Not surprisingly for those of you who are members of the ABA Tax Section, there is a meeting of that group next week in Florida when a thousand tax lawyers (give or take a few) will be talking about everything from basis to wealth taxes; GILTI, BEAT, Dual BEIT, to EITC. Yours truly will be on a panel of the Tax Policy and Simplification Committee, meeting Friday morning, to discuss how the tax system should respond to the wealth gap. Joining me on the dais will be Roger Royse (moderator and panelist), Rich Prisinzano from the Penn Wharton Budget Model, and Dan Shaviro, Wayne Perry Professor of Taxation at NYU and a blogger at Start Making Sense. We'll talk about the income and wealth gap data, including the different perspectives of Saez & Zucman, serving as wealth tax advisers to Senator and Democratic presidential candidate hopeful Elizabeth Warren; Penn Wharton Budget Model, applying a more standard budget model to determine harms and benefits of the Warren Wealth Tax; and Cato INstitute. We'll also discuss Sen. Ron Wyden's proposal for a mark-to-market system of capital gains taxation (including a lookback charge of some kind for hard-to-value assets, Prof. (and former Cleary partner) Edward Kleinbard's Dual Business Enterprise Income Tax proposal, and other means of making the regular tax system more progressive such as rates, removing the capital gains preference, and reinvigorating the estate tax that has been the object of a GOP murder squad for the last 20-30 years at least.
Meanwhile, today in Florida there was a Tax Policy Lecture at the University of Florida on Taxing Wealth, with Alan Viard, resident scholar at the American Enterprise Institute, David Kamin, Professor at NYU School of Law, Janet Holtzblatt, Senior Fellow at the Tax Policy Center, and William Gale, Arjay and Frances Fearing Miller Chair in Federal Economic Policy7 at the Brookings Institution.
Last fall, the Tax Policy Center held a program on Taxing Wealth (webcast recording available at this link) with Mark Mazur, Ian Simmons, Janet Holtzblatt, Beth Kaufman, Greg Leiserson, Victoria Perry, and Alan Viard. Sony Kassam from Bloomberg Tax served as moderator. The link has a series of power point presentations from that meeting as well, for your edification.
Ian Simmons, for example, includes the letter from billionaires dated June 24, 2019, asking that "[t]he next dollar of new tax revenue should come from the most financially fortunate, not from middle-income and lower-income Americans." Such a tax "enjoys the support of a majority of Americans--Republicans, Independents, and Democrats." It's not a new idea, since all those millions of middle-income Americans who own their home "already pay a wealth tax each year in the form of property taxes on their primary form of wealth--their home." The billionaires are asking "to pay a small wealth tax on the primary source of our wealth as well"--such as Elizabeth Warren's proposal, which would tax "only 75,000 of the wealthiest families in the country" (those with assets over $50 million) and would generate an estimated $3 trillion over ten years to "fund smart investments in our future, like clean energy innovation to mitigate climate change, universal child care, student loan debt relief, infrastructure modernization, tax credits for low-income families, public health solutions, and other vital needs." All this is necessary because of the wealth gap: "[t]he top 1/10 of 1% of households now have almost as much wealth as all Americans in the bottom 90%." The signatories support a wealth tax because:
it's a powerful tool for solving our climate crisis
it's an economic winner for America through increased public investments
it will make Americans healthier, addressing the difference in longevity (15 years) between the richest and the poorest Americans
It's fair -- "[t]axing extraordinary wealth should be a greater priority than taxing hard work."
It strengthens American freedom and democracy, since high levels of economic inequality lead to political power and pluotocracy and higher levels of distrust in democratic institutions
It is patriotic -- 'The richest 1/10 of the richest 1% should be proud to pay a bit more of our fortune forward to America's future."
Janet Holtzblatt discussed whether wealth should be taxed, with a set of powerful powerpoint charts. As she notes, there are a number of reasons to think taxing the wealthy is a good idea because it (slide 4) :
curbs the accumulation of power that comes with the accumulation of wealth--and, I will add, this is power to get laws and regulations written in your favor, including tax laws, as well as power that allows pollution, rent-seeking, on-demand schedules for workers and other 'evils' that come with plutocracy
ensures that the wealth pay their fair share of taxes
finances new initiatives (child care, student debt relieve, climate change policies, housing initiatives)
provides better data for research on wealth inequality
Those not supportive (or, as JH puts it, "less optimistic") suggest that (slides 5, 7)
even with a wealth tax, the rich remain the richest and the most powerful
incremental changes to current tax system would be more easily implemented
wealth taxes would have a negative impact on savings, investment, entrepreneurship
wealth taxes won't raise as much revenue as claimed
OECD countries with wealth taxes haven't been all that successful (in 1990 12 had them, in 2018 only 3 still retained wealth taxes: Norway, Switzerland, and Spain)
There are lots of issues with wealth taxes: (slides 8-20)
on what assets
at what rate (tax burden will depend partly on rate of returns on investments
using what exemption threshold (liquidity constraints at lower thresholds; taxing middle income instead of wealthy)
using what means to prevent tax avoidance (dependents' wealth with parents? include assets in family-run foundations? restrictive limits for trusts? exit taxes?)
and tax evasion (enhance IRS enforcement, enhance penalties, enhance IRS access to third party data--but the wealthy have resources to battle IRS claims)
assuming what actual amounts of tax revenues could be raised ("street fights over revenue estimates...among top public finance economists") (Slide 15)
how much wealth is there? JH notes several 2016 estimates between 86.9 trillion and 101.2 trillion (slides 16-17) {Zucman says just under $115 trillion]
Fed Reserve Survey of Consumer Finance ( 3 year intervals; leaves out Forbes 400 and some pension wealth)
estate tax data (adjusted for mortality probabilities and population)
income tax data (capitalized using assumed rates of returns)
how is that wealth distributed between the top 0.1% and the rest? Bricker 2016 study estimates range from about 15% to 22% (Slide 18)
how much wealth is hidden by "tax net misreporting rates"? IRS 2016 misreporting: farms 71%; nonfarm proprietors 64%; CGs 27%; PS/SCorps/Estates/Trusts 16% (slide 19)
how much tax revenues? between 815 billion and 1.098 trillion between 2021-2030 (slide 22, Urban-Brookings TPC Microsimulation Model [ with lower thresholds and rates than those proposed by Warren]
who pays? 40,000 tax units in the top 1% minus the top 0.1%; 127,000 tax units in the top 0.1%,with those in the top 0.1% paying between 97% and 100% on the different options considered
Greg Leiserson discussed the idea of mark-to-market taxation (an idea that Ron Wyden has endorsed), in "Taxing wealth by taxing investment income: An introduction to mark-to-market taxation" (Sept 11, 2019). The key to MTM taxation is that a tax is assessed annually on investments, whether or not they are sold or otherwise disposed of ('through a transaction that results in "realization" for federal income tax purposes). The burden of such a tax falls predominantly on the wealthy, since those are the primary owners of bonds, stocks, real estate empires, and pass-through businesses that produce investment income, as well as the appreciation of those assets that is taxed currently as a capital gain on disposition. Leiserson provides a chart (below) showing the nominal investment income of US households and nonprofits including an offset for inflation.
As he notes, much of this income is taxed at preferential capital gains rates, and much of the income tax is deferred because capital gains and losses are generally taxed only when the asset is sold. Deferral amounts to a reduction in taxes paid under time-value-of-money principles. But yet another way in which owners of investment assets escape taxation is the estate tax: appreciation in property in the estate (such as unrealized capital gains from stock that has appreciated in value significantly over decades) is never taxed, since the heirs get a step up in basis to market value, so that if the asset were then immediately sold, there would be no gain remaining.
MTM taxation eliminates the deferral advantage. MTM taxation combined with elimination of the preferential rate for capital gains would eliminate the preferential treatment of capital gains that exists in current law. Leiserson notes the difficulties for a MTM system: which assets are covered, rate of tax applied, and whether there are special rules for volatility. Further, "[i]f a comprehensive system of mark-to-market taxation is enacted, then there would be no unrealized gains at death going forward, because gains will have been taxed on an annual basis, including in the year the person dies" so long as the system applies over some transition period to gains accrued prior to enactment. Otherwise, the system would have to tax gains at death (repealing step-up in basis rule) or at any other disposition, including gifts, to ensure fair and equal treatment. He suggests other measures--such as limiting the home sales capital gain exclusion or requiring mandatory distributions of pension account balances above a threshold, that would be reasonable in a MTM context.
One difficulty with MTM taxation is valuation of assets that are not regularly traded. Ron Wyden's proposal suggests a lookback charge--an additional tax payment for assets not subject to MTM taxation that is collected upon disposition to account for the deferral value while still relying on realization as a trigger for taxation. Wyden and Leiserson suggest different possible methods. One is to take the gain upon sale and allocate it ratably to each year between purchase and sale, compute the tax on each year's income at the rate applicable in that year, and then calculate interest on those unpaid taxes for the years til payment. Unrealized gains would be deemed realized on death or gift and taxed accordingly.
Three key ideas here:
To protect lower and middle income taxpayers from the tax, there could be a lifetime gain exemption threshold ($0.5 million, say) that has to be reached before the rules apply or an asset value threshold ($2 million; $10 million, etc.). Under the latter, taxpayers would fall into and out of the MTM regime as assets fluctuate. (The asset approach is suggested by Wyden.)
The revenue raised is significant though it depends on the particular model. Leiserson suggests MTM combined with elimination of the preferential rate on capital gains "could easily raise $1 trillion over the next decade--and potentially much more." He notes that just eliminating the preferential CG rate gives a much lower estimate--that's because of "the ease of tax avoidance under current law such as the ready opportunity to defer tax by not selling assets and potentially avoid tax entirely through step up in basis--all while simply borrowing against these same assets to finance any spending."
