ataxingmatter

Qualified Dividends or Mere Inclusions

Jim Maule has a good post on a recent case exploring the question of what constitutes a qualified dividend for the preferential rate provided (temporarily) in section 1(h)(11) treating dividends as net capital gains.  See Tax Complexity of the Dividend Kind, MauledAgain (Jan. 6, 2012) (discussing the decision in Rodriguez v. Comr.,, 137 T.C. No. 14 (2011)). 

The case touches on a recurring issue in tax law--the fact that there are straightforward provisions such as those governing the characterization of a payment to a shareholder as a dividend in section 301 and then much more complex provisions that may treat a tax item as "equivalent" to a dividend or may "deem" it to be a dividend.  The necessity of characterizing income is due to the preferential treatment accorded capital gains--a treatment that is both at the center of considerable complexity and hard to square with basic concepts of equity.

Maule's comment is on target:

The time, resources, effort, and energy invested by the IRS, by the taxpayers, and by the IRS in resolving this issue is but one of many examples of how the existence of special low rates for capital gains and dividends is wasteful. Taxpayers generally, and their advisors, not only try to find ways to bring income within the special low rates but also to structure their business activities in ways that they otherwise would avoid, simply to take advantage of special low rates. Repeal of these rates would not only allow removal of at least one-third of the Internal Revenue Code and a similar substantial part of the regulations, it would free taxpayers, the IRS, and the courts from a huge chunk of planning and litigation that consume far more of the economy than the special low rates contribute to it. Id.

Inequality, Taxes, and Corporatism viewed thru the lens of Nick Reding's "Methland"

[editorial note: back from a great break in Colorado with children and grandchildren, so postings will resume normal routine. edited in afternoon to add cite to Angry Bear post by Mike Kimel.]

The Congressional Research Service recently released a new report on U.S. income inequality.  See Hungerford, Changes in the Income Distribution Among Tax Filers 1996 to 2006: The Role of Labor Income, Capital Income, and Tax Policy, CRS (Dec. 29, 2011) (Download Hungerford. Changes in the Distribution of Income Among Tax Filers Between 1996 and 2006. Role of Labor Capital and Tax. 122911).   The CRS report is a sobering document, especially in light of the growing unrest as ordinary people realize how their opportunities are limited by the increased control of resources at the top (e.g., Occupy Wall Street, the "99% vs. 1%, etc.).   For example, see the New York Times article today on inequality and the fact that U.S. mobility trails that of Europe and Canada.  The article is based on a number of different studies such as that of Marcus Jantti and colleagues, American Exceptionalism in a New Light, and suggests that inequality has lingering impacts, especially on the poor and the ability of the poor to move out of the bottom.   See Jason DeParle, Harder for Americans to Rise from Lower Rungs, New York Times, Jan. 4, 2012 (in print edition, Jan. 5, at A1).  The article discusses the considerable evidence that there is limited access today to what we have called the "American Dream":  stickiness exists especially for the poor and the affluent, as the poor generally lack opportunities to get out, and the affluent generally have all the advantages they need to stay affluent.  See especially the graphic accompanying the article, Comparing Economic Mobility.  Id. at A12.  The causes of America's mobility problem are multiple--poverty; a thin safety net (threatened even more now by the right-wing's determined attack on earned benefits like Social Security and Medicare under cover of their purported concern about deficit reduction); the disadvantages of single motherhood; high incarceration rates, especially for black males; a long history of racial stratification that still impacts daily life; the pay tilt towards educated workers (usually made up of children of the affluent); the decline in unionization compared to other affluent countries; and the magnitude of the gap between the rich and the vast majority of Americans.  Even conservatives, who tend to think that mobility is overrated as a policy goal, may conclude that "stagnation at the bottom [is] alarming and warn[] that it will worsen."  Id. at A12 (citing conservative journalist Reihan Salam of the National Review and Daily Post).

Meanwhile, not surprisingly, the right-wing in this country continues to pursue exactly those policies that have so contributed to the decline of mobility, the stagnation of incomes for the lower income population, and the loss of employee power in the workplace.  See, e.g., the plan of the Republican majority in Indiana  to enact so-called "right to work" legislation that allows non-union members to freeload off unions by getting the bargained for rights and wages without paying dues to make that bargaining possible.

What those interested in tax policy should pay especial attention to is the role of tax changes over the last 40 years in augmenting the inequality gap.  Tax is not the sole culprit, but it is a contributor and something that Congress can easily do something about, if it can summon the political will to act.  From the report summary:

Inflation-adjusted average after-tax income grew by 25% between 1996 and 2006 (the last year for which individual income tax data is publicly available). This average increase, however, obscures a great deal of variation. The poorest 20% of tax filers experienced a 6% reduction in income while the top 0.1% of tax filers saw their income almost double. Tax filers in the middle of the income distribution experienced about a 10% increase in income. Also during this period, the proportion of income from capital increased for the top 0.1% from 64% to 70%.

Income inequality, as measured by the Gini coefficient, increased between 1996 and 2006; this is true for both before-tax and after-tax income. Before-tax income inequality increased from 0.532 to 0.582 between 1996 and 2006—a 9% increase. After-tax income inequality increased by 11% between 1996 and 2006. Total taxes (the individual income tax, the payroll tax, and the corporate income tax) reduced income inequality in both 1996 and 2006. In 1996, taxes reduced income inequality by 5%. In 2006, however, taxes reduced income inequality by less than 4%. Taxes were more progressive and had a greater equalizing effect in 1996 than in 2006.

Three potential causes of the increase in after-tax income inequality between 1996 and 2006 are changes in labor income (wages and salaries), changes in capital income (capital gains, dividends, and business income), and changes in taxes. To evaluate these potential reasons for increasing income inequality, a technique to decompose income inequality by income source is used. While earnings inequality increased between 1996 and 2006, this was not the major source of increasing income inequality over this period. Capital gains and dividends were a larger share of total income in 2006 than in 1996 (especially for high-income taxpayers) and were more unequally distributed in 2006 than in 1996. Changes in capital gains and dividends were the largest contributor to the increase in the overall income inequality. Taxes were less progressive in 2006 than in 1996, and consequently, tax policy also contributed to the increase in income inequality between 1996 and 2006.

 

The members of Congress who pass such preferences (the GOP in particular, but certainly various members of the Democratic party such as Max Baucus fall into the same group) spin such preference for the rich (a group which includes most members of Congress) as supporting job creation.  Their spin suggests that anytime anyone invests in corporate stock, they are acting as entrepreneurs and increasing the possibility of jobs for the rest of us. 

The spin is mostly just that.  Most of the capital gains from sales of corporate stock have nothing to do with having invested in a company directly in ways that provide more capital to the company and lead to creationof jobs.  Most of such gains are from secondary market sales--sales of stock from one rich person to another.  Secondary market sales have absolutely nothing to do with job creation or entrepreneurship: they have everything to do with acquiring more money with taxes that are at extremely low preferential rates. 

