ataxingmatter

We're being bamboozled--debt ceiling, cuts to ordinary folks' programs, and the corporatist state continues apace

I almost can't stand watching or reading the news these days and have delayed posting on this blog because it seems there is a need to repeat the same suggestions over and over again.  Don't cave to the right.  Don't cut important social welfare programs that have enabled this country since the 1930s to treat its elderly and vulnerable populations with respect.  Quit trying to strip unions of power--they are one of the important ways that ordinary people can emplower themselves to demand a share of the prooductivity profits their labor has produced.  Quit repeating the garbage free market mantras suggesting that the wealthy investors and managers are entrepreneurs (they're not generally) and that allowing such gross accumulation of wealth as our current CEO pay of 3-400 times the salary of average workers (earning in a half day what a worker earns in a year) is somehow necessary to a good  economy in a democratic political system.  Allowing the owners and managers to continue to reward themselves with grossly oversized compensation and profits packages so that they can maintain their 20,000 square feet marble palaces with kitchens that only a caterer needs (and that the denizens of the house hardly ever use on their own) is just one of the excesses of the brute capitalism that the 'tea partiers' and other right-wing economic policy gurus are supporting.

This free market, brute capitalism where workers are expendable and the entire economy is forced to support the accumulation of wealth at the top is what we have in fact pushed on (and sometimes assisted in imposing on) developing nations in the past .  Think Argentina--where the Chicago Boys oversaw the decimation of the economy and the imposition of austere conditions on the majority so that the economy could be 'remade' to suit the owners of capital (including foreign investors and multinationals). Think Brazil, where in the 1960s we helped their military coup against a leftish president in order to support the ability of US multinationals to continue exploiting Brazilian resources. 

But now the right is so invigorated, through its ability to bamboozle the American people and elect a majority of economic extremists in the House who either don't understand history well enough to know that they are speaking gibberish, or don't care.  They are determined to undermine the meagre social welfare system of Social Security, Medicare and Medicaid, with constant untruths about 'bankruptcy' and similarly misleading statement on almost every issue.  Presidential candidates who make up facts are toasted by the purportedly 'leftleaning' mainstream media (this assertion itself a made-up fact used to continue to bamboozle the people).

The most outrageous spectacle of all is the pontificating dogmatic right in the House and Senate, threatening to cause a U.S. default on the debt ceiling issue in order to pursue their ideological dream of a 'pure' economy.  Their economic model is a disgraced one --the free market, corporatist model that ensures that the small, wealthy investor class is doing well and that Big Business gets what it wants but doesn't give a damn for ordinary folks, whatever verbiage about caring for workers, and ordinary people with mortgage difficulty, etc. they spout.

Truth is, folks, you don't get an economy working well for ordinary people when you (i) make pledges NEVER to increase taxes, (ii) reject cuts in the grossly overlarge military expenditures this country makes in order to secure the world's resources for its multinational enterprises (that then lobby for close to zero taxation on their obscene profits from that secured wealth), or (iii) try to solve all perceived fiscal problems by taking it out of the hide of ordinary folk, thus  stifling the real economy (the one where workers work in businesses that serve local people and that work generates profits that are shared with workers and owners in a way that leads to expansion of the local economy based on the broad-based workers' participation in it) and at the same time bringing the kind of class warfare that the Friedman school has long waged on Latin America and other Third World countries right here to America.  The result of those kinds of policies is concentration of income, wealth, and influence at the top, with ordinary folks in the middle class struggling just to stay even.

The idea that you cannot tax natural resource extractive industries more (by taking away the tax expenditures subsidies that literally hand them outsize profits on a silver platter) when they are making windfall profits is absurd.  The idea that you cannot reimpose a decent estate tax on the estates of the wealthiest 2% in the country, to assist with meeting the heartfelt needs of the struggling middle and lower classes, is pathetic.  The suggestion that you cannot increase taxes on financial transactions and increase capital requirements in banks to stifle the too-rapid innovation and liquidity within the financial institutions that underlies the crisis we just went through (and the worse one we will suffer within the decade if we don't enact even stronger reforms than already in Dodd-Frank) reflects the dogmatic fixation on service to the wealthy investors and financiers that permeates the right-wing in Congress.

