“Raising The Minimum Is The Bare Minimum”: What America Needs Is To Shift Income From Capital To Labor
In 1995, when John Sweeney ran the first and as-yet-only insurgent campaign for the presidency of the AFL-CIO, his platform took the form of a book entitled America Needs a Raise. If that title rang true in 1995, it clangs with deafening authority today.
Which leads us to the only problem with the current campaigns to raise the minimum wage: It’s not just workers at the low end of the wage scale who need a raise. It’s not just the work of the bottom 9 percent of labor force that is undervalued. It’s the work of the bottom 90 percent.
Conservatives who oppose raising the minimum wage argue that we need to address the decline of the family and the failure of the schools if we are to arrest the income decline at the bottom of the economic ladder. But how then to explain the income stagnation of those who are, say, on the 85th rung of a 100-rung ladder? How does the decline of the family explain why all gains in productivity now go to the richest 10 percent of Americans only? And are teachers unions really to blame for the fact that wages now constitute the lowest share of Gross Domestic Product since the government started measuring shares, and that corporate profits now constitute the highest share?
We need to raise the minimum wage, but that’s only the start. Even more fundamentally, we must reverse the deeper and more profound redistribution of wealth that has now plagued the nation for several decades: that from capital to labor.
For as income from work declines for the nation as a whole—inflation-adjusted median hourly wages are now more than $1.50 lower than they were in 1972—income from investment soars. The stock markets are hitting record highs, and major corporations are using the $1.5 trillion they have lying around to raise not wages but dividends. They are also using some of that cash to buy back their own stock, which raises the value of the outstanding shares, to which, happily, most CEO’s compensation packages are linked.
The institutions that once ensured that American workers actually got their share of the pie—unions—have been so thoroughly battered down that they can no longer effectively bargain for raises. That leaves that other instrument of the popular will— the state—as the sole remaining institution that can bargain for workers. That’s why the minimum wage, the living wage and the Earned Income Tax Credit have taken on a greater significance than they previously held: They not only raise the incomes of the poor, but are the last remaining vehicles for raising wages.
That’s why just stopping with raising the minimum, important though that be to the nation’s economic and moral health, is nowhere near enough. Making it safe again for workers to try to join unions is a necessity, too, but that’s a fight that labor has been waging for half-a-century with nothing to show for it. The left needs to battle on other fronts as well.
We could begin by shifting the tax burden from labor to capital—after all, income in America has long been shifted from labor to capital. We could abolish the payroll tax on the first $25,000 that people make, substituting for it a higher threshold on taxable income. We could raise the tax rates on capital gains and dividends not just to the same levels as income derived from work but higher still. And we could explicitly designate some of the revenue from capital income to go to a much expanded Earned Income Tax Credit—expanded not just by making the payments more generous, but also by raising the criterion for eligibility well above the government’s poverty threshold.
By explicitly taking back from capital some of the wealth it has taken from labor, government would begin to address the root causes of economic inequality. Not all of them, to be sure: The stratospheric salaries that top corporate executives and Wall Street traders command aren’t capital income as such. One way to rein in executive pay might be to set corporate tax rates by the size of the gap between top executives’ and median workers’ pay, the data on which the Securities and Exchange Commission is supposed to make public under the terms of Dodd-Frank. Or it might be to set corporate tax rates based whether the corporation has a stakeholder or a shareholder board. In Germany, corporations are required to have equal numbers of employee and management representatives on their boards, which has effectively reduced CEO pay at most German companies to a multiple of 10 or 12 times that of its median employee, not the 200 or 300 times that’s the norm in the U.S.
If we want to address economic equality, we need to follow the money. In recent decades, as a result not just of globalization and technology but also of the decline of unions and the rising political power of the rich, the money has almost entirely gone to the rich—in the current recovery, fully 95 percent of income growth to the top 1 percent. So by all means, raise the minimum wage. But don’t stop there.
