“We Hold These Truths To Be Self Evident”: Real Patriots Pay Taxes
Some of our nation’s biggest corporations are planning a tax holiday and they want you to pick up the tab.
Actually, you already pay for their routine tax avoidance through the use of tax havens in Bermuda, the Cayman Islands and elsewhere. These accounting acrobatics cost the U.S. Treasury $100 billion a year. Now they want Congress to pass a special tax holiday for money they “repatriate” back to the United States.
There’s nothing patriotic about this repatriation being pushed by Google, Cisco, Pfizer and other companies in the Win America campaign. To sell the tax holiday, they claim it will produce a burst of jobs and investment. In fact, Congress passed a “one-time-only” tax holiday in 2004 with similar promises. Instead, it produced a burst of shareholder dividends and stock buybacks, which goosed the pay of CEOs.
Corporations laid off workers and shifted even more income and investment to offshore tax havens in the wake of the 2004 tax holiday.
“Why should we reward firms for successfully gaming the tax system when we in turn are called on to make up the missing tax revenues?” Edward Kleinbard, former chief of staff of Congress’s Joint Committee on Taxation, told Bloomberg. “Much of these earnings overseas are reaped from an enormous shell game: Firms move their taxable income from the U.S. and other major economies — where their customers and key employees are in reality located — to tax havens.”
A favorite accounting trick is transferring a patent from the U.S. parent company to a subsidiary — often a shell company — in a tax haven. Profits from the patent go largely untaxed offshore while the costs of development, marketing and management remain in the U.S., where they are taken as tax deductions.
Pfizer was the largest beneficiary of the last tax holiday, bringing $37 billion back to the United States and paying just $1.7 billion in federal corporate income taxes. It laid off 10,000 American workers in the following months. The U.S. is the world’s most profitable drug market and yet over the last three years, Pfizer — maker of Lipitor, Viagra and much more — has reported $7.9 billion in U.S. losses while claiming $37.8 billion in profits in the rest of the world. Pfizer, like the rest of Big Pharma, is heavily subsidized by taxpayer-funded research at the National Institutes of Health and elsewhere. It should not be rewarded with another tax holiday.
Bloomberg reported that “Google reduced its income taxes by $3.1 billion over three years by shifting income to Ireland, then the Netherlands, and ultimately to Bermuda.” What a corporate ingrate. Google would not exist without the Internet, and the Internet grew out of U.S. government research beginning in the 1960s. In the 1990s, the U.S. National Science Foundation funded the Digital Library Initiative research at Stanford University that Larry Page and Sergey Brin, now billionaires, developed into Google. Brin was also supported by an NSF graduate student fellowship.
Increasingly, U.S. multinational corporations want to benefit from government spending on education, infrastructure, research, health care and so on without paying for it. Today, large corporations pay, on average, 18 percent of their profits in federal income taxes and as a group contribute just 9 percent toward federal government bills, down from 32 percent in 1952. The Congressional Joint Committee on Taxation says a new tax holiday would cost $79 billion.
A dozen national and state business organizations led by Business for Shared Prosperity recently wrote members of Congress urging them to oppose the tax holiday. The letter said, “When powerful large U.S. corporations avoid their fair share of taxes, they undermine U.S. competitiveness, contribute to the national debt and shift more of the tax burden to domestic businesses, especially small businesses that create most of the new jobs.”
There is no excuse for repeating a policy that’s a proven failure. It would be even worse this time around, as corporations would redouble their efforts to shift profits overseas in anticipation of the next tax holiday. Congress should close the tax loopholes that reward companies for transferring U.S. profits, jobs and investment abroad — not encourage them.
Real patriots pay their fair share of taxes. They don’t run out on the bill.
By: Holly Sklar and Scott Klinger, CommonDreams.org, July 4, 2011
Debt Ceiling Hostage Taking: Section 4 Of The 14th Amendment Was Designed To Stop John Boehner
Kevin Drum is skeptical that the Obama administration would really be within its rights to ignore the debt ceiling:
Maybe I’m missing something here, but it strikes me that this doesn’t come close to implying that the debt ceiling is unconstitutional. What it really suggests is merely that the public debt is the only untouchable part of the federal budget.
Jack Balkin delves into the legislative history and shows why the 14th Amendment has a provision guaranteeing the debt in the first place. The sponsor of the provision, Benjamin Wade, wrote at the time:
[The proposed amendment] puts the debt incurred in the civil war on our part under the guardianship of the Constitution of the United States, so that a Congress cannot repudiate it. I believe that to do this wil give great confidence to capitalists and will be of incalculable pecuniary benefit to the United States, for I have no doubt that every man who has property in the public funds will feel safer when he sees that the national debt is withdrawn from the power of a Congress to repudiate it and placed under the guardianship of the Constitution than he would feel if it were left at loose ends and subject to the varying majorities which may arise in Congress.
Balkin explains:
If Wade’s speech offers the central rationale for Section Four, the goal was to remove threats of default on federal debts from partisan struggle. Reconstruction Republicans feared that Democrats, once admitted to Congress would use their majorities to default on obligations they disliked politically. More generally, as Wade explained, “every man who has property in the public funds will feel safer when he sees that the national debt is withdrawn from the power of a Congress to repudiate it and placed under the guardianship of the Constitution than he would feel if it were left at loose ends and subject to the varying majorities which may arise in Congress.”
Like most inquiries into original understanding, this one does not resolve many of the most interesting questions. What it does suggest is an important structural principle. The threat of defaulting on government obligations is a powerful weapon, especially in a complex, interconnected world economy. Devoted partisans can use it to disrupt government, to roil ordinary politics, to undermine policies they do not like, even to seek political revenge. Section Four was placed in the Constitution to remove this weapon from ordinary politics.