Similarly, getting dividends from a corporate enterprise has nothing to do with job creation--they just make the corporate stock holder richer at a preferential tax rate (under the 'temporary'[ provision enacted in 2003 and extended several times since).   Many 'freshwater' economists and many tax professionals argue for "integrating" the corporate tax and the tax on dividends or outright elimination of the corporate tax, claiming that  the dividend tax represents a 'double' (and therefore wrong) taxation of corporate profits.  That logic has led to an increasingly rich variety of corporate loopholes built by Congress into the Code--from the various expensing and bonus depreciation provisions (letting corporations reduce their taxable income compared to their actual business profits by claiming a deduction for capital expenditures) to various preference gimmicks, such as the "domestic manufacturing deduction" that provided a significant reduction in the corporate tax rate to all kinds of industries, including many processes that few would consider to qualify for "manufacturing." 

 But the double taxation claim is merely that--a claim based on the way the theor treats corporate entities.  Economists been unable to prove empirically that shareholders actually bear the burden of the corporate tax.  But even if they do, there are other reasons having to do with institutional power and the sustainability of democracy for supporting a corporate tax.  If you start out thinking that "only people pay taxes", you would likely conclude that "corporations can't pay taxes; therefore, the corporate tax is 'really' being paid by the owners of the corporation."  Of course, we used to say that only people can vote, so only people should be allowed to spend money on campaign speech.  Now the Supreme Court--which has treated corporations as "persons" under the Constitution since the nineteenth century--has decided that corporations have free speech rights that are broad enough to allow them to use their vast resources to influence who gets elected.  Thus, corporatism has paved the way for corporations to buy elections and then lobby for the laws and regulations that suit them, while arguing that corporations shouldn't pay any taxes to support the government that grants them various subsidies through the election/lobbying/regulation (deregulation) process.  It has supported the US movement towards "free trade" agreements, such as NAFTA, that have been difficult for the poor in countries with whom we trade, for environmental protections in the U.S., and  for locally owned businesses and local workers in the U.S.

If you avoid the corporatist agenda and start out with the assumption that corporations pay tax (because we have treated such entities as taxpayers under the Code), then you can recognize that corporate tax policy can be set to permit reasonable profits and to disincentivize unreasonable--i.e., societally undesirable--behavior.  An example would be the problem of corporate consolidation in a globalized economy, which provides inordinate power to multinational entities (I have called them quasi-sovereigns) and significantly reduces the power of ordinary employees. 

To understand something about the problem of corporate consolidation (as if the 2007-08 financial crisis caused by "too big to fail" financial institutions shouldn't have been enought), read the book Methland: The Death and Life of an American Small Town, by Nick Reding (Bloomsbury 2009).  In trying to understand the causes of the meth explosion in U.S. rural towns, it details the devastating effect of corporate consolidation on rural workers and economies--Big Agriculture and Big Pharma essentially bought out the vertical processes (for Ag, from seed to table, with a few firms like Cargill, Tyson, and ADM controlling huge swaths of the American food system).  In the process of gaining control, they consolidated many small, local producers, shut out unions, sought-out illegal immigrant labor to avoid wage and benefits laws, and dropped wages--in one case, wages for workers in an Iowa meat processing plant dropped overnight from around $18 an hour to less than $6 an hour, with a simultaneous cut off of benefits. See Methland, at 69 (noting the decline in wages when Cargill took over the formerly locally owned Iowa Ham plant in 1987). 

"[T]he evolution of the meth epidemic had occurred in lockstep with three separate economic trends that had contributed to the dissolution of small-town United States.  ...  And the things that spurred this simultaneous rise and fall: the development of Big Pharmaceuticals, Big Agriculture, and the modern Meican drug-trafficking business."  Id. at 109.

***

"By 1999 ... Cargill-Ecxel [an agribusiness plant in Ottumwa Iowa] placed newspaper advertisements in the poork, industrial border towns of Jarez and Tijuana offering two free months' rent to workers who could make it to Ottumwa from Mexico.  For Cargill and the rest of the packing conglomerates, employing illegals would appear to have been the best of all possible situations, for the simple reason that these employees, lacking legal identification, didn't technically exist, and therefore had no rights.  Nor were they apt to argue with the harsh conditions of an industry that continues today to have the highest rate of employee injury in the United States.  A failed 2001 federal criminal case brought against a Tyson plant in Shelbyville, Tennessee made clear that corporations would essentially not be held liable for employing or recruiting illegal immigrants to work in the plants.  Despite the fact that two Shelbyville managers were caught on tape by federal investigators asking human traffickers for five hundred undocumented workers over four months, Tyson's defense team successfullyh maintained that it's too difficult for Tyson employees to determine who's who among legal and illegal employees.  The ruling institutionalized the notion that employers of immigrants are not beholden to offering the same rights to workers that other companies must, for the simple reason that they don't know--and don't need to know--who works for them."  Id. at 153.

***

"Consider what used to happen in Oelwein, Iowa before the large scale consolidation in the 1980s and 1990s of almost every niche of the food-production chain.  Corn farmers...would have bought seed from the local seed company.  Once harvested, that corn would go to a grain elevator, also locally owned.  It would be shipped to a small feedlot in order to fatten cattle raised in Nebraska, Wyoming, Florida or Arizona; or perhaps it would go to a dairy in northern Missouri, a chicken farm in Indiana, or a pork outfit in Kansas.  The variables were infinite and the market was dynamic.  The barge, truck or railroad car that carried the grain was likely independently owned, too, as would have been the pigs, cows, and chickens it fed.  At each stae, the price would have to be 'discovered' as multiple potential customers vied to handle the product, with competition keeping the price 'true'... in the context of the marketplace.  Eventually, the Oelwsin corn used to feed sows in Topeka might return to Oelwein in the form of hocks to be disassembled, packaged, and shipped at the Iowa Ham plant... From there, a whole new market ... would take over in order to distribute the food and sell it at the retail level, perhaps at the grocery once owned by the Leo family (which today is an IGA).  James and Donna Lein would have been the essential building blocks in a vibrant system in which the variables contributed at all stages to what's called the 'social capital' of rural communities.

Beginning with the precedent set in 1987 with the IBP takeover of Hormel in Ottumwa--and the subsequent takeover of Iowa Ham by Gillette--a few companies would come to control most of the U.S. food business. ... Price discovery no longer happens; the value chain is controlled by a limited number of entities.  Seed is not sold; it's biogenetically engineered by companies like Monsanto, which entered into a joint venture with Cargill in 1998.  Cargill--not the farmer--owns the corn this is grown [under contract]....  In the Illinois and Ohio river valleys, Cargill owns 50 % of the grain elevators and other storage facilities.  Along with Tyson, Swift and the National Beef Packing Company, Cargill owns 83.5% of the beef packing inustry [and so on for turkey production, flour milling, ethanol production, animal feed plants, and soybean crushing]. Id. at 169-160.

***

Once competition has been annihilated ... the surviving companies, like Cargill, begin to effect political decisions through their enormous lobbying capabilities.  The government no longer governs unimpeded: it does so in tandem with the major companies. Id. at 161 (citing Douglas Constance, a rural sociologist at Sam Houston State University, Huntsville Texas).

