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Does Lowering Corporate Tax Rates Create Jobs? Answer is a resounding "no"

For years (decades, actually), the American pro-wealthy right has argued that lowering corporate tax rates will create jobs.  That is the presumed purpose behind the push by Dave Camp to enact a tax reform package with lower corporate rates, and the reason that even President Obama has voiced (tepid) support for lower corporate rates.

Baucus at Senate Finance and Camp at House Ways & Means are part of an oft-cited "bipartisan consensus" (though its never clear whether there really is one) for cutting corporate tax rates through  "revenue neutral" corporate tax reform.  This is a consensus which, if it does exist, has resulted from decades of corporate lobbying in Congress and near-absolute capture of the media on the issue, combined with the proliferation of robotic economics and "law and economics" faculties who scribble endlessly about the "economics" of corporate and capital income taxation, producing studies that suggest policy based on simplifying assumptions commonly used by economists that ensure that the outcome of their mathematical games should have almost no application  in the real world.  See, e.g., Ponnuru, Max Baucus's Self-Defeating Corporate Tax Plan, Bloomberg.com (Dec. 2, 2013) (indicating that "There’s bipartisan support for lowering the 35 percent federal corporate tax rate, which is among the highest in the developed world. Both parties see the rate as a burden for the economy because it pushes investors -- American and foreign -- to seek their returns in other countries. Economists argue that the tax therefore depresses wage growth in the U.S., a claim supported by numerous studies.")

So in spite of those many "studies", I've argued frequently in the past that there is no there there--i.e., that lowering corporate tax rates will do nothing to create jobs.  Instead, I've said, it will simply deliver an even higher profit margin to be skimmed off by the highest paid executives and, possibly, shareholders.  The higher profit margins are unlikely even to be used to increase workers' shares of the corporate revenues through higher wages, a place where they could most help the economy other than new jobs created.  Thus, the drive for "revenue neutral" corporate tax reform (cut corporate taxes, cut expenditures elsewhere to make up for the decreased corporate tax revenues) is just another example of corporatism as an engine of the modern form of US class warfare.

The Center for Effective Government (formerly OMBWatch) has now done a study looking at the "job creation track records of 60 large, profitable U.S., corporations (from a list of 280 Fortune 500 companies) with the highest and lowest effective tax rates between 2008 and 2010."   See Scott Klinger & Katherine McFate, The Corporate Tax Rate Debate: Lower Taes on Corporate Profits Not Linked to Job Creation, Center for Effective Government, Dec. 2013.   It confirms that corporate tax cuts don't create jobs.

The study, for example, found that a supermajority (22) of the 30 corporations paying the HIGHEST tax rates created 200,000 jobs between 2008 and 2012, while only 8 of those 30 had any reductions in the number of employees.  IN contrast, the 30 profitable corporations paying no or very little taxes in that period had an aggregate loss of more than 51,000 jobs--half created a few jobs and half reduced jobs between 2008 and 2012.

Here's the introductory text to the report:

The American corporate tax system is badly broken. Some corporations pay a third or more of their profits in federal taxes, while others pay nothing at all. Still others legally claim large sums as refunds even though they’ve generated sizeable profits in the United States. The responsible corporations that pay their fair share of taxes – companies like Smuckers, Nordstrom, Hershey, and Automatic Data Processing – are helping to fund the schools, infrastructure, national parks, and public protections that benefit all Americans. And the taxes they pay don’t stop them from investing in their businesses and adding new jobs for U.S. workers.

Many corporate leaders agree the U.S. corporate tax code is broken, but they argue that the core problem is that the tax on corporate profits (35 percent) needs to be lowered. Verizon’s CEO Lowell McAdam and 16 other CEOs who are members of the RATE Coalition wrote in a joint letter to the leaders of the House Ways and Means Committee and the Senate Finance Committee: “Our competitors in the OECD have lowered their statutory tax rates while the U.S. rate has remained relatively constant. This has resulted in an uncompetitive tax environment that discourages investment and job creation here at home…a lower corporate rate will boostinvestment in the U.S., bringing more American jobs, innovation and growth.” ...

A 2013 study by the U.S. Government Accountability Office found that large corporations paid on average just 12.6 percent of their 2010 profits in federal income taxes.1 Even when foreign, state, and local taxes were added in, the companies paid only 16.9% of their worldwide profits in [all] taxes in 2010. By contrast, small businesses pay an average tax rate on their profits of 19 percent, according to the Small Business Administration. U.S corporate profits as a share of the economy are at a 50-year high, yet federal corporate tax collections as a share of the economy are near a 50-year low. Id. at 2-3 (emphasis added).

Lowe's was an example of a relative high tax-paying company that created jobs:  paying taxes at more than 36% and hiring more than 28,000 new employees between 2008 and 2012.  In contrast, Verizon made enormous profits ($32 billion between 2008 and 2010), paid no taxes (receiving refunds of $951 million) and eliminated about 56,000 jobs between 2008 and 2012.  The 58 firms that repatriated $218 billion in the 2004 "tax holiday" at very low profits saved $64 billion in taxes but then proceeded to eliminate 600,000 jobs.

Not to mention that if corporations in 2012 had actually paid the corporate tax rate of 35 percent on their humongous $1.8 trillion in profits, the corporate tax receipts would have reached $630 billion instead of the $242 billion actually paid, resulting in a one-third reduction in the deficit.

It should not be surprising that most Americans see the slide in corporate taxes relative to corporate profits as a problem--the lost revenue could go a long ways to preventing cuts to education and infrastructure spending or Medicare, Medicaid, and Social Security benefits.

[A] brand new national survey by Hart Associates found that “by a remarkable nine-to-one ratio, voters want revenue generated by closing corporate loopholes or limiting tax deductions for the wealthy to be used for public investment and deficit reduction (82%), not to lower tax rates on corporations or the wealthy (9%). In other words, the public does not support “revenue neutral” corporate tax reform.

 Folks, it is quite clear that there cannot be a sustainable good-for-all economy if productivity gains constantly drift upwards (redistribution from the many to the few) as they have been in this country for the last two decades while at the same time tax policies "reward" the elite with lower taxes (another form of redistribution from the many to the few).  One has to wonder just how tone-deaf Congress must be, to continue to listen to economists whose policies rest on mathematical silliness and the lobbyists for big corporations and their wealthy shareholders and managers, while ignoring the crisis in middle and lower-income America due to a stagnant minimum wage and the deftness of the elite in capturing all productivity gains.  The tone-deafness has all the earmarks of a form of elitism--Congress is simply unable to understand the cacophony of the ordinary world and finds the neat equations of Chicago School economists, accompanied by the tender ministrations of corporate lobbyists and elbow-rubbing with CEOs and Board chairs, music to its ears.

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Cruz, Tea Party, Hostage-Taking Budget Tactics (and the IRS)

The House, dominated by Tea Party/GOP politicians (or those fearful of their impact on upcoming primaries) passed a bill that attempted to tie the continuing operations of the government to compliance with Tea Party ideas about getting rid of the health reform legislation duly enacted four years ago.  See Weisman, House Bill Links Health Care Law and Budget Plan, New York Times (Sept. 20, 2013). Ted Cruz has now run his non-filibuster filibuster in the Senate, and then voted against his own "principled" filibuster position (presumably out of a quite justifiable fear that he would be shown for the fool he is as the only one voting in support of his "principles", since the Senate vote was unanimously on the other side). Ted Cruz Filibuster, NY Daily News (Sept. 27, 2013).

Remember, these are the same Tea Partiers who cried "Get Government Hands Off My Medicare," so one can't expect to see much rational debate about facts and ideas, especially on health care.  The fact that Obamacare is based on a Republican, business-centered idea is lost on the Tea Partiers, who seem to simply hate anything associated with Obama and Democrats.  Similarly, the fact that the reforms for the first time ensure that people who have pre-existing conditions can find insurance to help pay for catastrophic health costs at reasonable rates doesn't seem to penetrate the Tea Party conscience.

