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“Corporate Artful Dodgers”: We’re Heading Toward A World In Which Only The Human People Pay Taxes

In recent decisions, the conservative majority on the Supreme Court has made clear its view that corporations are people, with all the attendant rights. They are entitled to free speech, which in their case means spending lots of money to bend the political process to their ends. They are entitled to religious beliefs, including those that mean denying benefits to their workers. Up next, the right to bear arms?

There is, however, one big difference between corporate persons and the likes of you and me: On current trends, we’re heading toward a world in which only the human people pay taxes.

We’re not quite there yet: The federal government still gets a tenth of its revenue from corporate profits taxation. But it used to get a lot more — a third of revenue came from profits taxes in the early 1950s, a quarter or more well into the 1960s. Part of the decline since then reflects a fall in the tax rate, but mainly it reflects ever-more-aggressive corporate tax avoidance — avoidance that politicians have done little to prevent.

Which brings us to the tax-avoidance strategy du jour: “inversion.” This refers to a legal maneuver in which a company declares that its U.S. operations are owned by its foreign subsidiary, not the other way around, and uses this role reversal to shift reported profits out of American jurisdiction to someplace with a lower tax rate.

The most important thing to understand about inversion is that it does not in any meaningful sense involve American business “moving overseas.” Consider the case of Walgreen, the giant drugstore chain that, according to multiple reports, is on the verge of making itself legally Swiss. If the plan goes through, nothing about the business will change; your local pharmacy won’t close and reopen in Zurich. It will be a purely paper transaction — but it will deprive the U.S. government of several billion dollars in revenue that you, the taxpayer, will have to make up one way or another.

Does this mean President Obama is wrong to describe companies engaging in inversion as “corporate deserters”? Not really — they’re shirking their civic duty, and it doesn’t matter whether they literally move abroad or not. But apologists for inversion, who tend to claim that high taxes are driving businesses out of America, are indeed talking nonsense. These businesses aren’t moving production or jobs overseas — and they’re still earning their profits right here in the U.S.A. All they’re doing is dodging taxes on those profits.

And Congress could crack down on this tax dodge — it’s already illegal for a company to claim that its legal domicile is someplace where it has little real business, and tightening the criteria for declaring a company non-American could block many of the inversions now taking place. So is there any reason not to stop this gratuitous loss of revenue? No.

Opponents of a crackdown on inversion typically argue that instead of closing loopholes we should reform the whole system by which we tax profits, and maybe stop taxing profits altogether. They also tend to argue that taxing corporate profits hurts investment and job creation. But these are very bad arguments against ending the practice of inversion.

First of all, there are some good reasons to tax profits. In general, U.S. taxes favor unearned income from capital over earned income from wages; the corporate tax helps redress this imbalance. We could, in principle, maintain taxes on unearned income if we offset cuts in corporate taxes with substantially higher tax rates on income from capital gains and dividends — but this would be an imperfect fix, and in any case, given the state of our politics, this just isn’t going to happen.

Furthermore, ending profits taxation would greatly increase the power of corporate executives. Is this really something we want to do?

As for reforming the system: Yes, that would be a good idea. But the case for eventual reform basically has nothing to do with the case for closing the inversion loophole right now. After all, there are big debates about the shape of reform, debates that would take years to resolve even if we didn’t have a Republican Party that reliably opposes anything the president proposes, even if it was something Republicans were for just a few years ago. Why let corporations avoid paying their fair share for years, while we wait for the logjam to break?

Finally, none of this has anything to do with investment and job creation. If and when Walgreen changes its “citizenship,” it will get to keep more of its profits — but it will have no incentive to invest those extra profits in its U.S. operations.

So this should be easy. By all means let’s have a debate about how and how much to tax profits. Meanwhile, however, let’s close this outrageous loophole.

 

By: Paul Krugman, Op-Ed Columnist, The New York Times, July 27, 2014

July 29, 2014 Posted by | Corporations, Tax Evasion, Tax Loopholes | , , , , , , , | 1 Comment

“Why Republicans Love Taxing The Poor”: This Hurts Us More Than It Hurts You

The reformist wing of the Republican Party, which has a new book of policy essays out today, is a coterie of right-leaning intellectuals engaged in the Lord’s work of reimagining a non-plutocratic agenda for the party. The eternal problem with the reformists, however, is that they’re all playing an inside game, vying for influence within the party and seeking the ear of its leading figures. The need to maintain the good graces of the powers-that-be causes them to couch their advice with a delicacy that routinely veers into outright fantasy.

