Are American Corporations Really Less Competitive Because Of Taxes?

Corporate tax rates used to top out at 52.8 percent. Later rates were lowered to 48 percent and then 46 percent. Then in 1986 corporations complained that this (lowered) rate made them “uncompetitive” and demanded “corporate tax reform.” Because job creators. So the rate was lowered to 35 percent.

Now in 2014 corporations are complaining that this (lowered) rate makes them “uncompetitive” and are demanding “corporate tax reform.” Because job creators – or something. This time they threaten to – or do – renounce their U.S. citizenship, saying it is because of too-high tax rates.

So, here we are again. They want rates lowered even more. But are corporate tax rates really “uncompetitive?” And what does that even mean?

Tax Rates Are Plenty Competitive

At the New York Times’ Dealbook Andrew Ross Sorkin looks at this issue in “Tax Burden in U.S. Not as Heavy as It Looks, Report Says.” Sorkin looks at a paper, “‘Competitiveness’ Has Nothing To Do With it,” by Edward D. Kleinbard. Kleinbard is a professor at the University of Southern California and used to be chief of staff to the Congressional Joint Committee on Taxation. Sorkin quotes Kleinbard:

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Perhaps We Need Corporate ‘Loyalty Oaths’

Several American corporations are using a tax loophole scheme called “inversion” to get out of being American corporations obligated to pay American corporate tax rates. They buy or merge with a non-U.S. corporation (usually located in a tax haven), pretend they are a subsidiary to that corporation and renounce their U.S. “citizenship.”

That’s almost the only thing that changes. Their U.S. executives, employees, facilities and customers remain where they are, along with the benefits and protections they get from our courts, education system, military, infrastructure and all the other things we pay for through taxes. They just stop paying various taxes to help pay for those things.

Walgreens announced today that they will not “invert” and become a non-U.S. corporation. (And their stock tumbled as the bailed-out “patriots” on Wall Street heard the news.) Walgreens’ decision follows the collection of more than 160,000 signatures on a “Tell Walgreens to stay in the USA!” petition organized by a coalition of progressive organizations demanding that Walgreens remain a U.S. corporation.

But that announcement is just one victory in what has to be a continuing campaign to make sure corporations honor their obligations to America and pay their share of the cost for the things that enable them to prosper in America.

Corporate Desertion

At The Daily Beast Monday, Jonathan Alter wrote about this “corporate desertion.” In “The United States Needs Corporate ‘Loyalty Oaths’,” Alter writes that “…it’s time for red-blooded Americans to take matters into our own hands. My answer is to make every corporation sign something.” Alter suggests “… a “non-desertion agreement” with the John Hancock of every board member and CEO in the United States.”

If boards thought for even a second about the long-term interests of their companies, they would summon their lawyers and sign. It’s protection against the risks of resurgent nationalism that could strip them of the many advantages (indirect government subsidies, easy access to American markets) that they currently enjoy.

Alter points out that the president can just do this today with an executive order for corporations that receive federal contracts:

“The president should issue an executive order that says any company that wants to keep its federal contracts must sign a new-fangled NDA. It’s reasonable to expect most federal contractors to be American companies. Obama has already used that leverage to raise the minimum wage for companies doing business with the government and, in a little-noticed move, to force government contractors to pay their suppliers on time.

This executive order would get the attention of major corporations, most of which receive federal contracts.”

The Benefits And Protections Corporations Get

Corporations themselves are not the problem. There is nothing inherently wrong with them, as long as we understand what they are and are not. A corporation is just a tool – a way to get something done. A corporation really is just a legal contract – entirely a creation of government (We the People) – a legal form of business organization that allows multiple investors to aggregate funds in order to accomplish projects that would otherwise be difficult to get done, except by governments. (It takes a huge investment to build a factory, buy the equipment and supplies, and hire the people required to make automobiles, trains, or other goods. The corporate form of a business enables this aggregation of funds from multiple investors.)

Where our relationship with corporations goes wrong is in our understanding of what they are and what they are for. They are neither good nor bad, they can’t be; they are not sentient entities that have morals or “decide to do things.” A corporation is just a contract between investors. A chair or hammer can’t decide things, and neither can a corporation. It is the people who manage the corporations that decide to do things, not the corporation.

Alter writes of the advantages that corporations currently enjoy. They are granted these advantages and benefits because we – through our government – have decided to let groups of investors have them. We did this in order to better accomplish those things that we want to get done. So corporations get many benefits and protections, including (but not limited to):

  • Corporations can raise and concentrate money. Corporations can add new investors, issue stock and borrow. Also the corporation’s stock can be traded, providing liquidity.
  • Corporations provide limited liability. The personal assets of the shareholders of a corporation are protected from the corporations debts and liabilities. A shareholder doesn’t have to come up with money to cover what the company might owe from borrowing or from a legal penalty or fine. Shareholders also are not criminally liable for the things the corporation might do.
  • Corporations get special tax treatment. They pay lower tax rates than other kinds of “persons.” They get all kinds of tax deductions, subsidies, exclusions, etc. that regular persons do not. A huge benefit and protection shareholders of corporations get is something called the “capital gains tax rate.” When one of these owners of corporate stock sells the stock the profits from that sale are not taxed at the same rate as the income of working people. That sale is called a “capital gain.” (That tax rate just went from 15 percent to 20 percent as part of President Obama’s budget compromise.) The reason that the wealthiest people get most of their income from capital gains is because the capital gains tax rate is lower – and the reason the capital gains tax rate is lower is because the wealthiest people get most of their income from capital gains. Makes sense, doesn’t it?
  • Corporations can own property in their own name, including shares of other corporations. Even though they are not “people” we let them “own” things. This enables a certain level of “hidden” ownership of things.
  • Corporations live forever. They survive aside from the lives of the shareholders.

