ataxingmatter

Both the rich and ordinary Americans misunderstand their economic interests

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voters suffer from poor K-12 education, low-quality public services including neglected roadways, nonexistent or outdated public transportation systems, inferior safety nets, inferior health results, lower literacy rates, higher teenage birth rates, less access to universities,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.

The broad trend is clear from a diverse set of data. Median household income growth has badly lagged per capita GDP growth, corporate profits as a share of national income have risen, and stock markets have reached record highs.

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.

 Matt Iglesias, Vox.

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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The Inequality Gap

Robert Reich, former labor secretary, has some worthwhile advice for the President's State of the Union address:  he notes that the focus should be the "central issue you want the nation to help you take action on".  That's "not immigration, guns or the environment" (though "[a]ll are important") but rather "joblessness, falling real wages, economic insecurity, and widening inequality" . See Robert Reich, Memo to Obama: Focus on the inqueality gap, Salon.com (Feb. 11, 2013).

He's right.

"It's the economy, stupid", that old slogan from the Clinton campaign days, goes only so far.  It doesn't tell us, for example, what parts of the economy are most important--is it the stock market's well-being, and indirectly the fortunes of the very few at the top of the income distribution who own significant amounts of those items being sold on the market?  Or is it the unemployment data, with its distressing litany of continuing failure of our economy to provide decent jobs for ordinary people?  Is it the way that corporate owners and managers can use the powers of government to make unionization difficult and thereby make it much easier for corporate management and shareholders to retain all the productivity gains while workers wages stagnate (everything from Wal-Mart's tendency to tear down union fliers in worker areas (based on my personal observation) to the CEO's determination to beat unions down any way possible (see the New York Times story in the 2/12 edition, At Cablevision, Norma Rae's Been Escorted Outside, New York Times (Feb. 12, 2013), at A23, regarding Cablevision's firing of two  dozen employees for being off work, after claiming to have an "open" management that invited worker conversations yet allowing those same employees to cool their heels for 40 minutes waiting to talk to him and then walking out and firing them for not being on the job)?  Or is it the general optimism of the upper class, who can pass on untaxed estates to heirs who will get those stocks at stepped up basis and renew the cycle of monetization without taxation for their own account?

Stock market statistics mostly tell us about the upper class, along with the upper part of the middle class that has some share of that bounty:  they don't tell us about how well the economy is serving others, unless the general well-being of corporate America spills over to the general well-being of average Americans.  It doesn't do that in an era of push-down on unions to ensure that workers have no voice, push-back on taxes to ensure that the wealthy managers and owners not only get all the productivity gains but have to pay too little in taxes to support the system that made those gains possible.  Mostly, stock market statistics tell us about how the privileged are maintaining their privilege, as their ownership of most of the financial assets continues to mean their heightened influence over most laws and their garnering of most of the gains that do take place.

This is well noted in a post on Economist's View (Mark Thoma), embedding a post by Miles Corak on Free Exchange about research on inter-generational social mobility.

The real lesson from the historical research is not that there is anything inevitable about a low degree of inter-generational mobility, or that it signals more persistence than other research. The most privileged will do everything they can to perpetrate their status across generations, and in past eras the structure of labor markets and public policies permitted, and in some measure continue to permit, a non-level playing field.

I've long argued that the way to evaluate the economy is in terms of how well it is serving ordinary people who make up the middle class (roughly defined as the middle three quitiles of the income and wealth distribution)  and how adequate is the safety net it provides for those who make up the lower class (the bottom quintile of income and wealth).  What matters is economic sustainability, in terms of  adequacy of those many intangibles by which we measure quality of life--like accessible quality health care, accessible quality education, accessible quality jobs, decent wages for decent work.  That means that government's intervention in the economy will need to be on the side of the little guy, ensuring that resource allocation isn't so skewed to the already rich that we become an oligarchy where most of us live off crumbs and a few of us live like kings.  If we want a sustainable economy and sustainable democracy, democratic eqalitarianism demands that governments temper market forces with protections for underdogs, providing counterforces to the redistribution upwards tendency of brute force capitalism.

Today, the rise of the US oligarchy and the frightening power of wealth in determining how laws work have put us in a terrible situation:   "debtor prisons, once a relic of the 18th century, are making a frightening comeback in the U.S. justice system."  Alex Kane, Miss a traffic ticket, go to jail?, Salon.com (Feb. 11, 2013).

