ataxingmatter

Citizens United and Concepcion: Big Money, Speech, Taxes, and Individual Freedom

[edited 4/28 to add Angry Bear link]

Money isn't speech. 

In spite of that, the Supreme Court continues to expand its initial holding that treated expenditures of money to purchase speech as equivalent to speech and therefore protected by the Free Speech clause in the Bill of Rights, literally giving away elections and issue education to the top dollar, which will generally be the wealthy elite and the big corporations that own and manage. 

This idea--that money is the same as the speech that money can buy--is at heart a radically anti-freedom idea.  By equating money with the speech that it can buy, the Supreme Court has ensured that genuine speech rights will wither away, and that money will be able to buy elections and legislation to suit the source of the money.  The Court failed to understand that while speech can be bought by money, that purchased speech is merely one mechanism for distributing speech.  Speech is much more than the purchased speech that is bought by money.  If you don't limit the ability of money to purchase election speech, you are in effect disenfranchising all other types of speech that can't compete with purchased speech.  By equating the speech itself with the money that purchases it and claiming that the Free Speech clause applied to the money expenditure, the Court empowered purchased speech and empower Big Money, while it disempowered individual speech and made non-purchased speech practically irrelevant.

Since the Supreme Court's Citizen United decision expanding on this "money can purchase speech, therefore money used to purchase speech is protected in the same way that speech is protected" idiocy, it has been quite clear that Big Business carries a gigantic Big Stick that influences elections through anonymous issue ads and direct campaign contributions. 

The people are misled, since the ads are often purportedly sponsored by groups with titles that suggest little people working for the common good. 

The politicians aren't misled, because they get the Big Money that will allow them to flood the airwaves with similar stuff and they know where it comes from.

The result is that Big Money, from the few super-rich and the big corporations that they own and manage, can heavily influence critical legislators on deregulation and tax provisions favorable to the rich and Big Business. 

• There is a reason that the fringe right elected to Congress in 2010 is pushing for repeal of the health reform and Dodd-Frank financial reform provisions--those reforms require Big Business to operate in ways that protect individual freedoms and limit the way that those Big Businesses can push their costs off into externalities to create socialization of losses, privatization of gains  (e.g., high premiums paid only to find delay or denial from health insurance companies, risky casino speculation in derivatives from interconnected banks that lay their losses off on the public while raking in cheap financing provided by the public). 
• There is a reason that Big Business got its wish list in the 2003 tax legislation pushed through by the Bush Administration, and then got more and more of its new wish lists in the following years Bush tax legislation and in the Republican  provisions fought for in the "compromise" on stimulus funding in the first year of the Obama administration.  Those tax provisions provide tax reductions for corporations that increased the deficit and required additional borrowing (including bonus expensing, the active financing exception permitting deferral of income for certain controlled foreign financing subsidiaries, new cross-crediting provisions that permitted U.S. multinationals to subsidize their foreign operations by reducing their US tax rate, and many others).

Imagine an issue ad by "People in support of Removing Bad Regulation" that puts out misleading, non-factual claims about how Big Business X (maybe a resource-extractive business) will be done in if the "bad" regulation is continued, and that all kinds of little people will be harmed if Business X is harmed.  The facts are otherwise.  Big Business X engages in extraordinarily harmful mining practices that level the mountains, leave toxic debris in streambeds, and put miners in harsh, unhealthy conditions that don't meet anybody's standards of a decent working environment while preventing unionization to allow collective bargaining and bombasting the region with warnings about how jobs would drop if any of these bad practices are regulated.  And Business X is actually providing all the funding for "Little People".  And Buiness X also contributes $400,000 to several  congressional politicians who are on key committees that oversee Business X's industry.  It engages in both of these activities anonymously. 

How would people react if they knew that Business X was funding the ads that appear to be from a local concerned citizens' grassroots organization and at the same time was contributing huge sums of money to key politicians voting on those issues.  They would be more likely to ask questions and more likely to doubt the veracity of the information in the ads, knowing the source of the money behind them.

So there has been a movement in support of individual freedom that demands that at the least we must have disclosure of the Big Money behind the purchased speech that has disemplowered the free speech of the people.  Yet, Senate Republicans defeated a Disclose Act proposal in Congress last year through the now common route of requiring a supermajority of 60% to get to a vote, even though 59% of the Senate voted for cloture.  See Open Congress on Senate bill; seel also Disclose Act (wikipedia). 

Now the Obama administration is apparently considering an executive order that would require those Big Businesses seeking federal contracts to disclose their purchase of direct or indirect campaign contributions.  In other words, when they buy election-related speech that clearly serves as a quo inviting a quid from the elected officials aided by such speech. they should disclose it so that we the public can evaluate whether they get the invited quid.

Big Business doesn't want to lose its anonymity--especially when it comes to getting the lucrative federal contracts even though it may be supporting fringe politicians who claim to want to cut government spending.   (And of course, Big Business will likely use its money to support those politicians who talk about cutting government spending but mean only cutting spending for programs that form part of the social net for vulnerable citizens, not cutting spending on lucrative military contracts or other lucrative federal spending programs that create instant billionaires, like Eric Prince and his Blackwater security contracts in Iraq).

Big Business doesn't want to engage in real speech, but in purchased speech that can be hidden from the public with the use of misleadingly labeled front groups like the fictitious organization in my hypothetical.  And it intends to use all the formidable weapons in its arsenal to ensure it can continue to pour money into election campaigns without revealing its role. So Josten, head of the U.S. Chamber of Commerce, a major organization supported especially by the U.S.'s biggest multinational corporations, says "all options are on the table" to ensure that Big Business can contribute anonymously.  See Lichtblau, Lobbyist Fires Warning Shot over Donation Disclosure Plan, NY Times, Apr. 26, 2011.  Josten threatens that "all options are on the table."  Big Business will apparently do almost anything to protect its right to spend to elect its politicians of choice while not letting real voters know what it is doing.

 Meanwhile, of course, the Supreme Court continues on its tear of decisions that uphold Big Businesses' rights to conduct business as they want, no matter what impact that has on the freedoms of individual citizens of this country that fought a revolution to ensure those freedoms.  AT&T Mobility v Concepcion is only the latest foray in this direction.  In this case, the Court holds that we little people have no right to join together in a class-action against corporations that have misled us, even when the contract through which we became the corporation's customers was a contract of adhesion and the relinquishment of the right to a class-action is an interpretation by the corporation of the arbitration "term of contract" that we signed to get the service that the corporation provides.  Contracts of adhesion are "take it or leave it" contracts.  Most customers don't have the ability, let alone the money, to figure out what the terms mean.  Even if someone did finally persevere and reject a contract of adhesion because the terms took away individual freedoms, that person would find no better contract at any other service provider, since they all incorporate essentialy the same corporate-friendly terms in their contracts of adhesion.

The Supreme Court's inability to understand that the constitutional protection of individual freedoms was intended to prevent just this kind of corporate tyranny will be costly for this nation.  I predict that more and more people will get angrier and angrier about the extraordinary empowerment of Big Business and the extraordinary disemplowerment of ordinary people through this kind of corporatist agenda. 

For another Bear's perspective on the AT&T case, see Beverly Mann, The Fine Print, Angry Bear, Apr. 28, 2011.  It begins this way:

It’s hardly a secret that Chamber of Commerce types have co-opted a bare majority of the Supreme Court as their proxy in their war against business litigation, and that the most potent categorical weapons are arbitration as a forced substitute for lawsuits and the effective elimination of class actions.

In a manipulative, far-reaching opinion that the Court issued Monday, the five corporate proxies killed both birds with one stone.

And it includes a good description of how this decision turns our past understanding of arbitration  on its head.

Breyer, though, writing for the four dissenters, pointed out that Congress’s actual stated purpose was to require courts to treat arbitration agreements as contracts, for the purposes of enforcing them and, when required under contract law, voiding them—and that that is what the text of the FAA says.

Scalia also said that class arbitration defeats the purpose of arbitration. Which I suppose is true if the purpose of arbitration, or at least arbitration as the only option under law, is to undermine any real threat of meaningful penalty for corporate wrongdoing.

Corporate Tax "Reform"?

The Republicans are pressing for corporatism on a grand scale, it seems--they want to cut government spending --especially on any program that originated as part of FDR's New Deal--and keep taxes where they are (at the lowest level since the Korean War), while continuing to make live easier for corporations.   

One may detect a hint of hypocrisy.  When the Bush adminstration pushed through the first in a series of tax cut bills in 2001, it was clear that the reduction in tax revenues would result in record deficits.  The cots of the 2001 bill was around $1.3 trillion dollars over ten years.  Republican leadership basically said "deficits don't matter anymore."  Their rationale--tax cuts lead to economic growth.  Their justification--they just knew it was so.  Tax cuts, however, have not historically led to growth.  In particular, what growth there is can be (and is) significantly distorted.  What we have seen as the right's tax cut agenda has played out is that growth goes increasingly to those who already enjoy the lion's share of the benefit. 