"The wealthiest 1 percent of families holds 31 percent of all wealth, and the wealthiest 10 percent holds 70 percent of all wealth." "The highest-income 1 percent of families receives 75 percent of the benefit of the preferential rates for capital gains and dividends under current law." The wealthiest 10% would bear the burden of MTM reforms.
Of course, while everybody is talking about taxes, some of that talk is the same old endless market fundamentalist myth (Reaganomics) about how tax cuts are what make the economy grow and will actually pay for themselves -- in spite of near 4 decades of evidence to the contrary, where highest growth rates have generally been in times of higher tax rates, with some consideration for stimulus impact of tax cuts after periods of recessions. See, e.g., NY Times editorial, There's No Such Thing as a Free Tax Cut (Jan 22, 2020). The op-ed notes that Treasury Secretary Steven Mnuchin "repeated the risible fantasy that the Trump administration's 2017 tax cuts will bolster economic growth sufficiently for the government to recoup the revenue it lost by lowering tax rates" [in the 2017 tax legislation] even though 2 years in, the "budget deficit has topped $1 trillion." This is because, as most of us who haven't drunk the Laffer-curve tax cut kool-aid know and the Times op-ed reiterates, "businesses responded to increased demand more than they did to the lower tax rates." Nonetheless, we should not be surprised that the Trump Administration is talking about two "big ideas" for taxes if the man gets reelected: 1) cutting Medicare and Social Security: see, e.g., Trump Opens Door to Cuts to Medicare and Other Entitlement Programs, NY Times (Jan 22, 2020) and 2) passing another tax cut bill: see Steven Mnuchin Confirms Trump's New Tax Plan is Imminent, USNews (Jan 23, 2020). Those two ideas go hand in hand.
Though Trump doesn't dare state what he is really doing to his base, who he has deceived with typical right-wing rhetoric into thinking that he is trying to rightsize the economy to serve them when he instead engages in class warfare to stuff his own pockets, he is hip to hip with Newt Gingrich's desire to "starve the government" to create a huge deficit (we are up to $1 trillion in our new "gilded age economy") that then provides cover for the wealthy to suck in even more of the country's wealth by downsizing Medicare and Social Security, programs essential for those who are not among the wealthy.
When right-wing Roy Moore said that the time when America was great was during slavery, he revealed something key to the current GOP members of Congress and state legislatures--their primary goal is to return to a time when owners of property held all the keys to the kingdom and workers were just serfs expected to do as told and whose lives didn't really matter much to the boss capitalists.
Historian Nancy MacLean suggests that this is the reason for the tax bill's largesse to corporatists and the wealthy, the reason the GOP wants to undo Medicaid, Medicare, Social Security and essentially all the progressive programs introduced in the twentieth century to form the basis for a thriving middle class and surging democratic union. See Cahuncey DeVega, Historian Nancy MacLean on the right's ultimate goal: rolling back the 20th century, Salon.com (Dec. 13, 2017).
Here are some key points from the article.
1) "[T]he Democratic Party is terrible at translating complex questions of public policy into simple narratives that evoke emotion and, in turn, action from the American people." Id.
Indeed, having an able, sympathetic messenger who can translate the issues that truly matter into terms that make sense to ordinary people is something the Democratic Party lacked in the last election. The tone deafness of Debbie Wasserman Schultz and, much of the time, Hillary Clinton, meant that ordinary people didn't understand that Trump is merely a blowhard capitalist who doesn't care if he cheats or lies or exploits other people so long as he gets notoriety and money, while the Democrats have been the party working for a decent sustainable economy, environmental protection and preservation, protection from pollution and diseases, and working wages for ordinary folk.
The GOP, on the other hand, has mastered the art of lying to the point that they can pat themselves on the back for fooling the majority of the people the majority of the time, while blaming anything that goes wrong on Democrats (even when it is--most of the time--entirely GOP policy that the 'wrong' occur). So a tax bill that enriches the oligarchs and ultimately raises taxes on the ordinary people is exactly what they have in mind, but they rush it through without any public hearings and discussion because they don't want people to realize it.
2) The GOP tax "reform" bill is intended to create a deficit that will justify "huge automatic cuts to Medicare, Social Security and Medicaid", to be followed by a "push for a constitutional convention, at which the No. 1 agenda item will be a balanced budget amendment" with the goal ultimately of privatizing Social Security.
MacLean calls this Ayn Rand-brand of hateful thinking followed by GOP House majority leader Paul Ryan "economic eugenics". Since the GOP right-wing libertarians believe that only people who are successful have any merit, they are comfortable "inflict[ing] harm on other people. At its most basic, this libertarian moral system says that it would be better for people to die than to get health care financed by government from taxes paid by others."
3)The GOP emphasis on voter fraud (and consequent efforts across the country to make it harder for people to register to vote or to actually vote) allows the oligarch-led anti-democratic movement to disregard the will of the people because they have "gamed the system to maintain power."
The majority of Americans opposed the tax bill that almost every single Republican representative and senator voted for (no Democrat voted in either house of Congress to support the GOP tax scam). But the GOP legislators think they can ignore what the voters want, because they have held discussions behind closed doors, and are "using the power of national government to prevent voters in more progressive lcoalities and states from being able to choose more progressive policies" by enacting a bill that penalizes voters living in high-tax, progressive states that actually already send more money to low-tax, economically suffering "red" states.
MacLean notes that George Mason University's Mercatus Center, funded by Charles Koch, has been leveraging universities for their political project of undoing progressiivism for decades. They think people will be "absorbed with Facebook and binge-watching Netflix" so will disregard the way that the GOP and their oligarchic allies are using the national government to return to the late 19th century when oligarchs with property had all the power. That's what is the "stealth nature of this tax bill." Returning to a world where "only the wealthy were doing well and everybody else was screwed", a world preferred by James Buchanana, who "devised the playbook that the Koch network is using."
This tax legislation is, indeed, class warfare. It represents a huge blow in favor of wealthy corporatists though creation of a gaping $1.5 trillion deficit hole that will be used by the GOP to decimate New Deal and Great Society programs on which most ordinary Americans depend --Medicaid to pay for nursing homes in the last years of life, Medicare to help afford needed medical care, Social Security to make up for the gap between the meager savings in retirement plans and the increasing costs of living after retirement. These wealthy people in Congress just don't give a damn for ordinary working Americans, whether black or white, rural or urban, "conservative" or "liberal". All they care about is making sure that people with property have even more property. It has nothing to do with creating or promoting a sustainable economy that will lift ordinary workers stagnated wages. It has everything to do with appeasing the top one percent.
In yesterday's post, Taxes, Government, and the Good Life, I noted the "long-term position of the GOP" in favor of downsizing government, which can be seen, at least in part, as a way to justify the GOP obsession with cutting taxes on the wealthy and on corporations (mostly owned by the wealthy). Worth exploring in that context is Eduardo Porter's article entitled "The Case for More Government and Higher Taxes," NY Times (Aug. 2, 2016).
Porter starts by noting the radical shift in the way Americans think about government. "Americans once appreciated the government that serves them. That’s long gone." He draws on research by the Pew Research Center showing that 4 of every 5 (or more) voters have said in the last 6 years that government makes them feel frustrated or angry.
That anger with government has become extraordinarily visible in this election season as one of the candidates for president has seemingly fed on the distrust and hate of a government whose leader's face is different from the majority white population. Most of us have seen this anger on the screen during the GOP convention, as Trump supporters--mostly white (only 18 out of almost 2500 delegates were black)--expressed their frustration with the societal changes that they see as leaving them behind and creating a world that they don't like. On the right, that is, the frustration with government seems to morph easily into vitriol, as Trump supporters openly condemned blacks and used violent expressions to talk about the first female presidential nominee of a major party, Hillary Clinton. (See, e.g., the video below "Unfiltered Voices from Donald Trump's Crowds"--warning: there is offensive speech here.)
Americans once understood that government allows people--through taxes, through voting, through volunteering--to create public institutions that could never exist if each one of us had to do it alone. Through government, we citizens as taxpayers can accomplish projects much larger than ourselves.
But the shift that Porter mentions has occurred over the last few decades, due, in large part, to the funded effort by various "think tanks" and high-powered, wealthy individuals in support of a larger goal of maintaining very low regulation on Big Oil, Big Pharm and other Big Business and ensuring very low taxation on rich individuals and the corporations they own and manage. The constant repetition of mantras that denigrate government persuade Americans that, as Reagan said while serving as the most powerful government leader in the world, "Government is the problem" or, as Rush Limbaugh said, it should be downsized until it can be drowned in a bathtub (paraphrasing). We constantly hear from the Fox News bloviators that the growth of government stifles the economy, that private enterprise is ALWAYS better than government at doing any job, that public employees should be fired--or at least not allowed to form unions that give them strength in negotiations, etc. Most of these statements appear without support--those on the right simply presume them to be true and are not very willing, in my experience, to delve into the actual facts to see if they support the presumption. And the push for deregulation and tax cuts for the benefit of the rich continues apace.
As we approach this November election, though, we should ask ourselves what evidence there is to support that mantra. Is it just a way to 'brainwash' voters into voting against interest? Is it just a way to ensure that the elite 1% continue to be able to get Congress to enact laws that favor them? Is it just a way to convince Americans that regulation is bad because the 1% doesn't want their ever increasing profits to be reduced one whit by fair wages sharing productivity with workers, or regulation that would protect the natural beauty of this great country while providing for a more sustainable economy?