For The Benefit Of We The People?

We the People allow the corporate form to exist and grant these benefits and advantages to corporations because it enables the aggregation of funds from multiple investors to help accomplish those things we believe these corporations can do for us. We the People grant them special benefits, such as tax breaks, and in exchange we are supposed to get certain things back from this deal, beginning with well-made goods and high-quality services, good-paying jobs with benefits, and most importantly a share of the proceeds – taxes – to use to run our society, maintain and improve our infrastructure, educate ourselves, and all the other things We the People established our government for. In other words, this is supposed to be about making our lives better.

Why else would We the People make laws that allow this business form and grant these advantages and benefits to these corporations, unless it was for the benefit of We the People?

We the People create the fertile ground – education, infrastructure, courts, police and military protection, customers, etc. – for these corporations to thrive and We the People are supposed to reap the harvest.

We Get In Trouble When We Misunderstand What Corporations Are For

These advantages and benefits are supposedly granted in order to advance our – We the People’s – interests in getting certain things done and providing us with certain benefits, period. It is when we misunderstand what a corporation is that trouble begins.

One example of this trouble is that many people mistakenly believe that shareholders “own” a corporation. In fact, shareholders only have a contractual agreement related to the value of the stock. A corporation has no “owners.” It is just a contract, an understanding, a piece of paper.

Another example of the trouble that can occur from misunderstanding what a corporation is comes from the mistaken belief that the purpose of a corporation is to make money – and that there is a corresponding rule that they are required to “maximize shareholder value.” In fact, a corporation exists to allow investors to pool funds to accomplish certain tasks that benefit us. Their purpose is to better enable the accomplishment of those tasks.

Just Who Are We Talking About?

Unfortunately, public understanding of corporations has migrated from the original purpose of this form of business organization. Why is this? The answer might come from understanding who benefits from owning shares in corporations. This chart from the 2011 post “Nine Pictures Of The Extreme Income/Wealth Gap” explains who we are really talking about when we talk about corporations today:

The top 1 percent own 50.9 percent of all stocks, bonds, and mutual fund assets. The top 10 percent own 90.3 percent. The bottom 50 percent of us own 0.5 percent. That’s one half of one percent.

So Here We Are

We have drifted very far from our understanding of the relationship that is supposed to exist between We the People, our government, and the businesses that our government allow to exist. Why would we pass laws that set up corporations and grant them special benefits, except to make our lives better? How have we allowed these legal constructs called corporations (and the people behind them) to gain so much power that they can tell us what to do, and tell us they are going to just leave the country if we don’t let them have their way?

If We the People are not benefiting from the existence of these things called corporations, maybe it is time for We the People to put a stop to the special advantages and benefits they get. Why should the 1 percent enjoy limited liability, special tax breaks, use of courts, and police and military protection if We the People are not getting well-made goods and high-quality services, well-paying jobs with good benefits, good schools and the rest of the things called for in the original bargain that created corporations in the first place?

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This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF. Sign up here for the CAF daily summary and/or for the Progress Breakfast.

5 Giant Un-American Corporations Trying to Bolt U.S. to Avoid Taxes

I have this posted over at AlterNet: 5 Giant Un-American Corporations Trying to Bolt U.S. to Avoid Taxes

Corporations get enormous benefits that regular “persons” do not. One of the biggest is limited liability. This means that the shareholders are not liable for the debts of the corporation. A corporation can get in a lot of trouble, financial and otherwise, and then just close up shop, divide its assets to its creditors, and the shareholders can just walk away losing only the money they originally put in. While it might be a “person” to certain members of the Supreme Court, there is no person to be made to work off the debt or to put in jail.

Corporations also enjoy lower tax rates than people do. (Except for the people who make a gain from the shares: they get a special, even lower tax rate called “capital gains.” Why is this? The capital gains tax rate is lower because the wealthiest make most of their income from capital gains, and the wealthiest make most of their income from capital gains because the capital gains tax rate is lower.)

And of course, corporate “persons” never have to die.

Read the rest at AlterNet.

A Simplified Way To Tax Multinational Corporations

You’ve been hearing a lot about corporations “renouncing their U.S. citizenship” through “tax inversions.” This is when a company buys or merges with a non-U.S. company and claims to no longer be based in the U.S. to get out of paying certain taxes. The company does, however, keep the same employees, executives, buildings, sales channels and customers it had inside the U.S. before the switch.

The epidemic of tax inversions represents just one of many ways corporations are dodging their taxes by taking advantage of our outdated and rigged corporate tax system. It is time for a serious debate about corporate taxes, and on Monday a new report by District Economics Group economist Michael Udell offered a bold new alternative that is so radically simple that even the most clever corporate tax accountant would have a hard time finding a way around its fair and universal proposition: If a company sells products or services in the U.S., it must pay taxes on the U.S. proportion of its worldwide sales.

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Is Walgreens Trying To Leave The US?

Here’s the latest corporate tax scam: Companies are renouncing their U.S. corporate status and claiming that their headquarters are instead located in one or some other low-tax country, like Switzerland. The technical word for what they are doing is an “inversion.” It involves buying or merging with a company in the new country while actually keeping the same employees, operations, sales outlets and other assets right here.

