Forget The Rich: Tax The Poor And Middle Class
Nothing is certain but death and taxes, it used to be said, but in the madcap times we live in, even they’re up for grabs.
No matter what proof the White House provides that Osama bin Laden indeed has had his bucket kicked — and at this point even al Qaeda admits he’s dead — there still will be uncertainty. Whether they ever release those damned photos or not, a lunatic few will continue to insist that Osama’s alive and well and running a Papa John’s Pizza in Marrakesh.
As for taxes, having to pay them is no longer a sure thing either, especially if you’re a corporate giant like General Electric, with a thousand employees in its tax department, skilled in creative accounting. You’ll recall recent reports that although GE made profits last year of $5.1 billion in the United States and $14.2 billion worldwide they would pay not a penny of federal income tax. Chalk it up to billions of dollars of losses at GE Capital during the financial meltdown and a government tax break that allows companies to avoid paying US taxes on profits made overseas while “actively financing” different kinds of deals.
It gets worse. In 2009, Exxon-Mobil didn’t pay any taxes either, and last year, they had worldwide profits of $30.46 billion. Neither did Bank of America or Chevron or Boeing. According to a report last week from the office of the New York City Public Advocate, in 2009, the five companies, including GE, received a total of $3.7 billion in federal tax benefits.
As The New York Times‘ David Kocieniewski reported in March, “Although the top corporate tax rate in the United States is 35 percent, one of the highest in the world, companies have been increasingly using a maze of shelters, tax credits and subsidies to pay far less… Such strategies, as well as changes in tax laws that encouraged some businesses and professionals to file as individuals, have pushed down the corporate share of the nation’s tax receipts — from 30 percent of all federal revenue in the mid-1950s to 6.6 percent in 2009.”
What’s greasing the wheels for these advantages is, hold on to your hats, cash. Over the last decade, according to the NYC public advocate’s report, those same five companies — GE, Exxon-Mobil, Bank of America, Chevron and Boeing — gave more than $43.1 million to political campaigns. During the 2009-2010 election cycle, the five spent a combined $7.86 million in campaign contributions, a 7 percent jump over their 2007-2008 political spending.
“These tax breaks were put in place to promote growth and create jobs, not bankroll the political causes of corporate executives,” Public Advocate Bill de Blasio said. “… No company that can afford to spend millions of dollars to influence our elections should be pleading poverty come tax time.”
And by the way, those campaign cash figures don’t even include all the money those companies funneled into the 2010 campaigns via trade associations and tax-exempt non-profits. Thanks to the Supreme Court Citizens United decision, we don’t know the numbers because, as per the court, the corporate biggies don’t have to tell us. Imagine them sticking out their tongues and wiggling their fingers in their ears and you have a pretty good idea of their official position on this.
Meanwhile, last week Republicans like Utah’s Orrin Hatch, ranking member of the US Senate Finance Committee, grabbed hold of an analysis by Congress’ nonpartisan Joint Committee on Taxation and wrestled it to the ground. The brief memorandum reported that in the 2009 tax year 51 percent of all American taxpayers had zero tax liability or received a refund. So why, the Republicans asked, are Democrats and others so mean, asking corporations and the rich to pay higher taxes when lots of other people — especially the poor and middle class — don’t pay taxes either?
Hatch told MSNBC, “Bastiat, the great economist of the past, said the place where you’ve got to get revenues has to come from the middle class. That’s the huge number of people that are there. So the system does need to be revamped… We have an unbalanced tax code that we’ve got to change.”
All of which flies in the face of reality. As Travis Waldron of the progressive ThinkProgress website explained, “The majority of Americans who do not pay federal income taxes don’t make enough money to qualify for even the lowest tax bracket, a problem made worse by the economic recession. That includes retired Americans, who don’t pay income taxes because they earn very little income, if they earn any at all.
“And while many low-income Americans don’t pay income taxes, they do pay taxes. Because of payroll and sales taxes — a large proportion of which are paid by low- and middle-income Americans — less than a quarter of the nation’s households don’t contribute to federal tax receipts — and the majority of the non-contributors are students, the elderly, or the unemployed.”
What’s more, ThinkProgress notes, “The top 400 taxpayers — who have more wealth than half of all Americans combined — are paying lower taxes than they have in a generation, as their tax responsibilities have slowly collapsed since the New Deal era.” In the meantime, “working families have been asked to pay more and more.”
So maybe death and taxes are no longer certain, but one thing remains as immutable as the hills. In the words of another golden oldie, there’s nothing surer — the rich get rich and the poor get poorer.
