ataxingmatter

Corporate taxes down, workers' taxes up--that's America today

Corporate taxes used to constitute a significant portion of federal revenues, almost a third in 1950.  Payroll taxes from workers were considerably less--around 10% in 1950.  Andrew Leonard, Who Really Pays Taxes? Salon.com (Aug. 28, 2012).

The times have changed.  Corporate taxes have declined steeply in the 21st century as a percent of GDP, while payroll taxes paid by workers have become a significant part of tax revenues--more than a third in 2007.

That is one cause of the inordinate inequality of income and wealth that this country now endures--an inequality that has dire consequences for the economy and for the well-being or the vast majority of ordinary Americans. 

Paul Ryan's tax and other lies

It's interesting that Paul Ryan is being cast by the GOP and the media as an intellectual who is sharp with numbers and that rare breed--a truth-telling politician.  Too bad none of it is true.

Ryan is an Ayn Rand devotee who somehow failed to recognize the anarchism and me-ism of the Randian philosophy.  He's a scion of a wealthy family who pretends that his short stints at humble jobs like waiting tables were the same as what the disadvantaged suffer when they are stuck in dead-end jobs and have no recourse to a wealthy family to create new opportunities. 

And he is a person who has devised plans that privatize and cut Medicare benefits for the most vulnerable, leaving them to pay more and more out of pocket over time while cutting taxes for the wealthiest--eliminating the estate tax to hand billions more of windfall dollars to heirs that do nothing to earn them; eliminating capital gains taxes entirely to hand billions of dollars to the weallthiest few who own most of the financial assets and passing the burden of supporting important government programs to the middle class. 

Joan Walsh's article in Salon is worth reading, Paul Ryan's Brazen Lies, Salon (Aug. 29, 2012).

IRS goofing on foreign trust letters, says AICPA

The American Institute of CPAs (AICPA) is asking the IRS Commissioner to resolve what it suggests is a "widespread problem" for taxpayers.  Download AICPA Letter to IRS on Erroneous Form 3520 Letters to Taxapyers.082812.   For 2010 and earlier years, the IRS apparently has made a wide range of systemic mistakes in processing the form required to be filed annually by owners of a foreign trust--Forms 3520, the Annual Return to Report Transactions with Foreign Trusts and REceipt of Certain Foreign Gifts.

  The AICPA reports errors including:

• instructions to fill out Part II about ownership of a foreign trust, when the taxpayer is not the owner of a foreign grantor trust;
• instructions to provide additional information required when a taxpayer answers a question "yes" when the question on the form was answered "no";
• instructions to provide identifying information required to be submitted when the information was already submitted; and
• insturctions to provide an explanatory statementwhen such statement was already submitted.

This looks like one of those kinds of things that happen when staffing at a government agency is reduced beyond what is reasonable for the kinds of tasks that have to be carried out.  Query--isn't it likely that the right's  (and now officially the GOP's) drive to reduce staffing at all levels of government agencies (except, of course, for the right's pet project, expansion of the military) likely to increase the headaches for ordinary citizens because those government agencies simply won't be able to get their jobs done well with the reduced staffing and morale problems that will cause?

Tax Extenders: where the Senate stands

Today (August 28), the Senate Finance committee provided an updated revenue estimate and text for the bill --the so-called "Family and Business Tax Cut Certainty Act of 2012"--that it had approved on August 2 to extend $205 billion-worth of "temporary" tax cuts through 2013.  Most of these provisions are further extensions of the Bush cuts put in place going back to 2001, such as the annual "AMT patch" that comes about because the Bush tax cuts reduced the regular tax so much that the AMT does capture somewhat more taxpayers than it otherwise would have.  This is expected to be brought to the Senate floor in September.

Here's what the Senate Finance extenders bill would do, with a cost of 143.221 billion for FY 2013.:

A. Main Individual Provisions

1. AMT exemption:  increase the exemption amount for the AMT (see table below:  the first amounts shown are post-2011 without the bill, the first increased amounts are for 2012 with the extender bill and the second increased amount is for 2013 with the extender bill) and allow the entire regular and AMT liability to be offset by nonrefundable personal credits during 2012 and 2013.

