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Reid's Plan for Job Creation

Harry Reid announced on Wednesday (Oct. 5) that the Senate would take up Jobs Act legislation (S. 1549) soon, but that the offsets in the president's proposals would be replaced by a 5% surtax on those making more than a million that would raise about $445 million.  See Bolen & Lorenzo, Senate to Debate Jobs Bill Paid For with 5% Millionaire Surtax, BNA Daily Tax Report 194 DTR G-7 (Oct 5, 2011).

Note that this means that, once again, Congress will punt on the question of taxing fund managers fairly on their compensation, since the carried interest provision would be one of the offsets replaced by this provision.  The carried interest provision should be passed no matter what other offsets are used.  It is an unfair provision that treats fund managers as a specially protected category of worker with preferential rates on their compensation income.  Time to end it, once and for all.

Not surprisingly, GOP senator Hatch complained that this small surcharge on millionaires would be a "massive" tax increase on "small businesses".  Id. How many times do we have to remind Congress that most small businesses don't make millions in profits, that those who have millions can pay a 5% tax without undue distress (compared to those with a ten dollar bill being able to support their family with food and shelter), and that 5% of $1 million is not a "massive" tax increase.  50% of $1 million might be, but 5% is simply not.

Sen. Levin's Seven-Point Plan to Reduce the Deficit

 Sen. Levin is continuing to publish his plan for reducing the deficit, "We Can Reduce the Deficit and Protect the Middle Class" (Sept. 30, 2011).  This is set forth in a letter to the Joint Select Committee on Deficit Reduction (Sept. 15, 2011).

Now, without even looking at the plan, I wish he'd named it something else.  How about "We can Move the U.S. Economy Forward and Continue to Enlarge the Middle Class".  After all, the point of any thinking about spending and taxes is how government can intervene to ensure a stable and sustainable economy that works well for our citizens.  The continuing growth of the middle class is essential to that--if the middle class is growing, the lower class should be shrinking.  (With luck, the UberRich upper class will also be shrinking, since sustainable economies that work well for our citizens do not result from oligarchic rule.)  But let's look at what he suggests.

First, he accepts the budget agreement goal to reduce the deficit by $1.2 trillion over the next decade.  After all, that is what Congress agreed to. 

[Beale here:  A point probably worth making here is that this amount is LESS than the decade-worth of costs of the Bush 2001 tax cuts at the time they were enacted.  Makes one think, doesn't it, that a good approach might be just to let those tax cuts all lapse as scheduled in 2012.  No action needed.  What was ostensibly enacted as a temporary cut to stimulate the economy could just be treated as what it was enacted as--a temporary cut.  You'd think Republicans, who designed the temporary nature of the Bush tax cuts and said that they were needed because our budget was in surplus at the time, would be the first to argue for simply letting the law apply as it is written (with the extensions through 2012, of course) and let them lapse.  Why?  We are no longer in surplus, and the Republicans are raising Cain about the level of the deficit.  Allowing these to lapse as they are slated to do will solve the deficit problem.]

Second, he argues that no significant deficit reduction can (or should) be accomplished with spending cuts alone: revenues must be restored.  He points to historical patterns and notes that even under Reagan, when the drastic 1981 revenue reduction created a huge deficit, there followed multiple deficit reduction plans built on revenue increases (i.e., tax increases).

Levin:  "Federal revenues today are the lowest share of gross domestic product in generations:  just 14.9 percent. And past efforts to reduce high deficits have made new revenue a significant part of the equation. President Reagan, for example, presided over three deficit reduction plans that achieved more than three-quarters of their deficit reduction through revenue increases."

Third, he identifies seven possible steps to eliminate loopholes and subsidies for a fairer result.  (these are detailed in the letter.)

1. eliminate offshore tax shelter abuses

Levin discussed these first two items in a Sept. 16 floor statement: Reducing the Deficit by Eliminating Loopholes for Tax Havens and STock Options as well as the original letter to the Committee.