Lately Walgreens – the nation’s largest pharmacy retailer with 8,200 stores and locations in all 50 states – is in the news because they are considering an “inversion.” The company is deciding whether to renounce its U.S. corporate status and instead claim on paper to be a Swiss company. To do this it will merge with a Swiss company, Alliance Boots. This would let them dodge billions in U.S. taxes. According to Americans for Tax Fairness, this move would mean Walgreens avoids paying $4 billion of taxes they would otherwise owe to the U.S. government in the next five years.

Walgreens is doing this even though, as Americans for Tax Fairness points out:

  • Walgreens receives nearly a quarter of its income from taxpayers through government programs. Of its $72 billion in 2013 sales, an estimated $16.7 billion, or 23 percent, came from Medicare and Medicaid.
  • U.S. taxpayers have spent $11 million subsidizing executive bonuses at Walgreens over the last five years. A table showing the Walgreens executives getting subsidies is available here.

Repeat: Walgreens receives a quarter of its revenue from programs like Medicare and Medicaid that are funded by U.S. taxpayers, but is renouncing its U.S. “citizenship” to avoid paying taxes for the U.S. services it uses and customers it gets. (How long will it be before we’ll be hearing another round of “we’re broke” and have to cut Medicare and Medicaid?)

But wait, there’s even more. Andrew Ross Sorkin at The New York Times’ Dealbook points out:

[Illinois] gave Walgreen $46 million in corporate income tax credits over 10 years in exchange for a pledge to create 500 jobs and invest in upgrading its offices. The state also provided $625,000 in training money and $875,000 in other tax incentives.

Walgreens, collector of gobs of tax dollars, is preparing to renounce citizenship and stop paying taxes. But they’ll still be benefitting from the roads and schools and courts and military those tax dollars pay for – and will still be collecting those tax dollars from government programs like Medicare and Medicaid.

But wait, there’s even more. Not being a U.S. company does not mean they won’t still be getting money from and bribing influencing the U.S. government! Robert Reich points out, in “Walgreens shouldn’t have a say about how the U.S. government does anything,” that the “Swiss” company should not be lobbying the U.S. government.

By treaty, the U.S. government can’t (and shouldn’t) discriminate against foreign corporations offering as good if not better deals than American companies offer. So if [the Walgreen Company] as a Swiss company continues to fill Medicaid and Medicare payments as well as, say, CVS, it’s likely that Walgreen will continue to earn almost a quarter of its $72 billion annual revenues directly from the U.S. government.

… In 2010 it lobbied for and got a special provision in the Dodd-Frank Act, limiting the fees banks are allowed to charge merchants for credit-card transactions — resulting in a huge saving for Walgreen. If it becomes a Swiss citizen, the days of special provisions should be over.

… Since the 2010 election cycle, Walgreen’s Political Action Committee has spent $991,030 on federal elections. If it becomes a Swiss corporation, it shouldn’t be able to spend a penny more.

One more thing. If Walgreens does this “inversion” it avoids $4 billion in U.S. taxes over the next five years. Here is what $4 billion could pay for:

Why Inversions?

Companies that invert are trying to dodge U.S. taxes. They say taxes are too high in the country that provides them with educated employees, good courts, police and military protection, infrastructure (admittedly deteriorating since the Reagan tax/budget cuts…), and other resources. If they “move” to Switzerland, Ireland, the Cayman Islands, whatever, they will still be able to get all of those things, still get fat government contracts, still get what’s left of our middle class as customers, etc.

The top U.S. corporate tax rate is higher than other countries, but there is a story behind that. First, this isn’t the “effective tax rate” – the rate they actually pay after all the tax-avoidance schemes and various breaks are taken into account. The effective rate for the companies that pay any taxes at all (several don’t) is currently 13 percent on worldwide income.

But there’s a more important reason at work. Our corporate tax rate used to be much higher than it is now. Companies complained that it was higher than other countries, so Congress danced with the ones that brung ‘em and lowered the rate. Then these companies went from country to country complaining that the U.S. rate was much lower, they were not “competitive” and had to lower their rate, too. (Alliance Boots, the company Walgreens might merge with, moved from Britain to Switzerland in 2008 to avoid “high” British taxes.) And now that the giant corporations have made the circuit, playing one country against another, extorting lower taxes in country after country, they’re back here. It’s called a downward spiral, a race to the bottom.

A Bill In Congress

The House passed an amendment by a vote of 221-200 denying federal contracts to American companies that have reincorporated in Bermuda or the Cayman Islands. This is not yet law, but is attached to the Energy/Water appropriations bill. It is a beginning, but only lists these two tax haven countries and won’t affect Walgreens, should they make themselves appear to be a Swiss company.

The “Stop Corporate Inversions Act of 2014” is a more comprehensive effort that “increases the needed percentage change in stock ownership from 20 percent to 50 percent and provides that the merged company will nevertheless continue to be treated as a domestic U.S. company for tax purposes if management and control of the merged company remains in the U.S. and either 25 percent of its employees or sales or assets are located in the U.S.” Republicans will obstruct the bill.

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This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF. Sign up here for the CAF daily summary and/or for the Progress Breakfast.

The Democrat’s Agenda Should Be: Fix The Trade Deficit

There is no way around it: There are three issues on people’s minds as we go into the midterm elections: jobs, jobs and jobs.

Since the 2008 financial crash – actually since Reagan was elected – most of the gains from our economy have gone to the 1 percent and many of the jobs have been shipped out of the country. And everyone knows it. What they don’t know is the direct relationship between the two. That relationship is the trade deficit.

