ataxingmatter

Heatlh Care Reform and Religious Exemption--Whose Freedom Are We Talking About, Anyway?

 The Treasury, IRS, Department of Health and Human Services, and Department of Labor finalized regs Firday that exempt certain religious employers from covering contraceptive care under the Patient Protection and Affordable Care Act.    T.D. 9578 (available here now to subscibers to BNA) will be published Feb. 15 in the Federal Register and become effective April 16.

Seems like the Catholic Church wants to impose its own views on these matters of religious theology on all of the people its employees.  And they try to use the idea of religious and individual freedom to allow them to impose their views on people who may or may not share them (whether or not they are Catholic themselves).

Under Supreme Court precedent, religious Native Americans can be told they can smoke peyote because it is a regulated substance and the laws regulating that substance are "laws of general application" so they aren't discriminating towards Native Americans.  See the Wikipedia entry for Employment Division, Department of Human Resources of Oregon v. Smith, 494 U.S. 872 (1990), excerpted below.

Employment Division, Department of Human Resources of Oregon v. Smith, 494 U.S. 872 (1990), is a United States Supreme Court case that determined that the state could deny unemployment benefits to a person fired for violating a state prohibition on the use of peyote, even though the use of the drug was part of a religious ritual. Although states have the power to accommodate otherwise illegal acts done in pursuit of religious beliefs, they are not required to do so.

The Smith result was replace with a "strict scrutiny" review in the Religious Freedom Restoration Act, described here on Wikipedia.

Yet here are the Catholic Bishops claiming that even the direct accommodation provided by the Obama administration--that the church does not have to pay for contraceptive coverage, but the insurers must provide that to the church's employees who want it--isn't enough. See e.g., Newcomb, Contraceptive Compromise Doesn't Please Bishops, ABC News (Feb. 11, 2012).  And Mitch McConnell in the Senate is threatening to try to take down the contraception mandate as "just another example of government meddling."  See Flaherty, Top Republican Wants Vote on birth control mandate, AP (Feb. 12, 2012)--the flap over contraception provided the GOP what seemed like an opportune chance to pile on against the health reform act yet again: "And this is what happens when the government tries to take over health care and tries to interfere with your religious beliefs."

But individual freedom and interference with religious beliefs is one of those things that looks different depending on whose perspective you take.

The Obama administration compromise means the religious institutions don't have to provide that which they disagree with.  There is minimal or no cost to insurance companies from providing the contraceptive coverage separately to employees of such religious institutions.  In fact, it is likely that contraceptive coverage is much cheaper in the aggregate to women, government and insurance companies than having more (unwanted) pregnancies. Yet the Bishops think the Church should be exempted from the health care provision requirements --and their employees shouldn't have this option to get covered outside the church's plan--just because the church doesn't agree with it.

In part, they are relying on that statutory protection enacted after Smith--the Religious Freedom Restoration Act, under which the federal government is subject to strict scrutiny regarding laws that impose on religious freedom.

But the question here, of course, is whose freedom are we talking about? 

The freedom of individuals of various religious backgrounds to work and receive the kind of coverage that they know they need and that is compatible with their own religion? or the freedom of the institution of the church to impose its religious dogma (and the consequences thereof) on all of its employees, no matter their religious faith?  Whenever the two are not consistent--and they will not be for any woman, whether Catholic or not, who wants to use contraception and in fact believes that her faith permits her to do so or even that it requires her to do so to be able to provide appropriately for her family--then the position supporting greater religious AND individual freedom is the one that requires contraception to be covered, one way or another.

Yes, the Obama compromise is a little gimmicky--sort of like the Islamic finance arrangements which justify interest by camoflaging it in ways that make it look like some traditional accepted payments (leases, rents, etc.).  But if that helps make it possible to do what needs to be done in this modern age--provide opportunities for borrowing funds to people that need to borrow to start businesses, or opportunities for decent contraceptive health care for people who work for a church that doesn't believe in it--then by all means, use the quasi-gimmicks in order to achieve the better public good.  But don't cave to the shrill cries of the mandate amounting to religious persecution.  It's nothing of the sort.

PS the same-sex marriage issue is another one where the Catholic Church shouldn't be able to impose its views on its workers who are not teaching theology.  There, however, the Supreme Court (with a significant number of Catholic justices who might be expected to empathize with the church on these dogma questions) recently decided a case that supports a "ministerial exception" to laws that otherwise protect employees from various kinds of invidious discrimination in employment for employees of religious organizations.   Personally, I see this as a black mark against religious freedom for individuals, and another example of corporatism at work, this time in support of institutionalized views being imposed on individuals that make up the institution.   See, e.g., Music director's marriage leads to his firing from St. Gabriel Catholic Church (Feb. 12, 2012) (gay music director--who had worked in the church while having an openly gay relationship for years--suddenly fired for taking advantage of New York's new law permitting same-sex couples to marry, even though his state (South Carolina) and his employer (the Catholic Church) would not recognize the New York marriage anymore than it had recognized his earlier common law marriage).   Much like the fundamentalist protestants who accuse the government of discriminating against Christians when the government appropriately uses "happy holidays" rather than "Merry Christmas" to wish its employees well, these religious groups are seeking to have the government impose restrictions on workers that take away worker rights in the name of religious freedom for some, but with the result of limited freedoms for others.

Inequality, Taxes, and Corporatism viewed thru the lens of Nick Reding's "Methland"

[editorial note: back from a great break in Colorado with children and grandchildren, so postings will resume normal routine. edited in afternoon to add cite to Angry Bear post by Mike Kimel.]

