The Republicans' proposed tax legislation--whether the House or Senate version--is despicable. It will exacerbate the already devastating income and wealth inequality in this country, leave the federal government without adequate funds for real infrastructure and social safety net needs, and place in almost inviolable power the wealthiest oligarchs of the country (and even the good ones exert a power that no one should possess in a democracy).
My previous posts on this so-called "tax reform" "simplification" package (it is neither) have outlined a number of pernicious provisions in the bills. There are a few I haven't mentioned, such as the likely inclusion of taxation of tuition benefits to undergraduate and graduate students. That will have an immediate impact on education and on basic scientific research. Not surprising, given Paul Ryan, Donald Trump, and Mitch McConnell's aversion to fact-based science and intellectuals, but nonetheless devastatingly harmful to the country in loss of prestige for our universities, loss of the top minds to other countries, and loss of entrepreneurial and innovational thinking that will hamstring commerce and productivity. Another is the "new" talk in the House of lowering the tax rate on the weathiest bracket by as much as two and a half percentage points--adding to the largesse for the wealthy otherwise larding the legislation and making it even more obvious that the only Americans the Republican Party sees itself as serving are those with at least millions and probably billions of net worth. The Republican charade of right-wing "alternative facts" (shown most clearly by the Treasury Secretary's inability to provide a supported rationale for the absurd corporate and oligarch-favoring tax cuts) would have a destructive impact on the entire U.S. economy. And it is not simplification--it is a huge complication that is ripe for tax abusers to abuse the complicated categories of differently taxed income.
But today there is a ray of hope that this tax scam might just not get passed --or might get turned around very quickly if it does get passed. Doug Jones' defeat of constitutional scofflaw and likely multiple-sexual-predator Roy Moore should cause any thinking Republican in the House and Senate to take a step back and listen to the views of constituents across the country, where dislike of this tax legislation is the majority view. The #MeToo movement and its impact on powerful media and other industry harassers, together with the fact that Democrats and Independents got out the vote in Alabama and defeated Roy Moore -- and another 20,000 likely lifelong Republicans decided to write-in another Republican name other than Roy Moore--should tell current GOP congresspeople that "the times they are a changin' ". Reaganomics--trickle-down, supply-side tax policies--don't work. Kansas proved that, if anybody actually had any doubt before. If the Republican majorities in the House and Senate pass this " Class War" tax legislation--written and argued and honed to a tee to serve the wealthiest multinational corporations and individual campaign donors while stabbing the middle and low-income classes in the back--they will potentially pay a big price at the polls in 2018 and 2020. They will pay that price because their tax legislation will send the U.S. economy into another tailspin that will lead to cuts in the standard of living of ordinary people so people like the Trumps can have even more gaudy gold faucets in their many mansions.
I call on everyone who can to write and call Jeff Flake (Arizona)--ask him to stand on principle and vote against the end of the Obamacare mandate, the giveaway to the wealthy and big corporations, the ridiculous scammable complication of different rates for the same income depending on what job the taxpayer worked at or whether the taxpayer owned the business or was an employee. Ask him to vote down this despicable tax legislation for the good of the country and ALL the people. Do the same for Susan Collins (Maine), who already has expressed real concerns about the impact of the elimination of the health insurance mandate. Even her 'bargained for' (but not actually promised) two-year patch wouldn't do much good: millions of people, the most vulnerable amongst us, will lose health insurance and therefore health care if this tax legislation passes. And let Bob Corker (Tennessee) know how much we all respect him for actually standing firm against this tax legislation travesty--and ask him to stand even taller by resisting the pleas to compromise principles 'just to get a win for Trump'. Let's push our Senators and Representatives to stand tall for a sustainable economy based on fiscal responsibility (don't create a $1.5 trillion dollar deficit) and distributive justice (don't push the middle class into dead-end living conditions) and end the giveaways to the wealthy oligarchs.
I predict that if this bill passes the expected accounting for the Republican Party will come even sooner and with even more strength against those who supported Trump's daily vitriol of falsehoods and the Trump Administration's filling the DC swamp with those who put pollution, despoiling the environment, destruction of the wilderness and national public lands foremost on their agenda.
There's no surprise here. The Institute for Policy Innovation (IPI) is a right-wing "think" (i.e., propaganda) tank that has consistently argued for tax policies that favor multinational corporations and the wealthy. So IPI has a posting on Sept 29 that is supportive of the so-called "tax reform framework" put out by the Trump administration.
As an earlier post on A Taxing Matter noted, the Trump framework is a wish list for the wealthy, providing one tax cut for the ultra rich after another:
elimination of the estate tax (that only affects the heirs of estates worth more than $11 million);
territoriality (that advantages multinational corporations that actually operate from the U.S. but claim headquarters in low-tax jurisdictions);
a flat 25% rate on "pass-through income" that gives almost a 15% rate cut to wealthy owners of partnerships in the real estate, joint venture, oil and gas and other businesses (and affects very few true small business owners whose effective tax rate is already no more than 25%, if that much);
elimination of the top rates on the progressive individual rate structure (reducing the top rate from 39.6% to 35% (or less));
reducing the statutory rate for corporations to a low 20%, when corporations already pay much much less in taxes than they have generally paid under the income tax system while making record profits and paying their key managerial personnel the kind of salaries and percs that have exacerbated the increasing income inequality gap in the U.S.;
elimination of the Alternative Minimum Tax (AMT), a provision that was enacted to ensure that wealthy taxpayers are not able to use so many loopholes and special provisions that they escape taxation altogether on their income (the elimination of the AMT being a pro-wealthy tax cut that ordinary folk in the lower two-thirds of the income distribution will benefit not one whit from); and
permitting immediate expensing for five years of equipment and similar expenditures by businesses (another provision that will allow mega corporations to make even more profits that can be shared--through bonuses, higher salaries, and share buybacks with the wealthy managers and shareholders of the enterprise and a provision that runs explicitly counter to the actual economics of the business, in which new equipment stays at close to original value in the early years with wear and tear actually economically backloaded onto the last years of the useful life).
As a result of these provisions, the wealthy who own the vast majority of financial assets (including stock in corporations and partnership interests in real estate and other partnerships) will enjoy hundreds of thousands of dollars of tax cuts. In fact, the major portion of the tax cuts will go to the very wealthy who need them least.
Meanwhile, the rate of taxation on the lowest income group in the country, the bottom percentile, would be increased by 20% (from a 10% rate to a 12% rate)--a truly significant and revealing increase for people who are struggling to make ends meet in an "as needed" worker environment where steady full-time jobs for a regular paycheck are vanishing as corporations call workers in when they want them and send them home sometimes after only a few hours. (This is of course accompanied by a continuing right-wing assault on worker rights and the attempt to shrink labor's power and ability to negotiate with extraordinarily powerful employers in unison rather than individually.) While the standard deduction (and possibly child care credits) will be increased, the personal exemptions will be eliminated, as well as perhaps other deductions that sometimes stave off disaster, such as the medical expense deduction. This means that many of the low to lower-middle income families with children will pay the much higher rate of tax on a larger portion of their income--i.e., their taxes will increase. For the rest of the lower income and middle income classes, tax relief will be minimal--a few hundred to a thousand dollars, most likely.
Note that the members of the Republican Party establishment who are pushing this framework have in the past said that they were very concerned about deficits. Their concern about deficits was the purported reason for limiting the infrastructure plan to jumpstart growth after the Great Recession. Their concern about deficits was the purported reason for nearly shutting the government down time after time over the decision to raise the debt limit for payment of debt obligations the United States government had already incurred. Their concern over deficits was a purported reason for wanting to "reform" Medicaid, Medicare and Social Security--the programs that exist to help the most vulnerable Americans. But now those same Republican Party establishment figures are saying they don't care at all about the deficits. They are willing to allow the deficit to mushroom in order to give yet another gigantic tax cut to the very wealthy. The budget resolution put forward by the Senate Budget Committee would allow a $1.5 trillion tax cut over 10 years, but this plan is likely to cost between $3 trillion and $7 trillion (or more). (Note that the $1.5 trillion figure already includes gimmicky thinking--instead of using the actual law as the baseline, the GOPers are assuming a baseline that assumes that expiring tax cuts don't expire, which gives them more room for additional cuts than if they had to account for actually extending those tax cuts too. So much for McConnell's pledge that any tax reform would have to be revenue neutral. See Tentative U.S. Budget-Tax Deal Gets Nod from Two Republicans, Bloomberg (Sept. 19, 2017). Republicans, as usual, claim dynamic scoring will work, because it will show that growth will make up for lost revenue. Toomey, a Pennsylvania Republican tax cut ideologue, claimed that tax-cut induced growth would actually reduce the federal deficit, and Wisconsin Senator Johnson agreed (especially with the aid of "dynamic scoring", maybe done outside the CBO). Id. Sadly, that is not supportable. This is utter hypocrisy.
