The business groups claim that the regulations are making business harder for big companies to carry out transactions, referencing the proposed merger between U.S. drugmaker Pfizer and Ireland pharmaceutical company Allergan (both members of the Chamber of Commerce). That merger, projected to save the U.S. company about $35 billion in taxes, fell apart immediately after the new regs were released. See Michael Merced and Leslie Picker, Pfizer and Allergan Are Said to End Merger as Tax Rules Tighten, NY Times (Apr. 5, 2016). the lawsuit claims that Treasury did not have authority to issue the regulations and that there was insufficient notice to taxpayers under the Administrative Procedure Act.
Congressional Republicans have just released their "new" corporate tax proposal. As usual for the GOP, the proposal again calls for steep cuts in the corporate tax rate. Lloyd Doggett, the Texas Democrat and member of the House Ways and Means Committee who has fought for fairer corporate tax laws and elimination of the tax dodges used by so many of the hugely profitable multinational corporations, released a quick statement bout the Republican corporate tax cut proposal this morning. Here's what he had to say.
Corporate tax giveaway proposals from Republicans have become as common as their avoidance of gun safety. The only way this plan adds up is by borrowing endless amounts of money from abroad. To be revenue neutral, lowering the corporate tax rate to even 28% would require elimination of every corporate tax credit and deduction [citing the Joint Committee on Taxation, Oct. 27, 2011]. Like the Republican refusal to discourage tax dodging by corporations that renounce their citizenship and adopt a foreign address, this proposal slants the marketplace against those who make it in America in favor of those who take from America, moving profits and jobs overseas."
Doggett hits the nail on the head here. Republicans have endlessly talked about "personal responsibility" and "makers and takers" as though only the rich are responsible and everybody who is below the middle in income is just making it harder for the wealthy . Fact is, it is those hard-working, underpaid, ordinary Americans who keep this country running, and the ultra-wealthy CEOs and managers who are paid many more times what value they add to the businesses they head continue to utilize profit shifting and base erosion schemes to avoid paying a fair share of business profits in taxes.
I was at a housewarming party last Saturday and talked to quite a few people I didn't know. One was an economics professor at a regional school. Naturally, economists and tax professors gravitate towards talk about the economy and tax policies, so it isn't surprising that our talk got there fairly quickly. I will add that his views were not too surprising, either: he suggested that corporate inversions and other forms of corporate tax planning and abusive transactions would disappear if only we made the tax code "simpler." Not surprisingly, that is the issue I hear most insistently from many of the economists that I talk to-- especially those who have bought into Milt Friedman's free marketarianism: they suggest that the entire problem of the tax code--or the problem of the unprecedentedly low percentage of GDP we raise from corporate taxes in particular--could be solved if only we made the tax code simpler.
One thing they don't seem to realize is that the neoliberal approach has led to corporations treating their employees as just another number to be crunched for the benefit of the bottom line, their obligation to community and people as just another PR element, and their obligation to pay a fair share of their income to support the many levels of legal stability and benefits that they receive from government --including the benefits from basic research supported by government funding--as just another expense to get rid of in any way possible. If the statutory rate is 35% even though the ACTUAL EFFECTIVE RATE is near zero for 75% of corporations and no higher than 20-26% for many corporations, they will still argue that the statutory rate should be 25%. If it is lowered to 25% (and the effective rate for almost all corporations is near zero with a few paying around 10%), they will argue for a statutory rate of 10%. And so on.
The argument from simplicity is, these days, mostly another example of class warfare being waged on behalf of the wealthy, corporatist elite against ordinary American workers. And Congress today--controlled as it is by a majority in both the Senate and House that is generally much farther right than the nation's people--tends to use the complexity of the tax code exactly in that way--as a flagwaver to fool ordinary Americans into thinking that the corporatist, wealth-favoring tax changes the right wants to enact are "reforms" that will aid economic growth and ordinary Americans.
See, for example, the Joint Economic Committee (JEC)'s hearings today (April 20, 2016) on the topic of tax code complexity (and note the presupposition about complexity and the "taxing" problems in the wording of the title): Is Our Complex Code Too Taxing on the Economy? The title alone tells a lot about the JEC's implicit bias against taxes and against "complexity". But if anyone thinks this was likely to be a useful discussion of complexity, just look at the first three speakers. Only Jared Bernstein comes from a Center that has recognized some of the fairness issues that most of the push for "simplicity" pushes under the rug.
Art Laffer, Mr. RightWing TaxCut Spokesperson personified and the person who has made a reputation (and I bet great wealth) out of arguing that tax cuts pay for themselves after drawing a graph on a dinner napkin and proclaiming it to be a theoretically supportable description of how human behavior responds to tax rates, testifies about "The Economic Burden Caused by Tax Code Complexity (written in 2011 but presented in 2016 anyway--if it's propaganda, ya don't need to update?).
A lot of these numbers about the "cost" of complexity are speculative, one-sided in that they overlook the huge costs of a simple tax code that permits enormous sums to be lost through tax evasion, and based on theoretical assumptions far removed from actual experience to project trillions of economic gain essentially from reducing the tax rates on corporations and the wealthy. Consider one of the "complaints" in the Laffer 'study'--the requirement that businesses file forms reflecting business-to-business payments in excess of $600. It is clear that many small businesses evade taxes by using cash outlays where possible for those kinds of transactions. Reporting has proven to be an efficient way to capture those kinds of tax evasion. The same kinds of complaints are registered, of course, whenever any reporting requirement is created, whether it be an employer withholding and reporting requirement or a business reporting requirement. In a digitalized business world, creating and filing appropriate reports can increasingly be automated and almost costless. Compliance costs without such reporting are much greater because they require people and audit time at the business and at the IRS enforcement end. Those issues are disregarded entirely by Laffer.
Laffer also claims that "the more complex a tax system is, the higher the compliance costs will be." It is not clear that such a statement is empirically true. Note that he claims to be talking about "the tax system." It is worth noting that an entire system may have simple areas and complex areas, and complexity tends to reside in specific areas in which there are highly technical issues that require a complex system of rules to arrive at a reasonable answer or where Congress has acted rather hastily to add 'bolt-ons' to the tax system rather than systematically working through how provisions should work. Could the code benefit from a 1986-style revamping to remove the bolt-ons and re-integrate the system? Yes. Should that revamping be based on a "let's "simplify everything and make the taxes of the rich and powerful even less" philosophy? NO. Our current system is more complicated than it needs to be, but at the same time, not as complicated as it needs to be to prevent many of the tax avoidance schemes that tax planners dream up. Once a system of rules is in place and operative, it is not necessarily true that there will be higher compliance costs, even if there are changes every few years in the specifics of how the system works to address new issues.
Laffer also states as fact that IRS administration costs are higher when the tax code itself is more complex. However, a "simpler" tax code that nonetheless intended to capture a share of the profits to fund government could well result in much higher administration costs, as it would require considerably more agency interpretive rulings and interaction with taxpayers and audit/enforcement actions to prevent sham transactions designed around "simple" language. It makes you wonder, of course, if by "simpler" Laffer doesn't really mean--one that collects less tax, period, by having fewer brackets and lower rates. That sounds simpler to the unknowing and naive, but ask any tax professor and he or shee will tell you that determining the income to which the tax applies is the complex part, not the rates. What that kind of "simplicity" does is disguise from ordinary Americans yet another tax break for the wealthy as a move for a "better" tax system "because" it is "simpler".
