Paul Jacob

It is not exactly unheard of for governments to levy and collect taxes for one purpose, and then use the funds for another. It's a despicable abuse of power, but many citizens are used to it.

But what happens when a business collects taxes and then does what amounts to the same thing? That is, what do you think of a business that adds a tax item onto your bill . . . and then never pays the tax?

If you are shaking your head in some sort of disbelief, right now, I don't blame you. Businesses aren't supposed to get their money from taxes. Isn't that government's sole prerogative?

Well, for starters, businesses have been turned into tax collectors by governments. In states with sales taxes, for instance, every retail seller collects taxes that are then, later, turned over to the government.

Nothing shocking about that. We're used to it.

But when those businesses neglect to pay the taxes collected, then we expect the government to go after them. It becomes theft. Right? The government looks at it as theft from the government. The consumers might tend to look on it as theft from them, too.

Now there is a new wrinkle in the age-old public-private partnership for plundering the masses. This week the New York Times reported on utilities that collect taxes from their clients, but don't pay those taxes to the government.

And get away with it.

Here's the deal: corporations are taxed in America. The states need their money, you know. This even includes regulated utilities.

But businesses are taxed on profits, not general revenue (this only makes sense). And if a big profitable business like an electric utility is liable for taxes, it's no surprise that the government regulators let them charge the consumers directly. That's how these con jobs — I mean, tax ploys — work.

And if one of those big profitable businesses also owns another business that doesn't make a profit, they can wind up not paying the tax.

Somehow, though, the refund checks just never make it to consumers' mailboxes.

Consumer watchdogs and advocates and just plain taxpayers have been outraged by the New York Times report. There's a lot of grumbling about big businesses like Pepco and Xcel Energy who between the two of them, operating in over a dozen states, have collected nearly $1.3 billion from consumers while "during that same period" receiving refunds of $786.4 million "rather than having to pay taxes."

But this isn't just a multi-billion-dollar big business scandal. This is a multi-billion-dollar government scandal. A regulated business does this because regulators are in charge. Rather than being held accountable to a reasonable rule of law, these businesses operate under a regime of haphazard micromanagement, permissions, and "you scratch my back, I'll scratch yours." Even the corporate heads who defend the practice sound like the usual government stooges: Anthony Kamerick, a Pepco vice president, said that with the extra money collected his company could invest in technology that might yield lower rates. Eventually.

Breathe deeply and ask yourself: why would a company be allowed to shift its income tax directly onto customers, anyway?

This was obviously an idea cooked up in some darkly lit back room. (Smoke-free now, though.)

I can understand an excise tax. That's computed at billing time, based on customer usage. But a corporation's income tax is not so computed, and should never, ever have been allowed onto the bill.

There are a lot of old jokes about adding line items to bills: you know, the butcher adds his daughter's braces onto your receipt, the doctor adds his Bahama vacation onto your gall bladder operation. But funny thing is, we don't see such items on butchers' — or even doctors' — bills. But we do on utility bills. Why? Regulators. People think of regulations as something that help them, but a lot of evidence has piled up suggesting that that's not quite the case. Only a regulated company could get away with this sort of systematic theft while the government stands idly by.

And that's how a case of fraud gets thought of as a regulatory problem rather than a simple criminal issue. We've lost sight of the real issue here: justice.

Thankfully, not everyone has been blinded.

It is heartening to note that something can be done, as proved in Oregon, where PGE, an Enron-owned electric company, recently agreed to refund $10 million dollars it had collected from Oregonians without paying the taxing district. The court hasn't dotted the i's or crossed the t's, and won't give even its preliminary ruling for another week, but both parties to the suit have settled.

Hundreds of thousands of notices are set to be mailed in April, about the time for federal income taxes to come due. Of course, individuals and families with reasonable monthly bills will have to be satisfied with rather modest refunds. But according to one of the lawyers who wrote the settlement, the average refund to commercial payers will be $108, the average refund to major industrial companies, $70,000, and some of the biggest refunds will go to state and local government agencies that paid the biggest bills in the period covered by the lawsuit.

Yes, folks, the justice system can work even when the regulators (necessarily) fail us.


Paul Jacob

Paul Jacob is President of Citizens in Charge Foundation and Citizens in Charge. His daily Common Sense commentary appears on the Web and via e-mail.