And while Trump and various functionaries in his administration have explicitly said that their tax "reform" framework is meant to aid the middle class and not give a bunch of tax cuts to the wealthy, there's no evidence in support of that statement. Their program aids the wealthy and ignores or harms the middle class and poor. See, e.g., Trump Says His Tax Plan Won't Benefit the Rich--He's Exactly Wrong, The Atlantic.com (Sep. 29, 2017); Trump Proposes the Most Sweeping Tax Overhaul in Decades, NY Times (Sept. 27, 2017) (noting that Trump described the overhaul as "an economic imperative" for whom "the biggest winners will be the everyday American workers as jobs start pouring into our country, as companies start competing for American labor and as wages start going up at levels that you haven't seen in many years" though there was scant detail on how working people would benefit from "a proposal that has explicit and substantial rewards for wealthy people and corporations"). Trump explicitly said in his Indianapolis speech that wealthy people like him would not benefit (see New YOrk Times article, cited above). And Mnunchin said the same thing months ago ("no absolute tax cut for the upper class"). See Trumps Tax Plan: Prioritize Cuts for the Rich. That statement is simply not true, since the estate tax, the AMT and the reduction of taxes on pass-through income and on corporate income would each directly benefit the Trump family. He also said the framework would "protect low-income and middle income households, not the wealthy and connected". See New York Times article on Indianapolis speech, above. Again, that statement is simply not true: it will provide huge tax breaks for the wealthy and connected and minimal tax breaks or even tax increases for the low and middle income households. And Steve Mnunchin effectively admitted that the plan will result in tax breaks for the rich, essentially by disingenuously claiming that you can't do a tax cut aimed at the middle class without also giving something to the rich. See, e.g., Eric Levitz, Trumps Tax Plan: Prioritize Cuts for the Rich, Say He Isn't, Daily Intelligencer, New York Mag.com (Sept. 27, 2017); Can't guarantee tax cut for entire middle class: Mnuchin, Reuters.com (Oct. 1, 2017) and by saying that the statement that there would be no tax cut for the rich "was never a promise. It was never a pledge...It was [just] what the president's objective was". Trumps Tax Plan, NYMag.com (Sept 27, 2017). And of course, Gary Cohn, similarly has refused to guarantee that no middle-class family would face a tax increase. See Cohn, Mnuchin Draw Line on Corporate Rate, Tease Debt Reduction, Tax Analysts.org (Sept. 29, 2017) (Mnunchin claiming $2 trillion of growth with a claim that the tax cuts would cause a 2.9 percent GDP growth rate over the decade and a cut in the deficit; Cohn claiming enough growth to pay for the entire tax cut). Note that one of the gimmicks that Mnunchin used to avoid the real effect was to separate the estate tax from the regular income tax cuts--so they admit that they are benefitting the wealthy with the estate and AMT taxes, and then claim they are not with the income taxes. In fact, the income tax cuts also are beneficial for the wealthy.
By the way, as a tax professional and tax academic, I can tell you many ways that you can provide tax cuts for the middle class and poor without providing tax cuts for the rich. Just to consider a few:
do not eliminate the estate tax--it only taxes the very wealthiest of the wealthy, so it can only benefit the very wealthiest of the wealthy. The claim that eliminating the estate tax "saves" small businesses and family farms has been debunked time after time.
do not eliminate the AMT--it only taxes the top quintiles of the income distribution. If you want to save the affluent rather than the real middle class, you can structure the AMT to hit only the top quintile.
do not cut the corporate tax rate to 20%--that primarily benefits the wealthy who own most of the financial assets and hold the high-paying managerial positions
do not cut the pass-through tax rate to 25%--that only benefits the ultra wealthy, since small businesses already pay a rate at or below 25%
do not move to a territorial tax system--that primarily benefits the wealthy and will do nothing to increase jobs;
do not increase the bottom rate paid by the low-income Americans from 10% to 12%--that only hurts those taxpayers.
do not eliminate the highest tax rates (the investment income tax, etc.) Consider adding a financial transaction tax.
eliminate the "carried interest" provision that allows wealthy managers of joint ventures to enjoy capital gains instead of ordinary income rates on their compensation along with, often deferral of any income inclusions.
eliminate the section 1031 like-kind exchange provision, that benefits real estate professionals like the Trump clan with near permanent deferral of income.
As Ron Wydon put it "if this [Trump/GOP] framework is all about the middle class, then Trump Tower is middle-class housing. It violates Trump's tax pledge that the rich would not gain at all under his plan by offering sweetheart deals for powerful C.E.O.s, giveaways for campaign coffers, and a new way to cheat taxes for Mar-a-Lago's loyal members." Id. In other words, saying it is for the middle class is a whopping fairy tale. And of course, it doesn't provide any particulars about the nitty gritty issues that would have to be addressed, like preventing abuse of the 25% pass-through rate, limiting the deductibility of interest expense, or phasing out the expensing write-off after 5 years. Anyone with any understanding of the history of tax provisions knows that lobbyists will start immediately with demands for 1 or 2 year extensions to the expensing elimination, and as soon as the public's awareness of the issue has ebbed, Congress will cave and make it permanent.
IPI likes the plan, nonetheless, because most of the things that IPI claims are "pro-growth" tax policies are actually "pro-wealthy" tax policies that have almost no evidence in support of helping to spur greater growth. IPI specifically mentions expensing (highly profitable for large corporations, since smaller companies can already expense most new investments); the move to territoriality (favors multinational corporations that have moved their key IP abroad); the elimination of the AMT (favors the wealthy); the elimination of the estate tax (favors the ultra wealthy); and the reduction of corporate tax rates from a statutory 35% rate (paid by almost no corporation) to a statutory 20% rate (lower than the statutory rate of our so-called "competitor" nations, that also have a VAT, which the US does not have).
There is no real evidence that any of these tax changes will spur economic growth, and Congress has never funded the research that would be necessary to show that they do or don't. It has depended on little more than Arthur Laffer's napkin drawn curve (not based in empirical evidence) and general Chicago School "free marketarian" and "trickle-down" theories. Oh, and gimmicks like using "dynamic scoring" that assumes a large rate of growth to justify tax cuts that otherwise clearly create huge deficits. Kansas's experiment in slashing taxes for businesses and wealthy was supposed to prove that cutting taxes was a great way to engender growth. It proved exactly the opposite. Reagan's 1981 tax cut was supposed to prove that big tax cuts cause huge economic growth--instead, deficits mushroomed and every other year of his term there were tax increases of one kind or another--mostly hitting little guys and not the wealthy. Similarly, Bush 2 cut taxes and saw a surplus turn to a deficit, and ended his term with a Great Recession because of a speculative boom fueled by loose money in banks and financial businesses.
In contrast, there is real evidence that public expenditures to improve infrastructure, protect the environment, support basic research not funded by corporations, and fund educational opportunities have real positive impacts on economic growth that is beneficial for the entire society.
Let's call a spade a spade. This plan for so-called tax "reform" is really just a smokescreen for shrinking government and making it even harder to protect the environment, enforce the laws, make polluters stop polluting, protect the vulnerable and do the other things that the people acting together through government can do but that the people each acting individually simply cannot do. Like Trump's typical lies (about how "great" his response to the Puerto Rican devastation has been, when he waited days to act, sent much fewer military personnel much later and otherwise treated Puerto Ricans like unimportant Americans compared to the way he treated Texas and Florida), the tax "reform" framework is a lie. It is a boon for the rich, a boondoggle for the poor and middle class, and a bad joke for the future economic growth of the country.
And that's why Trump has already started threatening Democrats that don't support his plan. In his Indiana address, he threatened to campaign against Democratic Senator Donnelly if he did not support the tax boon for the rich that will result in at least a $2 trillion increased deficit over a decade. (Of course, given his failures with Senator Strange in Alabama, maybe that threat, like so much else Trump does, is truly hollow.)
National GOP leaders on Wednesday released a 9-page document that they called a tax "framework" (available here on the Washington Post site) describing in vague terms how they intend to cut taxes for the nation's wealthiest people while doing very little that serves the government needs. Overall, the GOP framework would amount to about $2.2 TRILLION in less revenue to support federal programs (like protecting the environment from corporate pollutants, supporting higher education loans for students, funding basic university research) (assuming $5.8 trillion loss to lowering rates and shift to territorial system and maybe $3.6 trillion recouped by eliminating as yet unspecified deductions). See GOP proposes deep tax cuts, provides few details on how to pay for them, Washington Post (Sept. 27, 2017).
