Surprise: GOP Tax Scam Helps Rich, not Workers

Shocking! New economic analysis shows that the Republican tax bill is producing exactly the results Democrats predicted: massive profits for the corporations, being used for stock buybacks to fatten the accounts of the well-heeled and the bonuses of the top corporate execs, and a few crumbs for a few workers here and there. Walmart, for instance, is projected to fatten its coffers by $18 billion due to the tax cut. The much-ballyhooed $1,000 bonuses for the workers (workers who have been with the company 20 years, as it turns out) will cost the corporation all of $400,000,000. Bottom line: $17.6 billion for investors and company bigwigs and $0.4 billion for the workers. The consistent mantra that such moves are to help create jobs and help the working class is revealed again for the cynically manipulative campaign of subterfuge it is: 2.2% of these benefits are gong to average folks, who will now be asked to pay for them with things like reduced medicare coverage.

See the full story in the Washington Post by Paul Waldman here.

Friend's Letter on Unjust Tax Bill

Today I am publishing an e-mail letter written by my good friend Jeff Deiss on the topic of the unjust and financially irresponsible Republican tax bill currently making its way through congress. I'm sure you will be as impressed by the cogency of his points as I am. Here is Jeff's missive:

Dear Senator McCain/Flake,

I am writing you about the pending tax reform bill in a sense of desperation.  I am a California citizen, but given the divided nature of politics in the US, it would be of little use to write to either my Congresswoman or Senators.  Given the Republican majority, their votes will not decide the outcome, and indeed they have not been able to participate in any significant way throughout the legislative process.

I urge you to reconsider your support of the pending tax bill.  It is ill-conceived, mean-spirited, financially imprudent, and profoundly unjust.  Consider just a few of the features of the bill:

• A significant tax cut for the wealthiest Americans, who notwithstanding their tax burdens are already doing well.
• A significant tax cut for large corporations, who already have significant cash reserves and are not tax-constrained in undertaking new investment.
• A serious loss of government revenue at a time when our deficit is already a matter of widespread concern.
• A new taxation principle that will tax wages at a higher rate than contractor income.
• The loss of tax features that support affordable housing, historic preservation, and renewable energy development. 
• A reduction in the mortgage tax deduction that penalizes Americans unevenly - striking only citizens who have the misfortune of living in high housing costs states such as California.
• Elimination of the local and state tax deduction that also penalizes Americans unevenly - again striking only citizens who have the misfortune of living in states with a high local/state tax rate such as California.

I am astonished by the flagrancy of this ill-conceived, mean-spirited, financially imprudent, and profoundly unjust tax bill.  I am an American, but my representatives have neither been consulted nor had input.  Who will stand up for me and my fellow Californians?  I am turning to you because I know and appreciate that you have repeatedly had the courage to vote against partisan blocs and instead side with the best interests of all Americans.  I urge you to oppose the final tax bill and save the nation from further division and just as importantly the anguish of having to later unwind what would quickly be viewed as a broken, discredited tax system.

Sincerely,

Jeff Deiss

Oakland, California

Report: 22 States Face Deficits This Year

The Associated Press has recently done a study showing that even in economic recovery, 22 states are looking at budget shortfalls for the upcoming year. That's an ominous sign, causing consternation about how bad things might get the next time the economy goes back into a downturn. There are two main culprits: states that have tried to spur growth with tax cuts, and states that rely heavily on oil revenues. It's more confirmation that the trickle-down "tax cut your way to prosperity" plan doesn't seem to work.

California and Colorado are singled out as two states that are running surpluses and in strong financial shape. California followed a liberal program; voters approved tax increases on high incomes, instituted a statewide sales tax increase, and gave the legislature authority to pass budgets with a simple majority. It's also committing $1 billion to water projects and going ahead with high speed rail construction. Contrary to conservative expectations, the Golden State is on its way to a projected $3 billion surplus this year.

Kansas and Alabama are highlighted as states in which tax cutting fever failed to produce strong growth rates and is leading instead to substantial deficits that will require either restoring the taxes or severe cuts to education and the judicial system in order to restore balance. Kansas school districts are closing early this year because they are running out of money.Alaska is the poster child for excessive reliance on oil revenues. With global prices down by half from their peaks, Juneau faces an expected $3.2 billion deficit over the next two years.


 

Who are Romney's 47 Percent?