• married filing jointly and surviving spouses:  45,000 increased to 78,750 and then to 79,850
• other single individuals:                                33,750 increased to 50,600 and then to 51,150
• married filing separately:                              22,500 increased to 39,375 and then to 39,925

Note that the AMT would only affect .9 million taxpayers in 2013 under this schema.  The cost of this provision for increasing the exemption amount and allowing 100% of tax liability to be offset with credits is slightly more than 104 billion for FY 2013

2. Above the line deduction for classroom expenses of $250, at a cost of 273 million

3. Exclusion of income from discharge of indebtedness on principal residence (up to $2 million of discharged debt), at a cost of 199 million

4. parity for mass transit and parking benefits (extended retroactively to Jan 1, 2012), at a cost of 218 million 

5. extend deductibility of mortgage insurance premiums as qualified residence interest (rationalized as a way to encourage home ownership), at a cost of 791 million

6. deduction for state and local sales taxes, at a cost of 1.64 billion

7. deduction for qualified tuition expenses, at a cost of 2.32 billion

8. tax free distributions from IRAs to public charities up to $100,00 per year per taxpayer, at a cost of 594 million

B. Main business provisions (nothing less than 5 million covered here)

1. Extend and modify R&D credit (applying it retroactively back to 12/31/11), at a cost of 6.2 billion

2.  Indian employment tax credit, at a cost of 69 million

3.  50% tax credit for expenditures to maintain tracks, at a cost of 232 million

4.  work opportunity tax credit, at a cost of 947 million

5. special, shorter depreciation recovery for restaurants, leaseholds, motorsports racing facilities and businesses on Indian reservations, at a cost of 335 million

6. enhanced charitable deduction for food inventory, at a cost of 218 million

7. Increase in section 179 expensing amounts, with thresholds of 500,000 and 2 million, at a cost of 8.088 billion

8. election to expense mine safety equipment, at a cost of 27 million

9. special expensing rules for film

9. special deduction for income attributable to Puerto Rican production activities, at a cost of 236 million

10. modification of payments under existing arrangements to controlling exempt organizations, at a cost of 35 million

11. treatment of RIC dividends, at a cost of 124 million

12. extension of treatment of RICs as qualified for FIRPTA purposes, at a cost of 48 million

13. active financing exception to subpart F (for big banks with foreign subsidiaries), at a cost of 9.399 billion

14. look-through rules for CFCs, at a cost of 1.199 billioin

15. S corporation stock basis adjustment for charitable contributions of property, at a cost of 93 million

16. shorter period during which S corporations have to recognize built-in gains tax, at a cost of 184 million

17. empowerment zone tax incentives, at a cost of 360 million

18. Increase in excise taxes paid to Puerto Rico and the Virgin Islands, at a cost of 199 million

19. Extension and modification of credit for American Samoa, at a cost of 38 million

C. Main Energy provisions

1. Section 25C nonbusiness energy property extension/modification, at a cost of 1.456 billion

2. Alternative fueld vehicle refueling property provision, at a cost of 34 million

3. Cellulosic biofuel credit, and special depreciation for celluslosic biofuel plant properties and other items at a cost of 44 million

4. extension of numerous credits for biodieself and renewable diesel, at a cost of 1.881 billion

5. extension of various credits for renewable energy, at a cost of 122 million

6. energy-efficient home construction credits, at a cost of 74 million

7. energy-efficient appliances credits, at a cost of 155 million

8. Cost of "special rule for sales or dispositions" to implement FERC or state electric restructuring, at a cost of 596 million

9. excise tax creidts and outlays for alternative fuels, at a cost of 305 million

 The IRS made available an analysis of the difficulties in responding to potential changes to the AMT in time for filing of returns; that report is available at IRS Complexity Analysis (Aug. 13, 2012).  Links to pdfs of the Senate Finance Committee Report on the Family and Business Tax Cut Certainty Act of 2012 (Aug. 28, 2012); Estimated Revenue Effects; and text of the proposed legislation are available at the Senate Finance Committee website.

Many of these provisions--including the chartiable contribution deductions for value rather than actual investment, the R&D credit extension and the active financing exception extension for businesses, as well as the accelerated depreciation and expensing provisions, don't appear to contribute to growth in the way that the proponents of the provisions claim.   The Finance Committee hasn't made a strong case for continuing to include so many of these tax expenditure subsidies in the Internal Revenue Code.

Two of the business provisions are particularly unjustifiable.  There is no indiciation that businesses will not do research without getting a credit (instead of a deduction) for research expenses.  The Finance Committee justifies allowing this partly retroactive extension of the credit based on the benefit of research itself.  But the Committee hasn't answered the right question--is it essential to research that businesses get a credit, rather than the deduction otherwise available, for research?  The Committee just states that research is important and the Committee "believes it is appropirate to extend the present-law research credit" [that's the TEMPORARY credit that was created more than a decade ago!] and the Committee has enhanced the credit by permitting someone who is selling the business to use the credit for expenses incurred before the sale and by making it easier for a controlled group to manipulate their income by allocating research expenses among the controlled businesses.

The norm in Congress is that all of these temporary provisions will be renewed year after year, no matter what the cost, while a significant faction in the House and Senate continue to push the idea that it is necessary to cut spending on health care and other social safety net costs, cut taxes for the wealthiest amongst us, and increase spending on our already bloated military.