They promise 3 rates (12%, 25% and 35%, without stating what the applicable income brackets for those rates should be). That lowering of rates is primarily beneficial to the wealthiest, since the people who just barely get by on their wages (especially with the new corporate regime of calling people in for short shifts, as needed, rather than paying them a regular full-time job) are hit hardest by the payroll taxes that won't be lowered at all under this plan. That is, ordinary wage-earners in the middle and lower classes are generally already taxed on a consumption basis--they spend what they earn and have little left for saving for the future. They pay relative low income taxes but pay significant payroll taxes through withholding on their wages (with no deferral). This is another excursion into the current GOP's 'alternative fact' universe, where huge tax cuts mainly benefiting the wealthy are sold as a 'simplifying' reform that will benefit ordinary people.
Although the lowest rate is higher than the poorest wage-earning taxpayers pay now, the planners claim that this is still a tax cut because of the "doubling" of the standard deduction for those taxpayers that do not itemize. However, the personal exemptions are eliminated, so that the combination of the standard deduction and the higher rate is likely to be at best a minimal cut for small families and an actual tax increase for larger families. See, e.g., this article.
They promise to eliminate the "alternative minimum tax", a tax provision that was enacted as a safety provision to ensure that wealthy taxpayers who can afford tax planning and generally can most easily benefit from the various loopholes and tax subsidies written into the code would pay some modicum of taxes rather than get off scott-free from any tax burden. The "framework" (page 5) claims that "it no longer serves its intended purpose and creates significant complexity." It is admittedly somewhat complex, but not unduly so with modern tax preparation software which makes that complexity a minimal problem. I have been required to pay the AMT, and it hasn't made my life or tax return filing more complex. In fact, the people who owe the AMT should be paying more tax than they would pay without the AMT, and that means it is in fact serving its intended purpose of ensuring that taxpayers cannot aggregate too many of the various haphazard subsidies in the Code to permit them to essentially escape a reasonable tax burden on their economic income. Elimination of the AMT is a tax break for the well-to-do: Trump, for example, has had to pay the AMT (real estate developers are one of the much-favored groups in terms of various tax expenditures in the Code that benefit them).
They plan to eliminate the estate tax--a tax that ONLY applies a low 35% rate to individuals who leave estates worth more than 5.5 million dollars or couples that leave estates more than 11 million dollars, and even then is often the only tax that the assets in those estates have ever been subject to, since these wealthy Americans are the ones most able to take advantages of various trusts and other loopholes and borrowing to ensure that they live as tax-free as possible off their assets during their lifetimes and pass them almost wholly intact to their heirs with stepped up basis to start the game all over again. This is a tax break for the very wealthy and their silver-spooned heirs--especially lucrative for the multibillionaires who own (and live off of) most of the financial assets.
They plan to give corporations an exceeding low statutory rate of 20%, even though the primary beneficiaries will be the owners and managers who already have enjoyed a hugely disproportionate share of corporate gains (compared to their workers) that has resulted in the cascading inequality of distribution of resources in this country, in part because the wealthy typically own most of the countries' financial assets and get a very low preferential capital gains rate on their income compared to the higher rate on wages paid by ordinary, non-wealthy wage-earners. It is claimed that low corporate tax rates are necessary to allow corporations to be competitive, based on the statement that our statutory rate (the rate provided in section 11 of the Income Tax Code) reaches a maximum of 35% for the biggest companies. But the majority of corporations--even highly profitable ones-- pay no income tax at all. And those that do pay a corporate income tax pay an average effective tax rate (actual tax as a percentage of actual economic income) around 24% , at best, and that is not substantially higher than the corporate tax rates in other developed countries. Further, most of those other developed countries do not depend solely on the income tax--they generally have some kind of value-added tax (a VAT) in addition to income taxes and often have various other taxes (such as a financial transaction tax). Making claims about competitiveness based solely on the corporate income tax is, in other words, foolishly incommensurate and really says nothing whatsoever about ability to compete.
Further, they plan to allow corporations to expense all investments, at least for the next 5 years, even though the economic reality is that expensing is an upfront subsidy since wear and tear is most significant at the back end of an investment, not the front end. Expensing (see page 7 of the framework) will cost huge amounts of tax revenues. It is just a way to reduce corporate taxable income (not economic income) even further, making the 20% rate on a lower amount of income produce even less tax revenues from corporations, which already pay a ridiculously low amount and are enjoying record high profits.
The framework calls for changing to a territorial system (at a time when most U.S. multinationals have already used various gimmicks to 'offshore' their main profit-making IP) and lower taxes on U.S. multinationals. The result will likely be significantly lower corporate tax payments from U.S. multinationals. Further, unless the reorganization provisions and ability of U.S. multinationals to move active businesses overseas on a tax free basis is curtailed, these rules will likely encourage other companies to offshore even more of their active business assets. It will favor multinationals over domestic corporations, pushing even more companies to move businesses overseas.
And they intend to preserve the R&D credit (see page 8 of the framework) -which was eliminated in the 1986 tax reform and then reinstated on a piecemeal basis over multiple years due to pressures from corporate lobbyists. There is no evidence that the R&D credit, rather than the more legitimate business deduction or capitalization for research expenses, produces more research. And Congress has done nothing--in spite of years of pushing for making the R&D credit permanent--to establish that it provides any actual economic growth benefit. It just provides an upfront dollar for dollar reduction in taxes compared to the deduction's lesser benefit. And there is no evidence that the credit has resulted in more money being put into research. Research intensive businesses with good leadership invest in research whether or not they get a special tax benefit because otherwise their busienss will die. (Of course, businesses with no attention to anything other than the bottom line may make bad decisions: one reason the pharmacology industry has been lagging is that they have tried to merely buy others' research rather than doing it themselves, and like the infamous purchaser of Epipen, they have simply gorged themselves on exploitative prices because of their monopoly on a particular drug.)
They plan to have income from "pass-through" entities like partnerships taxed at very low rates to the individuals, who already enjoy exceedingly low rates on their gains from corporate stocks and other financial assets (the preferential capital gain rates) and will receive even more cash out of their corporate stock ownership with the even lower proposed statutory rate on corporate stock. This plan for pass-throughs, by the way, will continue to lavish tax benefits on an already super-coddled wealthy class--those who run real estate development businesses through partnership structures (the Trump empire, for one), those who run hedge funds (some of the wealthiest individuals in the country) and those who run master limited partnerships (fossil fuel tycoons).
They say they will "simplify" taxes--which should mean eliminating most or all of those absurd provisions that have grown over the years to clutter the tax statute with special subsidies (that, again, mostly benefit the wealthy). But there is no indication that the GOP has any intent to eliminate any of the special giveaways. With real simplification that made economic sense, the framework would call for things such as
eliminating the preferential capital gain rate (that benefits the wealthy who own the vast majority of the capital assets)
eliminating the section 1031 "like kind exchange" rules (that allow wealthy real estate developers to trade properties for significant gains but defer tax on those gains indefinitely, often til death when the step up in basis allows their heirs to inherit and start the game all over again)
eliminating the various preferences for fossil fuels that have been in the code in one form or another for years, giving oilmen their wealth while subsidizing the most polluting kind of fuel extraction and use (all the while with their lobbyists arguing against significant long-term subsidies for more environmentally friendly wind and solar)
phasing out the mortgage interest deduction--at least for mortgages at more than the average national housing price-- so that multimillionaires cannot get the benefit of the interest deduction on $1.1 million of mortgages, again, a provision that primarily benefits the wealthy in the top 20% of the income distribution, and
eliminating the provision in the charitable contribution provisions that allows wealthy shareholders to donate certain assets for a full fair market value deduction rather than a basis deduction--thus significantly reducing the overall income tax they owe.
But of course--although most academic research suggests that a mortgage interest deduction serves no legitimate purpose, the GOP 'six' indicate they will retain it, because it "help[s] accomplish important goals that strengthen civil society as opposed to dependence on government: home ownership". Fact is, countries without a mortgage interest deduction have just as high rates of home ownership, and the economic effect of the deduction (especially in its current form) is to favor purchase of ever larger homes by those taxpayers in the upper income distributions.
As with so much else from the man currently holding the office of President, what is said (paraphrasing) --that the wealthy will not get a tax cut and the poor and middle class will get big tax cuts --can't be trusted. Like so much else, Trump says he is "very good at it", but then he thinks he is good at everything and is inevitably shown to be fairly ignorant of the issues that matter. The framework, like everything else the GOP has proposed this year --including repeal of the Affordable Care Act; defunding of Medicaid; withdrawal of scientific information about climate change from the EPA website, reduction in the size of existing national monuments meant to protect the land for all of us --is designed to benefit the GOP establishment's wealthiest donors who continue to call the shots on tax and economic policies.