Porter suggests a new book as a worthwhile reference on the topic: How Big Should Our Government Be?, by Jon Bakija, Lane Kenworthy, Peter Lindert, and Jeff Madrick. The authors, he notes, make clear the value of government and suggest that there are four important tasks for government facing us now.
“A national instinct that small government is always better than large government is grounded not in facts but rather in ideology and politics,” they write. The evidence throughout the history of modern capitalism “shows that more government can lead to greater security, enhanced opportunity and a fairer sharing of national wealth.”
"The scholars laid out four important tasks: improving the economy’s productivity, bolstering workers’ economic security, investing in education to close the opportunity deficit of low-income families, and ensuring that Middle America reaps a larger share of the spoils of growth."
The article includes a good graphic, available here, showing the importance of government to quality of life. Countries that have increased tax revenues as a percentage of GDP have achieved better GDP growth than the United States, which has enacted numerous tax cuts and kept government extraordinarily small (and also less innovative). As the blurb for the graphic says,
"Despite arguments that Big Government hinders economic activity, many countries where government has grown the most have also experienced stronger economic growth. Governments have grown across most industrialized nations — raising more taxes over time to offer more public services. In the United States, by contrast, the government remains virtually as small as it was 50 years ago."
Readers will want to look at the graphs accompanying the Porter article, available here, showing GDP growth versus tax revenue as a share of GDP from 1960 to 2013, and the change in tax revenue as a share of GDP from 1965 to 2014 for most OECD countries. (I was unable to reproduce them here, though the black point in the left graph below is the United States, and the thick black line in the right graph below is the United States.) These figures clearly show that the economic growth that the right claims to want to produce is in fact highly correlated with more government spending and higher taxes as a percent of GDP. Of course we want the taxes to be reasonable and the spending to be the right kind--public infrastructure and human capital, basic research that supports biomedical, technical and other innovations, etc. But blanket statements that smaller government is always better, that private enterprise always does things better than government, or that ordinary Americans are better served by "getting rid of" regulations developed to protect people and our environment--those kinds of ideological dogmas are simply ungrounded in fact.
Congressional Republicans have just released their "new" corporate tax proposal. As usual for the GOP, the proposal again calls for steep cuts in the corporate tax rate. Lloyd Doggett, the Texas Democrat and member of the House Ways and Means Committee who has fought for fairer corporate tax laws and elimination of the tax dodges used by so many of the hugely profitable multinational corporations, released a quick statement bout the Republican corporate tax cut proposal this morning. Here's what he had to say.
Corporate tax giveaway proposals from Republicans have become as common as their avoidance of gun safety. The only way this plan adds up is by borrowing endless amounts of money from abroad. To be revenue neutral, lowering the corporate tax rate to even 28% would require elimination of every corporate tax credit and deduction [citing the Joint Committee on Taxation, Oct. 27, 2011]. Like the Republican refusal to discourage tax dodging by corporations that renounce their citizenship and adopt a foreign address, this proposal slants the marketplace against those who make it in America in favor of those who take from America, moving profits and jobs overseas."
Doggett hits the nail on the head here. Republicans have endlessly talked about "personal responsibility" and "makers and takers" as though only the rich are responsible and everybody who is below the middle in income is just making it harder for the wealthy . Fact is, it is those hard-working, underpaid, ordinary Americans who keep this country running, and the ultra-wealthy CEOs and managers who are paid many more times what value they add to the businesses they head continue to utilize profit shifting and base erosion schemes to avoid paying a fair share of business profits in taxes.
As most everybody is aware by now, the IRS has been under considerable strain for a number of years from budget and staff reductions that have left it underfunded, understaffed, and under pressure. This is part of the right's effort to "shrink the government to a bathtub and drown it." If the main organization for helping Americans understand their tax obligations is understaffed, it is likely that many people will become irritated with the agency and blame it (and taxes) for all their problems. If the main organization for enforcing the U.S. tax laws fairly has too few people to audit the most likely scoflaws and too little money to prepare guidance and rulings to make it harder for scofflaws to scoff at the law, then many people will become irritated with the agency and blame it (and taxes) for their problems while many other people (especially the privileged rich) will continue to scoff at the law by overstating their basis when they sell capital assets, hiding assets in tax havens, and just hiring lots of expensive tax attorneys and accountants to come up with schemes for wiggling through the loopholes in the Code to avoid more taxes.
And of course, if the main organization for ensuring that tax-exempt organizations are not abusing their tax exempt status by using "dark money" to allow the domestic elite and foreign powers to influence and control federal elections and legislation, then odds are the rich and elite and foreign powers will wield more and more influence and control over who gets elected and what kind of legislation they pass. Odds are we will see even more of the kinds of absurd legislation disenfranchising the poor and minorities by making it harder to vote, harder to get a State-issued I.D. card, harder to wait in line for hours at the polls (if you will be fired for not reporting to work), etc.
None of this is any surprise.
None of it is good government.
All of it is supported by the current radicalized uber-right-wing Republican Party hacks that are running many state governments and hold the majority right now in the U.S. Senate and House of Representatives.
As the New York Times editorial board noted, "[c]laiming a 'social welfare' tax exemption has become a tool for powerful political operatives like Karl Rove, the Republican campaign guru. His Crossroads GPS group, which has 501(c) status, has spent $330 million on ads and candidates since it was created in 2010." See Editorial, Dark Money and an I.R.S. Blindfold, New York Times (Apr. 28, 2016). And of course, with all the ranting about it being a problem to pick a group with "Tea Party" or "Progressive" in their name for closer scrutiny (when any common sense analysis will tell you that such a group is quite likely to be engaged in forbidden lobbying activities), "the IRS has groiwn ever more gun-shy about enforcement."
So the latest bill wreaking havoc on democracy, put forward by Republican Peter Roskam in the House of Representatives, would eliminate the current law that requires those who donate more than $5000 to a nonprofit to be disclosed to the IRS (though redacted for public versions of organizations' tax forms).. See, e.g., Richard Rubin, House Republicans Seek to Block IRS Collection of Non-profit Donor Data, Morningstar, Apr. 28, 2016. That means a foreign corporation or a foreign sovereign power could contribute enormous sums to shape the legislative and regulatory regimes in our country, and there would be NO WAY TO POLICE THE PROBLEM.
Further, it is hard to understand why any donor to a tax-exempt organization should be entitled to anonymity. The organization is able to avoid paying any taxes on the funds received, and--especially under the current malevolent eye from Congress towards the IRS--the IRS is hamstrung in enforcing the law against political campaigning with 501(c)(3) funds. What we should do instead of allow complete anonymity and the power plays that encourages is the opposite: the name of every donor who gives anything more than some de minimis threshold amount to any tax-exempt organization should be publicly available, and the amount given should be publicly available. After all, if money is "speech", "speech" is supposed to be heard. Remember the old saying about the tree that fell in the forest and whether there would even be any sound if there were no eardrum available to hear it. That's certainly the case with speech. If giving money is a form of speech, than the gift and giver shouldn't be hidden under a bushel but should be broadcast far and wide for anyone who wants to know.
Note that the bill would also mean that the 'dark' groups under 501(c)(4) wouldn't even have to provide information about the number of large versus small donors that it has.
By the way, if you have any doubts that Peter Roskam has no interest in the best interests of ordinary Americans, remember that back in November he was one of the gang of four that proposed pre-empting the rule expected from the Labor Department to impose a "best interest" standard on retirement advisers. They were so worried (weepy face) that some professionals who handle money for retirees might refuse to do it any more if they weren't allowed to continue paying more attention to lining their own pockets rather than providing sound advice to their clients. See Teresa Tritch, A New Threat to Your Retirement, New York Times (Nov. 19, 2015) (with a swarmy picture of Peter Roskam).
Somehow it seems that the more absurd the congressional Republicans get, the greater their hubris and gall in proposing ideas that would hit government programs hard and create havoc for critically important government activities.
The latest is the right-wing "Republican Study Committee", a caucus of 172 of the far-right members of the GOP, and their "Fixing the Tax Code" release. They argue, for example, for Goodlatte's bill to "terminate the tax code" in 2019 in order to "force" Congress to implement a new tax system by a firm deadline. (Goodlatte, by the way, is a typical obstructionist right-winger Republican from Virginia who has evidenced numerous rather absurd positions in the past. He should not be listened to by anyone.) Their recommendations--more redistribution to the wealthy by lowering rates overall to 25% and cutting the tax on the types of income that the wealthiest Americans receive most of (capital gains and dividends) to a flat 15% rate.
This is, to put it bluntly, insane.
You don't set the way the tax code works by some a priori decision to lower rates so the wealthy pay less tax.
You determine how the tax code works, and how much revenue it should raise, by what kinds of obligations already exist that have to be paid and by considering carefully government programs and appropriate and fair ways to raise tax revenues to fund them.
You can't "terminate the tax code" on a fixed date and expect anything other than anarchic chaos to result. It is enormously hard to write a full tax code that adequately addresses all of the human activities (and entity transactions) that have to be taken into consideration. To come up with the 1986 recodification of the tax code took a year and a half of concentrated work by a team of congressional taxwriters trying to reach a bipartisan result--something that hasn't existed for at least the eight years of the Obama administration. And that group wasn't trying to completely redo the entire code. It didn't "terminate" the existing code, but rather worked within that system to make determinations about provisions that were unworkable, outdated, or just plain bad.
For example, it eliminated the capital gains preference, because it is clear that the characterization of income as capital or ordinary is one of the major complications of the code that allow for gamesmanship by rich people and support redistribution to the wealthy by privileging the type of income they mostly receive. Congress, of course, responded to intense lobbying by the wealthy and reinstated the privileged tax rate within 2 years (retroactively).
