ataxingmatter

The Times Handles the Trump Tax Cut Framework with Kid Gloves

There's been a good bit written about the Trump tax cut framework released just over a week ago.  Most of it points out, as I have here and here, the absurdity of the claims by Trump and GOP spokespeople that this isn't a tax cut aimed at benefiting the ultra wealthy.  After all, even with few details and no attempt to deal with the really tough issues that would face real tax reform considerations, it is awfully clear that almost everything in the package is designed to make the wealthy even wealthier. 

Just a quick review of the way the proposed tax cuts exclusively or primarily benefit the ultra wealthy:

• elimination of the estate tax, which taxes fewer than 2% of the estates, those that have in excess of $11 million (the couples' exempt amount) and haven't used the various trusts and family partnerships to let even more estate value escape tax through valuation gimmicks
  • Not waiting on the tax cut proposal, Trump's Treasury secretary Steve Mnuchin announced in "Second Report to the President on Identifying and Reducing Tax Regulatory Burdens" (Oct. 2, 2017) a current step to let wealthy people continue to use valuation gimmicks to avoid a fair estate tax, through withdrawal of the Obama Administration's proposed regulation under section 2704 that would disregard the purported restrictions on certain family-controlled entities in setting estate valuations--a regulation clearly merited because of the ridiculous scams of putting assets in family partnerships in order to claim that they are worth 1/3 of their actual value, even though the partnership can be dissolved afterwards with the full value magically returning.  (I'll deal with the regulatory changes in my next post.)
• elimination of the AMT, which imposes tax when the taxpayer would otherwise benefit from a surfeit of regular income tax subsidies (loopholes, tax expenditures, deductions, credits).  For a thorough analysis of the AMT, see A Taxing Matter series of 6 posts, beginning here.
• reduction of the statutory corporate tax rate for the largest corporations from 35% to 20%, which benefits primarily the highly compensated managers (who receive substantial amounts of stock options as part of their compensation) and big shareholders (who tend to be mainly the ultra wealthy who own most of the financial assets) and does little or nothing to help small businesses, that already pay tax rates of 25% or less
• creation of a single 25% rate for recipients of all business pass-through income (i.e., from partnerships), which benefits almost exclusively the ultra rich, since small business income is already taxed at 25% or less, while wealthy partners in real estate firms would be taxed at the highest individual rate under current law on their pass-through income, and
• creation of full, upfront expensing, resulting in a non-economic windfall to businesses that will, again, mainly just increase profits passed on to their wealthy owners. (Although this is purportedly a five-year provision, everybody knows that is just a gimmick to pretend that its impact on the deficit is less than would be admitted if it were permanent.  Everybody also knows that the intent is to make it permanent.)

But there are always journalists who try a little too hard to give obviously bad tax ideas a surface claim to reasonableness.  Apparently, even James Stewart, who writes "common sense" entries for the business section of the New York Times, suffers this vulnerability.  See, for example, his "Tax Cuts are Easy, but a Tax Overhaul?  Three Proposals to Make the Math Work," New York Times (Oct. 6, 2017), at B1 (digitally titled "Tax Reform that doesn't bust the budget? I've got a Few Ideas, Oct 5, 2017). 

I like the print title better, since the Trump Plan has clearly already ditched any real idea of "tax reform" for a wholesale attempt at trillions of dollars of tax cuts mostly benefiting the rich.   There are other things that aren't so good about the article.

1) Stewart calls the Trump giveaway to the rich "the most ambitious attempt at tax reform in over 40 years."  That's simply not correct, because it isn't an attempt at tax reform and it isn't really ambitious. 

• Ambitious? How can Stewart call a grab-bag of all the old GOP cuts-for-the-rich gimmicks "ambitious."  Unless he thinks that conning typical Americans who don't understand much about taxes into thinking that this is a populist tax reform intended to help the middle and lower income classes and not drop more riches on the already rich makes it 'ambitious'..... 
• Tax reform?  This isn't tax reform; it's just a series of tax cuts.  The framework leaves any thinking about tax reform for somebody else to do--which means it really isn't intended to happen at all.  Later in the article Stewart quotes Holtz-Eakin (right-wing tax cut advocate) and Kevin Brady (same) about the "ambitious" framework.  They're gung ho.  Brady says it's ambitious because they are trying to do what the 1986 reform  effort did in several years in only a few months.  Nope--they are not trying to do what the 1986 reform did.  The 1986 reform was a fully bipartisan effort in both the House and Senate, with  Packwood in the Senate and Rostenkowski  in the House leading lengthy hearings and in-depth study of issues, along with a responsible and active Treasury and CBO providing in-depth analysis of impacts.  Trump and the GOP now intend to pass a tax cut for the rich with only GOP support (unless Trump can bully some election-vulnerable Democrats into going along with the travesty).  And they don't intend the kind of exhaustive study and consideration that would provide real information on who would benefit and who would be hurt.  We've already heard that some GOP want to pay an outside (GOP-friendly) consultant to do the "dynamic scoring" and not the CBO, because they want to be sure that it predicts plenty of growth (a number that is easily manipulable, which is why 'single score dynamic scoring' is utterly absurd).
  • Tax reform would look at the wasteful expenditures we make through the tax system to support old technologies that are clearly part of human-caused climate change, such as our continuing century-long subsidy of fossil fuel extraction, coal-based mountainside destruction, and environmental wildlands-destroying oil, gas, mineral and cattle leases. 
  • Tax reform would consider who has benefited most from the many loopholes and tax expenditures that we've riddled the original 1986 tax reform act with in the years of money-smoothed lobbying since--such as the reinstatement of the preferential capital gains rate within 2 years of the 1986 tax reform's well-considered removal of the preference, or the reinstatement of the absurd R&D credit when thorough study and consideration showed that it did not result in more research but merely more money (fungibly located, to the advantage of IP-intensive industries like pharmaceuticals and digital software firms).
  • Tax reform would have a target amount of revenue to raise with taxes, based on social, infrastructure, and other important spending and the debt service needs of the already incurred federal debt, rather than a mere pie-in-the-sky idea of a "dynamic scoring" that would "show" that trillions of dollars of tax cuts over ten years would magically pay for themselves through turbo-charged economic growth that none of the top economists think possible.

2) Stewart acknowledges that the framework appears to be a tax cut for the rich and that it appears to recklessly drive up the deficit and that it leaves the hard part for Congress to figure out (which loopholes to close and how to do it) while claiming huge benefits from corporate and business tax cuts that add to the huge corporate and business tax cuts enacted under Bush 2, many of which were made permanent under Obama.  But he excuses all that with the cop-out phrase "this plan is just the opening salvo."

• Opening salvo?  Something that comes after years of GOP planning and saying they wanted to cut taxes on corporations, eliminate the estate tax, eliminate the AMT, cut taxes on high earners, move to a rate structure with fewer and lower rates, and move to much lower tax revenues by eliminating world wide taxation and adopting a territorial system --i.e., do all the things that this 'framework' does?   That's just an "opening salvo"?  I think that term casts what is going on here in much too friendly a light.
• Opening salvo?  when these planners have already said that they are convinced that dynamic scoring (i.e., counting your chickens (economic growth) before they hatch, even before there are any eggs to count) will solve all their problems because they ALWAYS assume that tax cuts to wealthy people will trickle down to everybody else and make the economy grow, even when every bit of evidence from history suggests that simply isn't the case, including the recent Kansas disaster? 

3) Stewart claims that "substantial aspects" of the framework already have bipartisan support, by which he means the idea that "global competition" demands that we cut corporate tax rates and everybody agrees that companies should not be able to stash earnings overseas tax-free. 

• Bipartisan support?  Of course, while there are various 'free-market' economists who make the argument that we need to cut corporate rates for competitive reasons, it can be argued that when 75% of corporations pay no federal income taxes whatsoever and when highly profitable companies have been able to increase their profits and when U.S. corporations pay a smaller amount of taxes as a portion of GDP than corporations in other advanced countries, global competition does not seem to be a problem.  The problem is the loopholes in our system that allow multinational firms--especially those that depend on intangible intellectual property rights--to pretend to move those rights around and thereby claim that the profits from that intellectual property created here are earned abroad and not subject to U.S. taxation.  We could deal with that, but the GOP in House and Senate aren't interested in asking those questions in ways that lead to effective answers.  Democrats tend to be more interested in considering what the root problems are.  So "bipartisan support" that appears on the surface is likely only skin deep. 
• Global competition?  Right now, we already allow U.S. companies to move active businesses abroad tax free.  We facilitate their ability to take advantage of low-tax jurisdictions to compete with U.S.-based companies!  We give financial institutions a pass on the 'subpart F' provisions of the Code through the "active financing" exception.  And the Mnuchin report on regulatory "burdens" indicated that the Trump administration will pull back on the anti-inversion regulations.  We know things we can do to stop the way quasi-sovereign U.S. multinationals play various tax jurisdictions against each other.  We could deal with that with a renewed emphasis on something other than the old 'transfer pricing' methodologies and with full taxation on taking business assets out of the country.  We could clamp down on transfer of technology to China in exchange for China letting our multinationals into the markets there.  So it is not really "global competition" but failure of this administration or this congress to focus on addressing remedies to problems.

4) Stewart claims that the framework's "doubling" of the standard deduction will allow "many more individual taxpayers ... to file a simple short-form return."

• Doubling of the standard deduction? Looked at alone, it sounds good.  But doubling the deduction while eliminating the personal exemption actually puts a cap on the amount of income exempt for low-income families, rather than increasing it.  A family of 5 might well end up paying more in taxes out of an income already inadequate to provide a decent standard of living, especially when coupled with the 20% increase in the lowest rate, from 10% to 12%.  Why does Stewart just repeat the (not necessarily correct) selling points for the framework without taking these issues into account?
• Simple short-form return?  having 4 rates instead of 7 and doubling the deduction while eliminating the personal exemptions is simplification on an inconsequential scale.  The real complications are character of income (that nasty preferential capital gains rate, again), and whether something counts as income or not.  The people on the low-income of the scale don't have simple returns because they have an Earned Income Tax Credit to calculate.  People in the middle may have pensions, capital gains, income from investments of varying types, rental income, mortgage interest deductions, and various other items that requires a little more work.  Many provisions have exceptions designed to aid certain kinds of businesses or small businesses, all of which add to complications while filling an important function.  But let's also remember that tax preparation software has already made even  complicated tax returns fairly "simple" to figure out--just enter the right numbers into the right places in the software.  We don't need tax cuts for the rich to have a fairly simple tax return process for the majority of the people of this country.  Most already claim no itemized deductions (nearly 70%, a fairly consistent number).  Most can easily do their tax returns with cheap software.  Most don't need tax cuts for the rich to facilitate their tax returns.

5) Stewart claims that "a lower rate for small businesses and pass-through entities, while more controversial, should promote economic growth."  And he thinks that is the most important thing this framework does.