Note that Laffer also talks about the "teams of accountants" and others that businesses track and measure taxes, as though they could all be done without if only we had a "simpler" tax system. Fact is, even without taxes, those teams of accountants would be part of the business world, because for most businesses, much of their business information and their tax information goes hand in hand.
So while Laffer claims to want a "fair" tax system, what he means by simple would be a tax system that shifts the burden from rich to poor even more than we already do and that eliminates the critical use of the tax system as one of the few levers that can operate to reduce the gaping inequality that has resulted from decades of tax cuts primarily benefiting the rich. So while I claim that the costs of complexity are mostly problematic if they fall on the poor or near poor, Laffer values the cost to the rich as much higher, because he looks at time used to comply (of course, that will be hired time) and the wealth of the rich to conclude that the burden is greater because their time is more valuable. He complains that the top pay more and pay proportionately more than the bottom, but of course that is exactly what a system designed around ability to pay will do: since the marginal utility of the last dollar is less to a wealthy man, one should tax them proportionately more than one should tax a poor man who perhaps already cannot satisfy the necessities of life using every one of his dollars.
For my earlier analysis of the Laffer Curve, see, e.g.The Laffer Curve Part II (March 2008) and other posts linked therein.
Scott Hodge, the President of the Tax Foundation, a right wing organization that calls itself nonpartisan and wants to be considered a "think tank" (it is a propaganda tank) that drums up an annual piece about "tax freedom day" full of specious arguments to bolster ordinary Americans views that taxes are too high about how long a typical worker works to pay his taxes.
I'm not surprised that he starts his testimony with the increasingly meaningless statement that the Code was 409 thousand words in length in 1955 and now is 2.4 million words in length. OF COURSE the code is longer in 2016 than it was in 1955 when it was still an embryonic text. It took a while for Congress to realize the lengths to which wealthy taxpayers and corporations would go to invent pathways through loopholes in the code to avoid taxes, and then to put the appropriate blockade up.
There is of course the same thing about billions of hours spent complying with tax requirements, coupled with costs estimates claiming this is all "wasted" effort. Think about that. Complying with our tax obligations is actually a privilege of citizenship, and at least a good part of the compliance "burden" is something we should be proud to do as a way to pay our fair share. This constant talk of tax compliance as though it is inherently evil also misses the point that the tax accountants and return preparers and legal advisers (especially of course for the more sophisticated and wealthy taxpayers amongst us) are also people who are earning a living by helping their fellow citizens navigate one of their citizenship duties. This is not "wasted" per se; much of this effort adds to GDP and is a viable part of a complex economy. You wouldn't guess that from reading Hodge.
Even worse is Hodge's first item of "complexity" for the income tax system that the Tax Foundation would like to see eliminated--progressive tax rates. Please note. The number of rates and the number of brackets has almost nothing to do with complexity. See Jared Bernstein's discussion of this issue, please, as well as numerous posts here on A Taxing Matter. This is a figleaf to cover the propagandizing of the Tax Foundation on behalf of the wealthy. It is the same as their push to ensure that "everybody" (even the poor and near poor) should pay some income tax, and the wealthy should pay less. Of course Hodge also quotes the economic theoretical "truth" that at some point "when the "tax price" of earning the next dollar of income gets too high, people will stop working to earn that extra dollar." However, that idea is very hard to prove, especially with our very low-rate tax system and given the different forces at play besides taxes in determining whether and how and for how much we work. After all, while the average paycheck in the country may be in the $50,000 range for a year's work, there are many CEOs willing to take ordinary paychecks of obscenely high amounts from $70 million a year to $700 million a year to in the billions per year. They pay such a small percentage of that paycheck in income taxes that it doesn't affect their willingness to hold that CEO seat one bit. Yet on the flimsy assumptions (supported by Laffer economics that claim tax cuts create economic growth) about getting more work if taxes are less and if progressive rates are eliminated, Hodge claims a boost of GDP of 1.4 percent and 1.1 million jobs. Quite speculative and without empirical foundation. Certainly didn't happen when Reagan cut taxes in his first year (and then increased them every year of his presidency thereafter). Nor when George W. Bush's administration put in place gigantic tax cuts for the wealthy. (In fact, we entered the Great Recession.....)
Hodge also wants to eliminate the phaseouts on some of the tax expenditures that limit their benefit to high income taxpayers (not terribly complicated to do--tax software calculates it automatically) and claims giving rich people that money will result in .1% GDP growth. This is, quite simply, pie in the sky made-up numbers, which any economist can do by tweaking their hypothesis to get the results they want.
Now Hodge is right about one of the individual items he mentions--the Earned Income Tax Credit phases out in a "jerky" way that is especially hard on low income workers. Many Americans in or near poverty don't claim the EITC, and others make errors claiming it. This is the kind of complexity that should be reduced, and it is even possible that a uniform phase-out rate--at a much higher income level than currently used or than recommended by Hodge--would be a good solution to that complexity.
Hodge goes on to claim that we should not eliminate itemized deductions (i.e., they are quite valuable for the upper class), but that we should instead lower every single tax rate by 10%! I heartily disagree. Most people should use and do use the standard deduction--around 70% of taxpayers. The only people who generally take itemized deductions are those with complex real-life economic situations (rental properties, business investments, unusually hefty medical expenses, or significant charitable contributions perhaps) and most of those are from the upper end of the income distribution. Further, the operation of the Alternative Minimum Tax was designed to counter, in part, the ability of affluent taxpayers to amass quite a few itemized deductions (charitable contributions that are in many way quid pro quos for those taxpayers whose name is in bold letters over the building they funded or in the bulletin of the opera they made possible, etc.): the AMT's effectiveness has been undercut by Congressional responsiveness to lobbying from higher income taxpayers but does still act to ensure that those who aren't in the richest group pay a more reasonable share of taxes than otherwise (It theoretically doesn't apply to the wealthiest taxpayers because their regular tax rates should be above the rate for the AMT). For more information on the AMT, see the series I wrote earlier on this blog, at the following post (and the links to earlier Parts therein): What Should Congress Do About the AMT (Part 5). It might be reasonable to say that the standard deduction should be increased to ensure that we are ensuring a sustainable living allowance for lower-income workers (which is the reason the standard deduction and personal exemption are in the code). But we should not reduce "each rate" by 10% and thus provide a significant benefit to wealthier taxpayers. That is most certainly not a reasonable "simplification" solution.
Of course, Hodge argues for elimination of the estate and gift tax, claiming that eliminating estate and gift taxes would raise GDP by 0.8 percent and create 159,000 new jobs while repeating the mantra that the estate tax makes it "harder to pass family businesses and farms to the next generation." This is hogwash, put simply. The estate tax as currently set is a ridiculous subsidy for wealthy families: coupled with the low rate of tax on capital gains and the step-up in basis at death, it allows them to live off the income of their wealth during their lives at low tax rates (zero if the Republicans like Paul Ryan have their way); pass their estate to their heirs with very little tax due (more than 10 million dollar exemption for a couple, and all kinds of planning schemes to get around taxes on the rest); and give their heirs a step up in basis so that they will never pay tax on the appreciation on the estate from the deceased person's lifetime. In other words, these arguments support an almost tax-free existence for the wealthy who already have hogged an unfair share of the gains from workers' productivity. The claims that benefiting the wealthy in this way will result in better economic growth and trickle down to the middle and lower class are, quite simply, unfounded and unsubstantiable. These ideas will simply aggravate the already grievous inequality in this country that has one in four children going to bed hungry at night while do-nothing heirs inherit enormous wealth, privilege and the hubris that goes with it.
