On May 9th a Connecticut tool company put an idea to its shareholders. Stanley Works proposed to re-incorporate in Bermuda, the mid-Atlantic island that does not impose tax on companies.

The shareholders approved. The firm would still have its headquarters and operations in the US and it was a recognised way to avoid taxes already used by hundreds of other American companies.

Cooper Industries which also makes tools and electrical products, and Ingersoll-Rand, manufacturer of industrial equipment, moved to Bermuda just last year. By following suit Stanley Tools would save $30 million (€30 million) in taxes.

But in the current anti-corporate, post-Enron, climate in the US, public anger over the behaviour of corporations has focused attention on such accounting dodges, and many firms are suddenly being forced to think again.

Congress has been taking a hard look at what the tax havens like Bermuda are costing the US revenue services. In 2000 it appears that off-shore tax avoidance schemes deprived the US government of $20-$40 billion.

Congress was already under pressure from the WTO and the EU over US laws that allowed them to use such tax breaks as effective subsidies.

Such pressure tended to annoy rather than convince people on Capitol Hill. But the spirit of post-September 11th patriotism combined with growing fury over accounting chicanery encouraged Democrats in Congress to step up their long campaign to close loopholes that enabled American companies to avoid corporate tax by registering in Bermuda, the Cayman Islands or other Caribbean tax havens.

Democratic House Member Richard Neal of Connecticut had been campaigning for two years without much success on this issue. Now suddenly it was bad publicity - in an election year - for any politician to be seen condoning anything that looked like what US President George W Bush referred to as corporate shenanigans.

Republican Majority Leader Richard Armey of Texas accused Democrats of "brainless demagoguery" in going after the tax havens but he was out of step. His party colleague, Republican Senator Charles Grassley, himself drafted a bill to close the loopholes. "We have to send a clear signal that these corporations ought to get their hearts into America or their rear ends out," he said.

The tide turned two weeks ago when the House of Representatives voted overwhelmingly to bar firms that used tax havens from obtaining contracts from the new Department of Homeland Security. Last week the Senate upped the ante when it voted unanimously not to allow defence contracts to go to companies that moved to offshore tax havens. Lobbyists for firms accustomed to the easy avoidance of millions of dollars in tax worked furiously on Congress members but they found themselves shown the door, a rare experience before this year in a Congress full of members bankrolled by corporate donations.

If the measures to deny contracts to firms incorporated abroad became legislation, big companies like consulting giant Accenture which registered in Bermuda last year would have to move back and pay hugely-inflated tax bills or give up major government contracts.

So it was not a major surprise when on Thursday Stanley Works announced that it was reversing its decision to incorporate in Bermuda.

Last year the tool company won $5 million in government contracts and its future federal contracts would clearly be at risk.

"The Congress appears to be very serious about taking up this issue," Stanley chairman John Trani told the Wall Street Journal, after he had been lobbied by both parties to support legislation against tax loopholes. The company had also been feeling pressure from other sources. Connecticut attorney general Richard Blumenthal had taken legal action over alleged irregularities in the shareholder voting process.

The issue may lead to a major review of US corporate tax to meet the complaints of American corporations that foreign competitors generally pay taxes only on their domestic income and that that puts them at a disadvantage.

Republican Bill Thomas, House Ways and Means chairman, responding to EU threats of retaliation if the tax code is not changed to meet WTO standards, is proposing legislation to re-order some $82 billion of corporate taxes over 10 years.

"The real issue," said Republican Senator Orrin Hatch after hearing of Stanley Works' change of mind, "is that Congress must pass legislation to ensure that our US international tax rules do not provide American firms an incentive to leave our shores."