• Lower rate for small businesses?  Who is kidding who.  Most small businesses are just that--they are SMALL in assets and in revenues, and they are NOT taxed at the 35% statutory rate that applies to corporations that have more than $18 million in taxable income (note--taxable income of 18 million means gross revenues of many more millions).  Most small businesses are taxed at 25% or less already!
• Lower rate for pass-through entities?  The main pass-through entity is a partnership, and there is no current rate for partnerships to pay tax, because their income, gain, loss, deduction and credit items pass-through to the partners, who take them into account on their tax returns and pay at whatever rate the partners pay based on their total taxable income 'picture'.  Creating a flat rate of 25% for pass-through income won't benefit small business proprietors, who already pay a lower rate in most cases.  But it will hugely benefit wealthy partners in real estate development partnerships and similar companies that would have otherwise been paying tax at the 39.6% rate and under this would pay tax at only 25%.
• Promote economic growth?  What about this is in any way empirically supported as promoting economic growth--especially the broad-based, raising- all-boats type of economic growth that actually goes to the middle and lower classes and has a multiplying effect on growth because of the increased demand that creates more business that creates more jobs, etc.?  There's really no support for these long-term GOP tax cut proposals to actually do anything about creating jobs and creating sustained economic growth that will actually help the middle and lower income groups.  Cutting corporate taxes mainly puts more money into the pockets of corporate managers already paid in 12-15 million a year and more.  Cutting the tax on recipients of partnership pass-through income mainly puts more money into the pockets of the real estate developers and hedge fund managers and joint venture capitalists who already earn tens or hundreds of millions annually.  None of those profits will necessarily remain in this country (they are likely to be used to expand in China). And again, Kansas.  The Kansas "experiment" in drastic cutting of business taxes was supposed to prove, once and for all, that the GOP ideology of tax cuts that pay for themselves was not an Arthurian legend based on Arthur Laffer's absurd napkin theory but a real, empirically provable, workable way to jumpstart huge economic growth.  After finding the state swamped in deficits and facing reduced growth from the predictable decline in state services, even the GOP members of the Kansas legislature recognized that taxes had to be raised.  And they did it over Gov. Brownback's veto.....That says a whole lot about cutting taxes that the Trump framework people will, of course, call 'fake news' (their favorite term for dissing any facts they find inconvenient).

OKAY, I know.  I've already got 5 items picked for discussion and I've not even gotten to Stewart's three ideas for making the absurd Trump tax framework "add up mathematically."  That's because he assumes away many of the problems with the framework, making it easier to claim he's found a solution to the deficit issues.

6) Stewart takes the framework at its word but disregards the state and local tax deduction (likely to be heavily lobbied against) and the expensing (costs $220 billion for just 5 years and would be much more costly than that when made permanent).  He's willing to buy the idea of a budget resolution that says it is okay if the tax cuts result in a $1.5 trillion revenue shortfall over ten years (i.e.,, okay if tax cuts for the rich create an additional $1.5 trillion deficit), on the assumption that drastically faster economic growth will make up much of the difference.  As he puts it, "that's a debatable proposition, but for purposes of this discussion, let's accept it."

• A budget resolution for a $1.5 trillion cost over ten years to tax cuts that likely will cost $3 trillion to $7 trillion?  How is just "accepting" that reasonable, or common sense?  Sounds nutty to me.  Especially in light of the arguments that the GOP has made in the past (and can be expected to make again in the near future, in part justified by the deficits created by their tax cuts for the rich) for decreasing funding for Medicaid, Medicare, Social Security and any other programs for the vulnerable based on their "worry" about deficits and debt.
• Accepting an assumption of economic growth at sustained high rates that are much higher than experienced even during periods of economic stimulus from federal spending?  Not just "debatable" but outright "unreasonable."

7) Finally, Stewart gets to his "three ideas".  Based on his conclusions in item 6, he assumes that he needs to find just $1.1 trillion over 10 years to make the framework workable.  (You already know that I think that it is ridiculous to assume away huge portions of the problems with the framework, so I won't reiterate more than in this sentence.)  How does he propose bridging the gap and raising the $1.1 trillion? With some ideas that progressives have been proposing for the last 40 years.

• A tax bracket of 44% on the top 0.1% of taxpayers who have more than $2.1 million of adjusted gross income would raise about $300 billion over 10 years.
  • This wouldn't be near enough to compensate for the huge tax breaks that go mostly to these same taxpayers, but it is something that should be added to at least clawback some of the largess to the rich.  The rich received tax cuts from Reagan and Bush 2 that have drastically lowered their share of taxes paid.  They would receive another wallopingly huge gift of tax reduction from the Trump framework.  Probably the rate ought to be higher (a number of rates at 40%, 44%, 48% and 55% rate, for example, for various levels of income).
  • Stewart says raising rates would "raise issues of fairness" by penalizing earned income (i.e., for those CEOs and hedge fund managers who make $300 million or $700 million annually in compensation) while leaving passive investment income that is subject to a capital gains preferential rate untouched.  Yeah, that's a problem, but it is easily solved.  Eliminate the preferential capital gains rate, which just favors the very rich anyway, isn't justifiable under any of the reasons put forward for it, and was eliminated in the well-considered 1986 reforms (before the lobbyists got to Congress and got them to un-eliminate it).  Even Holtz-Eakin acknowledges that raising capital gains rates to the same as ordinary income rates would be reasonable. 
• Tax capital gains at death, he says,  because they are taxed preferentially (if at all) during the owner's life  and there is no justification for allowing them to pass from generation to generation without ever being taxed.
  • Hard to disagree with this idea.  There is no justification for allowing appreciation to pass untaxed to heirs, with or without an estate tax.   This is something that should be enacted (without the elimination of the estate tax) because most estates haven't been taxed at all, and most estates of the ultra wealthy have huge appreciation that horribly exacerbates inequality when it passes to heirs (who did nothing to earn it, in many if not most cases) with bump up in basis and no taxation of the gains.  Combine that with the way such assets permit borrowing during life, to be paid off by sale of a few assets at death at no taxable gain, and you have the ability of the ultra-wealthy to live off their assets with almost no taxation during their lives or in their estates (especially if the estate tax is eliminated) or in the hands of their heirs.  As Steve Rosenthal puts it in commentary to Stewart in the article, "to take away the backstop of the estate tax without a tax on capital gains at death is crazy."  Couldn't say it better myself.
  • Stewart says Congress could exempt "family owned farms and small businesses."  Yeah, it could.  But it shouldn't.  Those family-owned farms  may be huge corporate entities, not 'small' in any sense of the word.  They can afford to pay tax on gains that haven't been taxed in a lifetime.  Any exemption should be minimal (maybe  exempting gains on assets of $1 million or less, like the pre-Bush estate tax exemption amount).
• Curb the deduction for corporate interest expense.  This is another workable idea, since debt remains one of the ways that corporations finagle where income goes and where deductions are generated, in spite of the various existing provisions for limiting deductibility of corporate interest payments. 
  • Most GOP proposals, as Stewart notes, couple reductions in interest deductions with elimination of taxes on interest income. That is not necessarily a sound approach, and you can bet that the real estate industry (among others) would huff and puff and blow the straw house of limitations away in no time.  Just look at the "at risk" rules under section 465, which were intended to prevent taxpayers from using nonrecourse debt to create basis to allow utilization of phantom losses, as originally enacted in 1976.  It just took another session of Congress to get a loophole that essentially swallowed the rule, allowing "at risk" treatment of "qualified nonrecourse financing" for real estate projects.  So any reductions to the deficit here would likely be temporary at best.  And there are other real estate tax expenditures that should be attacked, too, like the section 1031 like-kind exchange rules that favor in particular real estate developers by allowing deferral of  gain when trading properties (even when it is actually getting cash that a middleman holds, and then buying another--a far cry from the original intent of the section).

Stewart, at the end, takes a victory lap, because these three provisions, if enacted, could conceivably raise enough revenues to close the (assumed) $1.1 trillion gap.  The problem --this is very misleading for typical readers.  It looks like he is presenting the "tax cuts for the rich" framework as a workable plan that can be easily paid for and that is promising in terms of economic growth potential.  As you can see from my analysis, I think the framework itself is not a workable plan, it cannot be easily paid for, and it does not hold out a real promise of economic growth.

Related articles

BUFFETT: GOP tax plan is 'not a tax reform act, it's a tax cut act,' and chances of it passing are 'higher than most people think'

The Tax-Cut Framework Won't Create Jobs and Digs the Inequality Ditch even Deeper

Right Wing Propaganda Tank IPI Likes the Trump Tax-Cuts-for-the-Rich "framework"

Congress Wants to Eliminate the State and Local Tax Deduction. What's That?

Odds Against Tax Reform - Orlando Estate & Elder Law

Trump's tax plan calls for the repeal of a tax that once cost him $31 million

Trump's base may have won Alabama, but the Goldman guys won the battle over his tax plan

Two Wall Street giants criticize Trump tax plan

Warren Buffett believes the Republican tax plan contains a 'terrible mistake'

Republican Tax Plan Literally Benefits Only Millionaires

Right Wing Propaganda Tank IPI Likes the Trump Tax-Cuts-for-the-Rich "framework"

There's no surprise here.  The Institute for Policy Innovation (IPI) is a right-wing "think" (i.e., propaganda) tank that has consistently argued for tax policies that favor multinational corporations and the wealthy.  So IPI has a posting on Sept 29 that is supportive of the so-called "tax reform framework" put out by the Trump administration. 

As an earlier post on A Taxing Matter noted, the Trump framework is a wish list for the wealthy, providing one tax cut for the ultra rich after another:

• elimination of the estate tax (that only affects the heirs of estates worth more than $11 million);
• territoriality (that advantages multinational corporations that actually operate from the U.S. but claim headquarters in low-tax jurisdictions);
• a flat 25% rate on "pass-through income" that gives almost a 15% rate cut to wealthy owners of partnerships in the real estate, joint venture, oil and gas and other businesses (and affects very few true small business owners whose effective tax rate is already no more than 25%, if that much);
• elimination of the top rates on the progressive individual rate structure (reducing the top rate from 39.6% to 35% (or less));
• reducing the statutory rate for corporations to a low 20%, when corporations already pay much much less in taxes than they have generally paid under the income tax system while making record profits and paying their key managerial personnel the kind of salaries and percs that have exacerbated the increasing income inequality gap in the U.S.;
• elimination of the Alternative Minimum Tax (AMT), a provision that was enacted to ensure that wealthy taxpayers are not able to use so many loopholes and special provisions that they escape taxation altogether on their income (the elimination of the AMT being a pro-wealthy tax cut that ordinary folk in the lower two-thirds of the income distribution will benefit not one whit from); and
• permitting immediate expensing for five years of equipment and similar expenditures by businesses (another provision that will allow mega corporations to make even more profits that can be shared--through bonuses, higher salaries, and share buybacks with the wealthy managers and shareholders of the enterprise and a provision that runs explicitly counter to the actual economics of the business, in which new equipment stays at close to original value in the early years with wear and tear actually economically backloaded onto the last years of the useful life).