By: Michael Winship, CommonDreams.org, May 10, 2011
The “Serious Republican Candidate”: Mitch Daniels Suddenly Discovers Planned Parenthood Funding
About a month ago, Time’s Joe Klein noted his disgust with the Republican presidential field, lamenting the fact that the candidates are “a bunch of vile, desperate-to-please, shameless, embarrassing losers.” The whole lot looks like a “dim-witted freak show.”
But, Klein said, the field may not be set. The columnist pleaded with Indiana Gov. Mitch Daniels (R) to run. “I may not agree with you on most things, but I respect you,” Klein said. He added that Daniels seems to respect himself enough not to behave like a “public clown.” This is an extremely common sentiment. Daniels, the former Bush budget director who helped create today’s fiscal mess, is supposed to be The Serious Republican Candidate For Serious People. He has no use for culture wars — Daniels famously called for a “truce” on these hot-button social issues — and despite his humiliating record, the governor at least pretends to care about fiscal sanity, earning unrestrained praise from the likes of David Brooks.
Perhaps now would be a good time for the political establishment to reevaluate their opinion of Mitch Daniels.
Gov. Mitch Daniels of Indiana said Friday that he would sign a bill cutting off Medicaid financing for Planned Parenthood, a move that lawmakers in several states have begun pondering as a new approach in the battle over abortion. Indiana becomes the first state to go forward.
Abortion rights supporters condemned the decision, saying it would leave 22,000 poor residents of Indiana, who use Planned Parenthood’s 28 health facilities in the state, with nowhere to go for a range of women’s services, from breast cancer screening to birth control.
Daniels, who apparently no longer has any use for his own rhetoric about a culture-war “truce,” said his decision was dictated by the fact that Planned Parenthood provides abortion services, adding that the health organization can resume its state funding by refusing to help women terminate their unwanted pregnancies.
That only 3% of Planned Parenthood’s operations deal with abortions, and that public funding of abortions is already legally prohibited, apparently didn’t matter.
What’s especially striking about this is how cruel and unnecessary it is. Daniels has been governor of Indiana for more than six years, and he’s never had a problem with Planned Parenthood funding. He was Bush’s budget director for more than two years, and he never had a problem with Planned Parenthood funding.
But now that he’s thinking about running for president, and has hysterical right-wing activists to impress, now Mitch Daniels has suddenly discovered Planned Parenthood funding — which has enjoyed bipartisan support for decades — is no longer acceptable to him.
It’s not as if Planned Parenthood, its mission, or its menu of health services has changed. The only thing that’s changed is the radicalism of new Republican Party and those who hope to lead it. The real-world effect of Daniels’ cruelty is unmistakable: fewer working-class families will have access to contraception, family planning services, pap smears, cancer screenings, and tests for sexually-transmitted diseases. Indiana has 28 Planned Parenthood centers in the state, and most of its patients live in poverty.
Also note that this was as clear a test of Daniels’ purported principles as we’ve seen to date — he had to choose between fiscal considerations (millions of dollars in federal health care funding) and culture-war considerations (cutting off a public health organization to satisfy rabid conservatives). As of late yesterday — Daniels made the announcement late on a Friday afternoon, probably out of embarrassment — the governor prioritized the latter over the former. To prove his right-wing bona fides, Daniels decided to put politics ahead of women’s health.
Ironically, the Republican who claims to oppose abortions is going to make it more likely more women will have unwanted pregnancies.
It’s indefensible. Daniels should be ashamed of himself and the pundits who praised Daniels’ “seriousness” should feel awfully foolish right about now.
By: Steve Benen, Political Animal, Washington Monthly, April 30, 2011
Note To Banks: It’s Not 2006 Anymore
Nostalgia is running high on Wall Street for the days when junk mortgage underwriting and opaque derivatives trading juiced bank profits. As regulators continue to devise the machinery of the Dodd-Frank regulatory reform law, major financial institutions are working overtime in Washington to bring the good times back again.
Unfortunately for taxpayers, some of these efforts are gaining traction, particularly regarding the regulation of derivatives and mortgages.
As you may recall, Dodd-Frank was supposed to shed light on derivatives trading so that the risks and costs of these instruments would be clear to regulators and market participants. To this end, the law required derivatives to be cleared and traded on exchanges or through other approved facilities. But Dodd-Frank contained a big loophole: the Treasury secretary can exempt foreign-exchange swaps from the regulation.
Currency trading is enormous: on average, about $4 trillion of these contracts change hands each day. Major banks are huge in this market. According to the Comptroller of the Currency, trading in foreign-exchange contracts generated revenue of $9 billion in 2010 at the nation’s top five banks. That’s more than was produced by any other type of derivative.
