“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
“Pushing Bad Politics And Bad Economics”: Washington ‘Centrists’ Don’t Want President Obama To Target Inequality
Last week, President Obama delivered an impassioned address about growing income inequality and declining mobility, correctly identifying the trend as both a problem long in the making and the seminal economic challenge of our time. Inequality in the U.S. has not just meant a growing divide between the rich and the poor, but a weakening middle class, with median wages declining to $51,404 a year, down from $56,000 a year in 2000, all while productivity increased. As President Obama put it, “We know from our history that our economy grows best from the middle out, when growth is more widely shared.” But this belief that a strong and growing middle class is key to economic growth and that inequality actually harms the economy is not an argument Obama pulled out of thin air. Rather it is a theory at the core of the Democratic Party, adhered to by both recent and long past Presidents. Indeed, Bill Clinton who titled his campaign book “Putting People First,” made the same argument when he accepted his party’s nomination for the middle class, stating he was doing so “in the name of all those who do the work, pay the taxes, raise the kids and play by the rules.” And of course, FDR was the father of middle-out economics, adopting demand-side Keynesian economics in the face of the Great Depression.
That’s why it was so surprising that the day before Obama’s speech hosted by the Center for American Progress, Third Way’s Jon Cowan and Jim Kessler declared economic populism “a dead end for Democrats.” They argue that messages about income inequality are overly idealistic and claim that the progressive economic agenda doesn’t excite voters outside of midnight blue districts. Of course, they ignore that it was a populist message about reducing inequality that won Obama reelection just over a year ago.
However, the push from leading progressives for Democrats to embrace a policy agenda that says the promise of America should be for all wasn’t born from a political playbook, but from the economic reality of the last decade. Wages have been unacceptably stagnant: in 2000 the median American worker earned $768 per week, in 2012 that worker still makes $768 per week even as productivity increased over the same time period by 23 percent. Inequality is on the rise. Between 2009 and 2012, 95% of the country’s income gains went to the top 1% of earners. An overwhelming majority of Americans—85 percent—feel that it’s more difficult for middle-class families to maintain their standard of living now than a decade ago. It is in response to this economic hardship and widening income inequality that Americans have embraced a policy vision that rejects failed austerity measures in favor of smart investments in the middle class.
This vision is far from “fantasy-based blue-state populism.” In fact, it’s budget-hawks whose arguments for austerity find support in fictional evidence. The deficit is falling fast—in 2013 it decreased by 37 percent. Where in 2010, the Congressional Budget Office projected deficits would exceed 8 percent of gross domestic product by 2023, today deficits are projected to average around 3 percent of GDP; the unemployment rate, on the other hand is higher today, averaging 7.5% this year, than the CBO predicted it would be by this year , 6.7%. But unemployment isn’t following the same trend. While debt projections are no longer threatening to spiral out of control, budget hawks continue their relentless focus on deficit reduction. And Washington’s obsession with fiscal “solutions” that are in search of a problem has made it harder, not easier, to create good jobs, to increase wages, and to boost overall economic growth.
This is the reality not only in true-blue districts and states, but across the country. That’s why a focus on inequality and requiring the wealthy to pay their fair share has not just been a successful political strategy for Bill de Blasio and Elizabeth Warren, but for leaders in Ohio, California, Maryland, and across the country.
In Ronald Reagan’s home state of California, Gov. Jerry Brown fought for a proposition to raise taxes on those making $250,000 or more a year and to increase the state’s sales tax by a quarter-cent directly to Californians in 2012. The establishment of a “millionaire tax” didn’t drive away innovators, but allowed the state’s leaders to say no to painful budget cuts and turned California into a global model for how to make an economy that works for everybody. Brown turned a $27 billion deficit into a surplus, brought down California’s unemployment rate, and improved the state’s credit rating. As Brown’s progressive, middle-out economic agenda paid dividends, his approval ratings soared.
Kessler and Cowan disingenuously term the serious policy ideas put forward by progressives as a “‘we can have it all’ fantasy.” But what’s lofty about a proposal to enable every child the opportunity to attend preschool when the plan would dramatically expand opportunity by boosting children’s lifetime earnings, reducing teen pregnancy rates, and lowering the chances of future arrest and incarceration? Making smart investments in early childhood education could not only generate more than $7 of economic benefits over a child’s lifetime for every dollar spent up front, but would also benefit our economy in the immediate term by providing parents with increased workplace flexibility. In pursuit of pragmatic, big ideas like universal pre-k, progressives are more than willing to talk about entitlement reforms that don’t hurt beneficiaries. In fact, the idea that every child should have access to high quality pre-k in return for enormous economic dividends is simply smart economics, not fantasy.
