By Anthony Ogorek
Williamsville, NY – One of the Beatles early hits was entitled, “Money Can’t Buy Me Love.” In the case of Enron, and its auditor Arthur Andersen, money didn’t seem to buy them special treatment when they needed it most. According to The Wall Street Journal, during the 1999-2000 election cycle, Enron contributed $1,766,000 to both Republican and Democratic causes with their auditor Arthur Andersen contributing a little more than $1 million to political campaigns.
What did they get for their money? Democrats are hoping to somehow implicate the current administration in the fall of Enron, thereby creating a Republican version of Whitewater; the investigation of a land deal gone south that haunted President Bill Clinton throughout his entire administration. Clinton Treasury Secretary Robert Rubin, now chairman of the executive committee of Citigroup, which by the way was a major lender to Enron, contacted a senior Treasury official about intervening with the credit rating agencies “to see if there is an alternative to an immediate downgrade of the company’s credit.” The Treasury didn’t bite, but Mr. Rubin’s intervention speaks volumes about how “the game” is played.
At the root of the Enron debacle is the Internal Revenue Code (IRC). To most Americans, the tax code is a means of raising revenue for the expenses of government. To lobbyists, the IRC is a mechanism whereby they can fund the reelection campaigns of the executive and legislative branches, in return for preferences in the code. Today’s tax code is ready to collapse from its complexity due to the symbiotic relationship of lobbyists and politicians.
Lobbying aside, much blame has been heaped on Enron’s accounting firm Arthur Andersen. We don’t mean to defend Andersen here, but the reader should understand what business Andersen and the “big five” accounting firms are in. They are not being paid from $300 - $800 per hour to deal with tax compliance is-sues. They are paid these mighty sums by corporate America to push the envelope of compliance with the law. Corporations expect a payback for the massive fees they pay these firms. The payback can either be in the form of tax savings from an aggressive interpreta-tion of the law, or accounting “magic” -- read quasi-fraud -- that allows a corporation’s quarterly earnings to appear to be much healthier than warranted by business conditions.
Until the incestuous culture of lobbyists currying favor with legislators for preferences in the tax code is diminished or eliminated, other Enron’s are sure to happen. It is our guess that legislators taking umbrage at this latest outrage will fashion a new raft of legislation that will attempt to protect the poor employee-shareholders from their own greed, while preserving the lobbyist-politician milieu.
In essence, the accounting firms meet with their “rocket scientists” and inquire as to what arcane code changes their lobbyists should push for. The idea being that the accountants will be able to justify not so much their existence, since we all need accountants, but the outrageous fees they charge corporations for exploiting “newly found” loopholes in the tax code.
The way to prevent the next Enron debacle is simple yet distasteful to the lobbyist-politician connection. It is called the flat tax. Most of campaign finance reform is about getting preferences in the tax code. Enacting a flat tax would kill two very large birds with one stone.
Commentator Anthony Ogorek is principal of Ogorek Capital Management in Williamsville.