The trade deficit is a direct measure of jobs leaving the country. The trade deficit is factories closing. The trade deficit is American dollars going to other countries so people there can spend them. The trade deficit is our standard of living leaking away. And the trade deficit is a major factor driving what remains of the budget deficit.

The trade deficit is our economy’s problem. Democrats need to get on board with that message. It doesn’t hurt that it’s also true.

Democrats Don’t Get That Republican Propaganda Works

Democrats in Washington are surrounded by D.C.’s daily events and don’t get it that the public doesn’t see what they think they see. They are immersed in the news and fighting daily battles and tend to think the public is informed and doing that, too. They tend to put reasons on things the public does that line up with what they experience in D.C.: “The reason voters in district 5 of the county special election in Colorado voted for Kranitz was because the sub-amendment to our section 5 jurisdictional funding retroparticle was blocked in committee on the third markup. Because it was on C-SPAN.”

But the public isn’t seeing it that way. The public is seeing “Democrats have been in charge” since 2008 and the economy is still bad. Period, end of story. (Not 2009, by the way; the election was in 2008 so they think the 2009 $1.4 trillion budget deficit was caused by Obama and the stimulus.)

Democrats Need A Simple And Clear Economic Agenda

If Democrats can’t come up with a counter to the Republican message that the economy is bad because Democrats are “in charge” and spend too much, they are going to lose badly. (P.S.: The answer is not to say “OK, so we’ll spend less.” That’s just feeds the lies and – as we have seen – just makes the economy even worse.)

At The New Republic, Danny Vinik writes in “Hillary Clinton’s Biggest Vulnerability: Her Economic Agenda” that “as we enter the latter half of Barack Obama’s second term, the public increasingly blames him and his party for the weak recovery.”

Vinik explains that there are Democratic proposals that would really help fix the economy, but they are from “left-leaning economists” and “they have little political support.” One proposal is in a paper from (“left-leaning”?) Larry Summers, who argues that we have entered into “secular stagnation” and the “solution to secular stagnation is significant rounds of fiscal stimulus to fill the still-large hole in consumer demand for goods and services, known as aggregate demand.” In other words, more “stimulus” that Republicans will obstruct.

Another proposal is to fix the trade deficit:

A separate paper, from left-leaning economist Dean Baker, argues that the trade deficit is a significant impediment to full employment. U.S. imports exceeded exports by $500 billion in 2013—that is, $500 billion of American demand for goods and services supported jobs overseas. In response, Baker proposes lowering the value of the dollar and cracking down on currency manipulators like China who artificially lower the value of their currency so that their goods and services are cheaper, boosting exports. Yet, trade policy is not an exciting or accessible issue to most voters. A candidate could include it as part of their economic platform, but it cannot form the backbone of it.

Yet another proposal is a change in monetary policy to promote full employment. This brings up a political problem, according to Vinik. The public doesn’t understand monetary policy and has been propagandized to be against further stimulus. (The public thinks “government spending” causes unemployment.)

Vinik writes “Democrats will have to convince voters that much of the Obama agenda is still the right prescription for the economy, despite the weak results over the past five-plus years. That’s not easy.”

What Went Wrong: Filibusters And Austerity

President Obama and Democrats have made significant proposals that would have made a tremendous difference in the economy we experience today, but they also contributed to the mess we are in.

It’s a fact that Senate Republicans filibustered literally everything Democrats offered that might have helped the economy. That’s their strategy and it’s working: Block anything that could help the economy and blame Democrats because they were “in charge” while the economy continued to stagnate.

Here’s the thing: Democrats let them do it. They did not end the filibuster. For whatever reasons – tradition, attempting to remain “bipartisan” and “civil” against uncivil partisan opponents, whatever – the end result was they did not deliver for their constituents, the American people.

The other thing that Democrats let Republicans do to the country was austerity. In fact, most Democrats bought into it, went along with it, pushed it, reinforced it, messaged it and gladly fell into the Republican trap.

So, with an election coming, Democrats haven’t delivered for their constituents – the 99 percent – and the public is not happy with that.

The Problem Is The Trade Deficit, Not The Budget Deficit

Here is a path for Democrats: Talk about the trade deficit.

Our trade deficit is literally a measure of how many jobs we ship out of the country. And our trade deficit is huge. It is humongous. It is enormous. It is larger than any trade deficit in the history of the world, and the parts of it that most affect jobs continues and continues and gets worse and worse. Last year’s trade deficit with China was a record.

The trade deficit is also a traditional Democratic issue. It is about jobs, blue-collar workers, jobs, factories, jobs, manufacturing, good wages and jobs. It is about seeing “Made in America” in stores again.

Everyone knows where the jobs went and continue to go: out of the country, mostly to China.

Everyone knows that the reason their pay is stagnant of falling is because people are afraid their job will be sent out of the country, too.

Everyone knows that something has been going on with these trade deals that let companies move out of the country to places where people and the environment are exploited and then bring the same goods back to the U.S. and sell them in the same stores for the same prices. OF COURSE that means jobs leave the country!

Ask almost anyone what they think of “NAFTA” – shorthand for all trade deals – and you will discover what is certainly one of the most salient, activating issues in politics today. Democrats, Republicans, Tea Party members, they all get it that jobs are being shipped out of the country (because they are), they all get it is making a few people really, really rich (because it is), and they all get that it is causing the rest of us to feel pain (because that is the result).

