When Government ‘Saves Money’ And Gets ‘Smaller’ We All Lose

Many say we should “run government like a business” and “save money” by “cutting spending” and “making government smaller.” Does this work? Do We the People really save money by doing these things?

Have you heard the phrase “penny-wise and pound-foolish”? How about “a stitch in time saves nine”? Maybe “eating the seed corn?” When government “saves money,” all of these snippets of time-honored wisdom, warning of what happens to those who try to “do it on the cheap,” should come to mind.

Infrastructure

You can “save money” by not changing the oil in your car. But have you ever seen a car that has never had its oil changed? After a while white smoke pours out the back because the rings are ruined. Other parts of the engine are also being ruined. Eventually the engine will seize up and quit and you have to either replace the engine or scrap the car. A simple and inexpensive procedure every few months would have prevented many thousands of dollars in expenses later.

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What Happened To The ‘Do Not Call’ List?

I still have a “land line” because I do radio shows. The home number is on the “do not call” list (and I re-add it regularly). It makes no difference at all whatsoever. That phone annoys us several times almost every day and night with phone solicitors.

The phone rings, you answer it, there is silence, then a click then an annoying voice, Mr. Johnson, how are you today?”

You won a free cruise. Do you need your carpets cleaned. The Police or Sheriff’s something or other wants a donation. Buy gold. On and on.

Has the “do not call” registry just gone away, or what? There’s obviously no enforcement whatsoever, like so many other things.

Wasn’t enforcement of rules, regulations and laws part of what government is supposed to do? I guess “smaller government” really has taken hold…

Privatization Causes Poverty, Senate Cafeteria Workers’ Story Continues

Our government has been on a privatization binge for some time. Things that We the People used to just do federally or through state and local governments were closed down and private corporations were hired to do those things instead. This “saved money” because the well-paid public workers were laid off, losing their benefits and seniority, and new workers were hired at the lowest possible wages with few or no benefits.

Of course, this “cost savings” meant that the tax base eroded, the old and replacement workers often had to go on public assistance, property values plunged as the homes of the old workers were foreclosed and the new workers couldn’t afford to buy, schools were strapped as more low-income kids came in, and all the other ways that the transition to a low-wage economy has ended up costing all of us.

But who’s counting?

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The Latest Tax-Scam Corporate ‘Inversion’ – Who Pays Instead?

Johnson Controls Inc. and Tyco International PLC have announced a $14 billion merger, with the resulting company pretending to be “Irish.” This is called an “inversion” and is all about dodging taxes.

Johnson Controls is actually based in Milwaukee. Tyco is based in Princeton, N.J. but became “Irish” through its own prior tax-dodging inversion(s). The Washington Post explains this, in “Manufacturing giants Tyco and Johnson Controls agree to merge“:

This is not the first time Tyco, which started as a New Jersey-based research laboratory for the U.S. government in the 1960s before growing into a global behemoth with workers in about 50 countries, has made use of tax-avoidance measures. In 1997, it merged with a Bermuda-based company in another corporate inversion before moving its headquarters to Switzerland in 2008. It moved to Ireland in 2013.

Tyco is also remembered for its former President Dennis Kozlowski, who was convicted in 2005 of various crimes related to looting shareholders and using the money for things like a 2001 $2.2 million party on the island of Sardinia.

The Inversion Tax Scam Game

An inversion allows corporations to pretend to be non-U.S. companies and dodge taxes while still getting the full benefits of our country’s taxes: roads and other physical infrastructure, advanced legal system, educated workforce, police and other protections, military protection, and so on.

November’s post, “Pfizer Buying Allergan So It Can Pretend To Be Irish In Tax Scam” explained how this works: “In other words, the resulting merged company will make and sell products in the same places it makes and sells them now. The same executives will occupy the same buildings. It will receive the same taxpayer-funded U.S. services, infrastructure, courts and military protection that it receives now. But the company will now claim it is “based” in tax-haven Ireland and thereby dodge U.S. taxation.”

The thing is, corporations and shareholders already pay lower tax rates than regular people do. They also get special privileges including “limited liability.” People who make money trading corporate shares get a special, lower “capital gains” tax rate. (This 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.)

But they want more. They want it all. And they’re getting it.

Who Pays Instead?

The billionaires and other shareholders already enjoy special lower tax rates than the rest of us (low capital gains tax rates, the Social Security “cap,” the carried interest loophole, multitudes of other breaks…) This is just one more tax break they utilize as their wealth builds and builds. And that massive accumulated wealth buys more and more privileges and breaks.