The most confounding piece of Kessler and Cowan’s argument is that they don’t distinguish between tax increases that affect everyone and tax increases that impact the wealthy. They argue that Democrats should learn a lesson from Colorado’s recent decision to turn down an across the board tax. While raising taxes on the wealthy has proven to be both good policy and good politics, there’s no doubt that raising taxes on everyone, as Colorado attempted, may be difficult to do—especially when wages are down. But, Bill de Blasio and Elizabeth Warren aren’t arguing that everyone should pay more in taxes, but only that the wealthy should pay their fair share. President Obama is advocating for the idea that when the top 10 percent of earners take home 50 percent of the country’s wealth, it’s reasonable to ask that the wealthiest Americans pay their fair share to ensure that all Americans have a shot at economic success. There’s another politician who raised taxes on the wealthy by raising the top marginal rate who was handily reelected President: Bill Clinton.
By: Neera Tanden, President of the Center for American Progress; The New Republic, December 15, 2013
“Don’t Bother Us With Governing”: With Caucus-Wide Sentiment, House GOP Pushes Distractions Over Policy
At the start of every Congress, the leadership of both chambers generally set aside bill numbers as a way of designating their biggest priorities. The House Republican majority, for example, will set aside H.R. 1 through H.R. 10 for their top 10 most important bills – the ones they’re most eager to pass.
And in this Congress, H.R. 1 has nothing to do with immigration, health care, energy, or security. Rather, it’s tax reform.
For the last several months, House Ways and Means Committee Chairman Dave Camp (R-Mich.) has been quietly meeting with Senate Finance Committee Chairman Max Baucus (D-Mont.) on a major overhaul of the federal tax code – the first in a generation. It’s no easy task, and Camp has made clear he considers this the most important project of his political career.
The general proposition is pretty straightforward: if Congress eliminates unnecessary deductions, closes loopholes, and scraps superfluous tax giveaways, the result will be a simpler, streamlined tax code that produces more revenue. The benefit would mean more deficit reduction, lower rates overall, or both. The trouble, of course, is that those deductions, loopholes, and giveaways have their champions and they’re hard to get rid of, compounded by the fact that Democrats and Republicans disagree on what to do with the new revenue.
But that’s not the only trouble. Brian Faler had a report this morning on an angle I hadn’t considered.
[Some of Ways and Means Committee Chairman Dave Camp’s] fellow Republicans now don’t want him to release his long-awaited tax reform bill for fear it will allow Democrats to change the subject. They want the public’s focus on people who have lost their health insurance and those having trouble signing up at healthcare.gov, and not on what will surely be a controversial tax-reform bill.
It’s a cruel bit of timing for Camp, who’s spent three years, almost since the day Republicans took control of the House, trying to build support for the first tax overhaul in a generation. He’s repeatedly promised his panel would take up legislation this year, and if it doesn’t soon, Camp – who faces term-limit restrictions on his chairmanship – may never get the chance.
Got that? Camp believes he’s finally made progress on H.R. 1 – ostensibly the one thing House Republicans actually want to pass in this Congress – and he’s eager to move forward. Camp, however, is effectively hearing from his own allies, “Don’t bother us with that now; we’re too busy raising a fuss about health care.”
Indeed, the Politico report added that lobbyists involved with the process believe House GOP leaders will “pressure Camp to pull the plug” on his tax-reform measure.
This reminds me a bit of a story from March, when Rep. Mike Kelly (R-Pa.) said he wanted to tackle legislation regarding loan guarantees to clean-energy companies, but he dropped the legislation because “he chose to focus more” on Benghazi and Fast and Furious.
In other words, the congressman had a policy priority, but it was abandoned – a partisan crusade got in the way.
Seven months later, it seems Camp is running into a similar issue. He wants to follow through on years of work on tax reform – for the record, I have a hunch I won’t care for his plan – but his effort is getting in the way of Republicans’ anti-healthcare fun.
And since it’s a post-policy party, the conflict between governing and gamesmanship isn’t much of a contest, at least with the House GOP majority.
Don’t forget, just last week Rep. Pete Sessions (R-Texas) boasted that the House Republicans’ top priority should be “messaging,” not problem solving. As Dave Camp is apparently realizing, this is a caucus-wide sentiment.
By: Steve Benen, The Maddow Blog, November 13, 2013
“Lord Help Us!”: The Return Of One Of The GOP’s Dumbest Ideas
Lord help us, is the balanced budget amendment—one of the dumbest policy ideas the right ever cooked up (and that’s saying something)—actually back? Only time will tell, but today on the New York Times op-ed page, two prominent conservative economists, Glenn Hubbard and Tim Kane, try to revive it with an argument so unconvincing that I worry it’s going to be embraced by every Republican in sight. If you think the sequester was a terrific idea and worked out great for everyone, have they got a deal for you.
