If you are a company that depends on IP for a lot of your revenue, you may be able to avoid considerable taxes by funnelling profits from subsidiaries in high-tax countries into a Bermuda shell company. Google avoided about $2 billion in worldwide income taxes in 2011 by shifting about 80% of its total pretax profits-- $9.8 billion -- into Bermuda. See Jesse Drucker, Google Royalties Sheltered in No-Tax Bermuda Soar to Nearly $10 Billion, Bloomberg.com (Dec. 10, 2012).
Meanwhile, the US decided not to take action against HSBC for its fraudulent behavior because it was considered so big that it could damage the financial system (again) to interfere with its continuing corporate existence. See Glenn Greenwald, HSBC, too big to jail, is the new poster child for US two-tiered justice system, guaradian.co.uk (Dec. 12, 2012) (noting that "one of the world's largest banks, HSBC, spent years committing serious crimes, involving money laundering for terrorists; 'facilitating money laundering by Mexican drug cartels'; and 'moving tainted money for Saudi banks tied to terrorist groups' " but US officials decided "not to prosecute HSBC for accepting the tainted money of rogue states and drug lorgds on Tuesday, insisting that a $1.9bn fine for a litany of offences was preferable to the 'collateral consequences' of taking the baqnk to court").
Maybe this kind of information will finally incense governments against corporate tax dodging. What we need are laws that refuse to recognize shell companies set up in tax-haven countries to siphon profits from the countries where they originate. What we need are fewer possibilities for companies to expand through tax-free mergers and acquisitions that allow them to get so big that they become immune to ruin when they commit major crimes.
As most readers know, the federal government is currently in what passes for negotiations between the President's Democratic Party Senate and House members and the GOP members that control the House.
The Tea Party and its right-wing rhetoric has of course had a radicalizing impact on the GOP positions, with members not only beholden to Grover Norquist and his anti-tax pledge (all strongly supported by various right-wing propaganda tanks like the Tax Foundation, Heritage, American Enterprise, and other organizations) but also to the anti-social welfare corporatists like David and Charles Koch, the Wal-Mart heirs, and other oligarchic families that constitute the top 1% of US income and wealth. As a result of these two strong influences, the GOP now stands for
tax-cuts-no-matter-what (and for tax cuts that benefit the wealthy most of all, as reflected in the rigid position in favor of the "carried interest" scam used by private equity profits partners and the extraordinarily preferential rate for capital gains and dividends included in the "net capital gain" definition under section 1(h)(11)); and
so-called "entitlement reforms", by which GOPers generally mean reduction in benefits and/or privatization of social welfare programs including Social Security, Medicare and Medicaid. (All of this is argued in terms of caring about "saving" the programs for the future, but the truth lies in the ways that the right proposes changes to the programs--not changes in costs related to profits taken out by Big Pharma and similar interests, but changes in benefits to ordinary Americans (such as raising the working age for eligibility even though those who work at the hardest labor need benefits earlier, not later, or lowering the cost-of-living-allowance adjustment to benefits for Medicare, even though seniors generally have a HIGHER cost of living because of their increased medical needs, including prescription drugs for diabetes, high blood pressure, and similar diseases particularly prevalent in the elderly population.)
The sum of those positions stands for a corporatist philosophy of benefitting the oligarchy and their business enterprises at the expense of everyday Americans who work for a living.
This is even more obvious when one looks at the same groups' position on government subsidies for business. The New York Times recently ran an article on this issue, noting that governments typically pay out a lot of money to support profits of companies and receive very little benefit in terms of tax revenues received and jobs created! Louise Story, As companies seek tax deals, governments pay high price, New York Times (Dec. 1, 2012).
Over at MauledAgain, one of my fellow tax professors Jim Maule has, like me, long criticized the hypocrisy of supporting tax breaks for private enterprise and opposing earned benefits programs for ordinary citizens and has repeatedly pointed out that the economics of the tax breaks for business don't work out for anybody but the owners and managers of the businesses. They certainly don't work for taxpayers of the jurisdiction providing them. As Jim notes:
These tax breaks are nothing more than welfare payments to private enterprise. Opponents of social welfare spending defend these outlays with as much passion as they bring to their attempts to end government assistance for individuals in need of help.James Maule, The Hidden Government Spending Game, MauledAgain (Dec. 5, 2012).
Jim rebuts one of the sham arguments for corporate subsidies--that they are just "keeping what belongs to them." Those special subsidies to one private enterprise sector cause ripple effects throughout the economy--higher taxes to the other taxpayers to make up for the lost revenues, or cuts in important programs that can no longer be sustained without the revenues. Prices and wages may change as well. Id.