The Congressional Research Service recently released a new report on U.S. income inequality.  See Hungerford, Changes in the Income Distribution Among Tax Filers 1996 to 2006: The Role of Labor Income, Capital Income, and Tax Policy, CRS (Dec. 29, 2011) (Download Hungerford. Changes in the Distribution of Income Among Tax Filers Between 1996 and 2006. Role of Labor Capital and Tax. 122911).   The CRS report is a sobering document, especially in light of the growing unrest as ordinary people realize how their opportunities are limited by the increased control of resources at the top (e.g., Occupy Wall Street, the "99% vs. 1%, etc.).   For example, see the New York Times article today on inequality and the fact that U.S. mobility trails that of Europe and Canada.  The article is based on a number of different studies such as that of Marcus Jantti and colleagues, American Exceptionalism in a New Light, and suggests that inequality has lingering impacts, especially on the poor and the ability of the poor to move out of the bottom.   See Jason DeParle, Harder for Americans to Rise from Lower Rungs, New York Times, Jan. 4, 2012 (in print edition, Jan. 5, at A1).  The article discusses the considerable evidence that there is limited access today to what we have called the "American Dream":  stickiness exists especially for the poor and the affluent, as the poor generally lack opportunities to get out, and the affluent generally have all the advantages they need to stay affluent.  See especially the graphic accompanying the article, Comparing Economic Mobility.  Id. at A12.  The causes of America's mobility problem are multiple--poverty; a thin safety net (threatened even more now by the right-wing's determined attack on earned benefits like Social Security and Medicare under cover of their purported concern about deficit reduction); the disadvantages of single motherhood; high incarceration rates, especially for black males; a long history of racial stratification that still impacts daily life; the pay tilt towards educated workers (usually made up of children of the affluent); the decline in unionization compared to other affluent countries; and the magnitude of the gap between the rich and the vast majority of Americans.  Even conservatives, who tend to think that mobility is overrated as a policy goal, may conclude that "stagnation at the bottom [is] alarming and warn[] that it will worsen."  Id. at A12 (citing conservative journalist Reihan Salam of the National Review and Daily Post).

Meanwhile, not surprisingly, the right-wing in this country continues to pursue exactly those policies that have so contributed to the decline of mobility, the stagnation of incomes for the lower income population, and the loss of employee power in the workplace.  See, e.g., the plan of the Republican majority in Indiana  to enact so-called "right to work" legislation that allows non-union members to freeload off unions by getting the bargained for rights and wages without paying dues to make that bargaining possible.

What those interested in tax policy should pay especial attention to is the role of tax changes over the last 40 years in augmenting the inequality gap.  Tax is not the sole culprit, but it is a contributor and something that Congress can easily do something about, if it can summon the political will to act.  From the report summary:

Inflation-adjusted average after-tax income grew by 25% between 1996 and 2006 (the last year for which individual income tax data is publicly available). This average increase, however, obscures a great deal of variation. The poorest 20% of tax filers experienced a 6% reduction in income while the top 0.1% of tax filers saw their income almost double. Tax filers in the middle of the income distribution experienced about a 10% increase in income. Also during this period, the proportion of income from capital increased for the top 0.1% from 64% to 70%.

Income inequality, as measured by the Gini coefficient, increased between 1996 and 2006; this is true for both before-tax and after-tax income. Before-tax income inequality increased from 0.532 to 0.582 between 1996 and 2006—a 9% increase. After-tax income inequality increased by 11% between 1996 and 2006. Total taxes (the individual income tax, the payroll tax, and the corporate income tax) reduced income inequality in both 1996 and 2006. In 1996, taxes reduced income inequality by 5%. In 2006, however, taxes reduced income inequality by less than 4%. Taxes were more progressive and had a greater equalizing effect in 1996 than in 2006.

Three potential causes of the increase in after-tax income inequality between 1996 and 2006 are changes in labor income (wages and salaries), changes in capital income (capital gains, dividends, and business income), and changes in taxes. To evaluate these potential reasons for increasing income inequality, a technique to decompose income inequality by income source is used. While earnings inequality increased between 1996 and 2006, this was not the major source of increasing income inequality over this period. Capital gains and dividends were a larger share of total income in 2006 than in 1996 (especially for high-income taxpayers) and were more unequally distributed in 2006 than in 1996. Changes in capital gains and dividends were the largest contributor to the increase in the overall income inequality. Taxes were less progressive in 2006 than in 1996, and consequently, tax policy also contributed to the increase in income inequality between 1996 and 2006.

 

The members of Congress who pass such preferences (the GOP in particular, but certainly various members of the Democratic party such as Max Baucus fall into the same group) spin such preference for the rich (a group which includes most members of Congress) as supporting job creation.  Their spin suggests that anytime anyone invests in corporate stock, they are acting as entrepreneurs and increasing the possibility of jobs for the rest of us. 

The spin is mostly just that.  Most of the capital gains from sales of corporate stock have nothing to do with having invested in a company directly in ways that provide more capital to the company and lead to creationof jobs.  Most of such gains are from secondary market sales--sales of stock from one rich person to another.  Secondary market sales have absolutely nothing to do with job creation or entrepreneurship: they have everything to do with acquiring more money with taxes that are at extremely low preferential rates. 

