[edited 3:26 EST to add link to Fleischer article]
Did you hear about Rand Paul demanding an apology on behalf of Apple for the Senate investigation of the way that major muntilnational enterprises use whatever gimmick their very highly paid tax advisers and accountants can think of to ensure that profits actually attributable to the US get attributed to some tax haven (like Ireland, the Caymans, Bermuda, the Netherlands, as used in those inventive tax structures called "double Irish" and "Dutch sandwiches" and other fancy useful-only-for-tax-avoidance-purposes-chains of offshore affiliates)? If not, see this (thanks to CrooksandLiars for providing the video embed code as well as an interesting commentary).
Rand Paul seems to be getting even more radically pro-corporatist/pro-elitist than he ever was, while claiming "libertarian" leanings that supposedly support ideas of individual freedom. Can't have it both ways. The corporatist agenda is one that favors humongous bureaucracies of over-paid corporate executives and high-level managers who preside over global institutions with enormous power to influence any one country's legislative bodies and executive agencies. It doesn't have much sympathy for the little guys, whether the workers who are poorly paid or the people who consume its products who are treated as much as a commodity as the product produced by the MNEs that further their masters' corporatist agenda. The managers make sure that the laws give them a good living for life--including maintaining defined benefit plans (in the US) for themselves while casting their ordinary workers onto market-vulnerable 401(k) plans; paying themselves lucrative salaries, bonuses and perks while firing workers and getting rid of their benefits at every opportunity; setting themselves up like royalty in office suites, company jets, elite hotels and philanthropic galas (that advance their personal status agenda) while letting workers and consumers suffer whatever poor pay, environmental pollution, and inhospitable workplace vagaries their "business model" requires.
It's not that Apple is the only one of these corporate miscreants exploiting all the benefits of the United States while avoiding paying its fair share of taxes. Google (which is, like Apple, a company whose primary asset is its intellectual property developed in the good ole USA) also employs a vast array of offshore gimmicks to avoid US taxation of its profits. See Jesse Drucker, Google joins Apple avoiding taxes with stateless income, Bloomberg.com (May 22, 2013).
Google, for example, has used a pair of tax shelters known by tax attorneys as the “Double Irish” and “Dutch Sandwich” that move foreign profits through Ireland and the Netherlands to Bermuda to avoid about $2 billion in income taxes a year, according to the company’s filings in the U.S.
Like Apple, Mountain View, California-based Google shifts profits into an Irish subsidiary that doesn’t pay taxes in Ireland. In Google’s case, it says the unit is managed in Bermuda, which has no corporate income tax.
Should Google's "managed in Bermuda" save it from US taxation--nope, because it would never make the transfers to those offshore affiliates in the first place if they were third parties. Our rules let companies readily move "active businesses" offshore and our transfer pricing rules let companies pay scant taxes on transfers of their core business assets offshore. And much of the time when companies claim they are 'managed' offshore it is really just another much of flimflammery. For instance, the company may arrange a (company-paid) vacation for its board and senior managers in a tax haven island paradise once a year, and keep "originals" of records in the island hideaway while keeping digital copies in the parent CEO's hands, where the company is really run, etc. It may even have "directors" based in the island resort--like those two lawyers in the Cayman who "run" myriad companies located there. It may even hire a real director who is directed to live in the offshore resort area to add a little more (fake) substance to the offshore management claim. But can that offshore company make any decision that the parent execs don't want it to make? Aren't its engineers and (US-subsidized) research the key component of those profits? You tell me.
My colleague (formerly at Cleary Gottlieb in New York, and now as a tax professor) Ed Kleinbard got it right, in a discussion quoted in the Drucker article.
Senate investigators drilled down into a crucial component of Apple’s strategy that Edward Kleinbard, a former corporate tax attorney and professor at the University of Southern California Law School, said may make the company vulnerable to taxation in the U.S. In the panel’s report, the top Irish subsidiary receiving offshore profits was found to have held almost all its board meetings in California, with its sole Irish board member rarely attending.
“Apple says their Irish subsidiaries’ ‘mind and management’ lies outside Ireland, but the real question is, do those subsidiaries have any mind of their own at all?” Kleinbard said. “If they are not really competent to make independent decisions to take on risks and make contracts on their own behalf, then the structure collapses of its own weight, and the income properly should be taxed to the United States.” Id.
Folks, Rand Paul is right only about one think--Congress should indeed apologize to somebody, but not for what Paul wants it to apologize for. Congress should be apologizing to ordinary American people for having so long deferred to the corporatist agenda, letting US-based companies get away with running an Irish shell from California and claiming that the profits attributed to the shell are earned in an active offshore business.
Substance over form should say that any company managed by US company officers is a US company. And any company used as a conduit to shift profits offshore should be disregarded. And any company affiliate purporting to purchase critical intellectual property rights should be disregarded. Etc. Congress simply hasn't had the guts to stand up to these corporate giants, because these corporate giants employ armies of Goliath lobbyists who win almost every battle againstthe David-sized organizations representing ordinary Americans. (Latest non-tax example--the Interior Department's adoption of the ALEC-designed fracking bill stupidly allowing more climate-change-generating fracking on public lands!)
A fellow tax prof, Victor Fleischer, notes one of the reasons Congress hasn't acted on these issues--the very real (not too-well-veiled) threat by corporate executives who've made millions or billions from their US-subsidized enterprises to now abscond to foreign countries for real, moving the engineering and intellectual property development and research there. See Victor Fleischer, Finding the Roots of Apple's Economic Product, DealBook (May 21, 2013).
Tomorrow's Congressional hearing on the ability of major multinationals to shift profits offshore to avoid US tax (and everywhere-else tax) may finally get the attention of the American public onto a tax issue worth thinking about.
As today's New York Times makes clear, Apple has used sophisticated tax planning to shift its assets offshore, often to employee-less shells that are run from Apple's US headquarters. See Nelson Schwartz, Apple avoided billions in US taxes, Congressional panel says, New York Times (May 20, 2013).
Even as Apple became the nation’s most profitable technology company, it avoided billions in taxes in the United States and around the world through a web of subsidiaries so complex it spanned continents and surprised experts, a Congressional investigation has found.
Some of these subsidiaries had no employees and were largely run by top officials from the company’s headquarters in Cupertino, Calif., according to Congressional investigators. But by officially locating them in places like Ireland, Apple was able to, in effect, make them stateless – exempt from taxes, record-keeping laws and the need for the subsidiaries to even file tax returns anywhere in the world.
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Atop Apple’s offshore network is a subsidiary named Apple Operations International, which is incorporated in Ireland but keeps its bank accounts and records in the United States, and holds board meetings in California.
Because the United States bases residency on where companies are incorporated, while Ireland focuses on where they are managed and controlled, Apple Operations International was able to fall neatly between the cracks of the two countries’ jurisdiction.