By: Harold Meyerson, The American Prospect, January 22, 2014
“The Real Tax Threat To American Businesses”: Big Corporations Don’t Pay Their Fair Share
American businesses face some serious challenges from taxes. But it’s not due to America’s tax rates, as many big business CEOs would have you believe. Our corporate tax problems stem from a corporate tax code with so many perks, credits and loopholes in it that many U.S. multinational corporations pay little to no taxes. This starves our national budget and imperils public education, innovative research and infrastructure, the sort of public investments that help make our businesses and economy competitive. And, maybe even worse, it’s unfair.
I’m an accountant. I know about taxes. I help my clients take advantage of the deductions and incentives to which they are entitled. But because of accounting tricks my clients cannot use, many giant U.S. corporations pay taxes at effective rates far lower than most small businesses and many middle class families. The average U.S. multinational corporation paid just 12.6 percent of its income in taxes in 2010, according to the Government Accountability Office.
Some of the most unfair corporate tax loopholes for America’s competitive position in the world are the offshore tax loopholes. These loopholes alone cost the U.S. Treasury an estimated $90 billion a year. They also create an unfair playing field between domestic businesses like I serve in my practice, and the large multinational firms, whose high priced tax attorneys and lobbyists have devised ways to shift profits earned in the United States to the world’s tax haven countries where those profits are taxed lightly, if at all.
For instance, some software companies take patents on products developed in the U.S. and register them in a foreign tax haven. When a U.S. customer purchases the product, the company sends a large chunk of the purchase price to the tax haven to pay for the use of the patent. Thus the company reduces its effective corporate tax rate – sometimes even below 10 percent.
My clients don’t have this option. Nor would they want it. They are restaurants and dry cleaners, medical practices, small manufacturers and auto repair shops. They work hard and they expect to pay their fair share of taxes. They are the engines of our local economy, just as similar small companies are the engines of local economies across the country. They provide needed goods and services. They provide needed jobs. And they pay needed taxes.
Their taxes help pay for public investment in schools, roads, courts, public transit, public safety, public health – all of the basic infrastructure that enables all businesses to function and thrive. Since they benefit – as we all do – from those tax investments, it’s only fair that they should pay their share.
But their counterparts at large US multinationals don’t have to. And it’s the tax code that lets them. It’s as if the tax code pretends that they are operating in a third world country with no infrastructure to support. That’s ridiculous, of course. I’m good at accounting and bookkeeping, but I sure wouldn’t want a client trying to operate their entire business in a rural part of a third world country.
Our tax code should be fair and should encourage investment in our shared future. When we invest together we start a virtuous cycle of growth. But when people, whether individuals or business owners, think the tax system is rigged in favor of one group or another – say U.S. multinational companies using overseas tax havens – they rightly feel that they are paying more than their fair share. They lose faith in the system.
And when tax revenues are lower than they would be without such loopholes, policymakers look for ways to cut spending. This starts a vicious cycle of ever-shrinking economic activity and ever reducing tax revenue.
Fixing the tax code is the answer, and a good place to start is with the unfair overseas loopholes that undermine our faith in the tax system and rob our communities and the nation of vital investments in the future.
It makes no sense for our tax code to be hurting domestic job creators and undermining the tax base for our schools, roads, police and other vital services and infrastructure.
The tax reform America needs is one that closes many of the unfair loopholes won by big business lobbyists over the last three decades. We need the extra revenue collected to invest in the 21st century economy that will sustain our families, our communities and our businesses.
By: Brian Setzler, U. S. News and World Report, January 17, 201
“The GOP Roadblock To Repairs”: With Limited Time And Opportunity, Republican Infrastructure Intransigence Strikes Again
In 2005, the World Economic Forum ranked America’s infrastructure Number 1 in the world for “economic competitiveness.” Only eight short years later, the U.S. occupies 14th place. Instead of leading our global competitors in planning, staying current and building a transportation system for the 21st century, we have continued to invest at the same rate (in real inflation-adjusted dollars) as we did in 1968.