Hubbard and Kane start by insisting that deficit panic must not be allowed to wane. “We are stuck in a bad and worsening place: sure, deficits strike fear in the hearts of economists and intellectuals, but they don’t matter at the ballot box.” Haven’t we actually cut the deficit by more than half from its 2009 peak? And isn’t creating jobs and increasing wages more important? And aren’t most “economists and intellectuals” not actually driven to terror by the deficit at the moment? Of course not, silly. We must put aside parochial concerns like jobs and focus our fear on deficits, lest they one day…well, one day they’ll do something really bad, but don’t worry about what it is.
You never hear conservatives articulate exactly why running a deficit, any deficit, is so problematic. They rely on the fact that it seems self-evident, and in fairness, some Democrats, Barack Obama in particular, contribute to widespread misunderstanding of the subject by repeatedly comparing the government’s finances to a family’s finances. But the government’s budget isn’t at all like a family’s budget. For instance, when it’s faced with a crisis like the Great Recession, borrowing more and spending more is exactly what it has to do. In the last 50 years, we’ve had a balanced budget eight times, four of which were at the end of the Clinton years. There’s no reason why the deficit has to come down to zero. If that’s what you’re forced to do, then you end up making problems worse at the worst moments. That’s what happened to states over the last few years; because nearly every state has a requirement to balance their budget every year, when tax revenues plummeted, they were forced to slash government services and lay off hundreds of thousands of workers. This made the recession more painful for everybody (and the federal government sent billions of dollars to the states in an attempt to mitigate the damage).
If you had a balanced budget amendment in place, when a recession hits and tax revenues fall, the federal government would have to immediately cut back its spending, precisely the opposite of what it ought to be doing. Yet for years, a balanced budget amendment was Republican dogma, nearly on par with tax cuts for the wealthy and big defense budgets. Which brings us to Hubbard and Kane’s new balanced budget amendment proposal. Here’s part 1:
First, because reconciling expenditures and revenues would be impossible in real time, the constraint should be on expenditures only. A good rule would be this: Congress shall spend no more in the current year than it collected, on average, over the previous seven years. No more overspending in fat years and no draconian cuts to expenditures during future recessions.
This rolling average idea makes things a bit more sane, but do you see what they did there? I’ve highlighted it in bold. “The constraint should be on expenditures only,” meaning that their balanced budget amendment would require spending cuts, but not tax increases. Why? Because these are Republicans, that’s why. Here’s part 2:
Second, any amendment should be simple, focused only on fiscal balance. The best mix of tax and expenditure changes is for each generation of voters to decide.
Is that supposed to mean that the amendment itself shouldn’t actually write into the Constitution budgetary limits for every single federal agency for every year in the future? Well since that would be insane, I’m not sure why it has to be an explicit part of their three-part proposal. Perhaps they should also specify that a balanced budget amendment shouldn’t deal with abortion and drug legalization, or that the amendment need not specify the headline font on the Department of Energy’s press releases. And on to part 3:
Third, there should be an exception to the spending constraint for national emergencies.
And what would be a national emergency? Would the Great Recession count? How about the Iraq War, which the Bush administration (where Glenn Hubbard served) financed through deficit spending? This is basically a way of saying, don’t worry, we’ll require balanced budgets, unless requiring balanced budgets looks like a terrible idea, at which point we won’t. And then we get to the end, where Hubbard and Kane finally reveal the threat posed by deficits, a threat so profound it must be met with the constitutional equivalent of permanent sequestration:
America’s high and rising national debt threatens our economic health through higher future taxes, crowding out important government services, or both. The best antidote is a focus on economic growth and a balanced approach to deficit control
Ah, there we are. We must force draconian budget cuts now, because if we don’t, at some point in the future we might have to…force budget cuts. And of course raise taxes, which we can’t ever, ever do. So by imposing those cuts, we can “focus on economic growth,” not by actually promoting economic growth, but by…um…confidence!
This isn’t some dopey politician offering his opinion on a topic he plainly doesn’t understand, this is two highly-placed and supposedly informed conservative economists. Hubbard is dean of the business school at Columbia and was George W. Bush’s chief economic adviser. Kane is chief economist at the Hudson Institute. These are the Republican party’s big economic thinkers. And this is what they have to offer.
By: Paul Waldman, Contributing Editor, The American Prospect, August 12, 2013
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