Oh, and of course he repeats the statement that "the U.S. has the highest corporate income tax". that is misleading, since while it has a high statutory tax rate, it does NOT college anywhere near that tax rate. three quarters of U.S. corporations pay ZERO tax. Many of the rest pay very little tax. Very few pay a rate of tax that is significantly higher than our industrialized peers. The claim that GDP would be boosted 2.3% by eliminating the corporate tax, or that wages would increase by 1.9% or that 443,000 jobs would be created are pure salesmanship. When workers increase productivity and corporate profits grow, their wages have not grown. That money has gone into the corporate manager/shareholder pockets instead. Any tax cut would likely be viewed as just more gravy for the already rich owners and managers.
I could make similar counter arguments to every one of the "reforms" Hodge promotes: corporate integration is just another tax cut for the mainly upper income distribution elite who are the managers and shareholders of corporations. It makes no sense at all in the current economic context of this country.
Hodge also argues for keeping the "expensing of R&D costs". Economically, these costs should be capitalized. A business that wants to thrive will invest in R&D because it needs to do so for business reasons, not because there is expensing. Of course, expensing something that should be capitalized is exactly one of those distortive tax provisions that the Tax Foundation tends to argue are problematic in other contexts......
Not surprisingly, Hodge pushes the ridiculous consumption tax plans from Republicans like Ben Carson --a regressive "flat" tax that would favor wealth and put the tax burden on workers by exempting taxes on capital gains, dividend and interest (the kinds of income wealthy people live off), Marco Rubio, and Ted Cruz. All of these plans shift the burden of taxation to the middle and lower classes (from capital to labor) while protecting the wealth of wealthy people.
Of course they would have a Joseph Grossbauer, CEO of small business and spokesperson on behalf of the National Federation of Independent Business, to claim the taxing requirements for small businesses of making determinations based on tax rules. Note that he complains at least as much about the frequency of changes to tax provisions--That is not an element of the tax system itself but a result of the way that Congress has grafted on policy that should be handled by spending into the tax system, in part as a way to fool the public about what it is doing, when it enacts one tax expenditure after another in favor of one corporatist interest after another. And while I don't doubt that some of these complaints about complexity are real, I do doubt the time claimed spent complying and the difficulty claimed for regular determinations about depreciation, employee status, and other items. Note, for example, that the reason for the confusion of what "counts" as real property for tax purposes lies with business owners who push for various tax expenditure provisions in their favor, which result in increased categories that must be examined to determine appropriate classification! If business owners and their lobbyists would focus more on doing the right thing and less on wringing the last theoretically (aggressively speaking) possible penny out of their potential tax liabilities, tax time wouldn't be as "taxing" as they claim.
"Complexity has nothing to do with the number of tax brackets and rates. If taxable income were easy to define, it wouldn't matter how many rates existed in the code; all taxpayers would have to do is look up their liabilities in a table or online calculator."
"What makes our system so complex are the exemptions, deductions, other tax subsidies, and privileges for one type of income, industry, or activity over another. On the corporate side, these include “transfer pricing” opportunities (the ability to book income in low-tax countries and deductible expenses in high-tax countries), deferral of foreign earnings, inversions, and the many other loopholes that explain why the effective corporate rate is at least 10 percentage points below the top statutory rate (about 25 percent versus 35 percent). To be clear, not all subsidies in the tax code are poorly targeted and inefficient. Research shows the Earned Income Tax Credit and Child Tax Credit, for example, encourage work and prevent millions of people from falling into or deeper into poverty, and children in families receiving the tax credits do better in school, are likelier to attend college, and can be expected to earn more as adults. But well-targeted, effective subsidies like the EITC and CTC are unfortunately more the exception than the rule."
Needless to say (for anyone who has read much of this blog in the past), I don't agree with the JEC and Laffer/Tax Foundation's simplistic approach to tax reform of pushing for a "simpler" tax system based on fewer brackets, fewer and lower rates, exemptions of income mostly earned by the wealthy, and correspondingly less progressivity.
The taxpayers for whom a simpler tax code does make sense are the poor and the nearly poor. They usually have much less access to sophisticated tools for tracking their income and expenses and while they often have less income and most or all of it is wage compensation from which taxes are withheld, they need easily understandable rules without "gotcha" complexities that they can apply straightforwardly. Note that many of the poor and nearly poor in this country are also "unbanked"--meaning they don't have enough assets to maintain bank accounts or pay the fees on accounts with low balances, and they even have trouble cashing checks when they are paid with checks. They should be taking advantage of various provisions put in the code to help ensure that every American is able to provide for necessities--things like the Earned Income Tax Credit, and various other credits for child care and education expenses, etc. Simplicity counts here, because simpler provisions help to ensure that those in or near poverty are more able to take advantage of all the provisions that have been put in the code for their benefit.
But the people who do not need a simpler tax code are those at the top of the income distribution and, generally speaking, corporations and businesses. Simplicity is one of the ideas flogged by those on the right who want to eliminate corporate taxes (a benefit primarily for shareholders, which consist primarily of the wealthy and wealthier elites), eliminate estate taxes (which would give an even greater windfall to those who inherit through no merit but merely luck of birth and add even more to the worrisome growth of inequality), or legislate a complete exclusion from tax for capital gains (which would give an even greater windfall to those who live off inherited investments or even off investments that started with some personal effort, compared to those who live off the sweat of their brows, while providing the "simplest" returns (zero taxation) to those who need it the least in order to survive and contribute to the economy). The fact is that the wealthy are well able to make their way through the tax code with sophisticated advisers, seeking every loophole those sophisticated advisers can find. The simpler you make the code, the more loopholes you create. The more you cut funding for the IRS and tax enforcement generally, the harder you make it for the government to discover the loopholes or catch those who exploit them on audit. The reason the tax provisions of most concern to big businesses and those with international investments and those with multiple types of investments (CDOs, hedge funds, private equity, partnerships of one kind or another, S Corporations, etc.) are complex is that new, detailed, specific language has to be developed to counter the loophole exploitation by those who apply hyperliteralism and avoid contextual meaning and purpose of the laws in order to have an arguable defense for a tax planning transaction designed to exploit loopholes.
That's too many words in one sentence. The tax code is complex and can't be put on a post card for most complex entities or wealthy individuals with many different business and money making interests because (among many more reasons, I'm sure):
It must cover, in one way or another, all human and enterprise activities that could in any way involve the exchange of valuable goods or money for the benefit or one or more persons.
It must do so in a way that achieves at least roughly a set of laws that can be consistently applied, with exceptions explicitly set forth, to a wide variety of taxpayers (single, married, divorced, widowed, with or without children, poor, wealthy, filthy rich, corporate owner, manager and corporate owner, controlling owner of a group of affiliated corporations or businesses, partners in various kinds of partnerships doing business--the list could go on and on) who are trusted to voluntarily comply by providing a true and accurate report of their income and expenses and taxes due
It must take into account that the more sophisticated, powerful, and monied a taxpayer is the more likely that taxpayer has resources sufficient to game the system by exploiting any verbal loophole and, as evident by historical trends, will be likely to do so if the penalty is sufficiently light and the reward sufficiently great.
It must respond when a loophole is exploited by closing the loophole.
It must do so in a way that permits the voluntary compliance system to function as well as can be given resources available.
It must make fairness--based on a principled view of what that means, such as ability to pay and benefits received--a key linchpin of the way the tax system works. Progressivity and reduction of complexity for the poor and near poor should be high priorities. Transparency and reduction of redistributive subsidies for the rich should be significant attributes of a reformed tax code.