In other words, it’s in the 14th Amendment to guard against exactly what Congressional Republicans are doing right now.
Balkin does not suggest, nor do I, that the legal merits are open and shut. It’s certainly risky to take a flyer in the middle of a debt crisis. But if we do reach h-hour, we’re probably better off if the Treasury simply announces it’s going to continue to pay the bills and dares Republicans to take them to court than repudiating the debt, right?
Matt Steinglass argues that the Supreme Court would likely side with the Treasury:
If there’s one thing we’ve learned in the past 11 years, it is that the Supreme Court’s decisions on critical issues are very strongly influenced by political pressure. In a situation where the entire weight of world bond markets was bearing down on Anthony Kennedy’s head, would he really vote to crash the economy and destroy the credit rating of the United States? Would any individual do that? I don’t think even Eric Cantor would, if he were solely and publicly responsible for the decision. The ability of the GOP to push the government to the brink of default, and possibly ultimately over it, depends on the diffusion of responsibility: Republicans can only do it because they can hold Democrats to blame. It’s also driven by political vulnerability: Republicans have gotten themselves into a spiraling tea-party-driven political dynamic where they seem, on issue after issue, to be incapable of voting for any proposals that a Democrat might be able to accept, for fear of the consequences from their base. Anthony Kennedy does not have to fear a primary challenge, and if the United States’ ability to pay its debts comes down to his single vote, he’ll have no excuse. Maybe I have no idea how these things work. But I can’t see a Republican Supreme Court going toe to toe with the entire massed forces of Wall Street and not blinking.
A point that I think is worth drawing out here is that it’s not even clear the GOP leadership wants the power to take the credit of the Treasury hostage, or — more likely — if it’s simply been forced into this position by a financially uneducated base. Republicans in Congress might be relieved to have a deux ex machina absolve them of the need to walk a fine line between the demands of the base and the demands of their business constituency.
By: Jonathan Chait, The New Republic, July 1, 2011
Why The Debt Ceiling Debate Matters Now
If Congress doesn’t act soon, interest rates could spike–maybe for a long time. Then you’ll care.
The White House and Republican congressional leaders insist the debt ceiling will be raised well before the United States has to default, which would cause massive economic disruption. But a resolution seems less than assured. In the last few days, Republican presidential candidates Michele Bachmann and Tim Pawlentyhave joined a growing conservative chorus loudly denouncing a deal, and antagonism among the various parties appears to be growing, not diminishing.
Still, nobody in Washington or on Wall Street seems very alarmed. The Treasury says it can hold out until Aug. 2. But a look at the current politics and the recent history of debt-ceiling showdowns suggests that alarm might soon become warranted.
There are two reasons why. The first has to do with how difficult it will be to settle on something that can get through Congress in time to stave off any damage. This struggle has been largely misportrayed and crudely simplified as a tug-of-war between Republicans set on spending cuts and Democrats who want tax increases to accompany them. It’s actually a three-way struggle, because Republicans themselves don’t agree on their ransom demands to permit a larger debt.
House Republicans want to cut $2 trillion without raising any taxes or closing any loopholes. They’re focused strictly on spending. But Mitch McConnell, the Republican Senate leader, wants any deal to include Medicare reform. He’s focused on politics. McConnell worries that the House Republican budget passed in April, which takes the deeply unpopular step of privatizing Medicare, presents a mortal threat to Republican candidates in next fall’s elections. A debt-limit deal on Medicare that drew the support of President Obama and Democrats would inoculate the GOP against this danger.
The trouble is, House Republicans don’t share McConnell’s concern, so an agreement among Republicans seems nearly as remote as one between Republicans and Democrats.
That gets to the second reason for alarm: the United States need not default on its debt in order to incur costly and potentially lasting damage. A February report by the Government Accountability Officeexamining the recent history of “debt-ceiling events” — none nearly so serious as the current one — showed that government borrowing costs began to rise well in advance of default. Call it a taxpayer premium for congressional squabbling: the disruption of Treasury auctions and the threatened loss of liquidity among Treasury notes and bills caused billions in additional borrowing costs in the form of higher interest rates.
One reason why the debt showdown isn’t causing more alarm is that interest rates have been falling. But that’s due mostly to declining economic forecasts in the United States and fear of a Greek default — currently more powerful influences, but also ones that would mask worries about a US default.
At some point, perhaps as soon as in a few weeks, the fight in Congress could eclipse those factors and drive interest rates higher. That’s been the historical pattern, and it is already causing worry about what might trigger such a rise. “The nervousness on our end is that the markets will misperceive what’s going on,” an aide to a conservative House Republican told me. “If something fails on the House floor, people might react as if all life is about to end — just like they did when the TARP vote failed.”
That could cost taxpayers dearly, even if a default is ultimately avoided. One reason why US borrowing costs are so low is the universal belief that the government will always make good on its debts in a timely manner. But if that faith is shaken — and a good scare could do the trick — investors might decide that government debt is a riskier investment than they had imagined and demand a better return.
That will hurt. The Office of Management and Budget determined that a mere 1 percent rise in interest rates would cost taxpayers $973 billion over the next decade [pdf, pg. 23]. So a fight purportedly about cutting the deficit could actually cause it to grow much larger. That’s worth worrying about now — especially as Republicans threaten a default and claim there’s no cause for alarm.
By: Joshua Green, Senior Editor, The Atlantic, June 30, 2011
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