And now that the huge tax cuts have been in effect for a full decade along with the hugely increased military spending (due to the wars of choice in Afghanistan and Iraq), the deficit suddenly becomes something to do something about.  We could address it by cutting back drastically on the military industrial complex.  But that doesn't seem to be a very high priority in the House.  We could address it by restoring the tax system to sanity--eliminating most of the Bush tax cuts and leaving in modest cuts for those in the bottom of the income distribution (and restoring the "making work pay" credit for that lower-income group as well).  But that isn't even on the GOP list of possibles. 

What the GOP wants to do is use the deficit situation which their own policies have created to roll back FDR's New Deal--reduce Social Security, reduce Medicare and Medicaid--while they keep funding the military, continue deregulating so that big polluters and big gamblers can continue to carve out economic gains for themselves whle leaving the rest of us holding the bag on air pollution, health problems, and the volatility and crashes associated with a casino economy.

The GOP wants corporate tax reform too.  The Senate Finance Committee scolded Treasury Secretary Geithner at its meeting February 16 for not laying out a plan for "meaningful tax reform on both the corporate and individual side."  BNA Daily Tax RealTime, Feb. 15, 2011 (quoting Sen. Mike Crapo, R-Idaho).  Geithner's response?  "I suspect that we're going to get [to] that point sooner on corporate than on individual, but we'll meet that challenge.  We're trying to figure out how to build consensus now before we take that next step so that we maximize the chance that we get it done."  Id.

The problem, of course, that when the GOP says it wants "corporate tax reform", what it really means is "lower corporate taxation".  Obama has said he supports lowering rates while removing loopholes and special provisions.  There is really not much ground for consensus between those two positions.  fIn similar situations (such as the question of retaining a public option in the health care reform act), Obama has been the first to give.  If he does so here, we can expect that corporations will pay even less of their hoarded profits into the fisc and even more to their top managers, adding to the inequality bubble.

Not on the President's Budget or the House GOP's rampage against ordinary folks; On the Inequality Gap in the US

I'll write soon on the Obama budget proposal, I promise.  Right now I am trying to let my snarkiness fume off, as I wonder how anyone could think Obama is a liberal when he has so bought into the right wing's propaganda-heavy effort to use their (fake) concern about the deficit to justify the destruction of the progressive state established under FDR.  What they are aiming for is the complete dismantlement of Social Security and Medicare, while they satisfy Big INsurance in the dismantling of the modest effort we've managed towards heatlh care reform.  They want to freeze public worker pay for years and support efforts by states to renounce their obligations towards public employee pensions and health care/  They've already voted for increasing the tax burden on the working poor when they passed an extension of the absurd Bush tax cuts (primarily benefitting the wealthy and big corporations) while refusing to extend the Obama Making Work Pay program (primarily benefiting the working poor): that tax increase for the poor/tax cut for the rich bill passed in December meant a significant tax increase for 51 million Americans in the bottom of the income distribution was used to pay for more and more egregious handouts to the filthy rich (people and corporations) such as the extension of the 2003 dividend tax rate at 15% and the extension of the Bush tax cuts, and the ridiculous extension of the R&D credit, the section 179 expensing, and similar provisions. 

Meanwhile of course, the House GOP is planning to cut funding for all those things it has hated through the years because it represents what the liberal half of America thinks is just ordinary American caring for one another.  They plan to zero all funding for family planning--that isn't because those services aren't needed, it is because their aim is to target all the stuff they don't like.  See House GOP Declares War on Planned Parenthood, Mother Jones, Feb. 9, 2011.   They want to cut things they count as wasteful--let's see, that would be pollution control and environmental safety--probably including banning the EPA from regulating deadly carbon monoxide (that stuff that makes the air a killer for us, which of course must not be a pollutant since Big Business is the main producer of it, in the GOP unscientific model of the universe), food safety, law enforcement, education spending, high-speed rail (see Samuelson's ridiculous op-ed in the Washington Post today), nutrition support for poor pregnant women (can't have an abortion before birth on federal dollars, but you can't get food so your baby will be healthy either!).  For more than you need on all this, see Challenging Obama, House GOP calls for deep cuts, Espo & Taylor, AP, Feb. 9, 2011. They want to force the entire country to abide by their moral set--a kind of establishment of fundamentalist religion via the House's funding provisions.  And remember, this is the same group that passed a $1.3 to $1.6 trillion tax cut during Bush's first year that was entirely financed by borrowing, so that they could give a huge tax cuts to the wealthy.  This ain't got nothing to do with the deficit.  It has everything to do with seizing a moment of public ignorance to use to undo worthy programs and keep spending on the Reagan misguided bloated and continually over used military budget.

So folks, after my snarkiness recedes a little, I'll try to write about the budget, the House's idiocy, and the typical commentary on it.  Right now, I can't bring myself to say a word about them.

In the meantime, here's something worth looking at.  Before It's News, "9 Pictures of the Extreme Income/Wealth Gap", Feb. 14, 2011.

The writer claims that if people only understood the enormous concentration of wealth in this country and its deletrious impact on  politics, democracy and people, they'd stand up and demand (a la Tunisia and Egypt?) that our politicians do something about it.  I suspect that is true.  That is the main reason that the mainstream media--especially the Fox News and Rupert Murdoch Wall Street Journal type right-wing propaganda centers make sure that they talk all about the 'entitlements" that (they claim) are breaking the fiscal back of the country as those socialistic things we do for public employees and poor people etc, and fail to mention the far greater number of "entitlements" for the wealthy that are what is really breaking all our backs (from the huge proportion of the benefit of the tax expenditures in the Code to the way we build roads, situate police, and service needs of propertied people). 

Here's a noteworthy paragraph from the article.

How Much Is A Billion?

Some Wall Street types (and others) make over a billion dollars a year – each year. How much is a billion dollars? How can you visualize an amount of money so high? Here is one way to think about it: The median income in the US is around $50,000, meaning half of us make less and half of us make more. If you make $50,000 a year, and don’t spend a single penny of it, it will take you 20,000 years to save a billion dollars. . . . (Please come back and read the rest of this after you have recovered.)

What Do People Do With SO Much?

What do people do with all that money? Good question. After you own a stable of politicians who will cut your taxes, there are still a few more things you can buy.

Remember that we had some fund managers with multiple billions of profit in one year.  And we have typical MNE corporate CEOs making 7 or 10 or 20 million annually.  The CEO with a $20 million annual salary makes more in a day than his average workers will take home in an entire year.  Does the CEO really add that much--is it true that the enterprise couldn't exist, couldn't function without that person in that office, that the productivity of the workers would stagnate?  One has to doubt that, since what we hear is that CEOs are often the causes of huge losses, as they over-acquire and over-leverage their enterprises to up the ante on their own performance pay.

And of course we have had fund managers getting compensation (in their "2 and 20" or "5 and 50"--20% or 50% of the profits of the partnership they manage) with both deferral and capital gains preferences, in the case of private equity funds and real estate partnerships in particular but also in many cases with the hedge funds.  My My, that's a nice perk for the very wealthy.   But do they contribute so mightily to the US economy as to be worth this kind of excess?  No way.  Paulson--remember, the guy that garnered all the praise for having foreseen the mortgage loan crisis and shorted those CDOs that he talked a bank into filling with bad loans, making $20 billion for his fund in the year of the breakdown?  That naked short is no service to the economy.  The demand for bad loans drove the production of them, and the bad loans are at the heart of the mortgage loan meltdown that has millions of ordinary Americans out of their home looking around them wondering what happened to their own American dream.  Naked short speculation was nothing but devastating and Paulson is no here.  (See Yves Smith, Naked Capitalism, for more, among others.)

So what kind of things can these oligarchs who reward themselves at our expense afford, according to the website?  A billion'll buy you, for example:

• a thousand expensive Maybachs, a car costing $1 million apiece
• 137 years of nights in the Burg Al Arab in Dubai at $20,000 to $30,000 a night
• ten $100 million yachts
• 25 Gulfstream G550 private jets, at  about $40 million a pop
• 40 private islands, castles included (at about $24.5 million each)
• 125 estates at $8 million each 
• 200 watches that cost $5 million each

The point of all this is that these prices themselves are ridiculous, fostered by the huge wealth now available to America's super-elite, the result of the "inequality bubble" that has put more and more of the product of millions' of people's hard labor in the hands of an oligarchic few.   There are people at the top who "are amassing multiples of billions, paying very little in taxes and using it in ways that harm the rest of us."    Resources are concentrating, heavily, at the top, in ways that are fostered by the tax policies and the spending policies supported by the GOP. 