As a result of these provisions, the wealthy who own the vast majority of financial assets (including stock in corporations and partnership interests in real estate and other partnerships) will enjoy hundreds of thousands of dollars of tax cuts.  In fact, the major portion of the tax cuts will go to the very wealthy who need them least.

Meanwhile, the rate of taxation on the lowest income group in the country, the bottom percentile, would be increased by 20% (from a 10% rate to a 12% rate)--a truly significant and revealing increase for people who are struggling to make ends meet in an "as needed" worker environment where steady full-time jobs for a regular paycheck are vanishing as corporations call workers in when they want them and send them home sometimes after only a few hours.  (This is of course accompanied by a continuing right-wing assault on worker rights and the attempt to shrink labor's power and ability to negotiate with extraordinarily powerful employers in unison rather than individually.)  While the standard deduction (and possibly child care credits) will be increased, the personal exemptions will be eliminated, as well as perhaps other deductions that sometimes stave off disaster, such as the medical expense deduction.  This means that many of the low to lower-middle income  families with children will pay the much higher rate of tax on a larger portion of their income--i.e., their taxes will increase. For the rest of the lower income and middle income classes, tax relief will be minimal--a few hundred to a thousand dollars, most likely.

Note that the members of the Republican Party establishment who are pushing this framework have in the past said that they were very concerned about deficits.  Their concern about deficits was the purported reason for limiting the infrastructure plan to jumpstart growth after the Great Recession.  Their concern about deficits was the purported reason for nearly shutting the government down time after time over the decision to raise the debt limit for payment of debt obligations the United States government had already incurred.  Their concern over deficits was a purported reason for wanting to "reform" Medicaid, Medicare and Social Security--the programs that exist to help the most vulnerable Americans.  But now those same Republican Party establishment figures are saying they don't care at all about the deficits.  They are willing to allow the deficit to mushroom in order to give yet another gigantic tax cut to the very wealthy.  The budget resolution put forward by the Senate Budget Committee would allow a $1.5 trillion tax cut over 10 years, but this plan is likely to cost between $3 trillion and $7 trillion (or more).  (Note that the $1.5 trillion figure already includes gimmicky thinking--instead of using the actual law as the baseline, the GOPers are assuming a baseline that assumes that expiring tax cuts don't expire, which gives them more room for additional cuts than if they had to account for actually extending those tax cuts too.  So much for McConnell's pledge that any tax reform would have to be revenue neutral.  See Tentative U.S. Budget-Tax Deal Gets Nod from Two Republicans, Bloomberg (Sept. 19, 2017).   Republicans, as usual, claim dynamic scoring will work, because it will show that growth will make up for lost revenue.  Toomey, a Pennsylvania Republican tax cut ideologue, claimed that tax-cut induced growth would actually reduce the federal deficit, and Wisconsin Senator Johnson agreed (especially with the aid of "dynamic scoring", maybe done outside the CBO). Id. Sadly, that is not supportable.  This is utter hypocrisy.

And while Trump and various functionaries in his administration have explicitly said that their tax "reform" framework is meant to aid the middle class and not give a bunch of tax cuts to the wealthy, there's no evidence in support of that statement.  Their program aids the wealthy and ignores or harms the middle class and poor.  See, e.g., Trump Says His Tax Plan Won't Benefit the Rich--He's Exactly Wrong, The Atlantic.com (Sep. 29, 2017); Trump Proposes the Most Sweeping Tax Overhaul in Decades, NY Times (Sept. 27, 2017) (noting that Trump described the overhaul as "an economic imperative" for whom "the biggest winners will be the everyday American workers as jobs start pouring into our country, as companies start competing for American labor and as wages start going up at levels that you haven't seen in many years" though there was scant detail on how working people would benefit from "a proposal that has explicit and substantial rewards for wealthy people and corporations"). Trump explicitly said in his Indianapolis speech that wealthy people like him would not benefit (see New YOrk Times article, cited above). And Mnunchin said the same thing months ago ("no absolute tax cut for the upper class"). See  Trumps Tax Plan: Prioritize Cuts for the Rich. That statement is simply not true, since the estate tax, the AMT and the reduction of taxes on pass-through income and on corporate income would each directly benefit the Trump family. He also said the framework would "protect low-income and middle income households, not the wealthy and connected".  See New York Times article on Indianapolis speech, above.  Again, that statement is simply not true:  it will provide huge tax breaks for the wealthy and connected and minimal tax breaks or even tax increases for the low and middle income households. And Steve Mnunchin effectively admitted that the plan will result in tax breaks for the rich, essentially by disingenuously claiming that you can't do a tax cut aimed at the middle class without also giving something to the rich.  See, e.g., Eric Levitz, Trumps Tax Plan:  Prioritize Cuts for the Rich, Say He Isn't, Daily Intelligencer, New York Mag.com (Sept. 27, 2017);  Can't guarantee tax cut for entire middle class: Mnuchin, Reuters.com (Oct. 1, 2017) and by saying that the statement that there would be no tax cut for the rich "was never a promise. It was never a pledge...It was [just] what the president's objective was".  Trumps Tax Plan, NYMag.com (Sept 27, 2017). And of course, Gary Cohn, similarly has refused to guarantee that no middle-class family would face a tax increase.  See Cohn, Mnuchin Draw Line on Corporate Rate, Tease Debt Reduction, Tax Analysts.org (Sept. 29, 2017) (Mnunchin claiming $2 trillion of growth with a claim that the tax cuts would cause a 2.9 percent GDP growth rate over the decade and a cut in the deficit; Cohn claiming enough growth to pay for the entire tax cut).  Note that one of the gimmicks that Mnunchin used to avoid the real effect was to separate the estate tax from the regular income tax cuts--so they admit that they are benefitting the wealthy with the estate and AMT taxes, and then claim they are not with the income taxes.  In fact, the income tax cuts also are beneficial for the wealthy.

By the way, as a tax professional and tax academic, I can tell you many ways that you can provide tax cuts for the middle class and poor without providing tax cuts for the rich. Just to consider a few:

• do not eliminate the estate tax--it only taxes the very wealthiest of the wealthy, so it can only benefit the very wealthiest of the wealthy.  The claim that eliminating the estate tax "saves" small businesses and family farms has been debunked time after time.
• do not eliminate the AMT--it only taxes the top quintiles of the income distribution.  If you want to save the affluent rather than the real middle class, you can structure the AMT to hit only the top quintile.
• do not cut the corporate tax rate to 20%--that primarily benefits the wealthy who own most of the financial assets and hold the high-paying managerial positions
• do not cut the pass-through tax rate to 25%--that only benefits the ultra wealthy, since small businesses already pay a rate at or below 25%
• do not move to a territorial tax system--that primarily benefits the wealthy and will do nothing to increase jobs;
• do not increase the bottom rate paid by the low-income Americans from 10% to 12%--that only hurts those taxpayers.
• do not eliminate the highest tax rates (the investment income tax, etc.)  Consider adding a financial transaction tax.
• eliminate the "carried interest" provision that allows wealthy managers of joint ventures to enjoy capital gains instead of ordinary income rates on their compensation along with, often deferral of any income inclusions.
• eliminate the section 1031 like-kind exchange provision, that benefits real estate professionals like the Trump clan with near permanent deferral of income.

As Ron Wydon put it "if this [Trump/GOP] framework is all about the middle class, then Trump Tower is middle-class housing. It violates Trump's tax pledge that the rich would not gain at all under his plan by offering sweetheart deals for powerful C.E.O.s, giveaways for campaign coffers, and a new way to cheat taxes for Mar-a-Lago's loyal members." Id.  In other words, saying it is for the middle class is a whopping fairy tale.  And of course, it doesn't provide any particulars about the nitty gritty issues that would have to be addressed, like preventing abuse of the 25% pass-through rate, limiting the deductibility of interest expense, or phasing out the expensing write-off after 5 years.  Anyone with any understanding of the history of tax provisions knows that lobbyists will start immediately with demands for 1 or 2 year extensions to the expensing elimination, and as soon as the public's awareness of the issue has ebbed, Congress will cave and make it permanent.

IPI likes the plan, nonetheless, because most of the things that IPI claims are "pro-growth" tax policies are actually "pro-wealthy" tax policies that have almost no evidence in support of helping to spur greater growth.  IPI specifically mentions expensing (highly profitable for large corporations, since smaller companies can already expense most new investments); the move to territoriality (favors multinational corporations that have moved their key IP abroad); the elimination of the AMT (favors the wealthy); the elimination of the estate tax (favors the ultra wealthy); and the reduction of corporate tax rates from a statutory 35% rate (paid by almost no corporation) to a statutory 20% rate (lower than the statutory rate of our so-called "competitor" nations, that also have a VAT, which the US does not have).

There is no real evidence that any of these tax changes will spur economic growth, and Congress has never funded the research that would be necessary to show that they do or don't.  It has depended on little more than Arthur Laffer's napkin drawn curve (not based in empirical evidence) and general Chicago School "free marketarian" and "trickle-down" theories.  Oh, and gimmicks like using "dynamic scoring" that assumes a large rate of growth to justify tax cuts that otherwise clearly create huge deficits.  Kansas's experiment in slashing taxes for businesses and wealthy was supposed to prove that cutting taxes was a great way to engender growth.  It proved exactly the opposite.  Reagan's 1981 tax cut was supposed to prove that big tax cuts cause huge economic growth--instead, deficits mushroomed and every other year of his term there were tax increases of one kind or another--mostly hitting little guys and not the wealthy.  Similarly, Bush 2 cut taxes and saw a surplus turn to a deficit, and ended his term with a Great Recession because of a speculative boom fueled by loose money in banks and financial businesses.

In contrast, there is real evidence that public expenditures to improve infrastructure, protect the environment, support basic research not funded by corporations, and fund educational opportunities have real positive impacts on economic growth that is beneficial for the entire society.

Let's call a spade a spade.  This plan for so-called tax "reform" is really just a smokescreen for shrinking government and making it even harder to protect the environment, enforce the laws, make polluters stop polluting, protect the vulnerable and do the other things that the people acting together through government can do but that the people each acting individually simply cannot do.  Like Trump's typical lies (about how "great" his response to the Puerto Rican devastation has been, when he waited days to act, sent much fewer military personnel much later and otherwise treated Puerto Ricans like unimportant Americans compared to the way he treated Texas and Florida), the tax "reform" framework is a lie.  It is a boon for the rich, a boondoggle for the poor and middle class, and a bad joke for the future economic growth of the country.

And that's why Trump has already started threatening Democrats that don't support his plan.  In his Indiana address, he threatened to campaign against Democratic Senator Donnelly if he did not support the tax boon for the rich that will result in at least a $2 trillion increased deficit over a decade.  (Of course, given his failures with Senator Strange in Alabama, maybe that threat, like so much else Trump does, is truly hollow.)