Even John McCain seems to recognize that Apple's offshoring gimmicks stretch the notion of what should be acceptable: “Apple claims to be the largest U.S. corporate taxpayer, but by sheer size and scale, it is also among America’s largest tax avoiders.” Id. Apple's gimmicks take advantage of a tax system that does not adequately address the nature of intellectual property as the core of a company's profit-making business nor the nature of the economic sham of claiming to sell such property to affiliates at "arm's length prices", when the purported affiliates are nothing but names on a tiny office door and the purported arm's length price would never be accepted from a genuine unrelated party. As Sen. Levin noted, Apple has succeeded in avoiding taxes "creat[ing] offshore entities holding tens of billions of dollars while claiming to be tax resident nowhere.” Id.
Apple's CEO Cook is expected to claim that Apple doesn't use gimmicks. Id. Of course, like Clinton's equivocations, that all depends on your definition of a "gimmick." When you create a vast community of subsidiaries with shell companies that exist to allow you to claim your profits are earned by employee-less companies that just happen to reside where there is no tax, that is using a gimmick, even if it is one that is perfectly legal under an outdated code that has been incessantly weakened by corporate lobbyists for the last three decades, at least.
Cook is also expected to argue that the solution is just to hand over to the big MNEs what they want--tax-free repatriation of profits they have shifted offshore. That's the same crazy idea that the Bush administration and Republicans in Congress promoted in 2004, one that essentially rewarded companies for engaging in gimmicks and encouraged even more companies to shift even more income offshore and hold it there even longer to avoid US taxes. Congress would be foolish to reward poor social responsibility behavior with an even better tax outcome than that already generated by the poor social responsibility behavior!
The current transfer-pricing regime is not fitted for today's global commerce. What Congress should consider doing is (1) eliminate offshore deferral altogether, and (2) apply a substance-over-form analysis to all transfers of intellectual property to offshore affiliates that would in most cases treat them as not occurring for tax purposes. It could phase in the end of deferral by permitting companies to treat their current stash of offshore profits as being repatriated on a straight-line basis over five years, so they avoid a humongous one-time tax hit. The legislation should also restrict the use of loss carryovers against such repatriated cash in much the way that loss carryovers are restricted after major acquisitions.
(And, by the way, that idea I had that I might make the iPhone my next smartphone? I've just thrown that in the waste basket. Rather not support a company that is so disloyal to the country that fostered the possibility of its existence and high profits.)
Obama's budget isn't even released yet and he's already caving to the "let's make the rich richer and forget the rest" crowd. That crowd that claims that we need a capital gains preference so the rich can gather all that extra money to purportedly create jobs. The crowd, that is, that fails to acknowledge that the rich tend to take all that extra money to Singapore, the Bahamas, or the Cayman Islands or hide it away in some Swiss bank, none of which does any good for our economy compared to what the government investing that money in infrastructure projects would do. See, e.g., David Leigh, Leaks reveal secrets of the rich who hide cash offshore, The Guardian (Apr. 3, 2013); The corporatist crowd that refuses to admit the empirical evidence that says government investment is as important as private investment in creating jobs. It is the government that makes the market go round. And government money--our money--spent for schools, bridges, safer communities provides jobs and improves lives. Without that government investment, there is no market, just barter.
President Obama seems to have forgotten that he was elected. as a Democrat, over the Republican candidate. Obama has no business proposing cuts to Social Security benefits as part of a purported deficit reduction package. Social Security is not a deficit driver: it is a social insurance program earned by those who receive it by payments over lifetimes of hard work. It is the only stable retirement income most have. The average Social Security beneficiary receives just short of $14,000 a year from Social Security--that's just 125% of the poverty line, which of course is defined so low as to guarantee that anyone living at or below that line is indeed in abject poverty and unable to move out of it.
The Republican Party has argued for cuts to Social Security benefits for decades, using whatever crisis of the momen they can engender to argue that we can't afford the system in place. They've invented the perjorative term "entitlement" to imply that those who rely on social insurance because of disabilities or old age are just 'freeloaders' who are mooching off others. Not so, since Social Security is an earned benefit program like insurance: workers pay premiums throughout their working life, and then once they reach retirement age they may draw benefits.
There are a number of reasons for the amount of debt that the US government has--most of them related to the four-decade-long drive by the Republican Party to protect the wealthy and the corporations they own from much of a tax burden and to allow the accumulation of immense wealth by a few at the top of the income distribution. Outsize military expenditures driven by Bush's preemptive wars undertaken at the same time that the Bush Administration pushed through tax cuts that favored the rich are of course a big problem. The Bush tax cuts threw us from surplus to deficit and we haven't gotten beyond them yet. The almost complete capture of the financial regulatory agencies by Wall Street, and the resulting financial crisis driven by casino capitalism spiked with the heady bubbles of derivative inflation is of course another part of the problem, and we haven't gotten beyond that yet, as Big Banks still exercise far too much power over their own regulation, proven by the LIBOR scandal that demonstrated their ability to manipulate the purportedly objective market rate to suit their profit machines.
But Social Security is not one of those drivers of the debt. And the debt is not so outsize that it merits sacrificing the most vulnerable amongst us to mollify the wealthy who merely want to avoid paying their fair share of the revenues needed to get rail service up to snuff, bridges safe, and public schools owned by the public again.
The average Social Security benefit is just under $14,000: the use of chained CPI will result in a loss to the average recipient of "$4,631 in Social Security benefits by age 75, $13,910 by age 85; and $28,004 by age 95" (from release by Social Security Works, based on “Inflation Indexation in Major Federal Benefit Programs: Impact of the Chained CPI,” Alison Shelton, AARP Public Policy Institute, March 2013.).
Obama has no business facilitating the gluttony of the rich. He should drop the proposal to use “chained CPI” that will result in a cut benefits for Social Security recipients.
David Cay Johnston, former NY Times reporter and now Syracuse professor, writes about the thing that most journalists don't bother to (or are told not to) write about--the way that Big Business successfully lobbies legislators and regulatory agencies to write the rules to favor Big Business, at the expense of ordinary Americans, all under the false claim that they are pushing de-regulation for the good of competition and ordinary consumers. Johnston, Missing the Story, American Journalism Review (March 2013).
Johnston describes a number of ways that state legislatures, Congress and state and federal regulatory agencies have made life easy-street for Big Business at the cost of ordinary consumers. He notes it is often discussed as "deregulation" but that "is a misnomer because, literally, no such thing exists in commerce....Everything in business is regulated in some fashion, and has been since long before the first nearly full set of laws we have.... [Thus, d]eregulation typically means reregulation under new rules that favor business interests." Id.