And of course the claim that this 'framework' can result in "the simplicity of a 'postcard' tax filing for the vast majority of Americans" is absurd. The complexities of accounting for various income sources and the heightened complexities that most low-income Americans face in claiming the Earned Income Tax Credit will remain, even if rates are reduced and the standard deduction replaces the standard deduction and personal exemptions. The claim (page 4 of the framework) that "typical families in the existing 10% bracket are expected to be better off under the framework due to the larger standard deduction, larger child tax credit and [unspecified] additional tax relief that will be included during the committee process" seems clearly wrong for many if not most of those taxpayers in that lower bracket.
And their posturing that this "reform" is to benefit "small businesses" is equally absurd. The main beneficiaries of the pass-through rate will be the huge joint ventures, master limited partnerships, real estate partnerships (like the Trump companies), and hedge funds whose owners will enjoy a reduction in their tax rate on that income from 39.6% to 25%. Most actual small business owners are already paying tax around the 25% rate.
The proposal will not end incentives to ship job and capital overseas (see page 3 of the framework on goals)--those gimmicks with transfer pricing of intangibles will continue, as any lowering of the corporate tax rate here to 20%, which is below the international average of 22.5% (according to the report--it may well be too low a figure), will push other countries to lower their rates as well. It is a corporate lobbyist's ideal playground--playing one country against the other to push the "race to the bottom" faster and faster and continue the quasi-sovereign hegemony of multinational companies around the world. If we want to end the corporate inversions and the transfer pricing gimmicks, we know various ways we could do that, including changing transfer pricing mechanisms in ways that various academics have recommended. Congress hasn't really wanted to, since their wealthy corporatist donors wouldn't like it.
What reveals the hypocrisy of the GOP is their sudden switch from deficit hawks during the Obama administration, which made it harder to get a decent stimulus package through Congress and to promote funding for desperately needed infrastructure projects, even when interest rates were incredibly low, to a willingness to incur significant deficits in order to debt- fund even more tax cuts for the wealthy on top of the Bush-era tax cuts that led to a switch from federal surplus to federal deficits and more debt. As Ed Kleinbard so aptly states, "The Republican tax "plan" is a deficit-busting mess, and it would slash the President's taxes", Vox.com (Sept. 28, 2017).
What reveals the GOP hypocrisy even more is their presentation of this framework without any appropriate CBO or Joint Committee on Taxation analysis. And statements by Senator Bob Corker (Tenn) in connection with scoring tax reform that they don't trust the CBO, implying that the GOP should go to a private (pro-GOP) source for "dynamic scoring" so that it will show the results they want--is truly worrisome. See The sudden and regrettable demise of the CBO, USNews.com (Sept. 21, 2017). It disparages the nonpartisan professionals in the Budget Office while showing that the GOP is willing to do practically anything to further the lie that their budget, with huge tax cuts proposals for the wealthy, will miraculously result in widespread economic growth that will float even poor folks' boats.
We already know that tax cuts do not have the miraculous growth effect that they claim. Kansas actually engaged in an "experiment" to prove that tax cuts would stimulate growth. Even the state's GOP legislature recognized the utter failure of the claim, as the state's economy sank under the burden of the tax cuts. Kansas actually voted to end the experiment and raise taxes!
And of course we have experimented this way nationally with various Republican administrations. Reagan cut taxes drastically in his first year in office, caused huge deficits and then increased taxes every year of his term afterwards. The cuts ended up most especially benefiting the wealthy, because the tax increases took the form of higher payroll taxes and other means of hitting lower-income folks that didn't bother the wealthy. George H.W. Bush promised not to raise taxes, but recognized that he could not keep that promise and run the government appropriately. If we are going to spend billions on continuing to buy arms and military planes we don't need (a silly idea, but one that seems ingrained in the GOP mentality), then we have to have more money to fund things we really do need, such as a fair medical care system for the most vulnerable (Medicare) and funding for basic research that corporations don't want to pay for (NSF and NIH, among others). George W. Bush cut taxes on the wealthy and corporations, fulfilling corporate lobbyists wish lists that had been circulating for 20 years, including creating a 'tax holiday' for corporations to repatriate untaxed profits that they had offshored at a very low rate. All that was promised to drive economic growth, but of course it didn't. As with the similar idea in this year's "reform" talk, the 2004 tax holiday provided a way for corporations that had engaged in various gimmicks to move their profits overseas to low tax jurisdictions (even while the money is often in U.S. banks) to bring it back to the US at low or no taxes and then use it to do stock buybacks that benefited their wealthy shareholders with big boosts of income taxed at preferential capital gains rates. Most of those corporations did not use those funds in any way to create job--in fact, some of the biggest so-called repatriators laid off employees at the same time. The tax holiday merely gave even more of a tax subsidy to unpatriotic corporations that were willing to scam the system by pretending to sell their invaluable IP to offshore subsidiaries, and then even higher payments to the CEOs for raking in more cash. In other words, the tax holiday was a great exercise in supporting the creation of an even greater inequality gap. Historical trends are fairly clear on this. The U.S. economy has thrived more under Democratic presidents who have increased taxes and has turned to deficits more under Republican presidents who have cut taxes.
What we should do at a minimum is increase the amount that corporations pay into the federal government, so that a higher percentage of our GDP is paid in corporate taxes, as in other developed countries. And we should add a financial transactions tax, at least, to the mix while eliminating the preferential capital gains rate and the like-kind exchange provision.
Funding the government so that it can deal with the hundreds of billions in financial aid needed in Texas (Hurricane Harvey) and Florida (Hurricane Irma) and Puerto Rico (Hurricanes Irma and Maria) while at the same time starting to handle some of the deteriorating federal roads, railways, bridges and other infrastructure throughout the country would be the best way to ensure that we could continue the economic growth begun under the Obama administration. That funding would require REAL tax reform: eliminating the preferential capital gains rate, eliminating the many loopholes by which highly profitable corporations manage to pay almost no federal income tax, and creating a significantly higher graduated rate structure for taxing estates (while eliminating the step up in basis).
(Of course, we should also recognize that spending the hundreds of billions annually on defense does much less to defend America and make it great than spending a higher proportion of that money on education, infrastructure, and other ways to increase opportunities for all. Let's get rid of the militaristic jingoism that keeps the U.S. armament industry rolling in cash and start funding scientific and health research through NSF and NIH. That is the way we created a thriving middle class after the second World War and the way to support continuing innovations that will make a difference in our lives and economy into the future.)
As the budget battles loom again in our dysfunctional Congress, one of the targets of the right is, not unexpectedly, funding for the IRS. Sequestration is already hampering the IRS's ability to perform its functions. See $6 collected for every $1. But the right wants to cut funding for the IRS to a mere three-fourths of its current level. See Rubin, GOP Proposes Reducing IRS Budget by 24%, Bloomberg, July 9, 2013, at Accounting Today.
It's worth thinking about what this kind of budget reduction for the IRS--one of the biggest "too big to fail" financial institutions in the country--would mean. Remember that the IRS performs essential governmental functions--enforcing the tax laws and collecting necessary government revenues. In connection with these enforcement and collection functions, the IRS has implement a number of congressional policies (often with very little guidance) and, working with others in Treasury, provide guidance in the form of revenue rulings and regulations for many different types of taxpayers, as well as internal procedural guidelines for revenue officers. It has to determine eligibility of numerous organizations for the various "tax-exempt" categories Congress has created. It has to track information received from the myriad tax-reporting provisions. It has to ferret out tax scams and shelters invented by high-paid accountants and law firms and in-house counsel. It has to examine and audit and negotiated with taxpayers who are often better resourced and therefore able to "outgun" the agency. It has to provide information and testimony to Congress. It has to interact with tax lawyers in their professional organizations, such as the ABA Tax Section and the NYSBA Tax Section. And, to do its job decently well, it must spend considerable effort recruiting and training employees and overseeing them.
Much (if not all) of the problems pointed out (especially by the right-wing propaganda corps attempting to generate a "scandal") about the IRS mismanagement of the thousands of 501(c)(4) applications it receives stems from under-resourcing of the agencies and the lack of skills training, computerized systems and solutions, and sufficient management personnel to ensure efficient and timely use of resources to target scrutiny to those organizations most likely to be in breach of requirements.
