ataxingmatter

GOP's payroll tax cut bill (with a lot of other stuff) up for vote on Tuesday

[edited 2 pm 12/13 to provide additional links to news coverage of some of the changes]

Congress has been playing politics as usual over the few policies that are on the table that have a real chance of assisting, to some degree, the plight of ordinary Americans and perhaps even the slow recovery that is still trying to gain steam--extension of the reduction in payroll taxes (from 6.2% to 4.2%) and extension of unemployment compensation.

The Republicans have refused to pay for these common sense tax reductions for ordinary Americans with a similarly common sense tax increase on the wealthiest Americans who have continued to capture all the productivity gains in the economyt.  Republicans in the House think that these kinds of provisions should be offset by more goodies for the "uberclass"--at least as evidenced by the H.R. 3630, the bill introduced by Dave Camp (R-MI) and to be voted on today at about 4:30 pm. 

• It would restructure unemployment compensation in ways that add hurdles and make it less likely that unemployed Americans will qualify--providing more state flexibility and experimentation (including paying employers to cover part of cost of wages exceeding the recipient's prior benefit level), permitting demeaning drug testing of all unemployment compensation recipients (section 2127), and requiring a high school diploma or participation in state "reemployment services" for which recipients may be charged up to $5 weekly out of their unemployment compensation.  It would severely curtail the total number of weeks for which federal unemployment assistance is available--moving to a 59-week limit from a 99-week limit.  Methinks I see Scrooge here.....
• It will interfere with the Environmental Protection Agency's ability to regulate, letting corporations continue to harm the environment at the expense of ordinary Americans.   See Subtitle B.  Section 1102(b) lists rules that are "stayed" by the legislation and provides that no new rules can have an effective date earlier than 5 years out and requires consideration of various factors in determining that date.  Further, it requires adoption of the laxer 2000 definitions for certain key terms and the imposition of the "least burdensome" among potential regulatory alternatives.  This is a key cave-in to corporate polluters. 
• It will expedite the KeystoneXL pipeline by requiring a permit to be issued within 60 days unless within that time the President determines that the pipeline will not serve the national interest (in which case within 15 days the President must provide various committees and members of Congress a report justifying that conclusion from various perspectives).  It indicates that the environmental impact statement from August will be treated as satisfactory for environmental and historical preservation purposes and shall not have to be supplemented if there are modifications to the plan  and no further federal environmental review shall be allowed.  This is a clearly ideologically driven provision, failing to give due regard to the potential longterm environmental impact on drinking water aquifers or historical preservation impact. 
• It would provide yet another tax reduction for US corporations that have paid less and less taxes over the last decade, with a renewal of the ill-advised 100% expensing provision in section 168(k)(5) (along with the alternative of accelerating AMT credits)
• it makes further changes to medicare such as applying a cap to hospital outpatient therapy services and reversing part of the Health Reform Act passed earlier, by permitting new doctor-owned hospitals and permitting existing ones to expand, even though it has been shown that such hospitals spend more on testing and procedures (and profit more from them).  See, e.g., Pear, G.O.P. Bill Would Benefit Doctor Owned Hospitals, New York Times at A24, Dec. 13, 2011.
• it would continue funding for the "healthy marriage and responsible fatherhood" initiative, see 42 U.S.C. section 603(a)(2)  (the cynic in me suspects that these funds primarily go to programs supported by religious institutions and that they proselytize more than they teach reasonable relationship skills)
• it includes an extensive section remaking flood insurance provisions, including, in section 3005, lifting the cap for premium increases for flood insurance from 10% to 20% (an apparent boon to insurers), and another section prohibiting the administration from "disregarding" any levee or floodwall, even if it is not accredited.  The goal, made clear in section 3009, is privatization of the national flood insurance program.
• It includes extensive broadband spectrum auction provisions in Title IV, Subtitle A, reallocating spectrum from federal to nonfederal use.  These provisions, among many detailed ones, e.g., permit private administrators of state public safety networks to use the public spectrum for private purposes as well as the public safety  purpose and prevent states from denying requests for modifications of existing wireless towers that do not substantially change the physical dimensions thereof.
• It increases the guarantee fees charged by Fannie Mae and Freddie Mac.
• It requires a social security number for the refundable child credit
• It provides in section 5895 a 100% tax on "excess unemployment benefits" that go to millionaires (unemployment compensation is reduced proportionately as the adjusted gross income increases from $750,000 to $1 million)--The Times today has an article on the bill and notes that the number of millionaires receiving unemployment compensation is very small, but that their participation is predicated on the fact that the unemployment compensation program is a type of insurance into which payments are made to cover payouts.  Means testing such insurance programs is in sync with the right-wing goal of means-testing as a prelude to privatizing and/or eliminating all federally administered social welfare insurance programs, such as medicare and Social Security (and, see above, national flood insurance).
• It increases pension contributions from longterm federal workers by .5% a year for 2012-2014 and for those "secure annuity employees" with less than five years of service, by more than 10% a year and using 5 year average pay rather than 3 year average pay, sets annuity amounts, and ends the annuity supplement for post-2012 retirees.
• it extends the general freeze on federal pay for another year
• It increases the premiums for Medicare Part B and Part D for those making $80,000 or more (for those making $200,000 or more, the applicable percentage is 90%)--this again appears to move these national social welfare insurance programs towards more means-testing that will facilitate privatization or eventual elimination. 
• It sets up a number of procedural hurdles in the Senate, which is already hogtied by the ease with which a minority of its members can filibuster and thus stop legislation that is supported by a solid majority of its members.  For examples,
  • it requires a 2/3 vote in the Senate to amend the dates for section 601(c) of the 2010 Tax Relief Act--that's the temporary employee payroll tax cut;
  • it provides that a point of order by any Senator against an emergency designation in a bill eliminates that designation and makes it impossible to bring the designation through a floor amendment unless there is a supermajority 3/5 vote in favor of doing so (limiting debate to 1 hour)--thus one right-wing Senator intent on obstructionism can make it very unlikely that an important provision can pass by preventing even reasonable debate about the importance of the provision!

The GOP, of course, touts its bill as creating jobs.   While the Keystone pipeline may create some short-term jobs (the New YorkTimes reports estimates from Transcanada itself  and the State Department of only about 6500 temporary construction jobs  and maybe 50 permanent new jobs--see Keystone Claptrap, Editorial, New York Times at A34, Dec. 13, 2011), the potential negative impact on aquifers could be life-threatening.  Most of the other provisions are Scrooge-like additions of hurdles and caps on social welfare provisions or attempts to roll back the social welfare insurance provisions into means-tested ones that will be even more susceptible to the derogatory and inflamatory class-action warfare that the right has increasingly unleashed on anything that doesn't give a break to the wealthy and corporate clients of the all-powerful Washington lobbies. 

On lobbies, just read the New York Times article about the wealth that online educators are getting from state and federal taxpayer dollars for delivering no or sub-standard education, and the amount of taxpayer money being spent on lobbying to ensure the continuous flow of that wealth.  See Saul, Profits and Problems at Online Charter Schools, New York Times, Dec. 12, 2011.  It's obvious that the corporatist agenda sees no problem with siphoning off taxpayer dollars for private benefit with little public good created, but complains mightily about any siphoning off of exorbitant corporate profits--that tend to go to wasteful excess managerial compensation or portfolio enhancement--for taxes intended for public benefit.

The inclusion of the Keystone and other right-wing-rhetoric-driven items in a bill to provide the payroll tax cut and a limited unemployment extension (with hurdles) demonstrates the absurd level of ideological partisanship engaged in by the House Republicans.  Senate Majority Leader Reid characterized the bill as loaded with "ideological candy" that the Senate would reject.  Sloan & Rubin, House to Vote on Payroll Bill as senate Eyes Tax Sweeteners, Bloomberg.com (Dec. 13, 2011).    Of course, most of the sweeteners that Reid proposes adding are components of the right-wing corporate-friendly agenda--like the R&D credit that rewards what companies do anyway; the active financing exception for big banks, insurers and other financial institutions that lets them defer taxation on their financing income earned overseas; and accelerated depreciation for restaurants and motorsports tracks that provide special tax subsidies to particular industries!