Businesses claim that the 'deregulation' they seek is just another step towards their ideal of "free markets" to help competitiveness. Not so, Johnston replies. The regulatory climate that results is almost always one that creates "moats" making competition much harder for small businesses and allowing duopolies or monopolies to arise that can set prices as high as they wish. And often the captured regulatory agencies allow the most absurd subsidies imaginable.
The Bush Treasury did that in spades. One example is the changes the pro-business Treasury under Paulsen made in the regulations under section 368 governing corporate reorganizations, in which the Bush Treasury (many officials of whom are still part of the Obama Treasury) promulgated rules that provide, for the first time, the possibility of a loss recognition by shareholders in the nonrecognition reorg exchange. Settled law at the time said no such loss could be recognized. And the Bush Treasury also did it in setting up (through regulations) yet another tax subsidy of Big Oil (as an add-on to an already ridiculous subsidy enacted by Congress when it allowed Big Oil to operate as limited partnerships). Here's how Johnston describes this.
The simple story is that Congress in 1986 exempted monopoly pipelines from the corporate income tax if they organized themselves as Master Limited partnerships. The George W. Bush administration then let these pipelines include the nonexistent tax in the rates they charge.
The cost of this fake tax is both tiny and huge.
The pipelines raise prices to cover the cost of the tax, which in turn means they have to raise prices even more to cover the taxes on the extra earnings, known as "grossing up." A 42 percent tax on profits, grossed up, means a pipeline gets to earn its profit plus 75 percent for taxes. These higher costs are then built into prices people pay for gasoline and natural gas to heat homes. Paying this fake tax costs each American less than three cents per day, about $10 per year, I calculate. That is the tiny part. The huge part is that collecting just a penny a day from everyone in America adds up to $1.1 billion in a year — or $3.3 billion at three cents per day per American. Id. (emphasis added).
Note, folks. That's an unnecessary $3.3 billion subsidy provided to already-profitable businesses that comes entirely at the cost of ordinary Americans. It is a subsidy put into law entirely through Big-Busienss-friendly tax administrators in ways that most Americans do not see it--or, if they see it, they believe it is a "real" tax cost of the businesses rather than just another theft subsidy.
This is another aspect of the problem of the way the media treats any discussion of "free markets." The fundamentalist approach to free markets (that I have sometimes labeled "free marketarianism" or "friedmania") claims to believe that deregulation helps people by increasing competition and opening up markets. In fact, it is usually the opposite. Deregulation helps Big Business by decreasing competition and allowing the development of powerful oligarchs and powerful monopolies or near-monopolies. Brute capitalism, that is, allows those who hold capital to hold power, and those who hold power act against the interests of ordinary people in order to consolidate their power. Another blog addressed this well:
A free market requires that everybody plays nice and follows the rules. Guess what. There’s always someone who will do whatever evil they think is required to make money. Once you realize that, you know there can be no such thing as the free market.
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That’s one of the primary reasons that uncontrolled capitalism has been such a gross failure since the Reagan/Thatcher “revolution”, leaving us with record inequality and damaged democracy, and bringing the world economy to the brink of total collapse that simply evaporated trillions of dollars. Random Notes from the Exasperation File, Class War In America.
I have often noted that the media treat the daily ups and downs of the stock market as though it is an accurate reflection of the entire economy. It is not. When the stock market is up, it is likely that one or another segment of Big Business is doing well or exceptionally well. That means the affluent--those in the top 30% who own most of the financial assets of this country, including Big Business's CEOs and board members, are doing well. So as the stock market has resurged after the 2007 financial crisis brought on by the excess of Big Financial Businesses, the wealthy who run and own those Big Businesses are doing mighty well indeed.
This is corporatism at its worst--the takeover of the economy and all of its institutions by a corporate mindset that favors the wealthy and the managers/owners of Big Business over ordinary people, leaving ordinary people's views unheard. It often is associated with class warfare, wherein the rich ensure that their money buys laws and regulations written by, for, and of the rich. Corporations pay less in taxes and ordinary workers pay more--either in direct taxes or in the indirect tax of wage and benefit loss that is a tax subsidy for the wealthy.
Those at the bottom of the economic distribution are of course the ones most hurt by the decline and by the class warfare policies of the rich. They are most likely still doing poorly or just barely getting by, mostly because those big profits at Big Business are taken at their expense--through constantly rising prices not reflected in increased quality or costs of production, or through increasingly unfair worker wages and benefits that have been cut in order to increase the rents to the owners/managers. And usually with the assistance of legislators and regulators.
Take a friend of mine, who was laid off from an auto parts manufacturer for almost three years and has been struggling to make a full-time living at it since he was reinstated--at a much lower salary then before the crash (conveniently for the company but not so good for the workers). He bought a new truck about a year before the financial crash. The payments were supposed to be around 250 a month. In the first months of the layoff he couldn't find any substitute work, and he fell behind in payments on the truck (his family depends on him as the sole breadwinner; his family has almost no assets and no liquid assets; he depends on the truck to allow him to take odd jobs when his job at the factory is on hiatus--often landscaping, mowing, etc.). The interest rate on the loan went up to 32% almost immediately. That would once have been treated as illegal usury. Not now, since "deregulation" has allowed financial firms to rip off their customers coming and going for their own profits. Now his payments are around $400 a month and he owes as much on the truck as he did several years ago in spite of all the payments he has worked hard to make since then. This Thursday he missed the payment again, after keeping up for most of the year. He missed it because his company began selectively laying off workers for a week or 3 days at a time during the winter, and he didn't work for about ten days of the month before the payment was due. On Wednesday he talked to his adviser at the financial firm that gave him the loan. It was a new "adviser". They replaced a more understanding one with one who was considerably harsher. The adviser told him on Wednesday that he would give him til Friday to make the next payment. On Thursday, however, he sent a repo man who took the truck. Friday my friend got a paycheck and could have made the payment (as he'd told the adviser on Wednesday). Instead, when he went to make the payment thinking he could get the truck back that day, the financial firm advised him that he now had to pay off the truck in full--as well as a bunch of additional charges due to the repossession. What would that be, he asked? He assumed he owed about $3500, in his calculations the amount still due on the original loan. Oh, no, the finance guy told him. You will have to pay $4975 on Monday, and that amount will increase by $25 a day for every day you do not pay. It's that much because of all the late fees we added on the bill. Oh, and we are charging you $400 for repo-ing the vehicle on Thursday (even though we had promised we would not do so).....
Again, deregulation of financial institutions has made these rent-seeking add-on charges customary for anyone in the lower part of the income distribution. Big Business sells it as competitive services for the underprivileged but it is really deregulated excess profits for the financial firms for acting like modern equivalents of plantation owners with a captive workforce unable to ever build up financial assets and always dependent on the firms' calculations as to what they owe or are owed.