We the People of the United States, through our elected Representatives in Congress, allow this. Or, to put it in today’s reality: Billionaires and their corporations pay handsomely for a Congress that allows this.

But when these giant corporations and the billionaires behind them don’t pay their taxes, guess who has to either make up the difference or suffer the cutbacks in the things government does to make our lives and economy better? (Hint: Register to vote today and be absolutely sure to show up and VOTE this time. Don’t be misdirected, demoralized, suppressed or otherwise tricked into not voting. Talk to other people about registering and voting, too.)

The Candidates

The Republican candidates generally propose stopping corporate inversions to avoid U.S. corporate taxes by reducing or even ending U.S. taxation of corporations.

Presidential candidates Bernie Sanders and Hillary Clinton have similar proposals for limiting these “inversions.”

Here’s Hillary Clinton’s statement on the Johnson Controls-Tyco inversion deal:

“It is outrageous when large multinational corporations game the tax code and shelter money overseas to avoid paying their fair share, including through maneuvers like inversions. As I have said throughout my campaign, these efforts to shirk U.S. tax obligations leave American taxpayers holding the bag while corporations juice more revenues and profits.”

Clinton’s “detailed and targeted plan to immediately put a stop to inversions and invest in the U.S.” includes:
● A 50 percent threshold for foreign company shareholder ownership after a merger before an American company can give up its U.S. identity.
● An “exit tax” to ensure multinational companies that change their identity pay a fair share of the U.S. taxes they owe on earnings stashed overseas.
● A crackdown on “earnings stripping,” one of the key benefits of inversions.

Sanders released a statement condemning “corporate deserters”:

“The potential Johnson-Tyco merger would be a disaster for American taxpayers,” Sanders said. “Profitable companies that have received corporate welfare from American taxpayers should not be allowed to renounce their U.S. citizenship to avoid paying U.S. taxes. These corporate inversions must stop.

“My message to these corporate deserters is simple: You can’t be an American company only when you want corporate welfare from American taxpayers or you want lucrative contracts from the federal government,” Sanders continued. “If you want the advantages of being an American company then you can’t run away from America to avoid paying taxes.”

The Sanders Corporate Tax Reform Plan involves:
● Ending the rule allowing American corporations to defer paying federal income taxes on profits of their offshore subsidiaries.
● Closing loopholes allowing American corporations to artificially inflate or accelerate their foreign tax credits.
● Preventing American corporations from claiming to be foreign by using a tax-haven post office box as their address.
● Preventing American corporations from avoiding U.S. taxes by “inverting.” Under Sanders’ bill the U.S. would continue to tax such a company as an American corporation so long as it is still majority owned by the owners of the American party to the merger or acquisition.
● Prevent foreign-owned corporations from stripping earnings out of the U.S. by manipulating debt expenses.
● Preventing large oil companies from disguising royalty payments to foreign governments as foreign taxes.

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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.

Public Demands Campaign Donor Disclosure So GOP Congress BANS It

Republicans put a surprise sneak law into the big, last-minute “omnibus” budget bill: It bans the administration from making companies and “charities” disclose who is putting up the baksheesh money for political campaigns. The president has to sign it or the government shuts down. The result is that the rigging of our system to work only in the interests of those with big money will get even worse.

What The Public Wants

Poll after poll shows that the public wants something done about the country’s campaign finance system. Obviously just knowing who is bribing funding the politicians as they continue to rig the system against us is at the top of any list: “78 percent of Democrats and Republicans alike favoring a requirement that donor names be made public.”

What The Public Gets

The public might want something done about the campaign finance bribery corruption payoff system we have, but the bribed, corrupt, paid off politicians who owe their careers (and future lucrative corporate positions) to secret, big-money contributions want it kept the way it is, or made even “darker.”

After the Citizens United ruling (by justices who obtained their seats with the help of corporate and billionaire-funded efforts), Republicans filibustered to prevent the majority of the Senate from passing the Disclose Act. “The bill would have required disclosure of anyone who donates to independent groups that spent more than $10,000 on campaign ads – or their functional equivalent – and other election spending.”

Blocks SEC From Requiring Corporations To Disclose

The new “omnibus” budget bill contains “riders” that block the government from doing anything to bring light to the “dark money” swamping our elections. It blocks the president and the Securities and Exchange Commission (SEC) from making corporations disclose how much they are putting into the political system, and blocks the Internal Revenue Service from making nonprofits disclose which billionaires are putting money into the political system.