"Between 1979 and 2008, the top 5% of American families saw their real incomes increase 73%, according to Census data. Over the same period, the lowest-income fifth (20% of us) saw a decrease in real income of 4.1%. The rest were just stagnant or saw very little increase. This is why people are borrowing more and more, falling further and further behind. (From the Working Group on Extreme Inequality)."

***

[One of the bad results of such inequality is the psychological effect.] People need to feel they earned that they have earned what they have, and develop theories about why they have so much when others do not. Bizzare and cruel explanations like Ayn Rand's psychopathic theories about "producers" and "parasites" take hold. Regular people become little more than commodities, blamed for their misery ("personal responsibility") as they become ever poorer.

 

 

Corporate taxes: the SOTU, actual (effective) tax rates, and more

In the State of the Union address (see, e.g., PBS website for SOTU address and additional links), President Obama claimed that the United States can stay on top if only it can "out-innovate, out-educate, and out-build" other countries.  It is interesting that we describe our goals merely in terms of besting others, but that is the sometimes questionable legacy of American "exceptionalism." 

 Let's consider, in that context, how corporations, and the corporate tax, figured in the speech.  

 First, acknowledging the importance of government support for new areas of promising research and innovation, Obama stated that he would ask Congress "eliminate the billions in taxpayer dollars we currently give to oil companies. I don’t know if you’ve noticed, but they’re doing just fine on their own. So instead of subsidizing yesterday’s energy, let’s invest in tomorrow’s."  That sounds like a good start.  For decades, Big Oil has been coddled by the tax system while pushing its externalities--air, water, and land pollution--off on ordinary people.  It's time that the oil industry made it on its own.

On "out-educating" other countries, the President noted that elimination of the subsidies to banks built into the loan programs.  That, of course, is a good move, but leaves a lot on the table still to be done to provide educational opportunity to all Americans.  Both innovation and education would be well served by a significant investment in university research, rather than the fickle "R&D" tax credit that rewards companies often for just tweaking an existing product and not for the basic, innovational research that opens new frontiers.

On building, the President noted the need for infrastructure improvements from bridges to roads to  wireless technologies, essential for businesses and communities to grow in a global world.  But how can you invest in infrastructure if you do not ensure that you have the tax revenues to pay for it?  And the will to do that seems to be missing, both in the White House and in Congress.

On the issue of business success, President Obama first sounded a familiar and appropriate note--the problem that lobbyists for businesses have "rigged the tax code to benefit particular companies and industries. Those with accountants or lawyers to work the system can end up paying no taxes at all. But all the rest are hit with one of the highest corporate tax rates in the world. It makes no sense, and it has to change."  It is clearly true that the many provisions that operate as loopholes for particular businesses (take the section 199 domestic production credit, for example) should be eliminated.

But then Obama went on to say that what was needed was simplification.  That's highly questionable.  Most of the complexities in the Code came in response to tax shelter transactions or other overly aggressive interpretations of the Code that assisted companies in cutting their tax bills.  Each shelter requires a response in terms of more specific code language, leading to more complex provisions as the only way to combat the tax minimalization norm.

Obama suggests that we can get rid of corporate loopholes and use the savings to lower the tax rate for corporations.  Maybe.  But perhaps our goal should be to disincentivize aggregation of corporate entities in conglomerates that have no loyalty to country or worker, rather than allowing them to continue to move assets abroad.  We should consider what provisions are necessary to allow workers to share in the profits that they help create.

 Like most people preaching corporate tax reform these days, the President appears to be on board with the "received wisdom" that it is important that the US help big multinational corporations located in the US to compete in other countries and that the US statutory rate is a problem in that regard.  

You can check out prior postings  to see my arguments against the competitiveness argument.

Quite a few of the experts who write about corporate tax think the corporate tax rate should be reduced to zero.  Their arguments are often laced with plenty of talk about how investment income ought to be favored or, another version of same, how capital invested in corporations shouldn't be taxed because it supports entrepreneurialism.  That argument is inapplicable, however, for all except that part of the capital that is invested in a corporation from the outset or made as a new contribution to capital of the corporation:  the "startup" capital actually supports whatever entrepreneurialism may be going on in that corporation, and new capital contributions may or may not support entrepreneurialism.  (Even startups may not be entrepreneurial, but some at least are.)  Most investments in corporate stock are not even invested in the corporation--they are just secondary market purchases between investors, so there is no new investment going into the corporate entity.  There appears to be very little reason  to treat gains from secondary market trades in corporate stock more favorably than labor income for tax purposes--those resources will be invested in something or spent, so we don't need the tax law to incentivize the investment.

The arguments for eliminating corporate tax otherwise usually boil down to a statement along the lines that "people are the only ones that really pay tax, so corporations shouldn't be taxed."  That is an a priori conclusion (based on determining that people are the only "real" taxpayers), but somehow it passes for astuteness amongst many tax experts.   It is claimed to be based on economic reality--that only people earn income; that it is people that run corporations but there is no "person" that is the corporation; that the corporate tax can be and is passed on from the entity to others that are people--customers, vendors, employees, shareholders.  While there is a kernel of truth to each of those rationales, there is also a much larger story that they do not capture.  The idea that "only people earn income" ignores the reality of corporate entities of infinite duration that may hoard millions in cash rather than pass it to the shareholder/owners.  The idea that the corporation itself isn't a person (which is only relevant, of course, with the corollary that only people pay tax) has been undercut by the expanding scope of the Slaughterhouse Case decisions that treat a corporation as a person for constitutional purposes--including the recent Citizens United case that allows corporations to spend money to influence election campaigns, though they cannot (yet) vote.  Though the incidence is not fully certain, one might think that it is most aptly described as passed on to shareholders since there are less corporate earnings to be distributed).  If one says that similar passing along occurs whenever one person hires another (family with nanny pays nanny out of service income of family even though they pay taxes on that income; nanny treated as gettting compensation income on which nanny also pays taxes), one is warned that this is playing games and not the way proper economic analysis treats the situation since it is "inherently" different when it is an "entity" that can't "actually" do services except by the actions of the people who own and operate it, so should not be treated as earning income or paying taxes.

 One could also say that corporations don't talk so they shouldn't have First Amendment rights.  That wouldn't get us far with Citizens United on the books. 

As a result, whether corporations are taxpayers or not and whether they have First Amendment rights or not is a matter of law.  Right now, our statutory law says corporations are taxpayers and our constitutional law (as interpreted by the Supreme Court) says they also have First Amendment rights.

Remember that the statutory rate is the rate applicable under the statute to "taxable" income rather than economic income.  Taxable income is almost always much lower than economic income, since there are both income exclusions (e.g., certain life insurance) and deductions and credits (e.g., the R&D credit, the section 179 "expensing" deduction) that make taxable income considerably less than economic income.  As a result, most taxpayers--and especially most wealthy people and big corporations--don't pay anywhere near the statutory tax rate on their economic income.  My favorite example in my basic income tax class used to be Dick Cheney.  There was a year when he had millions of municipal bond interest income (excluded from taxable income): obviously, his taxable income was much lower than it would have been without that exclusion, so he paid tax on an amount that was considerably less than his economic income.  In another year, he took advantage of the so-called "Katrina charitable contribution provision" that permitted taxpayers to completely reduce their taxable income to zero with their charitable contributions (which didn't have to do anything to aid Katrina victims or New Orleans).  You can imagine that there'd be someone who typically made $200,000 a year in contributions and who might make $600,000 that year (and not make the $200,000 a year for the next two years) and be much better off taxwise.   Of course, the fact that wealthy people own the lion's share of the financial assets of the country gives another advantage here--they can contribute stocks and get deductions for amounts that they've never paid tax on!  And on and on... 

Obama was correct on one thing:  the federal income tax is riddled with provisions that benefit big corporations, especially Big Oil which benefits from "percentage depletion" and others that enjoy considerable benefit from the modified accelerated depreciation provisions (dating back to Reagan's time) and various bonus depreciation and expensing provisions that don't reflect the economics and have added complexity to the Code since then.  Scaling back those provisions--eliminating the many subsidies for Big Oil and modifying the provisions for accelerated expensing and depreciation would be a good move.

The corporate expertise in taking advantage of loopholes or in "inventing" them (tax strategy patents, anyone?) results in US corporations pay very little in federal income tax.  David Leonhardt discussed that recently in an article about The Paradox of Corporate Taxes, New York Times, Feb. 1, 2011.  While noting that companies have various reasons for having low tax bills, including significant losses carried forward from earlier years to offset years of profits and  significant purchases of equipment or buildings that are allowed to be "expensed" under today's capitalization and depreciation rules, another reason that many are successful is that they have developed significant expertise at avoiding taxes.  Leonhardt reports that GE, for example, paid less than 15% of its corporate profits in taxes between 2005 and 2009.