Similarly, getting dividends from a corporate enterprise has nothing to do with job creation--they just make the corporate stock holder richer at a preferential tax rate (under the 'temporary'[ provision enacted in 2003 and extended several times since).   Many 'freshwater' economists and many tax professionals argue for "integrating" the corporate tax and the tax on dividends or outright elimination of the corporate tax, claiming that  the dividend tax represents a 'double' (and therefore wrong) taxation of corporate profits.  That logic has led to an increasingly rich variety of corporate loopholes built by Congress into the Code--from the various expensing and bonus depreciation provisions (letting corporations reduce their taxable income compared to their actual business profits by claiming a deduction for capital expenditures) to various preference gimmicks, such as the "domestic manufacturing deduction" that provided a significant reduction in the corporate tax rate to all kinds of industries, including many processes that few would consider to qualify for "manufacturing." 

 But the double taxation claim is merely that--a claim based on the way the theor treats corporate entities.  Economists been unable to prove empirically that shareholders actually bear the burden of the corporate tax.  But even if they do, there are other reasons having to do with institutional power and the sustainability of democracy for supporting a corporate tax.  If you start out thinking that "only people pay taxes", you would likely conclude that "corporations can't pay taxes; therefore, the corporate tax is 'really' being paid by the owners of the corporation."  Of course, we used to say that only people can vote, so only people should be allowed to spend money on campaign speech.  Now the Supreme Court--which has treated corporations as "persons" under the Constitution since the nineteenth century--has decided that corporations have free speech rights that are broad enough to allow them to use their vast resources to influence who gets elected.  Thus, corporatism has paved the way for corporations to buy elections and then lobby for the laws and regulations that suit them, while arguing that corporations shouldn't pay any taxes to support the government that grants them various subsidies through the election/lobbying/regulation (deregulation) process.  It has supported the US movement towards "free trade" agreements, such as NAFTA, that have been difficult for the poor in countries with whom we trade, for environmental protections in the U.S., and  for locally owned businesses and local workers in the U.S.

If you avoid the corporatist agenda and start out with the assumption that corporations pay tax (because we have treated such entities as taxpayers under the Code), then you can recognize that corporate tax policy can be set to permit reasonable profits and to disincentivize unreasonable--i.e., societally undesirable--behavior.  An example would be the problem of corporate consolidation in a globalized economy, which provides inordinate power to multinational entities (I have called them quasi-sovereigns) and significantly reduces the power of ordinary employees. 

To understand something about the problem of corporate consolidation (as if the 2007-08 financial crisis caused by "too big to fail" financial institutions shouldn't have been enought), read the book Methland: The Death and Life of an American Small Town, by Nick Reding (Bloomsbury 2009).  In trying to understand the causes of the meth explosion in U.S. rural towns, it details the devastating effect of corporate consolidation on rural workers and economies--Big Agriculture and Big Pharma essentially bought out the vertical processes (for Ag, from seed to table, with a few firms like Cargill, Tyson, and ADM controlling huge swaths of the American food system).  In the process of gaining control, they consolidated many small, local producers, shut out unions, sought-out illegal immigrant labor to avoid wage and benefits laws, and dropped wages--in one case, wages for workers in an Iowa meat processing plant dropped overnight from around $18 an hour to less than $6 an hour, with a simultaneous cut off of benefits. See Methland, at 69 (noting the decline in wages when Cargill took over the formerly locally owned Iowa Ham plant in 1987). 

"[T]he evolution of the meth epidemic had occurred in lockstep with three separate economic trends that had contributed to the dissolution of small-town United States.  ...  And the things that spurred this simultaneous rise and fall: the development of Big Pharmaceuticals, Big Agriculture, and the modern Meican drug-trafficking business."  Id. at 109.

***

"By 1999 ... Cargill-Ecxel [an agribusiness plant in Ottumwa Iowa] placed newspaper advertisements in the poork, industrial border towns of Jarez and Tijuana offering two free months' rent to workers who could make it to Ottumwa from Mexico.  For Cargill and the rest of the packing conglomerates, employing illegals would appear to have been the best of all possible situations, for the simple reason that these employees, lacking legal identification, didn't technically exist, and therefore had no rights.  Nor were they apt to argue with the harsh conditions of an industry that continues today to have the highest rate of employee injury in the United States.  A failed 2001 federal criminal case brought against a Tyson plant in Shelbyville, Tennessee made clear that corporations would essentially not be held liable for employing or recruiting illegal immigrants to work in the plants.  Despite the fact that two Shelbyville managers were caught on tape by federal investigators asking human traffickers for five hundred undocumented workers over four months, Tyson's defense team successfullyh maintained that it's too difficult for Tyson employees to determine who's who among legal and illegal employees.  The ruling institutionalized the notion that employers of immigrants are not beholden to offering the same rights to workers that other companies must, for the simple reason that they don't know--and don't need to know--who works for them."  Id. at 153.

***

"Consider what used to happen in Oelwein, Iowa before the large scale consolidation in the 1980s and 1990s of almost every niche of the food-production chain.  Corn farmers...would have bought seed from the local seed company.  Once harvested, that corn would go to a grain elevator, also locally owned.  It would be shipped to a small feedlot in order to fatten cattle raised in Nebraska, Wyoming, Florida or Arizona; or perhaps it would go to a dairy in northern Missouri, a chicken farm in Indiana, or a pork outfit in Kansas.  The variables were infinite and the market was dynamic.  The barge, truck or railroad car that carried the grain was likely independently owned, too, as would have been the pigs, cows, and chickens it fed.  At each stae, the price would have to be 'discovered' as multiple potential customers vied to handle the product, with competition keeping the price 'true'... in the context of the marketplace.  Eventually, the Oelwsin corn used to feed sows in Topeka might return to Oelwein in the form of hocks to be disassembled, packaged, and shipped at the Iowa Ham plant... From there, a whole new market ... would take over in order to distribute the food and sell it at the retail level, perhaps at the grocery once owned by the Leo family (which today is an IGA).  James and Donna Lein would have been the essential building blocks in a vibrant system in which the variables contributed at all stages to what's called the 'social capital' of rural communities.