Economist tell us that the trade deficit represents “demand” that is leaving our country and is fueling jobs elsewhere. This means that people here are buying stuff – “demand” – but that the stuff they are buying is made somewhere else so we don’t get the benefit of those people all buying stuff. And the fact that there is a “deficit” means that the “somewhere else” is not reciprocating by buying stuff from us. They are not “trading” with us, they are selling to us but not buying from us. They are cheating and playing tricks to drain our country of those jobs and factories that would come back if they were buying the same amount from us as we are buying from them.

If Democrats want a simple jobs plan, this is it: Fix the trade deficit. Explain to people what balanced trade means and demand that trade be balanced. Come up with a clear plan to BALANCE trade and explain how this will bring back the jobs.

Do your part. Ask every candidate for Congress if they understand what the trade deficit is, how bad it is and what their plan is to fix it.

8 Reasons Some CEOs Make 331 Times As Much As Their Employees

I have this up over at AlterNet: 8 Reasons Some CEOs Make 331 Times As Much As Their Employees
We all know income inequality is a major problem, but the reasons for it rarely break into the mainstream media.

Here are some depressing statistics: In 2013, CEOs of S&P 500 companies made 331 times as much as their employees. Your average American worker not in a supervisory role made $35,239, while the average CEO made $11.7 million, according to the AFL-CIO Executive Paywatch website. CEO pay has increased a whopping 937 percent since 1978, according to a new report by the Economic Policy Institute.

So while CEOs are making a killing, more and more people find themselves with stagnant-at-best pay. People laid off from good-paying jobs (the result of rigged trade deals) are forced into jobs at half their former pay and no benefits, if they can find a job at all. Weak wage growth predates the Great Recession. Between 2000 and 2007, the median worker saw wage growth of just 2.6 percent, despite productivity growth of 16.0 percent, while the 20th percentile worker saw wage growth of just 1.0 percent and the 80th percentile worker saw wage growth of just 4.6 percent.

Read the rest at AlterNet.

Will We Let Congress Hand Billion$ More To Big Corporations?

This one is simply outrageous. Corporations currently owe up to $700 billion in unpaid, “deferred” taxes. The country needs the money – partly because these companies owe so much in taxes. Which of the following choices should the country make?

1. Tell the companies to pay up what they owe, bringing us hundreds of billions to use now and tens of billions a year more from now on.

2. Let them off the hook from ever paying most what they owe, if only they please would let us have a little bit of it now.

Who Is The Boss Of Whom?

The choice depends on who you think is supposed to be the boss of whom. If you believe that We the People are in charge of this country, then obviously you’d say these corporations should just pay the taxes they owe. But if the corporations are in charge of us they’ll tell us they aren’t going to pay these taxes unless we give them something.

Not surprisingly, Congress appears to be working toward option ’2.’ It’s called a “repatriation tax holiday.” They are proposing to tell the companies that moved jobs, factories and profit centers out of the country that it was the right thing to do. Unfortunately that will tell companies that didn’t do these things that they were chumps.

What Is A Tax Holiday?

Here is what’s going on. Giant, multinational U.S. corporations owe our government up to $700 billion in taxes on about $2 trillion in profits they have made (or made it look like they made) outside of the country. But there is a loophole that lets them hold off on paying those taxes owed until they “bring the money home.” So of course, many corporations have been engaged in all kinds of schemes to make it look like they make their money elsewhere – and/or move jobs, factories and profit centers out of the country.

Why is this important right now? In a New York Times “politics” story Tuesday, “Plan to Refill Highway Fund Stokes Conflict in Congress,” this nugget:

[Sen. Harry] Reid and [Sen. Ron] Paul are quietly pressing for a one-time tax “holiday” — a special and lucrative tax deduction — to lure multinational corporations to bring profits home from overseas, producing a sudden windfall.

Instead of telling these corporations that it’s time to pay up, it looks like Congress is preparing to just let them keep much (85 percent) of the money. It’s called a “tax holiday.”

What is the “conflict” the headline talks about? It isn’t a conflict between those who want to hand corporations hundreds of billions of dollars and those who do not want to. The conflict is over how to hand them the money!

Senator Ron Wyden, Democrat of Oregon, the Finance Committee chairman, and Senator Orrin G. Hatch of Utah, the ranking Republican, want that money to help smooth passage of a broad rewrite of the tax code.

So if Senator Reid is on board for a tax holiday and Senator Wyden is on board for a tax holiday, it looks like the idea of giving this huge amount of cash to these corporations is baked in to the thinking in the Senate. And we’re talking about Democrats here. One side wants (Reid) to give them a tax holiday and get a little bit to use to pay for infrastructure, the other side (Wyden) wants to use it as a bribe to get these giant corporations to let the U.S. government “reform” the tax laws. Both sides are conceding that they’ll accept a tax holiday.

But no one in this discussion is just saying, “Hey, we’d get up to $700 billion and tens of billions every year from now on if we just told these companies to pay the taxes they owe.”

The cost: At Least $95.8 Billion

The idea is to give these companies an 85 percent deduction – the “tax holiday” – on their foreign profits and only taxing 15 percent of the profits. In other words, instead of taxing $2 trillion of profits being held out of the country they’ll only tax $300 billion. If these corporations “bring the money home.”