G.E. is so good at avoiding taxes that some people consider its tax department to be the best in the world, even better than any law firm’s. One common strategy is maximizing the amount of profit that is officially earned in countries with low tax rates. ...

Companies that pay relatively high rates tend to be those that are not expanding rapidly and that are not as ingenious as G.E., at least on taxes. The average total tax rate for the 500 companies over the last five years — again, including federal, state, local and foreign corporate taxes — was 32.8 percent. ...The problem with the current system is that it distorts incentives. Decisions that would otherwise be inefficient for a company — and that are indeed inefficient for the larger economy — can make sense when they bring a big tax break.

But Leonhardt's numbers may make corporations look like better taxpayers than they actually are.  Citizens for Tax Justice recently published a study suggesting that the contribution to tax revenues from US corporations is even lower than generally reported.  According to CTJ, GE didn't pay anywhere near the 14.7% that Leonhardt claims.  "GE's effective tax rate for its U.S. profits was actually just 3.4 percent over that period. Our figure is based on what GE says that it paid in U.S. corporate income taxes (called "current" taxes) divided by what GE says its pretax U.S. profits were (all from GE's annual 10K reports to shareholders, filed with the SEC)."   See  U.S. Corporations Are Paying Even Less in Taxes Than Recently Reported, Citizens for Tax Justice (Feb. 4, 2011).  CTJ suggests that  there are several reasons why some reports misreport the US income taxes paid by corporations.

• First, some analysts are misreporting how the worldwide taxation system works and thus larding the corporate taxes paid to the US with taxes that corporations pay to other countries.  While the US system includes worldwide income in taxable income, it also gives corporations a tax credit for taxes they have paid on their foreign income to other countries, up to the amount of tax that would have been paid in this country.  So those taxes shouldn't be counted as part of the US taxes paid. As CTJ explains, "to understand how the U.S. corporate income tax is working, one must focus on U.S. taxes paid on U.S. profits. No one expects Congress to do much about taxes that U.S. corporations pay to the governments of France, Germany, or Japan!"
• Second, only the "current" taxes in financial statements (available generally in SEC filings for reporting companies) are relevant.  Taxes that are listed as "deferred" may be due and payable but they don't count as taxes yet.  As CTJ notes," "Deferred" is a euphemism for "not paid." Corporations can defer (delay) paying taxes if, for example, they enjoy tax breaks for accelerated depreciation, which allow them to take deductions for capital investments sooner than they would if the rules were simply based on the actual life of the investment. A company could eventually pay taxes that it has "deferred." But that doesn't happen very often."
  
  
  

More on the White House "deal" on tax cuts

Dan Shaviro, a colleague at NYU, ends up being hopeful about the Obama-GOP deal.  See "The deal on extending the tax cuts", Start Making Sense, Dec. 6, 2010 and "The tax cut deal: too soon to tell who really won?", Dec. 7, 2010.  I think that is because Dan tends to credit Economics 101 with considerably more wisdom than I do (and place "efficiency", as defined by the free marketers, higher on the wish list for tax policy than I), so he thinks Social Security isn't on a sound footing and that benefits will need to be cut; thinks expensing for corporations is a reasonable way to spur growth; thinks there is some possibility that the 2012 replay of "Bush tax cuts, take 2" might play out in favor of Obama if he is "very clear that he planned to veto any extensions and let all the tax cuts expire UNLESS the Republicans made the deal he requires".  I'll intersperse my comments with Dan's below.

1) extending all the expiring individual rate cuts for 2 years:

Dan says "we knew this was going to happen" so the only problem is that it comes up again in 2012 when Obama will "might face extra credibility problems".

I think we only knew this was going to happen because Obama didn't fight on this at all.  Obama signalled at the beginning that he would cave, and he did not take to the bully pulpit at all.  He conferenced with Republicans and cut out the Democratic leadership in reaching his "deal"--which is a Republican policy in everything but name.

2) extending unemployment insurance through 2011:

Dan says it is an important stimulus and "wasn't going to happen otherwise." 

I agree on the stimulus.  But the Dems should have brought unemployment extension up on a daily basis and forced the Republicans to vote against it.  So the "wasn't going to happen otherwise" is part of the give-up before you start negotiating that got us into this mess. 

3) reduce the Social Security payroll tax by 2% for one year:

Dan says "good stimulus" though "targeting could have been a lot better" and admits my point (made when payroll holidays were first brought up) that the payroll holiday feeds into the drive to decimate Social Security by hitting the Trust Fund.  But Dan thinks the "concern" about long-term fiscal problems is real, and so is comfortable with addressing it "sooner" anyway.

I disagree. The concern about Social Security is being hyped in order to destroy Social Security as we know it.  It is in line with the enmity towards unions, towards single payer health care, towards re-regulation of the banks, towards breaking apart big banks, and towards any other policy that would restore a vibrant middle class.  By allowing a payroll holiday for everyone, the majority of the benefit goes to people who don't really need it, and too little benefit goes to those who do.  Targeting is better than a tax cut purely for the rich, but that isn't saying much.  Doing some stimulus in a means that pushes the GOP agenda to eviscerate Social Security forward is like tying one hand behind your back--a rather unwise way to enter a long-term battle for the economic future.  Will we have the brutal mix of casino and winner-take-all capitalism that has driven most of this country's policies from Reagan on or will we have a tempered capitalism that ensures a broad-based growth and creates an economic system that works for everyone?  The Republican's aims to let states go into bankruptcy and use that mechanism to destroy public employee unions says they are in this battle to destroy the New Deal if they can.  We need to fight just as hard on the side of the middle class.

4) Estate tax cut by increasing the exemption from the 2001 level to $5 million (basically 500% of the 2001 amount) and lowering the top rate to a mere 35%.

Dan thinks this might actually be preferable "in efficiency terms" to the current law, which would have restored 2001 rates in 2011, if done in a "distribution and revenue neutral framework".  And even though this isn't that, he doesn't think a more progressive estate tax "is long-term feasible anyway."  So this is not "a terrible outcome in a realistic overall sense."

Here we part ways 100%.  There is no such thing as a distribution and revenue neutral framework--that is a fiction of economics 101 that permits what we have seen, which is four decades of redistribution upwards.  Further, distribution neutral is not desirable in an economy where the winners already take all--if we don't reverse the direction of distribution in this economy, we will end up in oligarchy (if we aren't there already).  In that context, this was the single most viable opportunity for reinstating an appropriate estate tax, either by letting the Republican-passed law take hold (return to 2001 exemption and rates) or by passing a slightly modified but ideally more progressive version (higher exemption but progressively higher rates beginning at 45%).  This is indeed "a terrible outcome in a realistic overall sense."

5) extensions of the EITC, tuition tax credit and expensing (as well as the R&D credit, not mentioned by Dan 

Dan says that the EITC and tuition tax credit are okay because they may add progressivity and the expensing provision is okay as a short-term stimulus.

The EITC is okay.  Tuition tax credits just subsidize the things colleges spend money on that they don't want students to have to feel they are paying for--like too high administrative salaries (across-the board, at private and public universities).   We ought to fund higher education at public institutions, but with conditions, such as limiting the percentage of total budget spent on administration or on the revenue sports, etc.  As for expensing, it is unclear how it can be stimulative in this context, when the reason companies aren't expanding is because they don't see a demand for the business.  Most companies have the cash on hand and can borrow at a funding cost that is extraordinarily low.  That isn't what is holding back investment.  Odds are, the savings from expensing will just go to another round of higher manager salaries and big payouts to shareholders (who will also continue to benefit from an extraordinarily low dividend and capital gains rate under the deal).

Dan seems to think that Obama will be able to argue credibly that "this time I mean it" when it comes to the 2012 election and the Bush tax cuts are ready to expire once again.  Fat chance. There's nothing so far to convince anyone--Obama caved before fighting on the public option and on taxes for the rich and on the estate tax and on capital gains and on carried interest and on and on.  Obama in fact is now pushing his Democratic colleagues to support an agenda that will easily get 100% Republican support and maybe enough reluctant Democratic support to pass, rather than rallying them to fight so that he can veto, if need be, wrong-headed legislation.  So he has proven that the Dems lose in the minority and they don't bother to fight when they are in the majority.  No way his base will trust him to do it better next time around. 

Meanwhile, the GOP is already blaring that there is no way that they'll give an inch on anything.  They won't support the Build America Bond program, because they want states to declare bankruptcy as a means to destroy public employee unions.  And they don't seem to care that they are destroying the American social contract between the wealthy and the rest of us at the same time--we are what we are because we have recognized the importance of a strong middle class that acts as a check on oligarchy.  Yet the Republican party--and now too many Dems--are willing to throw it all away just to get elected one more time (maybe) in the future.