This loss of local ownership through massive consolidation of business enterprises was a change orchestrated from the top of the U.S. government under Reagan's policies of privatization, deregulation, tax cuts (and loosening of tax and antitrust mechanisms that had worked against consolidation), and militarization.  It is a change continued today through the more and more flexible tax regulations and Code provisions governing tax-free reorganizations.  These policy approaches supporting consolidation of enterprises both vertically and horizontally favor the development of powerful corporations that can influence governmenbt in their favor while demanding subsidies (bonus depreciation, expensing, and other tax loopholes that have steadily reduced corporate taxes well below 25% for most of those that pay them at all, even while the rates remained statutorily at 35%.  Looking at the way corporate consolidation has harmed rural America should lead us to ask whether reversing the policies favoring such consolidation--such as making tax-free reorganizations much more difficult, pursuing anti-trust violations under new theories that look to the problems inherent in quasi-sovereign corporate entities, charging corporate and other businesses an expatriation fee equal to the increase in value of business assets while in the United States--may not be worth considering as one step in remedying both the "too big to fail" and "quasi-sovereign" problems while also providing resources to address the thin safety net and falling wages of the bottom of the income distribution.

For more ideas on inequality and its relation to a dynamic, growing economy and more stable society, see Mike Kimel's post on Angry Bear, The Pelzman Effect: Why Economic Growth Has Slowed in the US over Time.

Why We Should Care About Romney Refusing to Release His Tax Returns If Nominated

As most are probably aware, Romney announced a two days ago that he did not intend to release his tax returns even if he were selected as the Republican presidential nominee.  See, e.g., Mitt Romney Declines to Release Tax Returns, Cementing Posture of Secrecy, Huffington Post (Dec. 22, 2011) (quoting Romney as announcing "Never say never, but I don't intend to do so").

The reasons that such releases have traditionally been pushed for presidential candidates are myriad.  Voters can understand  more about a candidate's wealth  and potential conflicts from reviewing the returns.  They also have some idea of the candidate's understanding of finance from viewing the returns. 

What kinds of things likely prompt Romney not to want to release the returns?  Are they issues that voters might reasonably take into account in assessing his candidacy or are they irrelevant concerns? 

One can speculate that Romney may be worried that the stark revelation of his immense wealth compared to most voters will be damaging.  We are living through a second Gilded Age, when wealth is concentrated in enormous measure in the hands of very few Americans at the top, and the vast majority of us are just barely getting along and are worried about being tossed out of the middle class into the New Poor.  In that context, surely the wealth of a candidate is information that is relevant to voters.  Persons of immense wealth may have trouble understanding the daily trials and tribulations of 'average' Americans who have to save judiciously for unusual expenses and who may be thrust into bankruptcy by a car accident, storm-caused damage to a home, sudden change in job possibliites, or onset of a serious illness.  Further, Romney is trying to take advantage of his experience as a businessman and claims about his market abilities and savvy financial training:  that makes his tax returns directly relevant and it strikes this voter as contradictory that he both wants to claim it and hide it.

Given Romney's wealth, it is likely that most of his income is in the form of income from capital that is privileged under our tax code with especially low preferential capital gains rates--capital gains, almost all corporate dividends and income from pension funds (his private equity firm Bain Capital, still pays him a generous share of 'profits' through a deferred compensation plan--another tax -reduction scheme that most Americans can't benefit from).   Surely it is relevant to voters whether a presidential nominee is particularly benefited by the current tax laws that favor the wealthy or not.  And surely it is relevant just how extensive that benefit is.  For example, Romney may well pay a lower effective tax rate than many Americans who have many times less income than Romney does. Voters are entitled to know that fact, since it will undoubtedly influence Romney's views about tax reform.  As David Donnelly, the national campaigns director of the Public Campaign Action fund, notes in the Huffington Post piece, "the implications are that he is afraid of what this says about who he is and who he will represent if he is in the White House."

The decision not to release tax returns also provides more evidence of a person who does not believe in transparency.  Romney hasn't released information about campaign contribution "bundlers."  He destroyed records from his tenure as governor of Massachusetts.  This tendency towards secrecy runs against the importance of openness for the sustainability of democratic institutions.

Romney is "one of the wealthiest men ever to run for the presidency" and he made most of that money in the extremely tax-advantaged world of private equity fund managers (who have claimed preferential capital gains rates on their compensation income under the "carried interest" loophole in the partnership provisions that the wealthy members of Congress haven't yet been able to bring themselves to close).   Shear, Romney Says He Won't Release Tax REturns, New York Times, Dec. 22, 2011.  Release of returns would call attention to the privileged tax system applicable to private equity fund managers, and to the fact that Romney enjoyed that kind of special tax system while average Americans who toil for a living pay higher rates on their compensation.  Shouldn't we have that information in front of us in black and white? 

Tax policy is where a great many of the important decisions affecting every facet of the economic wellbeing of this country are now being made.  For a presidential candidate to refuse to release his/her tax returns and allow citizens to arrive at their own conclusions about how the candidate's wealth, tax advantages, and tax positions will influence his/her thinking on tax policy issues is worrisome.

Of course, the mere fact that there will be rampant speculation about the tax rate that Romney pays and the income that would be revealed on his tax returns if released is itself a reason to release the returns.  Americans will be interested, and they will want to understand how Romney's tax rates compare to their own.  The Democratic National Committee has already created a webstie that allows people to compare based on assumptions about Romney's rates, according to the New York Times story, at www.whatmittpays.com.  We already have too much misinformation and speculative information in our national campaigns, so it behooves Romney to release the forms so that people can see what the real information is.

And finally, the fact that Romney has challenged his own opponents to release their tax returns (Ted Kennedy in the 1994 Senate race) should be a "shame-on-you" reason for him to release his own returns now.  If he thought that Kennedy's tax returns would be relevant information for voters, then it is surely reasonable to assume that he thinks that his own tax returns would be relevant information for voters.

There doesn't seem to be any valid reason for Romney to withhold his tax returns if he is the nominee.  If he doesn't release them, then voters should attribute it to Romney's sense of patrician privilege.  And it wouldn't be unreasonable to assume along with that his acceptance of the corporatist agenda to shift more and more taxes onto working Americans and his inability to understand the daily lives of ordinary Americans. It should count against him in considering just how he will handle the key economic issues of our times--changes to the tax code that will finally require the wealthy and high income to pay more to redress the imbalance of the numerous changes made in the last 40 years that favor the wealthy.

Gingrich tax 'plan' starves government, feeds the wealthy, rests on flawed assumptions

In case you hadn't heard about it, Gingrich would offer taxpayers a choice to pay tax under current policy or at a 15% rate, with zero taxation of capital gains, dividends and interest that accrues mostly to the rich and uberrich, while corporate tax rate would be reduced to a mere 12.5%.  For the rich, the 15% rate on their ordinary income and the 0% rate on their predominant form of income (capital gains and income from capital) would be a windfall.  For corporations, it would practically amount to the elimination of the corporate tax.  It should be no surprise that tax revenues would decline substantially: the Tax Policy Center study of Gingrich's plan estimates by $1.3 trillion over a decade.  While the lower two quintiles would get an average tax cut of about $440, the top 1% (starting at incomes of about $629,000) would get an average $344,000 cut and the top 0.1% (starting at incomes of about 2.868 million) an average $1.9 million cut.  Id. 