Of course, for years our tax system has also been burdened by the partisan obstructionism that considers it silly to think "Tea Party" or "progressive" might be indicators that a group applying for tax exempt status actually intends to engage in political activity and similar right-wing witch-hunts that affect morale at the Treasury and IRS among employees struggling to handle an ever-expanding job function.
If we wanted to make the tax code work better, we would fund the IRS sufficiently to have employees who can provide service to taxpayers more readily, and we would enact legislation to ensure that those who get paid for preparing tax returns actually know the law they are claiming to apply. And, in fact, there are a few key provisions that we could eliminate to "simplify" the tax code and make it better across the board while ensuring that we act to protect the Earth's future
eliminate all of those tax expenditure provisions that have been in the code for decades that provide harmful subsidies to "old" fossil fuel energy (oil, gas and coal) that contribute significantly to global warming.
eliminate the capital gains preferential rate, treating all income as of the same character and taxable at the current ordinary income rates (and eliminate thereby as well the advantage of "carried interest" in private equity partnerships to those money managers who have gotten wealthy off of other people's money)
sharply restrict the number of nontaxable reorganizations (both acquisitive and divisive) by requiring at least an 80% continuity of interest in all reorganization forms for tax-free treatment (and thereby also increase the forces against growth of megalithic multinational conglomerates)
limit the number of new tax expenditures ladled into the code to those that have gone through a lengthy process of consideration and review to ensure that they are targeted to the desired objective and eliminated promptly if evidence shows that they have not succeeded in their objective. Generally speaking, the complexity that is least justifiable in the code stems from addition of tax expenditures that favor one or another congressional constituency and are enacted in the tax code in ways that would be hard to do if enacted as a spending provision targeted to the favored constituency. As Bernstein shows:
[T]he extensive set of legal subsidies to individuals or businesses through exemptions, deductions, and other tax subsidies, generally referred to as tax expenditures, cut federal income tax revenue by over $1.2 trillion last year — more than the cost of Social Security or the combined cost of Medicare and Medicaid. Moreover, as shown in the figure below, these tax breaks disproportionately benefit higher-income households, often wastefully subsidizing behavior that would occur anyway.
In an extraordinarily frank breakfast exchange with journalists, Bernie Sanders answered a number of questions about his views and the direction he thinks the country needs to move. As usual, the press tended to ask "horse-race" questions rather than substantive ones. But Sanders responded with substantive answers, not the "gotcha" answers (about other candidates) that journalists' questions encourage (and that many politicians seem quite satisfied to work into their press encounters).
Having indicated that he thought it was time the US made some progress towards meeting the needs of ordinary working Americans, such as universal single-payer health care along the lines of our current Medicare program for seniors, and maternity/paternity and medical leaves for ordinary wage-earners, Sanders was asked if he would pay for those benefits, at least in part, with higher taxes. He answered forthrightly that taxes would need to be increased, especially for the extraordinarily wealthy and corporations. He noted the immense inequality that ordinary Americans face today, an inequality that steals away opportunities and makes daily life a hard grind for so many people. Just twelve (12) of the richest Americans saw an increase in their wealth over the last two years of a whopping $154 billion--that's more than the entire wealth of a majority of Americans. Corporations offshore their assets and avoid taxes with "rent" profits accruing to them while, again, ordinary Americans don't even get decent living wages. Hedge and equity fund managers who benefit from the "carried interest" loophole generally pay a lower rate of taxes than truck drivers. See, e.g., Sanders' website post on how the richest .0001% pay their taxes. These privileged elites need to be asked to step up to the plate and pay their fair share to support necessary programs.
As to specifics of how those taxes should be increased, Sanders noted that he hoped to release a tax reform proposal soon. It would include, he said, a transaction tax on Wall Street business, an end to multinational corporations' ability to avoid taxes through moving business into tax havens, and a more progressive income tax (see, e.g., this post on his website).
I will add here that these are many of the reforms that this blog has argued for over the years. Clearly, the right-dominated tax cut regimen of the Reagan years, the Gingrich Contract on America, the absurd Grover Norquist "never a tax increase" pledge, and the numerous revenue reduction acts passed in the Bush I and Bush II years--and of the Republican-dominated Congress and state houses during Obama's presidency--has been one of cutting taxes for the rich and big business and increasing them (if finally deemed necessary to increase revenues after cutting spending past the bone) on working people through regressive payroll, sales and excise taxes. It is time for us to return to a truly progressive tax system that asks as much of the rich as it does of the working poor.
Watching the hour-long exchange is well worth your time. It is also surprisingly refreshing to see a politician respond carefully and thoughtfully with forthright answers that do not pander to billionaire interests or Wall Street.
There is class warfare going on, right now, all across this country. It's highlighted by the election gimmicks and gambits of those on the right who claim to be supporting ordinary Americans but whose real intentions show in the results. And it is ultimately a sad statement about Americans' understanding of what is required for a sustainable economy that supports decent lifestyles for all.
Let's start by looking at the maps resulting from studies of well-being that identify the states where people are not at all well-off, such as the 2013 survey done by Gallup Healthways, available here. Those poor states are the reddest of the red belt in Mississippi, Tennessee, Florida and elsewhere across the Deep South--places where I grew up in a decidedly Republican household that bought the GOP economic fallacies hook, line and sinker, and places where today's populations are worse off in terms of the various measures of economic well-being and happiness than the more progressive northeast and west.
Isn't it likely that the anti-government, low-tax and pro-wealthy/pro-big business policies of the GOP politicos that have run these states for several decades have something to do with these negative results, and that the more progressive policies in the northeast and northwest are reflected in the much more positive results in those areas?
Yet rural, southern populations continue to proudly proclaim their allegiance, against their own economic interest, to ill-fated Reaganomics that favors tax cuts (for the wealthy and big business) coupled with use of old-time, regressive consumption taxes (toll roads, sales taxes and property taxes), privatization of public functions (e.g., charter schools managed by for-profit, nontransparent corporations), socialization of losses, militarization, and de-regulation.
The results are harmful at national and state levels, as those same right-leaning voters suffer from poor K-12 education, low-quality public services including neglected roadways, nonexistent or outdated public transportation systems, inferior safety nets, inferior health results, lower literacy rates, higher teenage birth rates, less access to universities, and, yes, fewer and lower-paying jobs.
Of course, those in the top 5% like to think of themselves as suffering, and therefore see any demands for increased minimum wages (that they consider cutting into their ability to capture more and more (rentier) profits beyond their already unreasonable percentages) as "class warfare." See, for instance, this Wall Street Journal video "Do You Make $400,000 a Year But Feel Broke?" from September 5, 2014 depicting the purported hard times for a couple in Chicago making $400,000 a year, buying a $60,000 car every four years, paying a mortgage on a $1.2 million house along with $25,000 a year in maintenance and , entertainment ($10,000 a year) going on vacations ($25,000 a year), club dues ($12,000 a year), and paying for their children's sports ventures ($10,000 a year). These and other "necessities" and (purportedly reasonable) discretionary expenditures take all of their after-tax money.
Given that perspective, no wonder those in the top have so little consideration and sympathy for ordinary Americans who have incomes in the $50,000 to $60,000 range, much less for the poor who struggle to put food on the table and heat in the furnace! They can't even imagine such limited lives. With the growing inequality in this country, the gap between the upper class and the rest of us is increasingly wider.