In my view, the American people are the losers here.  The AMT patch primarily helps those with high incomes.  Most of those who pay the AMT because of bracket creep are in the 250-500,000 income range--certainly not middle class.   Only a few are in the 75-100,000 range.  The extension of extremely favorable taxation of secondary market capital gains and dividend income is of benefit to the wealthy who own most of the financial assets.  The extension of the tax rate cuts even below 250,000 already aids the wealthy--adding the tax rate cut at the top means that most of the rate cut goes to the very well off.  This is a very good deal with corporate managers and owners, and rotten for ordinary Americans. It's the upside down world of George W. "the have-mores are my base" Bush.

Post-Election Blues: the GOP, Dems, and Corporatism

One of the worrisome results of the 2010 mid-term elections is the increasingly radical fringe that is now installed in the House (and in state houses and in some Senate seats).  Witness the possible head of the House Energy and Commerce Committee, Shimkus of Illinois (Republican), who has asserted that it's a waste of time and effort to worry about global warming, because he happens to believe that God has promised not to flood Earth and so it just won't happen.  See Stromberg, In the GOP's House, God Won't Allow Global Warming?, Washington Post, PostPartisan (Nov. 12 2010).  (This is like the wishful thinking that the biggest oil spill in history hasn't really done any harm to the oceans--ignoring, of course, our inability to measure the impact in most cases, our ignorance of the long-term effect of the dispersant chemicals used, and our willful blindness to existing problems on beachers, in marshes and in the warmer waters near the mainland.)  Instead, Shimkus and his ilk will likely try to use the House's investigative powers to put a stop to sound regulatory advances at the Environmental Protection Agency and other departments.  

Meanwhile, the irreality train of Sarah Palin's influence on right-wing politics rolls on forward, with her infomercial running on "The Learning Channel" (a clear misnomer in this case, unless learning how insipid Palin and her family can be counts as "learning") as a backdrop for her continued influence in the 2011-12 Congress and the 2012 presidential election.  This is a person who takes pride in meaningless homilies, quit the only challenging job she has ever held when it either got too stressful (various ethics challenges) or not remunerative enough (various fashion challenges), has a hit-or-miss education that she hasn't bothered to improve with self-educational efforts (like reading 2-3 of our major national papers or reading various nonfictions works, etc.), and is content using the "sling dirt whether true or not, support it with lots of corporate money, and hope some of it sticks" techniques developed in the Reagan campaign and perfected by Bush's "turd blossom" karl Rove.  Americans will continue to hear that "real Americans" care about the things Palin cares about and that the cures for what ails us are more of the same policies that made us sick in the first place, stated as simplistic slogans that evoke dreams of personal liberty and frontier rigor, and nightmares of government corruption and Pentagon $7000 toilets.  As a fellow blogger Maxine Udall has noted:

Whether we like it or not, our technical solutions are competing in a morality play scripted by interest groups and mama grizzlies who in 25 words or less conflate small government and something they imagine to be "free markets" with individual liberty, a key justice principle. Most sound techocratic solutions are difficult to convey, must less motivate, in 25 words or less (and the motivation is often moral as well as technical: more for most, more for less, prices as reliable signals of marginal social cost, reducing unemployment, increasing inflation to discourage saving and stimulate spending ... you get the idea). But the larger problem, I think, is that allegedly "amoral" economists view the moral sequelae of sound economic policy, such as banksters' gains (at taxpayer expense), as "side issues" that are irrelevant to restoring the economy, while some of "we the people" view it as one of the most important issues. We end up with....the Tea Party (or, at least, with a large portion of the population who are extremely resentful and angry at being unemployed and underwater while the economy romps upward at least for those whom we bailed out).  Technocratic Solutions and Moral Dilemmas  (the preceding, by the way, is just a very small excerpt of an interesting piece on the problem with what I have called "mathaholic"  economics and the failures of the Chicago School's approach to setting policy based on a theory so infused with unrealistic assumptions that the policy prescriptions amount to suggesting that Alice drink a counter-potion to undo her shrinking in size and fall through the rabbit hole).

 

And then there are the right-wingers arguing for a full austerity budget in the US, which supports, primarily, the idea of cutting Social Security and Medicare benefits while letting military costs continue to rise unabated and for reducing corporate taxes so that Big Business (read--U.S. multinationals) can "compete" more successfully globally without the "burden" of US taxes.  See my earlier post on the Peterson-Pew "deficit crisis" mentality and the Bowles-Simpson commission.  And then look at Robert Samuelson, How to Avoid Japan's Economic Mistakes, Washington Post (Nov. 15, 2010).  Samuelson asserts that the time for stimulus is long past and the only thing to do is to get the private sector going.  He claims to base this urgent assertion on Japan's experience, when it continued to borrow to fund public spending, but overall growth has been anemic.  He asserts Japan's problem is two fold:  1) a "dual economy" where robust exports had to make up for anemic domestic consumption, an economic model which folded with the yen's appreciation in the 1980s and 2) an aging, declining population with low wages and insecure jobs.

His prescription of course, is the same old right-wing prescription--less regulation, more support for big business to remove "uncertainties" (which has become a euphemism for lowering taxes/helping US MNEs to "compete").

So Japan's economy is trapped: A high yen penalizes exports; low births and sclerotic firms hurt domestic growth. The lesson for us is that massive budget deficits and cheap credit are at best necessary stopgaps. They're narcotics whose effects soon fade. They can't correct underlying economic deficiencies. It's time to move on from the debate over "stimulus."

Economic success ultimately depends on private firms. The American economy is more resilient and flexible than Japan's. But that's a low standard. Neither the White House nor Congress seems to understand that growing regulatory burdens and policy uncertainties undermine business confidence and the willingness to expand. Unless that changes, our mediocre recovery may mimic Japan's.

Samuelson conveniently skips over three important things--two a big difference between the US and Japan, and the other a similarity.  First, Japan had a historically high savings rate and, though that has gone down with Japan's economic decline, it meant that Japan didn't have the kind of domestic spending pattern that could sustain a low-export economy for any length of time.  So making interest rates low didn't help, and government spending couldn't be sufficient to overcome.  Second, the US has already embarked on various "quantitative easing" solutions that should have a positive impact--the loosening of the money supply will provide more money floating through the economy, allowing private and public job creation to take place more easily. 

Third, both countries share the stagnation of middle class wages--and what is worse in the US is that we have at the same time huge increases in inequalities as the "investor/manager class" continues to reap all the rewards of the economic system and be favored by the tax system so that it reaps most of the subsidies provided that way as well (the huge part of the benefit of the extra large housing mortgage interest deduction is enjoyed by the wealthiest Americans, who itemize and who have sufficiently large and numerous homes to easily use the full deductible interest limitation of $1.1 million combined acquisition and home equity loans; the benefit for various manager-level retirement plans is enjoyed primarily by the rich; etc.).  Until that problem is resolved, it will be unlikely that the US will recover the kind of broad-based growth that provides a sustainable economic environment and quality of life for all.

The reason all of this is worrisome, of course, is that the two-party system (with the avid assistance of the Tea Partiers) is heading towards unanimity on the biggest problem facing us at this time, and their answer is the wrong one, one that fails to understand the long-term damage to the economy of rampant increases in inequality along with stagnation or worse for the middle class.

 The problem is the corporatist agenda--"Big Business" using its money and power to write the laws to suit it, and the owners and managers of Big Business using their money and power to ensure that all of the rewards of the economic process go to the top, while programs intended to buffer the ill winds that blow for the middle class and low income Americans are decimated.  (An agenda made all the more easy because of the right-wing-dominated Supreme Court's recent decisions, including Citizens United.)  Money has become the be all and end all of politics, and Big Businesses--especially the big financial institutions-- generally have the money to buy the politicians and the laws that they like.  Courts and legislatures favor business over individuals.

Obama is not apart from this--he has never been a real progressive, and his policies are in the same tepid, center-right position that Clinton occupied or even slightly to the right.  As a commenter on a Washington Post article on Palin's TV infomercial noted,

[Obama largely] insists on continuing Bush's policies, or insufficiently curbing them. It is policies that serve the rich that are destroying us; these are policies that are traditionally identified with the Republicans, but in recent decades, the Democrats have learned to bow and scrape for big money from the lobbyists and either party is as abjectly servile to the wealthy as the other.

*****

[T]hose managing [Palin] as a media creation are using her to push the perceived center further to the right than it already is, which will allow real candidates for the Republican nomination to recycle the radical orthodoxies of the far right and still seem "moderate." Candidates for the Democratic nomination will be required to similarly hew further right, so as not to seem like the "socialists" or "communists" they have already been labeled by the rightwing lunatic fringe.

