ataxingmatter

More on Greg Mankiw's weak arguments for the Bain capital gains preference

A few days ago, I commented on the weak arguments Greg Mankiw had put forth in his op-ed to support the preferential treatment of compensation for private equity and real estate partnership "profits" partners.   He points out the categorization problem--that it is not always easy to be sure what is a "capital gain" and what is "ordinary income".   I concluded along the lines of arguments I have repeatedly made on this blog:  the main thing the categorization problem teaches us is that we should eliminate categorization problems that create inevitable inequitable differentiations by eliminating the category difference. 

Get rid of the preferential rate for capital gains (and with it the need to distinguish capital gains from ordinary income), and you will in one stroke simplify corporate and partnership and individual taxation tremendously.  Much of the Code is invested in trying to prevent smart tax lawyers from using tax alchemy to convert one type of income into another.  See, e.g., section 1059 (extraordinary dividends to corporate shareholders), section 304 (sales between affliated corporations treated as redemptions), section 302 (providing tests that, if not satisfied, treat redemptions as dividends if there is e&p), etc.

Uwe Reinhardt makes a similar argument in the Economix blog carried by the New York Times.  See Capital Gains vs. Ordinary Income, New York Times Economix Blog (Mar. 16, 2012).   Reinhardt uses Mankiw's own introductory textbook in microeconomics to make the tax equity argument that many have been making about carried interest--it is unfair to tax a money manager at a preferential rate compared to firemen, postal inspectors, college professors, school teachers and neurosurgeons.

In his popular textbook “Principles of Microeconomics,” Professor Mankiw teaches students that “horizontal equity states that taxpayers with similar ability to pay should contribute the same amount.” Well put.

Consider now a person who bought a vacation home for $500,000 and two years later, during one of our recurrent real-estate bubbles, sells it for $1.5 million. That $1 million profit is now taxed at a rate of only 15 percent. If the home had been the principal residence of this person and his or her spouse, half of the $1 million profit would not be taxed at all.

Suppose next that this tax-favored person’s neighbor were a busy neurosurgeon whose many hours of hard, physical and intellectual work earned him or her a net practice income of $1 million during those same two years. That neurosurgeon would pay the ordinary income-tax rate on that income (on average a bit less than 35 percent, because only income over $388,350 a year is taxed at 35 percent).

By what definition of the term would can one call the glaringly differential tax treatment of the real estate investor and of the neurosurgeon horizontally equitable?

Reinhardt goes on to make another of the arguments that I have been pressing for months in this blog--that the assertion that preferential rates are necessary for stock market transactions because they are rewarding investment in the corporations is baloney--most reported gains on securities are from secondary market trades, not from direct investments in corporations. 

[T]he proponents of lower capital-gains taxation conjure up an image of, say, Jones purchasing shares of stock directly from the issuing corporation, which then invests the proceeds in new structures and equipment.

More typically, however, sales and purchases of corporate common stock take place among parties quite outside of the issuing corporation. For example, Jones may buy the stock from Chen, who may have reaped a capital gain from once buying and now selling the stock. Chen may have bought the stock from another person not related to the issuing company.

When Jones pays Chen, it is anybody’s guess what Chen does with the money. For all we know, Chen will spend it on a luxury car. Why, then, should any gain Chen enjoys on his or her investment in that stock be granted a tax preference? No new capital formation was supported by this trade in a stock sold by the company years ago.

The ugly truth about the  insistence on the capital gains preference is that it rewards people at the top of the income and wealth distribution and serves to maintain the status quo of the allocation of resources.  This is what is really meant by "fiscal conservatism" these days--ensuring that resources remain inequitably distributed to the very wealthy who are the "shakers and movers" of society through the influence their money can buy.  The right-leaning Supreme Court has made that even more inevitable than it was before, through the Citizens United decision upholding the right of corporations to contribute any amount to influence political campaigns, based on the laughable assertion that such "super-PAC" rights undergird free speech.

Greg Mankiw attempting to justify carried interest

Greg Mankiw wrote an op-ed in the Sunday Times Money section: Capital Gains, Ordinary Income and Shades of Gray, New York Times (Mar. 4, 2012). 

Mankiw notes the historical trend in the US to differentiate between capital gains and ordinary income regarding tax rates (though we have had notable experiements, both in the regular tax and in the AMT, to the contrary).  He asserts that there are "good reasons" for the preference for capital gains income--offering only the standard idea of lack of indexation for inflation/deflation as an example. 

The purpose of the piece is to justify the carried interest treatment of money managers' gains from dealing with other people's money as equivalent to a carpenter who fixes up a dilapidated house and gets capital gains on the sale of the home, though the gains are really paying off the carpenter's sweat equity.  Since the carpenter gets capital gains under our system, he says, why shouldn't the money manager who does an analogous activity (assuming--which may be a rather big jump-- that hedge fund, private equity and other money managers are doing "sweat equity" that adds to the value of the assets under management, and should be viewed analogously to the carpenter).

The problem with making these analogies, especially in the area of capital gains, is that the idea of capital gains is problematic to start with.  We'd be much better off with a code that made no such distinction, since there are certainly instances where the distinction is an arbitrary one.  Since the line drawing isn't easy (and it isn't), then the distinction shouldn't exist at all in the tax code.  That would be the right solution overall.

Nonetheless, the fact that a category is hard to apply generally doesn't mean that there isn't a right answer--or at least a better one-- in particular circumstances.  It is particularly inapt to compare money management with rehabilitation of dilapidated property.  Rehabilitation of real property adds "real" value, in that the property is upgraded and will physically last longer than it would have without rehabilitation.  Money managers don't necessarily add any value--they may make money for themselves and others, but there is no real productivity gain in the economy in many (if not most) instances and certainly in any case where the gain is primarily speculative (often the case with hedge funds) or destructive of domestic businesses (often the case with private equity funds). 

Private equity fund managers, you will recall, invented the leveraged buyout (or maybe it would be more accurate to say that the idea of the leveraged buyout led to private equity funds).  The idea behind leveraged buyouts was to take a stable, money-making company that wasn't heavily debt-ridden, load it up with debt to cover the acquisition cost of the company, and use the cash flows from the company to pay off the acquisition debt.  Private equity funds like Bain Capital could then leverage a minimal investment of their own with the purchased company's debt to get huge profits, once the debt was paid off with good cash flows (already existing out of the company, with nothing due to the "management" of the money manager).  The better the company taken over was, the more its cash flow could be counted on to pay off the debt, the more leverage would be added, the quicker the debt was paid off, and the better the ultimate profit.  Sometimes this takeover was relatively harmless for the "good" company, but many times it was harmful--the takeover changes and debt resulted in focus solely on profits and not on long-term investment, and the company's long-term stability was destroyed.  The process was seldom positively beneficial for the company  over the long term or for its community (though it may have been for particular shareholders and the managers themselves).  The point here, of course, is that the LBO was targeted to  (already)"good" companies with low leverage and high cash flow that could easily borrow in the market to cover the cost of the acquisition.

Later, of course, as the age of financial speculation got fully underway, private equity firms started taking over companies that could never expect to pay back the additional debt the LBO loaded them with.  The private equity firms made their money in these cases by driving them into bankruptcy and laying off or firing the workers.  Equity firms still got their profits out of the deal by selling off the components.  But the companies (and especially their workers) were done for--if the companies survived at all, they were just parts of some conglomerate with very different functions.

Making money from managing other people's money, in other words, is not per se productive for the economy as a whole and is not something we should reward with low taxation that acts as an incentive to the activity.   We should recognize the money manager's take as what it is--compensation for work done--and tax accordingly.