Ramesh Ponnuru, one of the contributors to the new volume, provides a case in point. In his Bloomberg View column, Ponnuru argues that Republicans should counter the Democrats’ campaign to lift the minimum wage by proposing instead to increase the Earned Income Tax Credit, which “would give Republicans a way to show that they want to help the poor — and that their stated objections to raising the minimum wage are sincere.”

One problem with this plan to get Republicans to increase the Earned Income Tax Credit is that, as Ezra Klein points out, they’re currently fighting extremely hard to cut the Earned Income Tax Credit. Ponnuru’s column doesn’t mention this highly relevant detail.

What’s more, one of the main reasons the Earned Income Tax Credit exists is to cushion the impact of state taxes, which often force workers on the bottom half of the income spectrum to pay higher rates than the rich. And why are state taxes so regressive? Well, a main reason is that Republicans want it this way. The states that raise the highest proportion of their taxes from the poor are Republican states. The EITC is in large part a way of using the federal tax code to cancel out Republican-led policies of taking money from poor people, so naturally Republicans at the national level oppose it, too.

Should Republicans start endorsing plans to give poor people more money? Well, sure, that would be great. It would also be great if Boko Haram came up with some new policies to help educate girls. In the meantime, a more realistic goal might be to just stop hurting the poor.

Obviously, Ponnuru’s policy goal here is admirable. It would be lovely to have a Republican Party that was not monomaniacally focused on redistributing income upward. (How such a reform could be pulled off without upsetting the basic parameters of the party — no new taxes, high military spending, no cuts for current retirees — is a problem none of the reformists have answered and that probably has no answer.)

I can see why Ponnuru needs to present his idea, which is a 180-degree reversal of the Republican agenda, as “a way to show that they want to help the poor.” The trouble is they don’t want to help the poor, if you define “help” as “letting them have more money,” as opposed to “giving them the kick in the ass they need to stop being lazy moochers.”

 

By: Jonathan Chait, Daily Intelligencer, New York Magazine, May 22, 2014

May 23, 2014 Posted by | Poor and Low Income, Republicans | , , , , , , , | 1 Comment

“How To Really Rein In The Super Rich”: Giving Everyday People Equal Input With Business And The Rich In Policy Deals

Thomas Piketty, meet Bobby Tolbert.

Piketty is the French economist who rocked the worlds of social and economic policy with his new book, Capital in the Twenty-First Century. In it, Piketty documents with meticulous detail—and data—how we are returning to an era of extreme inequality where a few dynasties amass great fortunes through inheritance and everyone else withers and suffers.  Such gross inequality, Piketty argues, is not an accident but inherent in capitalism and can only be addressed through government intervention.

All of which is plainly true.  As Paul Krugman has pointed out, conservatives chomping at the purse to refute Piketty have come up with nothing more than name-calling.

Pretty much everyone else agrees gaping inequality is a massive problem in the world and that something has to be done about it.  Heck, even the Pope tweeted, “Inequality is the root of social evil.”  Not the devil.  Inequality!

What the vast majority, who agree inequality is a crisis, do not agree on is what to do about it.  Piketty proposes a global wealth tax as well as a progressive income tax that approaches rates, at the top end, closer to what the United States had in place when prosperity was more broadly shared during the ’50s and ’60s.  They’re good ideas, but only a start.  What they’re missing is a Bobby Tolbert.

Bobby Tolbert is member of the community organization VOCAL NY—a grassroots organization that builds political power among New Yorkers affected by HIV/AIDS, drug use and mass incarceration.  Tolbert was in Washington, D.C., this weekend to speak at the annual meeting of National People’s Action, a network of community organizations made up of groups like VOCAL.

Tolbert spoke eloquently about how gross inequality is destroying communities across America.  [Full disclosure: I was at the event to help Tolbert and other grassroots leaders practice and deliver their speeches.]  Tolbert shared his own story, one only made possible by state-funded HIV medications that are constantly threatened by budget cuts.  Tolbert works as a peer health educator but is paid so little that he qualifies for public support.  Recently, even those few public benefits were taken away because Tolbert transitioned from supportive housing to independent living—a move you would think everyone would be in favor of, but which meant Tolbert’s government health benefits being jeopardized.  He’s currently fighting to have them reinstated.

“Big corporations and the rich are fine with people like me dying,” said Tolbert.  “The only problem with that is I’m not ready to die.”

And while for Bobby Tolbert, public supports literally make the difference between life and death, the situation is pretty much as dire for millions of Americans who increasingly rely on food stamps and Medicaid and housing assistance to survive. At the same time our deliberately and aggressively unequal economy has pushed millions more Americans toward poverty and they need more help than ever, conservative corporate elites are pushing for public assistance to be slashed. Tolbert agrees with Piketty—and the majority of American voters—about taxing the wealthy to spread assistance and opportunity to the poor and working class.