The Tea Party and its amenable GOP politicians, however, apparently aren't done trying to use whatever tool however destructive to get their way on health care. Having a sustainable economy is not even on their agenda.  After not succeeding in repealing the health care reform law that at least offers some Americans a chance for needed health coverage (including those with pre-existing conditions and those whose employers offer no plans and who cannot afford the typical premiums for non-group plans), the Tea Party/GOP coalition is using the threat (and likely reality) of a devastating government shutdown unless it gets its way on a matter that the American people as a whole have soundly rejected.  It is ready to push the country off the fiscal cliff all over again. So after the Senate voted cloture to consider the House bill and then passed a clean funding bill to get us through at least a few more months, the House GOP (with the Tea Party reactionaries in charge) again voted on Saturday to add amendments intended to destroy Obamacare to the funding bill (a one-year delay  plus a repeal of the medical device tax, one of the measures intended to cut health care costs and pay for needed reforms).  

The message is simple.  The GOP is attempting to hold hostage the entire federal government, including at least 800,000 federal employees who will be furloughed but who need their paychecks to live, and many towns and cities across the country that depend on their federal government agencies and employees for their own livelihoods.  The Tea Party/GOP coalition has demonstrated that it doesn't care about the government, the long-term harm to the country, or the suffering of individuals caused by these actions.  The Tea Party/GOP coalition is willing to keep going its selfish way, like a petulant child determined not to let anybody have anything at all unless he gets his way.

And even then, it apparently intends to continue to wreak havoc, with the threat of causing the US government to default on its debt for the first time ever, using the silly comparison of the federal government to a family operating on a fixed budget as its equivalent of P.T. Barnum's fictitious but real-seeming mermaid to scam its "Tea Party" members.

While we need to make judicious choices about how and what we spend on, we shouldn't make those decisions based on a single-minded and short-sighted goal of cutting tax revenues and not increasing the federal debt limit.  We are an enormously rich country.  We could work miracles of ending poverty, repairing infrastructure, funding basic research, and creating educational opportunity if only we had the will to do so.  And doing those things would create jobs and hope for the under-and un-emplolyed.  This is because the federal government is not a family operating on fixed wages.  It can print money.  It can also raise taxes.  We are one of the lowest-taxed countries in the OECD, down at the bottom of advanced countries with the likes of Turkey and Mexico.  We have allowed corporations (and their mostly very rich shareholders) to avoid taxes, through legislation and through sharp-witted corporate tax attorneys, to the point where they are only paying a pittance of their enormous profits to the government.  We have allowed our tax brackets to become fossilized at the upper range at extraordinarily low levels of income, when the top earners get so many millions that they pittance that even the top rate brings in is just a gnat's bite for the rich.  

These facts scream for recognition that the Tea Party goals are not only damaging in the process of government-hostage-taking being used to try to reach them, but highly unfair and irresponsible in their likely impact of accelerating the increasing inequality in this country--inequality that means the rich are getting rich while the poor and middle class are losing ground. Thus, the Tea Party/GOP coalition is pushing forward in what amounts to class warfare on behalf of wealthy Tea Party funders like the Koch Brothers and their corporate empire and the "silver-spoon" crowd like Mitt Romney who think that they got where they are through their "merit" (ignoring the many advantages of networks and educational opportunities that helped them "make it" in the status-and-power-based world of crony capitalism).

Charles Reid at Huffington Post  concluded that Cruz was a huckster primarily intent on self-promotion appealing to a Tea Party/Republican base that invites itself to be huckstered.  Here's his description:

[A] good half of the Tea Party is pure, old-fashioned American hokum. There are the conspiracy theorists selling their tales of devious plots by the Federal Reserve. And the gold dealers who spin elaborate yarns of out-of-control inflation which the government keeps secret. And there are the Second Amendment fanatics warning ominously about plots to disarm law-abiding American constitutionalists. There are even the patent-medicine folks. Newsmax, a principal Tea Party news organ, is filled daily with claims about cures for everything from diabetes to Alzheimer's. Charles J. Reid, P.T. Barnum, Joe McCarthy, and the Rise of Ted Cruz, HuffingtonPost (Sept 27, 2013).

But Cruz also draws on what Richard Hofstadter called the "paranoid style" of American politics, says Reid.

This mode of thinking is darkly conspiratorial. The world is sharply divided -- "us" against "them." And those who stand against the heroic defenders of justice and the American way are always secretly scheming to run not just the country but the entire world.  

***

[T]o enter today's GOP base is to cross the border from reality into Glenn-Beckistan. There are the young-earth creationists who see the whole of empirical science as a diabolical plot to conceal divine creation. There are the global warming skeptics, found even in the pages of the formerly great Wall Street Journal. And then there are the folks who come out of the woodwork at conservative workshops and rallies: The ones who want to abolish the IRS. Those who wish to dismantle whole government agencies. Those who believe Social Security is irretrievably insolvent, an accusation first made by Alf Landon in 1936. Even the next generation of segregationists who once thrilled to Wallace and Goldwater.

Charles J. Reid, P.T. Barnum, Joe McCarthy, and the Rise of Ted Cruz, HuffingtonPost (Sept 27, 2013).

This is what the U.S. Congress is reduced to--paranoid hucksterism parading as compassion for the people.  A minority of flim-flam artists huckstering for attention that will, they think, win them reelection and please their paranoid-prone base of Tea Party/GOP constituents--the group who thinks their religious freedom is being oppressed when they can't repress everybody else's religious rights; who thinks a conspiracy to undermine them exists when saner thinking attempts to impose some kind of reasonable restrictions on the gun mayhem that is killing this country's children and youth and elderly in what we once thought were relegated to movie depictions of Old West shoot-em-outs; and who combines this paranoid conspiracy-thinking with anarchic libertarianism to conclude that "taxation is theft" and "government is the problem" even when these majority-Republican rural constituencies from Alaska to Mississippi depend on government employment and other federal dollars for their very livelihoods.  See In Republican States, More Government Jobs, New York Times (Sept. 27, 2013).

There's the rub.  The inability of the Tea Party base to listen, to consider facts, to accept the importance of community and the important role of taxes in maintaining the institutions that make community possible through collective action.  It makes me think of George Orwell's 1984, as depicted in the movie with John Hurt and Richard Burton --a population that has taught itself not to think with home-schooling and religious indoctrination, reinforced by political demogogues who retain power and perks by figuratively beating the proletarian to a nonthinking mass that resents any attempt to act collectively for the greater good of the people. 

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How should underpayment of employees affect tax policy?

In a pre-Labor Day blogposting, Robert Reich wrote about the brute capitalism results for many employees today--a full-time job that doesn't play a living wage.  Walmart was his example--"America's biggest employer" where a "typical employee is still paid less than $9 an hour."  See Reich, Wal-Mart's typical employee is paid less than $9 an hour, Salon.com (Aug. 30, 2013) (posted originally on Reich's blog).

Wal-Mart has used its market clout to shut out labor unions and bring the retailing sector down to its self-defined low.  I've written before about my own personal experiences in talking to Wal-Mart employees about unions and encountering abject fear that the employee would lose his or her job if any Wal-Mart supervisor were to be aware of the discussion, being told that Wal-Mart supervisors routinely enter employee rest areas and tear down any materials discussing advantages of unionization, and seeing the evidence of anti-Union and pro-owner sentiment in the way huge profits are channeled to managers/owners while workers are paid a mere pittance of what would be a decent wage.  Wal-Mart documents revealed several years ago that it was intentionally refusing to provide health coverage becuase it was cheaper for the "company" (managers and owners) to push employees off to Medicaid and other government assistance.

That is brute capitalism at work--ensuring that the few at the top receive all the benefits of profit-making and productivity gains, while the average workforce is paid too little to provide a decent living for a single person, much less a family.

So what does this have to do with tax policy, you say?   Reich is making an argument for an increase in the minimum wage to $15 an hour and greater recognition of workers' rights.  Those are worthy objectives, and I fully support them.  You could add better enforcement of anti-trust laws.  In general, we should be asking ourselves why we allow one retailing giant to become so huge that it encompases distribution networks, warehousing, sales and manufacturing contracts around the globe that ensure that workers in China or Bangladesh manufacturing clothing for the company are making it on very little money and that workers in the US who sell that same clothing (or otherwise work in stores) are similarly poorly situated.  

But the question I am raising is the connection between such company policies and tax policy.  I think there is a strong argument that we should consider at least the following principles, coupled with a stronger (more progressive and higher rates) corporate tax to ensure the rules have some bite:

1) our tax rules should discourage companies from ripping off workers to overreward managers and owners.

2) our tax rules should work to ensure that people in the lowest income brackets don't have to carry the burden of paying taxes on their meager incomes

and

3) our tax rules should shift the incidence of tax to those at the top who control their own salaries and away from those at the bottom who have practially no say on what they work for.