No one was shocked when the banks began pushing the Treasury to exempt these swaps from regulatory scrutiny. From last November through January, Treasury officials met to discuss foreign-exchange swaps with 34 representatives of large financial institutions, the Treasury’s Web site shows.
A spokesman for Timothy F. Geithner, the Treasury secretary, said last week that Mr. Geithner had not made up his mind on this matter. If Mr. Geithner sides with the banks, he will have bought into their argument that foreign-exchange swaps are different from other derivatives, that this market performed ably during the financial crisis and does not need additional oversight.
Others disagree. Testifying before the House Financial Services Committee in October 2009, Gary Gensler, the chairman of the Commodity Futures Trading Commission, said: “Any exception for foreign-currency forwards should not allow for evasion of the goal of bringing all interest rate and currency swaps under regulation to protect the investing public.”
Dennis Kelleher, the president of Better Markets, a nonprofit organization that promotes the public’s interest in capital markets, said he was dubious of the contention that the market for foreign-exchange contracts performed well during the turmoil of 2008. Mr. Kelleher said that the only reason this market did not seize up like others was that the Fed lent huge amounts — $5.4 trillion — to foreign central banks through so-called swap lines during the fall of 2008.
“We suggested that Treasury hire truly independent experts to look at the data and provide the secretary with advice on whether or not the FX market performed well in the crisis and whether the exemption should be granted,” he said.
The analysis could be done within 60 days, he said. The Treasury told him it was confident that it had all the information it needed. “Their response was, ‘Thank you,’ ” he said.
Big financial institutions are also eager to return to the days of lax mortgage lending, judging from two initiatives being discussed in Washington. Both are intended to get the home loan market moving again — and to buoy falling home prices.
One relates to how regulators define a “qualified residential mortgage,” a term of art in the Dodd-Frank law. Issuers of asset-backed securities that are made up of such loans needn’t keep any credit risk of those securities. But sellers of loan pools that don’t consist of qualified mortgages are required to retain some of the risk in them. This provision was meant to eliminate the perverse incentives of the mortgage boom, when packagers of loan pools were encouraged to fill said pools with toxic waste because they had little or no liability for the deals once they were sold.
What constitutes a qualified mortgage has become a battleground issue because of the risk-retention rules under Dodd-Frank. Qualified mortgages should be of higher quality, based upon a borrower’s income, ability to pay and other attributes to be decided by financial regulators.
The board of the Federal Deposit Insurance Corporation will hold an open meeting on Tuesday to discuss qualified mortgages and the risk-retention rule. Among the questions to be considered is how much of a down payment should be required in a qualified loan, and whether mortgage insurance can be used to protect against the increased risks in loans that have smaller down payments.
The use of mortgage insurance during the boom effectively encouraged lax lending. Investors who bought securities containing loans with small or no down payments were lulled into believing that they would be protected from losses associated with defaults if the loans were insured.
But when loans became delinquent or sank into default, many mortgage insurers rescinded the coverage, contending that losses were a result of lending fraud or misrepresentations. When they did so, the insurers returned the premiums they had received to the investors who owned the loans. Lengthy litigation between the parties is under way but has by no means concluded.
Clearly, for many mortgage securities investors, this insurance was something of a charade. So any argument that mortgage insurance can magically transform a risky loan into a qualified residential mortgage should be laughed off the stage. And yet, mortgage insurers are making those arguments vociferously in Washington.
The final front in the mortgage battle involves a plan to restart Wall Street’s securitization machine with instruments known as covered bonds. Here, too, the big banks and the housing-financial complex are arguing that if private investors are to return to the mortgage market, we must create a new instrument that will let the good times roll again.
Covered bonds are pools of debt obligations that have been assembled by banks and sold to investors who receive the income generated by the assets. The bank that issues the bonds, meanwhile, retains the credit risk. If losses arise, the bank that issued the covered bonds must offset the loss with its own capital. That could push troubled banks closer to the edge.
If an asset in the pool defaults, a separate entity would be required to remove the assets from the bank’s control. The assets would then be out of reach of the F.D.I.C. should the bank fail and the agency step in as receiver. The investors who bought the covered bonds would have first call on the assets, ahead of the F.D.I.C.
This structure would wind up bestowing a new form of government backing to the major banks issuing the bonds, raising the potential for losses at the F.D.I.C. insurance fund, which protects savers’ deposits.
Equally troubling, the covered bond structure favored by the banks would let the pools invest in risky assets such as home equity lines of credit. These loans have been among the worst-performing assets out there. Covered bonds issued overseas, by contrast, typically consist solely of high-quality loans.