Beginning with the precedent set in 1987 with the IBP takeover of Hormel in Ottumwa--and the subsequent takeover of Iowa Ham by Gillette--a few companies would come to control most of the U.S. food business. ... Price discovery no longer happens; the value chain is controlled by a limited number of entities.  Seed is not sold; it's biogenetically engineered by companies like Monsanto, which entered into a joint venture with Cargill in 1998.  Cargill--not the farmer--owns the corn this is grown [under contract]....  In the Illinois and Ohio river valleys, Cargill owns 50 % of the grain elevators and other storage facilities.  Along with Tyson, Swift and the National Beef Packing Company, Cargill owns 83.5% of the beef packing inustry [and so on for turkey production, flour milling, ethanol production, animal feed plants, and soybean crushing]. Id. at 169-160.

***

Once competition has been annihilated ... the surviving companies, like Cargill, begin to effect political decisions through their enormous lobbying capabilities.  The government no longer governs unimpeded: it does so in tandem with the major companies. Id. at 161 (citing Douglas Constance, a rural sociologist at Sam Houston State University, Huntsville Texas).

This loss of local ownership through massive consolidation of business enterprises was a change orchestrated from the top of the U.S. government under Reagan's policies of privatization, deregulation, tax cuts (and loosening of tax and antitrust mechanisms that had worked against consolidation), and militarization.  It is a change continued today through the more and more flexible tax regulations and Code provisions governing tax-free reorganizations.  These policy approaches supporting consolidation of enterprises both vertically and horizontally favor the development of powerful corporations that can influence governmenbt in their favor while demanding subsidies (bonus depreciation, expensing, and other tax loopholes that have steadily reduced corporate taxes well below 25% for most of those that pay them at all, even while the rates remained statutorily at 35%.  Looking at the way corporate consolidation has harmed rural America should lead us to ask whether reversing the policies favoring such consolidation--such as making tax-free reorganizations much more difficult, pursuing anti-trust violations under new theories that look to the problems inherent in quasi-sovereign corporate entities, charging corporate and other businesses an expatriation fee equal to the increase in value of business assets while in the United States--may not be worth considering as one step in remedying both the "too big to fail" and "quasi-sovereign" problems while also providing resources to address the thin safety net and falling wages of the bottom of the income distribution.

For more ideas on inequality and its relation to a dynamic, growing economy and more stable society, see Mike Kimel's post on Angry Bear, The Pelzman Effect: Why Economic Growth Has Slowed in the US over Time.

Why We Should Care About Romney Refusing to Release His Tax Returns If Nominated

As most are probably aware, Romney announced a two days ago that he did not intend to release his tax returns even if he were selected as the Republican presidential nominee.  See, e.g., Mitt Romney Declines to Release Tax Returns, Cementing Posture of Secrecy, Huffington Post (Dec. 22, 2011) (quoting Romney as announcing "Never say never, but I don't intend to do so").

The reasons that such releases have traditionally been pushed for presidential candidates are myriad.  Voters can understand  more about a candidate's wealth  and potential conflicts from reviewing the returns.  They also have some idea of the candidate's understanding of finance from viewing the returns. 

What kinds of things likely prompt Romney not to want to release the returns?  Are they issues that voters might reasonably take into account in assessing his candidacy or are they irrelevant concerns? 

One can speculate that Romney may be worried that the stark revelation of his immense wealth compared to most voters will be damaging.  We are living through a second Gilded Age, when wealth is concentrated in enormous measure in the hands of very few Americans at the top, and the vast majority of us are just barely getting along and are worried about being tossed out of the middle class into the New Poor.  In that context, surely the wealth of a candidate is information that is relevant to voters.  Persons of immense wealth may have trouble understanding the daily trials and tribulations of 'average' Americans who have to save judiciously for unusual expenses and who may be thrust into bankruptcy by a car accident, storm-caused damage to a home, sudden change in job possibliites, or onset of a serious illness.  Further, Romney is trying to take advantage of his experience as a businessman and claims about his market abilities and savvy financial training:  that makes his tax returns directly relevant and it strikes this voter as contradictory that he both wants to claim it and hide it.

Given Romney's wealth, it is likely that most of his income is in the form of income from capital that is privileged under our tax code with especially low preferential capital gains rates--capital gains, almost all corporate dividends and income from pension funds (his private equity firm Bain Capital, still pays him a generous share of 'profits' through a deferred compensation plan--another tax -reduction scheme that most Americans can't benefit from).   Surely it is relevant to voters whether a presidential nominee is particularly benefited by the current tax laws that favor the wealthy or not.  And surely it is relevant just how extensive that benefit is.  For example, Romney may well pay a lower effective tax rate than many Americans who have many times less income than Romney does. Voters are entitled to know that fact, since it will undoubtedly influence Romney's views about tax reform.  As David Donnelly, the national campaigns director of the Public Campaign Action fund, notes in the Huffington Post piece, "the implications are that he is afraid of what this says about who he is and who he will represent if he is in the White House."

The decision not to release tax returns also provides more evidence of a person who does not believe in transparency.  Romney hasn't released information about campaign contribution "bundlers."  He destroyed records from his tenure as governor of Massachusetts.  This tendency towards secrecy runs against the importance of openness for the sustainability of democratic institutions.

