In the Wall Street Journal today, Jim Owens, chair and CEO of Caterpillar, espouses his views of "A Centrist Agenda for Economic Growth." From the title, one would think that our current agenda is not "centrist" (and therefore radical in some way). He doesn't bother to spell out that implication, though several of the proposed "policy suggestions" would continue the failed policies of the Reagan-Bush I and Bush II regimes.
There are eight suggested policy directions. Several of them involve taxes directly, and several indirectly. Let's examine them (not in the order presented by Owen).
- "Increase infrastructure investment."
Clearly this is a necessary ingredient of achieving a higher standard of living for all Americans. We have deferred maintenance on public buildings, parks, bridges, and especially on mass transit facilities. It's time we joined the rest of the developed world in paying attention to public infrastructure that is central to every American's ability to live a good life. Owens' argument is that we need to pay attention for "global competitiveness". I think the rationale is different: we need to pay attention to improve our quality of life and reduce our ecological footprint. Owens notes that "our roads are crumbling, bridges are in need of repair, and our power grid is inefficient." I suppose we do need to keep most roads repaired, but it would make a lot of sense to switch our emphasis from old to new--be it roads to rail, or oil to wind.
Fundamental to infrastructure investment is tax revenue to pay for that investment. We do need to invest in our physical infrastructure, and in our human capital development from K through university. That takes money. We need to cut our military funding and we need to raise taxes to pay for these things that will improve life for all of us.
- "Restore fiscal discipline."
Now, on the surface, this sounds reasonable. We can all agree that our country should live within our means and that our government revenues and expenditures should be readily understandable to all . But Owens' emphasis here is on the wrong thing--he says he wants transparency for government employee pensions. We do need accountability and transparency, not just for pensions but for all government functions.
The focus on pensions (and a mandate for "balanced budgets" over a "business cycle") appears connected to the right's desire to cut back on the meager pension futures of most ordinary Americans (while the wealthy CEOs like Owens enjoy retirement packages fit for kings). Reducing pension benefits for ordinary Americans who worked hard to earn them (and generally gave up higher wages while they worked in order to have the pension benefits when they retired) is not conducive to a better quality of life for all. Nor is it reasonable to reduce social security benefits for workers for whom that is their primary means of living in retirement . Accountability and transparency, yes, but with the aim of determining what is fair for ordinary people and then going about devising a tax system that will provide the revenues that we have determined we need to spend.
- "Simplify the tax code with flat personal income taxes."
Now, folks, I'm not surprised to see this, but please note that "simplification" of individual taxes to a "flat" rate has nothing to do with a reasonable economic growth agenda and everything to do with the right's agenda for reducing taxes on the wealthiest Americans. Most of us have rather simple taxes-. Only 30% itemize, so most are taking the standard deduction. The main complications are benefits like various tax credits for which ordinary Americans may be eligible. Most Americans have withholding on their wages at work, and merely file a simple return to get whatever refund is due. Simplification is a tax "reform" aimed at reducing the rules that were made necessary to undo loopholes and tax shelters devised by tax advisers to the wealthy to help them pay even less than the rather low rates to which they are subject. Same thing goes for "flat" taxes. Flat taxes would be enormously regressive, requiring those who own very little of the country's wealth and have modest wage incomes to pay most of the taxes, while the wealthy would pay minimal taxes on their significant incomes. Most Americans have supported progressive tax rates because of the understanding that those with little income need every penny they have and those with millions spend hundred dollar bills like the rest of us spend quarters.
- "Tax business only on profits earned in the United States"
Not surprisingly, Caterpillar, Inc's CEO wants his multinational corporation to avoid paying taxes on his multinational income. The US taxes its citizens on their income from whatever source derived, subject to treaties that exempt and reduce the rate on many kinds of income (dividends, royalties, etc.) and the foreign tax credit that permits taxes paid to other countries to reduce dollar for dollar the taxes due to the US. The trend in these rules has been towards taxpayer-favorable changes, from Reagan to Bush--limiting the number of foreign tax credit "baskets" permitted companies to cross credit taxes, essentially reducing their US taxes in order to pay taxes elsewhere; companies can move "active businesses" out of the country without paying taxes on their unrealized gain, and the Bush Treasury promulgated regulations expanding tax-free reorganization possibilities for multinationals. Multinationals use "transfer pricing" to play the tax system--for example, transferring intellectual property developed in the US to an offshore entity and then calculating the royalty in such a way that more income goes offshore and less to the US. So already MNEs pay too little in taxes. The idea of territorial taxation is not a good one: it would benefit companies (managers, shareholders) but neither their US workers nor Americans generally.