Dow Jones video admits there's not much other than anecdotal tales that even millionaires readily move from one state to another to avoid taxes

OK.  Admittedly long title.  But you get the point.  The anti-tax gurus are forever saying that states (and countries) can't increase taxes from our historically very low point because those that would pay them are the rich and the rich have the means of moving away. 

But do they?  There are lots of things that come into whether one is willing to move or not--from weather to family to friends to business to custom to, yes maybe, taxes.   So if a gazillioinaire moves to another state and then is asked--did you do it to save on taxes?, he might say yes (he knows his views may influence policy inordinately) but it might not even have been a factor or it might have been a minor factor or it might even in unusual circumstances have been the primary factor.

So it's good to see a Dow Jones/Wall Street Journal video that admits that is the case.  Not unsurprisingly (since it is, after all, a Wall Street Journal video) the title is "millionaires fleeing taxes" (Aug. 27, 2012), and the blurb underneath states (as though it were fact) "when states raise taxes, millionaires move out".  But that isn't really what the video interview says.  The video admits that there are no good studies that show that millionaires actually move from one state to another because of tax increases.  Yeah, elderly wealthy move to Florida, but that isn't necessarily to avoid taxes and in fact may well not be related to taxes at all.  Yeah, there are anecdotal stories that people move because of taxes, but there's no real proof.  The video acknowledges that there are many other reasons for choosing where to have one's primary residence, and that manipulation of residence can create problems.  As the video says, "You can show residency in a state by living there a certain amount of time. .... You have to be very very careful, though.  States are being very aggressive about collecting from everybody and determining who actually lives there."

Not on Tax (or only indirectly so): GOPer Akin's "legitimate rape" comment

As most of you have heard by now, the Missouri Republican nominee for Senate, current House Rep. Todd Akin, in a Sunday interview with KTVI-TV, justifying his opposition to any abortion ever, even in the case of rape, made the following incredibly absurd statement:

First of all, from what I understand from doctors [pregnancy from rape] is really rare.  If it's a legitimate rape, the female body has ways to try to shut that whole thing down. But let's assume that maybe that didn't work, or something.  I think there should be some punishment, but the punishment ought to be on the rapist and not attacking the child.  Amy Davidson, What Does Todd Akin Think 'Legitimate Rape' is?, New Yorker (Aug. 19, 2012).

Davidson makes a number of worthy points about this troubling statement by a sitting Congressman who happens to serve on the House committee dealing with science issues.   The statement demonstrates: 

• "biological ignorance" (women do get pregnant from rape
• disregard of women's interest in the matter ("Akin apparently has not [realized] that people possessing a 'female body' are also part of the political conversation")
• Akin's ethically challenged thinking ("There is the puzzling idea that the putative rarity of pregnancies caused by rape would make it any less of a 'tough sort of ethical question.'")
• absurd categorization of rape into "legitimate" and otherwise ("[D]oes Akin think that doing what one could to survive would delgitimze the rape--or that a legitimate victim is [only] one who sees rape as a fate worse than death? ...The problem here is not just whether Akin thinks conception during rape is possible, but what he thinks rape is." emphasis added)

Even when Akin tried to limit the harm done by his statement (he twittered "I have great empathy for all victims.  I regret misspeaking"), he nonetheless confirmed his view that pregnancies resulting from rape don't merit abortions.   

What GOP Rep. Akin's statement reveals is the craven indifference of the right-wing of the Republican party to the suffering of a woman left to bear a child of her rapist, its unconscionable disregard of scientific fact, and the inexcusable attempt to appeal to America's fundamentalist "value" extremists on the right who want to impose their views on social and fiscal issues on all the rest of us, no matter what the consequences.  

As a recent poll  by the Washington Post and Kaiser Family Foundation demonstrated, the strongest group of Republicans, albeit still a minority at 28%, is represented by Tea Party members who support radical social visions of 1900s morality rules being imposed on everyone (fundamentalist religious views enshrined in law and in "traditional" interpretations of the Constitutions, resulting in no same-sex marriage, no same-sex adoptions, no abortions (even for rape victims)) combined with 1900s ideas about tax revenues and spending provisions (removing the safety net provided by Medicare and Social Security and substituting some version of privatization or elimination of these programs, so that the elderly are thrown back on charity care; allowing today's robber barons (corporate moguls and private equity vulture capitalists) to fire workers and reduce their pay indiscriminately through dismantling of unions whenever possible; elimination of tax burdens on capital income; and remaking the corporate tax code to be even more favorable to multinationals).  And Paul Ryan, Romney's vice presidential selection, is of accord with this group and opposes an abortion ban exception for rape victims (though Romney's campaign on Sunday claims that the Romney-Ryan ticket would not opposed abortions after a rape--as though we have any reason to believe that will still be Romney's position a few days from now.....).