The Wall Street Journal has the story about the budget bill banning the administration from requiring corporations to disclose their political contributions, in “Deal Restricts SEC From Requiring Disclosure of Corporate Political Contributions”:

If signed into law, the provision would prevent the SEC from using funds authorized by the bill to “finalize, issue, or implement” a rule on disclosure of political contributions, or contributions to trade associations and other tax-exempt organizations, according to text of the bill posted early Wednesday.

However, if the President does not sign the bill, the government will shut down.

But wait, there’s more. Zach Carter reports at the Huffington Post, in “Congress Is About To Make Citizens United Even Worse”:

Another rider attached to the budget bans President Obama from issuing an executive order requiring government contractors to disclose their political spending, including donations to nonprofit groups engaged in elections, as a condition of submitting a bid. As HuffPost has previously reported, this does keep alive the prospect of an executive order mandating disclosure from contractors after they have secured their contract.

That’s right. Thanks to Republican “riders” in this budget bill, corporations do not have to disclose who they are paying to get tax breaks, subsidies, etc., and don’t even have to disclose payments they make to help them get contracts with the government.

Blocks IRS From Requiring Non-Profit Charities To Disclose

The Washington Post has the story about how this affects non-profit “charities” that are used to hide donors, in “Congress’ budget deal halts political disclosure efforts“:

The omnibus legislation would prohibit the Internal Revenue Service from using any federal funds in the coming fiscal year to revise or issue new rules governing the political spending of tax-exempt advocacy groups. The measure would effectively halt a two-year-long attempt by the IRS to set a clear limit on how much money such nonprofit groups, setup under Section 501(c)(4) of the tax code, can spend on politics.

The Post notes “a 1959 regulation that states that such groups must not be engaged in political activity, as they are meant to be ‘primarily engaged in promoting in some way the common good and general welfare of the people of the community.'” Except now they can.

The Journal fills this in a bit more, in “Spending Deal Preserves Nonprofits’ Ability to Spend Campaign Cash in Secret”:

Under the new legislation, the IRS cannot use federal funds in fiscal year 2016 to “issue, revise or finalize” any rules about how tax-exempt 501(c)(4) organizations can spend money to influence elections. Since 2013, the Obama administration has beenseeking to rein in the influence of such groups in elections by creating rules to restrict their spending on campaign-related activities.
Recent elections have seen an explosion in spending by nonprofit groups, such as the conservative heavyweight Crossroads GPS. The 2016 election is unusual in the volume of nonprofits that are spending millions to benefit specific candidates in the primary.
… Unlike super PACs, 501(c)(4)s are not required to disclose their donors, and most won’t have to file any IRS disclosure reports concerning their operations and spending until after the general election next year.

So, thanks to Republican “riders” in this budget bill, the IRS is not allowed to enforce laws already on the books against political activity by non-profits, and can’t even make them disclose who is funding that activity.

Pubic Citizen Reaction

The Post story has Public Citizen’s reaction:

“It’s outrageous that lawmakers are interfering with the most modest measures to increase disclosure of political spending,” Lisa Gilbert, who directs the watchdog group Public Citizen’s Congress Watch division, said in a statement. “The American people want – and deserve – to know who is trying to buy our elections.”

Democracy Spring

Note – many groups involved in the Democracy Initiative are working to plan a Spring 2016 mobilization in Washington combined with joint action in states – focused on voting rights and campaign finance reform.

“Collectively, we strive to build a 21st century democracy where the voice of every American is heard and counted with a government that is of, by, and for the people,” the campaign’s statement of purpose says. Note on the left side of the website where it says, “Click Here to Subscribe to our Newsletter!

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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.

How The Clinton and Sanders Infrastructure Plans Measure Up

“Investing in infrastructure makes our economy more productive and competitive across the board.”
– Hillary Clinton

Democratic presidential candidate Hillary Clinton has announced a plan for infrastructure investment. How does her plan stack up against that of her chief competitor, Bernie Sanders?

Also, how will Clinton and Sanders pay for their plans? On that question, Sen. Elizabeth Warren (D-Mass.) recently came up with a set of principles we can use to judge this.

