Lake County News-Chronicle (Two Harbors, Minnesota)

Distributed by McClatchy-Tribune Business News

March 19, 2009 Thursday

Corporate executives overpaid, undertaxed

Holly Sklar, Lake County News-Chronicle, Two Harbors, Minn.

Mar. 19--In today's mad world, underpaid workers are bailing out banks and corporations run by overpaid, undertaxed bosses who milked their companies and our country like cash cows.

While workers across America were losing jobs, homes and health insurance, Merrill Lynch paid nearly 700 employees more than $1 million each in bonuses last year, amounting to a $3.6 billion bonus bonanza while Merrill lost $27 billion.

Workers have been sacrificing for years. Average worker paychecks are worth less now than in 1973, but CEOs and other rich Americans not only make much more, they pay less in taxes. Average full-time workers made $41,198 in 1973 and $37,606 in 2008, adjusted for inflation.

CEOs made 45 times as much as workers in 1973 and more than 300 times as much as workers now. The top tax rate was 70 percent in 1973 and just 35 percent now; taxpayers pay the top rate on the portion of taxable income that falls within the highest bracket and pay lower rates on income below that. The top rate for capital gains on the sale of stock and other assets was 36.5 percent in 1973 and 15 percent now.

Irrational pay and tax cuts have generated a massive redistribution of income and wealth from workers to CEOs, hedge fund managers and others in the richest 1 percent.

By 2006, the richest 1 percent had increased their share of the nation's income to the second-highest level on record. The only year higher was 1928 -- on the eve of the Great Depression.

According to the latest IRS data, excluding tax-exempt interest income from state and local government bonds, the richest 400 taxpayers had an average adjusted gross income of $263 million each on their federal income tax returns in 2006 -- up from $221 million in 2005 and $67 million in 1992, adjusted for inflation. Remember, that's annual income, not accumulated wealth. This $263 million comes to more than $5 million a week.

In 2006, the 400 ultrarich were taxed at an average rate of 17 percent -- down from 26 percent in 1992. The ultrarich get most of their income from capital gains. The capital gains tax was cut from 28 percent in 1992 to 20 percent in 1997 and cut again to 15 percent in 2003. To make matters worse, the rich cheat more on their taxes. "Forbes" recently reported on a study using IRS data showing that taxpayers with income between $500,000 and $1 million a year understated their adjusted gross incomes by 21 percent in 2001, compared to 8 percent for those earning $50,000 to $100,000, and lower rates for those earning less.

We should raise taxes at the top so the nation's richest bosses no longer pay lower effective rates than workers and we can start reversing the obscene rise in inequality rather than reinforcing it. President Obama's plan to cap CEO cash pay at $500,000 for senior executives at companies on the government dole sounds better than it is, affecting few firms and full of loopholes.

At the very least, President Obama should not delay restoring the top tax rate to the 39.6 percent rate that prevailed in 2000. The Bush tax cuts saved the top 1 percent nearly half a trillion dollars between 2001 and 2008, reports Citizens for Tax Justice.

The $79.5 billion in tax cuts for the top 1 percent in 2008 was more than the budgets of the Department of Education and Environmental Protection Agency combined. In 2008, it took an annual income greater than $462,000 just to get into the top 1 percent. Even better, we should add a top rate of 50 percent on income above $1 million, as advocated by Netflix CEO Reed Hastings among others.

People for whom $1 million and above is an annual paycheck should pay more so people for whom $1 million is an unattainable lifetime fortune don't have to.

If we don't start taxing the wealthy more now, then you can be sure that the mountain of debt created by tax cuts and the bailout will be used to drive "entitlement reform." Workers' last forms of security -- Social Security and Medicare -- will be on the chopping block to pay for the wreck the truly entitled made of our economy.

Holly Sklar is co-author of "A Just Minimum Wage: Good for Workers, Business and Our Future" (www.letjusticeroll.org) and "Raise the Floor: Wages and Policies That Work for All of Us." hsklar@aol.com

To see more of the Lake County News-Chronicle or to subscribe to the newspaper, go to http://www.twoharborsmn.com. Copyright (c) 2009, Lake County News-Chronicle, Two Harbors, Minn. Distributed by McClatchy-Tribune Information Services. For reprints, email tmsreprints@permissionsgroup.com, call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.

The Houston Chronicle

March 1, 2009 Sunday
3 STAR EDITION

Critics question president's pursuit of overseas tax breaks Some wonder if Obama's plan will affect jobs

By DAN FREEDMAN, WASHINGTON BUREAU

BUSINESS; Pg. 5

WASHINGTON - President Barack Obama's pledge to end tax breaks for multinational corporations "that ship our jobs overseas" is welcome news for organized labor, but tax experts question whether it will help U.S. workers.

"It's not clear that changing the tax code will help keep jobs in U.S.," said Rosanne Altshuler, co-director of the nonpartisan Washington-based Tax Policy Center. "And it's not clear that by investing abroad, U.S. multinationals are hurting the U.S. economy."

But to corporate critics, it's a matter of fairness - not macroeconomics.

"Maybe we can't fight forces of globalization," said Robert McIntyre, director of Citizens for Tax Justice, an organization that has received support from organized labor. "But we don't have to pay these guys to do it."

At issue is an arcane provision of the tax code known as the deferral clause. It allows businesses to avoid paying the 35 percent U.S. corporate tax rate on overseas earnings.