As a commenter noted, Akin really just said what he believes out loud, betraying to everyone what he really has in mind.  I hope Missourians recognize this snake in congressman garb for what he is--someone who shouldn't be allowed to touch a Senate seat with a 10-foot pole.

Romney's Private Equity Magic Trick--equity manager's gain, taxpayers' losses (Reich Video)

Mitt Romney claims that his business experience at Bain Capital is a superb qualification for the presidency.  He implies that this experience will carry over to his economic policies, with the suggestion that he will become a "job creator-in-chief" like all those one-percenters purportedly are in the private sector.

In reality, private equity experience is a recipe for disaster in the White House.  Think about what private equity firms do.  They take an ongoing business--usually one that is making decent profits and paying its workers decently--and they make it into one that can pay outsized "rent" profits to the private equity firm.  Usually, though not always, this means cutting costs and adding debt. 

The debt is an elixir for private equity firms.  Because interest is deductible, it actually increases profits by lowering the company's federal income taxes; yet because it isn't required to be used by the firm to actually improve the products or services offered, it is often used instead to pay dividends to the private equity firms, paying off whatever actual investment the private equity firm made in the company. 

Cutting costs is the way for private equity firms to extract even more gravy from their target company.  Cost cutting is most often directed at

• firing workers and making fewer workers do the same work that more workers used to do (that's called a "productivity" gain, garnered, of course, by the private equity firm and not by the everyday workers), and/or
• outsourcing jobs to other countries so that labor can be paid less than a going wage in this country (that's often coupled with step one, since workers are no longer needed in this country--sometimes the US workers are even required to train their cheaper foreign counterparts before they are let go, and of course those "effiencicy" gains are garnered by the private equity firm and not by the remaining workers), and/or
• cutting wages and benefits for the remaining workers (and shipping those extra "savings" out as dividends to the equity firm investors), and/or
• innovating better administrative systems (this can be a good deal--for example, putting money  that the company didn't have until the new "investors" came in into digital record systems or improved communications systems, but it can also be a bad deal, if the firm uses its new technology to game the federal system on taxes, or Medicare reimbursements, or federal contracting or similar items)
  • Consider the fact that Bain and other private equity firms purchased a for-profit hospital.  One of the "improvements was to redesign the coding system for patient services to increase the reimbursements from Medicare and thus hike up the hospital system's profits, which are garnered by the private equity firm.  Julie Creswell and Reed Adelson, A Giant Hospital Chain is Blazing a Profit Trail, New York Times (Aug. 15, 2012), at A1 (noting that Medicare reimbursements for the highest classifications surged to $949,000 in 2010 from $48,000 in 2006 at one hospital, in a story about Bain Capital and other equity firms'  profit improvements at HCA, where nurses and doctors express concerns about profit-making that is driving decisions that shortchange patients through understaffing and/or shortchange the government, as in the new coding system that caused the Medicare reimbursements to skyrocket); see also Steve Denning, HCA: The unsustainable private equity bubble in US health care, Forbes (Aug. 15, 2012).
  • As one commenter on the NY Times article noted, "To be more profitable as a healthcare facility requires ... having more sick people to treat, or hav[ing] higher charges.  Both are inhumane."  Munz, New York, NY.  And as one former HCA employee commented, "patient safety and medication safety came in a distant 2nd to conformity and [the] draconian measures to make care more efficient."

These kinds of activities go hand in hand with the increasing consolidation into mega-business enterprises (regrettably aided by the tax code's "tax-free reorganization" provisions, that were also made much more flexible during the Bush years in order to facilitate such consolidations).  Big businesses reap the productivity gains of their workers for the few managers and significant shareholders at the top, and either buy  or compete with local and family-owned small enterprises to put those smaller and shallower-pocketed (and less well-connected) business out of the way, thus separating more and more businesses from the communities in which they are located.  All in all, not good for America, and not the kind of skills one wants in the presidency, where we need someone who can see the relationship between the stability of small businesses, viable communities, and stable workers.

For a clear and understandable demonstration of the way private equity firms make their money and who wins (and who loses) from those methods, see Robert Reich's video chat on the subject:

ect:   

Who is Paul Ryan?

This post presents a view of Paul Ryan--in particular of his tax and fiscal policy ideologies--as portrayed by various pundits and news reporters over the last few days.

Die Tagezeitung (cited in Amandolare, Global pundits react to Ryan, Salon.com (Aug. 14, 2012):

"More than anything else, Ryan is a radical ideologue who has never changed his platforms.  By selecting Ryan, the Republican candidate has taken one step closer to clarifying his ideological position."