Clinton’s Infrastructure Plan

Clinton on Monday announced a plan for investing in infrastructure improvements. Meteor Blades laid out the need for infrastructure investment at Daily Kos in “Clinton proposes $275 billion spending for infrastructure“:

… 11 percent of the nation’s bridges are structurally deficient and a fourth of them are functionally obsolete. Similar deficiencies can be found in schools, dams, levees, railroads, the electrical grid, and wastewater facilities. In its 2013 quadrennial report card on U.S. infrastructure, the American Society of Civil Engineers said the nation would need to invest an additional $1.6 trillion by 2020 to put its infrastructure into good repair. And that doesn’t include innovative infrastructure like universal broadband.

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Sanders’ Socialism Speech: America Is For All Of Us, Not Just Wealthy

“I don’t believe in some foreign “ism”, but I believe deeply in American idealism.”
– Senator Bernie Sanders

Sen. Bernie Sanders billed his talk Thursday at Georgetown University as a speech on “democratic socialism,” but it was immediately clear that what Sanders was really talking about were not the ideologies of a Cold War adversary but deeply American traditions of fairness that have been under attack by ideologues brandishing American flags.

Sanders anchored his speech as building on President Franklin D. Roosevelt’s 1944 “Second Bill of Rights” address. “Real freedom must include economic security.” he said. “That was Roosevelt’s vision 70 years ago. It is my vision today. It is a vision that we have not yet achieved. It is time that we did.”

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What Do Candidates Propose To Boost Stagnant Economy?

Thursday’s bad news: Third-quarter GDP lands with thud: just 1.5 percent growth. That is down from 3.9 percent growth the previous quarter. The economy appears to be slowing, partly because of the drag effect of our trade deficit and partly because of the drag on the economy due to austerity policies (federal spending cuts that take money out of the economy).

In the presidential campaign Republican candidates are proposing even more austerity as a solution to the lackadaisical recovery, combined with tax cuts for the rich and deregulation of Wall Street and the giant corporations. Democrats, on the other hand are proposing infrastructure investment and a number of other positive solutions.

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Clinton vs Sanders vs O’Malley On Fixing Banking

How do we fix Wall Street, a.k.a. “the banks”? How do the candidates compare? This question came up in the first Democratic debate and there has been lots of online commentary on this since.

The first place to look, of course, is CAF’s Candidate Scorecard. “The Candidate Scorecard measures the positions of Democratic candidates for president against the Populism 2015 platform endorsed by organizations representing 2 million Americans.” On Wall Street – specifically, making “Wall Street serve the real economy” – the Candidate Scorecard rates the candidates as follows:
● Bernie Sanders: 100%
● Martin O’Malley: 100%
● Hillary Clinton: 63%

Note that Clinton’s 63 percent rating is primarily based on not having a position on a financial transaction tax – “Has yet to take a position, though has used rhetoric against high frequency traders who game the system” – as well as opposing reinstating some form of a Glass-Steagall Act and a lack of specific proposals related to the categories “Break Up Big Banks” and “Affordable Banking.”

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Sanders Pushes Postal Banking

Senator and presidential candidate Bernie Sanders has once again added his voice to a growing movement to bring banking to the United States Postal Service (USPS).

“I want to see our post office be reinvigorated,” Sanders said in a Fusion interview this week with Felix Salmon, and postal banking is “one of the ways that I think we can help not only the U.S. Postal Service, but help a lot of low-income people.”

Situation: Exploitation

Millions of Americans are “unbanked,” meaning they do not have (and cannot get) bank accounts for one reason or another. This means they cannot easily cash checks, pay bills, save a bit of money, get a small loan in an emergency and other simple and basic banking services. This leaves them vulnerable in the predatory path of payday lenders and check cashing services, where exploitative fees and incredibly high interests rates eat them alive and leave them poorer than ever.

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Run For Congress As A Democratic Socialist

Bernie Sanders is going to give a big speech on Democratic Socialism.

I think this presents an opportunity for people to run for Congress in Democratic primaries — or as the ONLY Democrat is some districts — as Democratic Socialists. I’m looking at how to register to run in my district.

You might not win but I think it makes sense to make the case for — and get people thinking about — taxing the rich, corporations and Wall Street transactions and using the money to provide:
● Increases in Social Security
● Medicare-for-All
● Free higher education with a stipend while attending
● Low-cost child care
● Help elderly stay in homes and low-cost nursing home care
● Modern mass transit, high-speed rail, etc.
● Well-maintained modern infrastructure (and associated jobs)
● A huge push to solar, wind and other alternative energy, with a weatherization program (and associated jobs)
(The “associated jobs’ thingy is part of a full-employment program.)