Folks. we can't let them do this.  Congress is supposed to serve the people, and this 'tea party'/right-wing extremism that was reflected in Newt Gingrich's 'contract on America' and John Boehner's contract with the investor class is the worst of class warfare.

There was a time when the neo-imperialists and corporatists didn't dare do the same thing in America that they were  pushing for, and secreting doing in Third world countries.  Exploiting the environment without a care for the pollution that ordinary people suffer in their daily lives.  (Think of the Banana Republic attitudes of United Fruit  and  the Latin American oil enterprises conducted by US multinationals.)  Supporting militaristic regimes with a right wing flavor and a taste for torture and imprisonment of radical left thinkers. (Think Chile, Argentina, Nicaragua, Guatemala, etc.)  Labeling governing concepts that pay a lot of attention to the needs of ordinary people as 'subversive' and 'socialist' in order to bring up myths of communistic monsters that hide under the bed and eat the economy.  (Think Cuba and Brazil, especially, and Chile, and now Venezuela.)  All these tactics exist to keep ordinary people in their place as workers who get a pittance of their productivity profits and are "flexible" (meaning can be fired upon short notice by private equity firms flipping companies for their own (preferentially taxed) profits) while the military can control the resources and make good deals (for US multinationals and the military leaders, not for the people of the exploited country).  Read Chomsky's "Year 501" for a (somewhat rambling) account of the neo-liberal corporatist agenda in Latin America.

But now those same ultra corporatist, class-warfare policies are being implemented right here, in the open, with brazen disregard for our historical social contract, for the plight of the poorest and most vulnerable amonst us, all in the name of keeping the 'investor class" and Big Business (generally one and the same, since the investor class is mostly the owners and managers of Big Business) happy.

They paper it over with talk, as Joe Lieberman does in calling for cuts to Medicare, for 'bipartisanship"  or they claim the US is living beyond its budget because it doesn't pay its bills.  But of course they don't really care about that, since the budget put forward by the Republican House majority carved a multi-trillion dollar hole.  IN other words, they don't pay attention to their own rhetoric.  They just want to use the (absurd in itself) requirement in the US that we have a debt ceiling extension vote as an opportunity to blackmail the American people to get concessions on their favored targets--the programs that ameliorate, somewhat, the brute capitalism of the American economic system after forty years of reaganism, friedmania, and the rest of the Chicago School garbage that has been treated as "God's truth" so long by politicians that they don't even realize, perhaps, that they are letting a bunch of mathematicians who like to escape the real world into made-up formulas decide the policies for the nation.

Big Business has had its enablers in place for four decades--Grover Norquist, the Koch brothers and their 'tea party' followers, the various propaganda tanks like the American Enterprise Institute, the Cato Institute, the Heritage Foundation, and the rest  that have spent millions to brainwash Americans into thinking that the failed 'free market' ideas of Milt Friedman and Alan Greenspan and Wall Street are the only way to go.  It has a majority on the Supreme Court willing to be extraordinarily activist in overturning precedents on class action lawsuits (a way for ordinary people to empower themselves against Big Business) and free speech (a way for corporations and their owners/managers to control the political debate through the use of their overwhelming dollar power).  And that right-wing majority is serving its masters well, while Big Business's minions in Congress continue to roll over to make sure that the right-wing panacea of deregulation, militarization, tax cuts, and privatization contines apace. 

The US debt burden is high, but we are not Greece or Ireland or even Portugal.  We have a strong economy.  We have our own monetary system, unlike the Euro nations that are facing much higher debt burdens and can't individually control their monetary flows.  Austerity measures like the IMF has imposed on Latin America to satisfy foreign investors (not the natives of those countries) and like the Euro world is now imposing on its own members are not needed here (and probably are the wrong answer there as well).  Those measures are driven again by the failed corporatist economic model that assumes that the entire world should be run to satisfy the wishes of financial institutions, big money investors and the big multinational corporations that they own and manage. 

