto
Rico has for many years attracted lots of pharmaceutical plants and
Ireland is the new destination for such facilities, not because of the
skilled labor or the beautiful scenery or the great beer-but because
of the low taxes. Ireland has, in fact, one of the world's lowest
corporate tax rates with a maximum rate of 12.5 percent.

In Puerto Rico, over a quarter of the country's gross domestic product
already comes from pharmaceutical manufacturing. That shouldn't be
surprising. According to the U.S. Federal Tax Reform Act of 1976,
manufacturers are permitted to repatriate profits from Puerto Rico to
the U.S. free of U.S. federal taxes. And by the way, the Puerto Rico
withholding tax is only 10%.

Of course, no company should have to pay more tax than they are
legally obligated to, and they are entitled to locate to any low-tax
jurisdiction. The problem starts when they use fraudulent transfer
pricing and other tricks to artificially shift their income from the
U.S. to a tax-haven. According to current OECD guidelines transfer
prices should be based upon the arm's length principle -- that means
the transfer price should be the same as if the two companies involved
were indeed two independents, not part of the same corporate
structure. Reality is that standard operating procedure for
multinationals is to consistently violate this rule. And why shouldn't
they? After all, it takes 17 years for them to pay up, per the GSK
example above, even when they get caught.

Another industry which successfully exploits overseas tax strategies
to cheat us all is the hi-tech industry. In fact, Microsoft Corp.
recently shaved at least $500 million from its annual tax bill using a
similar strategy to the one the drug industry has used for so many
years. Microsoft has set up a subsidiary in Ireland, called Round
Island One Ltd. This company pays more than $300 million in taxes to
this small island country with only 4 million inhabitants, and most of
this comes from licensing fees for copyrighted software, originally
developed in the U.S. Interesting thing is, at the same time, Round
Island paid a total of just under $17 million in taxes to about 20
other countries, with more than 300 million people. The result of this
was that Microsoft's world-wide tax rate plunged to 26 percent in
2004, from 33 percent the year before. Almost half of the drop was due
to "foreign earnings taxed at lower rates," according to a Microsoft
financial filing. And this is how Microsoft has radically reduced its
corporate taxes in much of Europe and been able to shield billions of
dollars from U.S. taxation.

But remember, this is only one example. Most of the other tech
companies are doing the same thing. Google recently also set up an
Irish operation that the firm credited in a SEC filing with reducing
its tax rate.

Here's how this is done in the software industry and any other
industry with valuable intellectual property. A company takes a great,
patented, American product and then develops a new generation. Then,
of course, the old product disappears. Some, or all, of the cost and
development work for the new product takes place in Ireland, or at
least, so the company claims. The ownership of the new generation
product and all income from licensing can then legally be shared
between the U.S. parent company and the offshore corporation or
transferred outright to the tax-haven. The deal, to pass IRS scrutiny,
has to be made using the "arms-length principle." Reality is that the
IRS has no way of controlling all these transactions.

Unfortunately those of us working and paying tax in the U.S. can't
relocate our jobs and our income to Ireland or another tax haven. So
we have to make up the income shortfall. In the U.S. we have a highly
educated society with a very qualified workforce, partly supported by
our tax payers. This helps us generate breakthrough products. But once
a company has a successful product, they have every incentive to move
the second generation of a successful product overseas, to Ireland and
a few other corporate tax havens.

There is only one problem for U.S. companies with this strategy, and
that is that if they repatriate this money to the U.S. they have to
pay full corporate taxes. In fact, according to BusinessWeek, U.S.
multinational corporations have built up profits of as much as $750
billion overseas, much of it in tax havens such as the Ireland,
Bahamas, and Singapore to avoid the stiff 35% levy they'd face if they
repatriated the funds back into the U.S.

But of course, Congress, which is basically paid for by our
multinational corporations, generously provided for a one-time
provision in the corporate tax code, so that they could repatriate
profits earned before 2003, and held in foreign subsidiaries, at an
effective 5.25% tax rate.

And so the game goes on.

In the end, multinational corporations live in a global world which
allows them to pretty much send their money to corporate tax havens at
will, and then repatriate this money almost tax free, with the help of
the U.S. Congress.

The people left holding the bag are you and me.

If you want to know learn more about the corruption in the drug
industry, read my new book, The Whistleblower, Confessions of a
Healthcare Hitman.

Peter Rost, M.D., is a former Vice President of Pfizer. He became well
known in 2004 when he emerged as the first drug company executive to
speak out in favor of reimportation of drugs.

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From: Rachel's Democracy & Health News, Jan. 4, 2006
[Printer-friendly version]


The story 'The Real Scoop on Biofuels' by Brian Tokar in Rachel's
News #887 was originally published in Synthesis/Regeneration Winter
2006 edition. We credited ww4report.com, where a revised version of
the story was published. We apologize for the error.

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