This is further evidence that the Republican majority in Congress is incapable of dealing with actual facts about how tax systems work, what revenues are needed, and what the needs in the U.S. are for revenues.
It also reveals the abject hypocrisy of the rightwingers in Congress. They won't uphold their duty to "advise and consent" on a presidential nominee for the highest court in the land, because they want to be able to obstruct the appointment of anybody that isn't as right-wing as they are. They claim it is because the people should have their voice heard by electing the next president (though that's just a sham argument--they want to obstruct things they don't like, whatever the Constitution should actually allow).
But they don't see any problem with a radical treatment of the tax code along the lines they want, even though they may not be in the majority of the Congress after this election. Hypocrits. Liars. Self-serving corrupt ideologues. That's what this right-wing caucus is all about.
The IRS is a government agency that endures all kinds of hostile attacks. Most people don't really like to pay taxes. Even I don't really "like" paying taxes, though I do recognize the importance of paying taxes and supporting the societal infrastructure that pays for the Centers for Disease Control, basic research, the space telescope, programs for those in or near poverty, Pell Grants for students to attend college and many other important and necessary federal programs (not to mention the tax-guzzling military budget that probably could be cut in half, if only we had the gumption to do it). So the right-wing effort to "drown the government in a bathtub" and make the world safer for the corporatist elites to sock away their wealth without paying a dime to support the society that made that wealth possible tends to demonize the IRS at every possible opportunity under a Democratic president.
ASIDE: This is on a par with the way other things are treated. Reagan cut taxes in 1981 and then increased them every year thereafter, mostly increasing the burden on those in the lower end of the income distribution, so Reagan is remembered as the great tax cutter. Reagan's administration had the Beirut bombing that killed 241 U.S. soldiers in their barracks, but Obama's administration bears the millions of dollars spent in eight (and counting) investigations of the four deaths in the Benghazi attacks. There is a tendency for people to remember events and fiscal policy to suit their preconceived view of things.
So the New York Times on Friday reported on the havoc that the right's attacks on the IRS's budget and its employees' morale has wrought. Congress writes the tax laws, but the right tends to talk about the executive agency as though it 'owns' the tax laws instead. I.R.S. Fights Back Against House Republicans' Attacks, New York Times, Apr. 22, 2016. As the article notes, "the agency even got the blame for the hated tax code, which Congress writes and Republicans have promised for five years to rewrite and simplify." (And remember, simplification is the wrong aim--it is part of the propaganda that wants ordinary Americans to support a tax code rewrite that tilts the code even further towards the wealthy. See the last two posts on A Taxing Matter.)
As certain as death and taxes, tax season political attacks on the I.R.S. go back decades. But in recent years, the intensity has grown and the agency’s funding in turn shrank more than any other time in memory. The campaign gained strength in 2013, when Republicans seized on management failures to allege that I.R.S. employees had singled out conservative groups for greater scrutiny and delays in reviewing their applications for tax-exempt status as “social welfare” organizations, though liberal-leaning groups were examined as well, investigations showed.
Clearly, the IRS is a centrally important agency that cannot be eliminated. We need to collect taxes, and we need an agency with the expertise to advise Congress about tax law and policy as well as to interpret the laws in a way that makes it possible to implement them. (Congress has a tendency to leave anything really difficult to the IRS to figure out, by authorizing or ordering the Secretary of the Treasury to promulgate regulations carrying out the intent of specific provisions.) We need to have sufficient IRS staffing to enforce the law through tough audits, especially of the wealthy and corporate enterprises. We need to have sufficient funding to maintain updated technology--one of the problems with the cuts in funding to the IRS is that the computer systems are more easily hacked than they should be. That fault lies with Congress, which expects managerial miracles from an agency with constant battering from the right-wing to try to demoralize its employees and constant resource cuts that make budget planning and regular maintenance of systems practically impossible. When Congress adds additional functions to the agency (whether in the form of additional tax systems to oversee, such as the penalty provisions in the Affordable Care Act, or additional tax expenditures operating as a subsidy to one or another of Congress's favored groups, such as the section 199 "manufacturing" deduction) but fails to add funding to cover the additional responsibility, it means that the IRS's ability to carry out its task well will be jeopardized, and service to taxpayers will decline.
“The Congress on one hand adds complexity to the tax system by the tax laws they enact but will not recognize the costs and administrative burdens placed on the agency to carry out the laws it passes,” said G. William Hoagland, who was a senior budget adviser to Senate Republican leaders for more a quarter-century.
The fact is, the IRS makes money when Congress gives it funding to ensure tax compliance: as the article states (and many studies support), "the agency collects at least $4 for every $1 it spends for tax compliance." Former IRS commissioners--during Republican and Democratic administrations--therefore joined together to urge Congress to undo the perverse results of underfunding the IRS.
“Over the last 50 years, none of us has ever witnessed anything like what has happened to the I.R.S. appropriations over the last five years and the impact these appropriations are having on our tax system,” they wrote.
Federal reports document the impact. Tax audits are at the lowest level in a decade, affecting fewer than 1 percent of taxpayers. Reduced efforts to enforce compliance cost an estimated $6 billion in uncollected revenues in 2014 and $8 billion in 2015. The I.R.S. has a backlog of almost a million pieces of correspondence from taxpayers.
Stan Collender, a budget analysis, is right when he says (as quoted in the article):
“You really shouldn’t be able to reduce the amount you spend on I.R.S., decrease their performance ability and then complain about their performance.”
As noted in my last post, part of the fanaticism that is surging in the current obstructionist Congress relates to taxes (quel surprise...). The JEC ran a hearing on Wednesday targeting "complexity" in the tax code as a source of humongous problems. The clear intent of the GOP in control is, and has been for some time, to pile in on the "blame the IRS" and "get rid of the government beast" bandwagon in order to keep money rolling in to the hands of the rich and prevent any action on public or human capital infrastructure, climate change, or any other reasonable programs that our government should be developing to deal with the many problems in today's world.
But as I also noted in that post, holding up "simplicity" as a reasonable goal for tax policy is intended to deceive. Simplicity is generally important only for tax provisions that are most likely to impact the poor or near poor; it is for all practical purposes an unimportant target for thinking about the appropriate tax provisions for the wealthy and corporate/business elite. That is because (as I said in that post):
The simpler you make the code, the more loopholes you create. The more you cut funding for the IRS and tax enforcement generally, the harder you make it for the government to discover the loopholes or catch those who exploit them on audit. The reason the tax provisions of most concern to big businesses and those with international investments and those with multiple types of investments (CDOs, hedge funds, private equity, partnerships of one kind or another, S Corporations, etc.) are complex is that new, detailed, specific language has to be developed to counter the loophole exploitation by those who apply hyperliteralism and avoid contextual meaning and purpose of the laws in order to have an arguable defense for a tax planning transaction designed to exploit loopholes.
But just as the Walton and other rich families' money has been spent for years to make ordinary Americans believe that family farms are threatened by the federal estate tax (a fallacious myth); so too has considerable money from wealthy families, spent through the conduit of various propaganda tanks, been used to convince ordinary Americans that it is government, the IRS, and a complex tax code that form the core of their problems in making a decent living in today's society. That, too, is a fallacious myth. It is the wealthy families and owners of corporate stock, who have garnered all the benefit of workers' productivity over the last few decades and have allowed wages to stagnate so they can grab their "rentier" profits, who carry most of the blame for the precarious situation of America's middle class. It is the greed-above-societal-good policies practiced by so many of the wealthy owners and managers of American businesses and lobbied for in Congress, and so easily bought into by those in the majority in today's House and Senate (most of whom belong to the same elite).
Piling onto the complexity bandwagon today was another right-wing group: the National Taxpayers Union Foundation. Like so many other right-wing propaganda tanks, the NTUF claims that it is "a nonpartisan research and educational organization dedicated to helping Americans of all ages understand how taxes, government spending, and regulations affect them." (quoting from the language in the identifying box at the bottom of the NTUF push-out email). Balderdash. It is a propaganda tank with an ideological agenda that is dedicated to supporting ideas like Laffer's fantasytaxcutland where every tax cut leads to thousands of new middle class jobs or Mitt Romney's silverspoonland where those born with a silver spoon in their mouths are the "makers" and ordinary Americans working for stagnant wages in dead-end jobs to make the bosses of silverspoonland even richer are just "takers".
But guess what--the NTUF has come out with a new "study" on "Tax Complexity 2016: The Increasing Compliance Burdens of the Tax Code". It repeats the garbage about 6.1 billion hours "complying with the tax code". Of course, anytime you get a paycheck or anytime you maintain a record of your expenditures and revenues if you run a sole proprietorship or if you are just keeping personal records, you are also spending time "complying with the tax code", and if you take a population of 350 million people many of whom get a paycheck every 2 weeks and spend money on transactions that may be deductible on a weekly basis, that alone amounts to a substantially large amount of time, but being able to count something doesn't mean that what you are counting is significant. So what, should be the response to the "estimates" of 6.1 billion hours spent complying with the tax code. But of course all these propaganda tanks also add a dollar sign to that time--coming up with $234 billion (based on average salaries and benefits for private sector workers--which would include all those multimillions paid to CEOs for their 35-hour weeks)--again, a MEANINGLESS figure. These kinds of aggregated numbers from "averages" that are picked out of thin air should not be relied on to tell us anything other than somebody is trying to impress us with big numbers that may or may not be realistic (and probably aren't). So they admit that the IRS estimate is of an AVERAGE of 13 hours for preparing federal income tax forms. I spent about 8 hours this year since I keep books fairly carefully on my activities through my checking account, etc. And I probably have more complex taxes than many, since I have rental property in New York State and royalties from textbooks I've written and some consulting fees occasionally. The 13 hour "AVERAGE" includes the time that it would take to gather records and prepare information for a multimillionaire businessperson with various businesses and investments and travels --i.e., the Bill Gates, Warren Buffetts, and Mitt Romney's of the world. The AVERAGE is meaningless. Multiplying that average by the number of taxpayers--as NTUF does, to come up with 1.9 billion hours--results in an impressively big number, but that number is also meaningless. It is a guess, it is a mix of people who spend 30 minutes with people who spend 40 hours or more, and it says absolutely nothing worthwhile about whether there is a "problem" of complexity with the tax code.