David A. Stockman (Reagan Budget Director), Paul Ryan's Fairy-Tale Budget Plan, New York Times (Aug. 14, 2012), at A17:

[T]his earnest congressman from Wisconsin is preaching the same empty conservative sermon. ... Mr. Ryan's sonorous campaign rhetoric about shrinking Big Government and giving tax cuts to 'job creators' (read: the top 2 percent) will do nothing to reverse the nation's economic decline and arrest its fiscal collapse. ...

The Ryan Plan boils down to a fetish for cutting the top marginal income-tax rate for 'job creators'--i.e., the super-wealthy--to 25 percent and paying for it with an as-yet-undisclosed plan to broaden the tax base. ... Mr. Ryan's plan is devoid of credible math or hard policy choices.  And it couldn't pass. ... Mr. Romney and Mr. Ryan have ... no plan to revive capitalist prosperity--just empty sermons. 

Andrew O'Hehir, Paul Ryan is the anti-Reagan, Salon.com (Aug. 14, 2012):

If you want to argue that Paul Ryan's mode of sincerity and civility is just the pretty face pasted on top of a rapacious social-Darwinist agenda, you may be correct. (emphasis added).

Joan Walsh, Let Paul Ryan enjoy the fair!, Salon.com (Aug. 14, 2012):

Ryan grew up well-to-do in Janesville, Wis. He was embraced by the city's Republican elite, ushered into cushy congressional aide jobs at an early age, and now he's swaddled in the arms of the Koch brothers and treated with deference and respect by the Beltway press corps.  He is worth between $3 millin and $7 million.  ...[He is] solidly in the top 1 percent.  Maybe that is why Ryan doesn't think he should be interrupted on the campaign trail by 'policy things' [a reference to Ryan's refusal to respond to a journalist's inquiry while in Iowa regarding whether he supported federal relief for farmers struggling with the state's historic drought].

Maureen Dowd, When Cruelty is Cute, New York Times (Aug. 15, 2012), at A21:

"He's the cutest package that cruelty ever came in. ... He's Scrooge disguised as a Pickwick, an ideologue disguised as a wonk.

...  He seems more like a friendly guidance counselor who wants to teach us how to live, get us in shape, PowerPoint away the social safety net to make the less advantaged more self-reliant, as he makes the rich richer.

... Ryan truly believes he made it on his own, so everyone else can, too. 

... Ryan co-sponsored the Sanctity of Life Act enshrining a fertilized egg with the definition of 'personhood' and supported a bill ... which would have let hospitals that get federal money deny women abortions even in life-threatening circumstances.

... Ryan was drawn to [Ayn] Rand's novels, with their rejection of 'the altruist morality', making narcissism a social virtue.

Dylan Matthews, Paul Ryan's 2004 Plan for the poor ,The Washington Post, Ezra Klein's WonkBlog,(Aug. 15, 2012):

Whatever you think of Rep. Paul Ryan, “anti-poverty crusader” isn’t a description that comes readily to mind. Yesterday, Sen. Ron Wyden (D-Or.) told Ezra that Ryan’s Medicare plan “completely pulls the rug out from under the poorest and most vulnerable seniors.” Robert Greenstein of the Center for Budget and Policy Priorities alleged that the Ryan budget would “take food from poor children.” And sure enough, Ryan’s budget cuts disproportionately from programs that benefit the poor. Indeed, of the 71 bills Ryan has sponsored, only one is primarily designed to combat poverty.

...[That bill is] called the “National Enterprise Zone Act of 2004”. ..Enterprise zones, first proposed by the Heritage Foundation’s Stuart Butler in the 1980s and embraced by HUD secretary (and Ryan mentor) Jack Kemp, are economically deprived areas, typically in inner cities, that the government designates for exemptions from certain taxes and regulations. ... [S]ome elements of the zones are effective, such as property tax breaks and tax credits for jobs, but ... sometimes the programs end up just subsidizing companies for buying equipment or hiring workers when they would have done so without the incentives.

[Beale Comment: Ryan's 2004 bill allowed all businesses and individuals in an enterprise zone to pay a flat 17% tax on all income earned in the zone.  For individuals, it was essentially a flat 17% consumption tax, with deductions for all savings, capital gains and business inventory expenditures.  Note that this is a quite regressive modification to the current income tax:  low-income individuals in the zone would end up paying a much higher rate than under the regular income tax, while high-income individuals in the zone--especially private equity fund managers like Romney investing in the zone--would have the nifty outcome of stupendous tax savings, with zero percent taxes on most of their income while halving the ordinary income tax rate.]