Palin makes big bucks and doesn't have to actually learn or do anything, while becoming the philosophical lodestar for the right, and our entire political system is transformed into a battle not between left and right but between right and extreme right.  Robert 1014

There is no reason to expect that tax cuts for the wealthiest 20% of the country will do anything to support job creation for the rest of us or to help stem the tide of the recession.  But the GOP will push for tax cuts for their primary constituents no matter what the cost. There is no reason to think that changing our tax system to assist US multinationals in grabbing a larger market share in Asia or Africa in the name of "competitiveness" will do anything to help ordinary Americans in the middle class here at home.  But both parties will continue the disastrous mix of tax cuts for corporations and policies that pull back on anti-trust and make unionization more difficult in the name of helping companies compete.   Obama and the mostly spineless Dems who don't ever stand up for their purported policy positions--whether in contesting the appointment to the Supreme Court of radical rightwingers like Alito and Roberts or in battling with the GOP for a public option in health care reform or in fighting to preserve a highly progressive income and estate tax--will likely just roll over and play dead while the wingnuts on the right move our country more and more into the radical right of the Bircher Society, Clausen, and Milt Friedman's radical "free market" agenda that socializes losses and privatizes gains.

Economic stimulus--the right and the wrong of it

Clearly, for ordinary Americans, the US economy is still in a funk from the financial crisis caused by the housing boom funded by the easy credit of turnover securitization of mortgage loans, coupled with the casino banking mentality spurred by proprietary trading and naked credit default swap bets.  (The wealthy, on the other hand, seem to be recuperating nicely, thank you, or at least still spending on luxury goods.  See Even in Moribund Economy, Wealthy Spending More on Travel, Luxury Goods, Kiplinger, Sept. 24, 2010.)

The political parties have two very different answers to resolving this ongoing economic crisis for ordinary Americans. 

• The GOP thinks that we need more of the same "medicine" that got us into this mess to start with--deregulation, privatization, tax cuts, and militarization. On deregulation, see, e.g., The Electricity De-Regulation Con Game, PRWatch.org (discussing the coalition of conservative groups supporting deregulation, including Heritage Foundation and Tom DeLay), Republican Candidate Seeks Return of De-Regulation , Newark Democrat Examiner, Sept. 30, 2010 (discussing NJ candidate Little's support for Tea Party "free market" with the "absence" of government regulation).  On tax cuts, see, e.g., Senate Republicans Firm on Tax Cuts for Rich, Reuters, Sept. 13, 2010; Republicans Pledge to Fight to Preserve Bush-Era Tax Cuts, Washington Post, Sept. 13, 2010 (noting that the GOP, unlike the Dems, wants to pass a new law providing a tax cut to the wealthiest Americans when the Bush cuts expire as scheduled at the end of 2010).  On privatization, see, e.g.,  104 Republicans in Congress Want to Privatize Social Security, ThinkProgress, Oct. 27, 2010; GOP Budget proposes to Ration Medicare, Privatize Social Security, CrooksandLiars, Feb. 5, 2010 (discussing the GOP alternative to Obama's budget proposals); GOP's Pledge to America would end up privatizing Social Security, The Nation, Sept. 24, 2010 .  On militarization, see, e.g., Hard Line: The Republican Party and US Foreign Policy since World War II, The Nixon Center, Oct. 31, 2010 (suggesting that there is some division within the party based on its mantra of fiscal conservativism, but that most Republicans, and neo conservatives especially, support military spending even while demanding cuts elsewhere); David Broder, The War Recovery?, Washington Post, Oct. 31, 2010 (apparently suggesting war, and its huge military expenditures, as a way out of recession, in spite of the already huge costs of Bush's two wars of choice) ; Conservatives Profess Support for Defense Budget Cuts But Still Want Weapons the Pentagon Calls Unnecessary, ThinkProgress, July 2010;  Benjamin Fordham, Evolution of Republican and Democratic Positions on Cold War Military Spending (noting that the Republicans originally opposed increased military spending after WWII, but in the 1960s, the party began supporting militarization).   It's hard to believe that the American voters can be gullible enough to fall for the argument that we need "more" deregulation and tax cuts to cure the problem caused by deregulation and tax cuts, but apparently a good many may be.  Party acolytes mouthe the mantra of tax cuts and spending cuts, but what few spending cuts are ever discussed are ones targeted at the so-called "entitlements"--meaning, programs that aid the down and out, the elderly, and the unemployed, like Social Security (and pensions generally, especially public pension plans for public employees), health care, and other such programs.   Meanwhile, privatization includes privatizing Social Security (at least in part) and eliminating the progress (not complete) that we've made under the Democrats towards a more sustainable health care system (preventing insurance companies from refusing to cover someone, alowing children to stay on parents' plans longer, making sure that insurance companies don't refuse to pay covered items, creating a universal system so that the people who pay for their health insurance are not also forced to pay for those who gamble on having no health insurance but end up with expensive hospital stays, etc.).  Presumably, if the GOP candidates win a majority, they will fight to ensure that tax cuts extend to the wealthy who have garnered an increasingly huge share of the income stream from GDP growth as they cut out the safety net from those whose wages have stagnated and declined because of their policies.

 

• The Dems (the ones that aren't too afraid to talk about what their polilcy views really are) generally are on the other side of those issues--re-regulation (to prevent the kinds of casino banking problems that occured under Bush), maintaining public safety nets (rather than leaving the vulnerable at the mercy of the "markets"), decreasing military spending (especially for unneeded weapons systems and ideally by ramping down Bush's wars), and tax cuts for the middle class but not for the rich who've gotten all of the growth while the middle class declined).   They are also aware that when the private economy is slack, government spending needs to pick up the slack.  Ideally, that government spending will be aimed at real needs--unemployment compensation, more money in the pockets of consumers in the bottom half of the income distribution who will spend it on things that they need, and/or public infrastructure that will help our economy expand (like public transit projects, research projects, support for research universities, etc.). 

Now, in that context, what to make of David Broder's Washington Post op-ed talking about war--it took a war, he says, to get us out of the Great Depression, and he seems to be suggesting that a war with Iran wouldn't be such a bad idea to get us out of this Great Recession.  

"What else might affect the economy? The answer is obvious, but its implications are frightening. War and peace influence the economy.

Look back at FDR and the Great Depression. What finally resolved that economic crisis? World War II.

Here is where Obama is likely to prevail. With strong Republican support in Congress for challenging Iran's ambition to become a nuclear power, he can spend much of 2011 and 2012 orchestrating a showdown with the mullahs. This will help him politically because the opposition party will be urging him on. And as tensions rise and we accelerate preparations for war, the economy will improve.

I am not suggesting, of course, that the president incite a war to get reelected. But the nation will rally around Obama because Iran is the greatest threat to the world in the young century. If he can confront this threat and contain Iran's nuclear ambitions, he will have made the world safer and may be regarded as one of the most successful presidents in history."  Id. (Broder in WaPo)

This from a person who has consistently opposed government spending and other Keynesian ideas for stimulus as inappropriate.  War, he appears to think, is ok, but government spending on major public infrastructure is not?  Now that is crazy.  I refer you to  Mark Thoma's Economist's View for a full dress-down of Broder's essay, David Broder Calls for War with Iran to Boost the Economy, Oct. 31, 2010. 

That Broder column fits with the rest of the GOP policies, which generally suggest that spending on military might is just dandy, but spending on the public infrastructure and safety net for the vulnerable is wasteful, or that tax cuts for the super-rich are fine, but earned income tax credits for the poorest amongst us are not, or that deregulation of banks will lead us to growth while regulation to include a consumer protection agency will hamper banks' ability to make profits.  What a warped view of society.  I just hope that Americans aren't naive enough to fall for it.

Democrats touting tax cuts

The New York Times ran a story this week about the Obama tax cuts--the point?  while the Tea Partiers rage against the Obama administration because they want more tax cuts, they have missed the fact of substantial tax cuts under the Obama administration.  See Michael Cooper, From Obama, the Tax Cut Nobody Heard of, NY Times, Oct. 18, 2010 (noting that a reporter's query at a Republican gathering ifound most commenters saying that their taxes had gone up under Obama and a NY Times, CBS News POll that showed that fewer than 1 in 10 Americans knew that Obama had cut taxes for most Americans, with a third mistakenly thinking their taxes had increased under Obama).

The reason for the failure to notice.  It might be partly the vast expenditure of funds to support misleading propaganda that claims that the Obama administration's policies are terrible for ordinary Americans.  But it is at least in part because of the design of the economic stimulus tax cuts--intended to let the tax relief arrive in paycheck after paycheck (about $65 a month for typical families) so that it would be spent and thus help the economy, rather than arriving in a lump sum that might more likely be used as savings/debt reduction that would have less of an effect on the economy, coupled with the fact that the recession was cutting into spending money as businesses cut back, construction workers worked less, state services declined and, in at least 30 states, state taxes rose (see CBPP, States Continue to Feel Recession's Impact, Oct. 7, 2010), and deductions for the ever-spiralling health insurance bills increased. 