The current system allows for deferral of taxes--not taxing US corporations on their foreign profits from active businesses until they bring the money back into the country. Many tax experts have argued that this is not justifiable, and that the worldwide system should tax companies on their foreign profits as earned. Among other things, the deferral factor encourages companies to locate abroad and hold all their profits abroad, rather than bringing them to the US to invest here and create jobs here. The Obama administration has proposed changing that system to eliminate most deferral. Owens says this would "destroy U.S.-based global companies." No. It would simply remove the cross-border arbitrage that they engage in to lower their taxes even further.
Owens repeats, by the way, that misleading nugget of information beloved by the right--that "the US has one of the highest corporate tax rates in the world." This is misleading, and Owens has to know that it is misleading. The statute provides a maximum rate of 35% for corporations, which is not far from the average of developed countries,--but the actual rate paid on corporate income is much much lower--an average of about 24%. with a substantial majority of the largest corporations pay ZERO federal income tax due to the numerous loopholes, tax expenditures, etc. (Oil companies, for example, get a "depletion allowance" which consistently means they pay taxes on much less than their actual economic income.) The effective tax rate (the amount of taxes paid divided by the taxable income) is considerably lower than average--in fact, the US is a tax haven for corporations, wtih only a few countries like Mexico having lower tax burdens for corporations.
- Free up international trade.
Owens wants those free trade agreements ratified to "show we're open for business, create immediate exports and related jobs and ...strengthen the economies of our allies." But the free trade agreements negotiated in the post-Reagan years have weakened our own laws for envirnomental and labor protection, and made it easier for companies, in the long run, to export jobs without given ordinary workers in those countries any protections. Yes, our corporations get wealthier and their tycoons get wealthier, but it is not clear that "free trade" --at least as it has been undertaken --has provided the benefits it promises to either side.
- Improve the health-care system's cost effectiveness
I worry whenever I hear this "cost effectiveness" argument for health care that the right's favorite target of tort reform is in the offing, and sure enough, that is where Owens goes. Research shows that tort reform is just serving the function that communism served McCarthy--it's just a whipping post that is much maligned. Tort cases against hospitals that cut off the wrong leg, operate on the wrong person, cause their patients to get staph infections or otherwise show gross negligence in the performance of their duties are the main way that patients who have been grossly wronged can get justice. We don't need tort reform; we need corporate reform so that more hospitals and doctors will adopt better practices and safeguards that protect the lives and well-being of their patients.
Owens goes from tort reform to "adopting better information technology." Yes--medical practice should use information technology to serve patients better, so long as we also build in safeguards to protect patient information.
Oh, and he wants "better information on health care prices and outcomes", insurance competition across state borders, and "personal stakes" in the cost of health care so that patients will make "prudent decisions." This is mostly garbage. Most Americans cannot do price comparisons for their health care, and shouldn't choose a doctor or medical treatment based on which one does it cheapest at any rate. When you are taken to an emergency room, you don't stop the doctor before he treats your heart attack to ask how much he will charge. When you are ill, you don't call your family doctor and then call a nearby clinic to see which will give you the better rate on diagnosing and treating your illness. Pricing transparency will be useful mainly to ensure that hospitals and doctors don't engage in price gauging, but we won't really be choosing our doctor based on price. Of course, creating a race to the bottom in health insurance by permitting insurance companies to cherry-pick patients across state lines is nuts--unless we are going to create a single payer national health system like every other modern country and use private insurance only as paid supplements. (That's what we should do, but insurance companies have too much power, like the big banks.)
Don't we all have "personal stakes" in the cost of health care. We pay addons and co-pays and premiums. Those amount to enough in themselves to be a sizable chunk. I for one am well aware how much my health care costs, even with insurance. But there are few options. Like ordering flowers for mother's day, most doctors charge about the same for office visits, shots, and all those things. What's lacking is a national system for paying for health care in which all providers participate.
- Reform immigration laws to make existing 'guest' workers legal, tax-paying employees.
Owens suggests that students who received certain advanced degrees (such as in math and the sciences) should receive "automatic green cards" and that guess workers should have legal avenues for applying for US citizenship. I tend to agree with this one--immigration generally enriches a country and grows the economy.
- Maintain the independence of the Federal Reserve.
Owens argues that the task of the central bank is to keep infation low, employment high, and financial system stable. Political intervention can prevent "decisive actions." But what about the problem when the Fed has too close a relationship with Big Banks, as we saw in the 2007-2008 unfolding of the financial crisis. We need rules that reduce the size and risky activities (proprietary trading, derivatives) of the banks, and that is a proper intervention from the government.
Should the Fed remain a bank dominanted central bank? I think it may be important to lessen the influence of the Big Banks (and increase the influence of government). The Fed should not be seen to be in the 'back pocket' of Wall Street.
Recent Comments