As an aside, I'll note that it wouldn't be unreasonable to have a handyman take ordinary income on his share of the profit that serves as reasonable compensation for his labor, but in most cases that's a difficult facts and circumstances issue for the Service to sort out after the fact.  One reason carried interest is such an obvious place to repair the problematic categorization of labor income as preferential capital gains is that there will be a partnership and there will be records of "management fees" and "carried interest allocations".  Given our sophistication about partnership allocations, identifying and classifying the carry as ordinary income is a relatively simple endeavor.

 

Obama FY 2013 Budget Proposal Released Today--President's Message

The Obama administration released its FY 2013 budget proposal today.  Obama projects that the deficit will be cut by over $4 trillion over the next decade, coming within the goalpost of 3% of GDP by the end of the decade.  That includes a reduction in defense spending of almost $500 billion over the decade.  At the same time, Obama makes the case for continuing the nation's investment in non-defense research & development--including clean energy. 

The President's message (part of the budget document, see link at bottom) sets the theme of attention to the way the gains of the top 1% have coincided with aggravated problems for the majority of hard working Americans.  It notices, that is that budgetary and tax policies, combined with  deregulation and financial crisis, are moving ordinary Americans towards despair and out of the middle class.

By giving every American a fair shot, asking everyone to do their fair share, and ensuring that everyone played by the same rules, we built the great American middle class and made our country a model for the world. Today, ... for many Americans, the basic bargain at the heart of the American Dream has eroded.

Long before this recession hit, there was a widespread feeling that hard work had stopped paying off; that fewer and fewer of those who contributed to the success of our economy actually benefited from that success. Those at the very top grew wealthier while everyone else struggled with paychecks that did not keep up with the rising cost of everything from college tuition to groceries. And as a result, too many families found themselves taking on more and more debt just to keep up—often papered over by mounting credit card bills and home equity loans.

Then, in the middle of 2008, the house of cards collapsed. ... Banks had packaged too many risky loans into securities and then sold them to investors who were misled or misinformed about the risks involved. Huge bets had been made and huge bonuses had been paid out with other people’s money. ... [M]illions of hardworking Americans lost their jobs, their homes, and their basic economic security. ...

We built this Budget around the idea that our country has always done best when everyone gets a fair shot, everyone does their fair share, and everyone plays by the same rules. It rejects the “you’re on your own” economics that have led to a widening gap between the richest and poorest Americans that undermines both our belief in equal opportunity and the engine of our economic growth.

The President's message also points out something important for citizens to bear in mind as the elections hurtle towards us at the end of this year--the reason for the financial crisis and the huge deficits we face now relate to the irresponsible tax cuts of the Bush administration--all passed when everyone knew that they would result in significant deficits that would be hard to ever make up--and the military buildup underway since Reagan, in particular the huge costs of two preemptive wars undertaken by that administration.

When I took office 3 years ago, my Administration was left an annual deficit of $1.3 trillion, or 9.2 percent of GDP, and a projected 10-year deficit of more than $8 trillion. These deficits were the result of a previous 8 years of undertaking initiatives, but not paying for them—especially two large tax cuts and a new Medicare prescription drug benefit—as well as the financial crisis and recession that made the fiscal situation worse as revenue decreased and automatic Government outlays increased to counter the downturn.

The budget proposes a number of good changes. 

• Obama proposes ending "special tax breaks" for Big Oil;
• Obama wants to finally end the "carried interest" fiasco, whereby equity fund partners that make much of their money by purchasing companies, overleveraging them to pay out debt proceeds to partners, and then breaking them up and firing workers are allowed under current interpretation of the partnership rules to treat their compensation income as capital gains if that is what the partnership they are servicing has. 
• Obama proposes enacting a Buffet Rule (a type of alternative minimum tax requirement that millionaires pay at a rate at least equal to the middle class--the sentence presenting this in the President's message is badly botched); 
• Obama wants to limit certain deductions for high income taxpayers to 28%: various deductions were subject to phaseouts at higher incomes before the Bush tax cuts but were  phased out under those cuts. 
• Another good change relates to the various temporary tax provisions enacted in the Bush administration that are a significant cause of the country's current deficits.  Obama recommends allowing the temporary Bush capital gains rate decrease (from 20% to 15%) to expire as scheduled for high income taxpayers, and allowing the dividend treatment as a net capital gain, instituted first as a temporary measure in 2003 and extended several times so that it currently is set to expire at the end of this year, to expire as scheduled for high income taxpayers.  The result would be that the unearned income from dividends would once more be taxed  at the same rate as earned income from wages, a circumstance which many provisions of the corporate tax in Subchapter C--those  designed to prevent schemes that "bailout" of corporate earnings at capital gains rates rather than the expected ordinary income rates--presuppose as basic to the corporate income tax (see, e.g., the section 302 redemption analysis that considers whether the redemption is a sufficient reduction to count as an exchange or rather should be taxed as a distribution under section 301).

We can expect that the proponents of corporatism--especially the corporate coalitions fighting for preserving the benefits for the mostly higher-income shareholders such as ALEC and the U.S. Chamber of Commerce--are prepared to raise a stink about this provision and will expect the GOP members in the House and Senate to vote with them.  The obstructionist GOP is already holding a press conference and conference calls on the matter.  See this C-SPAN item.  This will be a test of whether Congress has been listening to the issues raised by the Occupy WallStreet movement across the country. 

The arguments made by the corporate coalitions don't hold water.  See various earlier posts on this matter at A Taxing Matter.  Clearly, the dividend rates until 2003 didn't prevent people from investing or prevent people from making lots of money investing.   Nor did the change in the dividend rate lead to corporations retaining more income in the US--instead, after getting one "tax holiday" in 2004, more corporations moved more money offshore in expectation of continuing the gravy train with future tax holidays.  Anything the ALEC group says has to be taken with a very large grain of salt.  Especially about how increasing the sum total of corporate and dividend taxation will drive people awy from investing and reduce corporate capital formation.  The fact is that corporate taxation is at an extraordinary low and that most sales and purchases of corporate shares take place in the secondary market, putting no cash into corporations whatsoever!

But there's a good bit not to like as well.  The President calls for "corporate tax reform"--a favorite agenda item of the radical right that will decimate any plans for reducing the deficit without overburdening the middle class if the GOP is able to move it forward.  Obama suggests that corporate tax reform should close loopholes and lower rates so that it doesn't result in increased deficits.  But any loophole closure will be undone shortly thereafter, and any lowering of rates will never be undone.  It is folly to think that the kind of base broadening/rate lowering model applicable in 1986 could work in the "greed is good/taxes are bad" poisoned climate of 2012.

Office of Management and Budget FY2013 Budget Overview

 President's Message

White House Budget Proposal Text

President Discusses Budget Proposal (at Northern Virginia Community College) (with C-SPAN video)

Romney's Wall St. J. Interview with Gigot--Protecting the Rich

[edited to rephrase and correct typos 12/26/11 5 pm]

Joseph Rago and Paul Gigot interviewed Mitt Romney on his 'vision' for America--"On Taxes, 'Modeling', and the Vision Thing", Wall St. J. Dec. 23-24, 2011, at A13.  In it, Romney reveals the way patrician wealth has affected his values, casting President Obama as a "European social democrat" and suggesting that contrasts with his own belief in a "merit-based opportunity society--where people earn their rewards based upon their education, their work, their willingness to take risks and their dreams."  

Now everybody likes the idea of people being able to advance based on merit, rather than on crony capitalism, improper influence or whatever.   The problem with suggesting that America is a 'merit-based opportunity society' is that it isn't much of one anymore: America in this second Gilded Age is primarily a wealth-and-status-based opportunity society. 