The ability to care about those so distant from the well-heeled in-group appears to be diminishing as the gap between the well-heeled and the rest of us widens. Those super-wealthy corporate managers and CEOs and super-rich shareholders are not likely to recognize in themselves the greed and exploitation of others that their excess returns on capital represent. As Mitt Romney made so clear, rich folks (i) think of themselves as "meriting" their outsized incomes, in spite of the fact that they often start out with silver spoons and garner greater returns than ordinary folks simply because they have larger capital portfolios to start with and can't possible achieve a level of productivity of 100s times that of ordinary workers, as current CEO pay-levels claim under "free market" theory; and (ii) find it much easier to blame the misfortune of ordinary Americans on their purported laziness and "lack of personal responsibility." (See earlier Taxing Matter posts on Romney's self-justifying 47% remarks during his presidential campaign.)
But that means the rich (and the GOP most closely aligned with big business and big capital) often support policies that can only lead to greater income and wealth inequality, fewer and fewer Americans able to enjoy a decent, sustainable lifestyle, and the growth of a very small oligarchic elite. Those policies include making it harder for poor people to vote (justified on the basis of non-existent voter fraud), making it harder for middle class and poor people to go to college (less state monies to universities, less grants and more (profitable-for-big-banks) loans), making it harder to support a family (less public transportation, lower wages, more jobs outsourced, refusal to fund Medicaid expansion, yammering for the repeal of the Affordable Care Act even though the US's market-based health care system is less efficient, more costly, and lower quality than single-payer systems in most other advanced countries), etc. The long-run result of these pro-elite pro-corporate policies may well be social chaos, as the rich oligarchy faces off against a suffering and shrinking middle class and a grievously disadvantaged lower class. That may not be so far away as many of us once thought, given the rapidly growing wealth inequality and the more radical right-wing policies that have moved into the GOP mainstream in the form of Rand Paul and other free-marketarian extremists who denigrate government and want to remove the social-economic safety nets put in place under the New Deal.
They denigrate government, that is, except when they recognize that they need it, such as when the ebola crisis erupted. Suddenly, they want a Center for Disease Control that really functions well, even though they have pushed government spending down. And they want a TSA that can screen arriving passengers, even though they hated the TSA before. And they wanted the President to appoint an "Ebola Czar", even though they scoffed at the idea of administrative officials appointed to oversee important areas before. They want a vaccine for ebola, but they have made it much harder to accomplish because of their constant push for "reducing government" and cutting research funding (making one of their pet projects to seek out what they think are silly projects that have been funded by the federal agencies).
The free market, in other words, is claimed to be the be all and end all -- until push comes to shove and it is obvious that market forces require government intervention.
Consider the compaign for governor here in Michigan. In his ads, current GOP governor Rick Snyder claims to be a hands-on non-partisan fiscally responsible type who cares about everybody in Michigan. Those ads brag about how Snyder cares about senior citizens and education --using the (meager) increases in "meals on wheels" to claim that Snyder has made life better for senior citizens, and the state's increase in support for purportedly public charter schools. Behind that facade of political PR is a deeply partisan governor who has consistently supported the elite rich capitalists over the majority of Michiganders who are ordinary salary earners working hard (or working hard to find work).
Snyder signed a "free rider/right to freeload" bill permitting non-union workers in a unionized environment to free-ride on union contracts without paying their share of the costs of the contracts they benefit from and prohibiting unions from using paycheck deductions to collect union dues. That kind of legislation, sought by the elite owners of capital who benefit from paying lower non-union wages, is (mis)labelled by the pro-wealthy right as "right to work". It is really a "right to freeload" law since the union rules it replaces never required anyone to join a union and always allowed workers who benefitted from a collective bargaining agreement to pay only the 'fair share' payment of the considerable costs of negotiating an agreement and supporting workers in grievances rather than support all union activities. As a result, workers can now pay nothing yet call on the union whenever they have a grievance against their employer. The goal of such laws is to eliminate union support for workers and thereby increase the power of capital owners, so it is particularly sad to see how many workers are fooled into supporting these "right to freeload" laws.
Snyder supported Michigan legislation that gave big businesses a huge tax cut, while supporting another bill that gave seniors a huge tax increase by taxing their (often meager) pensions. No wonder the wealthy who own most of the financial assets in the country and benefit from the decades of lobbying by right-wing propaganda tanks against buinsess and capital taxation think he's a good friend.
And of course, much of Snyder's 'support' for education has been cuts to state funding for Michigan universities (especially Wayne State, which serves the predominately Democratic southeastern region of the state) that has affected the state's economy in real ways, as students have to pay more of the cost and universities have less funding for research that directly impacts economic development. Snyder has also supported an unprecedented increase in charter schools in a system that provides no accountability, doesn't provide improved educational results, and siphons off public dollars for private profits, through the mechanism of private charter management corporations that run the purportedly "public" charter schools.
Snyder doesn't think we need increases in the minimum wage, and his administration has generally shown little interest in figuing out how to help minimum wage workers revive from the Great Recession. For example, his administration has done nothing to deal with the myriad fly-by-night companies that cheat workers coming and going on wages.
ASIDE: Here's one real-life tale illustrating the problem. I know personally of a man in Michigan hired by a Michigan-registered cleaning corporation that had contracts with at least two major national corporations to clean stores in southeast Michigan. The cleaning company claimed that the man was "in training" and therefore not required to be compensated after two weeks of full-time working for the company, including being locked inside a cavernous store overnight to do a major cleaning job. The company refused to pay for the next two weeks, claiming that "corporate headquarters" had made an error and would straighten it out in the next paycheck a month later. The man ultimately was paid only a couple of hundred dollars for that entire month, because the company produced a purported check stub showing a paycheck even when the man representing the company acknowledge that paycheck had never been issued to the man. The company paid the man on a "piecework" basis for cleaning stores, claiming that a 30,000 square foot store with public restrooms could and should be cleaned for $25(that's mopping, vacuuming, and cleaning toilets) and that the work could be done in one hour! The company required the man to pick up cleaning equipment and the company van at the "corporate headquarters" (many miles from his home and many miles from each of the stores to be cleaned) but claimed that it did not have to pay the man for the 3-4 hours per day that he had to spend to drive the company van and equipment to and from various worksites. The man quit, but has never gotten the company to issue the paycheck that he never received and has never received pay for the many hours spent working for the company moving its van and equipment.
For years (decades, actually), the American pro-wealthy right has argued that lowering corporate tax rates will create jobs. That is the presumed purpose behind the push by Dave Camp to enact a tax reform package with lower corporate rates, and the reason that even President Obama has voiced (tepid) support for lower corporate rates.
Baucus at Senate Finance and Camp at House Ways & Means are part of an oft-cited "bipartisan consensus" (though its never clear whether there really is one) for cutting corporate tax rates through "revenue neutral" corporate tax reform. This is a consensus which, if it does exist, has resulted from decades of corporate lobbying in Congress and near-absolute capture of the media on the issue, combined with the proliferation of robotic economics and "law and economics" faculties who scribble endlessly about the "economics" of corporate and capital income taxation, producing studies that suggest policy based on simplifying assumptions commonly used by economists that ensure that the outcome of their mathematical games should have almost no application in the real world. See, e.g., Ponnuru, Max Baucus's Self-Defeating Corporate Tax Plan, Bloomberg.com (Dec. 2, 2013) (indicating that "There’s bipartisan support for lowering the 35 percent federal corporate tax rate, which is among the highest in the developed world. Both parties see the rate as a burden for the economy because it pushes investors -- American and foreign -- to seek their returns in other countries. Economists argue that the tax therefore depresses wage growth in the U.S., a claim supported by numerous studies.")