The NTUF makes a big deal about the number of pages of helpful guidance provided by the IRS in terms of instructions. It says it is just awful that "the instructions for the basic 1040 forms and schedules increased by 2 pages to 211. [whereas] in 2000, there were [just] 117 pages of instructions." In other words, like the "average" number of hours spent filing, the number of pages of instructions is set forth as empirical evidence of what the NTUF sees as awful complexity.
Now, remember, the NTUF is part of that same radical right-wing element that has treated the IRS as evil and pushed Congress to cut its budget. Congress has in fact cut the IRS by about $1 billion over the last five years, including a reduction in staff by about 17,000. And at the same time, Congress has loaded the IRS with more functions (monitoring the Affordable Care Act added huge workloads on overstressed IRS employees). Yet Congress wants the IRS to do more without doing anything that Congress doesn't like (with the result that Congress has pursued witchhunt "investigations" of the scrutiny of "tea party" and "progressive" titled organizations' applications for coveted tax-exempt status, for which the law says that NO political activity is permissible); and yet do an even better job at guidance than it is currently doing. The current House passed a bill on Thursday that says no one in the entire IRS can receive a bonus --no matter how hardworking, underpaid, and understaffed IRS employees are--until "customer service is improved". But the bill doesn't restore the cut from the IRS budget that has caused it to cut back in services to taxpayers. The bill is just one of six anti-IRS measures passed this week mostly along party lines. See Jackie Calmes, I.R.S. Fights Back Against House Republicans' Attacks, New York Times (Apr. 21, 2016). As Lawrence Gibbs (a Nixon administration IRS man) says in the article: I just don't think it's in our country's best interest" "to create a disrespect for our tax revenue system."
Further, remember that very few taxpayers need to look at the majority of items in the instructions. If you don't run a home office, you needn't look there. If you don't have any kind of capital gains income (which most ordinary workers don't), you don't need to look there. If you don't have passive activities, forgeddabout the passive activity loss schedule. If you don't own your home, you won't have mortgage interest to worry about (and even if you do, very few of you will need to figure out whether your interest on a $1.1 million loan is all deductible or not). So the instructions are doing exactly what the House has just told the IRS it must do--providing better service to taxpayers for those that need specific guidance on specific items. The fact that the number of pages in the instructions increased from 117 to 211 is neither inherently good nor inherently bad, but it is likely good because it is likely that the instructions provide better guidance for taxpayers than was available in 2000.
The NTUF complains that most filers use a professional or tax prep software. Of course, that's a good thing. If you can hire a professional and not bother yourself, why not? If you can buy and use tax prep software (which the IRS would have been able to provide for free to filers except that Congress passed a law preventing it from doing so, protecting the megacompanies like TurboTax that profit off converting the statutes to easy-to-use software), why not? That makes it not a burden but a breeze to file your tax returns. So NTUF complains that H&R Block's "average fee" went up (adjusted for inflation--which they don't do when it doesn't help their point) 3X what it cost in 1980. Gee, my cable bill from Comcast has gone up that much in the 9 years I've had the service. Sounds like tax prep is much less inflated than most IP-based 'stuff' is these days.....
The NTUF complains that the individual mandate penalty for not getting insurance coverage is "growing costlier: this will rise starkly in 2016 to $695 per adult". Yeah, of course it is. That was the way it was structured in order to ensure that a diverse population was covered, bringing the costs of coverage down for everybody. Another "so what" number. And it has nothing whatsoever to do with complexity--except for the fact that we are doing health coverage through a system that functions like a tax but an odd one, rather than through universal, single-payer, government-provided health care or by expanding Medicare for all, which would be much simpler since there is already a well-established regulatory framework.
Not surprisingly, the NTUF complains (it is, after all, an ideological propaganda tank, so one expects this) that the employer mandate part of the Affordable Care Act "is expected to" force businesses to "shed employees or switch to part-time employees due to this compliance burden." As usual, the facts don't support this "expect[ation]." In fact, experience under the ACA has shown that businesses and individuals have on the whole realized that the ACA is better than the health care world before the ACA.
The NTUF complains about taxpayer services--less ability of the IRS to respond to phone calls and to answer written correspondence in a timely manner. This has NOTHING TO DO WITH COMPLEXITY and EVERYTHING TO DO WITH THE RIGHT'S PUSH TO EVISCERATE THE IRS BY CUTTING FUNDING, CUTTING EMPLOYEES, DESTROYING MORALE, AND HAMSTRINGING THE ORGANIZATION TO MAKE TAX COLLECTION AND ENFORCEMENT EVEN HARDER TO DO WELL.
*****
One good thing about this theater-of-the-absurd presidential primary season is that many ordinary Americans seem to be waking up to the fact that the system as run by the elite establishment isn't set to work for them and that you cannot simply trust what establishment organizations (and propaganda tanks funded by the elite) say. Complexity of the tax code is NOT our major problem. Hopefully this awakening public will recognize this propaganda for what it is--an attempt to mislead ordinary Americans into thinking that they should blame all their ills on government and the tax system, rather than on the right-wing majority in Congress that has worked for four decades to tilt the tax system in favor of the rich.
I was at a housewarming party last Saturday and talked to quite a few people I didn't know. One was an economics professor at a regional school. Naturally, economists and tax professors gravitate towards talk about the economy and tax policies, so it isn't surprising that our talk got there fairly quickly. I will add that his views were not too surprising, either: he suggested that corporate inversions and other forms of corporate tax planning and abusive transactions would disappear if only we made the tax code "simpler." Not surprisingly, that is the issue I hear most insistently from many of the economists that I talk to-- especially those who have bought into Milt Friedman's free marketarianism: they suggest that the entire problem of the tax code--or the problem of the unprecedentedly low percentage of GDP we raise from corporate taxes in particular--could be solved if only we made the tax code simpler.
One thing they don't seem to realize is that the neoliberal approach has led to corporations treating their employees as just another number to be crunched for the benefit of the bottom line, their obligation to community and people as just another PR element, and their obligation to pay a fair share of their income to support the many levels of legal stability and benefits that they receive from government --including the benefits from basic research supported by government funding--as just another expense to get rid of in any way possible. If the statutory rate is 35% even though the ACTUAL EFFECTIVE RATE is near zero for 75% of corporations and no higher than 20-26% for many corporations, they will still argue that the statutory rate should be 25%. If it is lowered to 25% (and the effective rate for almost all corporations is near zero with a few paying around 10%), they will argue for a statutory rate of 10%. And so on.
The argument from simplicity is, these days, mostly another example of class warfare being waged on behalf of the wealthy, corporatist elite against ordinary American workers. And Congress today--controlled as it is by a majority in both the Senate and House that is generally much farther right than the nation's people--tends to use the complexity of the tax code exactly in that way--as a flagwaver to fool ordinary Americans into thinking that the corporatist, wealth-favoring tax changes the right wants to enact are "reforms" that will aid economic growth and ordinary Americans.
See, for example, the Joint Economic Committee (JEC)'s hearings today (April 20, 2016) on the topic of tax code complexity (and note the presupposition about complexity and the "taxing" problems in the wording of the title): Is Our Complex Code Too Taxing on the Economy? The title alone tells a lot about the JEC's implicit bias against taxes and against "complexity". But if anyone thinks this was likely to be a useful discussion of complexity, just look at the first three speakers. Only Jared Bernstein comes from a Center that has recognized some of the fairness issues that most of the push for "simplicity" pushes under the rug.
Art Laffer, Mr. RightWing TaxCut Spokesperson personified and the person who has made a reputation (and I bet great wealth) out of arguing that tax cuts pay for themselves after drawing a graph on a dinner napkin and proclaiming it to be a theoretically supportable description of how human behavior responds to tax rates, testifies about "The Economic Burden Caused by Tax Code Complexity (written in 2011 but presented in 2016 anyway--if it's propaganda, ya don't need to update?).
A lot of these numbers about the "cost" of complexity are speculative, one-sided in that they overlook the huge costs of a simple tax code that permits enormous sums to be lost through tax evasion, and based on theoretical assumptions far removed from actual experience to project trillions of economic gain essentially from reducing the tax rates on corporations and the wealthy. Consider one of the "complaints" in the Laffer 'study'--the requirement that businesses file forms reflecting business-to-business payments in excess of $600. It is clear that many small businesses evade taxes by using cash outlays where possible for those kinds of transactions. Reporting has proven to be an efficient way to capture those kinds of tax evasion. The same kinds of complaints are registered, of course, whenever any reporting requirement is created, whether it be an employer withholding and reporting requirement or a business reporting requirement. In a digitalized business world, creating and filing appropriate reports can increasingly be automated and almost costless. Compliance costs without such reporting are much greater because they require people and audit time at the business and at the IRS enforcement end. Those issues are disregarded entirely by Laffer.