• Education:  Even Romney admitted (obviously unintentionally) that wealth makes a real difference, since he noted that rewards depend in part on education.  People with wealth receive the finest educations from pre-K through post-graduate, getting preferences at the best children's academies in Manhattan and at the highest ranked universities like Harvard and Yale.  People without wealth lose out from the very beginning, with inferior schools that are no longer fully supported by the public, as charter and for-profit schools take over offering inferior educations that no patrician family would ever accept.  The poor and middle class take on enormous loans and work loads to finance even their public university educations, since state support has slipped down to a mere 20-30% of the cost of that education.  That makes study and grades and success much more difficult for them. 
• Working hard (with Contacts/Influence/lobbyists):  The wealthy are introduced early to the most important people of influence in society, like the Vanderbilts and the Astors of old, the private equity fund managers and the Wall Street bankers that can smooth their way through all the trials and tribulations of their 'work' careers--i.e., becoming owners of major league baseball team when you have no relevant experience (George W. Bush, with the aid of his papa and his papa's influential and rich partners) or setting up a venture capital fund (like Romney's Bain Capital). These connections ultimately permit the wealthy to mingle in a monied society that offers the right contact for every venture to succeed--including lobbyists to help a wealthy entrepreneur get his business going and ability to 'invest' in politicians who are willing to risk alienating the middle class to support preferential taxation of the rich. 
  • By the way, lots of the not-rich work quite hard, often at thankless jobs that provide no cushion to deal with life's difficult blows or at a job that, at minimum wage, still leaves their family below the poverty line.  Without the contacts and influence that smooth the way of the rich, there chances of moving up are much more limited.  If they persevere, have an entrepreneurial idea, and catch a break, they may be able to move beyond where they are, but they have to do a lot more than just 'work hard.'  
• Taking Risks (and Getting Subsidies and Preferential Tax Provisions):  The poor take a risk every time they get up in the morning--will their health hold out so they can keep working? will they be able to make it to their job in that car that needs a new starter? can they manage to arrange for someone to take care of their kids while they work or will they have to be "latch-key kids" yet another day?  But they don't usually have the kind of capital nest-egg to take a risk with in the way that Romney means it--the excitement of opening a new business demands from the poor and near-poor Herculean efforts to pull together family, friends, and workers to support their business ideas.  Those with money, on the other hand, have a head start on all of this.  Bill Gates' parents offered him an educated life of relative ease; he could 'play' in the garage on that dream of his rather than running heavy machinery or working behind a counter at a McDonalds.  And those with contacts and money are able (and willing) to hire the best lobbyists to ensure that they get all the tax-advantaged benefits and subsidies that they can finnangle (or buy) from local, state and federal legislators for their activities.  That includes favorable tax provisions that allow them to keep a significant percentage of their wealth (and to fight for even more favorable provisions), such as the carried interest provision that gave Romney a preferential rate on almost all of his compensation income, the preferential capital gains rate that gives all the wealthy a low tax rate on their income from trading stocks and bonds with each other, and the various ways that the tax code subsidizes the kinds of personal deductions that provide the most benefit to those with money--from the charitable contribution deduction (including the ability to give away stock and claim a deduction for its value rather than for your actual basis) and the mortgage interest deduction (for interest on home loans up to a million plus $100,000) to all of those provisions that allow the wealthy to retire well--pension plans, exclusion of life insurance benefits, etc.  Then there are the many subsidies they get various governments to provide for their businesses, presumably by using those long-term family/status connections to wine, dine and influence.  They include low-cost loans such as those enjoyed by Romney's Bain Capital for various businesses that Bain Capital was 'turning around'.  (Handily, they can make low-taxed profits for themselves even when their turnarounds fail, with all those subsidies, so that the taxpayer sometimes ends up paying  for their losses along with the fired workers.)  See the links provided in the posting yesterday on Romney's reluctance to release his tax returns, which discuss some of the subsidies and other benefits to Romney's business. 

That's not a merit-based opportunity society:  it's an influence-based society, where the poor and even most of the middle class are working against long odds to make headway. 

And there's not much evidence that Romney recognizes this fundamental difference in existence of the well-off and the not-so-well-off here in America.  Take the Gigot story's discussion of tax policy and what kinds of "reforms" Romney supports.  The Journal apparently thinks Romney is too timid on 'risk-taking' because he didn't espouse the kind of tax agenda that the Journal supports--moving to a consumption tax--like the national sales tax-- that shifts most of the tax burden to ordinary folks (since they will pay tax on most or all of their  income since they spend most of it on food, shelter, clothing and other necessities) and leaves a zero percent tax rate on the capital gains, dividends, and other income from capital that makes up most of the income of the wealthy and little of the income of everybody else.  Why, the Journal notes, Romney's plan merely calls for extending the Bush tax cuts, cutting the statutory corporate tax rate from 35% to 25%, and eliminating capital gains and dividends taxes only for those who make $200,000 or less.  Romney won't even say he supports a consumption tax til he's studied it more, though he likes the purported "simplicity" of a flat tax.    Romney also says he likes "removing the distortion in our tax code for certain classes of investment".  This means that Romney does not understand the real economics of the consumption tax and the so-called 'flat tax', both of which result in taxation of 100% of the income of the poor and near poor and most of the middle class while leaving the rich with a minimal tax burden.  Any system for alleviating that burden (such as a low-level exemption at the bottom of the income scale) would thrust a truly burdensome recordkeeping requirement on those least able to cope with it.  Especially for versions that merely zero out the tax rate on income from capital, distortions would be magnified: the categorization of income into different types is one of the primary distortions in our system, and any plan to eliminate taxes on one type of income while retaining them on another increases distortions rather than removing them!

What about Romney's saying he won't propose cuts in individual tax rates for those making more than $200,000?  The Journal seems to think that is rather cowardly, since such a proposal accepts President Obama's linedrawing on where rate cuts might be reasonable.  Now, aside from the failure to consider dropping the entire bunch of Bush tax cuts and letting all the rates go back to the level that they were when Bush took office (which might well be the best tax reform the Congress could do at this point), Romney should be commended for at least recognizing that the wealthy have gotten a fistful of tax gifts from the Bush individual tax cuts (and, indirectly, from the various corporate tax provisions that have allowed companies to pay less and less into the federal fisc) and for not wanting to proffer even more. 

But here's the rub.  Romney doesn't recognize the damage from the wealthier among us continuing to get even wealthier while the vast majority suffers stagnation and decline:  as the concentration of income increases at the top and inequality becomes the defining characteristic of this society, opportunity for all is threatened as is democracy itself.  Tax policies that could serve as a deterrent to that wealth buildup at the top--e.g., a stiffer, progressive estate tax, a financial transactions tax to discourage trading and capture a tiny amount in connection with those secondary market trades amongst the wealthy, and bracket expansions that would create a more progressive set of tax rates for the highest income that would distinguish between those who have $400,000 a year and those who have $2 million a year--aren't even on Romney's radar screen.  He's content with the current system's distribution, one that is highly favorable to the wealthy.  As a recent FED Finance and Economics Discussion Series article made clear, inequality has made permanent inroads and tax policies haven't done much to dampen them.  See Jason DeBacker et al, Rising Inequality, Transitory or Permanent? New Evidence from a U.S. Panel of Household Income 1987-2006.

Romeny's made it clear that he isn't about to challenge the status quo of an easy tax life for the wealthy.  Here's what he said to the Journal on the question of making sure that the wealthy never see any kind of a tax increase.

"My intent is to simplify our tax code and create growth, and so I will also look to see whether the top one-half of 1% or one-thousandth of 1% or top 1% are still paying roughly the same share of the total tax burden that they have today.  I'm not looking to lower the share paid for by the top."  Wall St. J., Dec. 24-25, 2011, at A13 (quoting Romney).