In my last post I discussed how, earlier this month, Mitt Romney made big news when a video recording released by Mother Jones magazine showed him disdainfully dismissing the 47 percent of the American people who do not pay federal income tax.  Romney told a small gathering of wealthy donors he feels "it's not my job to worry about" such people who "think of themselves as victims" and who "have no concern for their own lives."  Romneys' remarks created a furor by expressing the commonly held conservative view that a huge proportion of the American people are lazy moochers living off the hard work of the rest.  Today in the blog I will present the numbers on who these 47 percent really are.

See the pie chart below.  This is reprinted from BusinessInsider.com, though you can find it in many other reputable places as well.   As you can see, 46.4 percent do not pay federal income tax, making


Romney's 47 percent figure only a slight exaggeration.  Of that number, almost all of them were not paying income tax because they are either old or poor.  Most of the non payers (28.3%) are employed and are paying federal withholding tax for Social Security and Medicare.  The next largest group (10.3%) are senior citizens, most of them on Social Security.   A smaller slice (6.9%) is made up of people earning less than $20,000.  These working poor are frequently part of the Earned Income Tax Credit, a bipartisan program passed with considerable Republican support to make sure gainful employment pays more than "welfare" in order to get people off public assistance.  Only a tiny fraction (0.9%) are those who do not pay income taxes and are neither elderly nor poor.  And some of these, (an estimated 35,000 in 2009), were not stereotypical "poor moochers" but more like rich avoiders, people earning over $200,000 who took advantage of shelters and deductions to avoid paying.

As often occurs with conservative scapegoat references, the facts and numbers simply do not substantiate Mitt Romney's erroneously skewed stereotypical references.  Sadly, I have seldom seen the truth  persuade people of his world view to change their biased preconceptions.  For those of you amenable to reason, however, you now have the facts to refute the common plutocratic and Tea Party picture of what nearly half the American people are like.  

Yes on Proposition 30

Californians should do the right thing and vote yes on Proposition 30 this November 6.  The passage of Proposition 30 will not only staunch the disastrous litany of cuts to education and public services, but will also finally enable the state to balance its budget.  Go to the complete official explanation of Prop 30 on the Secretary of State's website here.

If Proposition 30 does not pass the state will be forced to cut an additional $6 billion from education next year.  That's on top of $20 billion in cuts over the past three years.  The cuts would include $500 million to the University of California, $750 million to the California State University system, $300 million to the community colleges and $4.5 billion to k-12 schools.  We have already laid off 30,000 teachers in the state, with the resulting increase in class sizes, and losses in such classes as languages, the arts and vocational offerings.  On the Community College level alone it has meant the denial of access to college for 485,000 students per year.

Proposition 30 would forestall these added blows to our childrens' education at a surprisingly modest cost.  Prop 30 would increase the sales tax by 1/4 of a percent for four years.  That is the total impact 99% of Californians would see on the revenue side.  A $100 pair of shoes would cost 25 cents more.  A fancy $1000 hi def flat screen TV would cost an extra $2.50.  Even a nice $20,000 new car would only cost an extra 50 bucks.  Most people wouldn't even notice.  For people at the highest income levels, an additional 1% income tax would be assessed for joint filers making $500,000 to $600,000, 2% for those making $600,000 to $1 million, and 3% on incomes over $1 million.  In other words, an adjusted income after deductions of half a mill would pay an extra $5,000 a year.  These levies would expire in 7 years.

We can continue providing our children less and less education while our international competitors, particularly in China and India, ramp theirs up.  We can continue turning away hundreds of thousands of young men and women from the college degrees that will give them an opportunity for a middle class standard of living.  Or we can, for a very modest cost, address these crucial needs and balance our state budget at the same time.  The choice is clear and obvious.  Vote yes on Proposition 30.  

Romney's Economic Plan: Would it Work?

Presumptive Republican presidential nominee Mitt Romney is running for the highest office in the land mainly based on his claim that he can work wonders with the economy.  To see what he has in mind to bring this about, I went to the Romney campaign web site to see what his plans are.  There I discovered  the most remarkable characteristic about the former Massachusetts governor's platform is how strongly it resembles the formula laid out by the most recent Republican president--George W. Bush.  Yes, that's right; the very policies Bush enacted that led to financial collapse and recession are the same ones Mr. Romney wants to bring back and says will restore prosperity this time.

