Political economists in Washington have warned that there is a serious threat of US legislation to block offshore tax advantages for US corporations being passed in to law.

Two bills have been introduced to the House of Representatives - by Rep. Richard Neal and Rep. Scott McInnis - in recent weeks, and two more bills are expected to be introduced in the Senate in coming days by Sen. Paul Wellstone and Sen. John Kerry.

In essence, the bills would levy US taxes on all income - including foreign revenues and sales - earned by corporations that reincorporate outside of the US.

The debate has largely focused on Bermuda-based companies such as Tyco, Global Crossing, Ingersoll-Rand and a company which has not yet “redomesticated”, Stanley Works.

Media reports and legislators are increasingly branding these corporations as “unpatriotic” for reincorporating overseas.

Last week, on the Senate floor Sen. Wellstone proposed legislation to: “close major loopholes in the US tax code that allow and even encourage a growing number of big US corporations to aggressively avoid paying billions in taxes - Internal Revenue Service estimates that as much as $70 billion may be at stake - through the use of shell corporations in foreign tax havens.”

Sen. Wellstone added: “Fairness demands such legislation, and it is critical if we are ever to invest in pressing national priorities such as education, Social Security and a prescription drug benefit. He continued: “When Global Crossing and other companies don't pay their fair share, the rest of American tax payers and small businesses are stuck with the bill. None of the small (American) businesses that I visit can avail themselves of the Bermuda Triangle.

“They can't afford the big name tax lawyers and accountants to show them how to cook their books Enron-style, but they probably wouldn't want to anyway...”

Sen. Wellstone said the “highly-lucrative scheme” was “revealed” in a New York Times article by David Cay Johnston. And added: “I don't think we should expand the Bermuda triangle. This is really outrageous. I simply say that the priority for me, as a Senator, is to go after this ``Bermuda triangle'' boondoggle. I definitely will introduce legislation.

I do not have all the specifics down right now, but it seems to me, at a bare minimum, what we can say to these companies is: Look, you can set up some sham office in some other country as a tax dodge, but if you are doing most of your business in the United States of America, you are going to be taxed on the business you do here. The second thing we can say to these companies is: Frankly, you are not being a good citizen corporation; you are acting a little bit too much like Enron. You are not being very patriotic when you are not willing to pay your fair share of taxes.”

Meanwhile, Dr. Daniel Mitchell, a senior fellow at Washington-based think-tank The Heritage Foundation, warned: “Bermuda and other competitive jurisdictions should not assume legislation will be defeated. On one side, the free-market associations will be working to block this legislation, but it is hard to say politically what will happen. I would stress that there is a very serious threat (of legislation being passed).”

Dr. Mitchell told The Royal Gazette that US legislators are responding to “emotions of the moment and demagoguery.”

He continued: “Many of the lawmakers attacking Bermuda as a low-tax jurisdiction don't understand how it works.”

Dr. Mitchell said that although there are those in the Bush administration who understand the harmful ramifications of such legislation to the free-market, there is still a threat.

Dr. Mitchell said the charge against legislation blocking offshore tax advantages was being led by the Washington-based Center for Freedom and Prosperity.

The Center's president Andrew Quinlan told The Royal Gazette: “We are working against such legislation. It is our major issue for the year.”

To that end, Mr. Quinlan said he was actively meeting with US legislators and may be testifying before the powerful House Ways and Means Committee on the matter.

Mr. Quinlan called the legislative proposals “bad, bad tax policy”. And questioned whether the laws could be considered in compliance with World Trade Organisation tenets.

He asked:”How can you force a company to pay income taxes on non-US source income?”

Mr. Quinlan said the real answer, and the point his organisation attempted to make on Capitol Hill, was to change the “Draconian” US tax code to make it attractive for US companies to remain in America.

Mr. Quinlan challenged the growing sentiment that companies moving offshore were “unpatriotic.”

He said: “These companies have a fiduciary responsibility to get the highest return for shareholders. These companies are being patriotic to their American shareholders by providing the highest return. US companies incorporated overseas do pay US taxes, the only thing they are not paying is taxes on foreign income.”

Mr. Quinlan concluded: “We believe that tax competition is good and there is a serious threat to the free-market here.” He added that the Center was trying to raise funds to aggressively fight the legislation.