How is my friend (who happens to be an African American) supposed to ever advance beyond the near-serfdom in which he currently exists? Lucky for him, we are willing to offer him a personal loan at market-rate interest so that he can finally pay off his overseer and begin to dig himself out of the hole that our deregulated, GOP-ideology-driven state puts most Detroit low-income residents in. Mass transit hardly operating and not permitted to expand as it should to permit low-income residents to commute easily to work in the region. White suburbs that cannot be annexed into the city, so continue their oblivious lives exploiting Detroit's assets while pitying the poor black residents that just can't seem to do anything right. Businesses that charge white folks in the suburbs less than black folks in the city. Insurance companies that rip off their Detroit clients. And on and on.
This is all happening in a world where white folks with money set all the rules and now, in Michigan, have made it very hard for any union to form and exert some worker-power on behalf of the employees. Michigan's new, so-called "right-to-work" law that the religiously right-wing Republican party of Michigan passed with no input at all from the people and with misinformation galore--all of the newspaper coverage talked about workers being "forced" to join a union unless you have "right-to-work" and how "right-to-work" would free them not to have to pay for the union and encourage more economic growth and more jobs. None of the newspaper articles or the legislators reported the fact that right-to-work states tend to have lower wages for their workers, less good jobs, and poorer economies. Of course, the information was wrong to start with--no one was forced to join a union without right-to-work laws--they were merely required to pay some amount (less than union dues) for the services that the union provides. Now, they can demand the same services and pay nothing. No Republican business would provide services on that basis, but Republican legislators serving their oligarchic base ensure that no true freedom exists for anybody without money.
Michigan, of course, has also just taken over the City of Detroit, with Gov. Snyder's appointment of an emergency manager. This is as undemocratic as it gets, given the state vote rejecting the last EM law and the fact that the EM will have dictatorial power to ignore the Mayor, the City Council and all other elected officials. Snyder is a right-wing tool, in office backed by a majority-GOP legislature that reflects the racism of most of the "upstate" part of Michigan and blames Detroit's problems on its predominately black residents. The legislature passed right-to-work to retaliate against unions for trying to get protection for workers' rights in the constitution. Apparently, the GOP thinks the constitution should only protect the wealthy, as it does by prescribing a flat tax, ensuring that the wealthy in Michigan get to choose what they support but are hardly taxed at all by the State. The rabid right in this state forget that what condemned Detroit was the "white flight" to the suburbs and Michigan's foolish state constitution which does not allow Detroit to take the suburbs into the city. So Royal Oak's mayor a few years ago could refuse to fund metropolitan buses because he didn't want Detroit's black population able to cross the border into Royal Oak and pollute the city by taking jobs there. And the wealthy residents of the 90% white suburbs of 80% black Detroit come into the city for its amenities--opera, plays, sports, museums--and its work, but take their pay out of the city to maintain their schools and shops and amenities while complaining about how awful Detroit is. We Detroit residents are very worried that the GOP's takeover of the Democratically elected city government will result in the rape of the city's assets--Belle Isle is a jewel in Detroit's crown that the state covets; Detroit's water system is another asset that the state--and the white suburbs--covet and want to control. The EM will be pressured by Snyder and the rest of the upstate Detroit haters to take over those assets and make Detroit pay for being a center of unionism and Democratic voters.
The Michigan passage of the so-called "right-to-work" law and the renewal of the emergency manager law AFTER it was defeated by the people in Novemberare perfect illustrations of the contempt that the current Republican party shows for ordinary people when it is in power in a state. And it also illustrates well the capture of legislators and agencies by oligarchs, monopolies and duopolies. This is, as Johnston notes, a sad state of affairs that will only get worse unless the press reinvigorates itself to inform rather than kiss Big Business's ass.
The New York Times today reiterated what many Americans lament--Big Banks went uncharged for serving as the main engine of the Great Recession that cost ordinary Americans jobs, homes and futures. See Andrew Ross Sorkin, Big Banks Go Wrong, but Pay a Little Price, New York Times, at B1 (March 12, 2013).
Big Banks (and especially their managers), however, made out like bandits through the socialisation of losses and privatisation of gains. The aftermath of the crisis provided lower cost of funds from the perceived government TBTF subsidy. Big Bank managers made big bucks leading their institutions into disaster and "staying on" after the disaster because their "expertise" was essential. The stock market, but not ordinary Americans' pocketbooks or paychecks, has recovered from the recession, forging a return of lucrative M&A activity and, of course, the management of wealthy people's assets. No Big Bank has faced criminal indictment for "the damage caused to the economy and millions of Americans" by their sloppy mortgage financing, sloppy foreclosure procedures, and casino capitalism "bets" with credit default swaps and other derivatives.
The reason--the lesson from Enron and Arthur Andersen, where thousands of lower-level employees who had no control over corporate actions lost their jobs when the firms collapsed after wrongdoing and charges. Any Big Corp can be TBTF. "[S]imply charging a company with a crime reaises the possibility of putting the firm out of business." Id. at B5. Collateral damage is therefore a major hurdle to bringing a criminal case against a corporation.
The takeaway, according to the Times article, is that "prosecutors should focus on the individuals responsible for the misconduct" rather than indict corporations, which can result in "condemnation of one person [many employees] for the actions of another [boards and managers or 'rogue' employees]" (quoting, in the latter case, Elizabeth Ainslie's paper on indicting corporatrions).
While protecting employees of rogue firms (where management and directors have pursued aggrandisement of their own status and riches at the cost of society's well-being) is important, it is not clear that the takeway outlined above is a complete answer. Several additional components should be addressed, by a combination of Congressional and state legislative action and regulating agencies. And actions to limit the size of corporations would have another advantage--acting as a deterrent to their power in dictating the well-being of ordinary employees, and thus helping to deflect the growth of corporatism in our society.
First, boards that make irresponsible judgements that allow CEOs and managers to engage in reckless bets with their companies should be able to be held personally responsible more easily, without corporate protection for the ultimate costs.
Second, anti-trust needs to be expanded to limit the interwoven boards and contractual relationships that permit a few TBTF institutions in an industry to dominate the market and set the "Wall Street Rule" for what is acceptable behavior. ULtimately we need forced split-up of TBTF institutions, through anti-trust or new means, as necessary.
Third (and most relevant for this blog, of course), tax policies encouraging corporate consolidation should be strictly limited. The section 368 reorganization provisions should be tightened to require a much higher percentage of continued shareholder interest: the current requirement for a tax free reorg of only 40% (under an example in the reorg regulations) should be tighted to at least 70%. The opportunities for loss recognition in reorgs provided by the Bush Treasury under regulations should be eliminated. Spins of parts of mega corporations to existing shareholders should remain tax-free, but spins that amount to initial steps in acquisitions should be more limited.