The first has to do with the elimination of regulations.  In particular, Romney wants to repeal the Dodd-Frank financial regulations requiring oversight, transparency, shareholder involvement and consumer protections against risky secret hedge and derivative funds.   The above link will take you to an excellent synopsis of what it does.  Romney would have us go back to the unsupervised, casino-trading operations that put millions out of work and led to $1.5 trillion in bailouts for the "too big to fail" institutions.  Morgan Chase's recent $2-$3 billion debacle shows how little the giants have learned their lesson and how closely they still need to be supervised.  Romney would remove even the semblance of a brake on these high-stakes high-risk operations.  Leave these federally-insured investors free to take whatever wild ventures promise to make the highest short-term profits.  If it entails enormous long-term risk, no problem.  The taxpayer's dime will be there to bail them out.

The second part of the Romney program is a reprise and indeed an extension of the Bush tax policy.  The 2001 Bush tax cuts reduced the marginal rates about 3% for most payers, though 4.6% for the top earners.   Another round of Bush cuts in 2003 raised the brackets about 2%, effectively cutting taxes again.  See a detailed treatment of both cuts here.  Though the conservative Heritage Foundation forecast the plan would eliminate the deficit by 2010, what they actually did was turn a $230 billion yearly surplus from the Clinton years into a $450 billion deficit under Bush.  In fact, the Congressional Research Service finds that the Bush tax cuts have cost $2.9 trillion in deficits plus an additional $600 billion in debt interest payments since their enactment.  

For his part, Romney's site advocates another 20% income tax cut, across the board, along with the elimination of the estate tax.  The corporation tax on profits would fall, after expenses and deductions, by 29%.  Once again the wealthy would reap the lion's share of the reduction, while the middle class and poor would suffer the bulk of the pain.  That is because of the third facet of the Romney plan.

The third part is the spending side of the ledger.  Again, as with Bush, domestic spending would be slashed while military spending would skyrocket.  Romney would accelerate military spending even though we have disengaged from one war and are winding down another.  His plan calls for cutting $500 billion a year, though that would be greater for domestic priorities because of the augmentation for defense.  I was only able to identify $264 billion of cuts from the web site.  But much of it would come from enacting the "House Republican (Ryan) Budget" which would privatize Medicare.  Another part of the plan would make Social Security recipients wait until they are older to collect benefits. 

As usual, average people would be asked to do without so richer people could be given lower taxes, under the view that this would encourage growth and balance the budget.  The persistence of this ideology is rather astonishing, given its failure to produce either a balanced budget or increased broad-based prosperity any of the times it has been tried in past economic downturns, whether under Hoover, Reagan or either Bush.  Yet this is precisely what Romney would try again if he is given the chance.  Among other things, the success of the Romney campaign hinges on the American people having extremely short memories. 





     

Our Taxes Are Low

There is no shortage of opinion, spin, ideology and outright propaganda in discourse over the issues of our day. And then there is fact. McClatchy reporter Kevin G. Hall did a little research lately and turned up an interesting set of such facts on the subject of federal taxes. To the contrary of what most conservatives believe and say, federal taxes are at the lowest percentage of national income since at least 1950. Go to the article here.

The historical average since World War II is that 18% of gross domestic product, the broadest measure of the national economy, has gone to federal taxes. When times were prosperous, in the year 2000 after the longest expansion in U.S. history, that percentage grew to about 21%. After the Bush tax cuts in 2001 and 2003 that fell to 15%. And then last year, 2010, it fell lower yet, to 14.4%.

The bottom line is that we are not overtaxed, but undertaxed, not only by world standards but even by our own historical standards. If getting a handle on the deficit is a concern, and it should be for the long term, though in the short term reviving jobs is a far more pressing matter, then there is no way to get there without increasing taxes. The simple math is that revenues are running 4% of GNP below historic norms and spending is running at about 6% of GNP ahead of the norm.

To balance the budget, if anyone is truly serious about it, would require increasing taxes about $600 billion a year and reducing spending by about $900 billion a year. To get an idea of what this would require, immediately withdrawing from both Iraq and Afghanistan would save less than $200 billion. Now, a fair amount of any deficit will take care of itself if the economy improves significantly, and that should be the first order of business. But part of any realistic solution must also include restoring revenues to their historic averages, and that will require a tax increase, particularly on those in the top income levels. As Hall points out, their effective tax rates are the lowest they've been since before World War II.