Romney is "one of the wealthiest men ever to run for the presidency" and he made most of that money in the extremely tax-advantaged world of private equity fund managers (who have claimed preferential capital gains rates on their compensation income under the "carried interest" loophole in the partnership provisions that the wealthy members of Congress haven't yet been able to bring themselves to close).   Shear, Romney Says He Won't Release Tax REturns, New York Times, Dec. 22, 2011.  Release of returns would call attention to the privileged tax system applicable to private equity fund managers, and to the fact that Romney enjoyed that kind of special tax system while average Americans who toil for a living pay higher rates on their compensation.  Shouldn't we have that information in front of us in black and white? 

Tax policy is where a great many of the important decisions affecting every facet of the economic wellbeing of this country are now being made.  For a presidential candidate to refuse to release his/her tax returns and allow citizens to arrive at their own conclusions about how the candidate's wealth, tax advantages, and tax positions will influence his/her thinking on tax policy issues is worrisome.

Of course, the mere fact that there will be rampant speculation about the tax rate that Romney pays and the income that would be revealed on his tax returns if released is itself a reason to release the returns.  Americans will be interested, and they will want to understand how Romney's tax rates compare to their own.  The Democratic National Committee has already created a webstie that allows people to compare based on assumptions about Romney's rates, according to the New York Times story, at www.whatmittpays.com.  We already have too much misinformation and speculative information in our national campaigns, so it behooves Romney to release the forms so that people can see what the real information is.

And finally, the fact that Romney has challenged his own opponents to release their tax returns (Ted Kennedy in the 1994 Senate race) should be a "shame-on-you" reason for him to release his own returns now.  If he thought that Kennedy's tax returns would be relevant information for voters, then it is surely reasonable to assume that he thinks that his own tax returns would be relevant information for voters.

There doesn't seem to be any valid reason for Romney to withhold his tax returns if he is the nominee.  If he doesn't release them, then voters should attribute it to Romney's sense of patrician privilege.  And it wouldn't be unreasonable to assume along with that his acceptance of the corporatist agenda to shift more and more taxes onto working Americans and his inability to understand the daily lives of ordinary Americans. It should count against him in considering just how he will handle the key economic issues of our times--changes to the tax code that will finally require the wealthy and high income to pay more to redress the imbalance of the numerous changes made in the last 40 years that favor the wealthy.

Presimetrics

Over at Angry Bear, my colleague Mike Kimel wrote a book called "Presimetrics".  It measures the economy in various ways related to the terms of presidents (and their parties).  Kimel concluded that Democratic presidents show the best broad-based economic growth and the best job creation.

Now, that fits because Democrats--albeit usually in weak form and often co-opted by the financial wealth holders of the country--generally adopt policies that do have something to do with furthering broad based growth that benefits ordinary American, rather than just feathering the nests of the already rich.  What kinds of policies?  Well, anti-trust, pro-unionization, financial regulation, regulation of industrial pollution, environmental protection, "green" industries, unemployment compensation, progressive taxation, estate taxation, and the AMT (which undoes some of the accumulated preferences mostly enjoyed by the rich, from charitable deductions for value they never paid taxes on and so comprising a pure windfall, to huge mortgage interest deductions on their million dollar homes, though it still leaves them their preferential taxation on capital gains).

Others are beginning to catch on to Kimel's conclusions.  See, e.g., this graph at The Far Left Side (constrasting the last 11 Presidents by party and their impact on the economy for bad or good--Republicans are almost uniformly bad, with their corporatist policies intended to benefit the rich at the cost of productivity sharing with the workers who make it possible).  You might want to read the site, as well as Kimel's book (available through Angry Bear).

Fundamental injustice: Charles Hugh Smith's Take

 Yesterday I commented on Robert Reich's book, After Shock, in which he urged us to recognize the fundamental cause of the 2007-2008 Great Recession lay in our imbalanced economy in which income and wealth is becoming more concentrated and consolidated in the hands of wealthy elites, while the vast majority of Americans are stagnating or struggling just to hold even.  Others have noticed the long-term consequences of such substantial income and wealth inequalities.  For example, Charles Hugh Smith writes, on of two minds.com, Apr. 20, 2011, about "The Fundamental INjustice that is Poisoning the Nation."

There is a fundamental injustice that is poisoning the soul of the nation, and if it is not openly addressed then the nation will face the explosive consequences of institutionalized injustice. (bolding in original)

Simply put, it is this: those responsible for the nation's financial crisis and its catastrophic after-effects are not paying for the consequences of their actions--it is the innocent, those who were not responsible, who are paying the price.

You can call it whatever you want: the Anarchy of the Super-Rich (as per Paul Farrell), the Financial Power Elite, the financial Oligarchy, Plutocracy or Corporatocracy, or the unprecedented concentration of financial wealth and political power in a financialized post-industrial economy. Whatever you call it, we all know this class of financiers and its minions got away with high financial crimes.

The biggest quibble I have with this is that it limits the "crime" to the "financiers and its minions."  In truth, the guilty are the entire upper crust--CEOs, CFOs and other high-priced managers of multinational corporations and the wealthy elite who own most of the stock, municipal bonds and other financial assets--who continue to benefit extraordinarily from the low cost of borrowing, offshoring, de-unionization, privatization, deficit-focus, and "entitlement narrowing" mentality that has been pushed by right-wing think tanks who still proclaim that just getting government out of the way (including by use of the favored three: deregulation, privatization, and tax cuts) so the free market decides winners and losers will create jobs and stimulate growth.  Of course, in this age of "truthiness" rather than truth-telling, none of the pushers bother to acknowledge that the favored three policies have apparently had exactly the opposite effect throughout the four decades of the reagonomics experiment--more concentration of wealth and income at the top; puny economic growth; and fewer jobs (and especially fewer good jobs) for the overwhelming majority of Americans.