The world should be run to satisfy the needs of ordinary people.  Banks should be stripped of the power to create a world-wide crisis with their haystacks of derivatives that catch flame much too easily.  Big Business should make do with lower profits, paying their workers more and their managers (and owners) less and paying their fair share of taxes.  Hedge fund managers should pay tax on their "carried interest" compensation like ordinary people, and private equity firms should be subject to much more red tape that makes it much harder to buy companies and take them private in order to fire their workers.   In fact, consolidation and mergers among big businesses should be made much more difficult through new limitations on the tax-free restructuring provisions. Unionization should be strengthened, in order to give ordinary Americans something with which to have leverage over the hierarchical authorities that undermine economic growth by concentrating everything on the investor class.

Let's start a letter and call-in campaign to every Republican legislator in the coutnry, telling them that we are sick and tired of being treated as lambs led to the slaughter in order to place endless platters on the tables of the rich.  Tax policy should be based on what works, not on ideological dogma that has been the underlying cause of catastrophes and crises worldwide. 

 

Tax Patent Ban up for vote Wednesday

The House of Representatives is set to vote, probably on the 22nd, on the patent reform legislation that would ban tax strategy patents, H.R. 1249 (The America Invents Act) (easily readable summary on Thomas.gov available here).

Sec. 14 of the act would deem any strategy for reducing, avoiding, or deferring tax liability insufficient to differentiate a claimed invention from the prior art when evaluating specified conditions of patentability.

It seems that there is momentum on this issue and finally Congress may act to make tax strategy patents a thing of the past (except, of course, for the 140 or so already granted).

One member of the House, Congressman Jared Polis, apparently wants Congress to grandfather in all the businesses that have submitted application for tax patents.  That would about double the number of patents.  As the AICPA-led coalition put it in a letter to Congress objecting to the idea,

We understand that some of these patent applicants, awaiting a decision by PTO, may argue that they divulged certain proprietary information or business strategies when they applied for their patents, and therefore, at this point in the process, they should be entitled to continue. However, all patent applicants send in their applications with the understanding that they may not ultimately receive a patent. Should Congress continue to allow the PTO to issue these anti-taxpayer patents just because someone applied for one? The answer is a resounding no. Tax strategy patents are simply not in the public interest, and Congress must put a stop to them.

AICPA-Coalition letter is available Download Patent_Reform_TSP_Coalition_Letter_in_Opposition_to_Polis_Amendment_June_21_ 2011.

 

WalMart, Gender Discrimination, Corporatism, the Supreme Court--and, yes, TAXES

The Supreme Court handed down its decision on whether the million and a half women who think they have been discriminated against by the corporate giant because of their gender can bring a class action suit.

As might be expected in this age of corporatism, the corporate giant won.  Women will have to pursue their own individual cases--making it much easier for the corporate giant to simply wait them out rather than settle, and making it much harder for the woment to hire the kind of top-notch attorneys (like the corporation can hire) to fight their case for them.  In other words, making it much much easier for the corporate giant to get away with breaking the law in its business practices on a routine basis without having to pay for it.

I feel some personal stake in this.  I don't work at Wal Mart, but the few times I've been into a store, I have felt extraordinarily worried about the many women who work there.  They seem silenced.  I visited once to ask about their joining in our effort to publicize work of unions.  I was told--furtively--by several women clerks I approached on the floor that "I'll be fired if the management finds out I am talking to a customer about unions" and "we can't post anything about unions, even in our work area--the management comes along and tears it down immediately."  The women in particular seemed distraught over the low pay, the fact that much of their work wasn't counted (apparently, the firm had a practice of making people wait to punch in AFTER they had done some of the preliminary startup chores, even though the start-up chores were an essential part of the work), and similar practices.  I didn't hear tales that time about gender harassment, but I didn't specifically ask about that.