By way of example, Canada spends 4 percent of its GDP on transportation, investment and maintenance, with China spending 9 percent. The U.S. spends only 1.7 percent.
More than 69,000 of America’s bridges are deemed structurally deficient, more than 11 percent of all the bridges in our country. According to the American Society of Civil Engineers, the U.S. would need to invest $3.6 trillion between now and 2020 just to keep its infrastructure in “good” repair.
As a nation, our cities have become more congested, our commutes more delayed and our companies less productive. According to UPS, five minutes of daily delay for its trucks adds up to $100 million lost annually.
President Obama has long understood that investments made to our nation’s infrastructure will create jobs here in America that can’t be outsourced or replaced overseas. Interestingly, this is the same dynamic that has united two bitter enemies, the AFL-CIO and the U.S. Chamber of Commerce, around their mutual quest to see Congress appropriate more funding for infrastructure projects.
Even Republicans seem to understand the need, or at least they have indicated so at times. Senate Minority Leader Mitch McConnell, R-Ky., has said, “Everybody knows we have a crumbling infrastructure. Infrastructure spending is popular on both sides. The question is how much are we going to spend.” Senator Lindsey Graham, R-S.C., once claimed, “If you’re a Republican and you want to create jobs, then you need to invest in infrastructure that will allow us to create jobs.”
This week, President Obama proposed to cut corporate taxes and to invest in infrastructure projects to boost American jobs, all while being “revenue neutral.” These are concepts that have been championed by Republicans in the past, but generally ignored in recent times.
Unfortunately, true to form, the GOP backlash was immediate, claiming Obama’s plan offered them no concessions at all. McConnell said on the floor, “The plan, which I just learned about last night, lacks meaningful bipartisan input,” and thus he will oppose it. As the president suggested in a recent interview with the New York Times, “there’s almost a kneejerk habit right now that if I’m for it, then they’ve [Republicans in congress] got to be against it.”
So, once again, Congress is at a standstill while it admires our nation’s crumbling infrastructure. Seemingly, Republican leadership would rather put up roadblocks than work with the president to build and restore some of our nation’s fundamental structural needs to remain economically competitive – operative roads, bridges, dams, levees and rails. There are only 61 days left before the next government shutdown and nine legislative working days on the calendar in September. This limited time and opportunity will require leaders from both sides to step forward and work efficiently to pass the necessary legislation to get this country back on track.
Perhaps, while members of Congress are away in August, they will actually remember what they were for before they were against it.
By: Penny Lee, U. S. News and World Report, July 31, 2013
“Separate But Unequal”: Why Do We Tax Ourselves Today So Apple Can Pay Its Taxes Someday?
The richest of the rich are different from you and me because instead of paying taxes, Congress lets them pay interest.
This little-known difference was on full display before the Senate Permanent Investigations subcommittee this week, though you would hardly know that from the news reports of testimony by Apple CEO Tim Cook and his top finance and tax executives.
The reality is that America has two income tax systems, separate and unequal. And as with all such separate and unequal systems, the powerful benefit by sticking everyone else with the costs.
The system is so unequal that corporate tax departments at the biggest multinationals have been transformed from cost centers into what Enron called its tax office: a profit center.
To most Americans, taxes are an expense. The idea that a tax can make you richer may seem hard to believe, but as the Apple executives showed in their testimony, it is standard operating procedure these days.
But instead of reporting this, we got mostly fluffy political stories. The New York Times account was typical, focusing on how Cook so charmed senators he had them “practically eating out of his hand.”
What Apple is really doing is eating your lunch.
Let’s start with how Congress taxes most people. It does not trust them to report their incomes in full or to pay their taxes, and with good reason since numerous studies show that a third or more of self-reported income simply does not get written down on income tax returns.
We all know this as the “underground economy” of people who get paid in cash; clean pools, cut grass or sell another type of grass. (Many drug dealers, however, report their incomes in full knowing that if they get caught dealing and cheating on their taxes their prison terms will be longer.)