So an appropriate slogan for progressives today should be something along the lines of "It's the inequality, stupid."  And that certainly doesn't mean more of the same old failed GOP policies that favor the wealthy, mistakenly labeled "job creators" by the GOP in its constant effort to undo unions (witness Michigan's disastrous anti-union legislation or Cablevision's determination to aid anti-union forces and squelch union activists), favor capital over labor (from the problematic preferential rate for capital gains to the ridiculous "carried interest" taxation of the compensation payments to so-called profits partners (a category of "partner" for tax purposes not provided for in the tax code but essentially an invention of Wall Street) to the squandering waste of an estate tax and charitable contribution deduction that favor meritless accession to and use of untaxed wealth and pushes the burden for government revenues to laborers instead).  And it certainly doesn't mean more of the same "deficit hawks, austerity mavens, trickle-down charlatans, and government haters who have commanded center stage for too long."  Memo to Obama: Focus on the inqueality gap, As Reich says:

The President should make it clear that any Republican effort to hold the nation hostage to the GOP's ideological fixation on the budget deficit and a smaller government will slow the economy, likely pushing us into another recession.  And that those most imperiled are the middle class and the poor. 

He should emphasize that the real job creators are not the rich but the vast majority of ordinary Americans whose purchases give businesses reason to add jobs.  And that if most Americans still cannot afford to buy, the government must be the spender of last resort.  Id.

Reich goes on to make some specific policy suggestions for acting to reduce inequality.  These include

• reversing the impact of the reinstatement of the higher Social Security tax rate by exempting the first $20,000 of income from the tax and lifing the ceiling on income subject to it;
• reviving government-run work corps, like the WPA and CCC, "to put the long-term unemployed directly to work"
• raising the minimum wage
• imposing a 2% tax surcharge on wealth in excess of $7 billion to be dedicated to education
• Cutting corporate and military welfare
• not cutting public investments or safety nets
• giving tax credits for actual job creation
• supporting states that rehire teachers, firefighters police and social workers.  Id. (quoting and paraphrasing).

Sounds like a pretty good plan.   As Corak noted (in the Economist's View post cited above):

[D]ynamic labor markets offering new opportunities to the population as a whole, progressive public policies of relatively more benefit to the relatively disadvantaged, and strong families with growing incomes and human capital will lead to much more mobility than aristocrats of a pervious era could ever have imagined.

And the Reich plan is certainly better than what most of the GOP-led state experiments like Michigan are coming up with, which read like a plan for even more redistributing upwards to the top few, including:

• eliminating income taxes in favor of regressive sales taxes,
• eliminating business taxes in favor of regressive user fees (a GOP-led Michigan "upward" redistribution "innovation"),
• pushing hard against unions  (a GOP-led Michigan "innovation"),
• reducing safety net support like Medicaid (being considered in Michigan),
• taxing vulnerable seniors on pension income (another of Michigan's recent "innovations"),
• cutting support for state universities while reallocating the support that remains to those that serve the upper class rather than underprivileged who will generally need to borrow more and take longer to succeed (another of Michigan's redistributionist efforts).

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

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

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

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

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

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

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

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

 

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

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

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

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

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

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

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

***

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

***

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

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

***

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

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

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

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

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

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

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

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

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

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

Obama's Labor Day Speech in Detroit

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

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

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

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

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

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

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

Thinking about Inequality and Fairness in Tax Policy--Part I

As most of my readers know, the underlying theme of this blog is democratic egalitarianism--the idea that institutions within our society should pay attention to inequalities and that policies to redress inequalities are supportive of true democracy.  It is not that we will achieve perfect economic equality--that is not possible and likely not even a desirable end.  But we do need to counter the tendency of human systems to concentrate desirable attributes in a tiny powerful elite.  That is, human systems tend to redistribute desirable attributes upwards.  Income, wages, wealth, health care, housing, natural resources, human capital opportunities--all these things that people need to live a decent life tend to be redistributed and allocated to those who already have more of them.  Property begats property, and putting the owner class first begats a situation in which the owner class owns even more of whatever is valuable to own, and therefore commands, even more, the ability to keep the majority of the population in a state of quasi-servitude.  In a democratic society with a primarily capitalist economy, one of government's primaryh purposes is to enable individual freedom for all by countering the brute power of the capital-owning elite and redistributing those resources downwards.