What I want to focus on is the hypocrisy of claiming an interest in ending "entitlements" but applying that philosophy only to programs that are intended to help ordinary citizens and not to those intended to beef up the profits of corporations or their managers and owners. This is especially hypocritical for today's right-wing, since they almost universally claim to ascribe to the view that competition is good and that businesses should fail when they cannot successfully compete.
Look at two cases involving WalMart, a multinational enterprise that fights unionization of its employees (and supports right-to-work laws that weaken worker rights) in every way imaginable.
1) In Champlain Illinois (personal experience), WalMart had a huge spralling complex on one side of the road. It had gotten various tax support for the complex. It decided to move across the road and down the block into another jurisdiction. It got new tax subsidies there. It abandonned the old building and left whatever environmental pollution there. Who gained? Mostly WalMart managers and owners. Not the town and counties. Not the employees. Not even the consumers who shopped there, who had to deal with the blight of the abandonned building and the multiplication of vast expanses of ugly parking lots.
2) WalMart in Bangladesh. WalMart delivers cheap goods because it outsources its clothing and other manufacturing needs to impoverished countries where workers can be paid almost nothing and get almost no protections. In Bangladesh last month, a clothing factory burned, killing hundreds of workers. It was a WalMart supplier. See Natasha Leonard, WalMart's Connection to Bangladesh Clothing Factory, Salon.com (Nov. 26, 2012), where a critic noted that:
"Wal-Mart is supporting, is incentivizing, an industry strategy in Bangladesh: extreme low wages, non-existent regulation, brutal suppression of any attempt by workers to act collectively to improve wages and conditions." Id.
This was a modern-day repeat of the Triangle Shirt Factory incident in the early nineteenhundreds in New York City: workers unable to escape burned to death in factory rooms without fire exits and yet dangerously littered with lint and other debris that made their workplace a fire hazard.
These things are all tied together: hostility to workers rights to bargain collectively for some fair share of the productivity gains that their labor brings about, hostility to workers rights to a safe working place; hostitlity to workers rights to decent health care; hostility to ordinary people's rights to a sustainable lifestyle; and hostility to any effort to make the oligarchic uber-rich pay a fair share of the costs of the infrastructure to sustain an economy and a people.
Tax policy, spending policy, policy towards workers, policy towards the wealthy uber-rich--these are all closely intertwined and must be considered of a piece. Tax policy needs to establish reasonable levels of contributions based on a progressive income tax that takes into account the marginal utility of the dollar. Spending policy needs to set priorities based on something other than the lobbying by special corporate and oligarch interests for tax-and-spending provisions that privilege themselves. Policy towards labor rights and workplace safety need to recognize that the worker is disemplowered within the workplace and needs some legal support to provide a reasonable share of productivity gains--minimum wage laws, unionization laws, workers safety laws need to protect workers rights against the all-powerful employer.
If the right succeeds in continuing to pass right-to-work laws (Michigan's lame duck GOP is trying to do that right now), if the oligarchs succeed in capturing all the profits from workers' labor--there will be social unrest on the scale of the Great Depression. Everybody will suffer from that kind of austerity and class warfare policy. Broad based economic growth that comes from workers sharing in the profits of their industry and those at the top not getting an unreasonable share of the productivity gains is better for all.
Some in the GOP have realized what progressives have been saying all along--that by winning the election, President Obama is in a much better negotiating position on taxes and spending than before, and the GOP really doesn't have many hands to play.
The trouble is, the GOP thinks if it "gives" on any tax increases on the wealthiest Americans that it should have the "right" to a "balanced deal" and get the Dems to go along with the decimation of Medicare, Medicaid and Social Security. This is the main battle of the radical right's class warfare against ordinary Americans--their goal is to eliminate, reduce, or privatize Social Security, Medicare, and Medicaid benefits. They created the fiscal cliff with brinkmanship temper-tantrum threats to throw the United States into default unless they got their way, and they are trying to use the December 31 deadline that they themselves set in place to push the Democrats into being the ones to destroy the most effective social welfare programs that the Democrats have created.
See, e.g., Hiedi Przybyla, Republican Defectors Ready to Back U.S. Tax-Rate Compromise, Bloomberg.com (Dec. 5, 2012). Some members of the GOP have "signed a letter calling for exploration of 'all options' on taxes and entitlement programs"; Petition signers like Mike Sampson (R-ID) say this means he would be willing to "accept higher rates for married couples earning more than $500,000 a year, in exchange for an overhaul of spending on entitlements such as Medicare." "We've [the GOP,that is, has] got to have entitlement reform," he says. Id.