Related articles

Here's something President Trump needs to know about GDP growth - Publications - AEI

Trump's "Give the Rich a Break" Tax Plan

National GOP leaders on Wednesday released a 9-page document that they called a tax "framework" (available here on the Washington Post site) describing in vague terms how they intend to cut taxes for the nation's wealthiest people while doing very little that serves the government needs. Overall, the GOP framework would amount to about $2.2 TRILLION in less revenue to support federal programs (like protecting the environment from corporate pollutants, supporting higher education loans for students, funding basic university research) (assuming $5.8 trillion loss to lowering rates and shift to territorial system and maybe $3.6 trillion recouped by eliminating as yet unspecified deductions).  See GOP proposes deep tax cuts, provides few details on how to pay for them, Washington Post (Sept. 27, 2017).

• They promise 3 rates (12%, 25% and 35%, without stating what the applicable income brackets for those rates should be).  That lowering of rates is primarily beneficial to the wealthiest, since the people who just barely get by on their wages (especially with the new corporate regime of calling people in for short shifts, as needed, rather than paying them a regular full-time job) are hit hardest by the payroll taxes that won't be lowered at all under this plan.  That is, ordinary wage-earners in the middle and lower classes are generally already taxed on a consumption basis--they spend what they earn and have little left for saving for the future.  They pay relative low income taxes but pay significant payroll taxes through withholding on their wages (with no deferral).  This is another excursion into the current GOP's 'alternative fact' universe, where huge tax cuts mainly benefiting the wealthy are sold as a 'simplifying' reform that will benefit ordinary people.

 

• Although the lowest rate is higher than the poorest wage-earning taxpayers pay now, the planners claim that this is still a tax cut because of the "doubling" of the standard deduction for those taxpayers that do not itemize.  However, the personal exemptions are eliminated, so that the combination of the standard deduction and the higher rate is likely to be at best a minimal cut for small families and an actual tax increase for larger families.  See, e.g., this article.

 

• They promise to eliminate the "alternative minimum tax", a tax provision that was enacted as a safety provision to ensure that wealthy taxpayers who can afford tax planning and generally can most easily benefit from the various loopholes and tax subsidies written into the code would pay some modicum of taxes rather than get off scott-free from any tax burden. The "framework" (page 5) claims that "it no longer serves its intended purpose and creates significant complexity."  It is admittedly somewhat complex, but not unduly so with modern tax preparation software which makes that complexity a minimal problem.  I have been required to pay the AMT, and it hasn't made my life or tax return filing more complex.  In fact, the people who owe the AMT should be paying more tax than they would pay without the AMT, and that means it is in fact serving its intended purpose of ensuring that taxpayers cannot aggregate too many of the various haphazard subsidies in the Code to permit them to essentially escape a reasonable tax burden on their economic income.  Elimination of the AMT is a tax break for the well-to-do:  Trump, for example, has had to pay the AMT (real estate developers are one of the much-favored groups in terms of various tax expenditures in the Code that benefit them).

 

• They plan to eliminate the estate tax--a tax that ONLY applies a low 35% rate to individuals who leave estates worth more than 5.5 million dollars or couples that leave estates more than 11 million dollars, and even then is often the only tax that the assets in those estates have ever been subject to, since these wealthy Americans are the ones most able to take advantages of various trusts and other loopholes and borrowing to ensure that they live as tax-free as possible off their assets during their lifetimes and pass them almost wholly intact to their heirs with stepped up basis to start the game all over again.  This is a tax break for the very wealthy and their silver-spooned heirs--especially lucrative for the multibillionaires who own (and live off of) most of the financial assets.

 

• They plan to give corporations an exceeding low statutory rate of 20%, even though the primary beneficiaries will be the owners and managers who already have enjoyed a hugely disproportionate share of corporate gains (compared to their workers) that has resulted in the cascading inequality of distribution of resources in this country, in part because the wealthy typically own most of the countries' financial assets and get a very low preferential capital gains rate on their income compared to the higher rate on wages paid by ordinary, non-wealthy wage-earners.  It is claimed that low corporate tax rates are necessary to allow corporations to be competitive, based on the statement that our statutory rate (the rate provided in section 11 of the Income Tax Code) reaches a maximum of 35% for the biggest companies.  But the majority of corporations--even highly profitable ones-- pay no income tax at all.  And those that do pay a corporate income tax pay an average effective tax rate (actual tax as a percentage of actual economic income) around 24% , at best, and that is not substantially higher than the corporate tax rates in other developed countries.  Further, most of those other developed countries do not depend solely on the income tax--they generally have some kind of value-added tax (a VAT) in addition to income taxes and often have various other taxes (such as a financial transaction tax).  Making claims about competitiveness based solely on the corporate income tax is, in other words, foolishly incommensurate and really says nothing whatsoever about ability to compete.

 

• Further, they plan to allow corporations to expense all investments, at least for the next 5 years, even though the economic reality is that expensing is an upfront subsidy since wear and tear is most significant at the back end of an investment, not the front end.  Expensing (see page 7 of the framework) will cost huge amounts of tax revenues.  It is just a way to reduce corporate taxable income (not economic income) even further, making the 20% rate on a lower amount of income produce even less tax revenues from corporations, which already pay a ridiculously low amount and are enjoying record high profits.

 

• The framework calls for changing to a territorial system (at a time when most U.S. multinationals have already used various gimmicks to 'offshore' their main profit-making IP) and lower taxes on U.S. multinationals.  The result will likely be significantly lower corporate tax payments from U.S. multinationals.  Further, unless the reorganization provisions and ability of U.S. multinationals to move active businesses overseas on a tax free basis is curtailed, these rules will likely encourage other companies to offshore even more of their active business assets.  It will favor multinationals over domestic corporations, pushing even more companies to move businesses overseas.

 

• And they intend to preserve the R&D credit (see page 8 of the framework) -which was eliminated in the 1986 tax reform and then reinstated  on a piecemeal basis over multiple years due to pressures from corporate lobbyists.  There is no evidence that the R&D credit, rather than the more legitimate business deduction or capitalization for research expenses, produces more research.  And Congress has done nothing--in spite of years of pushing for making the R&D credit permanent--to establish that it provides any actual economic growth benefit.   It just provides an upfront dollar for dollar reduction in taxes compared to the deduction's lesser benefit.  And there is no evidence that the credit has resulted in more money being put into research.  Research intensive businesses with good leadership invest in research whether or not they get a special tax benefit because otherwise their busienss will die.  (Of course, businesses with no attention to anything other than the bottom line may make bad decisions:  one reason the pharmacology industry has been lagging is that they have tried to merely buy others' research rather than doing it themselves, and like the infamous purchaser of Epipen, they have simply gorged themselves on exploitative prices because of their monopoly on a particular drug.)

 

• They plan to have income from "pass-through" entities like partnerships taxed at very low rates to the individuals, who already enjoy exceedingly low rates on their gains from corporate stocks and other financial assets (the preferential capital gain rates) and will receive even more cash out of their corporate stock ownership with the even lower proposed statutory rate on corporate stock.  This plan for pass-throughs, by the way, will continue to lavish tax benefits on an already super-coddled wealthy class--those who run real estate development businesses through partnership structures (the Trump empire, for one), those who run hedge funds (some of the wealthiest individuals in the country) and those who run master limited partnerships (fossil fuel tycoons).

 

• They say they will "simplify" taxes--which should mean eliminating most or all of those absurd provisions that have grown over the years to clutter the tax statute with special subsidies (that, again, mostly benefit the wealthy).  But there is no indication that the GOP has any intent to eliminate any of the special giveaways.  With real simplification that made economic sense, the framework would call for things such as
  • eliminating the preferential capital gain rate (that benefits the wealthy who own the vast majority of the capital assets)
  • eliminating the section 1031 "like kind exchange" rules (that allow wealthy real estate developers to trade properties for significant gains but defer tax on those gains indefinitely, often til death when the step up in basis allows their heirs to inherit and start the game all over again)
  • eliminating the various preferences for fossil fuels that have been in the code in one form or another for years, giving oilmen their wealth while subsidizing the most polluting kind of fuel extraction and use (all the while with their lobbyists arguing against significant long-term subsidies for more environmentally friendly wind and solar)
  • phasing out the mortgage interest deduction--at least for mortgages at more than the average national housing price-- so that multimillionaires cannot get the benefit of the interest deduction on $1.1 million of mortgages, again, a provision that primarily benefits the wealthy in the top 20% of the income distribution, and
  • eliminating the provision in the charitable contribution provisions that allows wealthy shareholders to donate certain assets for  a full fair market value deduction rather than a basis deduction--thus significantly reducing the overall income tax they owe.

But of course--although most academic research suggests that a mortgage interest deduction serves no legitimate purpose, the GOP 'six' indicate they will retain it, because it "help[s] accomplish important goals that strengthen civil society as opposed to dependence on government:  home ownership".  Fact is, countries without a mortgage interest deduction have just as high rates of home ownership, and the economic effect of the deduction (especially in its current form) is to favor purchase of ever larger homes by those taxpayers in the upper income distributions.  

As with so much else from the man currently holding the office of President, what is said (paraphrasing) --that the wealthy will not get a tax cut and the poor and middle class will get big tax cuts --can't be trusted.   Like so much else, Trump says he is "very good at it", but then he thinks he is good at everything and is inevitably shown to be fairly ignorant of the issues that matter. The framework, like everything else the GOP has proposed this year --including repeal of the Affordable Care Act; defunding of Medicaid; withdrawal of scientific information about climate change from the EPA website, reduction in the size of existing national monuments meant to protect the land for all of us --is designed to benefit the GOP establishment's wealthiest donors who continue to call the shots on tax and economic policies.

And of course the claim that this 'framework' can result in "the simplicity of a 'postcard' tax filing for the vast majority of Americans" is absurd.  The complexities of accounting for various income sources and the heightened complexities that most low-income Americans face in claiming the Earned Income Tax Credit will remain, even if rates are reduced and the standard deduction replaces the standard deduction and personal exemptions.  The claim (page 4 of the framework) that "typical families in the existing 10% bracket are expected to be better off under the framework due to the larger standard deduction, larger child tax credit and [unspecified] additional tax relief that will be included during the committee process" seems clearly wrong for many if not most of those taxpayers in that lower bracket. 

 And their posturing that this "reform" is to benefit "small businesses" is equally absurd.  The main beneficiaries of the pass-through rate will be the huge joint ventures, master limited partnerships, real estate partnerships (like the Trump companies), and hedge funds whose owners will enjoy a reduction in their tax rate on that income from 39.6% to 25%.  Most actual small business owners are already paying tax around the 25% rate.

The proposal will not end incentives to ship job and capital overseas (see page 3 of the framework on goals)--those gimmicks with transfer pricing of intangibles will continue, as any lowering of the corporate tax rate here to 20%, which is below the international average of 22.5% (according to the report--it may well be too low a figure), will push other countries to lower their rates as well.  It is a corporate lobbyist's ideal playground--playing one country against the other to push the "race to the bottom" faster and faster and continue the quasi-sovereign hegemony of multinational companies around the world.  If we want to end the corporate inversions and the transfer pricing gimmicks, we know various ways we could do that, including changing transfer pricing mechanisms in ways that various academics have recommended.   Congress hasn't really wanted to, since their wealthy corporatist donors wouldn't like it.