So in spite of those many "studies", I've argued frequently in the past that there is no there there--i.e., that lowering corporate tax rates will do nothing to create jobs. Instead, I've said, it will simply deliver an even higher profit margin to be skimmed off by the highest paid executives and, possibly, shareholders. The higher profit margins are unlikely even to be used to increase workers' shares of the corporate revenues through higher wages, a place where they could most help the economy other than new jobs created. Thus, the drive for "revenue neutral" corporate tax reform (cut corporate taxes, cut expenditures elsewhere to make up for the decreased corporate tax revenues) is just another example of corporatism as an engine of the modern form of US class warfare.
The Center for Effective Government (formerly OMBWatch) has now done a study looking at the "job creation track records of 60 large, profitable U.S., corporations (from a list of 280 Fortune 500 companies) with the highest and lowest effective tax rates between 2008 and 2010." See Scott Klinger & Katherine McFate, The Corporate Tax Rate Debate: Lower Taes on Corporate Profits Not Linked to Job Creation, Center for Effective Government, Dec. 2013. It confirms that corporate tax cuts don't create jobs.
The study, for example, found that a supermajority (22) of the 30 corporations paying the HIGHEST tax rates created 200,000 jobs between 2008 and 2012, while only 8 of those 30 had any reductions in the number of employees. IN contrast, the 30 profitable corporations paying no or very little taxes in that period had an aggregate loss of more than 51,000 jobs--half created a few jobs and half reduced jobs between 2008 and 2012.
Here's the introductory text to the report:
The American corporate tax system is badly broken. Some corporations pay a third or more of their profits in federal taxes, while others pay nothing at all. Still others legally claim large sums as refunds even though they’ve generated sizeable profits in the United States. The responsible corporations that pay their fair share of taxes – companies like Smuckers, Nordstrom, Hershey, and Automatic Data Processing – are helping to fund the schools, infrastructure, national parks, and public protections that benefit all Americans. And the taxes they pay don’t stop them from investing in their businesses and adding new jobs for U.S. workers.
Many corporate leaders agree the U.S. corporate tax code is broken, but they argue that the core problem is that the tax on corporate profits (35 percent) needs to be lowered. Verizon’s CEO Lowell McAdam and 16 other CEOs who are members of the RATE Coalition wrote in a joint letter to the leaders of the House Ways and Means Committee and the Senate Finance Committee: “Our competitors in the OECD have lowered their statutory tax rates while the U.S. rate has remained relatively constant. This has resulted in an uncompetitive tax environment that discourages investment and job creation here at home…a lower corporate rate will boostinvestment in the U.S., bringing more American jobs, innovation and growth.” ...
A 2013 study by the U.S. Government Accountability Office found that large corporations paid on average just 12.6 percent of their 2010 profits in federal income taxes.1 Even when foreign, state, and local taxes were added in, the companies paid only 16.9% of their worldwide profits in [all] taxes in 2010. By contrast, small businesses pay an average tax rate on their profits of 19 percent, according to the Small Business Administration. U.S corporate profits as a share of the economy are at a 50-year high, yet federal corporate tax collections as a share of the economy are near a 50-year low. Id. at 2-3 (emphasis added).
Lowe's was an example of a relative high tax-paying company that created jobs: paying taxes at more than 36% and hiring more than 28,000 new employees between 2008 and 2012. In contrast, Verizon made enormous profits ($32 billion between 2008 and 2010), paid no taxes (receiving refunds of $951 million) and eliminated about 56,000 jobs between 2008 and 2012. The 58 firms that repatriated $218 billion in the 2004 "tax holiday" at very low profits saved $64 billion in taxes but then proceeded to eliminate 600,000 jobs.
Not to mention that if corporations in 2012 had actually paid the corporate tax rate of 35 percent on their humongous $1.8 trillion in profits, the corporate tax receipts would have reached $630 billion instead of the $242 billion actually paid, resulting in a one-third reduction in the deficit.
It should not be surprising that most Americans see the slide in corporate taxes relative to corporate profits as a problem--the lost revenue could go a long ways to preventing cuts to education and infrastructure spending or Medicare, Medicaid, and Social Security benefits.
[A] brand new national survey by Hart Associates found that “by a remarkable nine-to-one ratio, voters want revenue generated by closing corporate loopholes or limiting tax deductions for the wealthy to be used for public investment and deficit reduction (82%), not to lower tax rates on corporations or the wealthy (9%). In other words, the public does not support “revenue neutral” corporate tax reform.
Folks, it is quite clear that there cannot be a sustainable good-for-all economy if productivity gains constantly drift upwards (redistribution from the many to the few) as they have been in this country for the last two decades while at the same time tax policies "reward" the elite with lower taxes (another form of redistribution from the many to the few). One has to wonder just how tone-deaf Congress must be, to continue to listen to economists whose policies rest on mathematical silliness and the lobbyists for big corporations and their wealthy shareholders and managers, while ignoring the crisis in middle and lower-income America due to a stagnant minimum wage and the deftness of the elite in capturing all productivity gains. The tone-deafness has all the earmarks of a form of elitism--Congress is simply unable to understand the cacophony of the ordinary world and finds the neat equations of Chicago School economists, accompanied by the tender ministrations of corporate lobbyists and elbow-rubbing with CEOs and Board chairs, music to its ears.
The House, dominated by Tea Party/GOP politicians (or those fearful of their impact on upcoming primaries) passed a bill that attempted to tie the continuing operations of the government to compliance with Tea Party ideas about getting rid of the health reform legislation duly enacted four years ago. See Weisman, House Bill Links Health Care Law and Budget Plan, New York Times (Sept. 20, 2013). Ted Cruz has now run his non-filibuster filibuster in the Senate, and then voted against his own "principled" filibuster position (presumably out of a quite justifiable fear that he would be shown for the fool he is as the only one voting in support of his "principles", since the Senate vote was unanimously on the other side). Ted Cruz Filibuster, NY Daily News (Sept. 27, 2013).
Remember, these are the same Tea Partiers who cried "Get Government Hands Off My Medicare," so one can't expect to see much rational debate about facts and ideas, especially on health care. The fact that Obamacare is based on a Republican, business-centered idea is lost on the Tea Partiers, who seem to simply hate anything associated with Obama and Democrats. Similarly, the fact that the reforms for the first time ensure that people who have pre-existing conditions can find insurance to help pay for catastrophic health costs at reasonable rates doesn't seem to penetrate the Tea Party conscience.
The Tea Party and its amenable GOP politicians, however, apparently aren't done trying to use whatever tool however destructive to get their way on health care. Having a sustainable economy is not even on their agenda. After not succeeding in repealing the health care reform law that at least offers some Americans a chance for needed health coverage (including those with pre-existing conditions and those whose employers offer no plans and who cannot afford the typical premiums for non-group plans), the Tea Party/GOP coalition is using the threat (and likely reality) of a devastating government shutdown unless it gets its way on a matter that the American people as a whole have soundly rejected. It is ready to push the country off the fiscal cliff all over again. So after the Senate voted cloture to consider the House bill and then passed a clean funding bill to get us through at least a few more months, the House GOP (with the Tea Party reactionaries in charge) again voted on Saturday to add amendments intended to destroy Obamacare to the funding bill (a one-year delay plus a repeal of the medical device tax, one of the measures intended to cut health care costs and pay for needed reforms).
The message is simple. The GOP is attempting to hold hostage the entire federal government, including at least 800,000 federal employees who will be furloughed but who need their paychecks to live, and many towns and cities across the country that depend on their federal government agencies and employees for their own livelihoods. The Tea Party/GOP coalition has demonstrated that it doesn't care about the government, the long-term harm to the country, or the suffering of individuals caused by these actions. The Tea Party/GOP coalition is willing to keep going its selfish way, like a petulant child determined not to let anybody have anything at all unless he gets his way.