So when you hear politicians say they have a plan to balance the federal budget without raising taxes, be assured they are spouting ideological rhetoric, not talking any kind of mathematical sense.

Boehner Gets Honest for One Day

It was remarkable to see House Speaker John Boehner yesterday saying the oil companies might not need their government subsidy. With oil at $112 a barrel and profits consequently growing by leaps and bounds, their $4 billion tax windfall seemed "unwarranted," even to him. He told an ABC News reporter that to help balance the budget the government needs revenue and oil companies, "ought to be paying their fair share." How refreshing.

President Obama quickly seconded the sentiment. Seeking to capitalize on the common ground he saw in the Speaker's statements, Obama sent a letter proposing ending the corporate welfare and using the money instead to develop clean energy sources. OK, so far so good.

But all that was yesterday. Upon reconsideration, today Boehner's office began walking his statements back and "explaining" that he did not really mean what he said. Now they say the President's proposal would, "simply raise taxes and increase the price at the pump." This is the typical hypocritical tap dance Republicans pull when caught in blatant inconsistency. They say they are against wasteful spending-except when it goes to wealthy interests that contribute to them. Someone must have reminded the Speaker who pays the freight for his party. Go ahead and cut education spending for poor kids and doctor visits for seniors; those are wasteful. But don't touch subsidies for profitable multi billion dollar corporations-that's essential spending we can't do without. We all get the picture.

Deficits, Tax Fairness and the Economy

Even Goldman Sachs says that to cut federal domestic outlays by $61 billion right now would result in a "1.5% to 2% drag on GDP growth." Even the Los Angeles Chamber of Commerce supports California Governor Jerry Brown's plan to put a 5-year tax extension plan on the June ballot to take care of half of the state's $26 billion deficit problem. But Republican lawmakers in both cases continue with an ideological approach that considers only cuts as a response to current economic and fiscal challenges.

State governments across the country have laid off 426,000 workers in the past year. These people are no longer making house, rent or car payments, buying major appliances, going on trips or dining out. The contraction of their spending contributes to the slow recovery.

Although government spending is always a cause celebre for the GOP, it must be remembered that government spending did not cause the recession. Badly regulated housing and speculative markets did that. Budgets that used to balance do not now balance because government receipts are down, not because spending went up. And the reason they are down is because most people are not spending much. Robert Reich points out that high-end sales are booming as the upper class is doing quite well. But prosperity and spending among the top 5% is not enough to pull up the entire economy. "Americans bought 17 million new cars in 2005 but just 12 million last year." Yet compensation at the 25 biggest Wall Street players was $130 billion in 2007 and is now at $140 billion. And we all know that corporate America is sitting on $2 trillion in cash from increased profits over the past couple of years, profits they are not using to step up much hiring because sales haven't grown that much.

If the capital gains rate were 20%, or even the 40% it was at the peak of American prosperity in the 1950s and 1960s, and if the top income tax rate had even been restored to 39% from 1999 when we had a balanced budget rather than the 35% where it now is, the deficits and impetus to cut would scarcely exist. Yet rather than ask the wealthy to contribute as they once did, we see the spectacle of laying off thousands of teachers, bus drivers and police and a drag on the entire economy. It's the oldest play in the book: turn the have-nots against each other while the aristocrats wallow in luxurious indifference.

Offshore Taxes Key Test of Change Agenda

When Senator Barack Obama was a candidate for president his consistently loudest applause line was, "We've got to stop rewarding companies with tax breaks for taking American jobs and shipping them overseas." Today, May 4, President Barack Obama began the fight to make that sentiment policy. He faces daunting odds. Whether he succeeds will provide the clearest picture yet of whether the new president and his party have the guts to make truly difficult change or whether, when it comes down to it, business as usual still has the upper hand in D.C.

You can see Margaret Talev's report on Obama's White House announcement for McClatchy here. "I want to see our companies remain the most competitive in the world," Obama said. "But the way to make sure that happens is not to reward our companies for moving jobs off our shores or transferring jobs to overseas tax havens."

To accomplish this Obama wants congress to end the "check the box" rules that let U.S. companies set up shell subsidiaries in tax havens such as Bermuda to avoid paying taxes. He wants to eliminate the loophole that allows firms to avoid taxes on overseas profits if the profits are kept overseas but taxes them if they re-enter the U.S. He also requested giving the IRS legal authority to get more information from foreign bank accounts to fully track money trails. And he wants congress to approve the hiring of 800 new IRS agents to enforce the rules. Obama feels an additional $210 billion can be collected over the next 10 years if his plan is adopted.