See also Study: Gingrich Plan would provide big breaks for rich, blow huge hole in budget deficit, Washington Post (December 12, 2011); Rubin et al, Gingrich Plan to Add $1.3 trillion to Deficit, Study Finds, Bloomberg (Dec. 12, 2011).

Gingrich's rationale is one that the right-wing American Enterprise Institute strongly supports--the tired old reaganomics rationale that eliminating taxes on capital will create new investments.  See, e.g., Why Romney is Wrong and Gingrich is Right on Capital Gains Taxes, AEI ( Dec. 12, 2011).  This theory is hogwash--lowering the return on investment by the piddling tax (whether 15% or 20%) will not keep folks from investing.  Folks will still make profits and they will still invest those profits, even if they have to pay taxes.  Paying no tax on dividends and capital gains won't make the rich suddenly invest in entreprenuerial activities, my friends.  (Simply trading corporate stocks on the secondary market is not, by the way, entrepreneurial.)

The Gingrich website also objects that this plan is really good for everybody.

An optional flat tax reform will be simple: Tax returns can be done on one sheet of paper,” the website says. “Subtract from income a standard deduction and deductions for charity and home ownership, multiply the result by the fixed, single rate of taxation of at most 15 percent, and the process is over.”  Wash. Post, above (quoting the website).

Folks, the hardest part of the income tax is figuring out whether you have income and how it is characterized (capital or ordinary).  Neither of those two difficulties disappears under Gingrich's system.  Furthermore, ordinary fold really don't have a very difficult time with their tax returns--they have wage income (withheld against), report the standard deduction and personal exemptions, and get a refund of part of the amount withheld.  The appeal to simplicity is a cover for the real purpose--to provide an unprecedented tax break to the wealthiest Americans at a time when the right is targeting Medicare and Social Security for cuts.  This is just one more example of class warfare from the right wing.

GOP Representative moves to increase deficit--and aid the investor class

The GOP has made lots of fusses lately about the deficit.  According to the party line, earned benefits that Americans rely on for health care and retirement income just "have" to be reduced, no matter how painful it is to the GOP-controlled House to do it, because of the unrelenting deficits that are destroying the US economy.

How then can any GOP member of the House think it is reasonable to introduce legislation that institutes a permanent tax cut that will cost the government billions will benefitting primarily the very rich investors in corporate stock?

Peter Roskam (Republican from Illinois and member of the House Ways and Means Committee) introduced legislation--H.R. 3091 (for those with BNA access)-- on Tuesday that would make the ridiculously low Bush tax legislation provisions for capital gains and dividends permanent.   A 15% rate on the main source of income that the uberrich enjoy, while the rest of us pay regular ordinary income rates on our wages. 

How does Roskam justify this further giveaway to the rich, this further example of governmental capture by oligarchy?  He claims that this revenue reduction that benefits mostly the very rich will --yes, you guessed it--help generate U.S. investment and create jobs.  Making this giveaway rate permanent for everybody will "foster a culture that encourages investment, capital formation, and economic growth", he says.  BNA Daily Tax Report, Oct. 5, 2011.

Balderdash.   Low capital gains rates have nothing to do with encouraging investment or capital formation or job creation.  They mostly reward investors in the secondary market on their trades.  They let the rich get even richer and make more investments--probably in emerging markets rather than in the US.

It is true that having more cash on hand because you didn't pay as much taxes means  you'd have more to spend.  So why not encourage economic growth by putting cash in the hands of the middle and lower income classes through the payroll tax reduction proposed by Obama? (Yes, it should be temporary--as an economic stimulus.)  

This is just another example of class warfare in action in the right-leaning House GOP.  All the fuss about deficits.  All the economic terrorism about the U.S. debt limit.  But reducing revenues still more in order to benefit the wealthy--well, the Mr. R. just can't wait to do that one.

Right-wing Blogger Peter Pappas' Problematic Post About Tax Lies

Peter Pappas is not a left-leaning blogger.  His "tax lawyer blog" tends to serve as a booster for the right-wing rants about how the rich are paying more taxes than the poor (as though that's any surprise--the rich are the ones with the staggeringly large incomes and the uber-rich are the ones garnering the gains from productivity, while the rest of us stagnate or decline).  He also tends to engage in ad hominem attacks on left-wing bloggers--yours truly being a frequent honoree.

Here's the most recent one--a rant that left wing bloggers complain about the misleading tax rhetoric of the right and "never" complain about the misleading tax rhetoric of the left.    Pappas, Tax Lies Some Left Wing Bloggers Ignore, Sept. 13, 2011.

Let's unpack this.  Bernie Sanders, in Congress, makes a speech and in it he states that Exxon Mobil didn't pay any taxes on its $19 billion in income.  Pappas thinks I should have complained about how this rhetoric was misrepresenting the facts and misleading the public, since the company didn't pay any federal income taxes but did pay a piddling amount of other (state, local, excise) taxes.  But Sanders' next sentence in the blurb that Pappas excerpts mentions the company's $157 million refund from the IRS:  that sentence fairly clearly sets the context as a discussion of what the companies pay in federal income taxes, don't you think?  Yeah, Sanders should have spoken perfectly articulately and made absolutely clear that he was talking about federal income taxes. After all, Exxon did pay a piddling sum in overall taxes on their $19 billion of income (they claim $500 million on $19 billion, which is about 2.5%, counting all state, local and excise taxes).   But that de minimis error of lack of specificity or ambiguity is very very small potatoes compared to what the right-wing rhetoric chain does.

Pappas gives a link to his earlier post, which shows a 'guide' that Sanders' office prepared about corporate freeloaders.  Note that the first item in that guide states the following: " Exxon Mobil's 2009 profits totaled $19 billion but according to the company's SEC filing it received a $156 million rebate from the IRS PLUS it didn't pay any federal taxes." 

However, Pappas doesn't give a link to the particular speech that he's quoting, which always makes me think that there is something in the speech that he doesn't like because he knows it is telling about the state of America today.  By not giving a link (or any other direct information about the speech), Pappas avoids providing any context.  What was the context of the speech?  Sanders was addressing the question of whether Congress should extend yet again the Bush tax cuts for the wealthiest Americans.  (Now I didn't say "federal income tax cuts passed in the Bush administration" but I believe all you readers know that when we talk about the Bush tax cuts we are talking about federal income taxes, don't you?)

Instead, Pappas just links to Politifact.com--a reader might think it is just a link to the website home page, since he doesn't provide the title in the link, but it is actually a link to PoliltiFact's "rating" of the statement about Exxon Mobil in Sanders speech on the Bush tax cut extension decision.  if you pursue that link you find a link to the Nov. 30, 2010 Sanders speech (which I've also linked here).  Here are a few excerpts from that speech:

It is very clear to anyone who spends 2 minutes studying the issue that the people on top are doing extraordinarily well at the same time as the middle class is collapsing and poverty is increasing.  ***

If you can believe this, since between 1980 and 2005, 80 percent of all new income created in this country went to the top 1 percent--80 percent of all new income. That is why people are wondering and asking: What is going on in my life? How come I am working longer hours for lower wages? ***

After we bailed them out, those [Wall Street] CEOs today are now earning more money than they did before the bailout. And while the middle class of this country collapses and the rich become much richer, the United States now has by far the most unequal distribution of income and wealth of any major country on Earth. ***

In the midst of all of this growing income and wealth inequality in this country, we are now faced with the issue of what we do with the Bush tax cuts of 2001 and 2003. And if you can believe it, we have people here--many of my Republican colleagues--who tell us: Oh, I am so concerned about our recordbreaking deficit. I am terribly concerned about a $13.7 trillion national debt. I am terribly concerned about the debt we are going to be leaving to our kids and our grandchildren. But wait a minute. It is very important that we give, over a 10-year period, $700 billion in tax breaks to the top 2 percent. ***

[in the penultimate paragraph, Sanders referred to the oil companies and their demand for even more tax breaks--(federal income tax breaks, I'm sure he meant to say).  That's where the quoted sentences discussed by Pappas are embedded.]