So after a decade of cutting taxes on the wealthy and passing more and more provisions that benefit the wealthy in particular either directly or indirectly, Romney declares today's status quo as the perfect state for things to be in--the current low taxes on the wealthy, in perpetuity, are his goal.  And while we may applaud him for not intending to lower taxeds further on the wealthy, it is hard to see how continuing current tax policy towards the wealthy makes sense for the fisc or for democracy.   Carried interest--won't be taxed under Romney as the ordinary compensation that it is.  Mortgage interest deduction on million-dollar loans--won't be pulled back to a more reasonable amount such as the interest on a loan that is 80% of the value of the median-priced US home.  Charitable contribution deduction for value rather than basis in stocks contributed--won't get rid of that one.  Establishment of new brackets to recognize the drastic expansion of incomes at the top so that those with progressively more income are paying progressively more in taxes--won't happen under Romney.  Why?  Because he is going to make sure that the top 1%, the top 1/2%, the top 1/1000% don't pay less, but also don't pay a bit more in taxes than they are paying now, this perfect state where the GOP wants to cut people off Medicaid to save money, turn Medicare into a 'premium support' system that will shift more and more of the burden of health care in one's old age to the vulnerable elderly with a pension they can't count on and a Social Security system that the GOP is trying to ensure that they can't count on.

Most tax "simplification" promoted by lobbyists won't create growth--it is much more likely to result in tax loopholes that the wealthy can drive a truck through.  Refusing ever to increase taxes, even on the ultra-rich who can clearly afford to pay more (without really noticing the difference in spending power) won't create growth--it most likely will result in a stagnant economy where the burdened middle class gradually falls into the ranks of the New Poor. 

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.

Payroll Tax Cut -Keystone vote up Saturday at 9 in Senate

Apparently, Senate leaders on Friday ironed out the difficulty between the GOP and the Democratic party.  The GOP got most everything it wanted, and the Dems got just barely more than nothing.  That's the way "negotiating" seems to go in the Congress these days.  The right demands and demands and demands and gets most of it by obfuscating and obstructing. 

This time the Dems were worried about not getting a spending bill.  So while the House passed a spending bill to carry the Federal Government through September 2012, the Senate caved on all the things they'd said they wouldn't cave on--like the ridiculous provision for expedited approval of the Keystone Pipeline.  All to get just a 2-month extension of the payroll tax cut and expanded unemployment benefits--which the GOP knew it could not afford not to pass, no matter what.  And Obama has already flipped on his earlier looks-like-he's-finally-figured-out-how-to-stand-tall position that he would veto any bill that carried the expedited Keystone approval provision.  See Steinhaur & Pear, Senate Agrees to a Two-Month Extension of the Tax Cut, New York Times (Dec. 16, 2011). 

The GOP continues to call the Keystone pipeline project a "job creator", even though it will create no more than 50 permanent jobs, at a considerable environmental cost.  Schumer calls the Keystone provision a "Pyrrhic victory" for the GOP, because he says Obama will not approve it if pushed.  That's not so clear to me.  Schumer also spins the cave-in as a victory for Dems! saying that the GOP won't have the leverage of the need to pass a spending bill when this issue comes back.  See  Rubin et al, U.S. Senate Leaders Agree on Two-Month Payroll Cut , Bloomberg.com (Dec. 16, 2011). 

Again, past experience suggests this may be too rosy an assessment.  There were commentators who thought that surely the Congress would not pass further tax cuts after the 2001 tax cuts resulted in large deficits but instead we got the 2003 bill and the 2004 tax giveaway for corporations bill and many others, with the deficits mounting with each one.  One would have thought that the sunset of the various Bush tax cuts in 2010 would have been a perfect time for the Dems to develop a spine, but they didn't.  And the Dems weren't even able to pass a bill ending the carried interest subsidy for hedge fund managers, in spite of the Great Recession and the need to reign in financial institutions.

The Senate bill will apparently at least not include some of the bad stuff  that was in HR 3630 as passed by the House--it is "scaled back" so it looks like medicare premiums won't rise for seniors, and  the GOP won't win its attempt to end medicare's coverage of outpatient rehabilitative therapy for stroke victims and medicare payments to doctors will not be affected.   Nor will it include the "extensions" of expiring tax provisions like the R&D credit or the active financing exception for the financial  industries' deferral of its offshoreprofits.  Id.

The Senate bill will apparently be paid for by raising the guarantee fees for Freddie and Fannie, something that was included in HR 3630.  Id.  Vote is to take place at 9 am Saturday.

Sen. Levin's Seven-Point Plan to Reduce the Deficit

 Sen. Levin is continuing to publish his plan for reducing the deficit, "We Can Reduce the Deficit and Protect the Middle Class" (Sept. 30, 2011).  This is set forth in a letter to the Joint Select Committee on Deficit Reduction (Sept. 15, 2011).

Now, without even looking at the plan, I wish he'd named it something else.  How about "We can Move the U.S. Economy Forward and Continue to Enlarge the Middle Class".  After all, the point of any thinking about spending and taxes is how government can intervene to ensure a stable and sustainable economy that works well for our citizens.  The continuing growth of the middle class is essential to that--if the middle class is growing, the lower class should be shrinking.  (With luck, the UberRich upper class will also be shrinking, since sustainable economies that work well for our citizens do not result from oligarchic rule.)  But let's look at what he suggests.

First, he accepts the budget agreement goal to reduce the deficit by $1.2 trillion over the next decade.  After all, that is what Congress agreed to. 

[Beale here:  A point probably worth making here is that this amount is LESS than the decade-worth of costs of the Bush 2001 tax cuts at the time they were enacted.  Makes one think, doesn't it, that a good approach might be just to let those tax cuts all lapse as scheduled in 2012.  No action needed.  What was ostensibly enacted as a temporary cut to stimulate the economy could just be treated as what it was enacted as--a temporary cut.  You'd think Republicans, who designed the temporary nature of the Bush tax cuts and said that they were needed because our budget was in surplus at the time, would be the first to argue for simply letting the law apply as it is written (with the extensions through 2012, of course) and let them lapse.  Why?  We are no longer in surplus, and the Republicans are raising Cain about the level of the deficit.  Allowing these to lapse as they are slated to do will solve the deficit problem.]

Second, he argues that no significant deficit reduction can (or should) be accomplished with spending cuts alone: revenues must be restored.  He points to historical patterns and notes that even under Reagan, when the drastic 1981 revenue reduction created a huge deficit, there followed multiple deficit reduction plans built on revenue increases (i.e., tax increases).

Levin:  "Federal revenues today are the lowest share of gross domestic product in generations:  just 14.9 percent. And past efforts to reduce high deficits have made new revenue a significant part of the equation. President Reagan, for example, presided over three deficit reduction plans that achieved more than three-quarters of their deficit reduction through revenue increases."

Third, he identifies seven possible steps to eliminate loopholes and subsidies for a fairer result.  (these are detailed in the letter.)

1. eliminate offshore tax shelter abuses

Levin discussed these first two items in a Sept. 16 floor statement: Reducing the Deficit by Eliminating Loopholes for Tax Havens and STock Options as well as the original letter to the Committee.

The Stop Tax Haven Abuse Act (S.1346) would combat offshore tax abuses. It contains more than a dozen provisions to shut down offshore tax loopholes and expose offshore tax cheats, including measures to penalize offshore financial institutions and jurisdictions that impede U.S. tax enforcement; stiffen penalties on aiders and abettors of tax evasion; shift the burden of proof establishing who controls an offshore entity; stop companies managed and controlled in the United States from claiming foreign status; treat U.S. deposits and investments by offshore subsidiaries of U.S. parent corporations as taxable repatriated income; and treat credit default swap payments made from the United States to offshore recipients as taxable U.S. source income. (quoted from letter)

[Beale: these are all good ideas.  We absolutely must change the way we treat credit default swap payments.  We shouldn't allow naked credit default swaps at all, and we should source swap payments coming from the US to offshore recipients as US source income.  Currently, we encourage the use of these complex derivatives by giving them very favorable tax treatment.  We also must focus on the issues of legitimate foreign statuts (management and control) and we need to treat U.S. deposits by offshore affiliates as repatriated income.  This is a point I have made often in the discussion of the corporatist push for a repatriation tax holiday.  When proponents concede that the 2004 holiday was a farce and had a very poor cost to benefit ratio in terms of creating jobs, they tend to then say--oh, but just bringing all that cash back into the good ole USA is itself a boost to the economy.  My response--much is already back in the USA in bank accounts and other investments.]