 Smith goes on to make the point that I have been hammering with my focus on democratic egalitarianism--unless we ride herd on the forces that are consolidating wealth at the top, using tax policy and other policies to do so, we face the rapid deterioration of the institutions that make possible a democratic society.

[T]he really catastrophic losses are to the foundations of democracy and the economy. Democracy has been subverted--...--and the economy has been incentivized to favor poisonously addictive financialization and the shadow institutions of corruption, fraud, embezzlement, favoritism, collusion and misrepresentation of risk. This might be summarized as the protection of vested interests, engineered and overseen by the partnership of the ever more intrusive Central State and the nation's Financial Power Elite.

There is a second part to this fundamental injustice: look who will pay for the bailouts, guarantees and the interest on the borrowed trillions. ... Those who the Central State can easily tap: taxpayers who earn most of their income from wages, and those politically weak players dependent on government payments.

Now that the bills of the bailout are coming due, the State isn't going after GE for more taxes.  ...  No, the politically easy thing to do is raise taxes on wage earners and trim entitlements, because all the government needs to do is send down the orders and it is done: the taxes are withheld and the bennies trimmed.

Robert Reich's After Shock

Robert Reich's book, After Shock: The Next Economy and America's Future (Alfred A. Knopf, 2010), does not contain a lot of new information.  But he makes a persuasive case for the kinds of policies that our country has relied on to create a prosperous society, and points to the real cause of the economic malaise that we are suffering today. 

He starts by looking at the period of Great Prosperity under Roosevelt after WWII. Marriner Eccles, head of the Federal Reserve Board from 1934 to 1948, recognized the way moneyed interests could control the economy in their favor. 

The "major cause [of the Great Depression] ...had nothing whatever to do with excessive spending during the 1920s.  It was, rather, the vast accumulation of income in the hands of the wealthiest people in the nation, which siphoned purchasing power away from mowst of the rest."  Id. at 17.

We are in that situation again, Reich points out.  The wealthiest few at the top garner about the same share of income and wealth that they had in that time, leaving those at the bottom to scrounge for necessities.  As he notes, the share going to the richest 1% of the population peaked in 1928 and 2007 at over 23%, with the richest 10% enjoying the same kind of peak.  at 20.  Compare that to the 9-11% share from the 50s through the 70s.

The wages of the typical American hardly increased inthe three decades leading up to the Crash of 2008, considering inflation.  In the 2000s, they actually dropped.  ...In 2007, a male worker earning the median male wage...took home just over $45,000.  Considering inflation, this was less than the typical male worker earned thirty years before.  But the American economyh was much larger in 2007 than it was thirty years before.  If those gains had been divided equally among Americans, the typical person would be more than 60 percent better off than he actually wa by 200y.  Where did those gains go?  As in the years preceding the Great Depression, a growing share went to the top.  It was just like Eccles's 'giant suction pump' drawing 'into a few hands an increasing portion' of the nation's total earnings. Id. at 19.

Economists and financiers in that day, too, were insisting that "the market would correct itself automatically, and that the government's only responsibilityh was to balance the federal budget.  Lower prices and interest rates, they waid would inevitably 'lure natural new investments by men who still had money." Id. at 13. 

But "Eccles though that was nonsense. ... He saw that what passed for the God-given operation of economics 'was nothing more than a determination of this or that interest, specially favored by thestatus quo, to resist any new rules that might be to their disadvantage.'"  at 14.  He recognized "that men with great economic power had an undue influence in making the rules of the economic game, in shaping the actions of government that enforced those rules, and in conditioning the attitude taken by the people." Id. at 13-14.

So in the Depression, there were the same old arguments that the "free market" could take care of everything, and that govenrment policies should ensure that the wealthy are undisturbed because that's how jobs will be created.  It was balderdash then just as it is now, since of course there is no such thing as a free market, but rather a government-created climate amenable to commerce.

"Eccles told the senators that the government had to go deeper into debt in order to offset the lack of spending by consumers and businesses. ... He advised the senators on ways to get more money into the hands of the beleaguered middle class.  He offered a precise program designed 'to bring about, by Government action, an increase of purchasing power on the part of all the people. ...His proposed program included relief for the unemployed, government spending on public works,government refinancing ofmortgages, a federal minimum wage, federally supported old age pensions, and higher income taxes and inheritance taxes on the wealthy in order to control capital accumulations and avoid excessive speculation."  Id. at 14-15.

Those programs worked. 

The wages of lower-income Americans grew faster than those at or near the top.  the pay of workers in the bottom fifth more than doubled over these years [from 1945-1975]....Productivity also grew quickly...,defying the self-serving predictions of those who said wide inequality was necessary for rapid growth because top executivews and innovators needed the incentive of outsized earnings.  Labor productivity--average output per hour worked--doubled, as did median incomes. 

...

[The U.S. government] actively created the conditions for the middle class to fully share inthe nation's prosperity.  It did so by pushing the economy toward full employment, creating a more progressive income tax, enhancing the bargaining power of average workers, building up Social Security, providing workers with a strong safety net when they couldn't work, and improving their productivity.  Id. at 44.

As Reich notes, the period of Great Prosperityh "provide that widely shared income gains were not incompatible with economic growth; they were, in fact, essential to it."  Id. at 50.  And high income tax rates on the wealthy played a significant role in assuring that economic gains were appropriately distributed during and after WWII. 