We could go part way towards accomplishing the first with a strict limitation on deductible compensation.  That might perhaps deny a deduction to executive pay that is more than 30 times the pay of the average worker as well as impose a cap above which no pay is deductible in computing the company's taxes.

We could make our rules work better to accomplish the second point by extending the personal exemption and standard deduction to ensure that some measure (2X?) the federal poverty amount is entirely exempt from federal income or payroll taxation.

Finally, we could accomplish the third point by creating a more progressive income tax structure that identifies several additional brackets at the high end (distinguishing between those who earn not quite a million and those who earn multi-millions and those who earn billions) and a more progressive estate tax structure that exempts a core amount (smaller than the high exemption recently made permanent) and then imposes a graduated tax on the excess.

If we don't begin to address the issue of hardworking Americans who cannot get by on a single job by amending our policies (including tax) to make the existence of a highly privileged upper class and a highly disadvantaged underclass the most important topic for government to address, I fear this country is in for a rude shock.  Infrastructure expenditures will continue to dwindle especially in poorer areas,  Education will continue to be moved to easily quantifiable but not so likely to be enduringly useful online instruction under the pressure from the "accountability gurus" (who want to evaluate out of existence public teacher unions, without knowing what makes a good educator) and the likes of the (also non-educator) Bill Gates and his ilk.  The wealthy will continue to live in more and more secluded and luxurious gated communities separate from the hoi-poloi of the middle and lower classes.  Generally speaking, brute capitalism and bogus "free market" theories of economics and tax will continue to leave more and more of our citizens underprivileged, hungry, lacking in education, and turning to whatever avenue for changing their lives remains open (including crime).

 

Megan McArdle (one of those Bloomberg economists who tends to write in support of right-wing economic ideas) recently argued that Wal-Mart can't pay the good wages that Trader Joe's or Costco pays because (i) it is simply too big, with too much merchandies, to make the kinds of profit it expects doing so, and (ii) it has a low-income customer base who can't afford to buy anything except the cheap stuff it provides [produced in unsafe conditions by a non-unionized labor force].  See Megan McCardle, Why Wal-Mart Will Never Pay like Costco, Bloomberg.com (Aug. 27, 2013).  

Megan thus supports my argument that we should never allow one retailer to grow to such huge consolidated form (antitrust needs to be reinvigorated to battle giants like WalMart).  But Megan misses Henry Ford's key insight--if you want your workers to buy your good product, you pay your workers well, and their business will further your business.  Wal-Mart has done exactly the opposite--it has driven out stores that paid workers better (and added to localities' environmental problems in spades), in order to drain off huge profits for its owners and top managers while using every technigue in the book to block workers' unions and prevent workers from getting paid decent wages for what they do, forcing workers to only be able to buy from the Wal-Mart type distribution network (Wal-Mart and "dollar store" or other cheap merchandisers who pay their staff very little).  

Whether we think about this in terms of the growing inequality in this country that stifles economic growth for all in the long run, or the class warfare that the right has been engaging in for at least the decades since Reagan was elected President, or the corporatism (derived in large part from the "free market" rhetoric) that has taken over most American institutions, we should recognize that Wal-Mart and other big companies like McDonald's and the other fast-food chains have built a business model that is detrimental to ordinary Americans for the benefit of the few ("the 1%" of the Occupy Wall Street rhetoric).  And we should start considering ways to counter the these harmful developments.  In particular, we should ensure that companies pay their workers a living wage and we should protect those workers at the bottom of the income scale from having to give up any of that wage in payroll or income taxes.

The Right's Goal--end the one tax expenditure that truly aids poor working families

The Tax Foundation, that propaganda tank that masquerades as a "nonpartisan" "think" tank, is at it again.  Now it's pushing the right-wing agenda of ending any tax expenditures that redistribute resources down to those in the lower-income distributions. It's produced a study on the "benefits" of eliminating the Earned Income Tax Credit that often makes the difference between food security and living in your car for the working poor.  Erik Wasson, Tax Foundation Charts Benefits of Ending Earned Income Tax Credit, The Hill (Aug. 6, 2013).

 The Tax Foundation "study" includes various right-wing assumptions about the working poor and the benefits of tax cuts that are not empirically supportable.

1) While conceding that the EITC helps the "really" poor, the Tax Foundation repeats the old right-wing saw that those working poor who aren't "really" poor will be disincentivized to work by having the EITC, in essence making that old Romney claim that the EITC is a "bad" policy because it provides aid to the poor, which will keep them from taking "personal responsibility" and thus keep them from getting those multiple jobs that would provide them the same sustainability that the EITC provides. Here's how the Hill story describes the report on this point:

The report argues that the tax credit encourages work for very low wage  individuals but serves to discourage work for those making more because the  refundable credit phases out.  Id.

The undertone is that poor people are lazy, so government help should be limited to the really destitute, else it will just encourage laziness. 

These assumptions are integral to the Chicago School's economic analysis, which depends on nice mathematical equations about humanity that assumes away most of what makes us human, including the fact that we are quite different from one another.  Chicago School ideology says that if you give somebody something, they will become essentially addicted to the freebie and no longer work.  Do you know anybody for whom that is true?  I don't.  I know people that my family has assisted through hard times who have worked even harder to show their gratitude for helping them through a tough spot.  The Tax Foundation folk apparently see only the mythical "welfare queens" when they think about the EITC.

2) Instead of giving the money to the poor, the Tax Foundation calculates that we could use it instead to provide a rate cut for those who pay taxes of about 5.7%.  Now that is outright redistribution upwards.  Because of the personal exemption and standard deduction and EITC, most taxpayers in the bottom two quintiles pay no or very little income tax.  The benefit to those low-income taxpayers would be redistributed upwards (the only kind of redistribution that the right likes, apparently) to those in the top three quintiles.  Ending one of the best anti-poverty/food-security programs in the country in order to add some more to the pockets of the have-mores.

3) Oh, and the Tax Foundation makes their End EITC Now agenda even rosier by assuming a dynamic scoring of the elimination of the EITC--with those poor families not receiving needed aid, the Tax Foundation says the economy should grow by an additional $29 billion above and beyond the dollars saved that currently go to the EITC!    Jobs would flow from just cutting out this assistance for poor people.

[E]liminating the Earned Income Tax Credit would increase employment by 274,000  full-time equivalent jobs.  Eliminating it and lowering tax rates by 5.7  percent across the board would create 783,000 jobs, the study says. The jobs  would come in a five to 10 year timeframe, study author Michael Schuyler said.  Id.

Now, maybe those rich guys getting the extra tax break will indeed make more money--but the odds of that money being invested in the US are slim, don't you think?  And when poor families lose both food stamps (see yesterday's posting about the right-wing's effort to ensure that families placed on the brink of desperation by the financial crisis will be shoved over the cliff by not having enough food) and the EITC, they will cease being participants in the economy and become drains on local city, county and state budgets. They aren't going to get jobs that aren't there.  And jobs aren't going to be created by the money "saved" from not helping poor working families.  The Tax Foundation study's proposal is not a recipe for economic growth, but another example of the right's class warfare against everybody who isn't already in the upper class and that's a recipe for economic disaster.

 

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The Right cuts food stamps to pass corporate farm welfare--where's the sense in that?

The House has its priorities firmly in mind.  Those priorities involve making sure that the wealthy people and corporations keep their wealth while any and all possible cuts to any welfare or "entitlement" programs are made.

All you have to do is look at the right's emphasis on passing a farm bill (mostly aiding corporate farmers and gentlemanly nonfarmers) and on cutting food stamps to the nation's food-insecure. In June, the House proposed slashing $20 billion from food stamps and ended up passing a separate farm bill because it was so determined to cut aid to food-insecure Americans.  Now, the media is all concerned that a farm bill won't pass at all, because the right is insisting on doubling the cut to food aide--slashing $40 billion from the program.  See, e.g., Nixon, GOP Rush to Slash Food Stamps Puts Farm Bill in Jeopardy, (Aug. 1, 2013).

These proposed cuts are draconian.  As those legislators who took the "live a week on food stamps" challenge learned, it is extraordinarily difficult, time-consuming, and unsatisfying to try to find sufficient food on a budget of $3.00 a day. And there are literally millions of Americans without enough food to live decently, and millions whose well-being will be jeopardized if Congress does not fund food stamps at an adequate level.  Food stamp recipients already faced difficulties because of the expiration of the stimulus provisions.