One way that a majority of Americans has favored for achieving this necessary justice result is progressive taxation policies--taxing the wealthy/higher income at a higher rate (or even on a broader base--to wit, the corporate tax).  When there is progressive taxation, the gains that the elite have made merely because they are in the elite and hold the keys to power are marginally restrained.  But more importantly, those revenues then can be used to fund government programs that expand public goods and create opportunities for the vast majority with significantly fewer resources, through programs like unemployment compensation, health care, public education from K-12 to university, public transportation, etc..

So we need to ask a few questions about our system today.  Is it working or is the tendency for income, wealth and other favorable attributes to accumulate at the top overpowering the means of redress that exist?  And does the population have a clear understanding of the democratic egalitarian principle, so that people will vote in the best interest of the continued functioning of a democratically premised society?

I fear the answer today in the US is no, to both questions.  The US has long used its military might to support its wealthy elite and their multinational corporations.  Today, that seems even more exaggeratedly so. 

Think about the invasion of Grenada, Iraq, Afghanistan and the continuing erosion of human rights (read--the rights of ordinary Americans to go about their lives freely choosing how they will live and where they will go and what they will do) which has inevitably fed the military-industrial complex of arms manufacturers, private mercenary outfits, natural resource extraction, financialization of the economy and general globalization trends, all of which are part and parcel of the corporatist agenda for ensuring continuing power to Big Business and its owners and managers. 

And the populace is ill-informed about the true mechanisms of individual freedom.  They have been sold a bill of goods by the right-wing so-called "think tanks" supported, by and large, by wealthy owners of Big Business and the multinational corporations that benefit most by keeping the population ignorant.  The fantasy concept of a "free market" has been pushed as the answer to all ills, even though there is no such thing as a free market.  (And in fact the wealthy elite and Big  Business have benefited from scores of policies designed to provide them distinct advantages, from CIA and military support against popular leftist regimes in Latin America that threatened multinationals grip on natural resources and labor there, to tax and spending policies in the US that favor large corporations over small, localized businesses.)  The people have been told that if only the government will support the "competitiveness" of its multinational corporations, jobs and good fortune will eventually trickle down to them, even though of course the immediate observable result will be additional wealth to the owners and managers of the multinational corporations.  The jobs and good fortune don't trickle down, however.  With no commitment to place or people, multinationals and their owners and managers take the rentier profits and shove them into their own safes (often more investment in exploitative industries in third world countries and private equity ventures that exploit workers by dividing and conquering to eliminate unions).

Think about the current focus of the ultra-right House leadership and Senate minority and the ultra-right governors in many of our states today.  They use divisiveness to turn private workers (long deprived of any real rights to associate in unions by law and practice, and therefore suffering through a decades-long diminution in both their wages/incomes and their general welfare  from health care, pension rights, and job security) against their public counterparts who have generally maintained somewhat stronger unionization and and benefit rights, in order to justify even further curtailment of public employee unionization and benefit rights.  They argue deficits (after supporting costly militarization and warmongering in Iraq and Afghanistan, privatization, deregulation and other legislation intended to push us into the greatest deficits ever) in order to stifle all government programs existing to aid the non-elite classes, such as Social Security, Medicare, Medicaid, and unemployment compensation.  They suddenly find a problem with increasing the debt limit, after borrowing trillions to come to the aid of their bankster cohort, without imposing conditions that would require the banks to treat ordinary Americans fairly.  They argue for the elimination of the little progress made from 2008-2010 in enacting a weak form of health care reform (weak because it favors the Big Insurance companies and their managers and owners' continued rent profits rather than including some form of single-payer, such as the "public option" in the national exchanges) and financial reform (weak because the Dodd-Frank legislation failed to create a fully independent consumer financial protection agency and failed to restrain sufficiently banksters' ability to gamble other people's money to make windfall profits out of a proprietarily managed system that operates to their favor and results in privatization of gains with socialization of losses).  They stand at a line in the sand against all tax increases for the wealthy, on the claim that the wealthy are the people who create jobs (see Eric Cantor on the position that no debt limit increase is possible without a guarantee protecting the wealthy from tax increases), even though the wealthy are not entrepreneurs, have sufficient wealth to invest in their businesses even with high tax payments, and don't do it. 

New jobs will be created when there is a broader middle class with extra money to spend on things that make life better, not when the wealthy have even more money to sock away somewhere because they can't possibly spend all they have.