The Supreme Court's excuse for not allowing the class action to go forward is that the case would be, among other things, too "unwieldy" and that the women had too large a variety of factual circumstances to be lumped together in one class.  That is a sop to corporatism if I ever saw one.  Of course, the bigger the corporation and the more law-breaking its discrimination, the more likely a class action suit against it will be unwieldy simply because there will be more people in it.  And the worse the corporation is on the legal issue at stake, the more likely that the underlying absolute (gender discrimination and harassment, pay inequity) will present itself in multiple forms.  But they are all variants of the same thing--a corporate giant treating its workers with disrespect, particularly its women workers.  Let's face it.  "We've come a long way, baby" but we are nowhere near the end of inequitable treatment of women in the workplace. 

Even in academe, men tend to get equity pay raises (big ones) because they play the "game" of pretending that they are going to take a job somewhere else.  Women tend not to, because women tend to be honest about their permanence or impermanence in a place.  So men get a "retention" raise and women don't.  And men tend to start out higher anyway, because of the years of male dominance, and the tendency of the existing status quo to be reinforced by the male deans and male associate deans and male senior professors.

So what's the answer here?  Maybe we need some radical left thinking to counter the radical right fringe element that has almost taken over the country.  How about these ideas--many using tax policy to turn around the corporatist agenda?

• Congress could pass a law facilitating class action lawsuits of the kind that the million-plus women tried to bring against Wal-Mart.  If it doesn't, it is essentially saying that corporate giants can break the law whenever they want, because individual women (or individual black men, or individual members of any discrete and insular minority) will not have the money and time to fight the deep corporate pockets--pockets that got that deep, in part, by exploiting women.
• Congress could consider instituting a tax penalty on firms for gender or ethnicity or age discrimination in wages--i.e., a strict liability penalty that does not require court action to vindicate exploited groups.  To the extent that women with approximately the same skill sets/degrees/experience are paid less than men (or blacks less than whites, etc.), the company should have to pay a penalty equal to some relatively small percentage of its executive compensation (all-in, including options) for the top 30% of the company. 
• Congress could institute an excise tax on corporations with more than $100 million in income annually, to go into a fund to pay the legal expenses of employees in those firms bringing individual suits against the firms for violating any civil or union rights.
• Congress could institute a variable corporate rate structure through a rate surcharge for corporations that relates to their record in paying their average workers an equitable salary by having the corporate tax rate increase when the compensation of top managers increases more rapidly than the compensation of the average worker, and a corporate tax rate decrease when the compensation of the average worker increases more rapidly than the compensation of the top managers.

Other ideas about how to use the tax system to redress the Supreme Court's twisted view of treating abstract legal entities (corporations) better than it treats the citizens of this land?

Europe "enslaved" by high taxes? No way, says Bartlett--and you should consider health care

Bruce Bartlett, a conservative economist, seems to be seeing at least some light on the left side of the tunnel these days.  His blog post about health care costs and taxes, comparing the US with other OECD developed countries, should at least cause some on the right-wing rhetoric tour to stop and think.  He demonstrates that the US is low in ostensible taxation (with the Bush tax cuts, we have very low effective tax rates just on income taxes, and of course we don't have the VAT and other taxes that most Euro countries have).  But he also shows that when you take account of the much higher health care costs in this country, it means that the average US taxpayer has considerably less disposable income, and the tax + health burden here is about as high as in Europe, where everybody generally has health care through the tax and spending system.  We get low wages and spotty health care; they get higher taxes and more consistent health care (and other benefits).

See Bruce Bartlett, What Your Taxes Do and Don't Buy for You, New York Times, June 7, 2011.

And while your reading about health care, you might want to pick up Economist's View's post on Jared Bernstein's critique of the GOP attempt to privatize Medicare based on the right-wing rhetoric that misleadingly characterizes the system as bankrupt.  See Economist's View, Misleading Medicare Mantra (and includes Jared Bernstein's post), June 16, 2011.

