A Corporate Tax Idea That Fixes Lots Of Problems

Here is one thing Congress could do that would create more jobs, boost the economy and reduce both the budget deficit and the trade deficit. This one thing would not only provide a big boost now, but would provide an ongoing boost from now on. Congress should modify the “deferral” tax loophole that lets companies dodge their taxes by moving and keeping profits “out of the country.” Tax this cash at 5% a year.

The top corporate tax rate is currently 35%. But corporations are allowed to “defer” paying taxes on profits earned outside of the country until they “repatriate” those profits, which means bringing the money back into the country. (Any taxes paid elsewhere are deducted from the amount owed.) There are solid reasons to allow corporations to do this. Simply put, they might need to put that money to good use, which will benefit the company, which in theory will later benefit our country.

But this tax deferral has turned into a huge loophole that is draining our country of jobs, tax revenue, investment, manufacturing infrastructure and other good things We the People are supposed to receive in return for allowing these corporations to operate. Companies not only are keeping profits out of the country, the loophole gives them an incentive to engage in schemes that shift more and more jobs, production and profit centers out of the country. (One well-known example: Apple transferred ownership of it’s “crown jewels” — “intellectual property” — to Ireland.)

A Ton Of Cash That We The People Could Really Put To Use

The amount now being held outside of the country is astounding. Some estimates say that it is as much as $1.5 to 2 trillion, or even more. If the full amount were brought back and the tax rate applied that would bring a $525-700 billion windfall that the government could use to hire people to get things done that really, really need to get done like modernizing our infrastructure, hiring teachers, building high-speed rail, retrofitting homes and buildings to be energy-efficient … so many things… (Of course it would be less because of taxes paid elsewhere, etc., but we’re still talking hundreds of billions.)

And, of course, after that $1.5-2 trillion is brought back and the appropriate taxes are paid the rest would either be invested or distributed to shareholders — another nice boost to the economy.

Beyond the one-time windfall from bringing that cash back there would be two other major effects of changing this deferral loophole. The first, of course, is that tens of billions of revenue now withheld each year would be coming in to be taxed, thereby reducing the budget deficit. But perhaps more important, the incentive to move jobs, factories and profit centers (“crown jewels”) out of the country would be eliminated, so companies would keep factories and jobs here.

 Why They Do It

The reason so much $$ is being kept away is that companies have good reason to believe that eventually they will be allowed to bring it back without paying the taxes they owe. Congress made a huge mistake in 2004 and gave corporations a “tax repatriation holiday.” They allowed companies that were holding profits outside of the country to bring those profits back without paying all of the taxes due. This created the expectation that Congress will of course do this again (and again). So, not looking a gift horse in the mouth, companies started to find ways to increase their outside-the-country profits and reduce their inside-the-country profits. Jobs, factories, production, profit centers (desks, chairs, carpets…) and everything else that could be moved out of the country started to be … moved out of the country. And it gets worse every year.

Solution: Put A Surtax On Money Held Outside The Country

Some people say we should just repeal the rule that lets companies defer taxes due on profits earned outside of the country until they bring it home. But that undoes the benefits that were the original reason to allow deferral.

Here is a simple idea that could go a long way toward solving this problem. Don’t eliminate the deferral, tax it. As I said, there are good reasons to allow it in certain instances. Instead, put a surtax on profits held outside of the country. Just for illustration, suppose this surtax was 5%. This means that if a company decides to keep $1 billion of profits outside of the country, they would pay 5% of that, $50 million, each year they do this. This is not later used to reduce the amount of taxes due when they eventually bring the money home; when they finally “repatriate” the profits they would be still taxed at the same rate as now (up to 35% minus taxes paid elsewhere, etc.) But instead of gaining from keeping the money out of the country, it instead costs them 5% each year they keep it out.

Of course, this must be coupled with the end of any hope that Congress will eventually give in to hostage-taking and let companies bring profits back at some reduced rate. That was a mistake that has cost the country dearly in lost revenue, jobs, factories, profit centers, (desks, chairs, carpets…) and also cost the country money that should be either invested or distributed to shareholders.

If the companies decide to continue to hold that $1.5-2 trillion outside of the country this surtax would bring the government between $75 and $100 billion per year of additional tax revenue, and these companies would also eventually have to bring it back and pay the up-to-$700 billion due in taxes as well. I’d be happy with that, and so would the country.
—–

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

Martin Luther King’s Dream Of Jobs And Freedom

Martin Luther King Jr. outlined his dream 50 years ago this weekend. We made much of it happen. Let’s dream some more. Let’s dream about what we could do in the next 50 years.