To illustrate the level of abuse, the White House says the "effective U.S. tax rate on U.S. multinational corporations as of 2004, the most recent year of data, was 2.3%." Eighty-three of the one hundred largest U.S. corporations had subsidiaries in tax havens. Bermuda, the Netherlands and Ireland, all low-tax countries, accounted for a ridiculous one-third of all foreign profits claimed by U.S. multinationals.

U.S. Chamber of Commerce spokesman Marty Regalia predicted wreck and ruin. Longtime Republican corporate shills like Senate Minority Leader Mitch McConnell charged the plan with giving "preferential treatment to foreign companies." Business giants including Microsoft, DuPont, General Electric and Eli Lilly and "more than 200 companies and trade associations have gone on record in opposition to the move since March."

Opposition from these usual quarters is expected, of course. What remains to be learned is whether a popular president who campaigned on the issue and gained the enthusiastic support of the electorate for it, and his ostensibly progressive congressional majorities can prevail against the money, media blitz and right-wing talking head offensive that will soon be unleashed against the principle that corporate entities should pay their fair share. We shall see. If Obama and the true congressional populists can indeed pass a bill that means anything in the face of such powerful forces I will be impressed--and surprised.

Fiscal Truth in Short Supply

We are still waiting for some real honesty from politicians from both parties about budgets. The fact is there are hard choices ahead, and despite a little better candor this election year the headliners are still not fully levelling with the American people about the difficulties these choices present.

Here in California there is a projected $16 billion deficit for a $110 billion budget. Governor Schwarzenegger and the Republican minorities in the Senate and Assembly tell the Republican base what it wants to hear. There is no way they will allow taxes to be raised. The Democratic majorities in both houses tell their base what it wants to hear, too. All programs will be fully funded. Neither of these promises can be kept, and they all know it.

There is not enough discretionary spending to cut $16 billion out of the budget. To do that means people would have to be OK with emergency response times of four hours, having 50 kids in a classroom, closing most of the state park system and not resurfacing the roads for twenty years at a time. People will not be OK with that and the Republicans know it.

Similarly, there is no way to fully fund all projects, increase public employee pay and benefits and provide the customary level of services without tax increases most Californians would consider ruinous.

The situation calls for compromise. There have to be some tax increases. There have to be some program cuts. Yet up to now the politicians have been more afraid of antagonizing their most vehement partisans than they have been resolute in doing what the state needs done. Former Governor Gray Davis was recalled when the deficit reached $7 billion. Schwarzenegger and the legislature have done even worse since. Where is the courage?

Things are little better on the national stage. Hillary Clinton and Barack Obama justifiably assail President Bush and the Republican majority congress (2001-2007) for its fiscal lunacy. Yet they promise universal health care, to fully fund Social Security and Medicare, massive new programs for energy development, education, medical research and infrastructure restoration and promise to do all this without raising taxes on anyone but those making over $200,000 or $250,000 a year. It doesn't add up. They and their advisors know this. Where is the courage?

John McCain is no better. He promises to erase a $450 billion federal deficit with cuts alone. There will be no tax increases in a McCain Administration; in fact he proffers even more tax reductions. He says he will go after earmarks with a vengeance. They are, however, just $18 billion a year, and some of them are actually necessary. There are some bridges, highways and post offices that really do need to be built, for example. To his credit, he has mentioned ethanol and sugar subsidies too, but even then his numbers also do not come close to adding up either. That is particularly true given his inflexible position on the $150 billion dollar a year gorilla in the budgetary living room, the Iraq War. He and his advisors know they cannot pare enough to balance a budget while cutting taxes and paying for a war, yet they stick to that story. Where is the courage?

It is well past high time for the leaders of both parties to come clean with the American people and, in a joint press conference, deliver some real "straight talk" to the people they are elected to serve. Their magic pony platforms promise what they cannot deliver and the national financial structure cannot bear the stress much longer. The signs grow more apparent all the time, including the subprime meltdown, the fall of the dollar and the surge in personal bankruptcies. Some things are more important than getting elected. At least we have to hope there are those in politics who still believe that.