Bloomberg News looks at the cost of this, in “Repatriation Tax Holiday Would Cost U.S. $95.8 Billion.” The “holiday” would bring in a quick $19.6 billion, but would cost $95.8 billion of tax revenue that would come in anyway over the next decade with no changes – not even making these companies just pay up. (Note: This calculation assumes Congress won’t just tell these companies to just pay their taxes. That would bring in up to $700 billion at the top tax rate of 35 percent and tens of billions a year from now on. Companies can deduct any taxes already paid elsewhere, so “up to” means $700 billion minus taxes paid elsewhere.)

An Engineered “Crisis”

That’s right, after all these years of propaganda about budget deficits and the hostage-taking and the “fiscal cliff” and the “debt ceiling” and the sequester and all the resulting budget cuts in essential services and “austerity” and how this has held back the recovery … it looks like Congress is going to just let companies off from paying hundreds of billions of taxes they already owe. This is not about passing another tax break/subsidy, etc. These are taxes that are due and payable on profits that have already been made but that these companies are keeping outside of the country (and away from their shareholders).

Why would Congress even consider letting these corporations off from paying the taxes they owe? Because of rules about not increasing the deficit Congress “needs” the money. This is a “realpolitik” deal, recognizing that the companies have enough power to keep Congress from just making them pay up what they owe. The thinking is they can appease the corporations with an 85 percent tax holiday to get them to pay at least 15 percent of that they owe.

This is another engineered “crisis” where the country is made to believe that deficits are keeping us from doing things we need to do. We need to fund transportation infrastructure, we can’t borrow the money to invest in things like this that make our economy more efficient, hence the need to “incentivize” the corporations to please bring home some of the money they owe us.

They Did This In 2004 And It Made Things Worse

In 2004 corporations ran the same scam on Congress, except that time they promised to use the money they brought back to “create jobs.” So what happened?

In 2011 the Institute for Policy Studies (IPS) looked at the results of the 2004 tax holiday and found that “their holiday didn’t just fail to create the promised jobs. Their holiday enriched corporations that actually destroyed jobs in the months right after they received their tax windfall.” IPS found that 58 multinationals who used the “American Job Creation Act of 2004″ tax holiday not only immediately laid off tens of thousands, they continued laying off, and laid off close to 600,000 workers between 2004 and now. From the IPS summary of the study,

One government study looking at the first two years after the repatriation windfall found that 12 of the top recipients laid off more than 67,000 American workers. These firms collectively brought back home more than $100 billion …

According to IPS, the companies that gained the most from the tax holiday actually cut jobs, on top of that they used the tax gift money to buy back their own stock, increasing its value, and pay out dividends, both thereby enriching executives and shareholders.

(This is from 2011. Another half a trillion of profits have been shifted offshore since then.)

From the Times story,

In 2004, when Congress approved a similar holiday, lawmakers vowed never to do it again. If it became a habit, they reasoned, companies would keep their profits overseas waiting for the next tax holiday. That, the bipartisan Joint Committee on Taxation explained, is the idea’s “moral hazard problem.”

The 2004 tax holiday only made things worse because companies realized they could get out of paying taxes entirely if they moved profits offshore and held out until the next holiday season. If we do it again, every company will be compelled to move jobs, factories and profit centers out of the country to stay competitive.

They are going to try to sneak this through under the radar. Maybe We the People can stop it if we make enough noise.

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This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF. Sign up here for the CAF daily summary and/or for the Progress Breakfast.

5 Companies Ripping Off America and the Simple Tax Change That Could Make Them Pay Up

I have this over at AlterNet: 5 Companies Ripping Off America and the Simple Tax Change That Could Make Them Pay Up,

Believe it or not, all four of the statements below are currently being made in Congress and in the hallowed halls of elite opinion:

  • “We’re broke” and we have to cut the budget. – House Speaker John Boehner.
  • America just can’t afford more government spending like hiring teachers or repairing bridges.
  • We have to cut entitlements like Social Security and Medicare or the country will go bankrupt.
  • Corporations and multinational giants don’t have to pay up to $700 billion in overdue taxes.

We’re broke. We have to cut back on all the things government does to make our lives better. Yet let’s let the giant corporations off the hook for hundreds of billions of dollars of taxes they already owe.

Read the rest at AlterNet.

Does Inequality Just Happen? Or Is It The Result Of Choices?

A recent AP “big story” tries to explain why CEO pay soaring and everyone else’s is stagnant or falling. It says more than it intends about the state of our economy and our governing system.

AP’s “The CEO Got A Huge Raise. You Didn’t. Here’s Why,” by Josh Boak boils down to this:

[P]ay for the typical CEO … surged 8.8 percent last year to $10.5 million, it rose a scant 1.3 percent for [the rest of us].

Here are five reasons why CEOs are enjoying lavish pay increases and five reasons many people are stuck with stagnant incomes.

WHY CEOs ARE GETTING HUGE RAISES

1. They’re paid heavily in stock.

2. Peer pressure. Corporate boards often set CEO pay based on what the leaders of other companies make. …

3. The superstar effect.

4. Friendly boards of directors.

5. Stricter scrutiny. … companies often raise pay to compensate for the risk of job loss.”

WHY MANY OF US AREN’T GETTING A RAISE

1. Blame the robots. Millions of factory workers have lost their spots on assembly lines to machines. Offices need fewer secretaries and bookkeepers in the digital era.

2. High unemployment. … Businesses face less pressure to give meaningful raises when a ready supply of job seekers is available.