What reveals the hypocrisy of the GOP is their sudden switch from deficit hawks during the Obama administration, which made it harder to get a decent stimulus package through Congress and to promote funding for desperately needed infrastructure projects, even when interest rates were incredibly low, to a willingness to incur significant deficits in order to debt- fund even more tax cuts for the wealthy on top of the Bush-era tax cuts that led to a switch from federal surplus to federal deficits and more debt. As Ed Kleinbard so aptly states, "The Republican tax "plan" is a deficit-busting mess, and it would slash the President's taxes", Vox.com (Sept. 28, 2017).

What reveals the GOP hypocrisy even more is their presentation of this framework without any appropriate CBO or Joint Committee on Taxation analysis.  And statements by Senator Bob Corker (Tenn) in connection with scoring tax reform that they don't trust the CBO, implying that the GOP should go to a private (pro-GOP) source for "dynamic scoring" so that it will show the results they want--is truly worrisome.  See The sudden and regrettable demise of the CBO, USNews.com (Sept. 21, 2017).  It disparages the nonpartisan professionals in the Budget Office while showing that the GOP is willing to do practically anything to further the lie that their budget, with  huge tax cuts proposals for the wealthy, will miraculously result in widespread economic growth that will float even poor folks' boats. 

We already know that tax cuts do not have the miraculous growth effect that they claim.  Kansas actually engaged in an "experiment" to prove that tax cuts would stimulate growth.  Even the state's GOP legislature recognized the utter failure of the claim, as the state's economy sank under the burden of the tax cuts.  Kansas actually voted to end the experiment and raise taxes!

And of course we have experimented this way nationally with various Republican administrations.  Reagan cut taxes drastically in his first year in office, caused huge deficits and then increased taxes every year of his term afterwards.  The cuts ended up most especially benefiting the wealthy, because the tax increases took the form of higher payroll taxes and other means of hitting lower-income folks that didn't bother the wealthy.  George H.W. Bush promised not to raise taxes, but recognized that he could not keep that promise and run the government appropriately. If we are going to spend billions on continuing to buy arms and military planes we don't need (a silly idea, but one that seems ingrained in the GOP mentality), then we have to have more money to fund things we really do need, such as a fair medical care system for the most vulnerable (Medicare) and funding for basic research that corporations don't want to pay for (NSF and NIH, among others).  George W. Bush cut taxes on the wealthy and corporations, fulfilling corporate lobbyists wish lists that had been circulating for 20 years, including creating a 'tax holiday' for corporations to repatriate untaxed profits that they had offshored at a very low rate.  All that was promised to drive economic growth, but of course it didn't.  As with the similar idea in this year's "reform" talk, the 2004 tax holiday provided a way for corporations that had engaged in various gimmicks to move their profits overseas to low tax jurisdictions (even while the money is often in U.S. banks) to bring it back to the US at low or no taxes and then use it to do stock buybacks that benefited their wealthy shareholders with big boosts of income taxed at preferential capital gains rates.  Most of those corporations did not use those funds in any way to create job--in fact, some of the biggest so-called repatriators laid off employees at the same time.  The tax holiday merely gave even more of a tax subsidy to unpatriotic corporations that were willing to scam the system by pretending to sell their invaluable IP to offshore subsidiaries, and then even higher payments to the CEOs for raking in more cash.  In other words, the tax holiday was a great exercise in supporting the creation of an even greater inequality gap.  Historical trends are fairly clear on this.  The U.S. economy has thrived more under Democratic presidents who have increased taxes and has turned to deficits more under Republican presidents who have cut taxes.

What we should do at a minimum is increase the amount that corporations pay into the federal government, so that a higher percentage of our GDP is paid in corporate taxes, as in other developed countries.  And we should add a financial transactions tax, at least, to the mix while eliminating the preferential capital gains rate and the like-kind exchange provision. 

Funding the government so that it can deal with the hundreds of billions in financial aid needed in Texas (Hurricane Harvey) and Florida (Hurricane Irma) and Puerto Rico (Hurricanes Irma and Maria) while at the same time starting to handle some of the deteriorating federal roads, railways, bridges and other infrastructure throughout the country would be the best way to ensure that we could continue the economic growth begun under the Obama administration. That funding would require REAL tax reform:  eliminating the preferential capital gains rate, eliminating the many loopholes by which highly profitable corporations manage to pay almost no federal income tax, and creating a significantly higher graduated rate structure for taxing estates (while eliminating the step up in basis).

(Of course, we should also recognize that spending the hundreds of billions annually on defense does much less to defend America and make it great than spending a higher proportion of that money on education, infrastructure, and other ways to increase opportunities for all.  Let's get rid of the militaristic jingoism that keeps the U.S. armament industry rolling in cash and start funding scientific and health research through NSF and NIH.  That is the way we created a thriving middle class after the second World War and the way to support continuing innovations that will make a difference in our lives and economy into the future.)

Related articles

REVEALED: Here are all the details of Trump's massive tax cut plan

Most People are Not Affected by the Estate Tax / New York, NY & Greenwich, CT - New York Estate Planning & Elder Law

Trump's tax plan calls for the repeal of a tax that once cost him $31 million

Trump, GOP roll out tax plan; cuts rates, doubles deduction

GOP proposes deep tax cuts, provides few details on how to pay for them

Trump, GOP Tax Plan Would Cut Rates For Many Americans - Front Street

Trump Plan Promises Huge Tax Cuts, But Big Questions Remain - Front Street

Bernie Sanders at The Monitor Breakfast

In an extraordinarily frank breakfast exchange with journalists, Bernie Sanders answered a number of questions about his views and the direction he thinks the country needs to move.  As usual, the press tended to ask "horse-race" questions rather than substantive ones. But Sanders responded with substantive answers, not the "gotcha" answers (about other candidates) that journalists' questions encourage (and that many politicians seem quite satisfied to work into their press encounters).

Having indicated that he thought it was time the US made some progress towards meeting the needs of ordinary working Americans, such as universal single-payer health care along the lines of our current Medicare program for seniors, and maternity/paternity and medical leaves for ordinary wage-earners, Sanders was asked if he would pay for those benefits, at least in part, with higher taxes.  He answered forthrightly that taxes would need to be increased, especially for the extraordinarily wealthy and corporations.  He noted the immense inequality that ordinary Americans face today, an inequality that steals away opportunities and makes daily life a hard grind for so many people. Just twelve (12) of the richest Americans saw an increase in their wealth over the last two years of a whopping $154 billion--that's more than the entire wealth of a majority of Americans.  Corporations offshore their assets and avoid taxes with "rent" profits accruing to them while, again, ordinary Americans don't even get decent living wages.  Hedge and equity fund managers who benefit from the "carried interest" loophole generally pay a lower rate of taxes than truck drivers.  See, e.g., Sanders' website post on how the richest .0001% pay their taxes.  These privileged elites need to be asked to step up to the plate and pay their fair share to support necessary programs. 

As to specifics of how those taxes should be increased, Sanders noted that he hoped to release a tax reform proposal soon.  It would include, he said, a transaction tax on Wall Street business, an end to multinational corporations' ability to avoid taxes through moving business into tax havens, and a more progressive income tax (see, e.g., this post on his website).

I will add here that these are many of the reforms that this blog has argued for over the years.  Clearly, the right-dominated tax cut regimen of the Reagan years, the Gingrich Contract on America, the absurd Grover Norquist "never a tax increase" pledge, and the numerous revenue reduction acts passed in the Bush I and Bush II years--and of the Republican-dominated Congress and state houses during Obama's presidency--has been one of cutting taxes for the rich and big business and increasing them (if finally deemed necessary to increase revenues after cutting spending past the bone) on working people through regressive payroll, sales and excise taxes.  It is time for us to return to a truly progressive tax system that asks as much of the rich as it does of the working poor.

Watching the hour-long exchange is well worth your time.  It is also surprisingly refreshing to see a politician respond carefully and thoughtfully with forthright answers that do not pander to billionaire interests or Wall Street. 

You can click on the video below.

 

  

Related articles

Bernie Sanders Schools Dr. Rand Paul on Healthcare

Bernie Sanders Officially Launches Democratic Presidential Campaign

Financial times (UK): Bernie Sanders & American Socialism

Both the rich and ordinary Americans misunderstand their economic interests

Fixing Sequestration (for the rich only)

Once again, Congress has demonstrated that it notices mostly what affects rich people and can't quite identify with ordinary Americans.  And that it will not pass either spending laws or tax laws (which include a wealth of spending laws through the tax expenditure mechanism) that equitably deal with the misallocation of resources between the wealthy few and the rest of us.  Tax policies operate for the high and mighty:  once again, inequality is the real characteristic that matters.

The sequestration--a response to the GOP-led desire for austerity, shrinking government, and otherwise ensuring that rich people and major businesses don't have to pay much in taxes--was ridiculous from the outset because it cut programs across the board, at a time of significant unemployment, without prioritizing programs that support the safety net or ensure education (like Head Start) or protect critical infrastructure or other needs.  The only reasons it made some sense was that (1) it would finally lead to some cuts in our engorged military spending and (2) it should have permitted Congress to develop enough spine to refuse to make the Bush tax cuts permanent for anybody but those ordinary Americans making $100,000 or less. 

But we all know that latter wise move didn't happen.  Congress made the ridiculous-when-they-were-enacted and more-ridiculous-still-when-they-were-made-permanent Bush tax cuts permanent for the vast majority of Americans, leaving only a smattering of wealthy Americans subject to imperceptibly higher taxes.  Businesses got another extension of the equally wasteful Bush tax cuts enacted in the Bush Administration's giveaway mode--the R&D credit (often enacted retroactively like this extension was, whose ostensible purpose is to incentivize US-based research, which a retroactive credit by definition cannot do), the active financing exception for the Banksters that got us into the Great Recession to start with, and all the rest.

So we ended up with across-the-board cuts that could not reasonably be expected to work out well for the economy--especially when Keynesian theory (the only kind of economic theory that hasn't been roundly disproven by actual facts) suggested that we should be continuing to increase government spending to make up for the gaps in the economy from MNE hoarding of their cash offshore and consumers drawing back because of the steady decline of their spending power from job cuts and real salary decreases.  IN fact, these damaging cuts were never actually expected to go into effect--Dems hoped (rather naively) that the sequester would force Republicans to support more reasonable tax increases.  Repubs hoped (rather reasonably, in retrospect) that they could blame any problems on the Dems and claim credit for protecting ordinary Americans by not increasing taxes, and of course they've been claiming for the last months that any complaints about the problematic impact of the sequestration cuts are "exaggerated," and "they have relished the success of forcing visible spending cuts on a Democratic administration."    Alex Pareene, Senate fixes the (part of the) sequesteration (that affects rich people)!, Salon.com (Apr. 26, 2013). 