A report released Thursday by the Center on Budget and Policy Priorities, which studies federal spending, found that the 47 million people who currently receive food stamps will see their benefits reduced in November because of an expiring provision in the stimulus bill passed in 2009 by a Democratic-controlled Congress.

The stimulus law provided a slight boost in benefits for all food stamp recipients as part of a bill to strengthen the economy and ease hardship on millions of unemployed workers.

According to the center’s report, beginning Nov. 1, a family of three will see a reduction of about $29 a month — $319 for the remaining 11 months of the next fiscal year. The report said the cut would result in an average of less than $1.40 per person, per meal.  Id.

 

We are the richest country in the world.  Twenty of the country's richest billionaires earned in 2012 as much money as is needed to cover food aid for food-insecure Americans who go hungry or eat poorly most of the time.  Food-insecure Americans lose focus and lose opportunities while those overpaid equity fund managers  whine over the unlikely prospect (unlikely because of all the heavy lobbying and the quid pro quo nature of providing campaign support to those in Congress who write the laws) of actually having to pay regular ordinary income rates on their overabundant take from the profits of other people's money that they manage (i.e., their compensation income, labeled carried interest). Everybody in Michigan pays a very low flat income tax, while underprivileged, unemployed and discriminated against blacks in Detroit scrounge for used metal to sell to buy food or pay the mortgage.  Ordinary people have been tossed out of their homes by the banks that were bailed out by the government, while the bank presidents and CEOs and directors and other managers continued business as usual with multimillion dollar salaries, stock options and other perks.

Poor people do not "deserve" to starve. Rich people do not generally "deserve" to be rich.  Yet flat tax schemeds and preferential taxation of capital income belie that wisdom by giving the rich a pass.  Democratic egalitarianism demands a change.  Those at the top have been getting richer and richer, but ordinary Americans have not.  It's time to reverse the redistribution direction.  Instead of redistributing resources upwards to the rich, we must move them down to the needy.

Watch the Bill Moyers program on hunger in America (linked at the bottom of the post).  If you do not wince with uncomfortableness at the way we Americans are dealing with food insecurity, you must have lost all compassion.

It is time, folks, to just say no to all this  brute capitalism, "free" market ideology that has given us an unequal society with high teenage pregnancy, low birth weight babies, high illiteracy, shorter life expectancy, high unemployment, low educational achievement and all the other indices of an underdeveloped country in the midst of enormous, even obscene wealth.  Say "NO" to the right's idea that poverty results from a lack of personal responsibility, rather than a lack of personal opportunity.  Say "NO" to the ideology of the self-described meritocracy that considers its own wealth and the poverty of others merited, rather than recognizing the increasing impact of the class status one is born into and the decreasing possibility of upward mobility in America.  Say "NO" to the failed pseudo-economic theories of Milt Friedman, Ayn Rand, Glenn Beck, and Karl Rove--the ideology of "free" markets and unfree persons, of "competitive capitalism" and uncompetitive positions defined by class status and money.  Say "No" to the politics of the right, that would privatize, deregulate, cut tax revenues and increase military expenditures, that would willingly support a government of largesse and entitlement for the rich and austerity and "personal responsibility" for the poor.

 

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Full Show: The Faces of America's Hungry

Market Power, Minimum Wages, and the Sins of Friedmania

Two items caught my attention in today's newspapers and they represent diametrically opposed positions on what matters in society.  One, by Paul Krugman, deals with the problems of monopoly rents--especially in industries in which there is very little production in this country combined with mostly profit-taking from some kind of intellectual property--think Apple and the financial industry.  The other, by Richard Posner, talks about the importance of national security and minimizes the  need for a minimum wage.

   Krugman notes the "growing importance of monopoly rents," which are "profits that do not represent returns on investment but instead reflect the value of market dominance."  Krugman, Profits without Production, New York Times (June 21, 2013), at A19. He suggests that the growing importance of these rents from markiet dominance represent a "disconnect between profitsd and production" that may factor into our continued lack of robust economic growth.  He contrasts GM in its heyday, when it owned hundreds of factories and employed about 1% of the total nonfarm workforce in this country, with Apple today, when it "seems barely tethered to the material world, employing fewer than 0.05% of US workers, with most work outsourced to China and "charg[ing] what the traffic will bear" for its i-products.  And this story is part of a bigger story--the impact of rent-seeking corporate profits on the overall economy.  It is driving rising inequality, as there is a "sharp shift in the distribution of income away from wages in general and toward profits."  Id.  Since the profits reflect market dominance rents, not returns on investment, a monopolist can be profitable without expanding its production capacity--as Apple is, sitting on "a giant pile of cash, which it evidently sees no need to reinvest in its business."  Id. The effect of monopoly profit-taking is that wages are depressed.  With household spending down as "labor gets an ever-smaller share of national income while corporations, despite soaring profits, have little incentive to invest, you have a recipe for persistently depressed demand."

The second item was a small blurb on the editorial page inthe Wall Street Journal, in which they pick out quotes from famous people worth noting.  This time it's Richard Epstein writing for the Hoover Institution.  See Notable & Quotable, Wall Street Journal (June 21, 2013), at A13.  Epstein suggests that "[a]ll government actions should be examined under a presumption of distrust" which is why, he says, he has supported "constitutional regimes that afford strong protections to economic liberties and private properties."  Now, folks, you have to ask, what does "economic liberty" --or even "private property" mean.  For Epstein, it is a "natural right" kind of idea--the misguided, Friedman-derived notion that markets can run themselves, letting the powerful who own considerable private property succeed and the weak who don't fail. That kind of brute force capitalism encourages corruption, rentier profits (see Krugman, above), and a depressed, highly unequal society in which them that have gets and everybody else is either a peon or some kind of low wage earner in thrall to the titans of Big Business.  Epstein goes on to give an example of his belief in "economic liberty"--the veiw that "there is no coherent case for state intervention" to maintain a minimum wage.  This is the view of someone who might say "let them die" of a poor person unable to afford health care, or "let them eat cake" of a poor person unable to afford bread.  This is not "compassionate conservatism" but brute force capitalism.  It is the view that the wage will find its bottom based on the "neutral" market forces.  But neutral market forces don't exist.  They are shaped by the powerful and if you let the powerful take wages from ordinary workers to puff up their own profits, they will do so to the full extent of their market power.

Epstein then contrasts the lack of a need for the state to ensure a minimum wage, which would "degrade the efficiency of private markets" with the need for the state to "put in place institutions that limit aggression in both domestic and foreign affairs.  Unlike protecting the livelihood of ordinary Americans, "national security is an area where government may be appropriately feared, but is still desperately needed."  We shouldn't be so uptight about the FISA court's allowing the government to grab all kinds of privacy data, because Epstein is confident that the NSA data grab is not "an intolerable invasion of privacy."

I for one remain unconvinced that the incredible data-grab by all the federal spy agencies is an acceptable intrusion on individual liberties in the name of "national security."  And I am quite sure that the establishment of a minimum wage to prevent the huge imbalance of power in the work place from allowing owners to grab all the gains from production at the cost of workers is a very good kind of state intervention on behalf of ordinary folk.  Epstein has it backwards--his ideological blinders from Chicago School economic "theory" are showing and his "economic liberty" arguments translate into the same old class warfare approach of protecting the profits of the elite at whatever cost they may bring to the rest.

If  an increasing share of the economy driven by monopoly profits and increasing inequality from depressed wages and the impact of rent-seeking profits on business expansion are bad things, what might be considered reasonable policy steps to take to deal with this problem Krugman has pointed out and Posner has disregarded?  It seems to me there are several policy positions that noticing the damaging effect of rent profits should push for:  1) increase minimum wages, 2) enact "Medicare for all" so that all those who lose out in a monopoly-driven corporate environment have an opportunity for decent health care (and the monopoly power of insurers is removed), 3) reinvigorate anti-trust legal actions to break up huge corporate empires like Big Oil, Big Banks, Big Pharma, etc., and 4) reinvigorate labor law to protect workers and ensure that those who want to organize can do so easily (with card-check and similar provisions, similar to motor vehicle registration of voters.