So if we ask the question--what, then, is a fair tax policy, isn't the answer fairly straightforward?  In any context, it is the policy that favors the most redistribution from the elite to everyman while raising sufficient revenues to provide adequate investment in public infrastructure that moves everybody forward and human capital development (like public education).

Readers, what say you?

If not, why not?  Readers comments welcome.

The Budget Crisis: OMB Watch's Analysis of Ryan's path to mediocrity proposal

OMB Watch provides another progressive perspective on the ideology driving the Ryan budget proposal.

Like all congressional budget resolutions, House Budget Committee Chair Paul Ryan's (R-WI) fiscal year (FY) 2012 Budget Resolution is not simply a chart of preferred spending and revenue levels, it's also a political statement guided by ideology. And Ryan's ideology demands that the federal government divert ever increasing sums from middle- and low-income families to big business and high-income families.

Importantly, they note that the call for cuts to programs that serve the more vulnerable amongst us is justified by an arbitrary decision to cap federal revenues at a level guaranteed to create deficits unless there are significant spending cuts.  This is the "starve the beast" idea at its culmination.

On the revenue side, Ryan's budget revolves around locking down federal revenues to below 19 percent of gross domestic product (GDP). While this number is the average for the past 30 years, it has consistently lagged federal spending, resulting in the steep deficits we see today. In order to maintain this deficit-inducing level, Ryan's plan calls for cutting income taxes for high-income earners from today's top marginal rate of 35 percent to 25 percent. (Interestingly, the last time we saw federal budget surpluses, between 1998 and 2001, the top marginal rate was 39.6 percent.) Ryan plans a similar giveaway to corporations, slashing the corporate tax rate from 35 percent to 25 percent.

Pay-fors for the big tax cuts to Big Business and the wealthy?  Well, those should come partly from those pesky large subsidies in the Code, right?  But Ryan avoids naming any of those.   My guess is that he knows the GOP isn't serious about eliminating large tax expenditures that primarily benefit the wealthy and Big Business, such as (i) active financing exception for overseas finance subs, (ii) deferral for multinational corporations' active business income, (iii) mortgage interest deduction that primarily gives huge tax cuts to elites with million-dollar homes, (iv) charitable contribution deduction that lets the wealthy donate stock and take a deduction for its value rather than for what they actually paid for it and have invested in it, etc..  And besides, even if he thought that the GOP might have to eliminate a very few of those nice juicy wealthy-friendly provisions, he isn't about to name them and then get a well-funded lobbying group working against him on this.  The GOP has benefitted much too much from having those well-heeled lobbying groups for Big Business and wealthy families (like the Walton heirs) on their side, along with the right-wing purported "think" tanks like Cato, American Enterprise, Tax Foundation, etc.....

The proposal also indicates that "large" tax expenditures should be eliminated to pay for tax cuts for the rich. It states that "deductions, credits and special carve-outs" in the corporate tax code should be modified to pay for tax cuts for businesses. Notably left out from the discussion of removing these tax code "distortions" is any identification of which tax expenditures Congress should nix. Far from being bold, Ryan's proposal ducks these critical questions, shifting the heavy lifting and political daring to the tax writing committees, staving off attacks from powerful special interests that will no doubt flex their campaign contribution muscles to retain their federal largesse.

Not really cutting the rich doesn't mean that the GOP won't carry through with cutting the vulnerable.  Ryan is quite willing to list specifics here--after all, the poor and the young and the unemployed and the underemployed don't have much way to work together to have their voices heard (especially in those states where the GOP's anti-union drive is squelching unions).

In exchange for these tax cuts, spending for the old, the young, the poor, and the sick would be lopped off by two-thirds. Ryan laments the notion that the current social safety net is a "hammock, lulling able-bodied citizens into lives of complacency and dependency," while worrying about Medicaid health care providers "fleeing the system to escape endless red tape and underpayments." His solution is to apply the same failed "get-back-to-work-you-lazy-bum" policy that ended the old income assistance program and created Temporary Assistance for Needy Families (TANF).

In fact, the welfare reform of the 1990s that is approvingly cited in the budget plan did nothing to curtail poverty, and it only managed to reduce welfare rolls by forcing low-income parents to take low-wage jobs A similar approach to health care, nutrition, and housing assistance will likely result in only cutting families off from these vital programs when they need it the most.