The right's nutty claims about job creation--Gingrich and the estate tax

The right is busy selling its program for enriching the rich to the working class.  As usual, the sales pitches are full of false and nutty claims pitched to fool hard workers who are uninformed about the facts.

Newt Gingrich, for example, pitched the claim that eliminating the estate tax that applies only to the biggest multimillion dollar estates--a large tax cut applicable only to the uberrich silver-spoon kids who do nothing to earn the largesse--will cause all kinds of wondrous economic changes.   See "To create Jobs, abolish the death tax now" (The Newt Gingrich Letter).

These claims are based on a  so-called "study" by the American Family Business Foundation (put in quotes, since this is a paid "study" by  a propaganda tank that asks family businesses of the kind that might have to pay the tax whether they would create more jobs if they didn't have to pay the tax, and gets the not at all unsurprising self-serving answer that "oh yes, we'd have more jobs with fewer taxes".)   So the study and Gingrich make pie-in-the-sky claims that

• the US government would actually take in more tax revenues by getting rid of the millionaires & billionaires' estate tax--even claiming a specific number of $362 billion more in taxes.  (It helps if the persons answering the self-serving survey give numbers that can be used to make these specific type of claims.)
• Gross Domestic Product would increase by 2.26% just by eliminating the tax
• New revenues from the "economic activity that would result from the elimination of the [estate] tax" would be twice as much as the revenue gained from the current estate tax;
• the economic growth from eliminating the estate tax would "create thousands of new jobs as families kept more small businesses running through mutliple generations and shifted their efforts from avoiding estate taxes to investing in America"

Balderdash

Eliminating the estate tax won't create new economic growth, new investment in jobs, save family businesses or divert monies now spent on tax evasion to worthwhile domestic investments.  Most of the claims in articles like Gingrich's or in "studies" like the self-serving American Family Business Foundation are unfounded, based on absurd assumptions or simply made up.

• Estate tax reduction or repeal doesn't lead to growth.  We have cut taxes on estates enormously in the last decade and growth has stagnated, with none of the benefits going to the vast middle and lower classes.  There's no empirical evidence supporting the self-serving claims that such a tax cut helps growth.  In fact, evidence on inequality in societies supports exactly the opposite conclusion--the more we allow spendthrift heirs to take over family fortunes tax free and accumulate even more wealth, the worse it is for economic growth and societal wellbeing.
• Estate tax reduction or repeal doesn't create jobs.  Money saved from taxes doesn't automatically get plowed back into businesses in a way that creates jobs.  It's more likely to get plowed into private equity funds (that strip companies of their employees and load them up with debt in order to resell them at great gain for the equity investors and great loss of jobs) or invested in emerging market economies to diversify portfolios.  Most use of excess funds by the wealthy, that is, benefits the wealthy at little or no good to society and in fact often with considerable harm to society in terms of job loss
• Estate tax repeal doesn't "save" family businesses, because they aren't at risk from the estate tax in the first place.  Very Very few (if any) family businesses are lost to the estate tax.  There is a provision in the Code allowing installment payments over 14 years to ensure that family farms can stay in business by paying the estate tax out of annual incomes.  The argument about loss of family businesses is invented to appeal to those who do not understand the very limited number of estates subject to the tax in the first place (fewer than 2%).
• Estate tax repeal doesn't prevent sales of family businesses upon death of the founder--and those sales are often a good thing!  Many times, family businesses are sold upon the death of the founder because nobody in the family wants to run it anymore--they want to take their cash and go live their own lives.   That's probably not a bad result for the economy--new management will tend to see opportunities that the old business had ignored.  All repeal of the estate tax would do would be to put more money in the hands of heirs who do nothing to deserve it.
• Estate tax repeal isn't needed to avoid "double taxation."  Gingrich tries to make the case, quoting Petter Ferrara as follows:

"The [estate] tax taxes yet again a lifetime of savings and investment that has already been taxed multiple times.  It is double taxation on top of double taxation, which often forces loved ones left behind to sell the family farm, ranch or business to pay the taxes just when they are suffering from their loss the most."

Not so.  Many estates have as their primary assets investment securities that represent considerable appreciation that has NEVER been taxed.  Elimination of the estate tax means that even this "last chance" for getting a single tax bite would be eliminated.  Many of the biggest estates represent passage of stock from one generation to another with almost no taxation along the way.  Whereas workers pay tax on every single dollar earned and have little ability to use their salaries as collateral for big investment plays, wealthy heirs of financial assets can use their assets as collateral for loans to "monetize" their wealth without taxation.  Most substantial family farms and ranches are now incorporated, with use of various schemes to zero out corporate income and pay no taxes (especially, e.g., depreciation of equipment and "salaries" for family members and corporate ownership of personal residences resulting in widespread ability to deduct personal expenses not possible to ordinary wage workers).  Double taxation is a fabricated myth for most of these estates.  As Leona Helmsley famously stated--only little people pay taxes.

And of course, as already noted, the sales are usually because they WANT to sell, since family farms have 14 years in which to use the income from the business to pay off any (usually small) estate tax due.  Remember that the effective estate tax rate is usually very very low, given the very large current exemption amount.  Only the estate above the multi-million dollar exemption amount is subject to tax, and the rate right now is inordinately low and there are numerous accepted and simple mechanisms, such as family limited partnerships and other devices, which result in much lower evaluations than fair market value under current warped rules.

 

Meanwhile, it is important to note the many beneficial effects of the estate tax:

• the estate tax provides revenues to help combat significant budget deficits.  Those deficits have been substantially created by two problems--wars being fought without the normal tax increases to fund them, and tax cuts even when those cuts created hundreds of billions of dollars in annual deficits.
• the estate tax is a slightly redistributive mechanism to counter the upwards redistribution that is the norm in our current economic system.  CEOs get golden parachutes for ruining companies, and bankers and managers take all the benefits of worker productivity gains.  Ordinary employees are denied the right to form a union by every employer trick imaginable and by the right's unwillingness to let card check become law.  Workers therefore end up scraping by on a combination of devalued wages and debt.

Keeping the estate tax, and making it more progressive so that the estates of the uberrich are appropriately taxed under "ability to pay" concepts regarding the marginal utility of the dollar, is the fair thing to do. And it would have a stimulative effect on the economy by providing revenues for governmental infrastructure and other projects.  Counter to Gingrich's claim, repealing the estate tax would be a further step backward  to the robber barons' gilded age.  Let's not take that step.

It's the Jobs, Stupid--support for the unemployed, not repatriation tax holidays for multinationals

Mark Thoma over at Economist's View has an interesting graph on the topic of "how long will it take the labor market to recover?" (Oct. 9, 2011).  Although September's news was not as bad as expected--110,000 jobs created and thus official unemployment rate of 9.1% holding steady--it is still a far cry from good news. 

I'm pleased to report that Detroit is doing better than expected.  While its unemployment rate is still above the national average, it has come down faster from its exceptionally high rate.  And the people that I know best that were hardest hit are now back at work.  One worked for a business that made auto parts, and had been laid off for three years.  He got his old job back three weeks ago and has been estatically working overtime until he is too tired to get up on a Sunday morning!  The other is a construction worker who has suddenly gotten more potential jobs than he can handle.  Great news.  They and their families can now breathe somewhat of a sigh of relief.  They can afford a few new things for the kids and can worry a little less about where the next mortgage payment is going to come from.  They are out there buying groceries and clothing and gas at a higher rate than before, and that puts more dollars in the cash registers of local businesses.  A win all the way around.

That's why the most important thing for Congress to focus on right now is jobs.  That means funding unemployment insurance to keep the long-term unemployed on their feet looking for jobs and still buying food and clothing for themselves and their kids.  It means thinking about PROVEN measures that stimulate jobs should be up there with fairness in thinking about tax policies.  So Congress should continue the most important tax breaks for the part of the working middle class that is struggling the most--payroll tax reductions.  It ought to mean paying attention to labor laws and redressing the current imbalance that allows employers to intimidate workers who want to unionize and make it close to impossible for the union organizers to meet with the workers.   Unionization rights need to be updated to account for the fact that we are no longer a close-knit bunch of workers in the same geographic space but often communicate more by email than by talking in person--so card voting should be allowed.  And guess what--it also ought to mean ensuring that the already struggling middle class does not have to worry about the potential loss of Social Security and Medicare benefits.  The government should reaffirm that these earned benefits are earned, and not going to be taken away. 