Fifty years ago Martin Luther King Jr. led the March on Washington for Jobs and Freedom and famously told the country “I have a dream.” Fifty years later there is progress and there are setbacks. We no longer have segregation — separate schools and bathrooms and the rest. Many states finally allow everyone to marry the person they love, but at the same time many states are returning to apartheid-era restrictions of voting rights.

One huge part of the “Jobs and Freedom” Dream that still evades us is the goal of full employment or an income until a job becomes available.

On August 16, 1967 King delivered a speech titled, “Where Do We Go From Here?” addressing the need for everyone to have a job or an income,

…our emphasis must be twofold: We must create full employment, or we must create incomes. People must be made consumers by one method or the other. Once they are placed in this position, we need to be concerned that the potential of the individual is not wasted. New forms of work that enhance the social good will have to be devised for those for whom traditional jobs are not available. In 1879 Henry George anticipated this state of affairs when he wrote in Progress and Poverty:

The fact is that the work which improves the condition of mankind, the work which extends knowledge and increases power and enriches literature and elevates thought, is not done to secure a living. It is not the work of slaves driven to their tasks either by the, that of a taskmaster or by animal necessities. It is the work of men who somehow find a form of work that brings a security for its own sake and a state of society where want is abolished.

A Country Based On A Dream

Our country was founded on the dream that We the People can do things for each other instead of depending on the rich and powerful to throw us scraps.

If you look at our Constitution you see that our country is supposed to be for We the People. And I mean just look at it, not read it. The only words you see from any distance are the words “We the People.” The Founders were making a point.

The Constitution told the world about a dream that “We the People” would build a country that protects and empowers us, where together we do things for the common good, to make our lives better. And for a while we did that.

We have lost sight of that dream. We no longer seem to recognize who our country is for. We no longer talk about the common good.

Who is our country for? Who is our economy for? Certainly a We the People economy would at the very least guarantee that We the People have jobs and an income until a job is available.

Continue reading

Every New Job Helps Our Economy

Every new job helps the economy.

Because every new job is another person shopping at local stores.

And every few new jobs mean the stores are hiring, too.

Every new job is another person not trying to take your job.

So let’s hire people to fix our roads and bridges, and teach our children.

Then, every few police, bridge-repair and teaching jobs will mean local stores will hire people.

And every few stores hiring people means a supplier hires someone.

AND our children will be educated, and our streets will be better and safer.

If we fix a bridge, it means stores around the bridge are doing more business, and will hire people, and suppliers will hire more people.

AND we will have a bridge that has been fixed!

To politicians: You know that budget cuts cost jobs and hurt the economy, no matter what you are saying in public. So any cuts you approve now mean that things will be even worse when the next election rolls around. When you are up for re-election, there will be fewer jobs and a longer recession.

So giving in to the “conventional wisdom” of the “serious people” on cutting the budget means that you are hurting yourself in the next election.

—–

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

Middle Class Squeezed – I Mean Literally Squished

Two stories in the news today illustrate what is happening to the middle class. One story is about numbers showing how the middle is being squeezed. The other is about how people are literally being squished. “The new business model, apparently, is to shrink the seats, charge extra for everything and offer nothing for free that might be construed as an amenity.”

In the Wall Street Journal, Behind the Middle-Class Funk tells the numbers story,

Many economists define the middle class as those adults whose annual household income is between two-thirds and twice the national median—today, that means roughly $40,000 to $120,000. By this standard, according to the Pew Research Center, the middle class is significantly smaller than it once was. In 1971, it accounted for fully 61% of adults, compared with 14% for the upper class and 25% for the lower class.

Four decades later, the middle class share had declined by 10 percentage points to just 51%, while the upper class share increased by six points and the lower class by four. The U.S. income distribution is still a bell curve, but the left and right tails are fatter and the hump in the middle is lower.

[ . . . ] Between 1979 and 2007, on average, annual hours worked by middle-income households rose from 3,007 to 3,335—fully 10%, a larger increase than for any other income group. Some of the additional work reflects expanding opportunities for women. But much of it came in response to economic pressure and represents time that men as well as women reluctantly diverted from their children—hardly an unambiguous improvement in family well-being.

The middle class shrank by 10% and people in the middle have to work longer to get by…

Harold Meyerson illustrates this squeeze by showing how the non-corporate-rich are being literally squished. In A hard landing for the middle class, Meyerson writes about what is happening to airline passengers,

…Airline seating may be the best concrete expression of what’s happened to the economy in recent decades.