The Stop Tax Haven Abuse Act (S.1346) would combat offshore tax abuses. It contains more than a dozen provisions to shut down offshore tax loopholes and expose offshore tax cheats, including measures to penalize offshore financial institutions and jurisdictions that impede U.S. tax enforcement; stiffen penalties on aiders and abettors of tax evasion; shift the burden of proof establishing who controls an offshore entity; stop companies managed and controlled in the United States from claiming foreign status; treat U.S. deposits and investments by offshore subsidiaries of U.S. parent corporations as taxable repatriated income; and treat credit default swap payments made from the United States to offshore recipients as taxable U.S. source income. (quoted from letter)

[Beale: these are all good ideas.  We absolutely must change the way we treat credit default swap payments.  We shouldn't allow naked credit default swaps at all, and we should source swap payments coming from the US to offshore recipients as US source income.  Currently, we encourage the use of these complex derivatives by giving them very favorable tax treatment.  We also must focus on the issues of legitimate foreign statuts (management and control) and we need to treat U.S. deposits by offshore affiliates as repatriated income.  This is a point I have made often in the discussion of the corporatist push for a repatriation tax holiday.  When proponents concede that the 2004 holiday was a farce and had a very poor cost to benefit ratio in terms of creating jobs, they tend to then say--oh, but just bringing all that cash back into the good ole USA is itself a boost to the economy.  My response--much is already back in the USA in bank accounts and other investments.]

2. eliminate tax provisions favoring issuance of stock options as compensation

The Ending Excessive Corporate Deductions for Stock Options Act (S.1375) would eliminate a corporate loophole that currently gives special tax treatment to corporations that pay their executives with stock options. Stock options are the only type of compensation which, due to a special method for calculating the tax deduction, often allows corporations to deduct more than the compensation expense shown in their books. The latest data available shows that, over a five-year period, from 2005 to 2009, corporate stock option tax deductions as a whole exceeded corporate stock option book expenses by $12 to $61 billion each year, forcing ordinary taxpayers to subsidize tens of billions of dollars in excessive executive pay tax deductions. Closing this loophole would end this unfair tax subsidy of corporate executive compensation. (from letter)

 3. close the 'carried interest' loophole

In a Sept. 19 speech Reducing the Deficit: Eliminating Wall Street Loopholes, Levin says in general about items 3 and 4 the following:

Each of these loopholes amounts to a subsidy. Working American families who pay their taxes every year end up carrying an extra burden because these provisions allow Wall Street to pay a lower tax rate than the rate applied to average workers. I cannot see how anybody can explain to working Americans that they must bear a greater tax burden so that hedge fund managers get a tax break on pay that often amounts to millions of dollars a year, or so that speculative traders can pay a lower tax rate on so-called investments they might hold for just a few seconds.

He adds about carried interest

One would end the “carried interest” loophole that allows hedge fund managers to pay the lower capital gains tax rate on their pay for managing investments.

***

We tax income that investors receive from hedge funds and other investments at the lower capital-gains rate because, in theory at least, those investments help put capital to work, creating jobs and growing the economy. But the fund manager isn’t putting his own capital at risk. He’s just doing his job – the same as his employees, or the janitor who cleans his office at night. This tax break doesn’t reward risk-taking or job creation. It rewards what is already an extremely lucrative profession. According to a survey by a magazine covering the hedge fund industry, the top 10 hedge fund managers last year each made at least $440 million. Six made more than $1 billion, in one year. It’s hard to imagine we need to offer a tax break to encourage people to become hedge fund managers.

[Beale here--Levin should apply this provision much more generally to "fund managers" rather than just hedge fund managers.  Under the partnership rules as currently interpreted, people are treated as "partners" when they are given a "profits interest" in a partnership in compensation for their services, and these profits interests are then treated as receiving distributive shares of partnership income and gains rather than as receiving payments of wage compensation.  If a partnership has lots of capital gain type income rather than ordinary income, then under this interpretation of the rules the manager ends up getting his compensation as mostly capital gains.  This is especially true of private equity funds (which generally buy an asset, break up the company or fire workers or restructure and then sell the asset a few years later, reaping a huge capital gain) or real estate partnerships.  Hedge funds get some of the capital gain play, but tend to deal in more ordinary assets, though they have manuvered the deals for going public so as to capitalize on tax favorable outcomes as well.  All of these fund managers fare extraordinarily well in terms of the amount of compensation they receive.]

4. close the  "blended rate" loophole

In that same Sept. 19 speech:

And what is the blended-rate loophole? Since 1981, those who trade in some financial products, such as futures contracts and options, have enjoyed a specially created tax loophole that allows them to pay a lower rate than, for example, traders who buy and sell stock. No matter how long a speculator holds on to a futures or options contract – again, even if it’s a few seconds –their gains and losses are taxed at a lower, so-called “blended” rate, that is, part at the capital gains rate, part as ordinary income.  So a dealer who buys a stock, and sells it within a year, must pay taxes at the ordinary income rate, while the same dealer who buys an option and sells it 30 seconds later gets to pay the lower capital gains rate on most of that income.