2. eliminate tax provisions favoring issuance of stock options as compensation

The Ending Excessive Corporate Deductions for Stock Options Act (S.1375) would eliminate a corporate loophole that currently gives special tax treatment to corporations that pay their executives with stock options. Stock options are the only type of compensation which, due to a special method for calculating the tax deduction, often allows corporations to deduct more than the compensation expense shown in their books. The latest data available shows that, over a five-year period, from 2005 to 2009, corporate stock option tax deductions as a whole exceeded corporate stock option book expenses by $12 to $61 billion each year, forcing ordinary taxpayers to subsidize tens of billions of dollars in excessive executive pay tax deductions. Closing this loophole would end this unfair tax subsidy of corporate executive compensation. (from letter)

 3. close the 'carried interest' loophole

In a Sept. 19 speech Reducing the Deficit: Eliminating Wall Street Loopholes, Levin says in general about items 3 and 4 the following:

Each of these loopholes amounts to a subsidy. Working American families who pay their taxes every year end up carrying an extra burden because these provisions allow Wall Street to pay a lower tax rate than the rate applied to average workers. I cannot see how anybody can explain to working Americans that they must bear a greater tax burden so that hedge fund managers get a tax break on pay that often amounts to millions of dollars a year, or so that speculative traders can pay a lower tax rate on so-called investments they might hold for just a few seconds.

He adds about carried interest

One would end the “carried interest” loophole that allows hedge fund managers to pay the lower capital gains tax rate on their pay for managing investments.

***

We tax income that investors receive from hedge funds and other investments at the lower capital-gains rate because, in theory at least, those investments help put capital to work, creating jobs and growing the economy. But the fund manager isn’t putting his own capital at risk. He’s just doing his job – the same as his employees, or the janitor who cleans his office at night. This tax break doesn’t reward risk-taking or job creation. It rewards what is already an extremely lucrative profession. According to a survey by a magazine covering the hedge fund industry, the top 10 hedge fund managers last year each made at least $440 million. Six made more than $1 billion, in one year. It’s hard to imagine we need to offer a tax break to encourage people to become hedge fund managers.

[Beale here--Levin should apply this provision much more generally to "fund managers" rather than just hedge fund managers.  Under the partnership rules as currently interpreted, people are treated as "partners" when they are given a "profits interest" in a partnership in compensation for their services, and these profits interests are then treated as receiving distributive shares of partnership income and gains rather than as receiving payments of wage compensation.  If a partnership has lots of capital gain type income rather than ordinary income, then under this interpretation of the rules the manager ends up getting his compensation as mostly capital gains.  This is especially true of private equity funds (which generally buy an asset, break up the company or fire workers or restructure and then sell the asset a few years later, reaping a huge capital gain) or real estate partnerships.  Hedge funds get some of the capital gain play, but tend to deal in more ordinary assets, though they have manuvered the deals for going public so as to capitalize on tax favorable outcomes as well.  All of these fund managers fare extraordinarily well in terms of the amount of compensation they receive.]

4. close the  "blended rate" loophole

In that same Sept. 19 speech:

And what is the blended-rate loophole? Since 1981, those who trade in some financial products, such as futures contracts and options, have enjoyed a specially created tax loophole that allows them to pay a lower rate than, for example, traders who buy and sell stock. No matter how long a speculator holds on to a futures or options contract – again, even if it’s a few seconds –their gains and losses are taxed at a lower, so-called “blended” rate, that is, part at the capital gains rate, part as ordinary income.  So a dealer who buys a stock, and sells it within a year, must pay taxes at the ordinary income rate, while the same dealer who buys an option and sells it 30 seconds later gets to pay the lower capital gains rate on most of that income.

[Beale:  the special provision here is section 1256, which applies to certain types of financial instruments, as noted.]

 the derivatives blended-rate loophole doesn’t just add to the deficit. It’s plainly unfair. It’s unfair not only to working Americans who have to pay higher tax rates than these derivatives traders. It’s also unfair to investors who risk their capital in long-term stock and other investments that are more important to job creation, but don’t enjoy that same tax break. This loophole gives preferential treatment to short-term speculative trades over long-term patient capital, and that’s exactly the wrong message to send.

[Beale: Well, most investors aren't making investments that support job creation, since most stock market purchases are in the secondary market and don't add a dollar to the company's coffers.  But he is absolutely on target that "carried interest" recipients shouldn't get capital gains on compensation income, whereas investors who buy stock are at least risking their capital.]

5. restore the upper-bracket income tax rates to the pre-Bush levels

Levin explained the rationale for this more thoroughly in a September 26 speech on Reducing the Deficit: Reducing Tax Breaks for the wealthy, as follows:

First, we should allow Bush-era tax cuts to end for those making more than $250,000. The case for this change is straightforward: It would restore a measure of fairness to the tax code that has been sadly lacking for more than a decade, and it would reduce the deficit by hundreds of billions of dollars.

Supporters of the tax cuts in 2001 and 2003 made a number of promises. President Bush said his cuts “will bring real and immediate benefits to middle-income Americans.” And yet in the decade since they began, the incomes of middle-class Americans have stagnated. According to the U.S. Census Bureau, the typical American household’s income, when adjusted for inflation, actually fell more than 8 percent from 2001 to 2010. President Bush said his tax cuts would increase the pace of job creation. And yet during the Bush years, jobs grew at roughly one-third the rate that we enjoyed during the Clinton administration. President Bush said “we can proceed with tax relief without fear of budget deficits, even if the economy softens.” And yet just those tax cuts going to the wealthiest 1 percent of Americans have added hundreds of billions of dollars to the deficit since 2001. So, these tax cuts have failed to deliver the promised benefits, and they have driven us deeper and deeper into debt. Ending them will bring down the deficit; President Obama’s proposal to end the cuts for high-income earners would reduce the deficit by an estimated $866 billion over 10 years.

What these tax cuts did deliver is a striking and continuing rise in income inequality. It’s no coincidence that as we passed a series of tax cuts whose benefits overwhelmingly flow to the wealthiest Americans, those wealthy individuals have seen their fortunes rise. A few decades ago, the wealthiest one percent of Americans took home 10 percent of all income. Today, they get 24 percent of all income. As those at the top have prospered greatly, middle-class wages have stagnated – again, down more than 8 percent, for the median American household, since the Bush tax cuts took effect.

6. raise the capital gains tax rates

Levin also discussed this in the Sept. 26 speech:

Capital gains are income from the increase in value of an asset, such as a stock. Today, thanks to the Bush-era tax cuts, the top rate on capital gains is 15 percent. That’s substantially lower than the 28 percent rate included in President Reagan’s Tax Reform Act of 1986.

The theory in slashing capital gains tax rates was that lower rates would encourage investment, job creation and economic growth. But as has been the case with slashing ordinary income tax rates for the wealthy, cutting capital gains taxes simply has not delivered what supporters promised. Given the stagnation in middle-class living standards that we have seen since the 1980s, it is difficult to argue to middle-class Americans that reducing capital gains rates made them better off.