These people want to cut back on the powers of the EPA and the Department of Energy so that ExxonMobil can remain the most profitable corporation in world history while oil and coal companies continue to pollute our air and our water. Last year, ExxonMobil made $19 billion in profit. Guess what. They paid zero in taxes. They got a $156 million refund from the IRS. I guess that is not good enough. We have to give the oil companies even more tax breaks

All in all, Pappas' chagrin at the "misleading" nature of Sanders' talk seems manufactured.  Anybody reading the speech would have been quite clear that this was a discussion of federal income taxes.

And let's put Pappas' choice of doing this posting (and claiming that I in particular am somehow derelict in my duty as a blogger for not pointing out the "lie" in Bernie Sanders' speech) in context.  Let's look, for example, at one of the "related posts" on Pappas' own blog.   Pappas, 51% of Americans Pay Zero Tax; Share of Government Funded by the Rich Increases, May 9, 2011.   Now, of course you all know that the title by itself is an outright lie.  It is very hard for any American who buys various items necessary for existence (gas, food, clothing, necessaries, an occasional splurge) to manage not to pay any state or local sales taxes, and of course many states have income taxes as well and even poor Americans who have jobs will also pay payroll taxes (for Social Security and Medicare).  It simply isn't true that  51% of Americans pay "zero tax".  Now, in the body of the  post itself, Pappas does state that the 51% figure is a number in a congressional study suggesting the percentage of Americans that owe no federal income tax in 2009.   Does that make up for the headline?  It's an attention grabber--and a terribly misleading one.

I doubt if anyone thinks that anybody who talks frequently about tax gets it right all the time--we are human, after all, and we make mistakes.  But there is a big difference between an ambiguity that is clarified by context and the type of misleading tax rhetoric that the right indulges in regularly in order to push a corporatist and pro-elite, anti-tax, anti-government agenda.  You know those false claims about taxation-- that poor people don't pay taxes and they really "need" to so that they will have some "skin in the game", that family businesses and farms are lost due to the estate tax (no, there's only anecdotal evidence about some very few being slightly impacted and none about "loss" due to the piddling estate tax), or that capital gains preferential rates for stock sales reward investment in corporations (no--they primarily reward gains from secondary trades between investors), or that Social Security is insolvent (no, it is not ), or that the investor-class merits preferentially low taxes because they are the job-creation engine of America (no--jobs are created by entrepreneurs and by mom-and-pop business and by big corporations, not the secondary market investors in those corporations and certainly not by the private equity funds that routinely buy so that they can fire), or that the active financing exception to subpart F is merited because big banks otherwise would be taxed to death (no--it is merely a way to give a special subsidy to foreign banking operations that results in very low tax rates for such financial institutions), and on and on.....  Most Americans are so ill-informed that they do not understand that the "taxable income" that may be reported by the elite is already a figure far removed from (and generally much less than) the economic income of that same elite--because of the exclusion for muni-bond interest, the tax preferences for retirement income and the elite's access to incredibly generous benefits even while those of the vast majorithy of Americans are being reduced, etc.  Nor do they understand that many of the deductions that the middle class also enjoys --for example, the mortgage interest deduction--give special benefits to the elite.

There is a reason that vast numbers of Americans are misinformed about tax matters, the role of the debt ceiling, the solvency of Social Security, the relative distribution of incomes, the relative rates of taxation, and the share of government funding paid by major corporations and similar points.  It is due to a conscious campaign by the radical right to discredit government and protect the elite from taxation.  And as we saw in the recent manufactured 'debt ceiling crisis', the radical right today is wililng to commit economic terrorism in order to get its way and protect the elite at all costs. 

Jon Huntsman's Wall St. J. Op-Ed: warmed over Reaganomics

There he goes again.  Huntsman's op-ed ran in the Sept. 6, 2011 Wall St. Journal: Reigniting the Entrepreneurial Spirit.

As though enterpreneurs aren't being entreprenuers right now.  HOw about the group that made the news last night--two young men who realized that they could repai iPhones and other electronic gear for half the amount that the manufacturers charge and still make a cool profit (YoubreakIFix)?  If you have a good idea and you try to make it work, odds are you can make money off it.  That makes you an entrepreneur.

Huntsman seems to think that making the tax code friendly to Google and other Big Corps is the way to encourage entrepreneurialism.  That's like saying that taxing  the wages of partners in private equity funds at capital gains rates encourages entrepreneurialism--it's a big laugh.  Carried interest managers aren't entrepreneurs; they are speculators who buy cheap, breakup, and sell expensive. 

Huntsman wants "tax simplification, regulatory reform, and changes in energy and trade policy."  That's just more of Reaganomics--tax simplification means tax cuts for business and the 'owner' class, regulatory reform means deregulation, and changes in energy and trade policy mean deregulation and opening up of protected areas for exploitation.  None of those things will create jobs, foster entrepreneurialism, or create a sustainable American economy.

Huntsman says he favors a "revenue-neutral tax overhaul modeled after Ronald Reagan's 1986 tax reform package--which will require taking on sacred cows."  So he is willing to eliminate a few carveouts and deductions, that's good.  But he wants to lower rates even more, that's bad.  In fact, he says "flatter" is "fairer"--that's a weird view of fairness in a country that has consistently favored progressive taxation as a way to ensure that the wealthy pay for the many advantages bestowed upon them by government.  The 1986 tax cut worked as well as it did (it was no panacea) because rates could be cut in half and still be at 35%.  Today's rates are already at tax haven lows and can't really be cut any further without decimating important government programs.  Moreover, one of the key 1986 reforms was to eliminate the preferential rate for capital gains and tax the wealthy on their income the same way that the middle class is taxed--all at ordinary income rates.  Huntsman wants to couple rate reduction from all time lows with elimination of all taxes on capital gains!    He of course calls that 'eliminating the double taxation on investments" but as I've explained several times before, that use of "double taxation' is mostly false, especially in respect to investment in companies' stocks.  We already have a special tax code provision that provides for very low taxation on the capital gains an entreprenuer invests in a company directly.  But the preferential capital gains rate goes far beyond that and applies to secondary market capital gains.  That has nothing to do with direct investment.  Moreover, we have accelerated depreciation, bonus depreciation and expensing provisions that essentially make investment in business equipment very close to tax free--there's no 'double taxation' involved. 