[Of course, this will all be much worse for many if the Tea Party candidates dominate in the elections.  The ranking Republican on the House Budget Committee, for example, "calls for a radical redistribution of resources from the broad majority of Americans to the nation's wealthiest individuals" including a plan that "provides the largest tax cuts in history for the wealthy,raises taxes on the middle class, ends guaranteed Medicare benefits, erodes health care coverage, partial privatizes Social Security, and makes deep cuts in guaranteed Social Security benefits."  Ryan Plan Makes Deep Cuts in Social Security, CBPP, Oct. 20, 2010.  See Ryan Roadmap (introduced as H.R. 4529).]

The Democrats didn't miss a beat in putting out a "fact sheet" to help people understand the range of tax cuts included in the stimulus bill and other legislation passed under Obama. See "Democrats Cut Taxes by $509 Billion, Putting Taxes at Lowest Level Since 1950", Democratic Policy Committee, Oct. 20, 2010.  The release includes the following list of major tax cuts enacted in the 111th Congress.

American Recovery and Reinvestment Act of 2009 (P.L. 111-5; JCX-19-09)

Tax relief for individuals and families (e.g., Making Work Pay Credit, American Opportunity Tax Credit, first-time homebuyer credit, and AMT relief)	$232,426 million
Clean energy incentives	$19,963 million
Tax cuts for businesses	$6,150 million
Manufacturing recovery provisions	$1,850 million
Economic recovery tools (e.g., recovery zone bonds, new markets tax credit)	$6,501 million
Infrastructure financing tools (e.g., school construction bonds, Build America Bonds)	$19,638 million
Low-income housing and energy property provisions	$74 million
$250 refundable tax credit for federal and state pensioners not eligible for Social Security	$218 million
Health Coverage Tax Credit provisions	$457 million
Low-income housing tax credit provisions	$143 million
Assistance for COBRA health coverage premiums	$24,677 million
TOTAL (over 2009-2019)	$312,097 million

 Patient Protection and Affordable Care Act (P.L. 111-148; JCX-17-10 and CBO, Table 2)

Tax credit to help small businesses afford health coverage	$37,000 million
Tax credit to help individuals afford health coverage (Exchange Premium Credits)	$106,000 million
Therapeutic Discovery Tax Credit (for small businesses to produce innovative medical therapies)	$900 million
Adoption tax credit	$1,200 million
Health professional state loan repayment tax relief	$100 million
TOTAL (over 2010-2019)	$145,200 million

 Worker, Homeownership, and Business Assistance Act of 2009 (P.L. 111-92; JCX-45-09)

First-time homebuyer tax credit provisions	$10,823 million
Business tax cut (increase carryback period for net operating losses)	$10,407 million
Military BRAC fringe provisions	$243 million
TOTAL (over 2010-2019)	$21,473 million

 Hiring Incentives to Restore Employment Act (P.L. 111-147; JCX-6-10)

Payroll tax forgiveness for hiring unemployed workers	$7,616 million
Business tax credit for retaining newly hired workers	$5,422 million
Business tax cut (increase in expensing of certain depreciable assets)	$35 million
Qualified Tax Credit Bonds provisions	$4,561 million
TOTAL (over 2010-2020)	$17,634 million

 Small Business Jobs and Credit Act of 2010 (P.L. 111-240; JCX-48-10)

Small business tax cut (modification to exclusion for gain from certain small business stock)	$518 million
Small business tax cut (5 year carryback of general business credit of eligible small business)	$107 million
Small business tax cut (general business credits of eligible small business not subject to AMT)	$977 million
Small business tax cut (reduction in recognition period for built-in gains tax)	$70 million
Small business tax cut (enhancements to section 179 property provisions)	$2,177 million
One-year extension of bonus depreciation	$5,454 million
Increase deduction for start-up business expenditures	$230 million
Limitation on penalty for failure to disclose reportable transactions based on resulting tax benefits	$176 million
Deduction for health insurance costs in computing self-employment taxes	$1,919 million
Cell phones and telecommunications equipment provisions	$410 million
TOTAL (over 2011-2020)	$12,038 million

 Homebuyer Assistance and Improvement Act (P.L. 111-198; JCX-34-10)

Extend eligibility for the first-time homebuyer credit	$140 million
TOTAL (over 2010-2020)	$140 million

 Charitable Donations for Haiti Earthquake Relief (P.L. 111-126; CBO)

Tax benefit for charitable cash contributions toward Haiti earthquake relief	$2 million
TOTAL (over 2010-2020)	$2 million

The hypocrisy of most deficit discussions

Congress seems incapable of setting aside electioneering rhetoric and talking straight about taxes and deficits.  The GOP claims that it thinks deficits are bad things while at the same time it proposes no spending cuts (except to important safety net programs) and does propose further tax cuts.

Just a bit of background on tax cut rationales and deficits.

Back in the old days of the Bush regime, the tax cutters tended to claim that tax cuts would create jobs and raise (not lower) government revenues.  They didn't.  The Bush administration had anemic job growth, certainly seeing no boost from the humongous tax cuts enacted in 2001, 2003, and 2004 (and smaller cuts throughout the term).  And we have enough experience with tax cut programs from Reagan to Bush I to Bush II to see that revenues do not miraculously go up when the taxing provisions that are intended to raise revenues are cut back.  Sometimes there are a few localized effects--such as increased selling of capital stocks to take advantage of a new and lower rate because it is expected that higher rates will have to be enacted later.  But tax cuts cut revenues.

Further, in spite of the GOP attempt to label the Dems as the tax-and-spend party, the GOP turned out to be the tax-cut-and spend-anyway party.  Government grew under Bush, even while revenues shrank.  The war in Iraq, for example, resulted in huge expansions of military and defense costs, and the homeland security apparatus, much of it intrusive of our private liberty and ineffective at dealing with terrorists, piled on additional government bureaucracy and costs.

If you cut revenues without finding appropriate government programs to cut, then you will increase government borrowing and increase government deficits.

Now, deficit increases make sense sometimes.  When the economy is in a slump, it means that private spending is down, so government spending is needed to move it out of the slump.  A deficit that is caused by increased government spending that helps the economy by restoring jobs and getting the economy moving again is a deficit that will be reduced as the economy grows, people with jobs pay taxes, and government spending that was used to supplement inadequate private spending can be cut back.  Infrastructure spending provides that kind of a stimulus--building systems that will last for years now, to create jobs and stimulate the economy serves the public interest now and for the long term. See, e.g., Laurence Seidman, Reducing Future Deficits While Stimulating Today's Economy, 7 Economists' Voice Art. 2 (Sept. 2010).

But the deficit created by the Bush tax cuts doesn't make sense.  It is based on "trickle down" economics--the view that if the rich get richer, everybody else will do well too.  But that hasn't been the case.  Since 1980, the rich have gotten immensely richer, but most Americans have hit stagnation, with real wages not sharing at all in the productivity gains that have made corporate managers multimillionaires.  The productivity gains, that is, have gone to the people at the top, and the people at the top have horded them, supporting tax policies that give themselves huge tax cuts.

Tax cuts--especially for the wealthiest people and corproations--do not make sense.  That money is as likely to be invested overseas as in the US, and overseas it does nothing but contribute to the job drain.  Corporations purchasing new equipment wiht the 100% expensing may buy that equipment from China or India or Korea--again, pushing jobs overseas and doing nothing to stimulate the local economy, but costing the government the tax expenditure that could have been used for public infrastructure projects instead.

And now to the current situation as the "Senate G.O.P. Digs In to Keep Tax Cuts"

The income tax provisions passed during the Bush regime were almost all temporary provisions--they were passed with a sunseting provision so that they expire at the end of 2010, and the law as it was prior to the Bush administration retakes its place as the applicable law.  The question now is whether new laws should be enacted along the same lines.

When the Bush cuts were enacted, the arguments were that tax cuts would lead to more revenues (they didn't), that there was a surplus to return to the people (there wasn't--by the time the GOP Congress enacted the 2001 tax cuts, there was already a deficit), and that the tax cuts would stimulate the economy  so that it would grow really fast and create large numbers of new jobs (it didn't--job growth was anemic).