Of course, one of the best ways to do that for Medicare would be to move to a "medicare for all" system that would (i) allow the government to be much more effective in controlling price increases; (ii) ensure that everyone had decent health care, whether or not they had a job; and (iii) permit employers to let the government handle health care while the savings mean more employees can be hired.

But that does NOT mean passing more tax breaks for businesses as indirect (and not very cost-effective) stimulus for jobs.  Prime example--the ineffective, costly, and Big Company-favoring "repatriation tax holiday" for which multinationals like Google and Cisco have been so assiduously lobbying--the very companies that have most easily artificially shifted their income offshore by claiming to sell their intellectual property cheaply to offshore affiliates (and getting by with it because of ridiculous transfer pricig rules that make it possible).  We already know repatriation is a very ineffective way to create jobs.  It would be foolish to repeat a past mistake that simply led more companies to offshore more money in anticipation of successfully lobbying for yet another repatriation holiday.

It should even mean cleaning up some of the obvious fairness problems in the tax code that favor the rich and uberrich--e.g., the carried interest provision (a no-brainer, since there's really no logic in private equity fund managers getting capital gains treatment for their managerial work, the treatment of profits interests in partnerships has long been rife with self-interested Wall Streeters setting the scope of the rules, and when ordinary workers have troubling just making ends meet, it is obscene for professional asset managers to be preferentially treated as to their compensation income).

More on Repatriation--WIN America corporatist lobbying group's strike back on Heritage

In a recent posting, I commented further on the lack of arguments supporting the corporatist lobbying drive for another "repatriation tax holiday" for multinational corporations that have stashed more than a trillion abroad (often through gimmicky transfers of intangible property such as rights to patents developed in the United States).  See  Repatriation Holiday Lobbying--Money Speaks (Oct. 3, 2011).

The reasons are manifold.  Corporations today are not cash-strapped--they've got lots of cash in the US too.   And even if they need cash that is currently offshore, they can borrow against that cash at exceptionally low rates today. So they aren't investing in expansion that would create new jobs for lack of cash--they are not investing in expansion for lack of customers.  The middle class is collapsing, after four decades of reaganomics have steadily worked to erode unions and the empowerment they offer workers, leaving worker wages in decline while their bosses roll into the ranks of the superrich on their newfound ability to take an undue share of the companies' productivity gains.  Even when money is actually brought back (rather than already resting in US bank accounts), it is most likely to be used to pay even higher performance bonuses to top managers and to pay for dividends and share buybacks for shareholders.  And those shareholders are most likely merely to use it to make new secondary market share purchases--resulting merely in a net change in their portfolios--not direct funding of new enterprises.  Much of those secondary market investments are likely to be in emerging markets rather than in the United States. 

Most telling is that the very fact of one tax holiday means that corporations will inevitably plan for and conduct business assuming future tax holidays.  It is ikely that planning for this current lobbying effort began on the day Congress passed the 2004 Jobs Act!  What that means is that the tax holiday itself encourages even more of the very offshoring activity it claims to be amerliorating.  Corporations will use gimmicks to move and stash away even more money offshore to avoid even more current taxes, in the hopes that there will be a further tax holiday that will allow almost zero taxation on those repatriated profits.  That certainly happened after 2004--the companies that had been good citizens and had regularly repatriated cash found themselves losers compared to the bad citizens that had used offshoring to avoid taxation.  More of the good citizens then became bad citizens, and the amount of offshore cash has grown much faster since the 2004 repatriation holiday than before.

And our experience with repatriation tax holidays was a telling one.  Corporate lobbyists worked hard to get the misnamed 2004 "American Jobs Act" passed with a very low tax rate for repatriated funds.  Yet it resulted in very little job creation. 

(This is not surprising, since (i) corporate tax cuts don't create jobs; consumer demand does and (ii) Congress didn't put any real teeth in the job creation end of the legislation, such as demanding that any corporation repatriating cash and expecting the low rate establish that it had created substantial new jobs with the repatriated funds that were not on the planning board at the time repatriation was first introduced or when it was passed and that those jobs were permanent full-time domestic jobs.) 

In fact, a new study by the Institute of Policy Studies addresses what it calls the "dangerous myth" that "corporate tax cuts create jobs" and the "disastrous results" of the 2004 tax holiday.  It reminds us that a government report found that 12 of the top repatriators brought home $100 billion (a third of the total repatriated under the earlier provision) and yet laid off 67,000 workers in the two years after the windfall.  Further, the 2004 holiday allowed 843 companies to use $312 billion in repatriated funds while avoiding $92 billion in taxes.  The worse factoid of all is the one that shows that U.S. taxpayers  "provided a huge subsidy to corporations that destroyed jobs":  58 corporations that accounted for about 70% of the repatriated funds  cut almost 600,000 jobs.  Report at 6-7.  See America Loses: Corporations that Take 'Tax Holidays' Slash Jobs, Institute for Policy Studies (Oct. 3, 2011) (summary, with link to full report). 

The report is clear in its description of the way US corporations shift profits overseas and then lobby for even lower taxes.

Drug companies — and many other companies as well, especially in the technology sector — don’t just make profits overseas. They shift  profits overseas. The process has become lucratively routine. One example:  A U.S.-based corporation begins the process by having a foreign subsidiary register its patents in countries like Luxembourg that do not tax income from intellectual property. The subsidiary then charges its U.S counterpart a high price for use of the patents. These high royalty fees, coupled with the costs of research, marketing, and management, allow the U.S. operation to report to the IRS an artificially small profit — or even no profit at all. With no appreciable profit to report, the U.S. operation has no appreciable corporate income tax to pay. The company’s actual profits sit undisturbed with the overseas subsidiary.  Report at 11.

The report also scorns the lobbying efforts of WIN America, which has spent more than $50 million lobbying for the tax break, which would cost the fisc around $80 billion in lost revenues.  Report at 9-11.   WIN America--a coalition of 18 publicly traded corporations and 24 trade associations, including the U.S. Chamber of Commerce--has "hired 42 former congressional staffers who worked for the House Ways and Means Commitee or the Senate Finance Commmittee".  Report at 9.  It goes on to rep9ort on the way individual members of the coalition have lobbied for the tax break (e.g., Pfizer's sponsoring a favorable section on 60 Minutes) and cut jobs (e.g., Duke Energy's cutting 10,000 jobs, probably as a result of its 2006 merger with Cinergy in the U.S., contributing to the North Carolina Democratic Party and then, shortly after getting support for repatriation from the Democratic governor of North Carolina and its Democratic Senator Kay Hagan).

For other commentary, see also John Carney, Corporate Tax Holidays Might Not Create Jobs, CNBC (Oct 4, 2011) (commenting on the IPS report as well as the Heritage Foundation report discussed below).

The WIN America coalition was undoubtedly taken by surprise when the right-leaning Heritage Foundation came out with its own report, a "backgrounder" on taxes that condemns the repatriation tax holiday idea as not doing much to create jobs: J.D. Foster & Curtis Dubay, Would Another Repatriation Tax Holiday Create Jobs? (Oct. 4, 2011).    The Heritage Foundation report acknowledges that "if another repatriation tax holiday were enacted, one should expect a similar result as last time: specifically, a surge in repatriations and little appreciable increase in domestic investment or job creation."  And it cites the reasons one would expect--today's multinationals that have money to repatriate are not cash-strapped:  any investments that they need to make for business expansion purposes (that would create new jobs) they can do readily without needing a repatriation tax holiday to grease the skids.

By the way, the Heritage Foundation is resisting repatriation because it wants the big prize--an overall cut in the corporate tax rate and a shift from our current system of taxing worldwide income (after tax credits for taxes paid elsewhere) to a territorial system--and it doesn't think repatriation will be treated as a step in that direction.  Those Heritage-supported tax policies would result in even more offshoring and even less corporate tax contribution to the fisc, which is already terribly low at around 2-3% of GDP.