Andrew Ross Sorkin, Everything Wall St. Should Know About Ryan, DealBook, New York Times (Aug. 14, 2012), at B1:

Mr. Ryan is also an ardent critic of the Dodd-Frank Act, the postcrisis Wall Street legislation. ... Mr. Ryan voted in favor of the bank bailout in 2008, known as TARP ... Ryan was a member of the [Simpson-Bowles] commission and voted it down, arguing that it did not go far enough in overhauling health care entitlements. ... [During the debt ceiling debates,] Mr. Ryan said that he was prepared to let the government default on its debt for at least several days if it would force Democrats to accept deeper cuts.

Sally Kohn, Paul Ryan didn't build that, Salon.com (Aug. 14, 2012):

Republicans have been clamoring to make this election a false dichotomy between the private sector and the public sector.  Paul Ryan--heir to a private fortune made by building public highways--is a gaping pothole in that plan. ...

With a net worth of up to $3.2 million and ranking as the 124th richest member of Congress, Paul Ryan very directly and very significantly benefited from the federal spending he now rails against.  

Or does he?  ...Mr. Anti-Spending secured millions in earmarks for his home state of Wisconsin, including, among other things, $3.3 million for highway projects.  And Ryan voted to preserve $40 billion in special subsidies for big oil, an industry in which, it so happens, Ryan and his wife hold ownership stakes. 

Yet Ryan wants to gut financial aid for college students, food stamps for hungry families, Medicaid, Medicare and Social Security, the very things that have, historically, helped poor families climb the ladder of opportunity in America. ...

It's 'I Got Mine, Now Screw You!' economics.

Ken Derow, Letters to the Editor, New York Times (Aug. 14, 2012), at A16:

The Democrats will predicably say Mr. Ryan's selection is pandering to Mr. Romney's far-right wing.  They will portray him as a dangerous ideologue who is out of touch with Middle America, as evidenced by his budget plan, which seems to favor the rich, the powerful and connected over everday Americans.  Is there some truth to these assertions?  Yes.

The New York Times Editorial Board, The Romney-Ryan Plan for America (Aug. 13, 2012), at A16:

[H]is Medicare plan ... would turn the program into a voucher system that would pay beneficiaries a fixed amount for their medical care, leaving them on their own if the voucher did not cover their costs. [Even leaving the existing Medicare system as an option, his plan] would leave older Americans on average with $6,400 in extra costs by 2022.

...Mr. Ryan's plans for the rest of the federal budget ...if anything are worse than his Medicare proposal.  ...Mr. Ryan drew a blueprint for a government that would be absent when people needed it the most.  Medicaid, food stamps, and other vital programs would [be] offloaded to the states, but the states would not be given the resources to run them.  The federal government simply would not be there to help the unemployed who need job training, or struggling students who seek college educations.  Washington would be unable to respond when a city cannot properly treat its sewage, or when the poor and uninsured overload emergency rooms as clinics close. ... Mr. Ryan's budget would not reach a surplus for 30 years ... because he would cut taxes, largely for the rich and for corporations, by $4 trillion.

...Mr. Romney made a clear statement in choosing the most extreme of the vice-presidential possibilities.

Frank Bruni, The Bold to Mitt's Bland, New York Times (Aug. 14, 2012), at A17:

Ryan [shows some soul] so deftly that the contradictions, holes and hooey in his story recede.  Being a Rand devotee and a faithful Roman Catholic is a nifty trick indeed.  So is a reputation as a detail-obsessed deficit hawk when your big budget plan lacks crucial details and you spent much of your time in Congress backing George W. Bush's spending juggernaut. .... But Ryan ... [is] utterly slick in his projection of genuineness.

 

Romryanomics--prosperity for the well-off fueled by austerity for the rest

I've put off writing about stilted robo-Romney's choice of the perpetual-smily-Ryan as veep about as long as I can, I suppose.  So let me talk about it in broad terms in this post.  In the next posts, I'll discuss more methodically the vacuous "Romney program" and the toxic "Ryan path to prosperity" with particular attention to what they have said specifically (or not, in Romney's case) about what they want to do with the tax system. 

Both Romney and Ryan come from well-to-do families with the privileges of financial support, status and connections that adhere thereto (see this story on Romney--by the way, a donated inheritance is still an inheritance and donations of that magnitude earn other privileges for the elite; and this story on Ryan--whose wife also inherited millions including oil and gas interests), yet support the neoconservative economic mythology that wealth is wholly based on merit and that the way to have a good economy is to make sure the wealthy, who are deemed to be the (mythic) "job creators" are happy.  This leads them to support austerity for the middle class and seniors coupled with deregulation, privatization, militarization and tax cuts--Romryanomics 101. 