Headlining the section of Ryan's proposals to "strengthen the social safety" are $771 billion in Medicaid cuts. Ryan's plan would convert this low-income health care program from a system in which states and the federal government share costs into a block grant program that would allow states to abandon the eligibility and benefit guidelines currently in place. Ryan argues that relieving states of this "one-size-fits-all" approach would result in significant cost savings, allowing states to pay for higher-quality care. But this is just window dressing beautifying almost $800 billion in health care cuts to low-income families that will ultimately result in poorer health outcomes for millions of people.

Nutrition and housing programs are also prominently featured on Ryan's chopping block. Ryan is clear that far too many people have access to the Supplemental Nutrition Assistance Program (SNAP, formerly "Food Stamps") and housing assistance. Applying a circular logic, Ryan insists that without kicking people out of these programs, the expenditures will be so great that people will have to be kicked out of these programs. Thus, he is just doing what will have to be done eventually. Yet cuts to health care, nutrition, and housing for low-income families is the bedrock on which Ryan builds his tax-cutting and corporate support programs.

OMB Watch points out that Ryan's plan is really a "two-fer"--it manages to take away from the vulnerable (the young, the poor, the elderly) even while giving to Big Business by letting corporations skim off the cream from the federal funding formerly dedicated to the vulnerable.  Here's where the Reagonomics mantra of privatization comes in--tax cuts with privatization is just another way of saying let's convert this funding for the poor into a subsidy for Big Business.

Ryan's plan was formulated with the goal of allowing private corporations greater access to federal funds. At the front of this effort is a form of privatizating Medicare. He calls for use of “premium supports,” which means Medicare would be changed from an entitlement with defined benefits to an insurance system in which the government provides a fixed sum of money to individuals to buy coverage. The phrase “premium supports” is used because “vouchers” doesn’t poll very well today. But a rose by any other name is still a rose. By giving vouchers to seniors to pay for their own health care, Ryan's plan would insert a middleman between patients and health care providers, giving health insurance companies the ability to skim untold billions in federal health care spending.

Ryan's plan would also voucherize federal jobs programs by doing away with them and creating a "career scholarship" program that would have the effect of giving for-profit colleges a bigger bite of the national education and training budget. And although having little, if any, impact on the budget, Ryan's proposal calls for gutting the recently passed Wall Street reform – a boon to big banks who loathe the legislation – and removing sensible oil drilling regulations despite last year's BP disaster in the Gulf of Mexico.

But if you think that this means an open look at the way we waste billions annually on militarization (one of the other four cornerstones of  privatization, deregulation, militarization and tax cuts  that make up the GOP's radical reagonomic agenda for continuing the devastation of the American economy that began when Reagan took office), think again.  Eisenhower's view that we had to maintain a military-industrial complex but should be very wary of its power has been translated with reaganomics into the view that we should constantly feed the military-industrial complex because it is the friend of the rich and Big Business, and we need never hold it accountable for anything. 

Security spending, however, would go untouched compared to President Obama's budget request, increasing compared to the Congressional Budget Office (CBO) baseline. This aspect of the budget proposal makes it a rarity among the many floating around Washington – the president's deficit commission plan is clear in its call for "equal percentage cuts from both [defense and non-defense]". The Pentagon awards hundreds of billions of contracts to private corporations every year. Cuts to the Pentagon's budget as deep as those to non-security programs would have significant impacts on the bottom lines of the nation's biggest businesses. The Ryan budget keeps the taps wide open and continues to pump billions of dollars of federal funds to these contractors.

So the Ryan budget is a disaster.

Despite claims to the contrary, Ryan's proposal would increase the debt in its first ten years. According to the CBO's analysis of Ryan's plan, in the first ten years after the enactment of his proposal, debt held by the public would actually increase compared to doing nothing. Under the hood of this clunker of a plan are draconian cuts to non-security spending that are less than the tax cuts that would be handed out to the rich and big businesses. The real cost savings in Ryan's plan come after the ten-year budget window that budget resolutions typically address. In 2022, the Medicare voucher system comes into effect, which essentially shifts health care costs from the government to senior citizens. In short, even with drastic spending reductions, the first ten years of Ryan's budget have no positive fiscal impact, while the out-years look improved because of radical Medicare cuts.

This is the budget of Big Business and the anti-government crowd. Ryan's budget doesn't dial back the laundry list of national priorities so much as it simply hacks away at the amount of resources devoted to accomplishing them. And in areas where he can, he opens them up to private corporations to skim funds as they flow from the Treasury to the provisioning of services. For what's left of programs operated by the federal government, Ryan's budget leaves a fraction of the funds necessary to implement an effective social safety net, protect the public, and invest in the economy as businesses and the wealthy contribute less.