And even then, it apparently intends to continue to wreak havoc, with the threat of causing the US government to default on its debt for the first time ever, using the silly comparison of the federal government to a family operating on a fixed budget as its equivalent of P.T. Barnum's fictitious but real-seeming mermaid to scam its "Tea Party" members.
While we need to make judicious choices about how and what we spend on, we shouldn't make those decisions based on a single-minded and short-sighted goal of cutting tax revenues and not increasing the federal debt limit. We are an enormously rich country. We could work miracles of ending poverty, repairing infrastructure, funding basic research, and creating educational opportunity if only we had the will to do so. And doing those things would create jobs and hope for the under-and un-emplolyed. This is because the federal government is not a family operating on fixed wages. It can print money. It can also raise taxes. We are one of the lowest-taxed countries in the OECD, down at the bottom of advanced countries with the likes of Turkey and Mexico. We have allowed corporations (and their mostly very rich shareholders) to avoid taxes, through legislation and through sharp-witted corporate tax attorneys, to the point where they are only paying a pittance of their enormous profits to the government. We have allowed our tax brackets to become fossilized at the upper range at extraordinarily low levels of income, when the top earners get so many millions that they pittance that even the top rate brings in is just a gnat's bite for the rich.
These facts scream for recognition that the Tea Party goals are not only damaging in the process of government-hostage-taking being used to try to reach them, but highly unfair and irresponsible in their likely impact of accelerating the increasing inequality in this country--inequality that means the rich are getting rich while the poor and middle class are losing ground. Thus, the Tea Party/GOP coalition is pushing forward in what amounts to class warfare on behalf of wealthy Tea Party funders like the Koch Brothers and their corporate empire and the "silver-spoon" crowd like Mitt Romney who think that they got where they are through their "merit" (ignoring the many advantages of networks and educational opportunities that helped them "make it" in the status-and-power-based world of crony capitalism).
Charles Reid at Huffington Post concluded that Cruz was a huckster primarily intent on self-promotion appealing to a Tea Party/Republican base that invites itself to be huckstered. Here's his description:
[A] good half of the Tea Party is pure, old-fashioned American hokum. There are the conspiracy theorists selling their tales of devious plots by the Federal Reserve. And the gold dealers who spin elaborate yarns of out-of-control inflation which the government keeps secret. And there are the Second Amendment fanatics warning ominously about plots to disarm law-abiding American constitutionalists. There are even the patent-medicine folks. Newsmax, a principal Tea Party news organ, is filled daily with claims about cures for everything from diabetes to Alzheimer's. Charles J. Reid, P.T. Barnum, Joe McCarthy, and the Rise of Ted Cruz, HuffingtonPost (Sept 27, 2013).
This mode of thinking is darkly conspiratorial. The world is sharply divided -- "us" against "them." And those who stand against the heroic defenders of justice and the American way are always secretly scheming to run not just the country but the entire world.
[T]o enter today's GOP base is to cross the border from reality into Glenn-Beckistan. There are the young-earth creationists who see the whole of empirical science as a diabolical plot to conceal divine creation. There are the global warming skeptics, found even in the pages of the formerly great Wall Street Journal. And then there are the folks who come out of the woodwork at conservative workshops and rallies: The ones who want to abolish the IRS. Those who wish to dismantle whole government agencies. Those who believe Social Security is irretrievably insolvent, an accusation first made by Alf Landon in 1936. Even the next generation of segregationists who once thrilled to Wallace and Goldwater.
This is what the U.S. Congress is reduced to--paranoid hucksterism parading as compassion for the people. A minority of flim-flam artists huckstering for attention that will, they think, win them reelection and please their paranoid-prone base of Tea Party/GOP constituents--the group who thinks their religious freedom is being oppressed when they can't repress everybody else's religious rights; who thinks a conspiracy to undermine them exists when saner thinking attempts to impose some kind of reasonable restrictions on the gun mayhem that is killing this country's children and youth and elderly in what we once thought were relegated to movie depictions of Old West shoot-em-outs; and who combines this paranoid conspiracy-thinking with anarchic libertarianism to conclude that "taxation is theft" and "government is the problem" even when these majority-Republican rural constituencies from Alaska to Mississippi depend on government employment and other federal dollars for their very livelihoods. See In Republican States, More Government Jobs, New York Times (Sept. 27, 2013).
There's the rub. The inability of the Tea Party base to listen, to consider facts, to accept the importance of community and the important role of taxes in maintaining the institutions that make community possible through collective action. It makes me think of George Orwell's 1984, as depicted in the movie with John Hurt and Richard Burton --a population that has taught itself not to think with home-schooling and religious indoctrination, reinforced by political demogogues who retain power and perks by figuratively beating the proletarian to a nonthinking mass that resents any attempt to act collectively for the greater good of the people.
Robert Reich says that Obama's offer to trade increased infrastructure investment for corporate tax reduction is foolish. He's right. The US has been lowering corporate taxes, through one industry-favorable tax expenditure after another, for decades. Corporate taxes as a percent of GDP have gone down, down, down, while corporations (through ALEC) write legislation to please themselves, fund 501(c)(4) groups to campaign for more corporate favoritism, offshore jobs, offshore profits from intangible properties, and generally thumb their noses at the nation and its citizens.
Reich provides a succinct description of the three main lies that the corporate lobby has been pushing for decades to deceive Americans into support corporate tax "reform" (read--revenue reduction provisions). Reich, Three Biggest Lies Why Corporate Taxes Should be Lowered, Salon.com (Aug. 5, 2013).
Lie #1:U.S. corporate tax rates are higher than the tax rates of other big economies.
As Reich notes, the Congressional Research Service did a study recently that demonstrates that US corporations are in fact taxed less than the average rate for OECD nations. The CRS study showed a US effective tax rate of 27.1%, compared to an average OECD rate of 27.7%.
Lie #2: U.S. corporations need lower taxes in order to make investments in new jobs.
Again, Reich points out the obvious. US corporations have so much cash they don't know what to do with it--with more than $2 trillion sitting in bank accounts (not yet repatriated for tax purposes, even though much of it is in US banks). It isn't lower taxes/more cash that is needed for them to create jobs; it is more customers! The declining wages of American workers (caused by the outsouring of US jobs and the cutthroat anti-labor policies of the Walmarts and other US corporations that treat workers as expendible commodities) has meant slow growth of demand, and without demand corporations will not produce more and without increased production, jobs won't be created.
Lie #3: U.S. corporations need a tax break in order to be globally competitive.
This is the lie that really gets me. As Reich says, its pure "baloney." US corporations are already competitive--they create jobs offshore, do R&D offshore, and serve global customers offshore. They don't need a US tax break to do that!
Even if a US tax break would help them do that (everybody likes more money in their pockets), it wouldn't do any good to anyone here in the US. It would only serve the owners and managers of the corporations, not American workers. There is no justification whatsoever for redistribution upwards (to global owners/managers of multinational corporations) to support outsourcing of US jobs and impoverishment of US families.
One of the ways that corporations manage to cut their federal income tax bills way, way below the statutory rate is by setting up reinsurance affiliates offshore. While some of these reinsurance affiliates may actually function as full-service reinsurance companies to many different customers, those truly taking on and diversifying risk, most are scams, in that they are just ways to offshore U.S. profits through premium payments for self-insurance.