 Huntsman repeats his proposed new rate schedule--8%, 14% and 23%--combined with "eliminating deductions and credits".  That means that the poor and middle class would bear an unconsciounable tax burden, while the wealthy would pay even less than most of them do today.  He says he'll "make business tax rates globally competitive"--that should mean RAISING rates, since the US business tax rates is already at tax haven status among the 40 OECD countries.  But of course, he actually intends to lower business taxes even further, for the benefit of wealthy managers and owners.

Huntsman's objections to regulations are equally misleading.  Regulations are the way that government acts to prevent business from passing along costs to taxpayers as 'externalities'--costs that they don't have to take into account to make a profit, but that create real harms for others, such as air pollution,  long term ecological destruction, ruination of mountains (strip mining), ruination of streams (sewage discharge), etc.  Huntsman has already reached judgement on the NLRB's consideration of Boeing's plant relocation to a right-to-work (union destroying) state.  He similarly has decided that the Dodd-Frank financial system overhaul represents "another regulatory sin" because it creates "massive compliance costs."  It appears he'd rather that the too big to fail banks continue to speculate freely in interconnected ways that end up creating a financial crisis like 2007-2008.  After all, the banksters will enjoy that, and the politicians will benefit from the big campaign contributions.  But the rest--ordinary Americans that make up the vast majority of living, breathing 'beneficiariies' of the kind of unsteady, speculative, volatile financial system created by deregulated banks--will suffer.  Huntsman understands taht the regulations that protect ordinary bank customers may face the big banks to "choose between downsizing or facing much higher capital ratios."  He casts this as a parade of horribles resulting from Dodd Frank.  Oddly, because that's actually a desirable result of banking legislation--if only that were a real possibility, it would help to end the 'too big to fail' problem!

Huntsman as president also would favor Reagan's mantra of privatization--he would 'privatize' Fannie and Freddie and "let the housing market clear".  In other words, he would let private companies now garner all the benefit of the federal taxpayer dollars in vested in Fannie and Freddie (he posed no conditions about returning all the benefits of the long-term federal guarantee) and he wouldn't give a damn about ordinary Americans who have underwater mortgages.  There's nothing in his proposal for clawbacks on mortgages in bankruptcy or otherwise.

Huntsman's warmed-over reaganomics proposals for favoring big business over ordinary Americans through a deregulatory regulatory policy, tax cut tax policy, and privatization don't address the right issues, don't promote entrepreneurialism, and are not fair. 

Obama's Labor Day Speech in Detroit

Yesterday I marched with thousands of fellow union members down Woodward, the historic main artery of downtown Detroit.  The major, senators and others were out in force, as the parade ended near where Obama was to address the group hours later.

The speech was a disappointment.  Yes, he appeared genuine, in shirtsleeves.  Yes, he gave an articulate speech, with plenty of warm references to union leaders and frequent snippets of union orthodoxy.  He even spoke truth about the role of unions in helping to build America's middle class and the problem of wage stagnation in its decline.

But there was no flame there.  The right-wing crazies who appear out to destroy unions, the middle class, and just about everything in the New Deal got barely one mention.  The corporatist agenda that puts Big Business and its BigWig beneficiaries at the top of Washington's priority list not only got no call-out; it got some of those key phrases like "shared sacrifices" that mean, in reality, hit the working class hard and continue to give big breaks to the managers and owners of corporate America and the ''partners' getting low capital gains rates on their wages.  Instead of taking on those who are waging class warfare on everybody but the elitist few who have reaped the most benefits from tax cuts while greedily keeping all the productivity gains from workers hard work for themselves, Obama continues to treat right wing ideological dogma espoused by the crazies on the Tea Party fringe as though it were worthwhile economic thinking.  The speech didn't change that.

And the right wing fringe is going to keep insisting on its dogmatic, ideological, and wrongheaded 'policies' of tax cuts for the well-to-do combined with decimation of unemployment  benefits, Medicare, Social Security. 

What Obama should do is sound the call to arms in today's class warfare.  It is high time that this country recognized that the economic well-being of ordinary Americans in the bottom 80% of the income and wealth distribution is the new 'civil right' issue for the 21st century.  Yes, race and ethnicity and gender still matter.  Yes, we still are a country that discriminates in favor of wealthy white men who look ruggedly handsome and virile and against poor blacks, middle class muslims, and women of any color. But we have made progress on race, ethnicity and gender discrimination and it is now harder for an outright bigot to espouse outright bigotry without getting called on it.

The new civil rights issue is class status.  Whether black or another ethnic minority or female or poor white male, those who don't have much are at the mercy of the 'have-more' class of former prez GW Bush.  The Have-Mores take more out of their corporations and pay even less in taxes.  The Have-Mores live in a tax haven where they get close to zero taxation on most of their capital gains and income and still complain about the 'burden' of taxation, and tend to blame the country's middle class and poor for all those problems.  Why, they even blame our ridiculous health care costs on the 'irresponsibility' of medical care decisions, like the decision to use ER care in a hospital rather than preventative care, or the decision to go to a more expensive surgeon rather than to a cheap one.  (Of course, the fact that the poor don't really have any choice in the matter gets ignored, and the fact that medical doctors are overpaid while the typical worker is underpaid is swept under the table.)

And the right-wing crazies make no bones about their intent.  They don't care if they destroy the country--the economic terrorism they exercised in the made-for-FOX News 'debt crisis' is proof.  Why, the Wall Street Journal carries an op-ed today by William McGurn. The President's Speech Impediment, Wall St. Journal, Sept. 6, 2011, at A19, that states it clearly:  the only way Obama can really make a difference in creating jobs would be to use public spending to create public jobs to do needed public work, as FDR did after the Great Depression, but that would "massively increas[e] the deficit, and the Republicans won't let him do that.  Even with the word 'stimulus' banished from his remakrs this week, no one will be fooled by new calls to 'invest' in roads and bridges and infrastructure.  Or by the expected hodgepodge of other proposals from extending the payrool tax holiday to tax credits for new hires."  Nope, those things are truly the kinds of public intervention in the economy that could turn the tide of this Great Recession in favor of the working class, and the Republicans in Congress won't stand for that.

More on Jon Huntsman's Tax Proposals

In my last post, I discussed Jon Huntsman's campaign release of programs that he would push as president. 

Huntsman's tax proposals reflect the same old thinking of the right that capital should earn money tax-free while labor pays for government.  And he adds to that a few twists, in that he doesn't appear to understand how basis works or the difference between a secondary market investment and an investment in an entrepreneurial enterprise.

He proposals zero taxation of capital gains and dividends.  He argues that people should not have to pay 'double tax' when they sell their investments, since they paid tax on the original money that they earned and invested.  And he says that zero taxation of this kind of income will create jobs, by creating more investments in businesses that create jobs.

These arguements ignore much of the reality of the markets.

First, most investments in stock are not direct investments in entrepreneurial enterprises and hence do nothing at all to make it easier for companies to afford to create jobs.  Instead, they are secondary market investments--meaning that the investor is buying stock on the market from an investor who wants to get out of that particular corporate equity.  Those trades between investors add not a penny to the company.  They merely line the pockets of the secondary market seller. 