Instead, this is another benefit that flows overwhelmingly to the wealthiest among us. According to the Tax Policy Center, more than 75 percent of the benefit from lower capital gains taxes goes to those with incomes over $1 million a year, and 94 percent of the benefit to those above $200,000.
This tax break for the most fortunate of our citizens also adds tens of billions of dollars each year to the deficit. The Congressional Budget Office earlier this year estimated that raising the capital gains rate by just two percentage points would reduce the deficit by about $50 billion over 10 years. Raising the top rate closer to Reagan-era levels would bring far more deficit reduction.
Those who fight to preserve these high-income tax cuts call attempts to end them “class warfare.” Mr. President, ending these tax breaks won’t start a class war. It will help end one – a war that, for more than a decade, has taken a devastating and immediate toll on the middle class, and created huge new deficits that damage their future prospects as well.

7. revise the tax lien process to use electronic liens

 Tax liens are a basic tool to collect unpaid taxes. Today, federal law requires liens to be filed on paper in more than 4,000 locations around the country, determined by the location of the lien. The IRS maintains a service center that does nothing but monitor dozens of varying local requirements for lien filings, track filings, and release liens once they are paid.

I have introduced legislation, S. 1390, along with Sen. Begich, to replace this antiquated system with an electronic federal tax lien registry available to the public on the Internet at no cost. The IRS estimates that this change would not only save millions of dollars in administrative costs, but also enable the IRS to release liens more quickly once they have been paid and free up employees and resources for other work. Equally important, a public electronic registry could help encourage those who owe taxes to settle their bills and take enormous pressure off taxpayers who have paid what they owe.

Lofgren's Exodus from GOP Politics--a worthy farewell

Mike Lofren, long-time GOP operative, decided it was time to leave the cult.  His farewell, published on Truth Out, is well worth reading:  Goodbye to all that: reflections of a GOP operative who left the cult, Sept. 3, 2011.

First, he acknowledges that both political parties fall short of what they should be ("are rotten"), but that the GOP is so bad because the "Party is full of lunactics."

Both parties are rotten--how could they not be, given the complete infestation of the political system by corporate money on a scale that now requires a presidential candidate to raise upwards of a billion dollars to be competitive in the general election?  Both parties are captives to corporate loot.  The main reason the Democrats' health care bill will be a budget buster once it fully phases in is the Democrats' rank capitulation to corporate interests--no single-payer system, in order to mollify insurers; and no negotiation of drug prices, a craven surrender to Big Pharma.  But both parties are not rotten in quite the same way.....

[I]t may have come as a shock that the Republican Party is so full of lunatics.  ..[T]he crackpot outliersw of two decades ago have become the vital center today:  Steve King, Michele Bachman (now a leading presidential contender as well), Paul Broun, Patrick McHenry, Virginia Foxx, Louie Gohmert, Allen West.   The Congressional directory now reads like a casebook of lunancy. ...

I could see as early as last November that the Republican Party would use the debt limit vote...in order to concoct an entirely artificial fiscal crisis.   They, they would use that fiscal crisis to get what they wanted, by literally holding the US and global economies hostage....It should have been evident to clear-eyed observers that the Republican Party is becoming less and less like a traditional political party in a representative democracy and ... more like an apocalyptic cult, or one of the intensely ideological authoritarian parties of 20th century Europe.  ...

Second, he notes that this new ideological purity means that the democratic institutions cannot function properly, and the GOP is undermining democracy itself by its extremist approach to governance.

During periods of political consensus...the Senate was a 'high functioning' institution: filibusters were rare and the body was legislatively productive.... [Now] virtually every bill, every nominee for Senate confirmation and every routine procedural motion is ... subject to a Republican filibuster. ...As Hannah Arendt observed, a disciplined minority of totalitarians can use the instruments of democratic government to undermine democracy itself. ...[Quoting John P. Judis, the author notes] "If there is an earlier American precedent for today's Republican Party, it is the antebellum Southern Democrats of John Calhoun who threatened to nullify, or disregard, federal legislation they objected to and who later led the fight to secede from the union over slavery."  ....[A] Republican committee staff director told me candidly ...what the method was to all this obstruction...By sabotaging the reputation of an institution of government, the party that is programmatically against government would come out the relative winner.

Third, the reason this sabotage of government by a radical right GOP is working is the ignorance of most US voters.

There are "tens of millions of low-information voters"  whose "confusion over who did what allows them to form the conclusion that 'they are all crooks' and that 'government is no good'.... This ill-informed public cynicism ... further intensifies the long-term decline in public trust in government that has been taking place since the early 1960s--a distrust that has been stoked by Republican rhetoric at every turn. ...

Fourth, the corporatist media "are also complicit in this phenomenon" because they dare not tell the truth or distinguish facts from fiction or even point out when a side is completely in the wrong, for fear of not appearing 'evenhanded.'

Ever since the bifurcation of electronic media into a more or less respectable 'hard news' segment and a rabidly ideological talk radio and cable TV political propaganda arm, the 'respectable' media have been terrified of any criticism for perceived bias.  Hence, they hew to the practice of false evenhandedness.  ...[Discussing Chris Cillizza, the author notes that ] the pundit's ironic depreciation falls like the rain on the just and unjust alike, on those who preciptated the needless [debt ceiling] crisis and those who despaired of it.  He seems oblivious that one side--or a sizable faction of one side--has deliberately attempted to damage the reputation of Congress to achieve its political objectives....

Fifth, as more voters become disillusioned by the GOP's anti-government propaganda and the media's misleading depiction of the parties' actions, it allows the radical fringe to acquire even more power.

And if the uninvolved middle declines to vote, it increases the electoral clout of a minority that is constantly being whipped into a lather by three hours daily of Rush Limbaugh or Fox News.  ...

[T]he deindustrialization and financialization of America since about 1970 has spawned an increasingly downscale white middle class--without job security (or even without jobs), with pensions and health benefits evaporating, and with their principal asset deflating in the collapse of the housing bubble.  Their fears are not imaginary; their standard of living is shrinking.

Sixth, the Republican method is "schizophrenic", in that it claims to be based on reverence of the Constitution yet denigrates  key constitutional principles, including the very federal government that the Constitution was written to create after the failure of the loosely joined states under the Articles of Confederation.

[The party] embodies a "caustic" denigration of the "very federal government that is the material expression of the principles embodied in that document....  [M]ost Republican officeholders seem strangely uninterested in the effective repeal of Fourth Amendment protections by the Patriot Act, the weakening of habeas corpus and self-incrimination protections in the public hysteria following 9/11 or the unpalatable fact that the United States has the largest incarcerated population of any country on earth.  If anything, they would probably opt for more incarcerated persons, as imprisonment is a profit center for the prison privatization industry, which is itself a growth center for political contributions to these same politicians.  Instead, they prefer to rail against those government programs trhat actually help people.  And when a program is too popular to attack directly, like Medicare or Social Security, they prefer to undermine it by feigning an agonized concern about the deficit.  That concern ... is largely fictitious.

Seventh, the Democrats cede the ground and fail to combat the Republican madness, and the Republicans succeed with faux populism that hides their destructive agenda.

Democratic Leadership Council-style 'centrist' Democrats were among the biggest promoters of disastrous trade deals in the 1990s that outsourced jobs abroad: NAFTA, World Trade Organization, permanent most-favored-nation status for China.  ...While Democrats temporized, or even dismissed the fears of the white working class as racist or nativist, Republicans went to work.  To be sure, the business wing of the Republican Party consists of the most energetic outsources, wage cutters and hirers of sub-minimum wage immigrant labor to be found anywhere on the globe.  But the faux-populist wing of the party, knowing the mental compartmentalization that occurs in most low-information voters, played on the fears of that same white working class to focus their anger on scapegoats that do no damage to corproations' bottom lines: instead of raising the minimum wage, let's build a wall on the Southern border (then hire a defense contractor to incompetently manage it).  Instead of predatory bankers, it's evil Muslims.  Or evil gays.  Or evil abortionists.