Remember, folks, there was no huge public outcry for new tax cuts when the Bush regime passed the 2001 cuts.  And the cuts were made temporary BECAUSE of the huge cost of extending them for more than ten years, which would have made the deficit creation impact too obvious.  This was policy pushed by the right, not by the public.  Does the fact that the teapartiers are now part of the anti-government, anti-tax hollering mean that people really want to retain the super-low taxes of the Bush period no matter what?  I doubt it.  Remember those teapartiers who want the government to stay away from their Medicare and Social Security?  How about Center for Disease Control--would anyone want there to be no federal vaccine programs for highly contagious diseases?  How about National Science Foundation--would people want basic scientific research to cease in the US, so that all our brightest young minds would go to China or India for education and work, leaving us with no innovation?  How about emergency response funding--do we not want the Federal Government to be able to send people, supplies and support to Katrina-type events?  What about keeping the food supply safe? the water supply?  medicines?  All of these things are "we the people" acting to do things that need to be done through the Federal Government.

John Boehner, the House Minority Leader and generally not a very astute person to trust with developing tax policy, had actually admitted to some rational thinking on the expiring Bush tax cuts last Sunday on Face the Nation.  He acknowledged that he could support a new tax cut for the middle class, even if the wealthy didn't get one.  Daniel, Boehner says he'd support a middle-class tax cut, YahooNews.com (Sept. 12, 2010).  Of course, he resorted to the old "class warfare" attack--according to the GOP, anybody who doesn't give a tax cut to the rich every time they give some kind of break to the poor is engaging in class warfare. 

Aside on "class warfare":  But of course, the GOP has supported numerous tax breaks that are primarily for the rich--or only available to the top 40% of taxpayers--and never admit that is class warfare.  e.g., the deduction for home mortgage interest on mortgages up to a million dollars, which is available only to those who itemize --about 30% of taxpayers, and of those 30%, is of the most benefit to the richest minority who pay higher rates and thus get a larger deduction, or the exclusion for municipal bond interest, which is used by the wealthiest taxpayers who have most of the financial assets, etc.

Progressives would argue that class warfare is represented by the corporatist agenda that extracts all productivity gains for managers and owners and leaves workers without even the pension promises that were made when workers accepted lower wages for higher pension benefits, or the policies that make it extraordinarily hard for workers to form a union, which would give them some semblance of equality of bargaining power with the concentrated power of megalithic multinational corporations, or the "globalization" policies that lead to free trade agreements that impose no protections for our own workers or our environment, etc.

The reasonableness represented by Boehner's concession lasted all of a microsecond.   Boehner's deputy, the House Republican whip, got out the word on Monday that the Republicans would only be content with a bill that enacted new tax cuts for the wealthiest as well as the most vulnerable--anything else, he says, is a "nonstarter."  And Mitch McConnell, the Senate Republican leader, proposed legislation for new tax cuts that would be the same as the Bush tax cuts for everybody.  See Herszenhorn, Senate G.O.P. Digs In to Keep Tax Cuts, NY Times, Sept. 13, 2010.

The cost of enacting new tax cuts that provide the same revenue reductions as the Bush tax cuts will be enormous.  It will cost $700 billion over ten years for the new tax cuts for the wealthy and a total of $4 trillion over ten years to extend all of the Bush tax cuts.

McConnell's argument is that it would hurt economic growth and job creation to tax the ultra wealthy now.  But that's a sham argument.  The wealthy are likely to save, not spend, any extra monies from a new tax cut.  Or invest it overseas.  Or just buy some more stock on the secondary market--making a bank or another wealthy person even wealthier.  They aren't likely to start a new company or directly invest in a new startup just because they get a little more spare change from a tax cut.  They'd either be doing that already or not doing it at all.  And McConnell, as the Times piece notes, isn't offering either specific spending cuts that won't hurt the economy nor other sources of revenue to make up for the additional $700 billion needed to give these multimillionaires another tax break in addition to all of the breaks targeting the wealthy already in the Code.

What about McConnell's argument that the Obama regime has spent the last two years putting the government in charge of everything?  Note he included student loans.  Just a reminder about the FACTS about the student loan issue.  We used to have a direct loan program.  It actually made money for the government.  But due to funny accounting procedures that were used for such loans, the books didn't look like the loans were making money for the government.  That's because they were counted as "pure" expenditures, and not as loans that included an obligation for the borrower to pay the money back to the government with interest.  So they made money, but looked like they didn't make money.  The GOP seized on this, and under Reagan changed the program to a "guaranteed loan" program.  The same universities would do the work, but the banks would get a significantly larger interest rate than the government had gotten for acting as a middleman but bearing no losses.  In other words, the GOP privatized the loan program, ensuring banks a "cut" of profits, and providing for the government to pay the banks for any losses they might incur--privatization of gains, socialization of losses.  There was less money to lend, since the banks were getting the interest income and paid by the government if there were losses.  The government was losing money instead of making money.  But it LOOKED LIKE the government was smaller.  And the GOP bragged about its new privatized loan program.  As years went on, people argued for a return to the direct loan program.  This was especially true when banks managed to get students to consolidate old loans and retain their higher subsidized rate even when they were supposed to reset the rate to a lower rate.  So Clinton inaugurated a small direct loan program.  And we have moved from there forward, saving the government money and providing students with a cheaper loan program.  The only losers in the direct loan program are the banks who no longer get their "entitlement" "welfare" handout from the government.  And McConnell condemns the Dem for that change, hoping that Americans will be gullible enough to be fooled into thinking that the direct loan program represents an awful invasion into private commerce, instead of a reasonable and wise use of government funds to provide students the opportunity to have a college education.

By the way, Lieberman is, as usual, supporting the GOP platform on taxes with a statement that "the more money we leave in private hands, the quicker our economic recovery will be."  When private spending has declined, that statement is not only likely wrong, it misses the fact that without government spending there is likely to be no recovery.

Estate tax and extension of Bush cuts generally

According to an interview with Treasury's Michael Mundaca reported in the Wall St. J. today (Sept. 13, 2010), Congress and the Obama administration are discussing a possible bill to allow estates that pass in 2010 to have the 2009 or the 2010 law apply.  See Martin Vaughn, Estate Tax Choice May Be In Works For 2010 -- Treasury Official, Wall St. J..

Does that make sense?  Probably not.  The problem exists because the gimmick was adopted by the GOP to pretend that the cost of all their tax changes wasn't as big as it actually would be if the changes were permanent reforms rather than temporary.  Allowing an election doesn't make sense, but neither did the original Bush tax cuts, that provided a gradual phasing out of the estate tax over the years of the Bush regime with a complete repeal for one year in 2010 and then a resurrection of the 2001 laws in 2011.  But how Congress deals with that sunsetting gimmick now will determine a great deal about the economy in the future. 

Regretably, politicians hear the loud ranting from the tea partiers and others, and so, as the New York Times reported on Saturday, in an article by David Kocieniewski, Tax Cuts May Prove Better for Politicians Than for Economy, NYTimes, Sept. 11, 2010. 

Obama at least knows that passing a new tax cut for the wealthiest 2% makes very little sense--they will save it or invest it overseas; they are unlikely to spend it on consumer goods that create new production demand in the economy or use it to create new, entrepreneurial businesses that hire people.  But Obama wants to create billions in new tax breaks for businesses that make no sense at all--such as making the R&D credit permanent (just a tax break for R&D that businesses have to do to stay viable) or providing 100% expensing (just a tax break, and likely to result in purchases of equipment from overseas, thus shipping jobs out of the country rather than helping jobs domestically). 

Meanwhile, the Republicans generally haven't ever seen a tax cut they didn't like (unless it is one targeted at the lowest-income Americans).  They make ridiculous claims such as the one that not providing an extension of the Bush tax cuts for the wealthiest Americans will stifle small businesses and hurt job creation.  Ridiculous, because very very few Americans who receive income from small businesses will be much impacted by letting the tax cuts for the wealthiest Americans lapse as currently set by law (only 2% of small business owners receive more than $250,000 of income from their business) and those with small business income aren't really encouraged to plow it back into the business by cutting their income taxes.  See, e.g., William Gale, Five Myths About the Bush Tax Cuts, Washington Post, July 30, 2010 (hat tip Linda Galler for reminding me about this article).

The Times article reports on the CBO's analysis of short-term effects of policy decisions, which concluded that (to quote the Times' description) "extending the tax cuts would be the least effective way to spur the economy and reduce unemployment" while tax cuts for the rich "would have the smallest 'bang for the buck' because wealthy Americans were more likely to save their money than spend it."  The CBO had more support for payroll tax relief, since those cuts in taxes would got to the people who are most likely to spend it in ways that stimulate the domestic economy.  The problem I see with payroll tax cuts is not who they are targeted to benefit but the result that can be misused by the right-wingers who want to decimate Social Security and Medicare--a payroll tax cut results in less money going into those coffers, which just feeds the ridiculous notion that the payroll tax programs are nearing bankruptcy.  No sense in giving the entitlement-haters more ammunition.  Better would be a pre-bate of income tax amounts, including a negative income tax refund to those who won't pay any income tax but will pay payroll taxes.