 

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Friday Musings on Profits, Production, Trade, and Inequality

The importance of redistribution

Time to raise the minimum wage

The importance of redistribution

I have dedicated this blog to a concept I call "democratic egalitarianism"--the idea that individuals flourish best in a free society that allows them to choose democratically the rules that govern their lives, with the understanding that the institutions must be sustainable and must allow all individuals to flourish, not just a select few.  It is that latter idea that supports a view of egalitarianism--not that everyone is always "exactly" an equal of others, but that the society's resource allocation provisions have to counter the tendency for resources to concentrate in the hands of a powerful few.  Since there can be no absolute equality, society's institutions must counter the tendency for wealth and power to aggregate in the hands of those with more wealth and power by mandating downward redistribution of wealth and power. 

The claim is that every decision in society is in some way redistributionist.  Most redistribute upwards to those that already have wealth and power and "connections".  Society's institutions have to counter that--at least at the margins--with downward redistribution from those with wealth and power to those without wealth and power.  Hence, a progressive income tax system that taxes those at the bottom of the income distribution less than those at the top serves this underlying value.  A regressive sales tax system that taxes those at the bottom more severely, in relative terms, than those at the top undermines sustainable democracy.

The US is becoming more and more a society of haves and have-nots, a society that could allow a candidate for president to make claims about merit that suggest that anyone who isn't a successful "have more" is just plain irresponsible (Romney's infamous 47% speech to a private group of wealthy and powerful fundraisers).  The Great Recession--engendered in large part by the greed of the have-more class, especially bankers and corporate managers and owners who reap disproportionate rewards for their labor or simple ownership of assets compared to the workers who make those rewards possible--has left the US an even more unequal society than it was before, as the wealthy have mostly recovered and moved ahead, while the middle class and poor have mostly suffered, with jobs that have moved from decent to inadequate and pay scales that continue to reflect the upper class's willingness to exploit the rest of society for their own selfish ends.  (And this is true even if that upper class gives "generously" to charities that further their own interests and push their own views about education or transportation or religion onto the recipients of that "charity".)

The Times today has a number of excerpts from commencement speeches given by nationally known figures.  I found the excerpt from Ben Bernanke's speech at Princeton worth noting.  Here's the excerpt the Times printed:

"A meritocracy is a system in which the people who are the oluckiest in their health and genetic endowment; luckiest in terms of famiy support, encouragement, and, probably, income; luckiest in their educational and career opportunities; and luckiest in so many other ways difficult to enumerate--there are the folks who reap the largest rewards.

The only way for even a putative meritocracy to hope to pass ethical muster, to be considered fair, is if those who are the luckiest in all of those respects also have the greatest responsibility to work hard, to contribute to the betterment of the world and to share their luck with others." Ben Bernanke, excerpted in Commencement Speakers: In Looser Tone, A Call to Take Risks and Be Engaged, New York Times (June 16, 2013), at Y20

This sounds well and good as far as it goes.  But it suggests that this kind of society (a "meritocracy") where people who are born into the good life are the ones that can succeed, is okay so long as these meritorious people "contribute to the betterment of the world and share their luck with others", a phrase which sounds like a mere tithing-type responsibility to "give back."

Nah, I don't think so.  I don't think that goes nearly far enough.  This is not a society I want to live in--where the rich get richer and exercise some royal-like "noblesse oblige" interest in the dregs of society that their very success has created. 

If we are to have a society that believes in merit, then it needs to be one that recognizes that the luck of birth has nothing to do with merit but with the concentration of wealth and power in the hands of too few people.  Merit, in any useful sense, is only okay so long as the ranks of those who merit success can readily expand to include those not so lucky at the outset.  Else the upper class will essentially become a superior caste that enjoys all the rewards, except for the crumbs handed out as charity, and the masses will be essentially peons serving the wealthy few.

How does one maintain a notion that merit is good but avoid the problem of the lucky, powerful few ruling over everyone else?  It requires a lot of work, work we haven't been doing very well lately.  It requires a decent minimum wage sufficient for people to live on.  It requires government systems that actively reallocate resources towards those in need and away from those who already have plenty rather than providing millionarie congressmen millions more in agricultural subsidies  for their agribusinesses as we currently do.  Through a progressive (i.e., redistributive) tax system, a decent anti-trust system that prevents monopolies and even semi-monopolies, a more innovation-supporting copyright and patent system that does not allow a few well-funded groups to control too much of the new knowledge base for too long, a strong labor law system that does not allow employers to ride roughshod over workers, and a very strong sense of the public good and the need to maintain some systems of primary importance to core democratic values as public rather than private ones--like health care, education, and probably energy.  We are failing on so many of these points, as anti-trust has withered to a shrunken ghost of its former self, as global MNEs exercise too much power over workers and communities, as companies are allowed to ignore the externalities of their success (government subsidies and government stability) and of their business models (environmental pollution, worker deprivation). 

In particular, the tax system is so frequently under attack from the radical right because it offers an important tool for preventing oligarchy--through the estate tax, which should be strengthened rather than weakened, through the income tax, which should be made more progressive by getting rid of preferential rates for capital gains (among many other important progressive reforms), and through the provisions for standard deductions and personal exemptions and refundable credits,  which can provide a part of the social safety net that any wealthy, advanced nation should provide.

These things won't happen until people stop allowing corporate greed--and the wealth and power ambitions of the Koch brothers and their ilk--to decide the fate of the nation.  We do still have the power of the ballot box.  We as individuals have to work to counter the corporatist creedo that is being preached by Koch-funded think tanks and "social welfare" (really political party) groups.  We have to elect people willing to fight for a sustainable democracy and to legislate against the interests of the biggest and most powerful businesses and their owners/managers.  The corporatist lobby that commodifies everything is extraordinarily powerful.  Fighting it isn't easy.  But it must be done.

See the Motherboard article, below, for another analysis of the "meritocracy" idea, and some insight into what the inventor of the term, Michael Young, meant to be doing in his seminal work a half century ago.

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Ben Bernanke to Princeton Grads: The World Isn't Fair (and You All Got Lucky)

How We Came to Misunderstand Meritocracy

"Getting Rid of the IRS"--Detroit's Nolan Finley's wrong solution to the wrong problem

I suppose it shouldn't be surprising that the mostly-to-the-right Detroit newspapers would have a center-page opinion piece calling for the elimination of the IRS, that ages-old mantra of the radical right and of those corporate-backed propaganda tanks and radical-liberatarian idea pushers like Cato and Heritage Foundation and Claremont and many of the Tax Party groups, etc.  But this one is so bad that it is necessary to call it out for what it is--a bunch of hog-wash.  See Nolan FinLey,  Let's Get Rid of the IRS, Detroit News (June 10, 2013).

Finley starts out with a presupposition that the scandal-mongering about the IRS is not only completely accurate (which it isn't--liberal and conservative groups were selected for scrutiny, and scrutiny was called for in respect of groups that had "tea party" in their names, since most of them were in fact mainly doing politicking) but that it was also "obvious[ly]" done from at the orders of Obama operatives to aid the President's election chances (which is completely unfounded conspiracy-mongering speculation).  He states that "the IRS has been caught red-handed targeting conservative political groups for special scrutiny in what seems obvious was an attempt to aid the reelection bid of President Obama."

An initial scaffolding of distortions and malicious speculation cannot bode well for any opinion piece.  So it isn't a surprise that the rest of the piece doesn't hold water, either.  He calls the required statutory scrutiny of applicants for 501(c)(4) status a "dragnet"--failing to even acknowledge that the statutory requirement states that such groups must be "exclusively" operated for social welfare purposes and that it is in fact through administrative dispensation via interpretative regulations that the IRS applies instead a "primarily" for social welfare purposes test, thus permitting (too much) politicking as long as it isn't the primary activity.

He goes on to claim that use of the term "patriot" as a screening filter for politicking groups implies that "the United States government finds something sinister in patriotism".  Again, that's a ridiculous association of what may possibily have been a perfectly reasonable though politically unwise filter term--i.e., if there are lots of groups with "patriot" in their names that do a lot of politicking, then it is a reasonable term to pick for giving those groups extra scrutiny to see if they do too much politicking, though the expectation that conservatives would rise up in arms if those types of groups receive extra scrutiny should have been a red flag cautioning against use of that term in spite of its usefulness.