[Beale:  the special provision here is section 1256, which applies to certain types of financial instruments, as noted.]

 the derivatives blended-rate loophole doesn’t just add to the deficit. It’s plainly unfair. It’s unfair not only to working Americans who have to pay higher tax rates than these derivatives traders. It’s also unfair to investors who risk their capital in long-term stock and other investments that are more important to job creation, but don’t enjoy that same tax break. This loophole gives preferential treatment to short-term speculative trades over long-term patient capital, and that’s exactly the wrong message to send.

[Beale: Well, most investors aren't making investments that support job creation, since most stock market purchases are in the secondary market and don't add a dollar to the company's coffers.  But he is absolutely on target that "carried interest" recipients shouldn't get capital gains on compensation income, whereas investors who buy stock are at least risking their capital.]

5. restore the upper-bracket income tax rates to the pre-Bush levels

Levin explained the rationale for this more thoroughly in a September 26 speech on Reducing the Deficit: Reducing Tax Breaks for the wealthy, as follows:

First, we should allow Bush-era tax cuts to end for those making more than $250,000. The case for this change is straightforward: It would restore a measure of fairness to the tax code that has been sadly lacking for more than a decade, and it would reduce the deficit by hundreds of billions of dollars.

Supporters of the tax cuts in 2001 and 2003 made a number of promises. President Bush said his cuts “will bring real and immediate benefits to middle-income Americans.” And yet in the decade since they began, the incomes of middle-class Americans have stagnated. According to the U.S. Census Bureau, the typical American household’s income, when adjusted for inflation, actually fell more than 8 percent from 2001 to 2010. President Bush said his tax cuts would increase the pace of job creation. And yet during the Bush years, jobs grew at roughly one-third the rate that we enjoyed during the Clinton administration. President Bush said “we can proceed with tax relief without fear of budget deficits, even if the economy softens.” And yet just those tax cuts going to the wealthiest 1 percent of Americans have added hundreds of billions of dollars to the deficit since 2001. So, these tax cuts have failed to deliver the promised benefits, and they have driven us deeper and deeper into debt. Ending them will bring down the deficit; President Obama’s proposal to end the cuts for high-income earners would reduce the deficit by an estimated $866 billion over 10 years.

What these tax cuts did deliver is a striking and continuing rise in income inequality. It’s no coincidence that as we passed a series of tax cuts whose benefits overwhelmingly flow to the wealthiest Americans, those wealthy individuals have seen their fortunes rise. A few decades ago, the wealthiest one percent of Americans took home 10 percent of all income. Today, they get 24 percent of all income. As those at the top have prospered greatly, middle-class wages have stagnated – again, down more than 8 percent, for the median American household, since the Bush tax cuts took effect.

6. raise the capital gains tax rates

Levin also discussed this in the Sept. 26 speech:

Capital gains are income from the increase in value of an asset, such as a stock. Today, thanks to the Bush-era tax cuts, the top rate on capital gains is 15 percent. That’s substantially lower than the 28 percent rate included in President Reagan’s Tax Reform Act of 1986.

The theory in slashing capital gains tax rates was that lower rates would encourage investment, job creation and economic growth. But as has been the case with slashing ordinary income tax rates for the wealthy, cutting capital gains taxes simply has not delivered what supporters promised. Given the stagnation in middle-class living standards that we have seen since the 1980s, it is difficult to argue to middle-class Americans that reducing capital gains rates made them better off.

Instead, this is another benefit that flows overwhelmingly to the wealthiest among us. According to the Tax Policy Center, more than 75 percent of the benefit from lower capital gains taxes goes to those with incomes over $1 million a year, and 94 percent of the benefit to those above $200,000.
This tax break for the most fortunate of our citizens also adds tens of billions of dollars each year to the deficit. The Congressional Budget Office earlier this year estimated that raising the capital gains rate by just two percentage points would reduce the deficit by about $50 billion over 10 years. Raising the top rate closer to Reagan-era levels would bring far more deficit reduction.
Those who fight to preserve these high-income tax cuts call attempts to end them “class warfare.” Mr. President, ending these tax breaks won’t start a class war. It will help end one – a war that, for more than a decade, has taken a devastating and immediate toll on the middle class, and created huge new deficits that damage their future prospects as well.

