"There's one for you, nineteen for me," sang The Beatles' "Taxman," and he meant it. Until 1968, John, Paul, George, and Ringo kept but five percent of their earnings under tilted British tax law. Their answer: Apple Corps. "It was really just a loony tax scheme," John Lennon admitted. "Our incomes would be hidden. Then the money would be moved around."

In May 2002, Stanley Tool Works played something of a cover song. For 160 years, the nation's largest toolmaker had called New Britain, Connecticut home. At that point, however, shareholders voted to reincorporate in Bermuda. Though workers would stay stateside and Stanley would still pay taxes on domestic sales, the move offshore promised to avoid $30 million in U.S. taxes on international earnings.

Critics came up with less flattering comparisons. Senator Paul Wellstone described the issue as the "Bermuda Triangle boondoggle." Democratic presidential candidate John Kerry called the company a "Benedict Arnold." When questioned on the Stanley case, President George W. Bush said, "American companies ought to pay taxes here and be good citizens." Senate Finance Committee Chairman Charles Grassley fumed, "If companies don't have their hearts in America, they ought to get out."

Stanley CEO John Trani insisted that the company wasn't cheating the country, only catching up with the competition. "Our major U.S. competitors--Cooper Industries and Ingersoll-Rand Co.--have a significant advantage over Stanley Works because they have already reincorporated."

Kate Barton, a tax partner at Ernst & Young, agreed: "The improvement on earnings is powerful enough that maybe the patriotism issue needs to take a back seat." Reincorporating in Bermuda, she said, is a twenty-first century "megatrend."

Multinationals that don't reincorporate still often take advantage of offshore subsidiary operations. These allow deferred tax payments, masked profits, and tax-free licensing of intellectual property. In the most infamous example, energy trader Enron never moved offshore, but avoided taxes entirely in four of the last five years before its bankruptcy, thanks to 872 foreign subsidiaries. Congress estimates such off-shoring costs the country $70 billion a year, enough to fund the initial six-month invasion and occupation of Iraq.

It wasn't always this way. In 1940, companies and individuals split the federal income tax bill equally. Harvard Business School's Mihir Desai measured a $155 billion gap between corporate America's 1998 earnings reports and tax returns filed with the Internal Revenue Service. The trend has only increased. For example, the Fortune 500 company with the most offshore subsidiaries-natural gas provider El Paso-added 192 new tax havens between 1999 and 2002.

At issue is basic fairness. The 47,000-page federal tax code may need significant reform-among other proposals is to tax only domestic earnings as do Bermuda and most European countries-but it must apply equally to all companies. While corporate profits are officially taxed at 35 cents on the dollar, a New York Times study found that the 10,000 of the largest companies pay little more than half that much. Smaller businesses-and the rare public example like Stanley-suffer in the imbalance.

By the fall 2002 elections, Stanley had fired its structured finance experts and recommitted itself to Connecticut. Sales since then are up half a billion dollars. In a time of heightened patriotism, an "all-American" image may be bigger than even The Beatles.