How do they manage to do this?  Because Democrats ceded the field.  Above all, they do not understand language. ...You know that Social Security and Medicare are in jeopardy when even Democrats refer to them as entitlements.  'Entitlement' has a negative sound in colloquial English: somebody who is 'entitled' selfishly claims something he doesn't really deserve.  Why not call them 'earned benefits.' which is what they are because we all contribute payroll taxes to fund them.  ...

It was not always thus.  It would have been hard to find an uneducated farmer during the depression of the 1890s who did not have a very accrurate idea about exactly which economic interests were shafting him. ...  But that is not the case in the present economic crisis. After a riot of unbridled greed such as the world has not seen since the conquistadors' looting expeditions and after an unprecedented broad and rapid transfer of wealth upward by Wall Streeet and its corporate satellites, where is the popular anger directed, at least as depicted in the media?  At 'Washington spending'--which has increased primarily to provide unemployment compensation, food stamps and Medicaid to those economically damaged by the previous decade's corporate saturnalia.  Or the popular rage is harmlessly diverted against pseudo-issues: death panels, birtherism, gay marriage, abortion, and so on, none of which stands to dent the corporate bottom line in the slightest.

Eighth, the GOP has three basic tenents that the party carries out with ideological purity.

A. The GOP cares only about the corporate elite and the rich owners and managers thereof.  That class warfare and corporatism is the reason for their opposition to tax increases, their groundless claims that capital gains preferences are necessary to create jobs, their repetition of myths about small businesses as job creators or American tax rates as so onerous that it chases the jobs away.

"Their caterwauling about deficit and debt is so much eyewash to con the public. ...The GOP refused [Obama's proposed $4 trillion defict reduction package] becdause it could not abide so much as a one-tenth of one percent increase on the tax rates of the Walton family or the Koch brothers, much less a repeal of the carried interest rule that permits billionaire hedge fund managers to pay income tax at a lower effective rate than cops or nurses.  ...

Republicans have attempted to camouflage their amorous solicitude for billionaires with a fog of misleading rhetoric. John Boehner is fond of saying 'we won't raise anyone's taxes' as if the take-home pay of an Olive Garden waitress were inextricably bound up with whether Warren Buffett pays his capital gains as ordinary income or at a lower rate.  Another chestnut is that millionaires and billionaires are 'job creators'.  US corproations have just had their most profitable quarters in history; Apple, for one, is sitting on $76 billion in cash, more than the GDP of most countries.  So, where are the jobs?

Another smokescreen is the 'small business' meme, since standing up for Mom's and Pop's corner store is politically more attractive than to be seen shilling for a megacorporation.  Raising taxes on the wealthy will kill small business' ability to hire: that is the GOP dirge. ...But the number of small businesses that have a net annual income over a million dollars is de minimis. ...And ...small businesses account for only 7.2 percent of total U.S. employment. ...

Likewise, Republicans have assiduously spread the myth that Americans are conspicuously overtaxed.  But compared to other OECD countries, the effective rates of US taxation are among the lowest.  In particular, they point to the top corporate income rate of 35 percent as being confiscatory Bolshevism.  But again, the effective rate is much lower.  Did GE pay 355 percent on 2010 profits of $14 billion?  No, it paid zero.

When pressed, Republicans make up misleading statistics to 'prove' that America's fiscal burden is being borne by the rich and the rest of us are just freeloaders. ...All of these half-truths and outright lies have seeped into popular culture via the corporate-owned business press. ...And when misinformation isn't enough to sustain popular support for the GOP's agenda, concealment is needed. ...

B. The GOP "worship[s] at the altar of Mars" with a "sheer, libidinous enthusiasm for invading other people's countries."

About a month before Republicans began holding a gun to the head of the credit markets to get trillions of dollars of [spending] cuts, these same Republicans passed a defense appropriations bill that increased spending by $17 billion over the prior year's defense appropriation.  ...A cynic might conclude that this militaristic enthusiasm is no more complicated than the fact that Pentagon contractors spread a lot of bribery money around Capitol Hill.  That is true, but there is more to it than that.  It is no neceesarily even the fact that members of Congress feel they are protecting constituents' jobs.  ...Some areas ... are heavily dependent on Department of Defense (DOD) spending.  But there are many more areas of the country whose net balance is negative: the citizenry pays more in taxes to support the Pentagon than it receives back in local contracts.  And the economic justification for Pentagon spending is even more fallacious when one considers that the $700 billion annual DOD budget creates comparatively few jobs. ... [A] disproportionate share is siphoned off into high-cost research and development (from which the civilian economy benefits little); exorbitant management expenditures, overhead and out-and-out padding; and, of course, the money that flows back into the coffers of political campaigns.  A million jobs appropriated for highway construction would create two to three times as many jobs as a million dollars appropriated for Pentagon weapons procurement. ...

The results of the last decade of unbridled militarism and the Democrats' cowardly refusal to reverse it have been disastrous both strategically and fiscally.  It has made the United States less prosperous, less secure and less free. ...

C.  The GOP has merged politics and religious fundamentalism to replace Eisenhower Republicanism with a "system of economic royalism, militarism and fundamentalism"

[The GOP embracing of fundamentalism has had the] "consequent normalizing of formerly reactionary or quaint beliefs", including backward positions on evolution versus creationism, scriptural inerrancy, and the existence of angels and demons, resulting in a "prevailing anti-intellectualism and hostility to science." ...

The Constitution to the contrary notwithstanding, there is now a de facto religious test for the presidency. ... Politicized religion is also the sheet anchor of the culture wars.

[This] rise of politicized religious fundamentalism (which is a subset of the decline of rational problem solving in America) may have been the key ingredient of the takeover of the Republican Party. ...

In summary, the GOP is out to make sure that ordinary Americans suffer and that the elite have everything that they want.

Having gutted private-sector pensions and health benefits as a result of their embrace of outsourcing, union busting, and 'shareholder value', the GOP now thinks it is only fair that public-sector workers give up their pensions and benefits, too.  Hence the intensification of the GOP's decades-long campaign of scorn against government workers. ...They will move heaven and earth to force through tax cuts that will so starve the government of revenue that they will be 'forced' to make 'hard choices'--and that doesn't mean repealing those very same tax cuts, it means cutting the benefits for which you worked.

The attack on public workers and their pensions is particularly galling in light of the way the super-elite have accumulated wealth while paying very low taxes.  See, e.g., this article on Alter.Net regarding Paulson and the carried interest advantage he enjoyes.  Les Leopold, hedge fund gamblers earn the same in one hour as a middle class household makes in over 47 years, AlterNet, April 2011.  As some point, ordinary Americans must claim back their lives and livelihoods from the corporatist/elitist agenda.

Jon Huntsman's Wall St. J. Op-Ed: warmed over Reaganomics

There he goes again.  Huntsman's op-ed ran in the Sept. 6, 2011 Wall St. Journal: Reigniting the Entrepreneurial Spirit.

As though enterpreneurs aren't being entreprenuers right now.  HOw about the group that made the news last night--two young men who realized that they could repai iPhones and other electronic gear for half the amount that the manufacturers charge and still make a cool profit (YoubreakIFix)?  If you have a good idea and you try to make it work, odds are you can make money off it.  That makes you an entrepreneur.

Huntsman seems to think that making the tax code friendly to Google and other Big Corps is the way to encourage entrepreneurialism.  That's like saying that taxing  the wages of partners in private equity funds at capital gains rates encourages entrepreneurialism--it's a big laugh.  Carried interest managers aren't entrepreneurs; they are speculators who buy cheap, breakup, and sell expensive. 