Few in Congress were ever willing to stop the gravy trains for the rich--carried interest for private equity, publicly traded "master limited partnerships" for oil and gas pipeline companies that are excepted from the ordinary treatment of publicly traded partnerships conducting businesses as corporations subject to an entity level tax; so many tax expenditures that favor Big Business that very few companies actually pay any tax on their huge profits; the assignment of income benefit of a stuck in the last century transfer pricing tax system that allows some of today's biggest companies (Google, Microsoft, etc.) to transfer their indispensable intangible properties offshore to avoid US taxation of profits attributable to the support provided by this country, while nonetheless retaining 100% ownership and control; and of course the biggest boondoggle of them all, the preferential rate for capital gains coupled with an absurdly lenient estate tax, that together allow the rich to live richly during their lifetimes and then pass their estates with negligible tax cost and substantial tax benefits (from the "step up in basis at death" that, for example, allows heirs of master limited partnership interests to restart the perpetual tax-free profits machine).

But hark, what is this?  The reductions caused by the sequester affected the ease with which rich people can get on a plane and fly to their business and vacation destinations!  Such suffering.  So incomprehensible how we could allow it.  The Senate swiftly moves into action--this was something they hadn't anticipated--that the sequester could actually bother some of their own class.  Suddenly, They acted.  In just a short time last night, with unanimous consent, the Senate voted to "let the FAA transfer some money from the Transportation Department to pay air traffic controllers."  See Alex Pareene, Senate fixes the (part of the) sequesteration (that affects rich people)!, Salon.com (Apr. 26, 2013).  The House was expected to act today.

At the beginning of the sequester, most of the Republican politicians who had pressed for even much larger cuts, insisting there was much dross in the federal government, pooh-poohed any complaints that the sequester was leading to real pain for ordinary Americans.  That story changes only when the rich feel any squeeze at all.  As Pareene implies in his story, the media is too much of the time an unquestioning go-along in this conning of the American people:

the story of Congress hurriedly making sure the well-off minority of Americans who fly regularly don’t get briefly inconvenienced — while ignoring the costs of brutal cuts on programs for low-income Americans facing housing or hunger crises — is treated as a wonderful and encouraging display of bipartisanship.

Related articles

Big Business believes in taxpayer subsidies, not "free markets"

Obama caves yet again: offering Social Security cuts to appease the right...

Picking favorites? Congress speedily patches up flight delays

Politicians Will Only Roll Back Parts of the Sequester That Hurt Them, Naturally

Boozman gets tautological on sequestration

Have Democrats Lost Sequestration Fight?

Baucus Will Not Run in 2014 (yay!)

Max Baucus announced to his fellow Senators today that he will not seek re-election to the Senate in 2014.  He has been the top Democrat on the Finance Committee since 2001.  See Senate Finance Chairman Max Baucus Won't Run Again in 2014, Bloomberg.net (Apr. 23, 2013).

As someone who thinks that Baucus has been a hindrance to progressive reform of the tax code and financial regulation, I must admit that I do not find his retirement a loss.  His chairmanship of the Finance Committee has been marked by a failure to understand the most important issues related to federal income and estate taxation and by adoption of positions that are too favorable to Big Money and Big Business (especially Big Banks).  He has been tone-deaf, in other words, to the class warfare waged by the right against the middle class and the resulting growth in inequality in the country that has been worsened by the current tax provisions that support redistribution upwards to the very wealthiest owners of financial assets and businesses.  In particular, he has failed to use his position to push for reasonable reform of the capital gains preference and the wealth-favoring versions of the estate tax passed by the Bush administration.  He has refused to consider a reasonable financial transactions tax. In fact, Baucus was too willing to go along with the initial passage of the Bush tax agenda in 2001-2004, and he did nothing to ensure that the Bush tax cuts would fade into oblivion on the sunset date.  In fact, he worked to make permanent almost all the Bush tax cuts and supported the corporate-friendly "extension" of the broad menu of corporate tax cut provisions (including a retroactive extension of the R&D credit, which cannot possibly serve the purpose it is claimed to serve when enacted retroactively).  The tradeoff provided only token items on the progressive menu. 

Of course, the Republicans will cast Baucus' choice to retire as a reflection of problems for Democrats.  See the Bloomberg News article cited above, in which Rob Collins of the National Republican Senatorial Committee says as much.  I suspect that Baucus knew he would be targeted by liberal Democrats for his failure to vote for gun control and for his failure to support progressive tax policies. 

That said, he remains as Finance Chair through 2014, and he has said he intends to produce a rewrite of the tax code.  He is the wrong person to do that, and so it is important that other Democrats relegate him to a position of less influence in order to come up with more progressive changes than he would support.

Is Ron Wyden (who would become the most senior member of the Finance Committee when Baucus leaves) capable of carrying the banner of progressivism?  His emphasis on "tax simplification" is worrisome, because it suggests that he does not understand the relationship between complexity in the tax code and sophistication of taxpayers to whom the complexity applies.  The main reasons for complexity are two-fold:  (i) existing tax rules are expanded to cover abusive schemes developed by sophisticated tax advisers (attorneys and accountants), and (ii) existing tax rules are riddled with exceptions to provide subsidies (tax expenditures) favoring industries represented by heavy lobbying.  To the extent that tax simplification reduces the anti-abuse rules needed to prevent various tax scams and manipulation, simplication is a policy mistake.  To the extent that simplication results in changes to the tax expenditures, it can be useful  but it is often also mistaken, because the easiest way to "simplify" such rules is to expand them to cover even more of heavily lobbied-for industries.  Wyden needs to expand his understanding of the relationship between simplification as a goal and fair allocation of resources to the extent that resource allocation is handled through tax expenditures in the Code, reasonable rules to ensure that the most sophisticated taxpayers pay their fair share, and fair distribution of the tax burden.  Baucus did not serve the publci well in regards to these issues.  Let's hope that Wyden does better.

Related articles

With Baucus retirement, Ron Wyden next in line to become Senate Finance chairman

Senate Finance Chairman Max Baucus Not Running in 2014 - Businessweek

Obama caves yet again: offering Social Security cuts to appease the right...

Doggett fighting for fairness on Tax Day!

Baucus

The latest "golden fleece" award for a corporate subsidy: just another way to "rig the game for 'the haves'"

Obama caves yet again: offering Social Security cuts to appease the right...

Obama's budget isn't even released yet and he's already caving to the "let's make the rich richer and forget the rest" crowd.  That crowd that claims that we need a capital gains preference so the rich can gather all that extra money to purportedly create jobs.  The crowd, that is, that fails to acknowledge that the rich tend to take all that extra money to Singapore, the Bahamas, or the Cayman Islands or hide it away in some Swiss bank, none of which does any good for our economy compared to what the government investing that money in infrastructure projects would do. See, e.g., David Leigh, Leaks reveal secrets of the rich who hide cash offshore, The Guardian (Apr. 3, 2013);  The corporatist crowd that refuses to admit the empirical evidence that says government investment is as important as private investment in creating jobs.  It is the government that makes the market go round.  And government money--our money--spent for schools, bridges, safer communities provides jobs and improves lives.  Without that government investment, there is no market, just barter.

President Obama seems to have forgotten that he was elected. as a Democrat, over the Republican candidate.  Obama has no business proposing cuts to Social Security benefits as part of a purported deficit reduction package.  Social Security is not a deficit driver: it is a social insurance program earned by those who receive it by payments over lifetimes of hard work.  It is the only stable retirement income most have.  The average Social Security beneficiary receives just short of $14,000 a year from Social Security--that's just 125% of the poverty line, which of course is defined so low as to guarantee that anyone living at or below that line is indeed in abject poverty and unable to move out of it.

The Republican Party has argued for cuts to Social Security benefits for decades, using whatever crisis of the momen they can engender to argue that we can't afford the system in place.  They've invented the perjorative term "entitlement" to imply that those who rely on social insurance because of disabilities or old age are just 'freeloaders' who are mooching off others.   Not so, since Social Security is an earned benefit program like insurance: workers pay premiums throughout their working life, and then once they reach retirement age they may draw benefits. 

There are a number of reasons for the amount of debt that the US government has--most of them related to the four-decade-long drive by the Republican Party to protect the wealthy and the corporations they own from much of a tax burden and to allow the accumulation of immense wealth by a few at the top of the income distribution.  Outsize military expenditures driven by Bush's preemptive wars undertaken at the same time that the Bush Administration pushed through tax cuts that favored the rich are of course a big problem.  The Bush tax cuts threw us from surplus to deficit and we haven't gotten beyond them yet.  The almost complete capture of the financial regulatory agencies by Wall Street, and the resulting financial crisis driven by casino capitalism spiked with the heady bubbles of derivative inflation is of course another part of the problem, and we haven't gotten beyond that yet, as Big Banks still exercise far too much power over their own regulation, proven by the LIBOR scandal that demonstrated their ability to manipulate the purportedly objective market rate to suit their profit machines.

But Social Security is not one of those drivers of the debt.  And the debt is not so outsize that it merits sacrificing the most vulnerable amongst us to mollify the wealthy who merely want to avoid paying their fair share of the revenues needed to get rail service up to snuff, bridges safe, and public schools owned by the public again.

 The average Social Security benefit is just under $14,000: the use of chained CPI will result in a loss to the average recipient of "$4,631 in Social Security benefits by age 75, $13,910 by age 85; and $28,004 by age 95" (from release by Social Security Works, based on “Inflation Indexation in Major Federal Benefit Programs: Impact of the Chained CPI,” Alison Shelton, AARP Public Policy Institute, March 2013.).

Obama has no business facilitating the gluttony of the rich.  He should drop the proposal to use “chained CPI” that will  result in a cut benefits for Social Security recipients.

Related articles

Obama's Social Security Cuts: Wrong Policy, Dumb Politics

Left Furious With Obama For Backing Social Security Cuts

Obama budget includes Medicare, Social Security cuts

Illinoisans Detest President Obama's Chained CPI Budget Proposal

Congressional Democrats Blast Obama 'Chained CPI' Proposal To Cut Social Security Benefits

The Inequality Gap

Big Business believes in taxpayer subsidies, not "free markets"

David Cay Johnston, former NY Times reporter and now Syracuse professor, writes about the thing that most journalists don't bother to (or are told not to) write about--the way that Big Business successfully lobbies legislators and regulatory agencies to write the rules to favor Big Business, at the expense of ordinary Americans, all under the false claim that they are pushing de-regulation for the good of competition and ordinary consumers.  Johnston, Missing the Story, American Journalism Review (March 2013).

Johnston describes a number of ways that state legislatures, Congress and state and federal regulatory agencies have made life easy-street for Big Business at the cost of ordinary consumers.  He notes it is often discussed as "deregulation" but that "is a misnomer because, literally, no such thing exists in commerce....Everything in business is regulated in some fashion, and has been since long before the first nearly full set of laws we have....  [Thus, d]eregulation typically means reregulation under new rules that favor business interests."  Id.