3. Globalization. Companies can cap wages by offshoring jobs to poorer countries.

4. Weaker unions.

5. Low inflation.

These Didn’t Just Happen, These Are Choices

These ten reasons are framed as “just the way it is.” CEOs get compensated with stock as well as cash, and stocks are way up. That’s just the way it is. China sucks jobs out of the U.S., and robots are doing more of the work, so people are left without jobs or any way to make a living. That’s just the way it is.

Too bad, so sad.

Here’s the thing. Not one of these 10 points “just happened.” They are the result of choices that our country’s leaders made. All of those choices drive the national income and wealth to a few at the top, and away from We the People.

We Are Not Helpless

It comes down to choices, not inevitability. Inevitability implies helplessness. But understanding that these were choices leads to understanding that we have the opportunity to make different choices.

These are things that conservatives and neo-liberals convinced our Congress to DO (or, in the case of needed changes, to NOT do), and we are living with the results. These things are not inevitable. They are not things we just have to accept. They are things that we can change.

What Happened To We The People?

In a country where We the People make decisions, we would choose to do things that make our lives better. But when CEO and corporate types are in charge of the political system, what we’ve got is exactly what you would expect. Look at how things are set up and ask yourself if We the People are benefiting from that, or if only a few already-wealthy people are benefiting at the expense of the rest of us, and decide to do something about it.

Think about some of the things we have come to take for granted. For example – and just one of many, many examples – we are told that corporations are only supposed to be about making money for the shareholders. But would a country run by We the People to do things to make our lives better have set up these things called corporations to be like that? What do We the People get from a system like that? Would corporations have been created for the purpose of doing things that benefit We the People and our country and our economy, not only a few already-wealthy people at the expense of our country and economy?

Think that through. Think about how it would be set up if We the People wanted to make our lives better, and then start working to make it that way.

This is a moment to think about how we got here, and why we let things happen this way. This is a moment to realize that things do not have to be the way they are, and that we can change what is happening to us for the better. Even if we indeed have become a country that only does what CEO types want done, We the People can change that, too.

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This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF. Sign up here for the CAF daily summary and/or for the Progress Breakfast.

The Privatization Scam: 5 Horror Stories of Gov’t Outsourcing to Greedy Private Companies

I have this up at AlterNet: The Privatization Scam: 5 Horror Stories of Gov’t Outsourcing to Greedy Private Companies,

For decades we’ve been subjected to constant propaganda that government is inefficient, bureaucratic and expensive. We’re told that the answer is to “privatize,” or “outsource” government functions to private businesses and they will do things more efficiently and everyone comes out ahead. As a result we have experienced decades of privatization of government functions.

So how has wave of privatization this worked out? Has privatization saved taxpayers money and improved services to citizens? Simple answer: of course not. If a company can make a profit doing something the government had been doing, it means that we’re losing out one way or another. It’s simple math. And the result of falling for the privatization scam is that taxpayers have been fleeced, services to citizens have been cut way back and communities have been made poorer. But the companies that convinced governments to hand over public functions have gotten rich off of the deal. How is this a surprise?

Here are 5 privatization horror stories, where government outsourcing has gone terribly wrong. (Or maybe you’d say it has gone terribly right if you are one of the companies getting the taxpayer dollars.)

Read the rest at AlterNet.

Democrats Should Be For Jobs, Against Corporate Tax Giveaways

The country needs jobs. The country needs to start fixing up its crumbling infrastructure. The country doesn’t need more corporate tax breaks. Guess which of these three is in legislation the House is passing – unfortunately with help from many Democrats. If this keeps up, how will voters be able to decide who to vote for this fall?

Last week the House passed a huge – $156 billion worth of huge – Research and Experimentation Credit tax break for corporations. This is one part of a package of “tax extender” corporate tax breaks that is sneaking through the House. Sixty-Two Democrats joined the Republicans in approving this huge corporate tax break.

This $156 billion corporate tax break was passed by the same House of Representatives that won’t even bring up a vote on restoring unemployment benefits for the long-term unemployed.

While the R&E tax credit is worthwhile, it was wrong for some Democrats to join with Republicans in voting for that research tax credit. Such credits should have been awarded as part of a package that included a full employment program, infrastructure funding, restored long-term unemployment benefits, restoring food stamps and many other things the public needs. Instead of using the corporate desire for this break as leverage – and making a political statement going into the midterm election – 62 Democrats just went ahead and voted for it.

The Country’s Jobs And Infrastructure Needs Go Hand In Hand

The main reason the economy is just sort-of slogging along is “austerity” – all of the cutbacks in government spending. Never mind that the country is not hiring for new construction, etc., in the middle of this jobs emergency we have instead laid off construction workers, teachers, police, Social Security workers, and other public servants. At the very time the economy needed a boost, government cutbacks have cost businesses and suppliers. Cutbacks have meant foreclosures, bankruptcies, people spending less in stores – all acting as dampers on economic growth.

America desperately needs public investment to create jobs and grow the economy. But the country has been deferring spending on maintaining – never mind modernizing – our infrastructure since the Reagan tax-cut years – especially when it comes to transportation. When Reagan came in (with huge oil company backing), the solar panels were removed from the White House roof and many public transit projects were removed from the national agenda.

We need to fix our infrastructure and people need jobs – can our elected officials connect the dots? But instead of voting to help Americans by maintaining (never mind modernizing) our infrastructure the House – with 62 Democrats joining in – voted for a huge, $156 billion corporate tax break. So now there is even less money to use to hire people to fix up the infrastructure.