7. revise the tax lien process to use electronic liens

 Tax liens are a basic tool to collect unpaid taxes. Today, federal law requires liens to be filed on paper in more than 4,000 locations around the country, determined by the location of the lien. The IRS maintains a service center that does nothing but monitor dozens of varying local requirements for lien filings, track filings, and release liens once they are paid.

I have introduced legislation, S. 1390, along with Sen. Begich, to replace this antiquated system with an electronic federal tax lien registry available to the public on the Internet at no cost. The IRS estimates that this change would not only save millions of dollars in administrative costs, but also enable the IRS to release liens more quickly once they have been paid and free up employees and resources for other work. Equally important, a public electronic registry could help encourage those who owe taxes to settle their bills and take enormous pressure off taxpayers who have paid what they owe.

More on Repatriation--WIN America corporatist lobbying group's strike back on Heritage

In a recent posting, I commented further on the lack of arguments supporting the corporatist lobbying drive for another "repatriation tax holiday" for multinational corporations that have stashed more than a trillion abroad (often through gimmicky transfers of intangible property such as rights to patents developed in the United States).  See  Repatriation Holiday Lobbying--Money Speaks (Oct. 3, 2011).

The reasons are manifold.  Corporations today are not cash-strapped--they've got lots of cash in the US too.   And even if they need cash that is currently offshore, they can borrow against that cash at exceptionally low rates today. So they aren't investing in expansion that would create new jobs for lack of cash--they are not investing in expansion for lack of customers.  The middle class is collapsing, after four decades of reaganomics have steadily worked to erode unions and the empowerment they offer workers, leaving worker wages in decline while their bosses roll into the ranks of the superrich on their newfound ability to take an undue share of the companies' productivity gains.  Even when money is actually brought back (rather than already resting in US bank accounts), it is most likely to be used to pay even higher performance bonuses to top managers and to pay for dividends and share buybacks for shareholders.  And those shareholders are most likely merely to use it to make new secondary market share purchases--resulting merely in a net change in their portfolios--not direct funding of new enterprises.  Much of those secondary market investments are likely to be in emerging markets rather than in the United States. 

Most telling is that the very fact of one tax holiday means that corporations will inevitably plan for and conduct business assuming future tax holidays.  It is ikely that planning for this current lobbying effort began on the day Congress passed the 2004 Jobs Act!  What that means is that the tax holiday itself encourages even more of the very offshoring activity it claims to be amerliorating.  Corporations will use gimmicks to move and stash away even more money offshore to avoid even more current taxes, in the hopes that there will be a further tax holiday that will allow almost zero taxation on those repatriated profits.  That certainly happened after 2004--the companies that had been good citizens and had regularly repatriated cash found themselves losers compared to the bad citizens that had used offshoring to avoid taxation.  More of the good citizens then became bad citizens, and the amount of offshore cash has grown much faster since the 2004 repatriation holiday than before.

And our experience with repatriation tax holidays was a telling one.  Corporate lobbyists worked hard to get the misnamed 2004 "American Jobs Act" passed with a very low tax rate for repatriated funds.  Yet it resulted in very little job creation. 

(This is not surprising, since (i) corporate tax cuts don't create jobs; consumer demand does and (ii) Congress didn't put any real teeth in the job creation end of the legislation, such as demanding that any corporation repatriating cash and expecting the low rate establish that it had created substantial new jobs with the repatriated funds that were not on the planning board at the time repatriation was first introduced or when it was passed and that those jobs were permanent full-time domestic jobs.) 

In fact, a new study by the Institute of Policy Studies addresses what it calls the "dangerous myth" that "corporate tax cuts create jobs" and the "disastrous results" of the 2004 tax holiday.  It reminds us that a government report found that 12 of the top repatriators brought home $100 billion (a third of the total repatriated under the earlier provision) and yet laid off 67,000 workers in the two years after the windfall.  Further, the 2004 holiday allowed 843 companies to use $312 billion in repatriated funds while avoiding $92 billion in taxes.  The worse factoid of all is the one that shows that U.S. taxpayers  "provided a huge subsidy to corporations that destroyed jobs":  58 corporations that accounted for about 70% of the repatriated funds  cut almost 600,000 jobs.  Report at 6-7.  See America Loses: Corporations that Take 'Tax Holidays' Slash Jobs, Institute for Policy Studies (Oct. 3, 2011) (summary, with link to full report). 

The report is clear in its description of the way US corporations shift profits overseas and then lobby for even lower taxes.