Second,  zero taxation of gains from such stock investments will especially benefit relatively short-term secondary market traders who buy shares  cheap and sell whenever they have appreciated. Permitting these traders--who often are not invested for the long-term and who may even have ulterior motives (moving the stock in a direction that benefits them for other reasons than the companies' wellbeing)  to have such gains from  secondary market sales be tax free would incentivize shorter-term investment, contributing to market volatility.

Third, Huntsman's rationale for excluding capital gains from taxation is nonsensical.  He says that the investor class paid tax on their income when they earned it and then invested that after-tax income so it is unfair to tax capital gains, since they represent a "double tax" on that earned income.  This is wrong on various counts in itself. 

a) the amount invested is not necessarily 'earned income' (implying income from wages that is taxed)--it is more likely, in fact, that the amount invested is an amount that was invested in something else or income from such an investment or tax-free income earned in a Roth IRA, for example.  (Much of the tax-free benefit of retirement accounts accrues to the wealthiest corporate managers.)  In today's system, the income from the investment would likely be taxed very lightly (at the preferential capital gains rate); once the switch was made to the system Huntsman is proposal, that income wouldn't have been taxed at all.  So nontaxed income would be invested and earn more nontaxed income.

b) gains from investments do not represent the same after-tax income that was used to make the investment, so taxing those gains is not 'double taxation' of the investment amount.  The amount of after-tax income invested creates a tax attribute called "basis".  When the investment is sold, the gain is the amount realized in excess of basis--in other words, the basis is allowed to be returned tax free already under today's tax code, and nobody on the left or right is arguing that the gross proceeds should be taxed rather than the gain in excess of basis.  So Huntsman's 'double tax' argument about after-tax investments being taxed again when realized on disposition is simply wrong.  (There are some more sophisticated arguments that could be made about inflation or deflation adjustments to ensure that all of the gain taxed is a true economic gain, but in a rough-justice tax world we have long concluded that such fine-tuning isn't necessary and would be counter-productive, just as a tax on imputed income, while economically 'accurate', would be counterproductive and merely create arbitrage opportunities of phantom deductions against minimized imputed income.)

Fourth, since many capitalists live exclusively off their capital, zero taxation of capital gains and dividends will essentially leave an entire class who pay no income tax, while workers will be taxed on every dollar they earn because of the elimination of the many deductions that are designed to provide a basic standard of living before taxation sets in.  That's highly burdensom taxation for workers combined with a permanent tax holiday for investors, most of whom are in the wealthy top 20% of the income distribution.  That kind of tax scheme carries the current investor-class hostility to workers to its logical and dangerous conclusion.  Not only would this radical right fringe make unions very difficult to form and make worker rights very difficult to enforce, but they would also place on workers the entire burden of the federal income tax.  That would be a final blow to many ordinary Americans who are barely making it on stagnant wages, even with a standard deduction and personal exemption that protects them from paying income taxes (but not payroll taxes).  (And yes, FICA and FUTA payroll taxes are taxes--they are exactions from the government.  They are taxes with a purpose--to fund Social Security and Medicare programs that ensure (among other things) that older Americans do not live in penury and can have decent health care in their old age.) 

This is somewhat paradoxical, because there is a segment of the radical right that has argued that it is "unpatriotic" for the poorest and lower-income Americans not to have to pay income tax.  (It is not entirely clear whether Huntsman's proposals adopt this position as well: he argues for elimination of deductions and an 8% rate for those at the bottom.  Does he mean to eliminate the standard deduction and personal exemption, the EITC and the child credits and have the poor pay a significant portion (8%) of their inadequate income? )

That argument against zero taxation for the poor doesn't hold water, since clearly there is a reason for providing a  'rough justice' zero taxation rate for those who have very little.  The standard deduction and personal exemption (combined with the Earned Income Tax Credit and Child Credits) achieve this, ensuring that those at the bottom who need every penny for necessities do not have to make a choice between paying their taxes and eating or having shelter. 

But the same ones who argue that the poor should have to 'have some skin in the game' of the income tax system want the wealthy whose income is primarily or even solely derived from their capital (often inherited, or earned as 'carried interest' where compensation was taxed at a much lower rate than a laborer's wages are taxed, or acquired in 'deals' because of family and political connections as in the case of George W. Bush and Richard Perry) to pay no income tax at all.  So in this proposed  regressive tax system, those who can least afford to pay would have to pay and those who can best afford to pay would not have to pay.  That turns the standard notion of tax fairness based on 'ability to pay' upside down.

It might be worth considering why even less obviously radical-right candidates, such as Jon Huntsman, believe they must kowtow to the "investor class" and force the entire burden of the federal government on the working poor and middle class. 

a) It certainly isn't because of a benefits analysis.  Clearly, the investor class wouldn't have much of anything without the federal government--roads, transportation systems generally, air traffic, security, stable legal systems regarding property and contract rights, financial systems (and back up from the federal government), water (imagine this country without the federally funded dams and other projects necessary for fair water distribution), etc. are all necessary items to the investor class's wealth that are attributable in significant part to the federal government.

b) it certainly isn't because of a vulnerability analysis based on ability/inability to pay.  The investor class is a particularly vulnerable and discrete minority that merits special protection.  The wealthiest Americans own most of the financial assets and are the least vulnerable to hard times.  They generally have more than enough for necessities and luxuries and those at the top of the class--the top one-half of 1%--have gotten so much wealthier than everybody else in these Reaganomics decades that they could lose half of what they have and still live privileged lives.

c) It certainly isn't based on a history of success in creating jobs by reducing taxes.  This has been the policy in place since Nixon was president.  It hasn't worked and there's no indication that it will work.  Without broad-based growth that sustains a strong middle class, the economy in this country can't succeed.  Stingy wages for laborers and wealth accrual solely at the top creates increasing inequality.  As laborers garner less of the economy's bounty, they become more frugal and spend even less, in a vicious downward cycle. 

d) It isn't even because that is the way to solve the federal deficit and debt problems.  Taxing the bottom four-fifths of the income distribution while letting the wealthiest and highest income off essentially scott free (a 23% rate on their wages--unless it is paid as 'carried interest'-- and zero taxation of their much larger capital income and their carried interest compensation) would result in fiscal mayhem.  On the contrary, if we taxed all income (from both labor and capital) at the ordinary income rates (as Reagan's 1986 tax reforms did) and had a reasonably strong and progressive estate tax and eliminated the cap for Social Security taxation, we could make a strong showing in reducing the deficit.  Couple that with elimination of wasteful spending--especially the excess military spending and the 'bridges to nowhere' earmark.  Add a dose of sound thinking about the corporate tax and about the multinational corporations' demands for federal government subsidization of their global enterprises, so that Congress eliminates needless corporate tax loopholes like the 'domestic production activities deduction', grossly accelerated depreciation, bonus depreciation, the R&D credit, the active financing exception.  With that, we would be well on the road to fiscal responsibility.

e) It probably is because that is what the wealthy want.  As George W. Bush said, his constituency was the 'have-mores'.  The 'have-mores' are seldom content with just having more--they want it all.  And these radical right policies will give it to them. 