Steny Hoyer--the center-right Democratic whip in the House--said that "proposals to raise the eligibility age from 65 to 67 and other entitlement changes 'clearly are on the table'."
Hoyer is writing a suicide note for the Democratic party with that statement, for two reasons.
1) Tax increases cannot be significant enough if they are limited to married couples with $500,000 or $1 million of income, as Simpson suggested, nor if they do not raise the top rate to at least the Clinton era rate of 39.6 percent.
In reality, they should introduce additional brackets above that rate level for the top earners (e.g., 4o% for 750,000 or more, 45% for 2 million or more , 50% for 10 million or more, up to perhaps 65% for those who make hundreds of millions of income per year).
And the capital gains preference should be eliminated. But the GOP is also digging its "line in the sand" against any increases in taxes on investment income--even though this is an income category that creates tax arbitrage opportunities for the wealthiest Americans and high-income Americans (like Mitt Romney) end up paying tax at rates substantially less than ordinary Americans because of the preferential treatment of their capital gains income. See, e.g., James Politi, Republicans in capital gains tax fight, Financial Times.com (Dec. 4, 2012) (noting that Republicans in the House are "fighting tax increases on capital gains and dividends, ruling out investment income as an acceptable source of additional revenues in increasingly urgent talks to avert the fiscal cliff") [hat tip--Yves Smith at Naked Capitalism].
2) Democrats were elected as the party most likely to protect earned benefit programs, not destroy them. There is no way that Democrats should accept ANY "overhaul" of Medicare or the other social program eligibility requirements as a way to cut spending. They are vitally essential to Americans, and the GOP suggestions take the brunt of cuts out on the most vulnerable populations. The GOP's cuts include lowering the COLA for the elderly for Social Security, when the elderly actually have a HIGHERr cost-of-living than ordinary Americans, or raising the eligibility age for Medicare, when those who labor all of their lives often need EARLIER eligibility because they need to retire earlier and have no health care outside of work and can't afford to pay what private insurers will charge.
The savings from these stingy GOP proposals are de minimis, but the impact will be to create a momentum for reducing benefits as a way to save. That is treating a symptom and not the problem.
The problem of increasing health care costs comes from the inordinate profit-taking by parties at every link of the health care chain--consultants who bid out to insurers, insurers, hospitals, doctors, Big Pharm, Big Nursing Home, and shareholders. The only way to address the problem is to do what every other advanced civilization in our era has already done--move to a single payer system that treats health care as a citizen's right and treats the provision of health care as in some sense a public good that the government must provide. Single payer allows the government to bargain on behalf of its citizens, reducing the monopolistic rights of pharaceutical, hospital and other health care intermediaries.
The article notes that about 120 Dems would need to "buy in" to entitlement cuts in the House for the GOP to agree to tax increases. The Dems should say no. The tax increases will come into law on January 1, and then the Dems can propose a bill that will cut taxes for those for whom it makes sense, without decimating the star programs that have supported the middle class since FDR. (Note to Dems--progressives will not vote for anyone who goes along with such entitlement changes.)
Although expectations were high that a Supreme Court conference last Friday might result in the Supreme Court taking on the various same-sex marriage cases that are before it on cert. petitions, there's been no action yet. See Jess Bravin, Supreme Court Does Not Act on Gay-Marriage Cases, Wall St. J. Law Blog (Nov. 30, 2012). [Hattip Prof. Murphy] Since the issue was on the agenda for the conference and decisions were announced on other items discussed at the conference, speculation is that the Justices will discuss the issue again at this Friday's conference before a decision is made.
The cert. petitions cover:
1) challenges to DOMA, where the Second and First circuits found it unconstitutional
2) challenge to Califorinia's Proposition 8, where the Ninth Circuit fiynd the voter initiative limiting marriage unconstitutional in light of the California Supreme Court decision that the state constitution protects gay marriage rights
3) challenge to Arizona's Section O, where the Circuit found it violated the equal protection clause.
House republican leaders have sent a letter to President Obama with their "fiscal cliff" proposal, which the Republicans cast as a "fair middle ground" and a "balanced framework for averting the fiscal cliff." Id. Republicans object that the administrative proposal has is unbalanced, because it has "four times as much tax revenue as spending cuts" (under a Republican claim that the Administration shouldn't count already enacted spending cuts that were part of the Administration's original proposal as part of the bargain). And of course the Republicans don't like the idea of any stimulus measures being included in the deal or the proposal to finally do away with our arcane and unnecessary debt ceiling mess, which invites games of chicken that have no point. They claim that they are merely supporting the Bowles-Simpson plan, which of course they are not since they are refusing all tax rate increases.