Drug companies — and many other companies as well, especially in the technology sector — don’t just make profits overseas. They shift  profits overseas. The process has become lucratively routine. One example:  A U.S.-based corporation begins the process by having a foreign subsidiary register its patents in countries like Luxembourg that do not tax income from intellectual property. The subsidiary then charges its U.S counterpart a high price for use of the patents. These high royalty fees, coupled with the costs of research, marketing, and management, allow the U.S. operation to report to the IRS an artificially small profit — or even no profit at all. With no appreciable profit to report, the U.S. operation has no appreciable corporate income tax to pay. The company’s actual profits sit undisturbed with the overseas subsidiary.  Report at 11.

The report also scorns the lobbying efforts of WIN America, which has spent more than $50 million lobbying for the tax break, which would cost the fisc around $80 billion in lost revenues.  Report at 9-11.   WIN America--a coalition of 18 publicly traded corporations and 24 trade associations, including the U.S. Chamber of Commerce--has "hired 42 former congressional staffers who worked for the House Ways and Means Commitee or the Senate Finance Commmittee".  Report at 9.  It goes on to rep9ort on the way individual members of the coalition have lobbied for the tax break (e.g., Pfizer's sponsoring a favorable section on 60 Minutes) and cut jobs (e.g., Duke Energy's cutting 10,000 jobs, probably as a result of its 2006 merger with Cinergy in the U.S., contributing to the North Carolina Democratic Party and then, shortly after getting support for repatriation from the Democratic governor of North Carolina and its Democratic Senator Kay Hagan).

For other commentary, see also John Carney, Corporate Tax Holidays Might Not Create Jobs, CNBC (Oct 4, 2011) (commenting on the IPS report as well as the Heritage Foundation report discussed below).

The WIN America coalition was undoubtedly taken by surprise when the right-leaning Heritage Foundation came out with its own report, a "backgrounder" on taxes that condemns the repatriation tax holiday idea as not doing much to create jobs: J.D. Foster & Curtis Dubay, Would Another Repatriation Tax Holiday Create Jobs? (Oct. 4, 2011).    The Heritage Foundation report acknowledges that "if another repatriation tax holiday were enacted, one should expect a similar result as last time: specifically, a surge in repatriations and little appreciable increase in domestic investment or job creation."  And it cites the reasons one would expect--today's multinationals that have money to repatriate are not cash-strapped:  any investments that they need to make for business expansion purposes (that would create new jobs) they can do readily without needing a repatriation tax holiday to grease the skids.

By the way, the Heritage Foundation is resisting repatriation because it wants the big prize--an overall cut in the corporate tax rate and a shift from our current system of taxing worldwide income (after tax credits for taxes paid elsewhere) to a territorial system--and it doesn't think repatriation will be treated as a step in that direction.  Those Heritage-supported tax policies would result in even more offshoring and even less corporate tax contribution to the fisc, which is already terribly low at around 2-3% of GDP.

For additional commentary, see Heritage Foundation Reverses Position on Repatriation Tax Holiday, Huffington Post (Oct. 4, 2011) (

Not surprisingly, the WIN America coalition struck back today, with a press release attacking its ordinary ally for not supporting the repatriation tax holiday drive: Fact Check: Heritage's Flawed Study Ignores Their Previous Support for Repatriation (Oct. 4, 2011).  The coalition has three arguments: (1) Heritage said something different back in December 2010, (2) other studies say repatriation will create millions of jobs, (3) the 2004 Jobs Act really did work in spite of what these other studies claim because the firms themselves say they created jobs, and (4) lots of people support repatriation.  None of these arguments hold water.

The coalition first complains that a December 2010 Heritage study concluded that repatriation would "provide additional liquidity" that would increase shareholder wealth allowing them to make "new investments" and would permit the firms to finance current operations, reducing their need to borrow working capital.  Let's parse this out.  The  primary reason that doesn't make sense today (if it ever did, which is dubious) is, as the Heritage Foundation's current report points out, that US firms are not cash strapped.  They don't need more liquidity to be able to make investments or finance their current operations.  They probably don't even want to reduce loans that are at historically low interest rates any more than they are doing.  And shareholders' "new investments", as noted above, are just a move from one portfolio investment to another--they are not investments that encourage entrepreneurs or go to the working capital of companies but just a result of secondary market purchases.  Very little of that does much for the US economy or anything for creating new U.S. jobs.