Think of other things that We the People can do together to make our lives better — also known as democratic government for the people.

What Is This ‘Cadillac Tax’ Health Insurance Thingy?

You may have heard about the “Cadillac tax” health insurance thing. As with so much else involved with the health care/insurance discussion, policymakers have chosen wording that causes most people to tune out. Terms like “Cadillac tax” have little meaning to regular people because they convey very little information – or they evoke an image that masks its true impact.

When policymakers talk about a “Cadillac tax” on health insurance plans, what they are referring to is an upcoming tax on employers who provide really good health insurance plans that cover lots of things without requiring employees to pay large co-pays and deductibles when they get medical care. These plans cost more, so they are compared to luxury cars that cost more, hence “Cadillac.”

The tax was written into the Affordable Care Act with the consent of the Obama administration, which saw it as a way to limit federal government spending on health care reform. There are people who thing this tax is a good idea, and people who want the tax repealed.

Arguments In Favor Of The Tax

Those in favor of the tax are “market” economists who believe that people’s decisions, even about health care choices, are mostly driven by economic motives. They believe that people are “homo economicus” – a species of people who have good information and make rational decisions based on what will make them (or save them) the most money. These people are seen as “consumers” who respond to prices over other priorities in their lives.

They claim that with good health insurance, “consumers have little incentive to insist on cost-effective care and providers have little incentive to provide it.” The idea is that a tax on employers who offer good health insurance will benefit the country and:
1) create market forces that will reduce the country’s health care costs over time, and,
2) Translate as higher pay to employees because the employers are spending less on health insurance.

These economists believe that the better the health care plan, the more people will go to doctors and specialists when they don’t really have to. They believe people use high-cost medical procedures and drugs because they do not shop around for the lowest-priced alternatives. They believe that making people pay higher co-pays and/or deductibles and limiting which doctors they can see will cause them to “consume” less and stop “overutilizing” expensive medical care.

They say that setting high co-pays and deductibles, and limits on doctors, will make people put “skin in the game” and:

1) Stop knowingly using medical services needlessly. People know when they don’t really have to see a doctor but do so anyway because they don’t have to pay too much.
2) “Shop around” for the lowest-cost doctors (of those offered) when they do need medical care.
3) “Shop around” when a drug or procedure is needed, whether it’s for fixing a broken arm or treating cancer, and will choose the lowest-cost options.

The Argument For Repealing This Tax

That was the market economist side of the “Cadillac Tax” argument. They want the tax to take effect starting next year, as planned. The other side is people who want to repeal the tax. They want citizens to have more access to good health care, with low co-pays and low deductibles and a wide choice of doctors and care options.

On a conference call Thursday, Economic Policy Institute (EPI) Research Director Josh Bivens and Senior Economist Elise Gould outlined arguments against this tax. They explained that research (and basic common sense) shows that consumers are not equipped with information and knowledge that enables them to cut back only on unnecessary or ineffective care. In other words, people go to doctors to find out if they need medical care, because the doctors are the ones trained in medicine, not regular people.

With high deductibles and co-pays, people cut back on health care across the board. They don’t see a doctor when they need to, which can cause them to be sicker when they finally do see a doctor (which is more expensive and undoes the money-saving efforts) or just suffer, which should not be a policy goal (unless you are a conservative or a psychopath).

In EPI’s “Tax on Expensive Health Insurance Plans Could Cut Care Along With Costs,” Bivens and Gould write,

Evidence shows that making health care more expensive does induce people to consume less of it. But the same evidence shows that people do not cut back only on care that is ineffective or somehow luxurious; instead, they cut back across the board. Expecting sick Americans to decide on the fly in an opaque and uncompetitive marketplace what health care is cost-effective–and what is not–is an unrealistic and unfair approach to containing costs.

While overall costs may be pushed down by the excise tax, this is a good outcome only if one believes that the health care squeezed out is merely the ineffective kind. But a lot of welfare-improving care may also be a casualty, and for some patients, cutting back on medically indicated care because of the increased cost-sharing could increase their overall spending. For example: some patients who cut back on low-cost pills to contain cholesterol end up in emergency rooms.

Cutting utilization is also a limited cost-containment strategy…

One more thing: the market economists claim that employers will pass along savings from lower-cost plans to employees as higher pay. What is the fat chance of that? What world do they live in? World economicus? I mean, really.

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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.