Will Congress (or state legislators) take any of these actions? It is highly dubious. The left is too often too cowardly to act and mostly funded by wealthy interests. Most on the right--disproportionately represented in Congress because of gerrymandering in the House and the disproportionate Senator-to-population ratios in the Senate--dogmatically favor market fundamentalism no matter the evil it causes when it comes to advantages for business to make more profits, even if it comes at the expense of ordinary people through market power to defeat unions, defeat reasonable pay requests, etc. (Of course, when it comes to exploiting government , the right tends to favor government subsidies--look at Wisconsin's recent move to remove pesky environmental regulations protecting wetlands to support a mine owner, in the purported interest in supporting job creation, even when the mine is likely to cause long-term environmental damage and potentially devastating water pollution and destruction of wetlands.)
I have often written in these pages about "corporatism", an approach that pervades our economy and many government agencies and does not align with the interests of the majority of Americans.
Corporatism runs rampant today in states' treatment of their public universities, treasures of the American educational system that have been central in continuing basic research into ideas that transform our lives and our understanding of ourselves. Today, many states are cutting back more and more on funding for state universities, and demanding that the universities turn themselves into contract researchers for private corporations (where the corporations, not the universities, enjoy the commercial fruits of the research). This is just another form of subsidy for Big Business at the expense of ordinary people. In addition, many states--including regressive Michigan under regressive governor Rick Snyder--are cutting funding for state universities in order to provide even more tax cuts to their corporate Big Business buddies. And they tend to cut funding to those that need it most to serve the neediest populations that find equality of opportunity a meaningless promise in today's casino capitalist economy--the poor and the disadvantaged. In Michigan, for example Wayne State's paltry increase doesn't keep pace with inflation, but Wayne serves the region and the region's population in ways that other institutions in Michigan do not. Corporatism, of course, also runs rampant in the universities themselves. Wayne's current president, who is paid $410,000 for being here only a few days a week and has a "deputy president" paid another $400,000, was a chief corporate officer at Ford and came to the university with very little understanding of academics. It has shown, as he has run the place like a corporation, with his "never say no to the boss" cabinet of vice presidents and associate vice presidents (ranging around 23-25 these days) operating on a"flatter your boss brings rewards" system.
Corporatism exists all across governments, where Big Business spends billions to win influence on legislators and agency heads, and goes to every length to present a "PR" picture of the world as they want us to believe it exists to ordinary Americans.
Take one example--the Bureau of Land Management. The BLM is basically a government toady for the wealthy and influential cattlemen and other industries that want to use public lands for private enrichment. Perhaps the most glaring (but certainly not the only) example of this is the BLM's treatment of the native American wild mustangs on public lands. In spite of legislation charging the BLM to protect and preserve these American treasures on public lands, it has engaged in activities that are decimating the population, herding them up and selling them at $25 a head to buyers who take them to inhumane slaughterhouses in Mexico to be butchered while still conscious. BLM is a toady for big ranchers, not a protector of public treasures. And it should be stopped.
There is a non-profit organization that works hard on this issue--the Wild Horse Freedom Federation. Earlier, it presented petitions to President Obama urging him to rein in the BLM and stop its use of tax dollars to wipe America's wild horses off public lands to which they are legally entitled under the legislation passed in the mid 1970s.
Are you listening, President Obama? Or is the only tune you hear the one played by Wall Street, Big Business, and corporate wealth? If the latter, corporatism will continue to expand to cover every aspect of our lives, and the freedom that we pretend to cherish as Americans will disappear as surely as the wild mustangs will vanish from their "protected" public lands.
[edited to add reference to Bair op-ed 3:22 pm 022713]
Back when William Proxmire was a senator and the Senate sometimes actually tried to deal with facts rather than convenient or mythological fictions, Proximre created something he called The Golden Fleece Award to highlight instances of wasteful government spending.
Now, let it be said early on that waste is rather like beauty--its recognition rests in the eye of the beholder. The Tea Party neocons see waste in most funding for science, whereas most intellectuals, academics and others see that as investment in the future--especially exploratory, speculative science testing the fringes of theory--which serves the public good. Similarly, most of the "deficit hawk" crowd see waste in government safety net programs, or programs that might (if the conditions now were to last for 75 years) create a large obligation in the future, but don't see waste in military expenditures or 100 years of subsidies for multinational giants like Big Oil and Big Pharma. Furthermore, the "starve the beast" crowd want to maintain most of the programs that give the plutocracy a powerful edge in the socio-economic world that tax so directly influences, while wanting to eliminate or substantially reduce most of the programs that barely offer some opportunity to the peasants whose productivity is usually the source of the economic gains of the plutocrats.
ASIDE: remember that the deficit hawk crowd overlaps a good deal with the "starve the beast" crowd, which overlaps as well with the "starve the poor" crowd. The deficit hawk crowd thinks deficits are awful when Democratic programs create them (but generally didn't squawk at the upwardly redistributionist tax cut programs of the Bush years, or the constantly creeping upwards military-industrial subsidies, etc.). The "starve the beast" crowd thinks most government programs that serve the public good rather than paving the way for the rich to get richer are bad. And the "starve the poor" crowd condemn all except the most meager social justice and safety net programs on the grounds that they are paternalistic and keep "the 47%" from exercising personal responsibility. Generally speaking, all of the above tend to disfavor downwardly redistributionist programs as "socialism" but favor upwardly redistributionist programs as "investments in the future" or "just plain fair" or "job creating" or traditional (and on and on).
That said, pointing out programs on which considerable money is spent without a showing of likelihood of success at a reasonably beneficial goal is often worthwhile.
The Golden Fleece awards have been carried forward by Taxpayers for Common Sense, a 501(c)(3) organization that protrays itself as a "non-partisan budget watchdog serving as an independent voice for American taxpayers [with a] mission ... to achieve a government that spends taxpayer dollars responsibly and operates within its means." It's goal is to "increase transparency, expose and eliminate wasteful and corrupts subsidies, earmarks, and corporate welfare, and hold decision makers accountable." (from emailed release about the Golden Fleece award).
More transparency, less corrupt subsidies, less corporate welfare, and more accountability are all important. As Sheila C. Bair (former head of the FDIC from 2006 to 2011) put it in an op-ed in today's New York Times:
The yawning gap between rich and poor has been growing since the 1970s and reached a 90-year peak in 2007, just before the financial crisis. The Great Recession narrowed the gap a bit, but now, once again, the richest Americans are vacuuming up what wealth is out there, a trend that Mr. [Emmanuel Saez, UC Berkeley economist] expects to continue.
...I fear that government actions, not merit, have fueled these extremes in income distribution through taxpayer bailouts, central-bank-engineered financial asset bubbles and unjustified tax breaks that favor the rich. ...