Friday Animations: Jon Stewart on GE's $14.2 billion profits and zero federal income taxes

The New York Times ran a lengthy expose of GE's offshoring of profits and other tax avoidance techniques.  David Kocienieski, GE's Strategies Let It Avoid Taxes Altogether, NY Times, Mar. 24, 2011.  Don't miss the great  "interactive media" link:  General Electric: Where Taxes are a Source of Profits.

 US companies are supposed to pay a tax of 35% on their worldwide profits.  But there are lots of loopholes (some intended, some not) and many of those have been expanded over the last 20 years, as Congress races to satisfy the corporate lobbyists.  After the 2001 tax cut bill, Congress basically promised the corporate lobbyists they'd get their wish list.  And they did.  The 2003 and 2004 bills weakened the way the foreign tax credit works, so that multinationals can use high taxes paid in one country to offset low taxes paid in another and avoid paying US taxes even on that low-taxed income.  It gave them the 15% rate on dividends, so that the wealthy elite who own most of the capital assets now get preferential rates on their regular streams of income (15% on dividends, 0% on muni-bond interest) as well as low 15% rate on their sales of stock and other securities.  There were lots of goodies from the corporate lobbyists' wish lists that got passed--expensing, shorter lives for depreciation, that special rate reduction for "manufacturers" (that ends up covering the oil and gas industry) that was passed when the WTO made us stop a discriminatory tax provision that favored US industry, the R&D credit, the "active financing" exception to subpart F, and on and on. 

Companies like GE, that hire lots of well-trained tax attorneys and make cutting taxes a big piece of how their businesses work, have made hay out of the laxer code.  They talk a lot about how that 35% statutory rate is just killing them.  But meantime they make huge profits and pay zero taxes.  That's just one facet of corporatism that is damaging ordinary Americans today.

Read the New York Times story first.  But then watch this March 28, 2011 Jon Stewart take on the GE tax avoidance success story.  

Wisconsin paradox: tax cuts that create deficits; labor demands that don't reduce them

Although threatened with arrest, those protesting Walker's claims of trying to balance a budget by union-busting while ladling out corporate tax cuts continued on Sunday.  About 70,000 people turned out in spite of continuing cold and snow, which says a lot about the commitment to this cause. 

Walker's union-busting drive appears to have little to do with balancing the budget.  He notes that public employees are the "haves" and private workers are the "have nots".  See unions Debate What to Give to Save Bargaining,  New York Times, Feb. 27, 2011.  Of course, the reason private workers have lost in the last four decades is that those at the top have captured all the productivity gains and left workers with stagnant or even declining wages and benefits.  That is because they managed to stifle unionization through legislation that makes it difficult and through anti-union actions in the employer's shop.  Without unions, private workers find it more difficult to fight for decent wages and decent benefits.

It's not that the wages and benefits that public employees have are unreasonable.  It is that the wages and benefits--where they are less--that the private employees have are unreasonably stingy. 

The anti-union companies and employers like Gov. Walker are trying to plant a wedge that will separate private employees from public employees, making it easier to keep them all in serfdom.  And there are political benefits--at least for the Republican party.  See Mark Thoma's post, here (quoting Krugman on the political expediency behind the push to get rid of public employee unions).

The unions have conceded that tough times require them to renegotiate many of the concessions they've won, and they've agreed to pay more outright for their pensions and health care.  (As David Cay Johnston notes in the item linked below, they actually pay, indirectly, 100% of the costs, since the pension and health care benefits are provisions that they have negotiated for in exchange for lower wages.)  Walker has passed four tax cut bills for corporations, that will have a significant long-term cost.  So Walker is giving to businesses while taking from local government, universities, medicaid and public employees. 

For coverage of the Wisconsin situation, see the following:

Rallies for Labor, in Wisconsin and Beyond, New York Times, Feb. 26, 2011.

Moveon.org rallies Gay Groups to Sierra Club behind Unions, Bloomberg.com, Feb. 27, 2011.

AFL-CIL (AFLCIO) on Twitter (reporting at about 9:30 pm that the crowd in the Wisconsin capitol was singing "We Shall Overcome" ).

Are These People Overpaid, Huffington Post, Feb. 25, 2011 (providing information about various workers in Wisconsin, including a paramedic who is paid $43,000 for working 24-hour shifts involving often stressful and heavy labor and a schoolteacher who is in debt from her education and makes only $30,000 a year, not enough to allow cable at home).