The top marginal rate during the war ranged frp, 79 percent to 94 percent.  In the 1950s, under President Dwight Eisenhower, whom few would call a radical, it was 91 percent.  In 1964, the top rate dropped to 77 percent.  It was 77 percent again in 1969, when Richard Nixon became president.  Id. at 49.

Of course, we are now in a period of similar inequality of income and concentration of wealth in the hands of a few, like the prior Gilded Age, and the top rate has dropped precipitously (and capital gains--the primary income of the wealth--gets a significant preference of just about half the top rate for ordinary income).  And of course those programs proposed by Eccles and put in place under the New Deal--the ones that made that period of Great Prosperity possible-- are the very programs that the GOP budget proposed by Ryan would decimate or destroy entirely.  (If Social Security and Medicare are left in place for those 55 and older while weakened for everybody else, it will be little time before they are weakened as well for those 55 and older.  Sheer jealousy will see to that.)  

Companies were allowed to bust unions and threaten employees who tried to organize. .. .

And nothing impeded CEO slaaries from skyrocketing to more than three hundred times that of the typical worker (up from thirty times during the Great Prosperity), while the pay of financial executivesw and traders rose into the stratosphere. Increasingly, the ranks of America's super-rich were made up of top business and financial executives.  More than half of all the money that the top one-tenth of 1 percent of American earners reported on their 2001 taxes represented the combined incomes of the top five executives at the five hundred largest American companies.  Almost all the rest were financial traders and hedge-fund managers.

Significantly, Washington deregulated Wall STreet while insuring it against major losses.  In so doing, it turned finance. . .into its master.  .  . . As the financial economy took over the real economy, Treasury and fed officials grew in importance.  The expectations of bond traders dominated public policy.  And the stock market became the measure of the economy's success.  Id. at 56-57 (with much left out).

And this time our society is bifurcated so much by class that the wealthy and the rich don't even seem to feel very bad about using their influence in the halls of power (including the Supreme Court) to get rules that favor themselves.  That may be because, as Reich notes,

Across the nation, the most affluent Americans have been seceding from the rest of the nation into their own separate geographical communities with tax bases (or fees) that can underwrite much higher levels of services.They have moved into office parks and gated communities, and relied increasingly on private security guards instead of public police, private spas and clubs rather than public parks and pools, and private schools (or elite public ones in their own upscale communities) for their children rather than the public schools most other children attend. Being rich now means having enough money that you don't have to encounter anyone who isn't. Id. at 22 (emphasis added).

Reich makes an important point about Wall Street. 

It is common practice among economic policymakers to fervently and sincerely believe that Wall Sgtreet's financial health is not only a precondition for a prosperous real economy but that when the former thrives, the latter will necessarily follow.... [But] Wall Street is a casino in which high-stakes wagers are placed within a limited number of betting houses that keep a percentage of the wins for themselves and fob off losses on others, including taxpayers.  Id. at 39.

...

One of the basic asumptions of capitalism is that anyone paid huge sums of money must be worth it.  Policymakers are not immune to this logic. ...They talk solemnly of the importance of "stabilizing" the [financial] system and "recapitalizing" it.  Roughly translated, this means saving the assets--and the asses--of bankers.  Id. at 40

We worry about Wall Street, and gauge the success of the economy by where the Dow and the NASDAQ are.  But that is a wrong assumption.  As we've seen with the Bush years and the radical concentration of wealth at the top, what is good for Wall Street isn't necessarily good for Main Street.  The stock market goes up, but private equity managers are still doing leveraged buyouts, laying off workers, and selling the slimmed down business for a profit.  Jobs are disappearing, while shareholders and managers make money from outsourcing and offshoring and using expensive and aggressive tax avoidance techniques (and lobbying Congress for more of them).  And this is all done in a way that conditions people to accept it, even to laud the "free market" ideology that is stripping them of their jobs and their dignity.

The rich and the powerful also had substantial influence "in conditioning the attitude taken by people as a whole toward[the] rules....They generously financed think tanks, books, media, and ads designed to persuade Americans that free markets always know best.  Ronald Reagan, Margaret Thatcher, Alan Greenspan, Milton Friedman, and other apostles of free-market dogma reiterated a simple story:  the choice was between a free market and big government.  Government was the problem.  Free markets were the solution.

But how could the public have been so gullible as to accept this story?  After all, America had gone through a Great Depression, suffering the consequences of an unfettered market and unconstrained greed.  Even Marriner Eccles .... saw that left to its own devices, the market concentrates wealth and income--which is disastrous to an economy as well as to a society.  American had also experienced the Great Prosperity, which depended so obviously on public improvements, safety nets, and public investment. ...

One way to understand the paradox is loss of generational memory.  While the trauma of the Great Depression echoed in the memories of people who came to adulthood in the 1930s....their grandchildren, born during the Great Prosperity, had no actual, palpable memory of their grandparents' experience of a fallible and unreliable market offset by a strong and reliable government. ... [A]ll they recalled was the failure of government and the apparent success of the market.  This made them particularly susceptible to the seductive rants of the free marketeers.  Id. at 59-60.

The next post will look at Reich's suggestions for bringing our economy back to a more stable equilibrium where wealth and income is not so concentrated. 

Internet sales and state sales taxes--the case of Amazon.com

[edited 3/16 to add link to website "stand with main street"]

Most people will likely have read that Amazon.com is a fierce fighter of any obligation to collect state sales taxes on its retail sales.  There's a website now devoted to debunking the various reasons Amazon.com provides for not collecting sales taxes.  See standwithmainstreet.com (offering a bundle of reasons for why Amazon's refusal to collect sales taxes don't make sense).