For additional commentary, see Heritage Foundation Reverses Position on Repatriation Tax Holiday, Huffington Post (Oct. 4, 2011) (

Not surprisingly, the WIN America coalition struck back today, with a press release attacking its ordinary ally for not supporting the repatriation tax holiday drive: Fact Check: Heritage's Flawed Study Ignores Their Previous Support for Repatriation (Oct. 4, 2011).  The coalition has three arguments: (1) Heritage said something different back in December 2010, (2) other studies say repatriation will create millions of jobs, (3) the 2004 Jobs Act really did work in spite of what these other studies claim because the firms themselves say they created jobs, and (4) lots of people support repatriation.  None of these arguments hold water.

The coalition first complains that a December 2010 Heritage study concluded that repatriation would "provide additional liquidity" that would increase shareholder wealth allowing them to make "new investments" and would permit the firms to finance current operations, reducing their need to borrow working capital.  Let's parse this out.  The  primary reason that doesn't make sense today (if it ever did, which is dubious) is, as the Heritage Foundation's current report points out, that US firms are not cash strapped.  They don't need more liquidity to be able to make investments or finance their current operations.  They probably don't even want to reduce loans that are at historically low interest rates any more than they are doing.  And shareholders' "new investments", as noted above, are just a move from one portfolio investment to another--they are not investments that encourage entrepreneurs or go to the working capital of companies but just a result of secondary market purchases.  Very little of that does much for the US economy or anything for creating new U.S. jobs.

WIN America counters that the August 2011 study done for the U.S. Chamber of Commerce by Douglas Holtz-Eakin, The Need for Pro-Growth Corporate Tax Reform, claims that a repatriation tax holiday will "speed the pace of economic recovery, increasing GDP by roughly $360 billion and creating approximately 2.9 million jobs" because repatriation tax holidays are "a private-sector approach to stimulus."  That's quite simply balderdash.  These same kinds of pie-in-the-sky claims were made about the disastrous 2004 repatriation tax holiday, and they were proven wrong then.  They are based on the same bad economics now, the economics that says that "the high U.S. [corporate tax] rate harms economic growth, the amount and quality of U.S. investment, and the wages of U.S. workers."  That claim is simply unsupported--the U.S. is a tax haven, a reasonable amount of taxes will never discourage a business from expanding its business when it thinks that expansion is going to be profitable and it has the money to do it.  It is in fact this same school of economic thought that has given us the Laffer curve, the "rational man" calculations, and the rest of the Hocus-Pocus economics enterprise that treats rigidly unrealistic assumptions as God's Truth to justify an ever-increasing share of corporate profits going to managers rather than workers. 

WIN America then argues that 23% of the 2004 repatriated funds went to job creation and should be considered a great benefit to the economy.  That number is derived from a survey of tax executives--essentially self reporting on the result of the company-favorable tax repatriation holiday, so it is not only a very low return on the high tax cost of the repatriation tax holiday, but also one that must be evaluated with some acknowledgement of the fungibility of money and the ability of firms to claim that job creation and investment that they would have done anyway was done "because of" the repatriated funds.

WIN America concludes with quotes from lots of people (probably written by WIN America or one of its army of lobbyists, don't ya think?).  These quotes just repeat the desired sound bites -- "bringing the money home" will "create jobs and re-invest in America" (GOP representative Gregory Meeks, Sept. 9, 2011); "let's bring those dollars back"... and "companies outght to put it into workforce training or they ought to put it into research and development" (GOP Ohio Gov. John Kasich, Sept. 14, 2011).  And so on.

 

Repatriation Holiday Lobbying--Money Speaks...

We've discussed repatriation before--the tax break being pushed by multinationals who want to bring some of their offshore profits home without paying taxes, as they did in the 2004 "one time only" repatriation break. 

The reason they have so much money offshore is that they use gimmicks--such as transfers of intellectual property rights to offshore subsidiaries in low-tax jurisidctions.  These are pseudo transfers (to affiliates) of property they would NEVER really sell out of their companies to independent third parties.  Having the affiliate "own" the right means that the profits associated with the innovation carried out in the US go to the offshore company and aren't subject to US tax until they're officially treated as being transferred back to the parent.  "Selling" the IP to the affiliate is done solely to defer/avoid US taxes on those profits.  Of course, the transfer pricing for the intellectual property is gimmicky too--since no company would sell its main moneymaker, the idea of a comparable market price is foolish to start with.  So most of those profits should have been treated as US profits all along--and subject to tax.

A repatriation holiday would just mean more money in the pockets of the uberrich--the managers and some of the owners.   It's just another corporatist tax giveaway that pushes upward redistribution that moves us even more resolutely towards oligarchy.  It won't create jobs--companies already have plenty of cash to invest in this country if they thought they had customers to make money from. 

But the companies probably have a pretty good chance of getting the break, even though it is a stupid waste that adds to the inequality problem and does nothing for creating jobs.  Why? 

First, because some of the wealthiest and most powerful companies want it. And these days, what powerful companies want, Congress tends to be willing to give.  Google, Apple, Cisco, Oracal, and many other companies that depend on their outsourced IP are hoping they can avoid even the little bit of tax that they've paid in the past. 

Second, because those companies have hired as lobbyists people who were very recently staffers to members of Congress who will be writing the law.  The most notorious of these is Max Baucus's former Chief of Staff, Jeffrey Forbes. See Rubin & Drucker, Google Joins Apple in Push for Tax Holiday, Bloomberg.com, Sept. 29, 2011.  The piece notes that Forbes is part of an army of more than 160 lobbyists, 60 of which are former congressional staffers, who are pushing for the repatriation holiday.  And those aren't really all the lobbyists--they are just the "registered" lobbyists--i.e., the proverbial 'tip of the iceberg'.  Then there's the WINAmerica coalition and the firm working with it.  This army of lobbyists is out to rape the country, and the same congresspeople who moan and lament about deficits are likely going to give the multinationals an $80 billion (over ten years) tax break just cause their buddies ask them nicely for it.

Even though we have proof that repatriation doesn't create jobs--the 2004 tax holiday resulted in thousands of jobs LOST as companies fired workers even while repatriation millions--Congress is still contemplating another one.  Why?  The article notes that one thing that is being touted as an advantage is 'flooding the US with cash.'   Doubtful.  Much of that cash may already be sitting in US banks even though not repatriated through the company.  And what is actually brought over and then paid out to managers (in even bigger outsized bonuses) and shareholders (in buybacks or dividends) is perhaps more likely to be invested in Asian markets than it is to stay in the US.  Or it will be just more fodder for the rich managers and shareholders to use to buy shares in the secondary markets from their rich peers, that top crowd that owns most of the financial assets.  Lot of good that will do the carpentars and drill press operators and other ordinary workers.

One of Boehner's aides says that former staffers don't make policy.  Balderdash.  Those staffers are hired to lobby because they have access and they know their former colleagues.  They have access that ordinary Americans don't have.  They are pushing for legislative action on behalf of corporate giants.  None of them likely gives a damn that the policies they are pushing for don't make economic sense at all for ordinary Americans.  Why should they care?  They are lobbyists in it for their own financial rewards from "selling" an idea to their former colleagues that will benefit their current bosses.

Martin Sullivan has it right, as quoted in the Bloomberg article:

The proposed holiday would reward the companies that have most aggressively parked profits in tax havens such as Bermuda, the Cayman Islands and Switzerland, said Martin A. Sullivan, a former Treasury Department economist and contributing editor for the non-partisan Tax Notes.

“A lot of what companies report as foreign profit is really U.S. profit that should be subject to U.S. tax,” Sullivan said. “Those earnings didn’t get overseas by accident. Many of these companies intentionally put them there to avoid paying U.S. taxes.”

Lofgren's Exodus from GOP Politics--a worthy farewell

Mike Lofren, long-time GOP operative, decided it was time to leave the cult.  His farewell, published on Truth Out, is well worth reading:  Goodbye to all that: reflections of a GOP operative who left the cult, Sept. 3, 2011.

First, he acknowledges that both political parties fall short of what they should be ("are rotten"), but that the GOP is so bad because the "Party is full of lunactics."