People who work, and pensioners, have their taxes taken out of their checks before they get paid — which is why we call the shrunken cash that we pocket “take-home pay.”
Because Congress also does not trust workers and retirees to report their incomes in full, it requires their employers and pension plans to verify how much they make. The Social Security Administration adds up all the W-2 wages-paid forms for people with any paid work. In 2011 there were 151,380,759 people who earned $6,238,607,249,941.26, which would usually be written up as $6.2 trillion.
Congress also says you can defer tax on money you save in a 401(k) plan if your employer offers one, a maximum of $23,000 for older workers. If you do not have a 401(k) you can save no more than $6,000 this year and pay taxes when you withdraw.
In other words, you get fully or almost fully taxed when you earn.
But Apple operates under very different rules. At the end of March it has more than $102 billion of mostly untaxed profits. If Apple were a worker it would have paid the federal government $36 billion in taxes.
Instead of paying taxes, Apple has taxes that are deferred for as long as it chooses.
In total, I estimate from corporate disclosure documents, American multinational companies have $2 trillion of untaxed profits offshore because they did just what Apple has done.
Had Congress required those companies to pay up last year it would have been the equivalent of all the income taxes paid by everyone in America from January until July 10. Imagine that, all the income taxes taken out of your pay or pension from January into the middle of summer just so Apple and other multinational companies can profit today and pay their taxes someday.
The $700 billion of income taxes that would have come due without deferral would also have reduced the federal budget deficit last year by more than two-thirds. Instead, the federal government borrowed a little more than a trillion last year to pay its bills.
In effect the federal government loaned Apple the $36 billion in deferred taxes at zero interest. Imagine how rich you would be if you could keep all the income taxes withheld from your paycheck this year and then pay the money, interest-free, 30 years from now.
Because taxes deferred are at zero interest, inflation erodes the value of the taxes owed. If Apple waits 30 years and then chooses to pay its taxes the government will get the equivalent of 40 cents on today’s dollar, assuming 3 percent annual inflation.
Meanwhile, Apple will be investing that $36 billion, earning interest. If it earns 3 percent in 30 years, it will have more than $87 billion.
Now jump forward to 2043. Apple pays $36 billion in taxes from its $87 billion cash pile, leaving it with $51 billion after taxes in 2043 dollars.
As advisors to the very wealthy teach their clients, deferring a tax for 30 years is the functional equivalent of not paying any tax.
In the textbook version of events, that huge pile of untaxed profits that Apple keeps offshore cannot be put to work in America. In reality here is what happens:
—Apple has its tax haven subsidiary deposit the money in the United States at a too-big-to-fail-bank, eliminating any risk of loss it would incur with smaller banks.
—Apple has the American bank buy U.S. Treasury bills, notes and bonds so that its untaxed profits, which force the government to borrow, earn interest.
—Apple can also borrow from itself, making short-term loans from its many separate piles of untaxed offshore profits to fund any operational needs in the U.S.
—Rather than tap its $102 billion of offshore cash, Apple sold corporate bonds for periods of up to 30 years at less than 2 percent interest.
As Cook explained to the senators, why pay taxes at 35 percent when you can borrow at 2 percent? Cook is right from a financial perspective. At 2 percent, the interest on the interest, measured to infinity, will never equal the 35 percent taxes avoided.
But here is the best part of the whole deal, which Cook and Peter Oppenheimer, Apple’s chief financial officer, explained to the senators, but the news media neglected to report.
Apple turns some of the profits it earns inside the U.S. into tax-deductible expenses, which it pays to its offshore subsidiaries.
Now, if you move a dollar you earned from your right pocket to your left, nothing significant happens. Your wealth is unaffected and your tax bill is unchanged.
But Apple and other multinationals have an American right pocket, from which they pull cash to put in their Irish, Cayman Islands, Singaporean and other left pockets. When they do that the profit goes poof on their tax return and a tax deduction gets added.
Accountants use black ink to show profit, and red for losses and expenses. This modern accounting scheme is what the alchemists of old sought, hoping to turn lead into gold. But unlike the fictional philosopher’s stone, this alchemy works.
