They have come to protest the company's plans to register as a corporation overseas….In a popular off-shore tax-haven: Bermuda.

DENNIS O'NEIL: It's, in my opinion, immoral, if not illegal. I pay taxes here in the United States of America. I can't move anywhere and get out of my obligation to pay.

MOYERS: You may not have heard about the Bermuda move, but you've heard of Stanley — it's the world famous tool and hardware maker — an American company that has called Connecticut home for almost 160 years. Now it wants to move its headquarters to Bermuda. The reason? To avoid an estimated 30 million dollars a year in U.S. taxes.

BRIAN ANDERSON: I'm here because I'm disturbed that Stanley would move out of the United States when our country, and particularly this community, New Britain, Connecticut, has been so good to Stanley over the years.

MOYERS: The implications for America's ability to collect revenue are enormous. Stanley will be joining a growing list of big American companies which have established off-shore headquarters to avoid corporate taxes. In fact, in just the last few years, an estimated 25 companies — many of them fortune 500 firms — have reincorporated off-shore for just that reason. And it's all perfectly legal.

ROBERT WILLENS, MANAGING DIRECTOR, LEHMAN BROTHERS: It allows them to reduce the amount of U.S. taxes they pay, and the reduction in U.S. taxes increases their profits dollar for dollar — it's that simple.

MOYERS: Robert Willens has advised companies on relocating off-shore. He's a Managing Director at the Lehman Brothers investment house, one of many firms that advise companies on tax strategy. Although Willens doesn't always recommend an off-shore move, he says the benefit to the bottom line can be hard to resist.

WILLENS: It's hard to argue with the numbers because you do see dramatic improvements in profits immediately. Stanley has advertised an annual tax reduction of $30 million dollars, and I think that might even be a little low.

MOYERS: So how is it that a big company like Stanley can avoid taxes simply by changing its address to Bermuda? The answer begins with U.S. tax law and the practice known as "Worldwide Taxation."

PAMELA OLSON, ACTING ASSISTANT SECRETARY OF THE TREASURY FOR TAX POLICY: Well, the big difference is that the U.S. system taxes on a worldwide basis. So it doesn't matter where you're earning your income, we're going to tax it here in the U.S.

MOYERS: In other words, if Stanley sells a hammer in Europe, that sale, or at least a portion of it, can be subject to tax here in the U.S. But Stanley also pays tax on that income in Europe. So under U.S. law, companies like Stanley sometimes end up paying tax on their foreign income twice.

But Bermuda has no income tax. So if Stanley makes Bermuda its home, it only pays tax on that sale once, in Europe, where it sold the hammer. So if you're like Stanley, and selling a lot of products overseas, you can save money by getting yourself an off-shore address.

WILLENS: Every multi-national company that does this will experience an immediate and substantial reduction in taxes.

MOYERS: But here's the fiction behind these relocations: Companies don't actually move any workers off-shore, or even set up an office there.

WILLENS: In fact, nothing much of substance happens at all. A post office box is obtained in Bermuda, a modest fee is paid to the Bermudan government for the privilege of incorporating there. But no change whatsoever occurs in the company's business operations.

MOYERS: Companies like Stanley create the off-shore corporation in name only. That off-shore company — with no workers, and no office — is then made the parent of the American company.

WILLENS: The U.S. company, the original parent of this worldwide group of corporations, is now becoming a subsidiary. It's literally being stood on its head, so that it is now a subsidiary of this new shell company that's formed in Bermuda.

MOYERS: Stanley declined to be interviewed for this story, but in a press release about its proposed move, admits, quote, "Corporate operations will continue to be managed from our current headquarters in New Britain, Connecticut, and these changes will not affect day-to-day operations."

You get the same candor from the giant equipment maker, Ingersoll-Rand, about the Bermuda address it recently set up. The company freely admits it simply hires a service in Bermuda to collect its mail — when its real headquarters is in Woodcliff Lake, New Jersey.

WILLENS: It is perfectly proper within the law naturally to take steps to avoid taxes. And to play devil's advocate for a second, there are a lot of people who would argue that this is exactly what management is supposed to be doing.

SEN. CHARLES GRASSLEY, (R-IA): Now these things really are not illegal, but they're surely immoral and unethical.

MOYERS: Iowa Senator Charles Grassley is no fan of the taxman. A prominent Republican, he has often criticized the IRS. But even he says this use of off-shore shell companies is nothing more than a scam.

GRASSLEY: We have the Stanley Corporation, for instance, going to Bermuda, setting up a shell corporation to avoid millions and millions of dollars in taxes in the United States, outright — in fact, they're very candid about it — outright tax avoidance.

And that seems to me to be wrong. Particularly other corporations stay here, pay their fair share, and the poor and the middle class working man and woman is going to end up paying for the bill that Stanley, for instance, doesn't pay.

MOYERS: Senator Grassley is leading an effort to outlaw the loophole that allows this use of off-shore shell companies, arguing that a company must have "real & substantial" operations where it is incorporated. Since the terrorist attacks of September 11th, his campaign has taken on a new urgency.

GRASSLEY: You know, American corporations would have never done this in World War II. And we're in the biggest war and threat to security of the United States since World War II, and it seems to me we ought to be pulling together in the same way and that includes all the major corporations.

ERIC SCHLECHT, THE NATIONAL TAXPAYERS UNION: They are working within the framework of the existing tax code to the best benefit of their corporation and their corporation's employees. Why is that unpatriotic?

MOYERS: Eric Schlecht works for the National Taxpayers Union, an anti-tax organization. He says that avoiding taxes by any legal means possible is not only good business, it's a well-established legal right.

SCHLECHT: To suggest that you're unpatriotic to attempt to keep as much of your hard-earned money suggests that the money you earn belongs first to the government and second to you. Which I doubt very much many taxpayers would agree with.