WIN America counters that the August 2011 study done for the U.S. Chamber of Commerce by Douglas Holtz-Eakin, The Need for Pro-Growth Corporate Tax Reform, claims that a repatriation tax holiday will "speed the pace of economic recovery, increasing GDP by roughly $360 billion and creating approximately 2.9 million jobs" because repatriation tax holidays are "a private-sector approach to stimulus."  That's quite simply balderdash.  These same kinds of pie-in-the-sky claims were made about the disastrous 2004 repatriation tax holiday, and they were proven wrong then.  They are based on the same bad economics now, the economics that says that "the high U.S. [corporate tax] rate harms economic growth, the amount and quality of U.S. investment, and the wages of U.S. workers."  That claim is simply unsupported--the U.S. is a tax haven, a reasonable amount of taxes will never discourage a business from expanding its business when it thinks that expansion is going to be profitable and it has the money to do it.  It is in fact this same school of economic thought that has given us the Laffer curve, the "rational man" calculations, and the rest of the Hocus-Pocus economics enterprise that treats rigidly unrealistic assumptions as God's Truth to justify an ever-increasing share of corporate profits going to managers rather than workers. 

WIN America then argues that 23% of the 2004 repatriated funds went to job creation and should be considered a great benefit to the economy.  That number is derived from a survey of tax executives--essentially self reporting on the result of the company-favorable tax repatriation holiday, so it is not only a very low return on the high tax cost of the repatriation tax holiday, but also one that must be evaluated with some acknowledgement of the fungibility of money and the ability of firms to claim that job creation and investment that they would have done anyway was done "because of" the repatriated funds.

WIN America concludes with quotes from lots of people (probably written by WIN America or one of its army of lobbyists, don't ya think?).  These quotes just repeat the desired sound bites -- "bringing the money home" will "create jobs and re-invest in America" (GOP representative Gregory Meeks, Sept. 9, 2011); "let's bring those dollars back"... and "companies outght to put it into workforce training or they ought to put it into research and development" (GOP Ohio Gov. John Kasich, Sept. 14, 2011).  And so on.

 

Repatriation Holiday Lobbying--Money Speaks...

We've discussed repatriation before--the tax break being pushed by multinationals who want to bring some of their offshore profits home without paying taxes, as they did in the 2004 "one time only" repatriation break. 

The reason they have so much money offshore is that they use gimmicks--such as transfers of intellectual property rights to offshore subsidiaries in low-tax jurisidctions.  These are pseudo transfers (to affiliates) of property they would NEVER really sell out of their companies to independent third parties.  Having the affiliate "own" the right means that the profits associated with the innovation carried out in the US go to the offshore company and aren't subject to US tax until they're officially treated as being transferred back to the parent.  "Selling" the IP to the affiliate is done solely to defer/avoid US taxes on those profits.  Of course, the transfer pricing for the intellectual property is gimmicky too--since no company would sell its main moneymaker, the idea of a comparable market price is foolish to start with.  So most of those profits should have been treated as US profits all along--and subject to tax.

A repatriation holiday would just mean more money in the pockets of the uberrich--the managers and some of the owners.   It's just another corporatist tax giveaway that pushes upward redistribution that moves us even more resolutely towards oligarchy.  It won't create jobs--companies already have plenty of cash to invest in this country if they thought they had customers to make money from. 

But the companies probably have a pretty good chance of getting the break, even though it is a stupid waste that adds to the inequality problem and does nothing for creating jobs.  Why? 

First, because some of the wealthiest and most powerful companies want it. And these days, what powerful companies want, Congress tends to be willing to give.  Google, Apple, Cisco, Oracal, and many other companies that depend on their outsourced IP are hoping they can avoid even the little bit of tax that they've paid in the past. 

Second, because those companies have hired as lobbyists people who were very recently staffers to members of Congress who will be writing the law.  The most notorious of these is Max Baucus's former Chief of Staff, Jeffrey Forbes. See Rubin & Drucker, Google Joins Apple in Push for Tax Holiday, Bloomberg.com, Sept. 29, 2011.  The piece notes that Forbes is part of an army of more than 160 lobbyists, 60 of which are former congressional staffers, who are pushing for the repatriation holiday.  And those aren't really all the lobbyists--they are just the "registered" lobbyists--i.e., the proverbial 'tip of the iceberg'.  Then there's the WINAmerica coalition and the firm working with it.  This army of lobbyists is out to rape the country, and the same congresspeople who moan and lament about deficits are likely going to give the multinationals an $80 billion (over ten years) tax break just cause their buddies ask them nicely for it.