So one would think that the right response to the intense need for a good revenue collection and tax-law enforcement agency would be to increase resources rather than to cut them. But there is a significant portion of Congress people-especially in the House--that is not interested in ensuring that the government that they are a part of function properly and especially not interested in having the tax-collection-and-enforcement agency work properly. As James Maule put it on Mauled Again earlier this year in a discussion on IRS hearings:
[A]nother member of the panel tried to make the point that cutting IRS funding doesn’t necessarily mean revenue will decrease. He tried to make his argument by claiming that increasing IRS funding does not increase revenue. He asserted that funding for the IRS increased from 2001 to 2009 and yet revenue decreased during that period. No kidding. The revenue decreased because in 2001 and again in 2003, the geniuses behind tax cuts succeeded in persuading the nation to accept a cut in its tax revenues at the same time it was pumping trillions of dollars into war expenditures. It was encouraging to hear another member of the party point out that the economic downturn also was a reason for the decrease in revenue collection. Yet it remains deeply disturbing that Americans have elected to Congress someone who thinks that sequestration of IRS funding won’t have an adverse impact on revenue.
The attempts to shrink the IRS is part of a larger, pervasive, foundational aspect of the anti-tax crowd’s plans to unchain themselves from any attempt on the part of anyone to get in their way as they exalt themselves at the expense of the society on which they are, no matter their denial, very dependent. I have explored the short-term foolishness of cutting IRS funding in posts such as Another Way to Cut Taxes: Hamstring the IRS. At a time when the Congress has piled dozens of new credits, deductions, and exclusions onto already complex tax law, has turned the IRS into the health care enforcer, and has required the IRS to serve as a collection agency for unpaid child support and other debts, it is absurd to cut IRS revenue collection efforts. When people defending the anti-government agenda claim to take their inspiration from the private sector, they conveniently ignore the fact that if a business wanted to eliminate its operating loss, the prognosis for success would be zero if the business ceased all advertising and left its cash registers and online payments systems unattended and unfunded.
This idea of cutting the agency that is already so underresourced that it cannot fight the hired guns of the multinational corporations and Big Oil, Big Pharma, and other sophisticated big-monied taxpayers fits with the general corporatist approach of those on the right these days. It is an approach laden with anti-populist, pro-oligarchic, class warfare sentiment. It is the "meritocratic" notion that those who have most already should have even more because they "merit" it, while those who have less can be allowed to suffer their plight without any role of government to provide a safety net. It is the force that pays CEOs and other top managers and directors obscenely high salaries in bad times as well as good times, no matter what they do to create ruin for their communities and their employees and even their companies, under the false belief that the people at the helm are responsible for all productivity gains and none of the productivity losses of the firm. It is behind the effort to reduce pensions of already-retired union employees and the fight against unionization from wealthy interests (like the billionaire Walton heirs whose WalMart stores still refuse to pay a living wage). It is behind the decades of Reaganomics and Friedmania, two cult ideologies masquerading as economic theories that have wreaked havoc on the US economy and most especially on its middle class and poor. It has left one-fourth of American children living in poverty. It has created a country with untold wealth that won't pay for decent public schools or decent public health care. It has privatized education to the point that poor school districts are forced to subsidize religious and other private schools while trying to maintain a decent quality of education in public schools for the not-wealthy children that remain in them. It has allowed Big Banks and Big Insurance companies to reap "rentier" profits from municipal necessities and personal health care needs, all in the name of claiming to support personal freedom. It is behind the GOP-driven refusal to support Detroit in Michigan where businesses and the wealthy get huge tax breaks, but the city on which the state depends for its future is treated as a misbehaving child, with its (mostly black) residents punished for the city's exploitation by Big Banks and by corrupt leaders. This right-wing behemoth continues --with the aid of the so-called "centrist" Democrats--to paint Social Security and Medicare as too-generous "entitlements" whose benefits need to be pushed back to avoid the need to increase taxes to support them. This corporatist class warfare, in other words, is remaking the US economy into a have and have-not society that privileges the wealthy while peonizing everyone else. The push to defund the IRS is a useful piece of the class warfare battle gear for the right--by handicapping tax revenue collection and tax law enforcement, the right facilitates the wealthy elite and the multinational corporations they own and run in ripping off the nation and jeopardizing the lives and fortunes of the middle class and especially the working poor.
There is one bright spot in this budget debate--those Senate Democrats who are proposing an increase of about $26 million in IRS funding, in recognition of the great disadvantage in which the agency, with so many diverse tasks, is put by underfunding compared to the sophisticated taxpayers who are willing to aggressively push the boundaries of tax evasion. See several links, below.
Christina Romer's recent piece in the New York Times is worth reading. See C.D. Romer, Cutting the Deficit, with Compassion, New York Times at BU5 (Sept. 9, 2012).
Now, I generally have found Romer too willing to advocate austerity economics and too unwilling to support progressive tax policies. But nonetheless, this piece hits some good notes. For example, while arguing that reducing the deficit needs to be a priority, she acknowledges that it must be done "in a way that does as little harm as possible to people, jobs and economic opportunity." Similarly, she recognizes that requires going slowly--" a comprehensive, aggressive deficit reduction plan [should be passed] as soon as possible, but the actual spending cuts and tax increases should be phased in as the economy recovers." Why? Because "[a] crude rule of thumb is that every $100 billion of deficit reduction will cost close to a million jobs in the near term." A big price to pay that makes it reasonable to consider not only LONG-TERM deficit reduction plans but also SHORT-TERM job creation measures.
ASIDE: And in case you wonder, tax cuts for the wealthiest amongst us, as advocated by the Romney-Ryan team--are NOT job creation measures. The Romney-Ryan budget proposes to achieve revenue neutrality, huge tax cuts for the rich, and no tax cuts for the middle class by not proposing any specifics. The reality is that the Romney-Ryan plan is just politico-wishspeaking: there is no plan that will do what they claim, because they depend on the now-well-disproven idea that huge tax cuts for the wealthy will generate more tax revenues while creating more jobs. Nope. Neither likely nor even possible. And by not specifying what they'd cut, they are merely trying to fool the people.
Here are what Romer proposes, with some commentary:
1) tax credits for businesses that actually increase employment
Not a bad idea to replace the endless suggestions of business tax cuts, but any accountability will have to be long-term--i.e., payroll will have to increase over a period of 2 years and the particular jobs created will have to stay in place for at least 2 years before any tax reward should be available
2) "well-designed tax reform that raises at least some additional revenue" and "let[s] the Bush tax cuts expire for those earning more than $250,000 a year [while] [i]ncreasing rates on top earners" and "lowering tax expenditures" including "the low tax rate on capital gains and dividends"
Hmmmm.The clarion call for tax reform has consistently been used by DC lobbyists to push for tax CUTS for the wealthy and big business. It is not so clear that we need a huge tax reform. What is usually meant by tax reform is "simplification," which is just another way to justify unneeded tax cuts .We do not need to cut the corporate tax rate. We do not need to reduce tax regulations.
But I do agree with Romer's notion that we need some tax increases. My preference would be to allow the entire panoply of Bush tax cuts--passed by a Congress that unfortunately and wrongly believed the Laffer lie that cutting taxes would increase revenues--to expire as the Republicans originally purported to intend. Let the sunset happen. And then come next year, think about what, if any, of the cuts make sense. Perhaps a cut to the income tax rates of those who make less than $100,000 a year. But an increase for those that make more than that, and a significant increase for the top two quintiles, would be in order. We should raise rates on the wealthiest by creating additional tax brackets for those making 500,000 to a million, 1-2 million, 2-10 million, and above 10 million. We could reasonably examine the many tax expenditures/subsidies in the Code and begin to cut back on them--starting with the capital gains rate preference, and moving through the exorbitant support for wealthy mortgages (limit it to an interest deduction on the first $250,000 of mortgage interest and phase that out for anyone with an income above $500,000) and including the R&D credit (rather than deduction), the "active financing exception" and the subsidy for moving active businesses offshore (and along with that, eliminating any idea that there is such a thing as a "profits" partner who isn't taxed on a "transfer" of a partnership interest at the time the interest is provided).
3) slowing spending growth for government health care spending- by reducing overpayments to health care providers (as the $716 billion cut misrepresented by the GOP does); by increasing those cost-cutting reforms to find other ways that we are inefficient; by "making the wealthy pay a larger share of their Medicare costs and gradually raising the Medicare eligibility age"
Here we see the problem that no one in government dares to say what must be said--that until we move to a single-payer system like the rest of the advanced world, we will see private parties continuing to rip off rent profits from providing health care. We must eventually expand to "medicare for all"--and we should do that soon. In the transition, it would be reasonable to have a means-adjusted payment scale, so that the Medicare tax is higher for those with more income (corresponding to the increased brackets for the income tax). And it might be reasonable to have a few major categories of jobs for determining base retirement age--workers in steel plants who work in 115 degree interiors when it is 90+ degrees outside likely should retire earlier than workers in academia who work at their desks in air-conditioned offices. But that won't be easy and will need to be developed by consensus over some reasonable time, rather than through partisan, anti-worker politics.