Both parties are rotten--how could they not be, given the complete infestation of the political system by corporate money on a scale that now requires a presidential candidate to raise upwards of a billion dollars to be competitive in the general election?  Both parties are captives to corporate loot.  The main reason the Democrats' health care bill will be a budget buster once it fully phases in is the Democrats' rank capitulation to corporate interests--no single-payer system, in order to mollify insurers; and no negotiation of drug prices, a craven surrender to Big Pharma.  But both parties are not rotten in quite the same way.....

[I]t may have come as a shock that the Republican Party is so full of lunatics.  ..[T]he crackpot outliersw of two decades ago have become the vital center today:  Steve King, Michele Bachman (now a leading presidential contender as well), Paul Broun, Patrick McHenry, Virginia Foxx, Louie Gohmert, Allen West.   The Congressional directory now reads like a casebook of lunancy. ...

I could see as early as last November that the Republican Party would use the debt limit vote...in order to concoct an entirely artificial fiscal crisis.   They, they would use that fiscal crisis to get what they wanted, by literally holding the US and global economies hostage....It should have been evident to clear-eyed observers that the Republican Party is becoming less and less like a traditional political party in a representative democracy and ... more like an apocalyptic cult, or one of the intensely ideological authoritarian parties of 20th century Europe.  ...

Second, he notes that this new ideological purity means that the democratic institutions cannot function properly, and the GOP is undermining democracy itself by its extremist approach to governance.

During periods of political consensus...the Senate was a 'high functioning' institution: filibusters were rare and the body was legislatively productive.... [Now] virtually every bill, every nominee for Senate confirmation and every routine procedural motion is ... subject to a Republican filibuster. ...As Hannah Arendt observed, a disciplined minority of totalitarians can use the instruments of democratic government to undermine democracy itself. ...[Quoting John P. Judis, the author notes] "If there is an earlier American precedent for today's Republican Party, it is the antebellum Southern Democrats of John Calhoun who threatened to nullify, or disregard, federal legislation they objected to and who later led the fight to secede from the union over slavery."  ....[A] Republican committee staff director told me candidly ...what the method was to all this obstruction...By sabotaging the reputation of an institution of government, the party that is programmatically against government would come out the relative winner.

Third, the reason this sabotage of government by a radical right GOP is working is the ignorance of most US voters.

There are "tens of millions of low-information voters"  whose "confusion over who did what allows them to form the conclusion that 'they are all crooks' and that 'government is no good'.... This ill-informed public cynicism ... further intensifies the long-term decline in public trust in government that has been taking place since the early 1960s--a distrust that has been stoked by Republican rhetoric at every turn. ...

Fourth, the corporatist media "are also complicit in this phenomenon" because they dare not tell the truth or distinguish facts from fiction or even point out when a side is completely in the wrong, for fear of not appearing 'evenhanded.'

Ever since the bifurcation of electronic media into a more or less respectable 'hard news' segment and a rabidly ideological talk radio and cable TV political propaganda arm, the 'respectable' media have been terrified of any criticism for perceived bias.  Hence, they hew to the practice of false evenhandedness.  ...[Discussing Chris Cillizza, the author notes that ] the pundit's ironic depreciation falls like the rain on the just and unjust alike, on those who preciptated the needless [debt ceiling] crisis and those who despaired of it.  He seems oblivious that one side--or a sizable faction of one side--has deliberately attempted to damage the reputation of Congress to achieve its political objectives....

Fifth, as more voters become disillusioned by the GOP's anti-government propaganda and the media's misleading depiction of the parties' actions, it allows the radical fringe to acquire even more power.

And if the uninvolved middle declines to vote, it increases the electoral clout of a minority that is constantly being whipped into a lather by three hours daily of Rush Limbaugh or Fox News.  ...

[T]he deindustrialization and financialization of America since about 1970 has spawned an increasingly downscale white middle class--without job security (or even without jobs), with pensions and health benefits evaporating, and with their principal asset deflating in the collapse of the housing bubble.  Their fears are not imaginary; their standard of living is shrinking.

Sixth, the Republican method is "schizophrenic", in that it claims to be based on reverence of the Constitution yet denigrates  key constitutional principles, including the very federal government that the Constitution was written to create after the failure of the loosely joined states under the Articles of Confederation.

[The party] embodies a "caustic" denigration of the "very federal government that is the material expression of the principles embodied in that document....  [M]ost Republican officeholders seem strangely uninterested in the effective repeal of Fourth Amendment protections by the Patriot Act, the weakening of habeas corpus and self-incrimination protections in the public hysteria following 9/11 or the unpalatable fact that the United States has the largest incarcerated population of any country on earth.  If anything, they would probably opt for more incarcerated persons, as imprisonment is a profit center for the prison privatization industry, which is itself a growth center for political contributions to these same politicians.  Instead, they prefer to rail against those government programs trhat actually help people.  And when a program is too popular to attack directly, like Medicare or Social Security, they prefer to undermine it by feigning an agonized concern about the deficit.  That concern ... is largely fictitious.

Seventh, the Democrats cede the ground and fail to combat the Republican madness, and the Republicans succeed with faux populism that hides their destructive agenda.

Democratic Leadership Council-style 'centrist' Democrats were among the biggest promoters of disastrous trade deals in the 1990s that outsourced jobs abroad: NAFTA, World Trade Organization, permanent most-favored-nation status for China.  ...While Democrats temporized, or even dismissed the fears of the white working class as racist or nativist, Republicans went to work.  To be sure, the business wing of the Republican Party consists of the most energetic outsources, wage cutters and hirers of sub-minimum wage immigrant labor to be found anywhere on the globe.  But the faux-populist wing of the party, knowing the mental compartmentalization that occurs in most low-information voters, played on the fears of that same white working class to focus their anger on scapegoats that do no damage to corproations' bottom lines: instead of raising the minimum wage, let's build a wall on the Southern border (then hire a defense contractor to incompetently manage it).  Instead of predatory bankers, it's evil Muslims.  Or evil gays.  Or evil abortionists.

How do they manage to do this?  Because Democrats ceded the field.  Above all, they do not understand language. ...You know that Social Security and Medicare are in jeopardy when even Democrats refer to them as entitlements.  'Entitlement' has a negative sound in colloquial English: somebody who is 'entitled' selfishly claims something he doesn't really deserve.  Why not call them 'earned benefits.' which is what they are because we all contribute payroll taxes to fund them.  ...

It was not always thus.  It would have been hard to find an uneducated farmer during the depression of the 1890s who did not have a very accrurate idea about exactly which economic interests were shafting him. ...  But that is not the case in the present economic crisis. After a riot of unbridled greed such as the world has not seen since the conquistadors' looting expeditions and after an unprecedented broad and rapid transfer of wealth upward by Wall Streeet and its corporate satellites, where is the popular anger directed, at least as depicted in the media?  At 'Washington spending'--which has increased primarily to provide unemployment compensation, food stamps and Medicaid to those economically damaged by the previous decade's corporate saturnalia.  Or the popular rage is harmlessly diverted against pseudo-issues: death panels, birtherism, gay marriage, abortion, and so on, none of which stands to dent the corporate bottom line in the slightest.

Eighth, the GOP has three basic tenents that the party carries out with ideological purity.

A. The GOP cares only about the corporate elite and the rich owners and managers thereof.  That class warfare and corporatism is the reason for their opposition to tax increases, their groundless claims that capital gains preferences are necessary to create jobs, their repetition of myths about small businesses as job creators or American tax rates as so onerous that it chases the jobs away.

"Their caterwauling about deficit and debt is so much eyewash to con the public. ...The GOP refused [Obama's proposed $4 trillion defict reduction package] becdause it could not abide so much as a one-tenth of one percent increase on the tax rates of the Walton family or the Koch brothers, much less a repeal of the carried interest rule that permits billionaire hedge fund managers to pay income tax at a lower effective rate than cops or nurses.  ...