But Tolbert argues for something that Piketty and most of the academic and political debate about inequality seem to miss—that the nature of our economy, the rules of the game that currently incentivize unequal distribution, will never change unless the people making those rules, the people seated at the tables of power, change as well. In other words, as long as economic policy decisions are made by Wall Street and their proxies (see, e.g., Treasury Secretaries Robert Rubin, Henry Paulson and Timothy Geithner) then Thomas Piketty’s ideas won’t be included in the discussion, let alone Bobby Tolbert’s.

“We need a new political system,” Tolbert said, “one that takes money out and puts people in.”  Yes, that means campaign finance reform and reducing the barriers to voting, rather than increasing them.  That would help get more everyday Americans into positions of power.  But Tolbert’s vision also includes participatory budgeting in which communities, not special interests, set the government funding agenda—which is already happening in New York. And it means people’s organizations commanding and being given equal input with business interests and the rich in the smoke-filled rooms where policy deals are cut.  It means that when the Federal Reserve is weighing interest rates and the Senate Budget Committee is evaluating banking regulations, they should as a matter of habit meet with economists and CEOs and the everyday Americans whom their decisions affect most.

In his speech, Tolbert pointed to the diversity of the thousand-plus community leaders from around the country gathered in the auditorium in front of him.  “We represent every race, every gender, every sexual orientation—in fact, we represent America better than the people who are running it.”  In front of Tolbert were family farmers and immigrants and folks on welfare and small-business leaders—all of whom have stories to share about the ravages of inequality and solutions to offer.  Academic debates and data are useful and important, but until Bobby Tolbert and other everyday people like him are included in the discussion and political process, nothing will ever truly change.

 

By: Sally Kohn, The Daily Beast, April 29, 2014

 

 

April 30, 2014 Posted by | Businesses, Economic Inequality, Wall Street | , , , , , , , | Leave a comment

“End College Legacy Preferences”: The Deck Is Stacked At Every Level In Favor Of The Rich

Someone reading about the Supreme Court’s decision upholding Michigan’s ban on affirmative action — and by extension similar measures passed by voters in California, Texas, Florida and Washington — might develop the misimpression that affirmative action is on the wane. In fact, it’s alive and well: Public and private colleges routinely give preferential treatment to children of alumni.

If you have kids, or plan on having them someday, you know that acceptance rates at elite colleges are at historic lows. Stanford led the stingy pack, admitting but 5 percent of applicants, with Harvard and Yale trailing close behind at 5.9 percent and 6.3 percent respectively.

For “legacies,” the picture isn’t nearly so bleak. Reviewing admission data from 30 top colleges in the Economics of Education Review, the researcher Michael Hurwitz concluded that children of alumni had a 45 percent greater chance of admission. A Princeton team found the advantage to be worth the equivalent of 160 additional points on an applicant’s SAT, nearly as much as being a star athlete or African-American or Hispanic.

At Harvard, my alma mater, the legacy acceptance rate is 30 percent, which is not an unusual number at elite colleges. That’s roughly five times the overall rate.

The disparity is so great it makes the most sense to conceptualize college applications to elite colleges as two separate competitions: one for children whose parents are legacies, the other for children whose parents aren’t.

Admissions officers will hasten to tell you that in a meritocracy many legacies would get in anyway. Let’s pause to consider the usefulness of the term “meritocracy” in a system where the deck is stacked at every level in favor of rich, white students before conceding the premise. It’s surely true that many children of alumni are brilliant, hard-working and deserving of a seat at a top college. That’s quite different from saying the system is fair. In 2003, Harvard’s admissions dean said that the SAT scores of legacy admits were “just two points below the school’s overall average.” These are students who have enjoyed a lifetime of advantage. We’d expect them to have outperformed nonlegacies, at least by a bit, and yet they’ve done slightly worse.

Reasonable minds can differ on the morality and wisdom of race-based affirmative action. Where I teach, at John Jay College of Criminal Justice, which is about as egalitarian as institutions come, I’ve seen firsthand what the data show: College is a ticket out of poverty, and exposing young men and women to diverse classmates and role models raises the ceiling on what they believe is possible for themselves. That said, I acknowledge the desire for a colorblind, meritocratic society as an honorable position. But how can anyone defend making an exception for children of alumni?