Jon Huntsman's Tax Reform Proposals

The Republican Party seems to have a litmust test for 'good' Republican nominees for party office:

• first, tax cuts:  Republican candidates must have no plan to increase taxes, even if that means that the wealthy pay too little and the poor too much;
• second, deregulation.  Republican candidates must have no plan to have the government regulate the activities of the market (that will not regulate itself) in ways that favor the long-term wellbeing of ordinary Americans; and
• third, militarization:  Republican candidates must have no plan to reign in the exorbitant military/defense/homeland security spending that has been a large part of the reason for our buildup of significant deficits; and
• fourth, privatization:  Republican candidates must not resist privatization of every possible public asset and activity.

Readers will recognize the four-pronged stool of the Reagan administration and the right's agenda since--deregulation, militarization, privatization, and tax cuts.  We've been operating more or less under that agenda most of the time since 1980.  We have not created a sustainable economy that benefits everyone.  Instead, we have created a highly unequal society in which those at the top gain incredibly and those in the middle are squeezed down towards the bottom, while interminable wars get waged and environmental degradation continues at rapid pace.  Ordinary Americans lose out in this 'brute capitalism' endeavor which gives most of the rewards to those already holding most of the wealth and furthers a "corporatist" society in which everything caters to business while ordinary people's needs go unanswered.

Jon Huntsman's so-called "American Jobs Plan" fits the mold. 

On taxes, Huntsman wants to

1) eliminate deductions and lower rates to 8%/14% /23%. 

2)  Eliminate the AMT

3) Eliminate taxes on capital gains and dividends

4) Reduce the corporate tax rate to 25% from the statutory rate of 35%

5) shift from a worldwid system to a territorial one

6) enact a tax repatriation holiday

That scheme represents class warfare on the poor and middle class, for whom a tax bill of 8 or 14% of income, respectively, could be devastating.   You really can't simplify the tax code for the 70% of people who take the standard deduction except by removing provisions that may benefit them if they qualify (medical deductions, etc.).   Eliminating the AMT is extraordinarily costly, and doesn't "penalize ... small businesses" as the Huntsman plan argues.  Meanwhile, the wealthy--who own most of the financial assets (stocks and bonds) and get most of the capital gains and dividend income that Huntsman wants to make tax free, benefit extraordinarily.  Our tax code already favors investment income heavily--we should move in the opposite direction and tax investment income no differently from labor income.  Otherwise, we create an enormous privilege for those who already own capital and have investment income, while disadvantaging those who must earn a living from labor and now become the ones required to carry on their backs the entire federal government enterprise. 

 Huntsman's argument for zero taxation to capitalists' investment gains is on one hand the same old hat of "let's favor capital over labor" based on the failed market theories of the Chicago school that taxing capital gains deters investment.  But that's absurd on its face.  The wealthy who own most of the financial assets do not stop investing in those financial assets because of taxation--if so, they would switch from financial assets to operating assets and stimulate the economy.  Regretably, taxation doesn't have that much of an effect.  They continue right on investing in capital assets. 

Further, Huntsman makes a 'double tax' argument that shows how little he understands about the existing arguments about taxation of capital gains.  He says "[b]ecause dollars invested had to first be earned, they have already been subject to an income tax [and] taxing these same dollars again when capital gains are realized serves to deter productive and much needed investment in our economy." 

But it is not the "same dollars" that are taxed when capital GAINS are realized--tax basis protects the after-tax dollars invested and the amount taxed is the GAIN over that amount that has accrued to the investment.  The 'double taxation argument has a little more heft when made about dividends paid by corporations, but again much of that is based on the starting point.  Once we decide that corporations are persons that are taxpayers, then it is not proper to say that dividend taxation represents 'double' taxation.  Corporations are taxable entities and pay tax on their income.  They may then pay amounts out of that to shareholders who are also taxable entities and the shareholders will pay taxes as well (unless they are corporations, which generally get a 70-80 or 100% dividends received deduction).  But that is not really any different from the fact that I as a professor pay tax on my income and may pay amounts out of that to workers in my household who are also taxable entities and the workers will pay taxes as well.  The only reason it seems that the capital investment is different is because the Code has created a category of capital versus ordinary assets and distinguishes the rate on them.  And because one of the taxpayers in the corporate situation is an artificial entity--but one that we recognize as a 'person' under the Constitution entitled to even free speech rights. 

Furthermore, Investment gains and income earned through non-corporate entities of course have been subject to NO tax at all, since noncorporate entities are not subject to corporate taxation, and the gains beyond the after tax investment would be allowed to escape with zero taxation in Huntsman's scheme.

Huntsman's argument for reducing the corporate tax rate is equally nonfactual.  He states that "The United States cannot compete while burdened with the second-highest corporate tax rate in the developed world."  This is bunk--the statutory rate is not the actual rate paid by corporations.  Most corporations pay no tax, and those that do pay tax already pay a rate of 25% or lower.  So IFF it is really important to help US multinationals compete with other US multinationals and other country multinationals (which is itself a doubtful proposition) and IFF a 25% tax rate makes corporations competitive, the our corporations are already sitting pretty.  The US is in fact a tax haven for corporations, according to the OECD's analysis of developed countries  US corporations pay a very small share of taxes these days-the corporate tax take has shrunk from about 40% of GDP to less than 3%. 

The switch to a territorial system is another element that favors the corporatist agenda, as is the repatriation holiday.  See earlier postings.  Corporations have plenty of money that they can invest in the US right now; Repatriation isn't likely to increase investments but rather to amount to a windfall.  Repatriation didn't do anything to increase jobs in 2004 and it won't again.  Repatriation led the companies that repatriated profits in 2004 to keep even more profits outside the US (expecting a second 'one-time-only repatriation').  There is simply no good reason to do another repatriation tax holiday.

Huntsman then goes on to propose deregulation.  Note that he wants to

• eliminate Dodd-Frank.  We had a near Depression because we eliminated Glass-Steagal, and Huntsman wants to go back to the "banker take all the gains/society take all the losses" mindset of financial speculation that nonregulation of derivatives led us to. 
• undo the baby step towards health care reform.  Sure, we should have enacted Medicare for all, a single-payer system like every other advanced country in the world already has. But deregulating health care got us into the mess we are in--it certainly won't cure the mess.
• "dramatically reign in the EPA".  IN a country where corporate will has destroyed wetlands, denuded forests, and bulldozed mountaintops into creeks, Huntsman wants to let the corporate giants operate with no agency to protect the environment.  He particularly objects to protecting the ozone layer--that 'little' issue of whether we even exist as a planet that supports life or not...
• "curb" independent agencies like the NLRB.  Huntsman says the NLRB "destroys jobs"--in other words, we are supposed to be willing to have sweatshop conditions in order to have any jobs at all in the corporatist culture, rather than having jobs and protecting workers.
• "streamline the FDA". that favors Big Pharma and the investors, who want to be able to foist new drugs on patients without the painstaking clinical trials currently required

Huntsman thinks privatizing Fannie and Freddie will stabilize the housing market.  Allowing modification of mortgage loans in bankruptcy would go much further to doing that.   And "privatization" of Fannie and Freddie would have to be handled correctly to avoid a windfall from the existing public guarantee.  Better to simply wind them down and let them go out of business.  If anybody wants to run a Fannie equivalent, let them start it up themselves from scratch.