Even though we have proof that repatriation doesn't create jobs--the 2004 tax holiday resulted in thousands of jobs LOST as companies fired workers even while repatriation millions--Congress is still contemplating another one.  Why?  The article notes that one thing that is being touted as an advantage is 'flooding the US with cash.'   Doubtful.  Much of that cash may already be sitting in US banks even though not repatriated through the company.  And what is actually brought over and then paid out to managers (in even bigger outsized bonuses) and shareholders (in buybacks or dividends) is perhaps more likely to be invested in Asian markets than it is to stay in the US.  Or it will be just more fodder for the rich managers and shareholders to use to buy shares in the secondary markets from their rich peers, that top crowd that owns most of the financial assets.  Lot of good that will do the carpentars and drill press operators and other ordinary workers.

One of Boehner's aides says that former staffers don't make policy.  Balderdash.  Those staffers are hired to lobby because they have access and they know their former colleagues.  They have access that ordinary Americans don't have.  They are pushing for legislative action on behalf of corporate giants.  None of them likely gives a damn that the policies they are pushing for don't make economic sense at all for ordinary Americans.  Why should they care?  They are lobbyists in it for their own financial rewards from "selling" an idea to their former colleagues that will benefit their current bosses.

Martin Sullivan has it right, as quoted in the Bloomberg article:

The proposed holiday would reward the companies that have most aggressively parked profits in tax havens such as Bermuda, the Cayman Islands and Switzerland, said Martin A. Sullivan, a former Treasury Department economist and contributing editor for the non-partisan Tax Notes.

“A lot of what companies report as foreign profit is really U.S. profit that should be subject to U.S. tax,” Sullivan said. “Those earnings didn’t get overseas by accident. Many of these companies intentionally put them there to avoid paying U.S. taxes.”

Occupy Wall Street--a movement incubator of hope for change

Occupy Wall Street--that diverse group of left-leaning idealists that has been camping out near my old firm's haunts at Broadway and Liberty in Manhattan--is beginning to coalesce into a movement.  And that's good news.

For months, the mass media has been focusing on, and thereby enhancing the attention to, the right-wing "Tea Party" movement.  Its leaders make statements devoid of connection with history or fact, but they are interviewed incessantly and make those same statements over and over again--how private enterprise is "always" better than government, how tax cuts are good for us even in a time of deficits, how we need to cut spending on safety net programs, food safety, disease control or whatever (just not military spending) in order to return to the Founders' vision.  They forget the lessons learned from the Great Depression and the New Deal--that corporate titans that care not a whit about anybody but their owners and managers can destroy workers and ruin the resources that belong to all of us, and that government spending to create jobs directly can make a difference for millions who are on the verge of financial collapse.  Government can protect workers from brutal employers, and can establish air, water, food, consumer safety rules that no citizen can do for himself. 

The media has loved the Tea party, simply because the radical right-wing fringe talk makes money for the media and pleases the corporate masters of the major media-- Murdoch, and the few other corporate empires.

Now there may finally be a stirring of life in the populist left--people who have figured out that the right's policies do nothing but advance the unheard-of inequality that is creating a US wasteland of joblessness for generations of teens and young adults just coming of age.  The group of Occupy Wall Street recognize corporate greed (how can you miss it when corporate managers make tens of millions while they squeeze their workers) and bankster avarice (how can you miss it when banks raked in profits from the low cost-of-funds provided by the Fed, while refusing to make loans even to successful small businesses and are already adding on more fees for their small fry customers) and hedge fund bloviation (the managers who think they have a 'right' to treating their pay as preferential capital gains in the carried interest gimmick).

The protest at Wall Street has now issued a "Declaration of the Occupation of New York City" (Sept. 29, 2011).  The declaration reflects a broad range of grievances, but several things stand out.

1) the group recognizes that corporatism, the tendency of governmental officials to bend their collective ears to corporate lobbyists and bend the legislative agenda to the corporate desires, is extraordinarily harmful to America, in that it corrupts government, distorts economics, and destroys democracy.

2) the group signals its emphasis on sustainable democracy, when it notes that "no true democracy is attainable when the [democratic] process is determined by economic power"

3) the group recognizes the importance of the right to unionize as a human right, when it notes that corporations "have continuously sought to strip employees of the right to negotiate for better pay and safer working conditions" and also "have consistently outsourced labor and used that outsourcing as leverage to cut workers’ healthcare and pay."