Key to the Romney program (or what can be derived from a description of generalities-without-specifics that can't be scored by economists plus Romney's statement earlier that he would sign Ryan's budget proposal into law if passed by Congress plus his Monday statement that "his own plan for Medicare is 'very similar' to Ryan's", per this NBCnews.com story ) and the Ryan so-called "path to prosperity" (see, e.g., the LA Times story) is privatization of, and spending cuts to, Social Security and Medicare, along with spending cuts to everything else that serves the public good (environmental programs, parks, etc.) and vulnerable minorities in this country and isn't part of the military-industrial-financial complex.  That is, social welfare programs that have made the difference between poverty and dignity for American seniors will be undone by some level of privatization and benefit cuts, to accomodate unmerited tax cuts for the wealthy and increased spending on the military (notice the echos of Bush's Iraq-war buildup in the talk about being tough on Iran and extraordinarily friendly to Israel coming from the campaign). 

Of course, this program of tax cuts, militarization, and deregulation has already been tried--those are the ideas that failed to deliver a robust economy under George W. Bush, who had an anemic recovery from 2001-2004 in spite of the $1.3 trillion in tax cuts over ten years enacted in 2001 and the continuing tax cuts carried out in 2003 and 2004.  Nor did Bush's imperialistic militarization through two preemptive wars deliver a robust economy.  Instead, the rash of financial speculation and finanialization of the economy pushed us into a deep financial crisis and the Great Recession.  Those ideas will upend the recovery from that recession that has been underway under Obama.

Both Romney and Ryan have personally benefited from the kind of government that recognizes the importance of public-private cooperation in institution and infrastructure building, yet pontificate that government is always less efficient than private enterprise.  That rhetoric is used to justify stifling innovative programs like supporting experiments in environmentally sound energy development, but it doesn't come into play as far as continuing to ladle out tax-code largesse to the profitable oil and gas extractive industry or coddling financial institutions through deregulation (Romney, for example, supports dismantling Dodd-Frank, an already timid effort to rein in financial speculation; Ryan voted for TARP and against Dodd-Frank, positions that garnered Republicans a haul of financial industry contributions).  That approach will continue the George W. Bush trend of the financialization of the economy and likely land us in another, even worse, systemic financial crisis. 

Both had ancestors that benefited greatly (in terms of prestige and in terms of economics) from their involvement in and with government.  Romney's father George, of course, was a well-known governor of Michigan --and  a wealthy corporate CEO in the auto industry that benefited hugely from the government shift from investment in railroads to investment in roads.  Ryan's family reaped its riches at the public trough--involved in the kind of public-private partnerships that made the transcontinental railroads possible (and built enormous wealth for the railroad builders) and the interstate highway system possible (and built enormous wealth for the highway builders).  See Libby Spencer, Ryan family fortune built on taxpayer money, DetroitNews.com (Aug. 14, 2012);  Sally Kohn, Paul Ryan didn't build that! Salon.com (Aug. 14, 2012) (noting that  the Ryan family, starting with his great-grandfather building railroads, has profited from government contracts over more than a century, including "at least 22 defense contracts ... since 1996").

Romney likes to think of himself as a successful businessman who can lead the country by supporting business.  But Romney is mainly a vulture capitalist.  His private equity firm bought companies that were doing well and providing good US jobs, loaded them up with debt so that outsize profits could be made for the Bain "investors" (himself included), and --if it helped them make even more outsize profits--enjoyed firing the "excess" workers. Private equity firms don't produce anything.  While the right applauds the so-called "creative destruction" that tears existing companies apart to sell off the pieces for more or to enable firing the workers and breaking a union contract, those activities don't add to a sustainable economy.  They  mostly look for companies they can take over, with no regard for the workers' lives or the communities in which the companies exist, in order to capture what economists refer to as "rent" profits, usually through loading the companies up with debt.  Some of the companies thrive or just survive, but many of the workers don't, since cutting workers is a favored cost-cutting measure.  Some of the companies go bankrupt, leaving all the workers in the lurch and usually without promised pensions.  Some of the companies turn to outsourcing workers in order to make enough to pay off the debt.  There's not much in vulture capitalism that bodes well for a vulture capitalist as president.

Ryan likes to think of himself as a principled thinker who will push for what he considers appropriate policies (no matter, apparently, their impact on vulnerable seniors or middle-class Americans).  As Ryan's 2005 speech to the Atlas Society made clear, he has been an avid follower of Ayn Rand, the alpha-male praising, privileged-innovator("producers")-elite loving, anti-societal cooperation, anti-altruism,  radical libertarian, free-trade "objectivist" author that has been called the "Goddess of the Market" (see Jennifer Burns, Goddess of the Market: Ayn Rand and the American Right).  Ryan even told the Weekly Standard in 2003 that  “I give out ‘Atlas Shrugged’ as Christmas presents, and I make all my interns read it,” he said. “Well... I try to make my interns read it.” Rachel Weiner, What Ayn Rand says about Paul Ryan, Washington Post (Aug. 13, 2012).  Lately, though, he's been trying to distance himself from Rand, perhaps because he finally learned that her brand of radical libertarianism derived from atheism rather than theism.  Kate Sullivan, Veep nominee Paul Ryan renounces former fascination with Ayn Rand, NY Daily News (Aug. 14, 2012).