Businesses claim that the 'deregulation' they seek is just another step towards their ideal of "free markets" to help competitiveness.  Not so, Johnston replies.  The regulatory climate that results is almost always one that creates "moats" making competition much harder for small businesses and allowing duopolies or monopolies to arise that can set prices as high as they wish. And often the captured regulatory agencies allow the most absurd subsidies imaginable. 

The Bush Treasury did that in spades.  One example is the changes the pro-business Treasury under Paulsen made in the regulations under section 368 governing corporate reorganizations, in which the Bush Treasury (many officials of whom are still part of the Obama Treasury) promulgated rules that provide, for the first time, the possibility of a loss recognition by shareholders in the nonrecognition reorg exchange.  Settled law at the time said no such loss could be recognized.  And the Bush Treasury also did it in setting up (through regulations) yet  another tax subsidy of Big Oil (as an add-on to an already ridiculous subsidy enacted by Congress when it allowed Big Oil to operate as limited partnerships).  Here's how Johnston describes this.

The simple story is that Congress in 1986 exempted monopoly pipelines from the corporate income tax if they organized themselves as Master Limited partnerships. The George W. Bush administration then let these pipelines include the nonexistent tax in the rates they charge.

The cost of this fake tax is both tiny and huge.

The pipelines raise prices to cover the cost of the tax, which in turn means they have to raise prices even more to cover the taxes on the extra earnings, known as "grossing up." A 42 percent tax on profits, grossed up, means a pipeline gets to earn its profit plus 75 percent for taxes. These higher costs are then built into prices people pay for gasoline and natural gas to heat homes. Paying this fake tax costs each American less than three cents per day, about $10 per year, I calculate. That is the tiny part. The huge part is that collecting just a penny a day from everyone in America adds up to $1.1 billion in a year — or $3.3 billion at three cents per day per American. Id. (emphasis added).

Note, folks.  That's an unnecessary $3.3 billion subsidy provided to already-profitable businesses that comes entirely at the cost of ordinary Americans.  It is a subsidy put into law entirely through Big-Busienss-friendly tax administrators in ways that most Americans do not see it--or, if they see it, they believe it is a "real" tax cost of the businesses rather than just another theft subsidy.

This is another aspect of the problem of the way the media treats any discussion of "free markets." The fundamentalist approach to free markets (that I have sometimes labeled "free marketarianism" or "friedmania") claims to believe that deregulation helps people by increasing competition and opening up markets.  In fact, it is usually the opposite.  Deregulation helps Big Business by decreasing competition and allowing the development of powerful oligarchs and powerful monopolies or near-monopolies.  Brute capitalism, that is, allows those who hold capital to hold power, and those who hold power act against the interests of ordinary people in order to consolidate their power.  Another blog addressed this well:

A free market requires that everybody plays nice and follows the rules. Guess what. There’s always someone who will do whatever evil they think is required to make money. Once you realize that, you know there can be no such thing as the free market.

***

That’s one of the primary reasons that uncontrolled capitalism has been such a gross failure since the Reagan/Thatcher “revolution”, leaving us with record inequality and damaged democracy, and bringing the world economy to the brink of total collapse that simply evaporated trillions of dollars. Random Notes from the Exasperation File, Class War In America.

I have often noted that the media treat the daily ups and downs of the stock market as though it is an accurate reflection of the entire economy.  It is not.  When the stock market is up, it is likely that one or another segment of Big Business is doing well or exceptionally well.  That means the affluent--those in the top 30% who own most of the financial assets of this country, including Big Business's CEOs and board members, are doing well.  So as the stock market has resurged after the 2007 financial crisis brought on by the excess of Big Financial Businesses, the wealthy who run and own those Big Businesses are doing mighty well indeed. 

This is corporatism at its worst--the takeover of the economy and all of its institutions by a corporate mindset that favors the wealthy and the managers/owners of Big Business over ordinary people, leaving ordinary people's views unheard.  It often is associated with class warfare, wherein the rich ensure that their money buys laws and regulations written by, for, and of the rich.  Corporations pay less in taxes and ordinary workers pay more--either in direct taxes or in the indirect tax of wage and benefit loss that is a tax subsidy for the wealthy.

Those at the bottom of the economic distribution are of course the ones most hurt by the decline and by the class warfare policies of the rich.  They are most likely still doing poorly or just barely getting by, mostly because those big profits at Big Business are taken at their expense--through constantly rising prices not reflected in increased quality or costs of production, or through increasingly unfair worker wages and benefits that have been cut in order to increase the rents to the owners/managers.  And usually with the assistance of legislators and regulators.

Take a friend of mine, who was laid off from an auto parts manufacturer for almost three years and has been struggling to make a full-time living at it since he was reinstated--at a much lower salary then before the crash (conveniently for the company but not so good for the workers).  He bought a new truck about a year before the financial crash.  The payments were supposed to be around 250 a month.  In the first months of the layoff he couldn't find any substitute work, and he fell behind in payments on the truck (his family depends on him as the sole breadwinner; his family has almost no assets and no liquid assets; he depends on the truck to allow him to take odd jobs when his job at the factory is on hiatus--often landscaping, mowing, etc.).  The interest rate on the loan went up to 32% almost immediately.   That would once have been treated as illegal usury.  Not now, since "deregulation" has allowed financial firms to rip off their customers coming and going for their own profits.   Now his payments are around $400 a month and he owes as much on the truck as he did several years ago in spite of all the payments he has worked hard to make since then.  This Thursday he missed the payment again, after keeping up for most of the year.  He missed it because his company began selectively laying off workers for a week or 3 days at a time during the winter, and he didn't work for about ten days of the month before the payment was due.  On Wednesday he talked to his adviser at the financial firm that gave him the loan.  It was a new "adviser". They replaced a more understanding one with one who was considerably harsher.  The adviser told him on Wednesday that he would give him til Friday to make the next payment.  On Thursday, however, he sent a repo man who took the truck.  Friday my friend got a paycheck and could have made the payment (as he'd told the adviser on Wednesday).  Instead, when he went to make the payment thinking he could get the truck back that day, the financial firm advised him that he now had to pay off the truck in full--as well as a bunch of additional charges due to the repossession.  What would that be, he asked?  He assumed he owed about $3500, in his calculations the amount still due on the original loan.  Oh, no, the finance guy told him.  You will have to pay $4975 on Monday, and that amount will increase by $25 a day for every day you do not pay.  It's that much because of all the late fees we added on the bill.  Oh, and we are charging you $400 for repo-ing the vehicle on Thursday (even though we had promised we would not do so).....

Again, deregulation of financial institutions has made these rent-seeking add-on charges customary for anyone in the lower part of the income distribution.  Big Business sells it as competitive services for the underprivileged but it is really deregulated excess profits for the financial firms for acting like modern equivalents of plantation owners with a captive workforce unable to ever build up financial assets and always dependent on the firms' calculations as to what they owe or are owed.

How is my friend (who happens to be an African American) supposed to ever advance beyond the near-serfdom in which he currently exists?   Lucky for him, we are willing to offer him a personal loan at market-rate interest so that he can finally pay off his overseer and begin to dig himself out of the hole that our deregulated, GOP-ideology-driven state puts most Detroit low-income residents in.   Mass transit hardly operating and not permitted to expand as it should to permit low-income residents to commute easily to work in the region.  White suburbs that cannot be annexed into the city, so continue their oblivious lives exploiting Detroit's assets while pitying the poor black residents that just can't seem to do anything right.  Businesses that charge white folks in the suburbs less than black folks in the city.  Insurance companies that rip off their Detroit clients.  And on and on.

This is all happening in a world where white folks with money set all the rules and now, in Michigan, have made it very hard for any union to form and exert some worker-power on behalf of the employees. Michigan's new, so-called "right-to-work" law that the religiously right-wing Republican party of Michigan passed with no input at all from the people and with misinformation galore--all of the newspaper coverage talked about workers being "forced" to join a union unless you have "right-to-work" and how "right-to-work" would free them not to have to pay for the union and encourage more economic growth and more jobs.  None of the newspaper articles or the legislators reported the fact that right-to-work states tend to have lower wages for their workers, less good jobs, and poorer economies.  Of course, the information was wrong to start with--no one was forced to join a union without right-to-work laws--they were merely required to pay some amount (less than union dues) for the services that the union provides.  Now, they can demand the same services and pay nothing.  No Republican business would provide services on that basis, but Republican legislators serving their oligarchic base ensure that no true freedom exists for anybody without money.

Michigan, of course, has also just taken over the City of Detroit, with Gov. Snyder's appointment of an emergency manager.  This is as undemocratic as it gets, given the state vote rejecting the last EM law and the fact that the EM will have dictatorial power to ignore the Mayor, the City Council and all other elected officials.  Snyder is a right-wing tool, in office backed by a majority-GOP legislature that reflects the racism of most of the "upstate" part of Michigan and blames Detroit's problems on its predominately black residents.  The legislature passed right-to-work to retaliate against unions for trying to get protection for workers' rights in the constitution.  Apparently, the GOP thinks the constitution should only protect the wealthy, as it does by prescribing a flat tax, ensuring that the wealthy in Michigan get to choose what they support but are hardly taxed at all by the State. The rabid right in this state forget that what condemned Detroit was the "white flight" to the suburbs and Michigan's foolish state constitution which does not allow Detroit to take the suburbs into the city.  So Royal Oak's mayor a few years ago could refuse to fund metropolitan buses because he didn't want Detroit's black population able to cross the border into Royal Oak and pollute the city by taking jobs there.  And the wealthy residents of the 90% white suburbs of 80% black Detroit come into the city for its amenities--opera, plays, sports, museums--and its work, but take their pay out of the city to maintain their schools and shops and amenities while complaining about how awful Detroit is.  We Detroit residents are very worried that the GOP's takeover of the Democratically elected city government will result in the rape of the city's assets--Belle Isle is a jewel in Detroit's crown that the state covets; Detroit's water system is another asset that the state--and the white suburbs--covet and want to control.  The EM will be pressured by Snyder and the rest of the upstate Detroit haters to take over those assets and make Detroit pay for being a center of unionism and Democratic voters.

The Michigan passage of the so-called "right-to-work" law and the renewal of the emergency manager law AFTER it was defeated by the people in Novemberare perfect illustrations of the contempt that the current Republican party shows for ordinary people when it is in power in a state.  And it also illustrates well the capture of legislators and agencies by oligarchs, monopolies and duopolies.  This is, as Johnston notes, a sad state of affairs that will only get worse unless the press reinvigorates itself to inform rather than kiss Big Business's ass.

 

Related articles

The Evils of Corporatism

Addressing TBTF with tax and other policy: because "Big Banks Go Wrong, Pay Little Price"

The latest "golden fleece" award for a corporate subsidy: just another way to "rig the game for 'the haves'"

Random Notes from the Exasperation File

Major corporations are pocketing your taxes

Trillion Dollar Coins, Fourteenth Amendment Powers, Executive Duties versus the Zanies on the Right who Want to Send us to Economic Purgatory: Krugman on the dysfunctional politics of the US economy

Paul Krugman appeared on Bill Moyers PBS program Sunday night, talking sanely and rationally about the economy and why jobs (should) come first--and along the way noting how politics now dominates what and how we can talk about economic policies.  See Moyers & Company, Paul Krugman on Why Jobs Come First (Jan. 11, 2013).  