Skewing income toward the upper, upper class hurts our economy because the rich tend to sit on their money--unlike lower-and middle-income people. ... .[M]ore fundamentally, it cuts against everything our country and my party stand for. government's role shouldn't be to rig the game in favor of 'the haves' but to make sure 'the have-nots' are given a fair shot.
So the Golden Fleece target is worth considering. They picked "Department of Energy for Federal Spending on Small MOdular Reactors." This is the nuclear-reactor-in-every-basement idea, for which another half billion dollars (in addition to $100 million already provided) in corporate welfare is planned. The corporations, not the federal government, will own the R&D and licensing rights. The government is, in other words, getting fleeced.
The federal government is in the process of wasting more than half a billion dollars to pay large, profitable companies for what should be their own expenses for research & development (R&D) and licensing related to “small modular reactors” (SMRs), which would be about a third of the size or less of today’s large nuclear reactors.
...
[Autumn Hanna, at Taxpayers for Common sense, said,] "Unfortunately, these technologies have an equally long tradition of expensive failure. If the industry believes in small modular reactors and a reactor in every backyard – great – but don’t expect the taxpayer to pick up the tab.”
The federal government already paid for a version of SMR R&D when small reactors were designed for the U.S. Navy’s nuclear submarine fleet. Now some highly profitable companies – including Babcock & Wilcox, Westinghouse, Holtec International, and Fluor Corporation -- are at the federal trough for another round of federal support for small modular reactors that could go into suburban American neighborhoods. Id. (TCS release)
This kind of tax expenditure subsidy for major corporations is just another example of corporatism in action in today's economy, often as part of a tax code that is rigged to favor the rich, from the preferential treatment of capital gains to the preferential treatment of fund managers' "carried interest" compensation income; from the subsidies provided for hugely profitable industries like oil and gas, pharmaceuticals, IT and real estate, to the subsidies provided to the rich through charitable contribution deductions for amounts they never invested. It is a part of the growth of plutocracy and inequality, as big corporations, their managers and owners garner most of the productivity gains and use their lobbying prowess to ensure that they also garner incredible amounts of unnecessary financial support from the federal government through direct subsidies (Agribusiness payments to corporate farmers) or tax expenditure subsidies (percentage depletion allowance and "domestic manufacturing deduction" and R&D credit and active financing exception and the allowance of offshore captive reinsurance companies, etc.). All this amounts to redistribution upwards to the wealthy and the multinational corporations that they mostly own--amounts funded by ordinary taxpayers.
As most tax practitioners and academics know, Professor Paul Caron maintains a "tax prof blog" that provides timely links to most things tax in major papers, blogs, journals, conferences and the like, as well as announcements and releases from the IRS, Treasury and Congress related to tax. Paul does not usually provide much analysis or opinion, but rather an excerpt or two and a title.
This is not an atypical way of titling items on tax prof blog. The observant reader will notice a slight bias in the title. The Wall Street Journal article is actually titled "The State Tax Reformers: more governors look to repeal their income taxes" (Jan 29 2013 updated). The article summarizes states that are lowering or eliminating their income tax (sometimes including their corporate income taxes) and sometimes replacing it with a broad sales tax--for example, in the Republican strongholds of Nebraska and Louisiana. The Journal article then goes on to opine (and it is indeed opinion) that "this swap makes sense" because "income taxes generally do more economic harm because they are a direct penalty on saving, investment and labor that create new wealth" whereas "sales taxes ... hit consumption, which is the result of that wealth creation." This is the typical "free market" pitch favoring capital income (and the rich) over labor income (and everybody else).
Of course, the Journal then proceeds to quote Art Laffer for the right-wing corporatist ALEC in an article claiming that a majority of new jobs are created in states without an income tax because of their lack of an income tax.
[Aside: Laffer is (in)famous as the 'free market' economist who described his view of the maximum tax rate by drawing a bell curve on a napkin. The Laffer Curve is more ideology than theory, as I explain in an earlier post: CFP's Laffer Curve Video, ataxingmatter (Feb. 2008). ]
Not surprisingly, Caron's title suggests that the "real" policy reason for the shift is a "real" desire to create jobs.
I have significant doubts. Most of the anti-income tax proponents are pro-Big Business and pro-wealth. A shift from an income tax to a consumption/sales tax is a move from a somewhat (often minimally) progressive tax system to an explicitly regressive tax system. Such a move favors those with capital assets and mainly capital income. Claims (like that made by the Civitas INstitute cited in the Journal article) that shifting from income tax to sales tax will result in "average annual personal income growth" mean almost nothing since averaging income growth across a population doesn't really tell you whether almost all of it goes to the wealthy or not--if that growth goes to those already in the wealthy distribution, then inequality increases and in fact most everybody else is worse off, in spite of the "average" growth.
The Journal acknowledges the regressive nature of a sales tax swap, but suggests that exemptions of necessities (e.g., food, medicine, utilities) and rebates for low-income families will suffice. I also find that doubtful--the very low absolute benefit to the poor of the exemptions and/or rebates, while important, is substantially less than the very real high absolute benefit to the wealthy of the switch to a consumption rather than income tax. Accordingly, the so-called "reform" will inevitably increase an already devastingly problematic inequality that has resulted in lower quality of life for most Americans on many different areas from literacy to access to health care to teenage pregnancy to death rates and all the many other factors in which Americans enjoy a lower level of quality of life than most other OECD nations.
Not, in other words, a good idea. As noted in Nick Carnes (who teaches at Duke University), A Tax-Reform Plan that Rewards the Wealthy and Stalls the State, NewsObserver.com (Jan 24, 2013, modified Jan. 25, 2013), these proposals are being pushed by right-wing propaganda tanks, including a "wealthy conservative foundation [that] has paid [Arthur] Laffer to write another report and to fly to our state to promote it." Id.
The goups behind these proposals have their one-size-fits-all state-level strategy down to a science, but they don’t have a handle on the actual science of state tax reform. It’s easy to see why their ideas are appealing. Who wouldn’t like to grow our economy and lower taxes without cutting vital services like schools and public safety?
However, independent economists in every state where the Laffer plan has been introduced – including North Carolina – have found serious problems with the evidence its proponents have used to back it up. No matter how low the tax rate is, businesses and wealthy people won’t relocate to a state where the schools are bad, the streets are unsafe and the infrastructure is crumbling – things that all tend to happen when taxes are cut to the levels that the Laffer plan outlines. Id.
The Carnes article goes on to note that "Kansas, which earlier passed the Laffer bill, is now projecting $800 million annual budget deficits and has extended an emergency sales tax that should have expired years ago" while state agencies are facing a 10% across the board cut, with education expected to lose a billion dollars in state funding over the next five years. Yet no businesses have flocked to Kansas because of the legislation. Id.