One needn’t have a dog in this hunt to be troubled by legacy. It’s disastrous public policy. Because of legacy admissions, elite colleges look almost nothing like America. Consider these facts: To be a 1 percenter, a family needs an annual income of approximately $390,000. When the Harvard Crimson surveyed this year’s freshman class, 14 percent of respondents reported annual family income above $500,000. Another 15 percent came from families making more than $250,000 per year. Only 20 percent reported incomes less than $65,000. This is the amount below which Harvard will allow a student to go free of charge. It’s also just above the national median family income. So, at least as many Harvard students come from families in the top 1 percent as the bottom 50 percent. Of course this says nothing of middle-class families, for whom private college is now essentially unaffordable.

These facts will trouble any parent of modest means, but it’s time to recognize this as an American problem. Together with environmental destruction, social inequality is the defining failure of our generation. The richest .01 percent of American families possess 11.1 percent of the national wealth, but 22 percent of American children live in poverty.

There are only two ways this gets better. One is a huge reformation of the tax structure. The other is improved access to higher education. Few investments yield a greater return than a college degree. Education has great potential to combat inequality, but progress simply isn’t possible if legacy persists.

To justify this practice there would need to be, in lawyer language, a compelling justification. There is none. Elite colleges defend legacy as necessary to fund-raising. It isn’t. Neither Oxford nor Cambridge nor M.I.T. considers legacy. Their prestige is intact, they attract great students, and they have ample endowments. Moreover, technology has transformed fund-raising. Presidential candidates raise money through grass-roots campaigns; colleges can, too.

Legacy evolved largely as a doctrine to legitimize the exclusion of Jews from elite schools. It endures today as a mechanism for reinforcing inequality, with particularly harsh consequences for Asians, and fundamentally contradicts the rhetoric of access in which elite colleges routinely engage.

Harvard, Yale, Stanford, Princeton and Columbia collectively have endowments of about $100 billion. They have the means to end this abhorrent practice with a stroke of a pen and the financial resources to endure whatever uncertainty ensues. Just a hunch, but I think the economically diverse students admitted to these great colleges would be successful and generous to their alma maters, not in the hope of securing their child a place in a class, but out of genuine appreciation of a legacy of equal access.

By: Evan J. Mandery, Professor at John Jay College of Criminal Justice; Op-Ed Contributor, The New york Times, April 24, 2014

April 26, 2014 Posted by | Affirmative Action, Economic Inequality | , , , , , , , , | Leave a comment

“It’s Time For The Right Wing To Stop Lying”: Six Studies That Show Everything Republicans Believe Is Wrong

The great 20th-century economist John Maynard Keynes has been widely quoted as saying, “When the facts change, I change my mind. What do you do, sir?” Sadly, in their quest to concentrate economic and political power in the hands of the wealthiest members of society, today’s Republicans have held the opposite position – as the evidence has piled up against them, they continue spreading the same myths. Here are six simple facts about the economy that Republicans just can’t seem to accept:​

1. The Minimum Wage Doesn’t Kill Jobs.

The Republican story on the minimum wage takes the inordinately complex interactions of the market and makes them absurdly simple. Raise the price of labor through a minimum wage, they claim, and employers will hire fewer workers. But that’s not how it works. In the early Nineties, David Card and Alan Krueger found “no evidence that the rise in New Jersey’s minimum wage reduced employment at fast-food restaurants in the state.” Since then, international, national and state-level studies have replicated these findings – most recently in a study by three Berkeley economists. Catherine Ruetschlin, a policy analyst at Demos, has argued that a higher minimum wage would actually “boost the national economy” by giving workers more money to spend on goods and services. The most comprehensive meta-study of the minimum wage examined 64 studies and found “little or no evidence” that a higher minimum wage reduces employment. There is however, evidence that a higher minimum wage lifts people out of poverty. Raise away!

2. The Stimulus Created Millions of Jobs.

In the aftermath of the 2007 recession, President Obama invested in a massive stimulus. The Republican belief that markets are always good and government is always bad led them to argue that diverting resources to the public sector this way would have disastrous results. They were wrong: The stimulus worked, with the most reliable studies finding that it created millions of jobs. The fact that government stimulus works – long denied by Republicans (at least, when Democrats are in office) – is a consensus among economists, with only 4 percent arguing that unemployment would have been lower without the stimulus and only 12 percent arguing that the costs outweigh the benefits.

3. Taxing The Rich Doesn’t Hurt Economic Growth.

Republicans believe that the wealthy are the vehicles of economic growth. Starting with Ronald Reagan in the 1980s, they tried cutting taxes on the rich in order to unleash latent economic potential. But even the relatively conservative Martin Feldstein has acknowledged that investment is driven by demand, not supply; if there are viable investments to be made, they will be made regardless of tax rates, and if there are no investments to be made, cutting taxes is merely pushing on a string. Thomas Piketty and Emmanuel Saez, two of the eminent economists of inequality, find no correlation between marginal tax rates and economic growth.