Presimetrics

Over at Angry Bear, my colleague Mike Kimel wrote a book called "Presimetrics".  It measures the economy in various ways related to the terms of presidents (and their parties).  Kimel concluded that Democratic presidents show the best broad-based economic growth and the best job creation.

Now, that fits because Democrats--albeit usually in weak form and often co-opted by the financial wealth holders of the country--generally adopt policies that do have something to do with furthering broad based growth that benefits ordinary American, rather than just feathering the nests of the already rich.  What kinds of policies?  Well, anti-trust, pro-unionization, financial regulation, regulation of industrial pollution, environmental protection, "green" industries, unemployment compensation, progressive taxation, estate taxation, and the AMT (which undoes some of the accumulated preferences mostly enjoyed by the rich, from charitable deductions for value they never paid taxes on and so comprising a pure windfall, to huge mortgage interest deductions on their million dollar homes, though it still leaves them their preferential taxation on capital gains).

Others are beginning to catch on to Kimel's conclusions.  See, e.g., this graph at The Far Left Side (constrasting the last 11 Presidents by party and their impact on the economy for bad or good--Republicans are almost uniformly bad, with their corporatist policies intended to benefit the rich at the cost of productivity sharing with the workers who make it possible).  You might want to read the site, as well as Kimel's book (available through Angry Bear).

Friday Animations: Robert Reich Connects the Dots in 2:15 (credit to MoveOn)

 

Taxes, Spending, Borrowing, and War--can we afford the military budget?

On Tuesday, a guest blog post by two WWII vets,  Taxes, Borrowing and War:  WWII vs Vietnam and Iraq-Afghanistan, noted the connection between wars conducted by the US that do not resonate with the American people and the rising inequality and declining tax progressivity. 

As these two WWII vets saaw it, WWII led to tax increases and ultimately to a golden era of shared productivity gains with high unionization.  On the other end of the spectrum, the Iraq-Afghanistan wars have been fought with borrowed funds, with volunteer and mercenary armies (and military-industrial profiteers like Halliburton).  Taxes have gone down instead of going up, and have gone down especially for the very rich.  That kind of tax policy impacts inequality, and growth of inequality impacts real freedom.

All that means that the notion of America as the champion of freedom is distorted.  Genuine freedom involves freedom of opportunity for the many, not freedom for the wealthy to continue to accrue unprecedented levels of wealth, without anti-trust or unions as a counterweight. 

With wars of choice we get preemptive (for profit?) wars and decreasing tax progressivity, so that the middle class and poor pay with their lives and their taxes while the rich profit from the military-industrial war machine.  We also end up with endlessly growing miltiary budgets, for a standing military that no other country in the world even seeks to emulate.  We drive our middle class to poverty in order to maintain unprecedented, unneeded, and actually dangerous military might.   The more the military has, the more it thinks it has to have, just to 'stay even'.  Even Bruce Bartlett, conservative economist adviser to several presidents, asks whether we can afford the military budget.  See Bruce Bartlett, Economix:  Can We Afford the Military Budget?, NY Times, June 14, 2011.

Woodsum's not reporting 3.4 million of swap income can't be blamed on tax return preparer

Stephen Woodsum undid a swap because he thought the investment wasn't worthwhile.  He made $3.4 million of income (in a year when he had about $23 million other income).  But he didn't report the income from doing it on his tax return.  To avoid paying a penalty, he blamed his accountant for overlooking the income, claiming the reasonable cause affirmative defense to the understatement penalty. 

Here's the first paragraph from the Tax Court case describing the facts.