(While you are at the site, also watch Moyers' essay, The Crony Capitalist Blowout, about the goodies that corporations got out of the fiscal cliff deal, which included everything from immediate expensing to the active financing exception and the R&D credit--all subsidies for big corporations that spent lots of lobbying power ensuring they would get them).

We have all kinds of reasons to know that the US is not Greece and will not be like Greece--we are a powerful economy, we have our own currency, and our debt is widely respected.  Nonetheless, the right-wing radicals want to destroy the New  Deal programs--Social Security, Medicare, and Medicaid, and they are willing to take the entire economy hostage to try to get their way.  Just look at Pat Toomey in the clip Moyers shows on the show, threatening to put the US government into default unless the majority in Congress accedes to the will of the wacky minority.

That wacky minority hopes to use brinksmanship games around the debt ceiling to force progressives to yield on their dream target--decimating the New Deal. 

The radicals on the right don't really care about the debt ceiling--look at the way they willingly raised it throughout the Bush administration, even while viciously cutting taxes for the wealthy and creating huge deficits out of the surplus existing when Bush took office!  They don't really care about deficits.  Look at the way they viciously cut taxes for the wealthy and spent on military budgets and preemptive wars when Bush was in office! 

What they want is a radical restructuring of the economy in a way that will maintain and further the new gilded age, where bankers and private equity titans get rich off the labor of ordinary folk and ordinary folk find themselves eeking out a living at more or less the same rate they were before the Bush decades.  The top 1%, as Moyers pointed out, have seen a 275% increase in incomes over the last decade (due in large part to the Bush tax cuts, but also to the misappropriation of productivity gains by the rich).  Meanwhile, average American workers have seen their wages barely increase by $1.23 an hour.....not even keeping up with inflation.

Obama has said he will not negotiate on the debt ceiling.  He must hold firm.  There are various ways he can combat their "leverage".  The obvious one is that it is unconstitutional for Congress to pass laws that require spending, pass laws that raise too little revenue to pay for that spending, and then refuse to permit the government to borrow to make up the difference that they have legislated into being.  That is irresponsible, and can be viewed as a violation of their constitutional obligation to ensure that the nation can pay for the debts it has already incurred.  See Taylor, Top Dems Urge Obama to Weigh Unilater Debt Hike, Salon.com (Jan. 13, 2013).  Obama is correct when he highlights this.  And surely as President, his power reaches to borrowing to fund the government that he is obligated by Congress to run under the laws he is obligated to implement.  He should make it clear that he is willing to risk impeachment to test that power rather than be held hostage by their petty, selfish games.

What about the "trillion dollar platinum coin" idea?  This is the law that grants the executive the right to mint platinum coins of any denomination.  Why not mint a few that add up to a trillion, and then pay it to the Fed and draw cash from the Fed based on that coin, to pay our bills?  That is perfectly legal--Congress did not limit the use of the coins in the legislation authorizing them.  If Congress can play brinksmanship games by threatening to put the US in default and destroy our economy unless the majority enacts the pet legislation of the minority to destroy the Social Security, Medicaid, and Medicare safety net programs, then the Executive should be willing to use every tool at his disposal to prevent that.  Of course, Treasury today said it wouldn't do that.  See Anne Lowrey, Treasury Won't Mint Coin to Defy Debt Ceiling, New York Times (Jan. 12, 2013).   Stupid of them to do so, since it is clearly within the law.  Obama cannot "wimp out" on this debt ceiling issue (to use Krugman's term):  if he lets the  zanies in the GOP use these tactics to force changes in the safety net programs, he will have destroyed the Democratic party and the recovery from the Grand Recession in one fell swoop.

Remember, the analogy of US government debt to household debt is a silly one, just as is the analogy to Greece.  The government is not a family; our income is not the fixed wages of a head of household; our debt may feel staggeringly large for ordinary people to comprehend, but it is not too large a share of our GDP and our cost-of-funds right now is incredibly low.  We should borrow while the borrowing is good, to pay for the vital infrastructure repairs that need to be made and to ensure that we do not default on a key obligation to our people--the provision of a decent standard of living through measures that encourage job creation (by creating demand) and provide security against job loss and the vulnerabilities of old age and sickness.

The Peterson INstitute is spending half a billion dollars to distort the public's understanding of debt and deficits, in order to convince Americans that we should run the government like they run their households, in terms of amount of debt.  But Peterson is a right-wing billionaire whose views are antiquated and wrong for the time.  Keynes is the only one who has had it right, and we should listen to Keynes, not Friedman's brute capitalism theories of a "free" market in which the wealthy control the assets and confiscate the rewards, not Peterson's cacophonous sounds about debt. 

Look again at Moyers' program.  He runs a tape where Lloyd Blankfein--head of Goldman Sachs, filthy rich, and one of the culprits of the financialization of the economy and the speculation that threw us into the Great Recession--talks about how ordinary people will have to give up on their expectations from Social Security and Medicare.  Entitlements, he says, just can't deliver what people want--we can't afford it.  This from a guy who has socked away millions garnered from the everyday lives of ordinary people.  This from a person who has ridden the easy street rail line of subsidized profits for his banking firm (cost-of-funds extraordinarily low due to the government bailout; and subsidies in the code both internationally (active financing exception) and at home (the tax treatment of derivatives has been extraordinarily kind to banks in terms of sourcing and therefore taxability), etc.  This from a person who has enjoyed a priviledged preferential rate of taxation on much of his income, lobbied for through the revolving door of Treasury officials and banksters and their attorneys.

No, Obama shouldn't listen to the Blankfeins of the world, or the Norquists, or the Toomeys.  He should turn a deaf ear to Mitch McConnell and to Rand Paul and all of those who insist that we have to keep funding the military-industrial oligarchy but that we can't afford to keep funding the earned benefit programs that have made the difference between an intolerable standard of living and a decent standard of living for millions of Americans.

Related articles

Krugman Slams GOP For Debt Ceiling Threat On ABC's This Week: 'This Is Hostage-Taking'

Krugman: Republicans Are Engaging In 'Hostage Taking'

More on the Threat to Social Security and Medicare from the so-called "Fiscal Cliff"

Krugman: Recession 'gratuitous' because if Congress created jobs program it 'would all be over'

US rules out making trillion-dollar platinum coin in debt row - AsiaOne

Paul Krugman: Clueless Washington Doesn't Know The Deficit Is 'Mostly Solved'

McConnell Tossing the Gauntlet on Debt, Taxes and the GOP's dream of dismantling Social Security and Medicare

Pretty much as I predicted, Obama's failure to go over the fiscal cliff--instead "negotiating" and settling for a half-assed deal that hardly got rid of any of the stupidities of the Bush tax cuts--convinced the Republicans that they can play their brinkmanship game on the debt ceiling debate yet again and perhaps finally get the Democrats to undo their own most significant programs of the last 100 years--Social Security and Medicare.

What we ought to be doing is cutting the military/defense and corporate welfare budgets.  And then increasing taxes--with (1) new layers of tax brackets and tax rates corresponding to our new levels of income inequality, so that multimillionaires are taxed at a higher rate than mere millionaires and billionaires are taxed higher than multimillionaires and (2), at the least, legislation to eliminate the farce of the so-called "carried interest: privileged compensation taxation for LBO managers, who get mostly preferential capital gains for their "services" in buying companies and loading them with debt that makes the managers but not the workers wealthy.

But the Democrats somehow still thought they would get some kind of credit, even from the staunchest of the right-wingers, for being "bipartisan" and working out a "deal" to avoid the "fiscal cliff."  So they made the ridiculous Bush tax cuts permanent, except for those in the upper-upper crust making three times as much as anybody in the middle class.  And they made the estate tax cut even larger than it was--with a $5.2 million exemption (double for a couple) and only a 40% rate.  Inequality will continue to grow at accelerated rates.  And they extended the litany of truly egregiously stupid corporate tax breaks, like the bonus depreciation/expensing provisions that ultimately permit corporate multinational giants a NEGATIVE effective tax rate (read Cary Brown on the way noneconomic frontloading of expensing amounts to nontaxation under time value of money principles).

The GOP however is currently running deranged.  The party that purports to care about fiscal conservatism only wants to fund more military and make sure that vulnerable elderly don't get as much in their Social Security checks and have to pay even more for their health care.  McConnell--the MINORITY leader in the Senate--has pronounced his party's views on the matter:  "The tax issue is finished."  Brian Knowlton, McConnell Takes Taxes Off the Table in New Talks, New York Times (Jan 6, 2013).

Folks, the stuff about the debt ceiling and the need to cut benefits under Social Security and Medicare is baloney.  The US government isn't a family--it's a sovereign regime .  We should learn from the Euro nations that are embroiled in a self-defeating austering regime that leaving citizens suffering while trying to toady to big business is a recipe for disaster.

President Obama had damn well better take Social Security and Medicare off the table as well as any corporate tax reductions.  Get rid of corporate loopholes and let corporate tax revenues INCREASE.  It is the only way left to try to re-balance an economy that is skewed in favor of the uber-rich and the multinational corporations and against ordinary Americans.  Oh, it would also help to move to single-payer single-provider health care and get profit-making out of what should be an important human right.

And are we "spending way too much" anyway, as McConnell declares?  Surely not, since we are only spending on things that the Congress has voted to spend on.  If McConnell wants to spend less, let him propose a spending cut and put it to the vote.  If it fails, then he should vote the taxes or borrowing needing to pay for the spending Congress has legislated.

So, just as my advice in the "fiscal cliff" debate was to go over the cliff, let the Bush tax cuts expire, and then put in place some decent cuts for the REAL middle class (those making less than $100,000 a year), my advice here is to go over the "sequester cliff" and let the across-the-board cuts, with the first real cuts to the military in decades, take place.  We should damp down our military zeal and start to put our money where it will build good schools, good colleges, good public transportation, and ultimately good jobs.

As for the debt ceiling, the best thing would be for the Senate to eliminate the filibuster rule (or at least make the right-wingers do a physical filibuster) and eliminate the debt ceiling.  It is an artifact of a different age, and is meaningless.  Think about this.

1) we have spending bills that require us to spend X dollars

2) we have tax bills that only raise X-Y dollars.

3) we have a governmental obligation to pay the X dollars that we spend to those who provide the goods and services amounting to X dollars.

4) Therefore we have a governmental obligation to borrow the Y dollars that we don't raise with taxes.

 

Related articles

The GOP's extortion demands: cut Social Security or we'll shoot the country in the foot

More on the Threat to Social Security and Medicare from the so-called "Fiscal Cliff"

McConnell demands unbalanced deal

Calling McConnell's Bluff

The War Against Social Security