Huntsman wants "tax simplification, regulatory reform, and changes in energy and trade policy."  That's just more of Reaganomics--tax simplification means tax cuts for business and the 'owner' class, regulatory reform means deregulation, and changes in energy and trade policy mean deregulation and opening up of protected areas for exploitation.  None of those things will create jobs, foster entrepreneurialism, or create a sustainable American economy.

Huntsman says he favors a "revenue-neutral tax overhaul modeled after Ronald Reagan's 1986 tax reform package--which will require taking on sacred cows."  So he is willing to eliminate a few carveouts and deductions, that's good.  But he wants to lower rates even more, that's bad.  In fact, he says "flatter" is "fairer"--that's a weird view of fairness in a country that has consistently favored progressive taxation as a way to ensure that the wealthy pay for the many advantages bestowed upon them by government.  The 1986 tax cut worked as well as it did (it was no panacea) because rates could be cut in half and still be at 35%.  Today's rates are already at tax haven lows and can't really be cut any further without decimating important government programs.  Moreover, one of the key 1986 reforms was to eliminate the preferential rate for capital gains and tax the wealthy on their income the same way that the middle class is taxed--all at ordinary income rates.  Huntsman wants to couple rate reduction from all time lows with elimination of all taxes on capital gains!    He of course calls that 'eliminating the double taxation on investments" but as I've explained several times before, that use of "double taxation' is mostly false, especially in respect to investment in companies' stocks.  We already have a special tax code provision that provides for very low taxation on the capital gains an entreprenuer invests in a company directly.  But the preferential capital gains rate goes far beyond that and applies to secondary market capital gains.  That has nothing to do with direct investment.  Moreover, we have accelerated depreciation, bonus depreciation and expensing provisions that essentially make investment in business equipment very close to tax free--there's no 'double taxation' involved. 

 Huntsman repeats his proposed new rate schedule--8%, 14% and 23%--combined with "eliminating deductions and credits".  That means that the poor and middle class would bear an unconsciounable tax burden, while the wealthy would pay even less than most of them do today.  He says he'll "make business tax rates globally competitive"--that should mean RAISING rates, since the US business tax rates is already at tax haven status among the 40 OECD countries.  But of course, he actually intends to lower business taxes even further, for the benefit of wealthy managers and owners.

Huntsman's objections to regulations are equally misleading.  Regulations are the way that government acts to prevent business from passing along costs to taxpayers as 'externalities'--costs that they don't have to take into account to make a profit, but that create real harms for others, such as air pollution,  long term ecological destruction, ruination of mountains (strip mining), ruination of streams (sewage discharge), etc.  Huntsman has already reached judgement on the NLRB's consideration of Boeing's plant relocation to a right-to-work (union destroying) state.  He similarly has decided that the Dodd-Frank financial system overhaul represents "another regulatory sin" because it creates "massive compliance costs."  It appears he'd rather that the too big to fail banks continue to speculate freely in interconnected ways that end up creating a financial crisis like 2007-2008.  After all, the banksters will enjoy that, and the politicians will benefit from the big campaign contributions.  But the rest--ordinary Americans that make up the vast majority of living, breathing 'beneficiariies' of the kind of unsteady, speculative, volatile financial system created by deregulated banks--will suffer.  Huntsman understands taht the regulations that protect ordinary bank customers may face the big banks to "choose between downsizing or facing much higher capital ratios."  He casts this as a parade of horribles resulting from Dodd Frank.  Oddly, because that's actually a desirable result of banking legislation--if only that were a real possibility, it would help to end the 'too big to fail' problem!

Huntsman as president also would favor Reagan's mantra of privatization--he would 'privatize' Fannie and Freddie and "let the housing market clear".  In other words, he would let private companies now garner all the benefit of the federal taxpayer dollars in vested in Fannie and Freddie (he posed no conditions about returning all the benefits of the long-term federal guarantee) and he wouldn't give a damn about ordinary Americans who have underwater mortgages.  There's nothing in his proposal for clawbacks on mortgages in bankruptcy or otherwise.

Huntsman's warmed-over reaganomics proposals for favoring big business over ordinary Americans through a deregulatory regulatory policy, tax cut tax policy, and privatization don't address the right issues, don't promote entrepreneurialism, and are not fair. 

Obama's Labor Day Speech in Detroit

Yesterday I marched with thousands of fellow union members down Woodward, the historic main artery of downtown Detroit.  The major, senators and others were out in force, as the parade ended near where Obama was to address the group hours later.

The speech was a disappointment.  Yes, he appeared genuine, in shirtsleeves.  Yes, he gave an articulate speech, with plenty of warm references to union leaders and frequent snippets of union orthodoxy.  He even spoke truth about the role of unions in helping to build America's middle class and the problem of wage stagnation in its decline.

But there was no flame there.  The right-wing crazies who appear out to destroy unions, the middle class, and just about everything in the New Deal got barely one mention.  The corporatist agenda that puts Big Business and its BigWig beneficiaries at the top of Washington's priority list not only got no call-out; it got some of those key phrases like "shared sacrifices" that mean, in reality, hit the working class hard and continue to give big breaks to the managers and owners of corporate America and the ''partners' getting low capital gains rates on their wages.  Instead of taking on those who are waging class warfare on everybody but the elitist few who have reaped the most benefits from tax cuts while greedily keeping all the productivity gains from workers hard work for themselves, Obama continues to treat right wing ideological dogma espoused by the crazies on the Tea Party fringe as though it were worthwhile economic thinking.  The speech didn't change that.

And the right wing fringe is going to keep insisting on its dogmatic, ideological, and wrongheaded 'policies' of tax cuts for the well-to-do combined with decimation of unemployment  benefits, Medicare, Social Security. 

What Obama should do is sound the call to arms in today's class warfare.  It is high time that this country recognized that the economic well-being of ordinary Americans in the bottom 80% of the income and wealth distribution is the new 'civil right' issue for the 21st century.  Yes, race and ethnicity and gender still matter.  Yes, we still are a country that discriminates in favor of wealthy white men who look ruggedly handsome and virile and against poor blacks, middle class muslims, and women of any color. But we have made progress on race, ethnicity and gender discrimination and it is now harder for an outright bigot to espouse outright bigotry without getting called on it.

The new civil rights issue is class status.  Whether black or another ethnic minority or female or poor white male, those who don't have much are at the mercy of the 'have-more' class of former prez GW Bush.  The Have-Mores take more out of their corporations and pay even less in taxes.  The Have-Mores live in a tax haven where they get close to zero taxation on most of their capital gains and income and still complain about the 'burden' of taxation, and tend to blame the country's middle class and poor for all those problems.  Why, they even blame our ridiculous health care costs on the 'irresponsibility' of medical care decisions, like the decision to use ER care in a hospital rather than preventative care, or the decision to go to a more expensive surgeon rather than to a cheap one.  (Of course, the fact that the poor don't really have any choice in the matter gets ignored, and the fact that medical doctors are overpaid while the typical worker is underpaid is swept under the table.)

And the right-wing crazies make no bones about their intent.  They don't care if they destroy the country--the economic terrorism they exercised in the made-for-FOX News 'debt crisis' is proof.  Why, the Wall Street Journal carries an op-ed today by William McGurn. The President's Speech Impediment, Wall St. Journal, Sept. 6, 2011, at A19, that states it clearly:  the only way Obama can really make a difference in creating jobs would be to use public spending to create public jobs to do needed public work, as FDR did after the Great Depression, but that would "massively increas[e] the deficit, and the Republicans won't let him do that.  Even with the word 'stimulus' banished from his remakrs this week, no one will be fooled by new calls to 'invest' in roads and bridges and infrastructure.  Or by the expected hodgepodge of other proposals from extending the payrool tax holiday to tax credits for new hires."  Nope, those things are truly the kinds of public intervention in the economy that could turn the tide of this Great Recession in favor of the working class, and the Republicans in Congress won't stand for that.