Republicans have attempted to camouflage their amorous solicitude for billionaires with a fog of misleading rhetoric. John Boehner is fond of saying 'we won't raise anyone's taxes' as if the take-home pay of an Olive Garden waitress were inextricably bound up with whether Warren Buffett pays his capital gains as ordinary income or at a lower rate.  Another chestnut is that millionaires and billionaires are 'job creators'.  US corproations have just had their most profitable quarters in history; Apple, for one, is sitting on $76 billion in cash, more than the GDP of most countries.  So, where are the jobs?

Another smokescreen is the 'small business' meme, since standing up for Mom's and Pop's corner store is politically more attractive than to be seen shilling for a megacorporation.  Raising taxes on the wealthy will kill small business' ability to hire: that is the GOP dirge. ...But the number of small businesses that have a net annual income over a million dollars is de minimis. ...And ...small businesses account for only 7.2 percent of total U.S. employment. ...

Likewise, Republicans have assiduously spread the myth that Americans are conspicuously overtaxed.  But compared to other OECD countries, the effective rates of US taxation are among the lowest.  In particular, they point to the top corporate income rate of 35 percent as being confiscatory Bolshevism.  But again, the effective rate is much lower.  Did GE pay 355 percent on 2010 profits of $14 billion?  No, it paid zero.

When pressed, Republicans make up misleading statistics to 'prove' that America's fiscal burden is being borne by the rich and the rest of us are just freeloaders. ...All of these half-truths and outright lies have seeped into popular culture via the corporate-owned business press. ...And when misinformation isn't enough to sustain popular support for the GOP's agenda, concealment is needed. ...

B. The GOP "worship[s] at the altar of Mars" with a "sheer, libidinous enthusiasm for invading other people's countries."

About a month before Republicans began holding a gun to the head of the credit markets to get trillions of dollars of [spending] cuts, these same Republicans passed a defense appropriations bill that increased spending by $17 billion over the prior year's defense appropriation.  ...A cynic might conclude that this militaristic enthusiasm is no more complicated than the fact that Pentagon contractors spread a lot of bribery money around Capitol Hill.  That is true, but there is more to it than that.  It is no neceesarily even the fact that members of Congress feel they are protecting constituents' jobs.  ...Some areas ... are heavily dependent on Department of Defense (DOD) spending.  But there are many more areas of the country whose net balance is negative: the citizenry pays more in taxes to support the Pentagon than it receives back in local contracts.  And the economic justification for Pentagon spending is even more fallacious when one considers that the $700 billion annual DOD budget creates comparatively few jobs. ... [A] disproportionate share is siphoned off into high-cost research and development (from which the civilian economy benefits little); exorbitant management expenditures, overhead and out-and-out padding; and, of course, the money that flows back into the coffers of political campaigns.  A million jobs appropriated for highway construction would create two to three times as many jobs as a million dollars appropriated for Pentagon weapons procurement. ...

The results of the last decade of unbridled militarism and the Democrats' cowardly refusal to reverse it have been disastrous both strategically and fiscally.  It has made the United States less prosperous, less secure and less free. ...

C.  The GOP has merged politics and religious fundamentalism to replace Eisenhower Republicanism with a "system of economic royalism, militarism and fundamentalism"

[The GOP embracing of fundamentalism has had the] "consequent normalizing of formerly reactionary or quaint beliefs", including backward positions on evolution versus creationism, scriptural inerrancy, and the existence of angels and demons, resulting in a "prevailing anti-intellectualism and hostility to science." ...

The Constitution to the contrary notwithstanding, there is now a de facto religious test for the presidency. ... Politicized religion is also the sheet anchor of the culture wars.

[This] rise of politicized religious fundamentalism (which is a subset of the decline of rational problem solving in America) may have been the key ingredient of the takeover of the Republican Party. ...

In summary, the GOP is out to make sure that ordinary Americans suffer and that the elite have everything that they want.

Having gutted private-sector pensions and health benefits as a result of their embrace of outsourcing, union busting, and 'shareholder value', the GOP now thinks it is only fair that public-sector workers give up their pensions and benefits, too.  Hence the intensification of the GOP's decades-long campaign of scorn against government workers. ...They will move heaven and earth to force through tax cuts that will so starve the government of revenue that they will be 'forced' to make 'hard choices'--and that doesn't mean repealing those very same tax cuts, it means cutting the benefits for which you worked.

The attack on public workers and their pensions is particularly galling in light of the way the super-elite have accumulated wealth while paying very low taxes.  See, e.g., this article on Alter.Net regarding Paulson and the carried interest advantage he enjoyes.  Les Leopold, hedge fund gamblers earn the same in one hour as a middle class household makes in over 47 years, AlterNet, April 2011.  As some point, ordinary Americans must claim back their lives and livelihoods from the corporatist/elitist agenda.

More on Jon Huntsman's Tax Proposals

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

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

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

These arguements ignore much of the reality of the markets.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Jon Huntsman's Tax Reform Proposals

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

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

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

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

On taxes, Huntsman wants to

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

2)  Eliminate the AMT

3) Eliminate taxes on capital gains and dividends

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

5) shift from a worldwid system to a territorial one

6) enact a tax repatriation holiday

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

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

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

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

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

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

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

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

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

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

 

Robert Reich's After Shock--prescriptions for the cure

In an earlier post (here), I reviewed Robert Reich's book After Shock, on the causes (and potential remedies) for the problems in the US economy. 

With just a few words--"a perception that the economic game is rigged--that no matter how hard we try we cannot get ahead because those with great wealth and power will block our way",  Reich sums up the anger that so many Americans feel about the billions spent on a bailout for banks, perhaps necessary, but with the result that banks are back on easy street, using other people's money, while most of the rest of us are struggling with lost jobs, tanked mortgages or foreclosed homes, and diminished economic prospects.  Add to that the worries about furloughs and retirement insecurity that the recent flurry of anti-union legislation in states like Wisconsin and fervor to cut the two programs that provide the only real safety net providing freedom to retire for most Americans, Social Security and Medicare, and there is a general economic malaise today among everybody but the rich.

The game has  been "tilted in the direction of big business and the wealthy."  And that tilt has left ordinary Americans with few resources to maintain their standard of living.  Reich notes that the coping mechanisms that ordinary Americans developed have been used up:

• women moved into the paid workforce in droves, but families have reached the limit of benefit from additional work outside the home when they have to hire someone to take care of their children;
• men and women worked longer hours--350 more hours per year than the average European and more even than the Japanese--but we've reached the limit on that, too, with health and families suffering from the lack of leisure time; and
• we all drew down savings and borrowed more to make ends meet, often using the equity in our homes as our emergency piggy bank, but the housing market bubble has burst and credit is hardly available at all to ordinary Americans, even with banks enjoying easy credit because of the Fed's monetary policies.

The answer, Reich says, is a "new deal for the middle class" in which the lopsided income and political power scale is righted, giving back to ordinary Americans their control over their work lives and their family lives, their freedom to enjoy their leisure, their freedom to dream the American Dream again.  He proposes a number of specific remedies, as follows.

• a reverse income tax combined with even lower rates on the lower middle class--Milt Friedman's original idea that we already have in the weak form of the Earned Income Tax Credit, but this would be expanded upward to the middle class.  Workers who make $20,000 or less would get $15,000; earn $30,000, get $10,000; earn $40,000, get $5000 but none for those earning $50,000 or more.  Tax rates would be the same for capital gains and salaries, with a low rate of 10% for amounts between $50 and 90 thousand and increasing rates thereafter.
• revenues would be raised through a carbon tax on fossil fuels, collected at the point of extraction or point of entry, and it would increase gradually over time from $35 per metric ton to $115 per metric ton, to push energy companies and users to conserve
• higher marginal tax rates on the wealthy--55% for the top 1% (earning over $410,000); 50% for the top 2% (earning over $260,000); 40% for those in the top 5% (earning over $160,000)  and, as noted earlier, all income would be treated the same, with no preferential rate for capital gains
• a reemployment system, including wage insurance that would make up most of the difference between former pay and lower pay at a new job for two years or for a period of training for new employment
• universal school vouchers (redeemable at either "charter" schools of public schools)
• college loans linked to subsequent earnings
• medicare for all
• sizable increase in public goods (public transportion, parks, recreational facilities, museums and libraries) that would be free of charge to users
• elimination of money from politics in the aftermath of the Citizens United case, through a requirement that all contributions to campaigns (or issue campaigns?) be made through blind trusts.  people can claim to the politico that they contributed thousands to his campaign, but the claim won't be verifiable.  So many people who don't contribute will claim to contribute.  So the politico won't be able to provide the quid pro quo that underlays the corruption in politics today.