4) cut other spending--protecting children, displaced workers, and wounded veterans in the process,as well as money for education (including Pell grants) and infrastructure and scientific research--but cutting "agricultural price supports and subsidized crop insurance programs that mainly benefit large commercial farmers," the Pentagon's budget, and high-speed rail.
We certainly can cut a lot of waste and warmongering out of the Pentagon's budget, which is one reason that I'm all for letting the sequester approved by Republicans go through. We could save a great deal there that could be used for infrastructure and other spending that builds opportunities and jobs instead of supporting the military-industrial complex. I'd also support cutting most of the agricultural subsidies, which primarily support Agribusiness that produces tasteless food at a high environmental cost. But I disagree strongly on high-speed rail. If we don't as a nation invest in transportation infrastructure that moves us beyond the costly highways (costly in human lives, dollars to build and maintain, and environmental degradation), we will not advance our economy as we must.
The Congressional Research Service recently released a report by Jane Gravelle and Tom Hungerford on The Challenge of Individual Income Tax Reform: An Economic Analysis of Tax Base Broadening (Mar. 12, 2012). Tax Base Broadening is the proposal often put forward by those who say we can and should lower rates across the board (also reducing progressivity by limiting the number of rate brackets to two or three) and pay for it by removing some of the tax expenditures and subsidies in the tax system, such as the home mortgage loan interest deduction or certain health benefit provisions.
IHere's an excerpt from the summary of the report.
Congressional interest in a major reform of the individual income tax that would broaden the base and use the additional tax revenues to lower rates and/or reduce the deficit has increased. ... One way to broaden the tax base is to eliminate or reduce tax expenditures, which have been in the tax code since the passage of the progressive income tax in 1913. An understanding of four complex issues surrounding tax expenditures is necessary for an informed debate over broadening the tax base. First, tax expenditures affect the economic behavior of taxpayers (efficiency effects). Second, changing tax expenditures will change the distribution of tax benefits, and the distribution of after-tax income (equity effects). Third, changes to tax expenditures could change the administrative burdens on taxpayers and the Internal Revenue Service (IRS). Lastly, many tax expenditures are popular among taxpayers and voters. Each one of these issues presents challenges to broadening the tax base, which could be difficult to overcome.
There are over 200 separate tax expenditures, which are projected to total over $1.1 trillion in FY2014. The revenue loss of all tax expenditures, however, is highly concentrated in a relatively small number—the largest 20 tax expenditures account for 90% of the total revenue loss of all tax expenditures. This amount is equivalent to 74% of the total FY2014 revenue from individual income taxes....
[T]ax expenditures are divided into seven major categories: saving, business investment, consumption, owner-occupied housing (which is a combination of an investment choice and a consumption choice), labor supply, government programs (which in many cases would have no behavioral effects but are simply income transfers), and a category termed structural (which provides benefits based on family circumstances rather than affecting behavior).
The analysis in this report suggests there are impediments to base broadening by eliminating or reducing tax expenditures, because they are viewed as serving an important purpose, are important for distributional reasons, are technically difficult to change, or are broadly used by the public and quite popular. Given the barriers to eliminating or reducing most tax expenditures, it may prove difficult to gain more than $100 billion to $150 billion in additional tax revenues through base broadening. This amount could have a significant effect on reducing the FY2014 budget deficit—reducing the projected $345 billion deficit by 30% to 43%. This additional tax revenue, however, is equivalent to about 6% to 9% of projected FY2014 individual income tax revenue, and, consequently, would not allow for significant reductions in tax rates (about a one or two percentage point reduction for each bracket).
The conclusion of the report seems realistic given the current dysfunctionality of Congress--it would be highly unlikely that core reforms could be made to raise sufficient revenues to support a large rate reduction, though some elimination of problematic tax expenditures would be a good move towards reducing our structural budget deficits. Let's eliminate the long-term subsidies for the extractive industries that have given subsidized profits for oil and gas barons and get rid of other provisions that haven't served the purpose claimed for them, like the research & experimentation credit (any business can deduct real research expenses; the credit is just a way to cut corporate taxes for heavily lobbying industries like Big Pharma, IT and others). But let's acknowledge that the current right-wing fad idea to reduce tax rates even more and pretend to pay for it with uny base broadening isn't going to work.
I find base broadening proposals for tax policy reform amiss for three other important reasons.
First, we already collect less tax as a percent of GDP than historically; thus,we need to raise more tax revenue rather than maintain revenue neutrality with the current too-low tax system, especially by increasing the take from corporate taxes (the 'tax shelter problem') and by reducing the ability of service partners to game the system (the 'carried interest' problem).
Second, most ideas for base broadening and rate lowering end up resulting in more rate lowering than base broadening, because the lobbyists get to work immediately on reinstating the provisions that have been eliminated to broaden the base while simultaneously arguing that letting the rates go back up would be a growth-killing tax increase. Accordingly, base broadening won't work unless there is a firm will to maintain a broader base and take the political flack that the lobbyists will release. This Congress isn't anywhere near having that kind of will, and if it does, it is more likely to reduce important social programs (Medicare, health care, education, etc.) and leave the notoriously inefficient subsidies for oil and gas, Big Pharma and other lobby-hard favorites in place.
Third, much of the assumptions about tax efficiency are questionable--we actually understand the interactive effects of the tax system very poorly, and don't know when a tax change will affect a person's decisions to work, not work, spend, not spend, or otherwise respond to the tax change. So it is more likely that ideology will drive the decisions, rather than an unbiased approach founded on reasonable research to determine which provisions really work to do what they were claimed to be enacted to accomplish. And given the current lopsided representation of right-wingers in Congress (compared to the population at large), that means that right-wing rhetoric rather than considered policy determinations will likely drive any "base broadening" tax reform that does take place.
Fourth, many of those who argue for base broadening may be planning to use this as one more way to reduce or eliminate spending on important safety net provisions like Medicare, Social Security, unemployment compensation and others.
So my preferred reform involves a few simple ideas: 1) let the Bush tax cuts expire as they are slated to do; 2) reinstate the estate tax at the 2001 rates, except with a $2 million exemption that is indexed to inflation; and 3) eliminate the preferential rate for capital gains and all of the provisions in the Code that deal with capital gains rates; and then 4) wait a while till the system is back in better balance and do tax the right way--ask what we want our government to spend money on, figure out how much money that will take to do it, and then set the tax system so that it collects the right amount of money.
The austerity demands, in order for a sovereign nation to pay back its debt to mostly big banks that lent money recklessly in the leadup to the financial crisis, make no sense at all. If you impose austerity, you clamp down on the economy. If you clamp down on the economy, the poor and near-poor who are already struggling will struggle even more. Unemployment will increase. Desperation will set in and crime or revolution will follow. The 1% at the top do okay at least for a while--after all, they've been hogging all the good stuff for a decade at least, and many of them (if the scofflaw wealthy in this country are any guide) will have sequestered funds away in hidden offshore bank accounts to bide them through the rough times or even support them if they expatriate to avoid the mayhem. When austerity measures include privatization of public assets, that same top 1% is able to acquire very valuable assets for a song and then charge "rentier" rewards for the public to use their own assets.
That's the story that Auerbach tells for Greece, as he wonders why they don't just get the hell out of the Euro zone and go back to their own currency. They probably will default anyway. But they will have paid a high price for trying to avoid default--the huge cut in wages, increase in unemployment and suffering going on now, and the privatization of even more of their public goods. Greece plans to sell six national companies--energy companies and refineries are included. The banks must be shitting in their pants in excitement.
I almost can't stand watching or reading the news these days and have delayed posting on this blog because it seems there is a need to repeat the same suggestions over and over again. Don't cave to the right. Don't cut important social welfare programs that have enabled this country since the 1930s to treat its elderly and vulnerable populations with respect. Quit trying to strip unions of power--they are one of the important ways that ordinary people can emplower themselves to demand a share of the prooductivity profits their labor has produced. Quit repeating the garbage free market mantras suggesting that the wealthy investors and managers are entrepreneurs (they're not generally) and that allowing such gross accumulation of wealth as our current CEO pay of 3-400 times the salary of average workers (earning in a half day what a worker earns in a year) is somehow necessary to a good economy in a democratic political system. Allowing the owners and managers to continue to reward themselves with grossly oversized compensation and profits packages so that they can maintain their 20,000 square feet marble palaces with kitchens that only a caterer needs (and that the denizens of the house hardly ever use on their own) is just one of the excesses of the brute capitalism that the 'tea partiers' and other right-wing economic policy gurus are supporting.