Then Finley asserts that this conspiracy-theory thinking provides "more than enough reason to jettison plans to make it [the IRS] the enforcement arm of Obamacare."  Now, it is true that the IRS has so many different federal programs that it has to oversee that it is almost impossible for it to do an appropriate task of doing so.  Congress has loaded it with tasks (including all the tax expenditure programs embedded in the federal income tax code) and consistently underfunded it so that it is usually understaffed and overstretched.  But the answer to that is not to take away a task that it is perhaps best suited for out of all the agencies, but rather to fund the IRS appropriately so that it can do the tasks assigned to it by Congress.  Finley completely ignores the underfunding problem, since--as revealed later on--he really wants to decimate or eliminate the IRS entirely.

 Finley talks about the IRS as "an institution America no longer trusts"  because it is "the most feared agent" and on "that has proven itself willing to manipulate the levers of government to achieve a political end."  Again, many problems in this rhetoric. 

• If the IRS is actually the "most feared" (I personally suspect the CIA and FBI and NSA would come in ahead in that race, but haven't seen any actual empirical study on this issue)--even after the enactment of three laws pulling back on its power to enforce and essentially hamstringing its employees with the "ten sins" provisions included in the 1998 act (see earlier post)-- it is because for decades the right-wing propaganda tanks and media have been pushing distrust of the IRS and of taxes and of government generally.  People are influenced by that constant cry of "bad guy" based on blowing up of individual anecdotes into massive (presumed) patterns.
• And the claim that the IRS "has proven itself" using its power for political purposes is simply unfounded.  There is no "proof" of the assertion made by Finley.  He is merely playing the Bill O'Reilly game of asserting speculation--or even worse, falsehoods,-- as fact in order to buttress his own personal vendetta against the IRS and its employees.  Most IRS employees are civil servants, not political appointees.  I've known quite a few Republican IRS employees in my years as a tax practitioner, and have considered writing about what I consider a related problem -- that  too many IRS employees are too willing to court the pleasure of taxpayers such as big multinationals or large law firms or accounting firms that may well become their future employers or clients when they leave the Service.

 Now Finley hits his stride with his real objective--arguments for disbanding the IRS, eliminating the income tax, and replacing it with a (regressive and hard to enforce) national sales tax.

The most fitting punishment would be to disband the IRS. And junk the income tax, too. Mike Huckabee, former governor of Arkansas and now a TV talk show host, is urging Congress to replace the income tax with a national sales tax. You’d pay tax on the money you spend instead of the money you earn.That would eliminate the need for an IRS that audits tax returns, hands out non-profit status and enforces a tax code that is egregiously complex and unfair. Id. (paragraphing removed).

 Finley reveals his true ignorance here (if he hasn't done for most readers already).  Let's just consider first some of the ancillary issues around "disbanding the IRS".

• Because the IRS does function as the major enforcement agency for many things besides the income tax, Congress would have to undertake a comprehensive analysis of all of those activities and assign them to some other agency.  In all likelihood, that other agency would lack agents with expertise to handle the assigned task, and the result would be essentially a transfer of those currently staffed with the activity to the other agency, requiring considerable time to merge functions and perhaps failing to do it well enough to maintain current operating efficiency, much less improve it (just as huge mergers or consolidations of businesses often go awry). 
• Further, the time to do the study, legislate the transition, and implement the transition would require continued operation of the current agency and the replacement agency, duplicating costs at a time when conservatives like Finley claim they want to cut wasteful government spending.
• The Internal Revenue Code is not really "egregiously complex."   

1. Read earlier posts on the right's tendency to overstate (by tens of thousands of pages) the "size" of the Code and to treat "size" as an appropriate substitution for any analysis of complexity. 
2. Only 30% or so of individual taxpayers itemize, and itemization is the primary complexity faced by individual taxpayers.  Most of those who do itemize are in the relatively wealthy part (upper 30% )of the income distribution, and most of those who have difficult and complex decisions to make are the very wealthy who have expensive tax experts to do their work for them.
3. Most of the complexity in the Code stems from two factors--(a) tax expenditures (subsidies) that benefit (substantially, in most cases) particular types of wealthy and business taxpayers lobbied for by those taxpayers and (b) anti-abuse rules necessitated by the clever tax strategies invented by the wealthy taxpayers' (especially corporate and business taxpayers') expensive tax experts.
4. It is naive to think that any tax system--whether income or excise or transfer or territorial or worldwide or sales or VAT-- could be "simple" for wealthy individual and corporate taxpayers with a global playing field and incredible sums able to be spent on avoidance and at the same time generate sufficient revenues to provide for the most basic of public goods and services, including a decent safety net for those caught in vulnerable positions by age, illness, or other lack of privilege.

5. Most sales tax systems include incredible arrays of exemptions (for example, for non-profit groups and charities) and exclusions (for "necessities" where the sales tax could make a difference between life and death for those living in poverty) and special provisions (lobbied for by particular industries).  A VAT (if that were the form required) would in all likelihood require the same complexities about what is income or not that an income tax requires.  A VAT or a national sales tax would require a mechanism for enforcement of collection not unlike the IRS's function and a mechanism for tracking individual's payments not unlike the IRS's current function.  It would not permit the elimination of audits of tax returns (just different kinds of returns), handing out nonprofit status (just a different rationale and basis) or enforcing a complex tax code (just a different one). 

 Finley's ignorance is further revealed by his claim that a "similar outcome" (disbanding or making the IRS much smaller) could be achieved by "vastly lowering current income tax rates in exchange for eliminating all deductions and credits" because there would be "no reason to examine returns."

• lowering rates doesn't achieve anything but less revenue--which will have to be made up for in other ways (adding complexity) or by further hardship on the already suffering ordinary people of this country who bore the brunt of the Great Recession, the foreclosure crisis, the unemployment crisis, and the corporatisation of education that has paid administrators twice or more what they are worth while cheating professors, teachers and students;
• eliminating all deductions and credits might simplify somewhat the income tax, but at the cost of considerable unfairness in many cases--for just a few obvious examples, removing the foreign tax credit for taxes paid to other countries would result in some instances in "double taxation" of the same revenue by the US and the other country; removing the "standard deduction" and "personal exemption" would undermine a universal view that the income tax shouldn't reach the amount necessary to maintain a barely sustaining level of income for food, shelter and clothing;
• even if it were possible to "lower rates and eliminate all deductions and credits", it wouldn't be possible to get rid of the IRS or eliminate audits or curtail enforcement or reduce the tax code to something a kindergartner could understand--a critical question for the Code is "what is income"--and therein lies a huge portion of the complexity and most of the ways that taxpayers have found to abuse the rules by claiming "phantom" losses.  (Note that Finley doesn't talk about removing elections, exemptions, and exclusions--was that intentional?)  There would still be the same need for returns, audits, and enforcement, and there would still need to be all the procedural provisions for litigation and regulations and penalties and interest on overdue taxes.  There would be rules still for all the different types of entities (much of the complexity of the Code lies in the rules for permitting partnerships to have considerable flexibility in their allocation of income and losses among the partners).  Certainly Finley wouldn't suggest that the tax code should get to tax gross income and taxpayers be required to forego claiming any losses!

Finley ends with what he thought was a question requiring an obvious answer of "none"--essentially asking that if we can eliminate the IRS and get rid of the health care "entitlement", "what's the downside?"

The answer is not the one he so ignorantly professed to believe.  The downside is huge, and there is little upside.  Finley disregards the growing inequality in this country and the continuing poverty in what is still the richest country in the world.  He doesn't care, apparently, that his "solution" would create even more problems for the poor, as programs that they depend on administered through the IRS-such as the Earned Income Tax Credit and the standard deduction and personal exemptions--would be eliminated with his proposal.  Further, without a tax collection and enforcement agency, much of the good done by the federal government would wilt on the vine--from the Centers for Disease Control to the NIH and the Smithsonian, from transportation safety to education funding, and even the right's much beloved military.  We simply can't and shouldn't get rid of the IRS--every advanced country in the nation has a bureau that collects and enforces the tax laws.  We could get rid of the particular health care reform enacted as Obamacare, but we shouldn't --rather, we should continue to improve it, ultimately instituting Medicare for all and removing the rent-seeking profiteers from the picture except for those who have so much money that they can afford to buy luxury health care.

Finley's proposal amounts to more hot-air from the right about their favorite target--taxes and tax enforcement--that would have regressive results lopsidedly benefiting their favorite beneficiaries--the wealthy and Big Business (owned mostly by the wealthy).  Apparently, people like Finley really want a country where brute market forces allow a few to reap all the benefits and the many to suffer, resulting in a classed society with the few living in relative splendor and the rest living off the dregs.  That would be the result of most of these proposals for turning to a regressive sales tax and shutting down federal tax enforcement, making such proposals a form of class warfare pure and simple.