Laffer also claims that "the more complex a tax system is, the higher the compliance costs will be." It is not clear that such a statement is empirically true. Note that he claims to be talking about "the tax system." It is worth noting that an entire system may have simple areas and complex areas, and complexity tends to reside in specific areas in which there are highly technical issues that require a complex system of rules to arrive at a reasonable answer or where Congress has acted rather hastily to add 'bolt-ons' to the tax system rather than systematically working through how provisions should work. Could the code benefit from a 1986-style revamping to remove the bolt-ons and re-integrate the system? Yes. Should that revamping be based on a "let's "simplify everything and make the taxes of the rich and powerful even less" philosophy? NO. Our current system is more complicated than it needs to be, but at the same time, not as complicated as it needs to be to prevent many of the tax avoidance schemes that tax planners dream up. Once a system of rules is in place and operative, it is not necessarily true that there will be higher compliance costs, even if there are changes every few years in the specifics of how the system works to address new issues.
Laffer also states as fact that IRS administration costs are higher when the tax code itself is more complex. However, a "simpler" tax code that nonetheless intended to capture a share of the profits to fund government could well result in much higher administration costs, as it would require considerably more agency interpretive rulings and interaction with taxpayers and audit/enforcement actions to prevent sham transactions designed around "simple" language. It makes you wonder, of course, if by "simpler" Laffer doesn't really mean--one that collects less tax, period, by having fewer brackets and lower rates. That sounds simpler to the unknowing and naive, but ask any tax professor and he or shee will tell you that determining the income to which the tax applies is the complex part, not the rates. What that kind of "simplicity" does is disguise from ordinary Americans yet another tax break for the wealthy as a move for a "better" tax system "because" it is "simpler".
Note that Laffer also talks about the "teams of accountants" and others that businesses track and measure taxes, as though they could all be done without if only we had a "simpler" tax system. Fact is, even without taxes, those teams of accountants would be part of the business world, because for most businesses, much of their business information and their tax information goes hand in hand.
So while Laffer claims to want a "fair" tax system, what he means by simple would be a tax system that shifts the burden from rich to poor even more than we already do and that eliminates the critical use of the tax system as one of the few levers that can operate to reduce the gaping inequality that has resulted from decades of tax cuts primarily benefiting the rich. So while I claim that the costs of complexity are mostly problematic if they fall on the poor or near poor, Laffer values the cost to the rich as much higher, because he looks at time used to comply (of course, that will be hired time) and the wealth of the rich to conclude that the burden is greater because their time is more valuable. He complains that the top pay more and pay proportionately more than the bottom, but of course that is exactly what a system designed around ability to pay will do: since the marginal utility of the last dollar is less to a wealthy man, one should tax them proportionately more than one should tax a poor man who perhaps already cannot satisfy the necessities of life using every one of his dollars.
For my earlier analysis of the Laffer Curve, see, e.g.The Laffer Curve Part II (March 2008) and other posts linked therein.
Scott Hodge, the President of the Tax Foundation, a right wing organization that calls itself nonpartisan and wants to be considered a "think tank" (it is a propaganda tank) that drums up an annual piece about "tax freedom day" full of specious arguments to bolster ordinary Americans views that taxes are too high about how long a typical worker works to pay his taxes.
I'm not surprised that he starts his testimony with the increasingly meaningless statement that the Code was 409 thousand words in length in 1955 and now is 2.4 million words in length. OF COURSE the code is longer in 2016 than it was in 1955 when it was still an embryonic text. It took a while for Congress to realize the lengths to which wealthy taxpayers and corporations would go to invent pathways through loopholes in the code to avoid taxes, and then to put the appropriate blockade up.
There is of course the same thing about billions of hours spent complying with tax requirements, coupled with costs estimates claiming this is all "wasted" effort. Think about that. Complying with our tax obligations is actually a privilege of citizenship, and at least a good part of the compliance "burden" is something we should be proud to do as a way to pay our fair share. This constant talk of tax compliance as though it is inherently evil also misses the point that the tax accountants and return preparers and legal advisers (especially of course for the more sophisticated and wealthy taxpayers amongst us) are also people who are earning a living by helping their fellow citizens navigate one of their citizenship duties. This is not "wasted" per se; much of this effort adds to GDP and is a viable part of a complex economy. You wouldn't guess that from reading Hodge.
Even worse is Hodge's first item of "complexity" for the income tax system that the Tax Foundation would like to see eliminated--progressive tax rates. Please note. The number of rates and the number of brackets has almost nothing to do with complexity. See Jared Bernstein's discussion of this issue, please, as well as numerous posts here on A Taxing Matter. This is a figleaf to cover the propagandizing of the Tax Foundation on behalf of the wealthy. It is the same as their push to ensure that "everybody" (even the poor and near poor) should pay some income tax, and the wealthy should pay less. Of course Hodge also quotes the economic theoretical "truth" that at some point "when the "tax price" of earning the next dollar of income gets too high, people will stop working to earn that extra dollar." However, that idea is very hard to prove, especially with our very low-rate tax system and given the different forces at play besides taxes in determining whether and how and for how much we work. After all, while the average paycheck in the country may be in the $50,000 range for a year's work, there are many CEOs willing to take ordinary paychecks of obscenely high amounts from $70 million a year to $700 million a year to in the billions per year. They pay such a small percentage of that paycheck in income taxes that it doesn't affect their willingness to hold that CEO seat one bit. Yet on the flimsy assumptions (supported by Laffer economics that claim tax cuts create economic growth) about getting more work if taxes are less and if progressive rates are eliminated, Hodge claims a boost of GDP of 1.4 percent and 1.1 million jobs. Quite speculative and without empirical foundation. Certainly didn't happen when Reagan cut taxes in his first year (and then increased them every year of his presidency thereafter). Nor when George W. Bush's administration put in place gigantic tax cuts for the wealthy. (In fact, we entered the Great Recession.....)
Hodge also wants to eliminate the phaseouts on some of the tax expenditures that limit their benefit to high income taxpayers (not terribly complicated to do--tax software calculates it automatically) and claims giving rich people that money will result in .1% GDP growth. This is, quite simply, pie in the sky made-up numbers, which any economist can do by tweaking their hypothesis to get the results they want.
Now Hodge is right about one of the individual items he mentions--the Earned Income Tax Credit phases out in a "jerky" way that is especially hard on low income workers. Many Americans in or near poverty don't claim the EITC, and others make errors claiming it. This is the kind of complexity that should be reduced, and it is even possible that a uniform phase-out rate--at a much higher income level than currently used or than recommended by Hodge--would be a good solution to that complexity.
Hodge goes on to claim that we should not eliminate itemized deductions (i.e., they are quite valuable for the upper class), but that we should instead lower every single tax rate by 10%! I heartily disagree. Most people should use and do use the standard deduction--around 70% of taxpayers. The only people who generally take itemized deductions are those with complex real-life economic situations (rental properties, business investments, unusually hefty medical expenses, or significant charitable contributions perhaps) and most of those are from the upper end of the income distribution. Further, the operation of the Alternative Minimum Tax was designed to counter, in part, the ability of affluent taxpayers to amass quite a few itemized deductions (charitable contributions that are in many way quid pro quos for those taxpayers whose name is in bold letters over the building they funded or in the bulletin of the opera they made possible, etc.): the AMT's effectiveness has been undercut by Congressional responsiveness to lobbying from higher income taxpayers but does still act to ensure that those who aren't in the richest group pay a more reasonable share of taxes than otherwise (It theoretically doesn't apply to the wealthiest taxpayers because their regular tax rates should be above the rate for the AMT). For more information on the AMT, see the series I wrote earlier on this blog, at the following post (and the links to earlier Parts therein): What Should Congress Do About the AMT (Part 5). It might be reasonable to say that the standard deduction should be increased to ensure that we are ensuring a sustainable living allowance for lower-income workers (which is the reason the standard deduction and personal exemption are in the code). But we should not reduce "each rate" by 10% and thus provide a significant benefit to wealthier taxpayers. That is most certainly not a reasonable "simplification" solution.
Of course, Hodge argues for elimination of the estate and gift tax, claiming that eliminating estate and gift taxes would raise GDP by 0.8 percent and create 159,000 new jobs while repeating the mantra that the estate tax makes it "harder to pass family businesses and farms to the next generation." This is hogwash, put simply. The estate tax as currently set is a ridiculous subsidy for wealthy families: coupled with the low rate of tax on capital gains and the step-up in basis at death, it allows them to live off the income of their wealth during their lives at low tax rates (zero if the Republicans like Paul Ryan have their way); pass their estate to their heirs with very little tax due (more than 10 million dollar exemption for a couple, and all kinds of planning schemes to get around taxes on the rest); and give their heirs a step up in basis so that they will never pay tax on the appreciation on the estate from the deceased person's lifetime. In other words, these arguments support an almost tax-free existence for the wealthy who already have hogged an unfair share of the gains from workers' productivity. The claims that benefiting the wealthy in this way will result in better economic growth and trickle down to the middle and lower class are, quite simply, unfounded and unsubstantiable. These ideas will simply aggravate the already grievous inequality in this country that has one in four children going to bed hungry at night while do-nothing heirs inherit enormous wealth, privilege and the hubris that goes with it.
Oh, and of course he repeats the statement that "the U.S. has the highest corporate income tax". that is misleading, since while it has a high statutory tax rate, it does NOT college anywhere near that tax rate. three quarters of U.S. corporations pay ZERO tax. Many of the rest pay very little tax. Very few pay a rate of tax that is significantly higher than our industrialized peers. The claim that GDP would be boosted 2.3% by eliminating the corporate tax, or that wages would increase by 1.9% or that 443,000 jobs would be created are pure salesmanship. When workers increase productivity and corporate profits grow, their wages have not grown. That money has gone into the corporate manager/shareholder pockets instead. Any tax cut would likely be viewed as just more gravy for the already rich owners and managers.