Example: Congress Needs To Act On The Highway Trust Fund

Next up before Congress, the Highway Trust Fund is running out of money and the current surface transportation bill expires in September – just before the election. This threatens 6,000 projects and 700,000 jobs. (Yes, “government spending” really does bring a lot of jobs.) Congress has to either raise the gas tax against oil company opposition – and Congress doesn’t do anything against the interests of oil companies – or find other sources of funding.

The Senate Finance Committee recently reported, “According to the National Surface Transportation Infrastructure Financing Commission, just maintaining the existing conditions and performance of U.S. roads and transit infrastructure would require a 50 percent increase in current funding levels.”

Again: just maintaining the infrastructure at current miserable levels (never mind modernizing) requires a 50 percent increase in funding. Democrats and progressives should be for that. This is public investment that pays for itself over time. There is no reason to “offset” this with cutbacks elsewhere.

The Republican Strategy Is Obstruction Coupled With Unprecedented Election Spending

This is happening because the Republican strategy for the fall elections is to do everything they can to deny people jobs and keep wages, benefits and the economy down – and then campaign blaming Obama and Democrats for the bad economy, lack of jobs and low wages. Republicans are obstructing everything that might help working people, while handing the treasury over to the billionaires and their giant corporations – especially oil companies. (The Koch Brothers are rich because they inherited one of those oil companies.)

This strategy could work unless Democrats expose it and offer sharp contrasts – all in ways that will reach the public. And reaching the public will be difficult. The Koch brothers’ Americans for Prosperity have stated they will be putting up at least another $125 million to elect Republicans – on top of the more than $35 million they have already spent to defeat Democrats in this year’s elections. This is just the one Republican organization, along with all the other spending coming this year by billionaires and corporations to elect Republicans.

Elite Frustration With Obstruction

The country’s elites understand that nothing is getting through the Congress, even as they do not tell voters who to blame. A recent Bloomberg news editorial, Creative Ways to Fill the Nation’s Potholes, expresses the national frustration with the gridlock. They say we need “creative thinking” to get important things funded and offer up with a scheme to bribe giant corporations. They write, “In a perfect world, the money for this essential work would be appropriated in a straightforward and transparent way. You’re right to laugh: That won’t happen.”

After not explaining to readers why “that won’t happen” – it is Republican obstruction – they offer some “creative thinking,” namely a huge bribe to corporations. They cite New York Democratic Rep. Steve Israel’s proposal “allowing companies holding large cash stockpiles abroad for tax reasons to bring their profits home at a preferential rate – on the condition that they spend about 10 percent of the repatriated income on a new kind of infrastructure bond.” (Because just telling these companies to pay their taxes is off the table.) Even Bloomberg admits, “A repatriation tax break worsens the convolution of a corporate tax code that is already far too tangled.”

Similarly, Norm Ornstein writes at the Atlantic:

Among the most embarrassing and unconscionable failures of the 113th Congress has been the inability to act in any way to help the economy through an infrastructure initiative, including but not limited to energy. The country’s infrastructure is crumbling, and the energy infrastructure is outmoded. Among the long-term unemployed, there are huge numbers of construction workers and skilled tradespeople who could be given a new lease on life, while energizing a continuing sluggish economy. And the money to pay for a major infrastructure initiative can be borrowed now at the lowest rates imaginable.

Ornstein also understands that nothing is going to get through Congress without bribing the giant multinationals. He also suggests letting companies off the hook for taxes on offshore profits if they use some of their cash to invest in infrastructure. He refers to bills before Congress that would “create a fund that would be capitalized with $50 billion in infrastructure bonds with 50-year terms paying a fixed interest rate of 1 percent. Corporations could repatriate a substantial amount of the profits they have accumulated overseas tax-free if they buy the bonds.”

Later, on another proposal, “The Green Bank would use a model that would incentivize companies to repatriate some of their profits abroad in return for investing in the bank as well.”

Again, this is just a bribe to the people Ornstein understands now control the Congress. Instead of Congress just making these companies pay their taxes and using that money to fund infrastructure, these are bribes to let them off the hook on their taxes if they would please let us fix the infrastructure a bit and thereby hire a few unemployed workers.

Draw A Contrast For The Election

The Republican strategy is simple and effective: Block everything, make everything feel worse for regular people, and then spend unprecedented amounts campaigning that nothing is getting done and everything feels worse under Obama and the Democrats. This will work, as long as the public feels everything getting worse without understanding that Democrats are trying to make things better but are being obstructed.

The only way to fight this obstructionist strategy is expose it and draw sharp contrasts between where conservatives want to take us and where a progressive populist economic agenda would take us. And these contrasts have to be sharp and clear enough to reach the public in ways that sink in.

Democrats should draw that contrast for voters in the coming elections and not confuse voters about what they are for and not for. Democrats should resolve to support only bills and deals that fix our infrastructure and create jobs. At the same time Democrats should say no to these tax giveaways to corporations. Democrats have to be seen fighting for jobs and being blocked. They have to be seen as trying to stop the corporate giveaways, not voting for huge corporate tax cuts.


Note – See the President’s transportation plan. Also see the National Priorities Project’s Report: “The Big Money in Tax Breaks Continues“:

In 2013, the cost of tax breaks was equal to the entire U.S. discretionary budget. However, the discretionary budget is subject to an annual appropriations process, where Congress debates the proposed spending. Tax breaks, on the other hand, remain on the books until lawmakers modify them. As a result, over a trillion dollars a year in lost revenue – more than 1.6 times the 2013 budget deficit – goes largely unnoticed.

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This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF. Sign up here for the CAF daily summary and/or for the Progress Breakfast.