MOYERS: As Schlecht points out, the Y.S. is almost alone among nations in its practice of taxing worldwide income. He says that creates the double taxation that motivates companies to move off-shore. He's not alone in that opinion.

DAN MITCHELL, SENIOR FELLOW, THE HERITAGE FOUNDATION: Businesses choose to incorporate where you have the best set of laws to govern the corporation. The problem is that our Internal Revenue code makes American-based companies very uncompetitive.

MOYERS: Dan Mitchell is a Senior Fellow at the Heritage Foundation, a conservative think tank well-known for its anti-tax views. He argues: don't outlaw the loophole — re-write the tax code.

MITCHELL: Let's fix the problem in our tax code. Let's not blame the victims who are simply trying to compete on a level playing field.

MOYERS: The Bush Administration has been listening. The Heritage Foundation and the National Taxpayers' Union have been granted several meetings with key administration officials, including Treasury Secretary Paul O'Neill and Chief Economic Advisor Lawrence Lindsey. One anti-tax advocate characterized them as "sympathetic to our ideas."

But there's more to this story than first meets the eye. As we heard, the ostensible reason that companies locate off-shore is to avoid taxes on income earned outside the U.S. They're still supposed to pay taxes on income earned within the U.S., but once they get off-shore, some companies find a way to beat those taxes, too.

BOB MCINTYRE, CITIZENS FOR TAX JUSTICE: The companies are trying to tell anybody who will listen, who's naïve enough to believe them, that they're trying to avoid taxes on their foreign profits. That's just a lie.

MOYERS: Bob McIntyre runs Citizens for Tax Justice, a liberal organization that studies tax revenues. He says the real story here is not that companies are moving off-shore to just avoid taxes on foreign income. He says they're moving in order to get out of paying taxes altogether — even on income earned in the U.S.A.

MCINTYRE: The problem is these are American companies doing business in America who ought to be paying American taxes, and they'd just as soon not, so they are trying to find a way around it.

MOYERS: In one scheme, the off-shore shell company loans money to the American subsidiary. The interest the subsidiary pays on that loan can then be claimed as a deduction on its U.S. tax return. Critics say it's like you lent yourself money, charged yourself interest, and then wrote the interest off on your taxes.

In a second scheme, the American subsidiary pays the off-shore shell company for the use of the company's trade name. In other words, the company is charging itself for the use of its own name. That creates another tax deductible business expense in the U.S.

Yet a third scheme involves the paper shuffle of merchandise. The American subsidiary manufacturers a product. It then "sells" the product to the off-shore shell company at a rock bottom price. Remember the off-shore shell exists in name only, so no products are actually shipped. The shell company then makes the final sale to the consumer. So, most of the profits appear to have been earned by the off-shore company, free of U.S. taxes.

PAMELA OLSON, ACTING ASSISTANT SECRETARY OF THE TREASURY FOR TAX POLICY: Yes we do view that as inappropriate...

MOYERS: Pamela Olson is the Acting Assistant Secretary of the Treasury for Tax Policy. She says the Treasury Department does want to eliminate these schemes to beat taxes on American income. It's writing new rules to clamp down on them and directing auditors to keep companies in line.

OLSON: I think it's very troubling to think you can file a few pieces of paper, and by filing a few pieces of paper, drastically alter the way you business is taxed.

MOYERS: But while off-shore incorporation is "troubling," Olson says, simply slamming the door shut on the right to do it — as Senator Grassley wants — is "shortsighted."

OLSON: We don't think you can erect a Berlin Wall and keep companies in the U.S. We think you have to address the underlying problems that are causing companies to go, and that's going to be a more effective and direct approach.

MOYERS: This whole debate over off-shore shell companies, and how they're used to avoid taxes, is taking place against the bigger backdrop of an overall decline in the amount of taxes paid by U.S. Corporations. In 1960, corporations paid 24% of all federal taxes. In the 1970's, that share fell to 15%. As recently as 1996, it was 12%. Now, corporate taxes make up only about 8% of U.S. revenues. That, Bob McIntyre says, is the result of all sorts of loopholes and laws, written by politicians friendly to corporations. Reform, he says, must come from the top.

MCINTYRE: The President ought to step up to the plate and say it's not patriotic for big American companies not to pay any taxes on their American profits. Until he says that, well, he's on the other side and that's too bad.

MOYERS: McIntyre has also found that in recent years, some of America's biggest companies — household names like Texaco, Goodyear, and General Motors — actually got tax rebates, even though they turned a profit.

GRASSLEY: For the middle-class American primarily, but any wage earner, salaried person, there's a real feeling out here that very wealthy people, as well as corporations, have breaks that other Americans don't. And consequently, people are cynical about taxes.

RICHARD TRUMKA, SECRETARY-TREASURER OF AFL-CIO: The CEO and the rich always figure out ways to avoid taxes. It's the workers who don't get that chance.

MOYERS: You hear that a lot among the workers back at Stanley. The company's move may not be threatening their jobs, but they fear it could be the beginning of a slippery slope. Also, they say they are fed up with a system that is rigged in favor of big corporations. These workers want corporations to be good citizens of the country that has enabled them to flourish.

TRUMKA: They want to take the advantage of all of the advantages that the American market has to offer, and think that they have no responsibility. No responsibility to the workers, no responsibility to the shareholders, no responsibility to the community, no responsibility to the state and no responsibility to the country.

MOYERS: And in perhaps one of the few instances in which a powerful Republican agrees with a high level union leader, Senator Grassley concurs.

GRASSLEY: After all, it's because of America and the freedom, the economic freedom that we have and the political freedom that we have, that these corporations have done so well in the first place.