I could make similar counter arguments to every one of the "reforms" Hodge promotes: corporate integration is just another tax cut for the mainly upper income distribution elite who are the managers and shareholders of corporations. It makes no sense at all in the current economic context of this country.
Hodge also argues for keeping the "expensing of R&D costs". Economically, these costs should be capitalized. A business that wants to thrive will invest in R&D because it needs to do so for business reasons, not because there is expensing. Of course, expensing something that should be capitalized is exactly one of those distortive tax provisions that the Tax Foundation tends to argue are problematic in other contexts......
Not surprisingly, Hodge pushes the ridiculous consumption tax plans from Republicans like Ben Carson --a regressive "flat" tax that would favor wealth and put the tax burden on workers by exempting taxes on capital gains, dividend and interest (the kinds of income wealthy people live off), Marco Rubio, and Ted Cruz. All of these plans shift the burden of taxation to the middle and lower classes (from capital to labor) while protecting the wealth of wealthy people.
Of course they would have a Joseph Grossbauer, CEO of small business and spokesperson on behalf of the National Federation of Independent Business, to claim the taxing requirements for small businesses of making determinations based on tax rules. Note that he complains at least as much about the frequency of changes to tax provisions--That is not an element of the tax system itself but a result of the way that Congress has grafted on policy that should be handled by spending into the tax system, in part as a way to fool the public about what it is doing, when it enacts one tax expenditure after another in favor of one corporatist interest after another. And while I don't doubt that some of these complaints about complexity are real, I do doubt the time claimed spent complying and the difficulty claimed for regular determinations about depreciation, employee status, and other items. Note, for example, that the reason for the confusion of what "counts" as real property for tax purposes lies with business owners who push for various tax expenditure provisions in their favor, which result in increased categories that must be examined to determine appropriate classification! If business owners and their lobbyists would focus more on doing the right thing and less on wringing the last theoretically (aggressively speaking) possible penny out of their potential tax liabilities, tax time wouldn't be as "taxing" as they claim.
Jared Bernstein, also speaking Jared Bernstein Testimony Meeting the Goals of the Federal Tax System April 20, 2016 , is a more respectable figure represent the nonpartisan Center on Budget and Policy Priorities, which has tended to be less partisan and more in the center to center. Bernstein notes that the idea that simplicity is a matter of rates or brackets is itself misleading.
"Complexity has nothing to do with the number of tax brackets and rates. If taxable income were easy to define, it wouldn't matter how many rates existed in the code; all taxpayers would have to do is look up their liabilities in a table or online calculator."
"What makes our system so complex are the exemptions, deductions, other tax subsidies, and privileges for one type of income, industry, or activity over another. On the corporate side, these include “transfer pricing” opportunities (the ability to book income in low-tax countries and deductible expenses in high-tax countries), deferral of foreign earnings, inversions, and the many other loopholes that explain why the effective corporate rate is at least 10 percentage points below the top statutory rate (about 25 percent versus 35 percent). To be clear, not all subsidies in the tax code are poorly targeted and inefficient. Research shows the Earned Income Tax Credit and Child Tax Credit, for example, encourage work and prevent millions of people from falling into or deeper into poverty, and children in families receiving the tax credits do better in school, are likelier to attend college, and can be expected to earn more as adults. But well-targeted, effective subsidies like the EITC and CTC are unfortunately more the exception than the rule."
Needless to say (for anyone who has read much of this blog in the past), I don't agree with the JEC and Laffer/Tax Foundation's simplistic approach to tax reform of pushing for a "simpler" tax system based on fewer brackets, fewer and lower rates, exemptions of income mostly earned by the wealthy, and correspondingly less progressivity.
The taxpayers for whom a simpler tax code does make sense are the poor and the nearly poor. They usually have much less access to sophisticated tools for tracking their income and expenses and while they often have less income and most or all of it is wage compensation from which taxes are withheld, they need easily understandable rules without "gotcha" complexities that they can apply straightforwardly. Note that many of the poor and nearly poor in this country are also "unbanked"--meaning they don't have enough assets to maintain bank accounts or pay the fees on accounts with low balances, and they even have trouble cashing checks when they are paid with checks. They should be taking advantage of various provisions put in the code to help ensure that every American is able to provide for necessities--things like the Earned Income Tax Credit, and various other credits for child care and education expenses, etc. Simplicity counts here, because simpler provisions help to ensure that those in or near poverty are more able to take advantage of all the provisions that have been put in the code for their benefit.
But the people who do not need a simpler tax code are those at the top of the income distribution and, generally speaking, corporations and businesses. Simplicity is one of the ideas flogged by those on the right who want to eliminate corporate taxes (a benefit primarily for shareholders, which consist primarily of the wealthy and wealthier elites), eliminate estate taxes (which would give an even greater windfall to those who inherit through no merit but merely luck of birth and add even more to the worrisome growth of inequality), or legislate a complete exclusion from tax for capital gains (which would give an even greater windfall to those who live off inherited investments or even off investments that started with some personal effort, compared to those who live off the sweat of their brows, while providing the "simplest" returns (zero taxation) to those who need it the least in order to survive and contribute to the economy). The fact is that the wealthy are well able to make their way through the tax code with sophisticated advisers, seeking every loophole those sophisticated advisers can find. The simpler you make the code, the more loopholes you create. The more you cut funding for the IRS and tax enforcement generally, the harder you make it for the government to discover the loopholes or catch those who exploit them on audit. The reason the tax provisions of most concern to big businesses and those with international investments and those with multiple types of investments (CDOs, hedge funds, private equity, partnerships of one kind or another, S Corporations, etc.) are complex is that new, detailed, specific language has to be developed to counter the loophole exploitation by those who apply hyperliteralism and avoid contextual meaning and purpose of the laws in order to have an arguable defense for a tax planning transaction designed to exploit loopholes.
That's too many words in one sentence. The tax code is complex and can't be put on a post card for most complex entities or wealthy individuals with many different business and money making interests because (among many more reasons, I'm sure):
It must cover, in one way or another, all human and enterprise activities that could in any way involve the exchange of valuable goods or money for the benefit or one or more persons.
It must do so in a way that achieves at least roughly a set of laws that can be consistently applied, with exceptions explicitly set forth, to a wide variety of taxpayers (single, married, divorced, widowed, with or without children, poor, wealthy, filthy rich, corporate owner, manager and corporate owner, controlling owner of a group of affiliated corporations or businesses, partners in various kinds of partnerships doing business--the list could go on and on) who are trusted to voluntarily comply by providing a true and accurate report of their income and expenses and taxes due
It must take into account that the more sophisticated, powerful, and monied a taxpayer is the more likely that taxpayer has resources sufficient to game the system by exploiting any verbal loophole and, as evident by historical trends, will be likely to do so if the penalty is sufficiently light and the reward sufficiently great.
It must respond when a loophole is exploited by closing the loophole.
It must do so in a way that permits the voluntary compliance system to function as well as can be given resources available.
It must make fairness--based on a principled view of what that means, such as ability to pay and benefits received--a key linchpin of the way the tax system works. Progressivity and reduction of complexity for the poor and near poor should be high priorities. Transparency and reduction of redistributive subsidies for the rich should be significant attributes of a reformed tax code.
Of course, for years our tax system has also been burdened by the partisan obstructionism that considers it silly to think "Tea Party" or "progressive" might be indicators that a group applying for tax exempt status actually intends to engage in political activity and similar right-wing witch-hunts that affect morale at the Treasury and IRS among employees struggling to handle an ever-expanding job function.
If we wanted to make the tax code work better, we would fund the IRS sufficiently to have employees who can provide service to taxpayers more readily, and we would enact legislation to ensure that those who get paid for preparing tax returns actually know the law they are claiming to apply. And, in fact, there are a few key provisions that we could eliminate to "simplify" the tax code and make it better across the board while ensuring that we act to protect the Earth's future
eliminate all of those tax expenditure provisions that have been in the code for decades that provide harmful subsidies to "old" fossil fuel energy (oil, gas and coal) that contribute significantly to global warming.
eliminate the capital gains preferential rate, treating all income as of the same character and taxable at the current ordinary income rates (and eliminate thereby as well the advantage of "carried interest" in private equity partnerships to those money managers who have gotten wealthy off of other people's money)
sharply restrict the number of nontaxable reorganizations (both acquisitive and divisive) by requiring at least an 80% continuity of interest in all reorganization forms for tax-free treatment (and thereby also increase the forces against growth of megalithic multinational conglomerates)
limit the number of new tax expenditures ladled into the code to those that have gone through a lengthy process of consideration and review to ensure that they are targeted to the desired objective and eliminated promptly if evidence shows that they have not succeeded in their objective. Generally speaking, the complexity that is least justifiable in the code stems from addition of tax expenditures that favor one or another congressional constituency and are enacted in the tax code in ways that would be hard to do if enacted as a spending provision targeted to the favored constituency. As Bernstein shows:
[T]he extensive set of legal subsidies to individuals or businesses through exemptions, deductions, and other tax subsidies, generally referred to as tax expenditures, cut federal income tax revenue by over $1.2 trillion last year — more than the cost of Social Security or the combined cost of Medicare and Medicaid. Moreover, as shown in the figure below, these tax breaks disproportionately benefit higher-income households, often wastefully subsidizing behavior that would occur anyway.