(if you don't believe me about "rent-seeking profiteers" in the health care business, read Saturday's New York Times story about the way Questor--a Big Pharma company--has reaped huge profits by essentially building a monopoly power over an immune-disorder drug called Acthar and now intends to purchase a competitor's potential threat (selling for tens of thousands less) because  a US startup wanted to make it available cheaply in the United States.  Questor bought Acthar in 2001 when it was selling for just a few hundred dollars a vial.  By 2007 questor had increased the price to almost $1500 a vial.  And in 2007, Questor increased the price in a single jump to $23,000 a vial--yes you read that number correctly.  This is the perfect example of the fact that the right's beloved "market" doesn't work if the government doesn't provide the right framework--in this case, enforcement of anti-trust laws much more stringently than has been done in the last few decades as anti-trust has practically dropped from the national vocabulary.)

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Social Security Meets Real Needs

Sometimes when you look at the hype on Social Security from the right, you wonder what in the world is going on in the heads of the hypers.  Here's the way it tends to go:

1) Social Security is meant to be an insurance program that pays for itself.

2) Down the road in 20 or 30 years it is predicted by Social Security trustees (using prudently conservative estimates based on present valuing for infinity the obligations of the trust fund) that Social Security will be {pick your term: insolvent, bankrupt} and as a result , the program will, at that future date, be able  to pay only about 75% of the benefits promised to retirees (which will, nonetheless, exceed the benefits that are currently being paid to retirees).

3) So therefore we should "save" Social Security by "reforming" it now : the way to do that reform is not by lifting the cap (so the rich pay into the program the same way everybody else does) but by cutting benefits so that the program starts paying less benefits today to retirees.

When you write it out in stark terms like that, it becomes strikingly clear how idiotic these "reforms" are and how unprincipled the purported "reformers" are.  As Paul Krugman noted in an earlier New York Times opinion piece, Krugman, The Geezers Are All Right, New York Times, Opinion (June 2, 2013), they are proposing preemptively decimating benefits today because the program might reach a situation decades off where benefits would be partially reduced of necessity if nothing at all is done. 

 [I]t does look as if there will eventually be a shortfall, and the usual suspects insist that we must move right now to reduce scheduled benefits. But I’ve never understood the logic of this demand. The risk is that we might, at some point in the future, have to cut benefits; to avoid this risk of future benefit cuts, we are supposed to act pre-emptively by...cutting future benefits. What problem, exactly, are we solving here? Id.

This is not unlike policies of voluntary war--we'll suffer a great harm now (going to war, with the huge cost now in weaponry and lives and the huge cost in terms of long-term care of injured vets later) because we might have to suffer it in the future.  As we found in Afghanistan and Iraq, that speculative concern is a very poor excuse for going to war: the result of overthrowing a dictator may be extraordinary costs to the overthrower and the overthrown people and the result may breed more enemies than it kills them.  Preemptive war mostly aides warmongers in the military-industrial complex and the private companies (mercenaries and arms dealers) that make money off of war. 

Similarly, preemptive reduction of benefits in a program that does not yet require it to "save" us from having to make reductions in the future (since they've already been made and caused even more suffering in the here and now) is absurd.  It smacks of no reason other than:

(i) the real possibility of so fooling so many of the people so much of the time,

(ii) being able to gain "kudos" with the government-and tax-haters, and (likely the real purpose, these earlier just being gravy to the doing of it)

(iii) protecting the real clients who are the corporatist wealthy campaign donors who want to see these social welfare (they like to call them "entitlement") programs ended so that their own true "entitlement" programs --preferential capital gains rates; preferential "carried interest" taxation of compensation for service to private equity funds; preferential retirement programs; and preferential taxation of offshoring and Big Oil, Big Pharma, Big IP and similar industries--can continue unabated.

Remember that Social Security serves real needs.  To arrive at a decision to cut benefits, just because it seems to be the politically expedient thing to do given the anti-tax furor stirred up by the likes of the Koch brothers and Grover Norquist and the Tea Party groups, is penny-wise and pound foolish--and smacks of class warfare.  Do we really want to return to the pre-Social Security situation of a large population of seniors with too little to eat and nowhere to live?  Continuing to reduce benefits when wages have been declining for most ordinary Americans (while the tiny number at the very top of the wage pyramid see their wages mushroom) would be disastrous.  Just look at the story in the New York Times today about the near-crisis situation for most retirees, even with Social Security.  Jeff Sommer, For Retirees, A Million-Dollar Illusion, New York Times (June 9, 2013), at BU-1. 

"We're facing a crisis now, and it's going to get worse," said Alicia Munnell, director of the Center for Retirement Research at Boston College.  "Most people haven't saved nearly enough, not even people who have put away $1 million."

***

And if you're not close to being a millionaire--if you're starting, say, with $10,000 in financial assets--you've got very little flexibility indeed.  Yet $10,890 is the median financial net worth of an American household today . . ..

***

Social Security is going to be a major, and maybe primary, source of income for people, even for some of those close to the top." [quoting Edward N. Wolff, economics professor at NYU]

 

The "cut benefits" rhetoric is made even worse when "protecting future generations" is added as to the mix as a "principle" that is claimed to underlie Social Security, as in the following

4) And we should do this in the name of caring about future generations, who should not "on principle" be "paying more" to support their parents' or grandparents' generations. 

See, e.g., Robert Shiller's op-ed, Want to Fix Social Security? Use the Right Wrench,ⁿ New York Times (June 9, 2013), at BU 4 (claiming to be supporting a fundamental "principle" of Social Security that "one generation shouln't be more burdened than another").   The problem with claiming this principle as an underlying principle of Social Security is that  the original legislation provided benefits to a slew of seniors who hadn't paid into it anywhere near what they would be getting out of it (even with the then-likely life expectancies) which was made possible, of course, by demographics that led to increasing numbers in the workplace. 

And it isn't clear that there is any reason to consider it essential as an underlying principle now.  If we have an economy in which there is sufficient resources to support increased benefits for an aging baby boomer population--even if that means that current workers should be more highly taxed than workers were 20 years ago--why not do so? 

We know that we could increase the amount available by simply removing the payment amount cap on wages taxed, while continuing a payout cap based on a reasonable index --ideally, a more generous one than currently used.  That just requires the really rich to participate in the insurance system in a way similar to everybody else.  We could also make the system more intentionally redistributive, with significantly higher payments in the "bottom bracket" of paid-in amounts (to everybody) and rapidly descreasing payments in additional brackets of paid-in amounts.  After all, most insurance is redistributive according to the degree of loss, with higher payments to those that suffer great losses made possible by the more or less consistent premiums paid by everybody, including those who suffer few losses.

 

ⁿ The footnote

I've put a footnote indicator at the Shiller article because there is a lot more about this Shiller op-ed worth pointing out.  Shiller is a Yale economist--a profession that too often seems to be at the center of all discussion of tax policies but that tends to spend too much time trying to sound scientific (by reducing everything to equations) and thus missing the mark on truly understanding economies. 

• Shiller's op-ed starts out talking about the "mere 20 years" when Social Security is predicted to run out of reserves and noting the proposals for addressing that problem. 
• His second sentence states as near fact that "the public [is] apparently opposed both to tax increases and benefit cuts" to address the problem.

That raises red flags for me.  I'm not convinced of the truth of the statement on increasing taxes.  I consider it quite plausible that a survey in which the public was asked, in a reasonable framework, about increasing taxes to support Social Security benefits would yield a majority that favor removing the cap on wages to which the Social Security tax applies.  If you gave people enough information, it might even be likely that a majority would support removing the preferential rates for capital gains and applying the Social Security tax to all income. 

• He gets something right:  "[t]he purpose of Social security is to help families."

This is something that many on the right tend to ignore when talking about Social Security--it's all treated as a matter of "personal responsibility" (the dislike for so-called "entitlements"--even though these entitlements are earned benefit programs and the push for privatization--as though that would automatically make people able to save enough to take care of themselves no matter their actual financial condition) and fiscal sanity (the tendency to emphasize the potential future shortfalls in benefit payouts as a justification for reducing benefits today, and the implication that otherwise we will face an unimaginably steep deficit, etc.).  Very little is about the importance of a social safety net to ensure that our seniors (and children) are not left in dire circumstances, poverty-stricken in a rich country.