 In Texas, where Amazon has one of its huge warehouses, it is at battle with the state, which claims that the warehouse is sufficient nexus to require the company to collect state sales tax on its sales. Amazon's response?  It plans to dump the warehouse and dump plans for building another one.  In other states, like Illinois, legislatures are considering legislation that will require the company to collect sales tax whenever it has affiliates that run its advertising and create access points for it in the state.  Amazon says it will just dump the affiliates, and run its online sales solely through its own website.  See Kopytoff, Amazon Pressured on Sales Tax, New York Times, Mar. 13, 2011.

So what's the right answer here?  It seems to me that the Supreme Court needs to update its understanding of nexus for constitutional purposes to take into account the significant changes in the way we interact based on the new context created by a wireless world.  Physical presence once readily defined the reach of a commercial entity--if it had a store or warehouse distribution point or other physical presence in the state, it had a presence in the state; if it did not have such a site in the state, it did not have a presence in the state.  But surely that notion of physical presence should no longer underlie the constitutional reach of a state's ability to require companies to collect the state's sales tax on the companies' sales within the state.  If it does so limit enforcement, it creates a wholly artificial differentiation between companies that run actual physical stores in the state (often with online counterparts) and companies that interact with residents of the states through their online sites. And that differentiation is problematic, because it gives those companies that operate solely online an unfair advantage, in that they do not have to carry out the administrative task of collecting tax and turning it over to the state.  And since many residents in the state will not self-report the tax owed on items that they purchase online (and without the company's report the state itself would have tremendous difficulty attempting to enforce collection), residents will consider the online purchase less costly--treating the inappropriate tax savings achieved by failure to report as required (and failure of the internet company to collect the tax) as a price advantage for the online merchant and causing the in-state company to suffer a comparative loss of sales.  That results in unfair discrimination in favor of out of state companies--something that runs counter to the spirit of the commerce clause, if not actually a violation of it.

The best answer, then, would be for the Supreme Court to revisit its conclusion in the 1992 case Quill Corporation v North Dakota, which required a physical presence in order for states to mandate collection of their sales taxes by companies that make sales to their residents.  The Supreme Court should overturn that precedent and conclude that online access to a state and more than a de minimis number of internet sales to a state's residents constitute sufficient nexus to permit a state to require a commercial entity to collect sales tax at the point of sale on behalf of the state.

It is not as if that is such a complex requirement that it would be too difficult to ask companies to do.  Companies that sell over the internet have already got various kinds of procedures in place that take account of where the purchaser is located compared to where the product is stored--they charge for shipping and handling and they compute the charges for sales tax in those cases where the purchasers are residents of states in which they have a nexus.  It would be relatively simple for them to extend such calculations to include appropriate sales tax in each state. 

But will this Supreme Court recognize the error of its ways?  It's doubtful.  The majority of the court is made up of rightwingers who are exceedingly friendly to big business.  Much of the "originalism" and "traditionalism" used in that majority's interpretation of cases is relied on because it is super-friendly to big business--that is, a traditionalist approach as employed by Scalia and Thomas may tend to result in decisions that are super protective of property rights and business interests at the cost of the "little guy" who does not have large property interests at stake.  Combine that with the right's tendency to disdain the interests of government and one suspects that it will be decades before a new Supreme Court reconsiders the Quill decision and comes to the correct conclusion that physical presence is an archaic test in an age of globalization and the world-wide web.

Free marketarianism or democratic egalitarianism? Hogeland claims tea-partiers misstate the Founding views on markets and freedom

William Hogeland calls Sarah Palin and the tea-partiers out on their description of the ordinary freedoms enjoyed by Americans during the Founding period as equivalent to a sort of Chicago School free marketarianism.  Native Americans, women, and slaves weren't the only groups suffering from limited rights--ordinary white male workers were also in a constant struggle against the wealthy elite land and business owners who had the main voice in town and country.  Fighting for a democratic egalitarianism that would give them fair economic rights, they objected to unfettered mercantile interests and urged progressive reforms such as social security, progressive taxation, and regulation.   See Sarah Palin and Michele Bachman would call 18th-century Philadelphia Freedom Fighters Un-American, New Deal 2.0, Feb. 21, 2011.

Securing true liberty, working Americans of the founding period insisted, requires government to regulate business and finance in the interest of economic fairness. They demanded such things as debt relief, an end to the regressive gold standard, the severing of rights from property, and legal curtailment of mercantile interests. Some wanted progressive taxation; some envisioned a social security program. Their real political ethos directly contradicts current right-wing efforts to cast passive government, unfettered markets, and wholesale tax resistance as the founding values of ordinary America.

***

While in some ways the men of Carpenter’s Hall ["small farmers, artisans and laborers"..."lacking  fancy educations and professions" and not members of the elite propertied class] might appear to be ancestors of Sarah Palin’s “real Americans”– they hunt, fish, build, farm; they keep and bear arms (and serve in militias); they’re political newcomers — Palin would brand them socialists. They’re here to create a radically new kind of government, one that restrains wealth, regulates business, and empowers labor. For the first meaningful time anywhere, their 1776 Pennsylvania Constitution will break the ancient connection between property and the political franchise, writing what we now call progressivism into law. Its legacy will survive in the Square Deal, the New Deal, the Great Society, and those programs’ reverberations in the very policies that today’s right condemns as categorically un-American.  [bolding added]