The letter is written rather confusedly and is therefore somewhat ambiguous on exactly what it is offering as a concrete proposal. One has to conclude that it isn't a concrete proposal but actually merely puffery that restates the position that the GOP wants lots of entitlement cuts, no military cuts, and no tax rate increases (but might go along, maybe, with some unspecified "loophole eilmination" for the nonce). It appears to propose the following:
$900 billion in cuts to mandatory spending including Medicare and Medicaid spending over the next decade
The Republican letter, of course, tries to assume the mantle of "preserving and protecting" social welfare programs even while they reach out to reduce, eliminate or privatize them, when it suggests that perhaps the Republicans will return to the Budget Resolution that offered a voucher plan for limiting Medicare benefits (and hoped to buy off current seniors and those nearing retirement by promising them benefits under the current program). The Republican proposal referred to claims to "reform" Medicaid by offering "flexibility" that cuts $800 billion from the program over 10 years! Although admitting that the election makes pursuing those kinds of harsh reforms "counterproductive", the Republican leaders promise to "continue to support and advance them."
$300 billion in cuts to other discretionary spending over the next decade
$200 billion in cuts to Social Security benefits (by revising the method of calculating cost of living increases, which would also apply to keep the tax brackets from rising as fast and for adjustments to government pensions)
$800 billion in new revenue--achieved through "pro-growth tax reform that closes special-interest loopholes and deductions while lowering rates" (but of course without mentioning just what loopholes and deductions would be removed). The letter goes on to declare that the Republican leaders will not agree to higher tax rates, asserting that their position is to "protect small businesses and our economy".
Let's assess this so-called "proposal."
Lowering rates is absurdity at this point: no reasonable person should vote for a proposal to lower US tax rates even more than they already are. Lowering rates while eliminating deductions or loopholes doesn't work any better: immediately after such a bill is passed, the lobbyists will be back on the floor. First they'll demand a temporary extension while markets "adjust" (mostly bulls..t). Then they'll demand that the temporary provision be made permanent to provide "certainty" to markets and businesses. Then they'll demand enhancement of the loophole to broaden it, since they say such provisions will incentivize job creation. Etc. This is an old story that never plays out the way the lobbyists promise. Congress shouldn't fall for it again. Because the next ploy will be--oh, let's broaden the base by removing these new old loopholes and then we can lower rates even more. The only thing that is likely to happen in this ploy is that the top rates go down for the wealthiest taxpayers, who pay less and less.
Cutting the various safety net programs is equally absurd. Especially in a time of continuing difficulty, especially for vulnerable populations like the elderly, poor, laborers with inadequate pension and health care possibilities after retirement and other large groups in our population. There is no reason to cave to the GOP's forty-year campaign to reduce, privatize or eliminate social welfare programs: let the gradual onset of taxes and sequesters take place in January, and then ask them to pass a tax cut to benefit those in the middle and lower-income groups.
The letter ends with an oxymoronic statement that essentially states that if the Obama administration will cave to these GOP demands, they are "ready and eager to begin discussions about how to stucture these reforms." They go on to suggest that President Obama has taken actions to "undermine good-fith effrorts to reach a reasonable and equitable agreement."
That's bunk, boys. If the GOP is going to play this game this way, the administration should not attempt any kind of short-term resolution. After the Bush tax cuts are repealed once and for all by operation of existing law as of January 1, it will be much easier to discuss what reasonable tax cuts should be enacted to protect the middle class rather than the wealth of corporate managers and owners. And once there is a first start on the reduction of the military budget, we can move on to reduce it even more. Action can be taken to stave off problems that would be caused by any of the provisions in early 2013.
Robert Reich is at it again--producing a quick (2 1/2 minute) video with sketches to illustrate his suggested rules for Democrats in the "fiscal cliff" negotiations with the GOP. The video is available various places, including on Salon at the following link: Robert Reich, Understanding the fiscal cliff in 150 sections, Salon.com (Dec. 3, 2012).
"Reich's Rules" sound an awful lot like the stuff I've been writing on my blog, so readers may see some building of a consensus here. (I hope.)
Rule 1. "Hold your ground." Dems won the election.
Rule 2. "No deal is better than a bad deal." Bush tax cuts end. (I'd add--the military sequester is the first real cut in the military and a start on reducing that huge 60% stake of our budget.)
Rule 3. "Make Republicans vote on extending the tax cuts just for the middle class." How can they really refuse?
Rule 4. "Demand higher tax rates on wealthy, not just limits or deductions."
Rule 5. "Don't cut safety nets" (Medicare, Social Security, Medicaid, programs for the poor).
Recent Comments