• He spends the first third of the article seemingly moving towards providing a solution to "the problem"--that if nothing is done, "the Trust Fund runs out in 2033" and the system would only be able to pay about 75% of promised benefits.  He discusses the current indexing system, Obama's proposal (which would reduce benefits, stupidly), and then his "alternative" proposal--to index benefits to GDP, leading to increases in growth periods and potentially cutbacks in recessions.
• Then he admits that his "alternative" (offered as an alternative to suggestions for changing the index to address the problem of insolvency, since tax raises and benefit cuts are disliked by everyone) doesn't  address "the identified problem" of potential future insolvency
• But he claims the change should be adopted because it would instead "support the principle that one generation shouldn't be more burdened than another." 

This is said as though this "principle" is something everyone recognizes.  But let's be clear--there is no per se reason that one generation should be less burdened than another.  It depends on need and ability to pay. 

As we came out of the Depression and WWII, the younger generation was quite clearly the one burdened with paying for the older generations who had contributed very little for the benefits they were receiving, appropriately so.  Even if we end up with fewer workers supporting more baby boomers during the baby boomers retirement years, that's okay--especially if we are wise enough to remove the cap (as suggested above).  There is no inherent injustice in that.  The injustice would only come into play if the sacrifice asked of a later generation was so great that it outranked the offsetting sacrifice that would be asked of the earlier generation in cutting benefits.  That is hard to measure, for sure, and not obviously true merely if later workers pay slightly more in taxes to support earlier workers.

Now, there may be some good reasons for changing the index to a dirrect correlation to GDP, as Shiller suggests.  But the op-ed left me wishing he had just addressed that.  All his cloaking of his proposal in language that would get the attention of those on the right--talk of insolvency, talk about tax increases not being on the table, talk about the current proposed solutions to the "problem" and his "alternative", which turns out not to be an alternative solution but an alternative indexing proposal that is being proposed for different reasons than the ones that underlie the proposals his is an alternative to--distracts from the meat of his article.

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tax breaks for wealthy; corporate tax shouldn't be reformed away; seed patents are a real scandal

No time for lengthy commentary today, but worth calling attention to some noteworthy items.

(1)  The CBO released a new report detailing the income groups that benefit most from the various tax expenditures in the internal revenue code. No surprise that it finds that those in the highest income brackets receive an enormous amount of (not-needed) money from these tax subsidies.  

As one blog put it: "a whopping $2 trillion of that goes to folks who make more than $450,000 a year. In other words, 17 percent of all tax breaks goes to the top 1 percent. $2 trillion is about double the 10-year cost of the sequester." Bill Scher, $2 Trillion Wasted in Tax Breaks for Wealthy, Campaign for America's Future.org (May 30, 2013).

The wealthy enjoy tax breaks that have no relation to anything they produce but do relate to the fact that they are the primary owners of financial assets, such as the preferential rate for capital gains and the preferential rate for corporate dividends.  They also benefit much much more from any tax break they get than others do, especially when it comes to the mortgage interest deduction, the charitable contribution deduction or the exclusion for interest on tax-exempt bonds.  That's because they have more expensive homes, get bigger mortgages, have more financial assets that they can contribute to their pet projects for a FULL deduction of value (not just, as with most other property contributions, for their actual investment), and are about the only purchasers of tax-exempt bonds (the rates for which are generally set to attract the wealthiest buyers) and always itemize, whereas 70% of Americans just take the standard deduction. 

This $2 trillion is an economic waste--for some, its just more money to "invest" in offshore bank accounts and tax scams; for others, it just feeds Wall Street's private equity funds and "private banks" with more cash for casino capitalism bets and takeover gambles. As John Kominitsky, a commenter on the blog, notes "This is the "capital" Wall Street sucks up to fuel their Speculation Casino of derivatives (CDO's) high-speed computer trading, outsized "executive bonuses", and tax dodging off-shore accounts."  So the tax breaks for the wealthy (costly to ordinary Americans who have to make up the tax money needed) feeds the Wall Street casino capitalism monster (costly to ordinary Americans who lose their homes and livelihoods as Wall Street banks require bailouts and private equity firms make megaprofits off firing people).

 (2) The New York Times is on a roll on tax issues, seemingly reading more deeply than it had been doing for a while.  Today's editorial makes the valid point that there is no justification in today's economy for abolishing corporate taxes even if they were replaced with something else.  See editorial, No replacement for corporate taxes: the system needs to be reformed, not abolished, New York Times (May 31, 2013).

The editorial calls the "tax cut crowd" out on one of the arguments I've lambasted here for years--the idea pushed by corporate lobbyists (and people like Tim Cook in his recent congressional testimony) that since there is a good deal of corporate tax avoidance, we should just cut corporate taxes way back or even eliminate the corporate tax altogether, since we'll "obviously" never get sophisticated companies to pay more.This is wacky.  Rewarding tax avoidance by eliminating the broken corporate tax system altogether gets it backwards, as the Times notes.  The editorial makes six important points.

1. the corporate share of taxes has steadily declined, while corporations' use of the good things that the nation provides--the "social and economic foundation on which corporate success is built"--continues apace.
2. Ending the corporate tax just rewards the wealthy even more (who own most of corporate stock) and results in heavier burdens on everybody else

And, I would add, everybody else will carry that burden either by paying a larger share of taxes paid or by suffering from reduction in government services of particular importance to them, such as lower funding for education, for aid to the poor, for research, etc.   The wealthy can buy themsevles whatever they want, so are now more willing to let government shrivel.

3. cutting out corporate taxes means increasing the deficit

4. There's no justification for cutting out corporate taxes in order to replace that system with another one, like a value added tax.  That implies that it is reasonable to favor publicly traded corporations with all the benefits of US government without any of the obligations to pay for that benefit.

This is particularly unreasonable given the Supremes' decision that corporations have a right to spend their money to influence election campaigns for real people, and the right-wing's attempt to make a scandal out of the IRS scrutiny of groups that use 501(c)(4) status to conduct politicking in order not to have to reveal their donors, frequently major corporate owners like the Koch brothers and MNEs like Exxon Mobil. The idea of eliminating corporate taxes and passing the burden to less able to pay individuals is just another piece of the corporatist, class warfare agenda.

5. It also doesn't make sense to scrap corporate taxes if we decide to get rid of the preferential rate for dividends.  There is ample reason for raising the tax rate on capital investment income--it mostly goes to the wealthy, so the preferential rates for the wealthy exacerbates the growing inequality in this country, though, as the article notes, there is little political will even among Democrats to set the system aright.  But even so, eliminating the capital gains preference doesn't support eliminating the corporate tax--corporations don't have to pay dividends and shareholders get to choose when to realize taxable gains. Getting rid of the corporate tax would exacerbate the problem of corporations and shareholders controlling tax revenues through personal decisions.

6. We do need to reform corporate taxes--to prevent the ability of MNEs like Apple, Google and GE to pay ridiculously low or no US corporate taxes.  And that needs global cooperation.  So in the meantime we should require country by country reporting of profits and taxes.

 (3) This last item isn't a tax item, but it is something that is just about as pervasive as tax issues in our lives--the question of whether corporate giants should be allowed to "own" patents on living organisms, especially on self-replicating living organisms like seeds. 

I think the Supreme Court's recent decision in the Monsanto case is wrong. The current policy represents corporatism gone viral: it leaves farmers dependent on the few chemical giants that own the original genetically modified seed and all seeds that plants that sprout from it make.  It rips profits from farmers' hands and puts them in the hands of managers and shareholders of Monsanto and companies like it--a kind of class warfare by proxy. It leaves our agriculture, and our environment, at the mercy of a big corporation that has been steadily pushing us to overuse poisonous pesticides and herbicides that ruin our air, our water, and our land.  Congress needs to act to undo this patent determination.  See Kristina Hubbard, Monsanto's Growing Monopoly: what the Supreme Court got wrong: patents on self-replicating seed are unethical, dangerous and anti-competitive, Salon.com (May 30, 2013).

Related articles

$2 Trillion Wasted In Tax Breaks For Wealthy

NY Times on Corporate Tax Planning/Tax Avoidance

Wealthy benefit the most from top tax breaks, government study shows