Companies can defer tax on overseas income as long as those dollars remain abroad. If they decide to bring those earnings home, they pay the 35 percent rate minus whatever they paid in taxes to foreign governments. For the most part, experts say, corporate money earned overseas stays overseas.

The pool of U.S. multinationals' "unrepatriated foreign earnings" at the end of 2002 was $639 billion, the Congressional Research Service said in a report.

Details of changes to the deferral clause remain vague. The president's budget, released Thursday, states that "international enforcement" and "reform (of) deferral and other tax reform policies" will add $210 billion in tax revenues to the U.S. treasury over the next 10 years.

Business views changes on taxation of foreign earnings as hurting American competitiveness overseas.

"Companies don't sit here and talk about how the tax system makes it more advantageous to move jobs overseas," said John Castellani, president of the Business Roundtable, an organization of U.S. corporations. "It doesn't work that way."

U.S. corporate tax rates are among the world's highest, Castellani said, and ending tax breaks for overseas earnings would make them even higher.

"One in five jobs in the U.S. is tied to international trade," he said. "What we don't want to do is to create a tax code that makes it impossible to compete outside the U.S."

A number of corporate leaders have proved adroit at avoiding taxes by parking income ostensibly earned in the U.S. in offshore accounts.

Instead of saving American jobs, drastic changes in the tax laws might lead some corporations to lift anchor from U.S. shores altogether, said Gary Hufbauer, a former Treasury Department official who is now a senior fellow at the Peterson Institute of International Economics.

Chattanooga Times Free Press (Tennessee)

March 1, 2009 Sunday

Obama tries to close tax breaks for offshoring

WIRE - FINANCIAL; Pg. C2

Hearst Newspapers

WASHINGTON -- President Obama's pledge to end tax breaks for multinational corporations "that ship our jobs overseas" is welcome news for organized labor, but tax experts question whether it will help American workers.

"It's not clear that changing the tax code will help keep jobs in U.S.," said Rosanne Altshuler, co-director of the nonpartisan Urban-Brookings Tax Policy Center. "And it's not clear that by investing abroad, U.S. multinationals are hurting the U.S. economy."

That may be so. But to corporate critics, it's a matter of fairness -- not macroeconomics.

"Maybe we can't fight the forces of globalization," said Robert McIntyre, director of Citizens for Tax Justice, an organization that has received support from organized labor. "But we don't have to pay these guys to do it."

At issue is an arcane provision of the tax code known as the deferral clause. It allows businesses to avoid paying the 35-percent U.S. corporate tax rate on overseas earnings.

Companies can defer tax on overseas income as long as those dollars remain abroad. If they decide to bring those earnings home, they pay the 35 percent rate minus whatever they paid in taxes to foreign governments. For the most part, experts say, corporate money earned overseas stays overseas.

By any standard, the dollar amounts are staggering.

Details of changes to the deferral clause remain vague. The budget states that "international enforcement" and "reform (of) deferral and other tax reform policies" will add $210 billion in tax revenues to the U.S. treasury over the next 10 years.

Whatever the reform proves to be, organized labor says it is long overdue.

"It's a scandal that it's gone on this long," said Bob Baugh, executive director of the AFL-CIO's Industrial Union Council. "Companies get tax credits and write-offs for closing plants here, only to open them overseas and keep profits offshore while they ship products back to the U.S. It's had a terrible impact."

A study on the impact of international trade on U.S. jobs by the Washington-based Peterson Institute of International Economics found that the growing U.S. trade deficit accounted for 900,000 lost American jobs between 2000 and 2003. Other estimates put the number far higher.

Business views changes on taxation of foreign earnings as hurting American competitiveness overseas.

"Companies don't sit here and talk about how the tax system makes it more advantageous to move jobs overseas," said John Castellani, president of the Business Roundtable, an organization of major U.S. corporations. "It doesn't work that way."

U.S. corporate tax rates are among the world's highest, Castellani said, and ending tax breaks for overseas earnings would make them even higher.

"One in five jobs in the U.S. is tied to international trade," he said. "What we don't want to do is to create a tax code that makes it impossible to compete outside the U.S."

Experts say that many factors go into a company's decision to locate a facility abroad, not just taxes.

Labor costs overseas are a fraction of those in the U.S., they say, and foreign plants also help U.S. corporations sell products abroad.

A number of corporate leaders have proven adroit at avoiding taxes by parking income ostensibly earned in the U.S. in offshore accounts. Instead of saving American jobs, drastic changes in the tax laws might lead some corporations to lift anchor from U.S. shores altogether.

"If we tax subsidiaries more highly, over time the U.S. becomes a less desirable place to have a multinational corporate headquarters," said Gary Hufbauer, a former Treasury Department official who is now a senior fellow at the Peterson Institute in Washington. "I don't think that can be good for the U.S. economy."

Changing the tax code to put domestic manufacturers and overseas-based subsidiaries on equal footing may be less about saving jobs than making a political point. The change may help Obama shore up support from organized labor, a critical constituency that helped him win the election.

"Will it be effective?" said Hufbauer. "In a word 'no,' but it will probably make some people feel good. In politics, that may be important."

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(Dan Freedman can be reached at 202-263-6400 or at the e-mail address dan(at)hearstdc.com)