This free market, brute capitalism where workers are expendable and the entire economy is forced to support the accumulation of wealth at the top is what we have in fact pushed on (and sometimes assisted in imposing on) developing nations in the past . Think Argentina--where the Chicago Boys oversaw the decimation of the economy and the imposition of austere conditions on the majority so that the economy could be 'remade' to suit the owners of capital (including foreign investors and multinationals). Think Brazil, where in the 1960s we helped their military coup against a leftish president in order to support the ability of US multinationals to continue exploiting Brazilian resources.
But now the right is so invigorated, through its ability to bamboozle the American people and elect a majority of economic extremists in the House who either don't understand history well enough to know that they are speaking gibberish, or don't care. They are determined to undermine the meagre social welfare system of Social Security, Medicare and Medicaid, with constant untruths about 'bankruptcy' and similarly misleading statement on almost every issue. Presidential candidates who make up facts are toasted by the purportedly 'leftleaning' mainstream media (this assertion itself a made-up fact used to continue to bamboozle the people).
The most outrageous spectacle of all is the pontificating dogmatic right in the House and Senate, threatening to cause a U.S. default on the debt ceiling issue in order to pursue their ideological dream of a 'pure' economy. Their economic model is a disgraced one --the free market, corporatist model that ensures that the small, wealthy investor class is doing well and that Big Business gets what it wants but doesn't give a damn for ordinary folks, whatever verbiage about caring for workers, and ordinary people with mortgage difficulty, etc. they spout.
Truth is, folks, you don't get an economy working well for ordinary people when you (i) make pledges NEVER to increase taxes, (ii) reject cuts in the grossly overlarge military expenditures this country makes in order to secure the world's resources for its multinational enterprises (that then lobby for close to zero taxation on their obscene profits from that secured wealth), or (iii) try to solve all perceived fiscal problems by taking it out of the hide of ordinary folk, thus stifling the real economy (the one where workers work in businesses that serve local people and that work generates profits that are shared with workers and owners in a way that leads to expansion of the local economy based on the broad-based workers' participation in it) and at the same time bringing the kind of class warfare that the Friedman school has long waged on Latin America and other Third World countries right here to America. The result of those kinds of policies is concentration of income, wealth, and influence at the top, with ordinary folks in the middle class struggling just to stay even.
The idea that you cannot tax natural resource extractive industries more (by taking away the tax expenditures subsidies that literally hand them outsize profits on a silver platter) when they are making windfall profits is absurd. The idea that you cannot reimpose a decent estate tax on the estates of the wealthiest 2% in the country, to assist with meeting the heartfelt needs of the struggling middle and lower classes, is pathetic. The suggestion that you cannot increase taxes on financial transactions and increase capital requirements in banks to stifle the too-rapid innovation and liquidity within the financial institutions that underlies the crisis we just went through (and the worse one we will suffer within the decade if we don't enact even stronger reforms than already in Dodd-Frank) reflects the dogmatic fixation on service to the wealthy investors and financiers that permeates the right-wing in Congress.
Folks. we can't let them do this. Congress is supposed to serve the people, and this 'tea party'/right-wing extremism that was reflected in Newt Gingrich's 'contract on America' and John Boehner's contract with the investor class is the worst of class warfare.
There was a time when the neo-imperialists and corporatists didn't dare do the same thing in America that they were pushing for, and secreting doing in Third world countries. Exploiting the environment without a care for the pollution that ordinary people suffer in their daily lives. (Think of the Banana Republic attitudes of United Fruit and the Latin American oil enterprises conducted by US multinationals.) Supporting militaristic regimes with a right wing flavor and a taste for torture and imprisonment of radical left thinkers. (Think Chile, Argentina, Nicaragua, Guatemala, etc.) Labeling governing concepts that pay a lot of attention to the needs of ordinary people as 'subversive' and 'socialist' in order to bring up myths of communistic monsters that hide under the bed and eat the economy. (Think Cuba and Brazil, especially, and Chile, and now Venezuela.) All these tactics exist to keep ordinary people in their place as workers who get a pittance of their productivity profits and are "flexible" (meaning can be fired upon short notice by private equity firms flipping companies for their own (preferentially taxed) profits) while the military can control the resources and make good deals (for US multinationals and the military leaders, not for the people of the exploited country). Read Chomsky's "Year 501" for a (somewhat rambling) account of the neo-liberal corporatist agenda in Latin America.
But now those same ultra corporatist, class-warfare policies are being implemented right here, in the open, with brazen disregard for our historical social contract, for the plight of the poorest and most vulnerable amonst us, all in the name of keeping the 'investor class" and Big Business (generally one and the same, since the investor class is mostly the owners and managers of Big Business) happy.
They paper it over with talk, as Joe Lieberman does in calling for cuts to Medicare, for 'bipartisanship" or they claim the US is living beyond its budget because it doesn't pay its bills. But of course they don't really care about that, since the budget put forward by the Republican House majority carved a multi-trillion dollar hole. IN other words, they don't pay attention to their own rhetoric. They just want to use the (absurd in itself) requirement in the US that we have a debt ceiling extension vote as an opportunity to blackmail the American people to get concessions on their favored targets--the programs that ameliorate, somewhat, the brute capitalism of the American economic system after forty years of reaganism, friedmania, and the rest of the Chicago School garbage that has been treated as "God's truth" so long by politicians that they don't even realize, perhaps, that they are letting a bunch of mathematicians who like to escape the real world into made-up formulas decide the policies for the nation.
Big Business has had its enablers in place for four decades--Grover Norquist, the Koch brothers and their 'tea party' followers, the various propaganda tanks like the American Enterprise Institute, the Cato Institute, the Heritage Foundation, and the rest that have spent millions to brainwash Americans into thinking that the failed 'free market' ideas of Milt Friedman and Alan Greenspan and Wall Street are the only way to go. It has a majority on the Supreme Court willing to be extraordinarily activist in overturning precedents on class action lawsuits (a way for ordinary people to empower themselves against Big Business) and free speech (a way for corporations and their owners/managers to control the political debate through the use of their overwhelming dollar power). And that right-wing majority is serving its masters well, while Big Business's minions in Congress continue to roll over to make sure that the right-wing panacea of deregulation, militarization, tax cuts, and privatization contines apace.
The US debt burden is high, but we are not Greece or Ireland or even Portugal. We have a strong economy. We have our own monetary system, unlike the Euro nations that are facing much higher debt burdens and can't individually control their monetary flows. Austerity measures like the IMF has imposed on Latin America to satisfy foreign investors (not the natives of those countries) and like the Euro world is now imposing on its own members are not needed here (and probably are the wrong answer there as well). Those measures are driven again by the failed corporatist economic model that assumes that the entire world should be run to satisfy the wishes of financial institutions, big money investors and the big multinational corporations that they own and manage.
The world should be run to satisfy the needs of ordinary people. Banks should be stripped of the power to create a world-wide crisis with their haystacks of derivatives that catch flame much too easily. Big Business should make do with lower profits, paying their workers more and their managers (and owners) less and paying their fair share of taxes. Hedge fund managers should pay tax on their "carried interest" compensation like ordinary people, and private equity firms should be subject to much more red tape that makes it much harder to buy companies and take them private in order to fire their workers. In fact, consolidation and mergers among big businesses should be made much more difficult through new limitations on the tax-free restructuring provisions. Unionization should be strengthened, in order to give ordinary Americans something with which to have leverage over the hierarchical authorities that undermine economic growth by concentrating everything on the investor class.
Let's start a letter and call-in campaign to every Republican legislator in the coutnry, telling them that we are sick and tired of being treated as lambs led to the slaughter in order to place endless platters on the tables of the rich. Tax policy should be based on what works, not on ideological dogma that has been the underlying cause of catastrophes and crises worldwide.
As most of my readers know, the underlying theme of this blog is democratic egalitarianism--the idea that institutions within our society should pay attention to inequalities and that policies to redress inequalities are supportive of true democracy. It is not that we will achieve perfect economic equality--that is not possible and likely not even a desirable end. But we do need to counter the tendency of human systems to concentrate desirable attributes in a tiny powerful elite. That is, human systems tend to redistribute desirable attributes upwards. Income, wages, wealth, health care, housing, natural resources, human capital opportunities--all these things that people need to live a decent life tend to be redistributed and allocated to those who already have more of them. Property begats property, and putting the owner class first begats a situation in which the owner class owns even more of whatever is valuable to own, and therefore commands, even more, the ability to keep the majority of the population in a state of quasi-servitude. In a democratic society with a primarily capitalist economy, one of government's primaryh purposes is to enable individual freedom for all by countering the brute power of the capital-owning elite and redistributing those resources downwards.