The fallacy of privatization: anti-government screeds and the Romney agenda

As a prominent tax professor points out, Mitt Romney accumulated most of his additional wealth in a business that generally doesn't do anything to increase national wealth.

Mitt Romney accumulated his wealth as managing director of Bain Capital, a leveraged buyout fund (LBO).  LBOs are driven by tax savings.  Tax savings are transfers from other people to LOBs without any increase in GDP or national wealth.  An LOB replaces the stock of established companies with debt.  Johnson argues that because interest is deductible, the replacement can increase the value of the surviving stock by two to six times without any improvement in operating income.  The increase in debt harms the private economy because the companies become very fragile and the leverage encourages the owner to bet the company.  Calvin Johnson, The Tax Explanation for the Romney Leveraged Buyouts, Tax Notes (July 30, 2012), at 579

Romney's activities at Bain Capital are just one example of how the private economy can generate wealth for a few people at the top without doing anything to help the overall economy, GDP, or national wealth--or ordinary workers.  With that in mind, we should then be rightly skeptical about the typical claims from the right that the private economy can always do a better job of any given task than government (the public economy).  Yet if you asked that as a question of Romney, you'd get a canned "yes."  For Romney, efficiency and competition are gods that only the private marketplace can worship and therefore all government functions would be better handled by private rather than public forces.  That seems to be the gist of his statement in a recent interview, highlighted by Mark Thoma's post on Outsourcing Government: What is Mitt Romney Talking About, at Economist's View, that builds on Brad Delong's post.  Here's the most relevant language from Romney on the idea that private is always better than public:

MITT ROMNEY: Well, clearly you don’t like to hear [about] anyone losing a job. At the same time, government is the least productive—the federal government is the least productive of our economic sectors. The most productive is the private sector. The next most productive is the not-for-profit sector, then comes state and local governments, and finally the federal government. And so moving responsibilities from the federal government to the states or to the private sector will increase productivity.

But that's simply wrong.  It is empirically wrong.  It is theoretically wrong.  And it is wrong-headed policy for America.

Mark Thoma also pointed out Paul Krugman's earlier post, Outsourcer in Chief, New York Times (Dec. 11, 2006), providing a range of examples where privatization of public functions results in terribly incompetent performance.

[O]utsourcing of the government’s responsibilities — not to panels of supposed wise men, but to private companies with the right connections — has been one of the hallmarks of [George W. Bush's] administration. And privatization through outsourcing is one reason the administration has failed on so many fronts.

Krugman lists, among others, the Coast Guard's overrun for its privatized modernization program; the generalized outsourcing of Iraqi reconstruction to private contractors "with hardly any oversight," with the unsurprising poor results;  and Bush's buddy at FEMA's outsourcing of disaster evacuations to Landstar Express, which "didn't even know where to get buses" when Katrina hit.  As Krugman notes, outsourcing is an "antigovernment ideology" of today's neocons, and it is one that leads to poor results in many cases.

Conservatives look at the virtues of market competition and leap to the conclusion that private ownership, in itself, is some kind of magic elixir. But there’s no reason to assume that a private company hired to perform a public service will do better than people employed directly by the government.  In fact, the private company will almost surely do a worse job if its political connections insulate it from accountability.  Id. (formatting changed)

Now, mix privatization = poor performance because of crony capitalism/lack of oversight with the tendency these days of businesses to exploit workers in order to harness all productivity gains they do achieve for the big bosses at the top.

(If you need information on the latter, look at the way workers' wages have stagnated or plummeted while managers have skyrocketed.  Or just Google Caterpillar to see how it is negotiating with its unions for cuts for ordinary workers' wages and benefits, when it is nonetheless already making an enormous profit.) 

What you get from this naive, jaundiced view of private versus public is a formula for a disastrous economy.  Obama's stimulus was somewhat less than it should have been, but it saved the U.S. economy from the worst we might well have expected from Bush's disastrous reaganomics policies.  Bush's preemptive war costs combined with deregulation and tax cuts for the rich and for corporations resulted in huge deficits and ultimately caused the financial crisis,  necessitating unprecedented borrowing that left an economy spiralling in free fall when Obama took office.

What Romney promises, then, is a return to the winner-take-all, failed economic ideas of the neocon right.