In fact, what hurts economic growth most isn’t high taxes – it’s inequality. Two recent IMF papers confirm what Keynesian economists like Joseph Stiglitz have long argued: Inequality reduces the incomes of the middle class, and therefore demand, which in turn stunts growth. To understand why, imagine running a car dealership. Would you prefer if 1 person in your time owned 99% of the wealth and the rest of the population had nothing, or if wealth was distributed more equally, so that more people could purchase your cars?

Every other country in the Organization for Economic Cooperation and Development has far lower levels of inequality than the United States. Since there are no economic benefits of inequality, why hasn’t the right conceded the argument? Because it’s based on class interest, not empirical evidence.

4. Global Warming is Caused by Humans.

Even as global warming is linked to more and more extreme weather events, more than 56 percent of Republicans in the current congress deny man-made global warming. In fact, the infamous Lutz memo shows that Republicans have actually created a concerted campaign to undermine the science of global warming. In the leaked memo, Frank Lutz, a Republican consultant, argues that, “The scientific debate is closing [against us] but not yet closed. There is still a window of opportunity to challenge the science.”

In truth, the science of global warming is not up for debate. James Powell finds that over a one year period, 2,258 articles on global warming were published by 9,136 authors. Of those, only one, from the Herald of the Russian Academy of Sciences, rejected man-made global warming. That one article was likely motivated by the Russian government’s interest in exploiting arctic shale. Another, even more comprehensive study, examining 11,944 studies over a 10-year period, finds that 97 percent of scientists accepted the scientific consensus that man-made global warming is occurring.

This is not an abstract academic debate. The effects of climate change will be devastating, and poor countries will be hurt the worst. We’ve already seen the results. Studies have linked global warming to Hurricane Sandy, droughts and other extreme weather events. More importantly, doing nothing will end up being far more expensive than acting now. One study suggests it could wipe out 3.2% of global GDP annually.

5. The Affordable Care Act is Working

President Obama’s centrist healthcare bill was informed by federalism (delegating power to the states) and proven technocratic reforms (like a board to help doctors discern which treatments would be most cost-effective). Republicans, undeterred, decried it as Soviet-style communism based on “death panels” – never mind the fact that the old system, which rationed care based on income, is the one that left tens of thousands of uninsured people to die.

From the beginning, Republicans have predicted disastrous consequences or Obamacare, none of which came true. They predicted that the ACA would add to the deficit; in fact, it will reduce the deficit. They claimed the exchanges would fail to attract the uninsured; they met their targets. They said only old people would sign up; the young came out in the same rates as in Massachusetts. They predicted the ACA would drive up healthcare costs; in fact it is likely holding cost inflation down, although it’s still hard to discern how much of the slowdown was due to the recession. In total, the ACA will ensure that 26 million people have insurance in 2024 who would have been uninsured otherwise.

It’s worth noting that every time the CBO estimates how much Obamacare will cost, the number gets lower. Odd how we’ve never heard Republicans say that.

6. Rich people are no better than the rest of us.

Politicians on the right like to pretend that having money is a sign of hard work and morality – and that not having money is a sign of laziness. This story is contradicted by human experience and many religious traditions (Jesus tells a graphic story about a rich man who refused to help the poor burning in hell). But it’s also contradicted by the facts – more and more rich people are getting their money through inheritances, and science shows that they are no more benevolent than others.

More and more, the wealthy in America are second or third generation. For instance, the Walton family, heirs to the Walmart fortune, own more wealth than the poorest 40 million Americans. Thomas Philippon and Ariell Reshef have found that 30 to 50 percent of the wage difference between the financial sector and the rest of the private sector was due to unearned “rent,” or money they gained through manipulating markets. Josh Bivens and Larry Mishel found the same thing for CEOs – their increased pay hasn’t been correlated to performance.

If rich people haven’t really earned their money, are they at least doing any good with it? Studies find that the wealthy actually give less to charity as a proportion of their income than middle-class Americans, even though they can afford more. Worse, they use their supposed philanthropy to avoid taxes and finance pet projects. Research by Paul Piff finds that the wealthy are far more likely to exhibit narcissistic tendencies. “The rich are way more likely to prioritize their own self-interests above the interests of other people,” Piff recently told New York magazine. “It makes them more likely to exhibit characteristics that we would stereotypically associate with, say, assholes.”

 

By: Sean McElwee, Rolling Stone, April 23, 2014

 

April 25, 2014 Posted by | Economy, Republicans | , , , , , , , , , | Leave a comment

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