There is class warfare going on, right now, all across this country. It's highlighted by the election gimmicks and gambits of those on the right who claim to be supporting ordinary Americans but whose real intentions show in the results. And it is ultimately a sad statement about Americans' understanding of what is required for a sustainable economy that supports decent lifestyles for all.
Let's start by looking at the maps resulting from studies of well-being that identify the states where people are not at all well-off, such as the 2013 survey done by Gallup Healthways, available here. Those poor states are the reddest of the red belt in Mississippi, Tennessee, Florida and elsewhere across the Deep South--places where I grew up in a decidedly Republican household that bought the GOP economic fallacies hook, line and sinker, and places where today's populations are worse off in terms of the various measures of economic well-being and happiness than the more progressive northeast and west.
Isn't it likely that the anti-government, low-tax and pro-wealthy/pro-big business policies of the GOP politicos that have run these states for several decades have something to do with these negative results, and that the more progressive policies in the northeast and northwest are reflected in the much more positive results in those areas?
Yet rural, southern populations continue to proudly proclaim their allegiance, against their own economic interest, to ill-fated Reaganomics that favors tax cuts (for the wealthy and big business) coupled with use of old-time, regressive consumption taxes (toll roads, sales taxes and property taxes), privatization of public functions (e.g., charter schools managed by for-profit, nontransparent corporations), socialization of losses, militarization, and de-regulation.
The results are harmful at national and state levels, as those same right-leaning voters suffer from poor K-12 education, low-quality public services including neglected roadways, nonexistent or outdated public transportation systems, inferior safety nets, inferior health results, lower literacy rates, higher teenage birth rates, less access to universities, and, yes, fewer and lower-paying jobs.
Of course, those in the top 5% like to think of themselves as suffering, and therefore see any demands for increased minimum wages (that they consider cutting into their ability to capture more and more (rentier) profits beyond their already unreasonable percentages) as "class warfare." See, for instance, this Wall Street Journal video "Do You Make $400,000 a Year But Feel Broke?" from September 5, 2014 depicting the purported hard times for a couple in Chicago making $400,000 a year, buying a $60,000 car every four years, paying a mortgage on a $1.2 million house along with $25,000 a year in maintenance and , entertainment ($10,000 a year) going on vacations ($25,000 a year), club dues ($12,000 a year), and paying for their children's sports ventures ($10,000 a year). These and other "necessities" and (purportedly reasonable) discretionary expenditures take all of their after-tax money.
Given that perspective, no wonder those in the top have so little consideration and sympathy for ordinary Americans who have incomes in the $50,000 to $60,000 range, much less for the poor who struggle to put food on the table and heat in the furnace! They can't even imagine such limited lives. With the growing inequality in this country, the gap between the upper class and the rest of us is increasingly wider.
Outside the sphere of political debate, you also see the real world impact of inequality. Merrill Lynch recommends an investment strategy to its clients based on the growing economic clout of plutocrats, Singapore Airlines is now selling $18,400 first class cabin tickets, and observers think Apple is going to start selling a $10,000 watch. Conversely, Walmart is now primarily worried about competition from dollar stores. The executives at these companies are not hysterical liberals trying to drum up paranoia about inequality, they are trying to respond to real economic conditions — conditions that have entailed very poor wage growth paired with decent returns for those proserous enough to own lots of shares of stock.
The ability to care about those so distant from the well-heeled in-group appears to be diminishing as the gap between the well-heeled and the rest of us widens. Those super-wealthy corporate managers and CEOs and super-rich shareholders are not likely to recognize in themselves the greed and exploitation of others that their excess returns on capital represent. As Mitt Romney made so clear, rich folks (i) think of themselves as "meriting" their outsized incomes, in spite of the fact that they often start out with silver spoons and garner greater returns than ordinary folks simply because they have larger capital portfolios to start with and can't possible achieve a level of productivity of 100s times that of ordinary workers, as current CEO pay-levels claim under "free market" theory; and (ii) find it much easier to blame the misfortune of ordinary Americans on their purported laziness and "lack of personal responsibility." (See earlier Taxing Matter posts on Romney's self-justifying 47% remarks during his presidential campaign.)
But that means the rich (and the GOP most closely aligned with big business and big capital) often support policies that can only lead to greater income and wealth inequality, fewer and fewer Americans able to enjoy a decent, sustainable lifestyle, and the growth of a very small oligarchic elite. Those policies include making it harder for poor people to vote (justified on the basis of non-existent voter fraud), making it harder for middle class and poor people to go to college (less state monies to universities, less grants and more (profitable-for-big-banks) loans), making it harder to support a family (less public transportation, lower wages, more jobs outsourced, refusal to fund Medicaid expansion, yammering for the repeal of the Affordable Care Act even though the US's market-based health care system is less efficient, more costly, and lower quality than single-payer systems in most other advanced countries), etc. The long-run result of these pro-elite pro-corporate policies may well be social chaos, as the rich oligarchy faces off against a suffering and shrinking middle class and a grievously disadvantaged lower class. That may not be so far away as many of us once thought, given the rapidly growing wealth inequality and the more radical right-wing policies that have moved into the GOP mainstream in the form of Rand Paul and other free-marketarian extremists who denigrate government and want to remove the social-economic safety nets put in place under the New Deal.
They denigrate government, that is, except when they recognize that they need it, such as when the ebola crisis erupted. Suddenly, they want a Center for Disease Control that really functions well, even though they have pushed government spending down. And they want a TSA that can screen arriving passengers, even though they hated the TSA before. And they wanted the President to appoint an "Ebola Czar", even though they scoffed at the idea of administrative officials appointed to oversee important areas before. They want a vaccine for ebola, but they have made it much harder to accomplish because of their constant push for "reducing government" and cutting research funding (making one of their pet projects to seek out what they think are silly projects that have been funded by the federal agencies).
The free market, in other words, is claimed to be the be all and end all -- until push comes to shove and it is obvious that market forces require government intervention.
Consider the compaign for governor here in Michigan. In his ads, current GOP governor Rick Snyder claims to be a hands-on non-partisan fiscally responsible type who cares about everybody in Michigan. Those ads brag about how Snyder cares about senior citizens and education --using the (meager) increases in "meals on wheels" to claim that Snyder has made life better for senior citizens, and the state's increase in support for purportedly public charter schools. Behind that facade of political PR is a deeply partisan governor who has consistently supported the elite rich capitalists over the majority of Michiganders who are ordinary salary earners working hard (or working hard to find work).
Snyder signed a "free rider/right to freeload" bill permitting non-union workers in a unionized environment to free-ride on union contracts without paying their share of the costs of the contracts they benefit from and prohibiting unions from using paycheck deductions to collect union dues. That kind of legislation, sought by the elite owners of capital who benefit from paying lower non-union wages, is (mis)labelled by the pro-wealthy right as "right to work". It is really a "right to freeload" law since the union rules it replaces never required anyone to join a union and always allowed workers who benefitted from a collective bargaining agreement to pay only the 'fair share' payment of the considerable costs of negotiating an agreement and supporting workers in grievances rather than support all union activities. As a result, workers can now pay nothing yet call on the union whenever they have a grievance against their employer. The goal of such laws is to eliminate union support for workers and thereby increase the power of capital owners, so it is particularly sad to see how many workers are fooled into supporting these "right to freeload" laws.
Snyder supported Michigan legislation that gave big businesses a huge tax cut, while supporting another bill that gave seniors a huge tax increase by taxing their (often meager) pensions. No wonder the wealthy who own most of the financial assets in the country and benefit from the decades of lobbying by right-wing propaganda tanks against buinsess and capital taxation think he's a good friend.
And of course, much of Snyder's 'support' for education has been cuts to state funding for Michigan universities (especially Wayne State, which serves the predominately Democratic southeastern region of the state) that has affected the state's economy in real ways, as students have to pay more of the cost and universities have less funding for research that directly impacts economic development. Snyder has also supported an unprecedented increase in charter schools in a system that provides no accountability, doesn't provide improved educational results, and siphons off public dollars for private profits, through the mechanism of private charter management corporations that run the purportedly "public" charter schools.
Snyder doesn't think we need increases in the minimum wage, and his administration has generally shown little interest in figuing out how to help minimum wage workers revive from the Great Recession. For example, his administration has done nothing to deal with the myriad fly-by-night companies that cheat workers coming and going on wages.
ASIDE: Here's one real-life tale illustrating the problem. I know personally of a man in Michigan hired by a Michigan-registered cleaning corporation that had contracts with at least two major national corporations to clean stores in southeast Michigan. The cleaning company claimed that the man was "in training" and therefore not required to be compensated after two weeks of full-time working for the company, including being locked inside a cavernous store overnight to do a major cleaning job. The company refused to pay for the next two weeks, claiming that "corporate headquarters" had made an error and would straighten it out in the next paycheck a month later. The man ultimately was paid only a couple of hundred dollars for that entire month, because the company produced a purported check stub showing a paycheck even when the man representing the company acknowledge that paycheck had never been issued to the man. The company paid the man on a "piecework" basis for cleaning stores, claiming that a 30,000 square foot store with public restrooms could and should be cleaned for $25(that's mopping, vacuuming, and cleaning toilets) and that the work could be done in one hour! The company required the man to pick up cleaning equipment and the company van at the "corporate headquarters" (many miles from his home and many miles from each of the stores to be cleaned) but claimed that it did not have to pay the man for the 3-4 hours per day that he had to spend to drive the company van and equipment to and from various worksites. The man quit, but has never gotten the company to issue the paycheck that he never received and has never received pay for the many hours spent working for the company moving its van and equipment.
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