Two bills now before Congress, H.R. 2054 and S.991, reintroduced recently by Rep. Richard Neal (D-MA), Rep. Bill Pascrell(D-NJ) and Sen. Robert Menendez (D-NJ), are intended to end this run around the US corporate tax laws, picking up a proposal from the President's FY2014 budget to deny tax deductions for certain reinsurance premiums paid to foreign-based affiliates of domestic insurers.
Naturally, the GOP-Big-Business-Friendly machine is up in arms about any bill that would take away this kind of tax subsidy for multinational corporations.
[Although the GOP professes to believe in a 'free market', that is demonstrably false, in that every preferential tax subsidy for Big Business is highly lobbied for, and at the same time, "reforms" (like further preferential capital gains rates or regressive consumption taxes) that would push the burden of supporting federal government programs that are immensely important for ordinary people are pushed.]
So GOP Governor Rick Scott of Florida has issued a letter to Congressman Vern Buchanan (R-FL), a member of the US House of RepresentativesWays and Means Committee (who had been involved in various lucrative real estate gambits that smacked of crony capitalism in the time before his elevation to congressman). Gov. Scott claims that legislation that gets rid of the loophole of deducting premiums paid to a corporation's own offshore (tax haven) subsidiary is just a terrible idea. Gee, it would increase costs and that would be "disastrous." He also cites a Brattle Group "study" that claims that insurance availability would decrease by 20%. He also makes various claims about the importance of reinsurance generally as part of the insurance market.
Scott's letter seems to mix up questions about general reinsurance versus the kind of reinsurance to offshore affiliates that the legislation is targeting. Reinsurance occurs when an insurance company seeks to diversity its risks by reinsuring part of them with another insurance company that acts as a reinsurer. Genuine reinsurance is a useful part of insurance, and the legislation doesn't outlaw reinsurance or add to the costs of reinsuring through bona fide third-party reinsurance companies. The legislation deals with offshoring of insurance premiums through affiliated reinsurers, quite a different thing, through which US corporations essentially convert US profits to offshore profits, reducing their US taxes correspondingly, by paying premiums (sometimes exaggeratedly high premiums, providing even greater tax avoidance) to their own subsidiaires located in offshore tax havens.
Yes, not getting to use the offshoring reinsurance scam to cut US corporate taxes would increase those companies' costs. But every time a US company reduces its own costs and increase its own profits through offshoring its profits to tax havens and thus avoiding US taxes, it is shifting the tax burden off onto ordinary Americans who can't/don't engage in such lucrative offshoring. Ordinary workers thus end up bearing an increased tax load to support those companies' lower tax burdens.
(Oh, and a bunch of reinsurers appear to have been involved in illegal trade with Iran, too. See article on NY regulators, below).
The US has prospered most when we have had a more equal society in which corporate entities have borne a greater share of the tax burden (resulting, if the incidence of tax falls mainly on shareholders as may be the case) in their shareholders, who are in the main members of the upper crust, paying a fairer share of the tax burden and relieving ordinary folk from having to take up too big a share.
It seems to me that we have reached a point where Americans have to decide what kind of society they want. If we want a highly unequal society in which children of the wealthy receive a prime education, go to the best colleges, are introduced through their wealthy parents to societal leaders who can open doors for them in whatever career they want while most everybody else finds themselves forced to opt for expensive online colleges, few connections, living from hand to mouth and hoping against hope to be able to satisfy basic needs, then we can just continue on the path we are already moving on. But if we are not satisfied with that kind of oligarchic society, we have to vote out the right-wingers who are pushing it and institute new policies, reviving labor laws to support workers, instituting a more progressive income tax, reforming the tax code to remove the many tax subsidies for Big Business (and especially those for Big Finance and Big Oil) and otherwise attempt to shift the focus of the economy to creating jobs for ordinary people. Revamping the reinsurance industry is one of the obvious reforms along the way to a more sustainable economy.
Proponents of lowering the U.S. corporate income tax rate commonly point to evidence that the U.S. statutory corporate tax rate of 35 percent, as well as its average effective tax rate, which equals the amount of income tax corporations pay divided by their pretax income, are high relative to other countries. However, GAO's 2008 report on corporate tax liabilities (GAO-08-957) found that nearly 55 percent of all large U.S.-controlled corporations reported no federal tax liability in at least one year between 1998 and 2005. Id. (from "highlight").
The report looks good for corporations. The GAO report shows that corporate taxes paid to the US are going down, down, down. Corporations paid 15.3% in 2008, 13% in 2009 and only 12/6% in 2010--that's less than have the corporate tax rate of 35% for each of those years! The proportion of federal revenues raised from corporate taxes has been decreasing over the years as well--the GAO reports that for 2012 it is estimated that corporate taxes will have raised only 242 billion, compared to 1.1 trillion in individual taxes and 845 billion in payroll taxes.
When you couple the very low corporate taxes actually paid with the very favorable preferential capital gains taxation to shareholders (including both dividends paid from corporations and sales of corporate shares), corporate shareholders--mostly the very top few percent that own and/or manage most of the financial assets--are doing extremely well. At the same time, ordinary Americans continue to suffer the impact of the recession. For those with jobs, we haven't made up for the losses from the Great Recession. And for those without jobs, Republicans across the country are enacting measures to make them suffer even more--as though, as Paul Krugman notes, making them even more miserable would somehoe restore the economy. See Paul Krugman, War on the Unemployed, New York Times (June 30, 2013).
So why all that chatter about how high the US tax rate is (35% on corporations with more than about 18.4 million in annual income) and how it makes US corporations losers in the cutthroat global competition? That's not hard to understand. Corporate managers like to have the profits earned from workers' labor accrue to themselves and they don't like paying any taxes. So no matter how low the effective tax rate already is, corporations will lobby for even lower statutory tax rates, using corporate resources that are available in part because of those tax policies favoring "paper" deductions for noneconomic depreciation, until they get the statutory rates down to zero (and the effective rates actually negative).
So why do our representatives in Congress buy into that sad-sack tale that really isn't true--both in terms of the need to use any revenues generated by tax reform to cut the rates on corporate tax, and in terms of the refusal to eliminate the discriminatory preferential rate for capital gains that treats profits earned from having money as much better than profits earned from hard work? Because every time there is something for corporations and the wealthy to lobby for, there is also something for congressional representatives (and, importantly, their staffs) to use as a campaign fundraising tool with the corporate elite.
THe lobbying, and the campaigning, and the PR blitz supported by all those purported "think tanks" funded by the corporate and wealthy elite, where the "scholars" are paid to produce the "scholarship" to support the ideology that claims that the wealthy got that way on their merit and therefore merit continuing tax expenditure support for their activities from the government--it all fit together hand in glove to pave the way for yet another corporate tax break that will benefit managers and owners and leave workers high and dry.
Think about the recent brouhaha over the fact that the IRS gave closer scrutiny to 501(c)(4) applicants that were likely to be politicking organizations rather than do-gooder organizations as the exemption requires. That was all about keeping the big wealthy and corporate funders of politicking groups secret. When those groups are secret, it makes it more possible to influence elections with misleading or false statements without people becoming more skeptical because of realizing their source. And the more that goes on, the more those corporations can hobnob with Congress and let them know the items on their wish lists without much intervention from the unknowing public.
This is why the Baucus-Hatch "base broadening to support rate cutting" plan for "tax reform" doesn't make sense. We don't need to cut corporate tax rates. Let's do some base-broadening, but use that revenue where it is really needed--to fund basic scientific research, to support public education, to fund needed infrastructure projects--not to give another tax break to multinationals and their owners/managers. For once, the country needs to think long-term rather than from election to election with campaign fundraising as the holy beacon.