Wisconsin Pension Cuts are Actually About Reducing Union 'Cash Wages', David Cay Johnston, Huffington Post (noting that "Out of every dollar that funds Wisconsin' s pension and health insurance plans for state workers, 100 cents comes from the state workers.  How can that be? Because the "contributions" consist of money that employees chose to take as deferred wages -- as pensions when they retire -- rather than take immediately in cash. The same is true with the health care plan. If this were not so a serious crime would be taking place, the gift of public funds rather than payment for services").

Dean Baker, The Origins and severity of the Public Pension Crisis, Center for Economic and Policy Research, Feb. 2011 (picked up by Paul Krugman for its neat graph showing that the main cause of funding problems in public pension plans is not ridiculous demands for exorbitant pensions by public employees, but rather the 2007 financial crisis and its impact on returns to pension funds)

Wisconsin Governor Scott Walker Signs Income Tax Cut Into Law: Businesses that Move to Wisconsin Won't Have to Pay Income taxes for Two Years, PostCrescent.com, Feb. 1, 2011 (noting that "The measure joins three others Walker has signed in his first month in office that he said will send a message that Wisconsin is more business friendly. Walker, a Republican, has seen his legislative agenda speed through the Republican-controlled Legislature even though he has yet to explain how he'll pay for everything in light of the state's projected $3 billion budget shortfall").

Walker, the GOP Bully, and Michigan's crony "emergency financial manager" statute

Wisconsin Gov. Walker is still playing his "I won't budge" game of chicken with the lives and well-being of thousands of Wisconsin employees and all the others that depend on them, from family to local businesses, not to mention schools and other public services.  In the phone call a few days ago, he noted that they planned to lay off 5-6000 employees but might "ratchet that up" to blackmail Democratic senators into making the union-busting vote possible.  Today he is threatening to fire 12,000 state workers.  See Wisconsin Governor Threatens to Trigger Layoffs for Thousands of Public Workers, Washington Post, Feb. 26, 2011.

The argument is that unions get too sweet a deal, but that argument doesn't hold water, since it compares apples to oranges and disregards the fact that the state made a contract with the worker on pension and health care, through which workers gave up higher wages.  The GOP that proclaims its belief in personal responsibility, the importance of property and contract rights shows that it really means that it values those only for the wealthy when it intentionally tries to break contracts for public employees. 

Besides, the unions have already conceded that in tough financial times they should be willing to give up some of the benefits they have won in bargaining in the past.  Walker doesn't really want that--he wants to break the unions and be a national hero to the Ayn-Rand/John Birch Society branch of the Republican party (which seems to be most of it these days).   

This is not "equal sacrifice."  Walker has pushed through and signed a series of tax cuts for business.   That's robbing Peter --the ordinary wageearners who happen to work for the state as janitors and teachers and carpenters-- to pay Paul --mostly the big businesses that elects GOP politicians.  The Democratic Senators should stay away rather than assist Walker in his union-busting economic crisis-causing legislative gambit.

In Michigan, the GOP-led legislature passed an "emergency financial manager" bill that lets the GOP politicians in office appoint their cronies who weren't able to get elected and take over the jobs of elected officials.  It is privatization run amok, as schools are being closed and then leased (cheaply) to private for-profit schools.  Services for janitors and maintenance are being contracted out and those persons with 18 or 20 years of service are being fired and told that they cannot work for the new, privatized services else they will forfeit any pension rights that they have.  The claim is that this is for security reasons.

Don't these GOP politicians realize or care that they are creating a new class of poverty-striken people who were in the middle class just a few decades ago? 

 I know a family of five who are living on the (about to end) unemployment compensation of the wife, the odd jobs that the carpentar husband can get (about $500 a month at most), and the meager wages that the son gets working as the cook at a pizza bar, and some income from a daughter that is a part-time dental assistant with a young child.  The family gets just enough income that they've been turned down for money to assist with buying food.  They are afraid they will lose their home, on which they have a $102,000 mortgage.  What then?  What prospects for that young child?  For the father being able to work if he loses his garage workshop and his tools?  For the mother to find a new job if she is struggling to eat or buy a warm jacket?

This is what the GOP mentality is doing to this country.  Throwing decent people out of jobs, because they won't raise taxes on the wealthy and big businesses.  This has got to change.