One way that a majority of Americans has favored for achieving this necessary justice result is progressive taxation policies--taxing the wealthy/higher income at a higher rate (or even on a broader base--to wit, the corporate tax). When there is progressive taxation, the gains that the elite have made merely because they are in the elite and hold the keys to power are marginally restrained. But more importantly, those revenues then can be used to fund government programs that expand public goods and create opportunities for the vast majority with significantly fewer resources, through programs like unemployment compensation, health care, public education from K-12 to university, public transportation, etc..
So we need to ask a few questions about our system today. Is it working or is the tendency for income, wealth and other favorable attributes to accumulate at the top overpowering the means of redress that exist? And does the population have a clear understanding of the democratic egalitarian principle, so that people will vote in the best interest of the continued functioning of a democratically premised society?
I fear the answer today in the US is no, to both questions. The US has long used its military might to support its wealthy elite and their multinational corporations. Today, that seems even more exaggeratedly so.
Think about the invasion of Grenada, Iraq, Afghanistan and the continuing erosion of human rights (read--the rights of ordinary Americans to go about their lives freely choosing how they will live and where they will go and what they will do) which has inevitably fed the military-industrial complex of arms manufacturers, private mercenary outfits, natural resource extraction, financialization of the economy and general globalization trends, all of which are part and parcel of the corporatist agenda for ensuring continuing power to Big Business and its owners and managers.
And the populace is ill-informed about the true mechanisms of individual freedom. They have been sold a bill of goods by the right-wing so-called "think tanks" supported, by and large, by wealthy owners of Big Business and the multinational corporations that benefit most by keeping the population ignorant. The fantasy concept of a "free market" has been pushed as the answer to all ills, even though there is no such thing as a free market. (And in fact the wealthy elite and Big Business have benefited from scores of policies designed to provide them distinct advantages, from CIA and military support against popular leftist regimes in Latin America that threatened multinationals grip on natural resources and labor there, to tax and spending policies in the US that favor large corporations over small, localized businesses.) The people have been told that if only the government will support the "competitiveness" of its multinational corporations, jobs and good fortune will eventually trickle down to them, even though of course the immediate observable result will be additional wealth to the owners and managers of the multinational corporations. The jobs and good fortune don't trickle down, however. With no commitment to place or people, multinationals and their owners and managers take the rentier profits and shove them into their own safes (often more investment in exploitative industries in third world countries and private equity ventures that exploit workers by dividing and conquering to eliminate unions).
Think about the current focus of the ultra-right House leadership and Senate minority and the ultra-right governors in many of our states today. They use divisiveness to turn private workers (long deprived of any real rights to associate in unions by law and practice, and therefore suffering through a decades-long diminution in both their wages/incomes and their general welfare from health care, pension rights, and job security) against their public counterparts who have generally maintained somewhat stronger unionization and and benefit rights, in order to justify even further curtailment of public employee unionization and benefit rights. They argue deficits (after supporting costly militarization and warmongering in Iraq and Afghanistan, privatization, deregulation and other legislation intended to push us into the greatest deficits ever) in order to stifle all government programs existing to aid the non-elite classes, such as Social Security, Medicare, Medicaid, and unemployment compensation. They suddenly find a problem with increasing the debt limit, after borrowing trillions to come to the aid of their bankster cohort, without imposing conditions that would require the banks to treat ordinary Americans fairly. They argue for the elimination of the little progress made from 2008-2010 in enacting a weak form of health care reform (weak because it favors the Big Insurance companies and their managers and owners' continued rent profits rather than including some form of single-payer, such as the "public option" in the national exchanges) and financial reform (weak because the Dodd-Frank legislation failed to create a fully independent consumer financial protection agency and failed to restrain sufficiently banksters' ability to gamble other people's money to make windfall profits out of a proprietarily managed system that operates to their favor and results in privatization of gains with socialization of losses). They stand at a line in the sand against all tax increases for the wealthy, on the claim that the wealthy are the people who create jobs (see Eric Cantor on the position that no debt limit increase is possible without a guarantee protecting the wealthy from tax increases), even though the wealthy are not entrepreneurs, have sufficient wealth to invest in their businesses even with high tax payments, and don't do it.
New jobs will be created when there is a broader middle class with extra money to spend on things that make life better, not when the wealthy have even more money to sock away somewhere because they can't possibly spend all they have.
So if we ask the question--what, then, is a fair tax policy, isn't the answer fairly straightforward? In any context, it is the policy that favors the most redistribution from the elite to everyman while raising sufficient revenues to provide adequate investment in public infrastructure that moves everybody forward and human capital development (like public education).
Rubin wanted to use the surplus to start repaying the debt, which was then just more than $3 trillion. The White House billed it as “saving Social Security first,” viewing the surplus as an opportunity to shore up the nation’s finances before huge numbers of the baby boom generation began claiming federal retirement benefits. “The problem was a whole other part of the political spectrum wanted to use the surplus for tax cuts,” Rubin said in an interview. “They said they wanted to give the people back their money. Of course, it was also the people’s debt.”
The Bush tax cut bills passed almost every year he was in office (and the additional losses in tax revenues triggered by recession) are "the biggest culprit, by far" behind the huge increase in the debt that the right is trying to use to convince Americans that we have no choice but to settle for decimating almost all of the New Deal programs. The 2001 and 2003 Bush tax cuts amounted to about $1.8 trillion (based on the sunsetting gimmick that had various provisions ending after 8 or 10 years to make the cost look lower than it was expected to be).
Many Americans seem to think that Obama is the source of the high deficit/high debt problem. But Montgomery shows that most of the big ticket spending increases go back to the Bush administration.
Big-ticket spending initiated by the Bush administration accounts for 12 percent of the shift. The Iraq and Afghanistan wars have added $1.3 trillion in new borrowing. A new prescription drug benefit for Medicare recipients contributed another $272 billion. The Troubled Assets Relief Program bank bailout, which infuriated voters and led to the defeat of several legislators in 2010, added just $16 billion — and TARP may eventually cost nothing as financial institutions repay the Treasury.
Obama’s 2009 economic stimulus, a favorite target of Republicans who blame Democrats for the mounting debt, has added $719 billion — 6 percent of the total shift, according to the new analysis of CBO data by the nonprofit Pew Fiscal Analysis Initiative. All told, Obama-era choices account for about $1.7 trillion in new debt, according to a separate Washington Post analysis of CBO data over the past decade. Bush-era policies, meanwhile, account for more than $7 trillion and are a major contributor to the trillion-dollar annual budget deficits that are dominating the political debate.
Montgomery reports that Republicans (who were the drivers of the huge Bush-era series of tax cuts) "reject raising taxes as part of the solution."
But Montgomery's story is, like most reporting these days, too shallow. She notes that Bush's campaign talk about "giving the tax money back to the people, because 'It's your money'" took place in the context of the surplus generated during the Clinton years. But now they plan to use the need to raise the debt ceiing as leverage to force the Democrats to accept cuts to entitlements while still giving major new tax cuts to the wealthy and big business.
The article suggests that, if only Bush and Congress had known about the two wars and the heightened security costs after 9/11 and the financial crisis, they would not have passed the gigantic tax cuts. Pete Domenici, for example, says "Nobody would have thought that all these things would have happend after you cut taxes. That you'd have two wars and not pay for them. That you'd have another recession. A huge extravaganza of expenditures."
Yet it was the same president Bush who pushed through the huge tax cuts year after year who chose to start two wars that had little to do with U.S. security and lots to do with the military industrial complex and Republican war-mongering ideology. And then chose to pay for those wars with borrowing rather than by rolling back the bills that had starved the government of tax revenues at just the wrong time. And Congress went along.
But even that distorts the perspective on the Bush tax cuts and the surplus. By the time the 2002, 2003, and 2004 tax cuts were passed, we already knew that there wasn't a surplus. Bush was running significant deficits, and the wars in Iraq and Afghanistan were mushrooming well beyong the rosy low-cost estimates that the Bush war machine had first projected. The war funding was being handled by supplemental bills to disguise its huge cost. So those tax cuts were passed in spite of the deficits and hugely increased borrowing to pay for the Bush-Cheney permanent ramp-up of the military complex, including the expensive hired mercenaries and hired Halliburton services that proved that privatization of the military resulted in increased costs. The way the tax cuts were handled, and the way the right-wing rhetoric disguised the reality of the need to borrow to pay for tax cuts while conducting a war of choice, demonstrates that the GOP is not the party of fiscal responsibility that it tries to claim it is.
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