And guess what. It is the wealthy who would benefit if North Carolina were to carry through with enacting its own form of the "Laffer bill". Carnes notes that families earning $24,000 a year would pay $500 MORE in taxes under the Laffer plan, whereas wealthy families with incomes of more than $900,000 a year would pay $42,000 LESS in taxes. Id. Shifting the tax burden from the wealthy who can easily bear it to the low-income who cannot, while at the same time cutting government support for essential public services that build a shared community is a disaster in the making.
The Wall Street Journal isn't flummoxed by such facts (which it doesn't even acknowledge). The Journal article suggests that the idea (set forth in some Big Oil/Fracking states) of replacing income taxes with revenues from oil and gas extraction would be good (and maybe better than regressive sales taxes) because "it would make everyone a stakeholder" in increased drilling and fracking, thus "help[ing] to build a politicial constituency for more mining and drilling." Note the presupposition that supporting "more mining and more drilling" is inherently a public good! (One assumes that the Journal staff think this because Big Oil/Big Gas is Big Business, and the Journal is ALWAYS in favor of whatever Big Business wants.)
That idea strikes me as truly worrisome--we have a climate-change problem, and trying to "buy" votes to support environmental degradation at whatever cost through the swap of income taxes for some (probably minimal) increased royalties (probably also accompanied by less in the way of services, especially for the poor or for public goods like public education) is not a good idea. Yes, probably those very people who are the poorest and most harmed by environmental degradation would tend to be able to be bought off by that swap--they would not realize that the wealthy are again getting the mountain of the share of the benefit, and they are bearing most of the burden in terms of the long-term costs of the environmental degradation as well as the long-term costs of lower public revenues spent on programs especially important to them because of their lack of a cushion of wealth (schools, public parks, fire/police, health care, etc.).
Interestingly, the Journal article notes that Alaska got rid of its income tax in the 1980s and suggests that's been a good deal. Of course, Alaska also gets more back from the Federal government than it gives in Federal taxes--ie, Alaskans have replaced their income tax revenues with federal handouts.
The Journal calls these plans for revamping state laws to provide substantial benefits to wealthy individuals and corporations a "rare bright spot in the current high-tax era." That is garbage from both sides. We do not live in a "high-tax era." IN fact, we live in a low-tax era and we are already paying for that with the significant drop in state support for higher education, state support for parks and other public amenities (police and fire protection, protections for workers, fair and easy access to voting, etc.), and state support for K-12 education as well as the failure of the federal government to fund the kinds of infrastructure and education and basic research projects that could make the difference between a continuing great economy and the continuing muddle we are in after the Bush recession. All of those costs are borne more substantially by those in the lower-income brackets. With the proposed "reforms", the wealthy will be sailing through with even more wealth, able to shut out even more effectively any association with the "lower class" elements and giving even less to support schools, colleges, unemployment benefits, etc. Meanwhile, the poor and near-poor will get much, much less (when they didn't owe much in taxes anyway). Not a bright spot at all. More like class warfare.
The real reason behind these shifts is to benefit the major members of the Republican base--i.e., Big Business and the wealthy. It has little to do with jobs... That's just a handy obfuscating claim to make about policy moves that substantially shift the benefits of the economic system to the rich and the burdens of the economic system to everyone else. This is just another element of the class warfare that has been waged for the last few decades to allocate gains to the wealthy.
As Europe, the US, and other countries continue to face sluggish economies in the midst of extraordianarily high corporate profits, substantial accumulation of new wealth in the hands of even fewer people, and inordinate influence of corporatist approaches on democratic governance, a public backlash is growing and legislatures are beginning to notice.
Here in the US, President Obama's second inauguration speech acknowledged the necessity of cooperative approaches to the dire problems we face today. Those problems-- poverty, limited opportunity due to lowerclass status, lack of educational access, climate change and infrastructure needs--all relate to the increasing inequality among our people, the ability of the wealthy to buy secure and safe lifestyles for themselves while the majority are left to struggle with potential loss of jobs, homes and health. People are starting to notice the inordinate power of huge multinational corporations and their owners due to the influence of wealth and the way the wealthy have been able to capture almost all of the gains of the last few decades for themselves. Perhaps we are on the cusp of a new populism that will reclaim the American economy and the American system for ordinary people.
In the Netherlands, the backlash against unfair tax policies may be happening even more clearly than here. The Netherlands has become an infamous tax haven for corporate giants (renowned for using the "Dutch sandwich" structure to avoid taxation). Yahoo's arrangement, described by Jesse Drucker in a Bloomberg story today, illustrates the problem perfectly.
Inside Reindert Dooves’ home, a 17th century, three-story converted warehouse along the Zaan canal in suburban Amsterdam, a 21st-century Internet giant is avoiding taxes. The bookkeeper’s home office doubles as the headquarters for a Yahoo! Inc. (YHOO) offshore unit. Through this sun-filled, white walled room, Yahoo has taken advantage of the law to quietly funnel hundreds of millions of dollars in global profits to island subsidiaries, cutting its worldwide tax bill.
The Yahoo arrangement illustrates that the Netherlands, in the heart of a continent better known for social welfare than corporate welfare, has emerged as one of the most important tax havens for multinational companies.
Jesse Drucker, Yahoo, Dell Swell Netherlands $13 Trillion Tax Haven, Bloomberg.com (Jan. 23, 2013). Many of the Dutch companies created by MNEs like Yahoo, Google, Merck, and Dell are sham companies that "only exist on paper". $10.2 trillion dollars went through 14,300 of those sham companies in 2010. Id. Merck has 54 subsidiaries in the Netherlands and routed more than 7 billion euros in royalties between 2002 and 2010 through an Amsterdam subsidiary that has no employees. Id.
The Labour Party and People's Party for Freedom and Democracy took power in November and are "fed up with these so-called PO Box companies", according to a parliamentarian from Labour. Id. Another parliamentarian (from the Dutch Socialist Party) noted that while governments are cutting their budgets, multinationals are avoiding taxes, and the Netherlands is functioning as a connecter to the tax havens.
The anti-tax avoidance concern is growing across advanced nations. As the article notes, the European Commission, has also noted the problems with tax avoidance and evasion and has advised its member states to adopt anti-abuse rules. Similarly, the OECD is discussing a proposal to make it harder for companies to use shams like the Dutch sandwich structure to shuffle profits into tax haven islands and avoid taxes in OECD countries. And the UK has scheduled a second parliamentary hearing this month on the issue. Id.
Tax treaties are supposed to protect companies from double taxation on the same income by two different jursidictions, but tax lawyers have developed sophisticated structures that allow companies to enjoy double non-taxation. The article describes Dell's use of a Netherlands subsidiary (with no Netherlands employees) to claim credit for about three-fourth's of Dell's worldwide income and achieve substantial tax savings--about $4 billion since 2004. Id. The US Is challenging Dell's claim that it is appropriately using the Netherlands and Singapore arrangement to avoid US taxes.