So, to review, you get taxed before you get paid and can set aside only modest sums with the taxes deferred until your old age.
Apple and its corporate peers get to earn profits now, but pay taxes decades into the future and possibly never, while earning interest on the taxes it defers into the future — interest you must finance as a taxpayer through higher taxes, reduced government services or more federal debt.
The one place Apple cannot escape taxes is on the interest it earns on its untaxed hoard of offshore cash, as Apple’s top tax officer, Phillip Bullock emphasized to Senator Carl Levin, the Michigan Democrat who chairs the investigations panel.
Levin’s staff, its reports issued with bipartisan support, also found that Apple did owe some foreign taxes on profits it earned overseas.
It pays the Irish government a corporate tax rate of 2 percent under a deal made in 1980 when it was a pipsqueak company. On some other earnings its tax rate is 0.05 percent – that is a nickel on each $100 of profit.
Rich individuals – very, very, very rich individuals – get to do the same thing: earn now and be taxed much later, if at all, by paying interest on borrowed money instead of paying taxes.
There are different techniques to defer, delay and escape paying income taxes for executives, business founders, managers of hedge and private equity funds and movie stars, all of which will be explained in future National Memo columns.
One of these techniques explains in good part why companies have been slashing health and retirement benefits for workers – because it masks the real costs of letting executives earn now and pay taxes either later or never.
Another explains why Mitt Romney was never going to release his income tax returns for the years he ran Bain Capital Management, the private equity fund that made him rich.
But the bottom line is the same – America has two tax systems, separate and unequal. There is a word to describe such systems: un-American.
There is also a question to ask: Why do we tax ourselves today so Apple can pay its taxes someday?
By: David Cay Johnston, The National Memo, May 23, 2013
“Under The Money Tree”: Corporations Aren’t The Only Ones Benefiting From Low Corporate Taxes
If you are Exxon Mobil, Verizon or General Electric, chances are filing taxes over the past few years has been significantly less painful than for the average American.
And Sunlight Foundation senior fellow Lee Drutman says that’s because everyday Americans don’t have lobbyists on the hill fighting for them.
“If you think you wound up paying too much in taxes this year, maybe you ought to hire a lobbyist or two or 20,” Drutman writes in a recent report. A Sunlight Foundation study shows that of the country’s 200 largest corporations, the eight companies that dished out the most money for lobbying on Capitol Hill between 2007 and 2010 saw major savings in corporate taxes. Six of the companies even saw a more than 7 percent drop in their tax rate over the years.
AT&T for example, a company that spent more than $70 million on federal lobbying saw a 40.4 percent decrease in their rate, a more than $7 billion savings on corporate taxes. Northrop Grumman’s tax rate also decreased from nearly 33 percent to just over 20 percent after they doled out $57 million for lobbyists to pitch their causes on Capitol Hill.
All together the “Big Eight” paid $540 million for federal lobbying and saved over $11 billion in taxes. Drutman estimates the return on investment to be roughly 2,000 percent.
With all of the changes in tax code, it’s easy to see how companies can save so much in just a few years.
“In 2005, the President’s Advisory Panel on Tax Reform counted approximately 15,000 separate changes to the tax code since 1986,” Drutman said.
And the CCH Standard Federal Tax Reporter, the country’s written tax code document, has more than doubled from 33,000 pages in the mid-1980s to more than 72,000 pages today.
However, corporations are not the only ones benefiting from low corporate taxes.
Drutman says that congressmen who sit on the House Ways and Means Committee, the congressional arm in control of tax regulation, receive about $250,000 more in fundraising contributions than their fellow lawmakers.
“Being on Ways and Means is like having Christmas every day,” says Jeffrey Berry, a political science professor at Tufts University and expert on influence in politics. “They barely have to raise any money. It rains down upon them. They are standing under the money tree.”
By: Lauren Fox, Washington Whispers, U. S. News and World report, April 17, 2012
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