Airlines are sparing no expense these days to enlarge, upgrade and increase the price of their first-class and business-class seating. As the space and dollars devoted to the front of the planes increase, something else has to be diminished, and, as multitudes of travelers can attest, it’s the experience of flying coach. The joys of air travel — once common to all who flew — have been redistributed upward and are now reserved for the well-heeled few.

Meyerson describes the elevated luxury — and prices — for business and first-class passengers, while coach sections and seats get smaller. “The new business model, apparently, is to shrink the seats, charge extra for everything and offer nothing for free that might be construed as an amenity.”

Welcome to the new economy: More for the well-to-do, less for everyone else, and those without enough money literally are not on board.

Meyerson explains how this reflects what is happening to the whole economy,

The upgrading of business and the downgrading of coach present a fairly faithful mirror of what’s happening in the larger economy: the disappearance of the middle class. As University of California-Berkeley economist Emmanuel Saez has documented, between 2009 and 2011, the incomes of the wealthiest 1 percent of American families grew by 11.2 percent while those of the remaining 99 percent shrunk by 0.4 percent. Median household income has declined every year since 2008. Profits, meanwhile, have risen to their highest share of the nation’s economy since World War II, while wages have sunk to their lowest share.

As more and more of the gains from our economy go to a few at the top the rest of us get squeezed — literally.

—–

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

Repatriation Tax Mistakes

If you reward bad behavior you create an incentive for the bad behavior to continue. This is certainly the case with taxes on profits made outside the country. Rewarding multinational companies for keeping profits outside of the country has cost us jobs and tax revenue.

Today’s NY Times editorial Jobs and Taxes gets it right — and wrong. The editorial looks at President Obama’s proposal this week for “revenue-neutral” corporate tax “reform” with one-time “fees” to pay for a small bit of infrastructure repair. They correctly point out that this is a “dangerous” plan because “while the proposal would raise money for useful purposes in the short run, it would amount to an unjustified corporate giveaway in the longer term.”

Correct. But there is another danger in the idea, which the editorial gets right — and wrong. The editorial warns,

Similarly, the proposal calls for a minimum corporate tax on foreign earnings of American companies, which could be a step toward greater fairness but stops short of ending the damaging practice whereby companies defer tax on foreign profits until the cash is repatriated to the United States. The proposal does not say what the minimum tax would be. Any repatriation at less than the proposed top rate of 28 percent would encourage companies to keep stashing profits abroad.

Yes, any repatriation at less than the correct tax rate would certainly “encourage companies to keep stashing profits abroad.” The Times’ mistake is that a 28% rate would create the same incentive to keep doing it because the current tax rate is 35%, not 28%. These companies are evading a 35% rate, and rewarding this tax evasion by letting them bring the profits back at 28% just sets us up for more of the same.

In 2004 Congress gave multinational corporations a “repatriation tax holiday,” letting them return profits at dramatically lower tax rates. This didn’t work out so well for the country, economy or shareholders. Of course this incentive caused companies to start keeping even more profits out of the country. Jobs, factories and profit centers were moved to tax-haven countries because the game was defined: Congress hands out tax-holiday gifts so just wait for the next repatriation tax holiday. It is estimated that $1.7 – 2 trillion is now parked outside the country, withheld from taxation — and shareholders.

If this scheme pays off yet again the problem can only get worse. The right answer is to just end the “deferral” that lets these companies pretending the profits are not “in” the country to evade their taxes. That money is supposed the be taxed at the current 35% tax rate, and there is no reason for it to be taxed at a lower rate. End this evasion game now and watch the jobs, factories and profit centers return. And then use a sales-based apportionment system to decide where profits are made.

—–

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

Not Sexist Summers, Please

Larry Summers for the Fed? Seriously? There are better choices for Federal Reserve chair; in particular, Janet Yellen is more than qualified and would do a great job.

Ezra Klein writes in, “Right now, Larry Summers is the front-runner for Fed chair,” “The word among Federal Reserve watchers right now is that the choice is down to Janet Yellen or Larry Summers as Ben Bernanke’s replacement.”

The White House is not actively shooting this down and this is just an insult to American women.

Continue reading

Austerity Is Dead – So Can We Fix The Infrastructure NOW?

You might have heard that “austerity is dead.” You’ll certainly be hearing it, and with good reason: the U.S. deficit is down more than 50 percent from what President Bush left behind, projections of the rise in medical costs that drove future deficits are way down, the “intellectual foundation” that justified the push for cutting government has collapsed (as if it ever existed), and the European experiment has shown that budget cuts really just make things worse – much, much worse – and cause misery and suffering to boot. Meanwhile we have two real problems to worry about: unemployment and crumbling infrastructure. So can we hire people to fix the infrastructure now?