4) the group has created a culture of respect, in part because of the organization required to maintain an active protest site and in part because of the way the group repeats what a speaker says to pass the speech along (since no microphones are allowed in the park).  Kudos to one commenter who noted:

I think the way the group has compensated for not having microphones has turned out to be a major benefit. When everyone present must repeat and amplify the words of each speaker, it encourages respect, even for those we disagree with.
If we’re really talking about 99% of the country, that number’s obviously going to include a lot of people who disagree with each other, maybe don’t like each other, maybe don’t respect each other. We must continue to welcome anyone who thinks they belong here. As long as we keep dialogue open, we can learn from one another, and eventually arrive at the really big ideas. The kind that no one could come up with alone.

Corporate Tax Reform--Revenue Neutral or Revenue Generating?

Most of the buzz about corporate tax reform assumes that some of the loopholes and special subsidies for particular industries could be eliminated, even in this minority-obstructionist Congress, and that the savings from those tax expenditures should be used to reduce tax rates.  The argument usually given is that the US needs to reduce its corporate tax rates in order to help its multinationals stay "competitive" with other countries' multinationals.

I disagree with that approach.  I believe that corporations should be more heavily taxed by removing the loopholes and retaining the current rates.  Generating more revenues from the corporate tax would be beneficial in several ways.  It would help to reduce the annual deficit.  It would help to shift the burden of the costs of the federal government to the large multinationals that have enjoyed a tax-haven tax burden while benefitting enormously from US institutions.  And it would provide some squeeze on managerial pay, which has become grotesquely outsized in relation to their contribution to companies' productivity and has thus contributed to the rapidly expanding inequality in the United States.

The progressive think tank Citizens for Tax Justice agrees that corporate reform should be used to raise revenue.  See the "Corporate Fact Sheet", CTJ (Sept 20, 2011).  CTJ makes the following points supporting its argument that corporations are, essentially, undertaxed:

• the effective corporate tax rate is far below the statutory rate
• the US takes a smaller share of corporate income  as taxes than other developed countries do
• corporate profits frequently aren't taxed at all (including for large profitable corporations)
• corporate dividends frequently aren't taxed at all because they are paid to tax-exempt recipients
• corporate dividends that are taxed are taxed at preferential rates

 

Shaviro on what Nixon would do (if in Obama's shoes on the jobs proposal)

Dan Shaviro made a point worth repeating in assessing Obama's jobs proposals, in What would Nixon Do?, Sept 7, 2011.  He noted that Obama typically compromises before he starts, so he ends up with a much smaller and less courageous policy than he should have had, one that carries out Republican policies and Republican choices.  Those Republican policies inevitably fail, and Obama ends up with the blame. 

Here's an excerpt of what Shaviro says.

[T]here is also another standard Nixon trick that, sleazy though it was in context, the Obama Administration ought to think about. Nixon was a big fan of proposing legislation that he knew couldn't be passed, specifically because if it wasn't passed he would get a campaign issue. E.g., supposedly in 1970 he was disappointed by his success in getting the Democratic Congress to pass a tough crime bill that contained provisions that, under the quaint standards of the time, were considered odious by civil libertarians. Nixon had deliberately put these things in the proposed legislation, although they were largely symbolic and expected to have little actual impact on crime, because he wanted the Democrats to refuse to pass the legislation, whereupon he would make it a campaign issue and blame rising crime levels on them. They took the issue away by acceding.

How would such a scenario play out today? If Nixon faced Obama's current political circumstances, he would not be trying actually to enact stimulus legislation. He would know that he had zero chance of getting anything that would make a significant difference. He would want to propose something that the opposition WOULDN'T pass, and that he could then campaign on. (And it is clear this time around, unlike with the 1970 crime legislation, that the Congress won't accede in order to take away the issue.)

We could use a bit of that thinking today. Why not propose something that is actually big, dramatic, and well-designed? And why not make reasonable, economically supportable arguments about why and how much it might actually help? Then Obama could rightly criticize the Republicans and blame the labor market on them when they fail to pass it.

This would not just be Nixon-style maneuvering. It would also help make the correct point that, since at least mid-2009, we have actually been following Republican budget policies and they haven't worked. As things stand, by repeatedly acceding to them, even in what he proposes, he accepts a state of affairs in which they actually set the policy yet he takes the blame.

Meanwhile, Obama is collaborating in basic miseducation of American voters, by adopting all kinds of false or grossly overstated Republican claims about how regulatory burden and budget deficits are responsible for the jobs situation.