These ideas aren't perfect, but they are worth considering.  Somehow, the middle class needs to be re-empowered.  These funds would be well spent, and would richochet through the economy providing support for new jobs, and new entrepreneurs, especially in the area of clean energy.  Medicare for all is a program we should have adopted 40 years ago.  But just as Reagan dumped the solar panels from the White House, Big Business has made sure to dump the possible programs that would free us from  allegiance to the Big Power companies, the Big Pharmaceutical companies, and the Big Insurance and Health Care companies.  It's time for us to break free, and Reich's proposals sound like one way to do it.

Ultimately, we have to remove the capital gains preference and treat all sources of income the same; we must create a more progressive bracket structure so that the super-rich pay an appropriate tax; we need to make education more accessible to the poor and we must find a way to soften the blow for those who lose their jobs.   These programs aren't justs a basic fairness issue, but the necessary lubricant to a thriving economy that will pay us back time and again with jobs and sustainable lifestyles that provide more freedom for everyone.   

The Budget Crisis

[edited to add a link to the Washington Post article by Glenn Kessler and to correct Rand typos in references to Ryan--somehow the two must have blurred themselves in my mind]

As most of you undoubtedly know, the federal government is operating under spending authority that ends Friday.  Without some resolution, government will partially shut downm resulting in closed national parks, no processing of paper returns at the IRS, no paychecks for military personnel (who will nonetheless still report for work), delays in clinical trials at the NIH, and many other impediments to decent functioning of government.  See e.g., Nicolas Johnston, Government Shutdown Would Suspend IRS Audis, Close Parks, Bloomberg.com, Apr. 6, 2011. 

As the Johnston article notes, this kind of a shutdown is not just an easy exercise in downsizing government--it would have a sizable, negative economic impact as 800,000 government workers would essentially be furloughed (no income), loan guarantees from FHA would stop, construction projects under review by the EPA would stop, and many other vital governmental functions would be slowed or stopped pending approval of a budget.  That negative impact would have repercussions throughout the local, regional and national economy. Government workers would buy fewer commodities and stay home more, impacting local and national businesses from bus services to movie theaters, restaurants to new car manufacturers.  Delays in construction, of course, would add to the problems that this sector has had since the onset of the Great Recession, leaving construction companies and workers in the lurch yet again.  Not a pretty scenario when the economy has just begun to turn the corner.

Why are we facing a shutdown?  Because the House, controlled by right-wing Republicans, wants to excise all the government spending represented by programs that (i) benefit low-income, vulnerable Americans, such as Head Start, public education spending, basic research funding, , etc. OR (ii) require Big Business to take on at least some of the costs (externalities) associated with the business being able to reap huge profits, such as environmental protection, business regulation, consumer protection, financial consumer protection, etc.

How do we know this?  Look at the "The Path to Prosperity: Restoring America's Promise: Fiscal Year 2012 Budget Resolution" drawn up by Paul Ryan (Rep. Wisc.) who is chair of the House Committee on the Budget.  This document is the right-wing flim-flam artistry at its peak.  And it will not take us on a path to prosperity.  It is, instead, a recipe for oligarchy.  It will leave the lower income sectors of the American population in a trench of despair from stagnant or declining wages coupled with decimated or non-existent social safety nets.  This document augers well only for the Wall Street banksters, the big multinationals, and those who own them.  The wealthy and ultra rich will do fine, as their GOP stooges in Congress (and in the Tea Party) enact legislation to ensure that the rich continue to garner most of the productivity gains in the country, camoflaged with enough of the "values" issues that appeal to the lower-income religious fundamentalists to get them to continue to vote with the rich against their economic interests.

Let's consider the intro (page 4) and the summary of Ryan's budget  pages 5-.  One thing should jump out at you--this document just repeats ad nauseum the same old, historically invalidated, right-wing economic "free market" fundamentalism ==> a claim that tax cuts for Big Business and the wealthy, combined with spending cuts that favor Big Business (and the wealthy) but take away important public functions and safety nets for those who are not well off, will result in economic growth and jobs (that will trickle down to the lower-income rungs). 

Translation guide (hat tip to Lloyd Doggett):  whenever Paul Ryan says he wants to "save" or "reform"  or "advance" or "repair" a program that benefits ordinary Americans, please translate with "eviscerate" that program.  Whenever Paul Ryan says he wants to "reform" a major area of federal law (like environmental protection, federal income taxation, corporate taxation or health care), please translate as "make it work to the benefit of the wealthy or Big Business". 

• It says it is committed to "timeless principles"--"liberty, limited government, and equality".  Liberty is meaningless unless it includes opportunities to lead a decent life and to fulfill one's own potential.  This use of liberty is an excuse for creating oligarchy.
• It says that it wants to "free the nation from the crushing burden of debt".  But we don't have a crushing burden of debt.  And the debt we do have can be resolved by borrowing more long-term at these cheap rates, undoing the revenue-side silliness enacted during the Bush years by restoring most of the tax laws to the pre-2001 tax legislation provisions (but getting rid of the preferential rate for capital gains and enacting a more progressive estate tax, etc.), and pulling away from the obscene military expenditures that we have been embarked on in particular dating from Reagan's presidency when militarization became one of the fundamental pillars of all his decisionmaking.
• Claims to cut $5.8 trillion over 10 years; "curb[] corporate welfare" and "bring[] government spending to below 20% of the economy
  • note that there is nothing sacred about having spending be below 20% of the economy; historical patterns have ranged up and down but in fact we could spend much more than 20% of the economy if we think that is a high priority--this therefore represents a  decision that spending at less than 20% is an a priori "good" without any basis for reaching that decision, since of course one has to know what one is spending on to know whether it is good to do so or not
  • the Ryan plan does not curb corporate welfare--it extends it incredibly
• Claims to "reach primary balance in 2015"
  • this claim is absurd on its face.
    • it uses the Heritage Foundation's figures (based on so-called "dynamic" analysis) which means that it assumes its conclusion--ie., that cutting government spending and cutting taxes for the rich and for Big Business will create economic growth
    