Economists Had Learned How To Revive A Falling Economy

Before the financial collapse economists had nailed down the way to get out of an economic crisis: Government has to spend to pick up the drop in demand caused by businesses and consumers cutting back. This investment into the economy causes businesses to hire again, which helps people to be able to spend again, and after things recover the resulting growth pays off that investment.

The Great Depression in particular had taught us that a downward spiral could develop in which a drop in demand caused businesses to cut back, lay people off and/or cut wages, and of course this caused people to have to cut back, which meant demand dropped even more so businesses laid off more people, so demand dropped more, etc.

The FDR administration tried various things to stop this spiral and found that programs that injected money into the economy, such as unemployment benefits and other assistance, direct hiring, investments in infrastructure, etc., could turn things around. And then after things turned around we had all that new, modern infrastructure driving continuing economic growth!

We also learned the hard way. In 1937 the government cut back too soon, and the economy sank into recession again. Then World War II came along, the government spent massively, and the economy grew so much that the ratio of debt to the size of the economy shrank dramatically. We had it figured out.

Continue reading

Old Economy Coming Back

Borosage, in Democrats Must Overcome Clinton Nostalgia,

The sad fact is that the old economy is coming back. Austerity continues to starve public investments vital to our future. The banks emerged from the crisis bigger and more concentrated than ever. Despite the domestic natural gas explosion, the trade deficit is still more than $1 billion a day, with the deficit with China setting records.

Extreme inequality is getting worse. The wealthiest 1 percent of Americans captured a stunning 121 percent of the income growth in the first two years after the economic collapse. Everyone else, on average, lost ground. The jobs being created offer less pay and fewer benefits than those that were lost. More than 20 million people still need full-time work.

I wrote about this in Just Stop It: This Is NOT A Good Economy. We Can Fix It.

PS Borosage makes a key point: “No matter how repellant Republicans may look to these voters, they are unlikely to turn out in large numbers for a party whose policies have failed them.

Just Stop It: This Is NOT A Good Economy. We Can Fix It.

Recent stories appearing in “mainstream” opinion-leader outlets would have you think that things with the economy are going great – if you didn’t know better (and they don’t). The thing is that outside of the geographic areas and cultural circles these opinion leaders inhabit, everyone knows better. Especially “Old Economy Steven.”

better than his kids

The old economy collapsed because it wasn’t sustainable, and to put that another way, “unsustainable” means it couldn’t be sustained. And it wasn’t. It didn’t work then for 99 percent of us and it won’t work now. We can’t go back to that.

“Good News”

The economy is slowly improving. Car sales are rising, housing has “bottomed” and started back up (and is in absolute bubble-mode again in some areas), and we’re actually seeing about as many new jobs as new people entering the economy! But that’s it. And this has taken how many years?

These small gains are enough for our media opinion-elite to declare good times are rolling. All around us we are hearing that we are out of the woods. For example, at The Washington Post Neil Irwin and Ylan Q. Mui wrote Tuesday that the sequester’s austerity (which has only partially kicked in so far) hasn’t really held back the booming economy. In “The economy is holding up surprisingly well in a year of austerity,”

Continue reading

“Spreadsheet Error” Economists Blame “The Left” Not “Science”

In an op-ed in the NY Times today the “spreadsheet error” economists tell us all we need to know about their research and their conclusions. In the op-ed, Reinhart and Rogoff: Responding to Our Critics, skip to the last paragraph:

“Now we are being attacked by the left — primarily by those who have a view that the risks of higher public debt should not be part of the policy conversation. “

“The left?”

I think these two words tell the whole story. All the economists and other scholars who are criticizing the errors and selective use of favorable data in work represent “the left.” Actual science that looks at the real world to see what actually happens is “the left.”

Downward Spiral

Here is the situation:

Continue reading

p5rn7vb

Deficit Falling Even More Dramatically, Few Know It

Austerity is beginning to hit and the economy is slowing as a result. The most immediate effect is that flights are delayed, but unemployment checks are smaller and there are fewer things We the People do to make our lives and economy better — also called “government spending.” But hey, as Dean Baker writes in, Deficits Are Bad and the Sun Goes Around the Earth,

…many people can profit from slow growth and high unemployment. The after-tax profit share of GDP is at its highest level more than 60 years. For those who own lots of stock and are at the top of the income ladder, times are good. These people may see efforts to lower unemployment as posing a risk. With lower unemployment workers may be able to get a larger share of productivity growth. This may be good for most of the country and mean increased economic growth, but it would mean less for the one percent.

Continue reading