“The industry is trying to do an end run around the F.D.I.C.,” said Christopher Whalen, publisher of the Institutional Risk Analyst. “This proposal is about restarting the Wall Street assembly line for selling toxic waste to investors.”
Clearly, the battle for the safety and soundness of the nation’s financial markets is far from won. The issues are complex and confounding — by design, in many cases — and financial institutions have armies of advocates in Washington. The taxpayers do not, which makes monitoring of these crucial proceedings all the more essential.
By: Gretchen Morgenson, The New York Times, March 26, 2011
Spending Cuts, Jobs, Growth: The GOP Austerity Delusion
Portugal’s government has just fallen in a dispute over austerity proposals. Irish bond yields have topped 10 percent for the first time. And the British government has just marked its economic forecast down and its deficit forecast up.
What do these events have in common? They’re all evidence that slashing spending in the face of high unemployment is a mistake. Austerity advocates predicted that spending cuts would bring quick dividends in the form of rising confidence, and that there would be few, if any, adverse effects on growth and jobs; but they were wrong.
It’s too bad, then, that these days you’re not considered serious in Washington unless you profess allegiance to the same doctrine that’s failing so dismally in Europe.
It was not always thus. Two years ago, faced with soaring unemployment and large budget deficits — both the consequences of a severe financial crisis — most advanced-country leaders seemingly understood that the problems had to be tackled in sequence, with an immediate focus on creating jobs combined with a long-run strategy of deficit reduction.
Why not slash deficits immediately? Because tax increases and cuts in government spending would depress economies further, worsening unemployment. And cutting spending in a deeply depressed economy is largely self-defeating even in purely fiscal terms: any savings achieved at the front end are partly offset by lower revenue, as the economy shrinks.
So jobs now, deficits later was and is the right strategy. Unfortunately, it’s a strategy that has been abandoned in the face of phantom risks and delusional hopes. On one side, we’re constantly told that if we don’t slash spending immediately we’ll end up just like Greece, unable to borrow except at exorbitant interest rates. On the other, we’re told not to worry about the impact of spending cuts on jobs because fiscal austerity will actually create jobs by raising confidence.
How’s that story working out so far?
Self-styled deficit hawks have been crying wolf over U.S. interest rates more or less continuously since the financial crisis began to ease, taking every uptick in rates as a sign that markets were turning on America. But the truth is that rates have fluctuated, not with debt fears, but with rising and falling hope for economic recovery. And with full recovery still seeming very distant, rates are lower now than they were two years ago.
But couldn’t America still end up like Greece? Yes, of course. If investors decide that we’re a banana republic whose politicians can’t or won’t come to grips with long-term problems, they will indeed stop buying our debt. But that’s not a prospect that hinges, one way or another, on whether we punish ourselves with short-run spending cuts.
Just ask the Irish, whose government — having taken on an unsustainable debt burden by trying to bail out runaway banks — tried to reassure markets by imposing savage austerity measures on ordinary citizens. The same people urging spending cuts on America cheered. “Ireland offers an admirable lesson in fiscal responsibility,” declared Alan Reynolds of the Cato Institute, who said that the spending cuts had removed fears over Irish solvency and predicted rapid economic recovery.
That was in June 2009. Since then, the interest rate on Irish debt has doubled; Ireland’s unemployment rate now stands at 13.5 percent.
And then there’s the British experience. Like America, Britain is still perceived as solvent by financial markets, giving it room to pursue a strategy of jobs first, deficits later. But the government of Prime Minister David Cameron chose instead to move to immediate, unforced austerity, in the belief that private spending would more than make up for the government’s pullback. As I like to put it, the Cameron plan was based on belief that the confidence fairy would make everything all right.
But she hasn’t: British growth has stalled, and the government has marked up its deficit projections as a result.
Which brings me back to what passes for budget debate in Washington these days.
A serious fiscal plan for America would address the long-run drivers of spending, above all health care costs, and it would almost certainly include some kind of tax increase. But we’re not serious: any talk of using Medicare funds effectively is met with shrieks of “death panels,” and the official G.O.P. position — barely challenged by Democrats — appears to be that nobody should ever pay higher taxes. Instead, all the talk is about short-run spending cuts.
In short, we have a political climate in which self-styled deficit hawks want to punish the unemployed even as they oppose any action that would address our long-run budget problems. And here’s what we know from experience abroad: The confidence fairy won’t save us from the consequences of our folly.
By: Paul Krugman, Op-Ed Columnist, The New York Times, March 24, 2011
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