In 2006 Ps received gain of $3.4 million upon the termination of a “swap” transaction. P-H was personally involved in terminating the transaction and received from the payor a Form 1099-MISC, Miscellaneous Income, that reported the payment. Ps retained a firm with a lawyer and a certified public accountant to prepare their 2006 income tax return. Ps gave to the firm all the 160-plus information returns they had received from third-party payors, including the Form 1099-MISC reporting the $3.4 million. The 115-page return that the firm prepared reported $29.2 million of adjusted gross income but omitted the $3.4 million from the swap transaction. Ps signed and filed the return. The IRS determined a deficiency of tax (which Ps conceded and paid) and an accuracy-related penalty under I.R.C. sec. 6662(a), which Ps dispute on grounds of “reasonable cause” under I.R.C. sec. 6664(c)(1).

The Tax Court didn't buy it:  the problem isn't that the accountant was faulty, but that the equity firm manager paid a lot more attention to getting his investments right than he did to getting his tax return right.  "[W]hen he was signing his tax return and reporting his tax liability, his routine was so casual that a half-million-dollar understatement of that liability could slip between the cracks," said Judge David Gustafson.  So Woodsum has to pay the taxes, and the $104 thousand understatement penalty for 2006.

Right outcome in Stephen G. Woodsum & Anne R. Lovett v. Comm'r, Case o18934-09, Tax Court May 13, 2011.  See Buyout Executive's $3.4 Million Goof leads to loss in tax court, Bloomberg.net.  ("Goof"?  wonder if it was more a calculated risk?  3.4 million is more than 1/10th of his total high income.  Wouldn't it actually be hard to review a return that missed that much of one's income?)

Number of high icome txpayers paying no tax whatsoever increases

IRS Stats are out.  Surprise.  See Justin Brayer, High-Income Tax Returns for 2008.  The number of high-income taxpayers (with incomes of 200 thousand or more--i.e., those in the top 3.1% of the income distribution) that had no US tax liability was doulble in 2008 what it was in 2007--.43% rather than .23%. 

Why?  American Enterprise Institute economist Alan Viard is quoted by Bloomberg as saying "I don't know."  See Rubin and Zajac, High-Income, No-Tax Returns Almost Doubled in 2008, Bloomberg.net, June 14, 2011.

Note that the IRS stats uses adjusted gross income (the "line" amount on the tax return) and "expanded income" that adds and subtracts various items, such as adding back in the excluded municipal bond interest.  Neither of these is as great as true economic income, so many of the highest income Americans have much higher real income than reported.

Just a guess would suggest that the increasing number of elite-friendly tax provisions--preferential rates on capital gains extraordinarily low, foreign tax credit now extraordinarily manipulable to allow use against US taxes otherwise due, charitable tax deductions (for value, not for actual after-tax investment amount), dividend taxes extraordinarily low, the complete exclusion of interest from municipal bonds and other huge percs and breaks in the Code that only the wealthy elite use--are the culprit.  The wealthy can skew their income in directions to generate less tax much more readily than the rest of us, especially with the Code provisions that operate in their favor.  Include a loss or two (maybe generated by a tax-planned transaction, in your partnership or S corporation, that results in what appears to be a loss but isn't a true economic loss) and you really have it made.....Provisions that are likely to be of special value to the wealthy are the charitable deduction (only of use to the top 30% who benefit from itemizing), medical expenses (many of which may be for capital purchases of equipment that just happens to serve a general recreational need as well as a quasi-medical need, like a hot tub or swimming pool that the wealthy can easily find a medical doctor to substantiate), and investment interest expenses (ah, the deductions one has to gin up to account for all that almost non-taxable income). 

The IRS report attributes the non-taxability to several of these factors.

The items, which had the largest effect in reducing taxes for high expanded- income returns with no worldwide tax, thus contributing to this increase in nontaxability, were total miscellaneous deductions (including casualty theft losses from income-producing property), the taxes paid deduction, partnership and S corporation losses, and tax-exempt interest.

Ah, the difficult life these days of the rich.

JCT description of Obama's FY 2012 Budget Proposal (dated Feb. 14)

The JCT released its description of the President's Budget Proposal, JCS-3-11, on June 14.  It is available at BNA , here, and on the JCT website, here.