And of course these same MNE giants are the ones that are accumulating billions overseas on which they are seeking special legislation to allow them to repatriate cash to the US at low (or negative) taxes. See earlier ataxingmatter posts on this issue.
Hopefully, even the Republicans in Congress will realize that this corporate game of tax avoidance using international subsidiaries that have no employees is a sham and will take action to eliminate loopholes that permit hugely profitable companies to pay minimal corporate taxes.
As most readers know, the federal government is currently in what passes for negotiations between the President's Democratic Party Senate and House members and the GOP members that control the House.
The Tea Party and its right-wing rhetoric has of course had a radicalizing impact on the GOP positions, with members not only beholden to Grover Norquist and his anti-tax pledge (all strongly supported by various right-wing propaganda tanks like the Tax Foundation, Heritage, American Enterprise, and other organizations) but also to the anti-social welfare corporatists like David and Charles Koch, the Wal-Mart heirs, and other oligarchic families that constitute the top 1% of US income and wealth. As a result of these two strong influences, the GOP now stands for
tax-cuts-no-matter-what (and for tax cuts that benefit the wealthy most of all, as reflected in the rigid position in favor of the "carried interest" scam used by private equity profits partners and the extraordinarily preferential rate for capital gains and dividends included in the "net capital gain" definition under section 1(h)(11)); and
so-called "entitlement reforms", by which GOPers generally mean reduction in benefits and/or privatization of social welfare programs including Social Security, Medicare and Medicaid. (All of this is argued in terms of caring about "saving" the programs for the future, but the truth lies in the ways that the right proposes changes to the programs--not changes in costs related to profits taken out by Big Pharma and similar interests, but changes in benefits to ordinary Americans (such as raising the working age for eligibility even though those who work at the hardest labor need benefits earlier, not later, or lowering the cost-of-living-allowance adjustment to benefits for Medicare, even though seniors generally have a HIGHER cost of living because of their increased medical needs, including prescription drugs for diabetes, high blood pressure, and similar diseases particularly prevalent in the elderly population.)
The sum of those positions stands for a corporatist philosophy of benefitting the oligarchy and their business enterprises at the expense of everyday Americans who work for a living.
This is even more obvious when one looks at the same groups' position on government subsidies for business. The New York Times recently ran an article on this issue, noting that governments typically pay out a lot of money to support profits of companies and receive very little benefit in terms of tax revenues received and jobs created! Louise Story, As companies seek tax deals, governments pay high price, New York Times (Dec. 1, 2012).
Over at MauledAgain, one of my fellow tax professors Jim Maule has, like me, long criticized the hypocrisy of supporting tax breaks for private enterprise and opposing earned benefits programs for ordinary citizens and has repeatedly pointed out that the economics of the tax breaks for business don't work out for anybody but the owners and managers of the businesses. They certainly don't work for taxpayers of the jurisdiction providing them. As Jim notes:
These tax breaks are nothing more than welfare payments to private enterprise. Opponents of social welfare spending defend these outlays with as much passion as they bring to their attempts to end government assistance for individuals in need of help.James Maule, The Hidden Government Spending Game, MauledAgain (Dec. 5, 2012).
Jim rebuts one of the sham arguments for corporate subsidies--that they are just "keeping what belongs to them." Those special subsidies to one private enterprise sector cause ripple effects throughout the economy--higher taxes to the other taxpayers to make up for the lost revenues, or cuts in important programs that can no longer be sustained without the revenues. Prices and wages may change as well. Id.
What I want to focus on is the hypocrisy of claiming an interest in ending "entitlements" but applying that philosophy only to programs that are intended to help ordinary citizens and not to those intended to beef up the profits of corporations or their managers and owners. This is especially hypocritical for today's right-wing, since they almost universally claim to ascribe to the view that competition is good and that businesses should fail when they cannot successfully compete.
Look at two cases involving WalMart, a multinational enterprise that fights unionization of its employees (and supports right-to-work laws that weaken worker rights) in every way imaginable.
1) In Champlain Illinois (personal experience), WalMart had a huge spralling complex on one side of the road. It had gotten various tax support for the complex. It decided to move across the road and down the block into another jurisdiction. It got new tax subsidies there. It abandonned the old building and left whatever environmental pollution there. Who gained? Mostly WalMart managers and owners. Not the town and counties. Not the employees. Not even the consumers who shopped there, who had to deal with the blight of the abandonned building and the multiplication of vast expanses of ugly parking lots.
2) WalMart in Bangladesh. WalMart delivers cheap goods because it outsources its clothing and other manufacturing needs to impoverished countries where workers can be paid almost nothing and get almost no protections. In Bangladesh last month, a clothing factory burned, killing hundreds of workers. It was a WalMart supplier. See Natasha Leonard, WalMart's Connection to Bangladesh Clothing Factory, Salon.com (Nov. 26, 2012), where a critic noted that:
"Wal-Mart is supporting, is incentivizing, an industry strategy in Bangladesh: extreme low wages, non-existent regulation, brutal suppression of any attempt by workers to act collectively to improve wages and conditions." Id.
This was a modern-day repeat of the Triangle Shirt Factory incident in the early nineteenhundreds in New York City: workers unable to escape burned to death in factory rooms without fire exits and yet dangerously littered with lint and other debris that made their workplace a fire hazard.
These things are all tied together: hostility to workers rights to bargain collectively for some fair share of the productivity gains that their labor brings about, hostility to workers rights to a safe working place; hostitlity to workers rights to decent health care; hostility to ordinary people's rights to a sustainable lifestyle; and hostility to any effort to make the oligarchic uber-rich pay a fair share of the costs of the infrastructure to sustain an economy and a people.
Tax policy, spending policy, policy towards workers, policy towards the wealthy uber-rich--these are all closely intertwined and must be considered of a piece. Tax policy needs to establish reasonable levels of contributions based on a progressive income tax that takes into account the marginal utility of the dollar. Spending policy needs to set priorities based on something other than the lobbying by special corporate and oligarch interests for tax-and-spending provisions that privilege themselves. Policy towards labor rights and workplace safety need to recognize that the worker is disemplowered within the workplace and needs some legal support to provide a reasonable share of productivity gains--minimum wage laws, unionization laws, workers safety laws need to protect workers rights against the all-powerful employer.
If the right succeeds in continuing to pass right-to-work laws (Michigan's lame duck GOP is trying to do that right now), if the oligarchs succeed in capturing all the profits from workers' labor--there will be social unrest on the scale of the Great Depression. Everybody will suffer from that kind of austerity and class warfare policy. Broad based economic growth that comes from workers sharing in the profits of their industry and those at the top not getting an unreasonable share of the productivity gains is better for all.
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