    • the plan repeals the health care reform legislation passed by Congress; therefore, it eliminates the savings achieved by that bill, which means it will increase the deficit by more than a trillion over a decade.  The document  absurdly claims (with no basis), however, that eliminating health care reform will reduce the deficit
• claims to "keep taxes low so the economy can grow"
  • This is just the so-called Laffer "theory" out for yet another GOP ride--this is the false mantra (tax cuts promote growth) that has been repeated by the GOP for four decades to justify cutting taxes no matter what the economic situation and no matter what the result of prior tax cut legislation;
  • tax cuts are not panaceas for economic growth or job creation;
  • Bush tax cuts didn't work as sold to the public--things got worse for everybody but those at the top
  • There is no reason to think that these will either.  In fact, it is less likely that the Ryan proposal for tax cuts will have a good impact on the economy, since they continue to favor outsourcing of US business, decreasing revenues from corporate multinationals, decreasing revenues from the ultra wealthy, and by negatively impacting job growth and retirement benefits and health care, will more than likely cause the economy to shrink.
  • claims that the tax code resulting will be "simpler and less burdesome for households and small businesses" while "top rates for individuals and businesses [are set] at 25 percent [to] improve incentives for growth, savings, and investment":
    • 70% of households do not itemize their returns.  That's a very simple tax return.  So except for the earned income tax credit--which is a complexity worth having, since it gives a positive refund to those in the lowest income distributions--tax returns are already really simple for the vast majority of American taxpayers
    • a top rate of 25% is a huge tax cut--yet again--for the wealthiest Americans and for Big Business --that provides no benefit whatsoever to the overwhelming majority of Americans who have been "losers" in this economy at least since 2007 and a huge benefit to the very few at the top who have been the "winners".
    • The assumption that lowering taxes provides an incentive for growth, savings and investment is unproven and, to the extent it does, it is beneficial only to the wealthy who have enough so they can save and invest.  Investment incentives are not good if they result in American wealthy elites investing even more of their excess profits in other economies (which is the likely result of this proposal).  Investment incentives are only a good thing for the country if they result in more money supporting small entrepreneurial business undertakings--something with which cutting the top rate on wealthy Americans and Big Business has almost nothing to do.
• Claims to "create nearly 1 million new private -sector jobs next year" and 2.5 million in 10 years from now; to "spur economic growth", and to "unleash prosperity and economic security" with "higher wages" and more income per family
  • note that this disregards the fact that it will result in the loss of at least the same number of public sector jobs as the federal government downsizes and the states cut jobs (as they have already begun to do) because of the lack of federal redistribution funding revenues
  • besides which, this is just wishful thinking--there is NO SUBSTANCE WHATSOEVER IN THESE FIGURES FOR JOB CREATION, ECONOMIC SECURITY, or WAGE INCREASES.
    • every GOP taxcutter from Reagan forward has claimed that the particular tax cut proposed will create jobs.  But tax cuts don't create jobs--they just make the rich richer. 
    • Private entrepreneurialism in the US can create jobs--but not much here supports private entrepreneurialism in the US.  To do that, you need funding for public education (especially higher education, as in the GI Bill), funding for basic research, funding for extended unemployment periods so that the un-and under-employed can buy stuff and give business to small businesses in their community, a health care system that works (ideally, single-payer to remove the "rent" profit-taking of health insurance companies from the system; certainly not the return proposed by Rand to the problems that the health reform act begins to deal with), etc.
    • For the last few decades, what prosperity we have had has gone to the benefit of the upper class, not to the benefit of ordinary wageearners.  There is nothing in this proposal to reverse that--in fact, it continues the same failed policies that got us into this situation
    • the claim for economic security is a particularly laughable claim.  Remember that Paul Ryan and his radical right GOP cohort intend to eviscerate Social Security, Medicare and Medicaid, with the result that the baby boomer generation would find itself without retirement income or medical care.  That is no promise of "economic security".  It would be a joke if it weren't so deadly seriously devastating for ordinary Americans.

On health care, for example, Ryan wants to just give states block grants for Medicaid, resulting in cuts to even more vulnerable Americans.  Ryan claims to "save Medicare"  by getting rid of it--replacing a government-payer system with "the same kind of health care options now enujoyed by members of Congress".  While not directly dealing with specific "reforms" to Social Security, Ryan claims to "advance Social Security solutions" to force changes that  "ensure solvency".  But the Social Security system will likely be still solvent 75 years from now, and if we needed more funding, we could simply lift the cap on the wages that are subject to the payroll tax.  That would solve any problem that might exist years down the road by taxing the wealthy the same way we tax the poor.  That isn't on Paul Ryan's agenda.

The "entitlement" provisions--Medicaid, Medicare, Social Security--reveal the heart of the right-wing agenda.  The intent is to get rid of the New Deal while giving the savings to the wealthy and Big Business in terms of yet more in tax cuts and relief from regulatory oversight that protects ordinary Americans.

It's worth reminding everybody yet again that most of those same Republicans who are crying crocodile tears about the deficit these days voted for the $1.3 trillion Bush tax cut package in 2001, and for the 2003, 2004, 2005 etc tax cut packages that got us into most of the deficit situation, as well as for the AMT "patches" for the mostly upper-middle class group with income from 350,000 and up.  They weren't crying about the deficit then.  They intentionally structured the tax cuts as temporary through a "sunset provision" that would make them look like they cost less than they actually did cost--even though they intended, explicitly admitted at the time, to make all of the changes permanent.  They just didn't want to have to put it in writing that the tax cuts were going to cause such incredibly huge deficits, but they didn't mind actually causing them. The mantra then was that "deficits don't matter".  They also said that the huge Bush tax cuts, enacted in a series of bills over the entire Bush presidency, was going to "stimulate the economy" and "create jobs".  Remember that the 2004 tax bill that allowed multinationals to repatriate billions from overseas while paying almost no tax on it--a "repatriation tax holiday"--was labeled the "American jobs creation act"; instead; most of the companies that brought home big amounts of cash used it for share buybacks and actually laid off workers in the US instead of creating jobs. 

Remember that along with their "tax cuts create growth and jobs" mantra they also said that "deregulation will create growth and jobs".  Deregulation, of course, led us directly to the Great Recession--and we now have tens of millions of ordinary Americans out of work because of that, as well as tens of millions of ordinary Americans who have lost their homes because of that. 

The Reagan fundamentals--deregulation, militarization, privatization, and tax cuts--didn't work under Reagan and haven't worked since.  Yet here Paul Ryan is, like one of those salesman in the old West who went from town to town selling watered down whiskey as the "miracle cureall"--only Ryan is smiling sweetly, looking genuine, and trying to sell us the same old melarkey that tax cuts and deregulation will give us an astounding cure for the Great Recession by creating growth and jobs. 

Don't buy that "hair of the dog" argument, folks.  It's the same old song, sung no matter what the facts are.  Tax cuts for the wealthy, less help for the vulnerable, and the gradual demolition of the social safety net that we established in this country after the Great Depression based on our understanding that allowing all the benefits to go to a few wealthy leads to disaster.

Of course, when even the ever-GOP-friendlier Washington Post says watch out for the trickery and  in the Ryan budget document, you know there must be something there.  Glenn Kessler, Fact Checking the Ryan Budget, Washinton Post, Apr. 6, 2011 does just that, concluding that "the Ryan budget relies on dubious assertions, questionable assumptions, and fishy figures."

Lloyd Doggett's statement at the Budget Committee markup session says a good deal of what needs to be said in response to this GOP idiocy:   "This is not a 'Path to Prosperity'--it is a path to mediocrity, insecruity, and the wrong path for America".  Here is the prepared statement as released:

This is not a path to prosperity; it is a path to mediocrity; it is a path to insecurity; it’s the wrong path.  We welcome a spirited debate about our economic future.  Mr. Ryan fails to offer a balanced approach to achieve our shared objective of a balanced budget.  You might say that in short, we Democrats say that this budget is just not our cup of tea.

Yes, this is a “choice of two futures” for our country, but the choice that this budget presents is really one between their ideology and reality, it’s between a fact-based analysis and fiction-based mythology and ideology.  The only thing that is real about this budget are the harsh cuts that will bring real insecurity to the many while providing a largesse for the wealthiest Americans who have been taking a bigger and bigger share of our national wealth.  

In this budget, wherever you read the terms “modernize” or “reform,” just understand that these are Republican euphemisms for a four letter word that hurts—“less”—less retirement security, less educational security, less health security, less economic security. This budget does not share the sacrifice, but it certainly does spread the pain.

We get less of what matters not because they tackle our soaring national debt in a courageous way, but because of how they choose to tackle that debt consistent with their ideology. This proposal, I believe, makes very wrong choices for our future.

There is, for example, a much better alternative than eliminating $4 billion from early education or student financial assistance that will only deny students the means to get all of the education for which they are willing to work to achieve their full God-given potential.  Instead of cutting that $4 billion, I would cut the $4 billion that is being spent every year through the Tax Code to enable Wall Street financial enterprises to avoid taxes on profits from loans and financial activities overseas and which are, at the same time, encouraging the export of American jobs.   

Instead of eliminating $500 million in cancer research and other scientific research that saves lives and creates jobs in America, I would eliminate the $500 million a year spent through the Tax Code, in what's called the look-through provision, which enables multinationals to shift income earned abroad among through their foreign subsidiaries.  

Instead of eliminating $3 billion a year from our crumbling bridges and roads, I would eliminate the $3 billion loophole in the Tax Code that grants a corporate tax deduction on interest charges when you borrow money to build a factory overseas without having to pay taxes on the income you earned from that factory.  We need to stop exporting American jobs, exporting American manufacturing, exporting American tax revenues, and start developing a more competitive workforce and rebuilding America.  And we can choose to have the same effect on the deficit by choosing to close harmful loopholes instead of yielding to harmful Republican cuts.

 

You can watch Doggett at the Budget Committee April 6 markup session on YouTube here: