Original Post

September 27, 2011

by George Zornick

According to Mike Allen’s “Playbook”—a daily memo of D.C. conventional wisdom—the biggest story of the day involves remarks by the CEO of Coca-Cola about the horrid U.S. tax structure. Mukhtar Kent says that his company finds it easier to do business with China and Brazil than the United States because of our antiquated and unfair tax code:

“They’re learning very fast, these countries,” he said. “In the west, we’re forgetting what really worked 20 years ago. In China and other markets around the world, you see the kind of attention to detail about how business works and how business creates employment.”

“I believe the U.S. owes itself to create a 21st century tax policy for individuals as well as businesses,” he said. Mr. Kent, speaking on the sidelines of the Clinton Global Initiative conference, hit out specifically at US provisions that tax companies for repatriating cash earned overseas. Coke does not disclose how much cash it holds overseas.

“If you talk about an American company doing business in the world today with its Chinese, Russian, European or Japanese counterparts, of course we’re disadvantaged,” Mr. Kent said. “A Chinese or Swiss company can do whatever its wants with those funds [earned overseas]. When we want to bring them back, we are faced with a very large tax burden.”

Allen breaks his supposed journalistic objectivity for a moment, and dubs this plea for lower corporate tax rates a “chilling story” that will “drive debate for ’12 and SuperCommittee.” He adds that “This is a massive wakeup call for official Washington….The Coke dude’s sentiments, which we hear CONSTANTLY and CONSISTENTLY from executives around the country, explain why an independent presidential candidate could have historic support, and why big money is panting after New Jersey Gov. Chris Christie.” (Emphasis is his).

Indeed, Republicans are already seizing on Kent’s comments. Virginia Governor Bob McDonnell, who is rumored to be on many a vice-presidential short-list, said today that he was “staggered” by Kent’s comments, and echoing Allen, said it should be a “wakeup call” to Washington.

This is shaping up to be a major talking point for lowering corporate tax burdens, akin to the Democrats’ promotion of Warren Buffett’s pro-tax position. So it’s very important to get this straight: in virtually every way, it’s ludicrous to listen to what the CEO of Coca-Cola has to say about federal taxes.

For one thing, Coca-Cola enjoys very low federal taxes, and pays a lower rate than most Americans. According to Citizens for Tax Justice, the company’s current federal tax expense is $470 million, which is only 6.5 percent of the $7.2 billion in pre-tax profits that Coca-Cola reported last year. That’s a pretty rosy rate, and certainly does call for a retooling of the tax code—though not in the way Mukhtar Kent wants. (The company told CTJ they actually paid at a 38 percent rate, but would not release any documentation).

Part of the reason that Coca-Cola pays such a low rate is that it parks profits in overseas tax havens like the Cayman Islands. The company has saved $500 billion in some years by hiding profits there.

These overseas profits actually get to the heart of what Kent is after—he mentions that Coca-Cola cannot bring those profits back without a “very large tax burden.”

The repatriation of overseas earnings is a big issue for multinational corporations based in America--if they want to bring back profits made overseas, they must pay the standard 35 percent tax rate. In 2004, big business got Congress to approve a repatriation holiday in which overseas profits could be brought back and taxed at a 5.25 percent taxation instead of 35. It was sold as a jobs-creating measure: companies would bring back a lot of overseas money, which would spur investment here and jobs here.

A lot of overseas profits came back, but unfortunately—yet predictably—the jobs never materialized. The Congressional Research Service later found “little evidence exists that new investment was spurred.” In fact, a comprehensive study found that 92 percent of the money that was brought back was used to enrich shareholders and executives.

Moreover, many of the companies that participated in the repatriation ended up laying off workers in the following months and years. On top of that, many of these companies—including Coca-Cola—now have much more money parked overseas than they did before the repatriation holiday. Coca-Cola repatriated $6.1 billion of the $9.1 billion it had in overseas profits in 2004—but today, the company has $20.8 billion parked overseas, more than triple that amount.

So, what Muhktar Kent is really saying: though his highly profitable company’s already-low federal tax rate is abetted by hiding profits overseas, he’d like to bring back those profits at an outrageously low rate so that his company can get even richer. Otherwise they'll keep the money in China, or Brazil, or wherever. That’s fine for Kent—it will certainly help his shareholders, which is his only true motivation. Just don’t tell Mike Allen.

Original Post

September 27, 2011

by Tyler Kingkade

WASHINGTON -- Newly released U.S. Census data reveal that poverty levels have skyrocketed, but in most states, the tax systems disproportionally burden the poor. Most states also impose tax structures similar to what current Republican presidential candidates are advocating, and experts warn these should serve as cautionary tales against implementing them on a national level.

Contrary to the rhetoric from Republicans that half of Americans are not paying income taxes, at the state level the poor are paying more than twice as much of their income toward taxes than the super rich. At the same time poverty levels haven risen to highs not seen since 1993, with 15.1 percent of Americans officially classified as poor.

But those in the bottom 20 percent pay closer to 12 or 13 percent of their income in state and local taxes on average. The top 1 percent of income earners only pay 7 to 8 percent, according to the Institute on Taxation & Economic Policy.

While the lowest 20 percent often pay 7 percent of their income in sales and excise taxes each year, the top 1 percent pay less than 1 percent of their income toward sales taxes.

The difference in shares of income put to property taxes is only slightly better.

Federal, state and local taxes combined are, on average, at their lowest level since the 1950s, according to the Tax Policy Center. But the distribution today is significantly less progressive. This trend hasn't changed much in recent decades either. Back in 1996, Citizens for Tax Justice found people with the lowest income were putting more of their income toward state and local taxes than the wealthy.

According to Matt Gardner, executive director at the Institute on Taxation and Economic Policy (ITEP), most state tax systems are regressive.

"The lack of fairness at the state level is really quite avoidable," Gardner said. "Every state could do something to make their income tax more progressive."

States largely rely on income, sales and excise taxes, and property taxes for their revenue. There's no real way for sales, excise or property taxes to not be regressive, so income is the one area where there's room for states to make their tax burdens more fair, Gardner said.

G. William Domhoff, research professor at University of California at Santa Cruz, found the rich have the least progressive state tax rates.

"If we break the top 20 percent down into smaller chunks," Domhoff writes, "we find that progressivity starts to slow down, then it stops, and then it slips backwards for the top 1 percent."

Yet, despite the strong public support for increasing taxes on the wealthiest Americans, lawmakers have often sought to keep rates down.

In the current debate among GOP presidential candidates, nearly all have advocated fewer tax brackets, lower rates, or imposing a national sales tax. Gov. Rick Perry (R-Texas), a presidential candidate, has boasted about his state having no income tax.

But states that do not collect income tax rely on the poor to make up a lion's share of the state's revenue, since they rely more on property, sales and excise taxes -- excise being those extra taxes on things like gasoline, cigarettes and alcohol. An analysis by ITEP concludes these excise taxes are 22 times harder on the poor than the rich, and 11 times harder on middle-income families than the rich.

Other candidates, like Herman Cain, are advocating imposing a flat income tax and a national sales tax. This would be a huge break for the top income-earners while bearing on down on lower- and middle-class workers with force. "From a fairness perspective, [using a flat tax rate] is the most damaging choice you can make," Gardner said.

But many states use a flat tax, Gardner said, and those that don't have tax brackets that are very close together. One example is Alabama, which puts the highest tax bracket at individuals making as little as $6,000 a year.

The left-leaning Citizens for Tax Justice argue that states can use their tax codes as weapons against poverty. Specifically, one method they advocate is using a state version of the Earned Income Tax Credit as a cheap way to give low-income families a break.

However, while poverty rose over the past year -- 20 states saw their poverty rate increase 20 percent or more -- some states raised taxes on the poor. Maine, Minnesota, Michigan and Wisconsin effectively raised taxes on the working poor by reducing targeted tax credits. Seven other states offer no anti-poverty tax credits at all.

Republican presidential candidate Jon Huntsman's tax plan would eliminate deductions, including those that help the working poor.

These measures are sought out of the idea closing these tax deductions would bring in more revenue for the state. While it would do just that, Gardner said it's also done at the expense of the lowest income earners.

"The fact remains that as the economy continues to stagnate, as poverty rates continue to go up, lawmakers are standing there with a shovel and have the opportunity to fill in some of that hole. But instead they're making it deeper," Gardner said.

September 26, 2011

by Aman Batheja

One in an occasional series examining the state's economic record under Gov. Rick Perry.

On national television and in stump speeches nationwide, Gov. Rick Perry is touting Texas as a model for the U.S. economy, notably the state's tax structure.

At a Republican debate this month in Florida, Perry said scores of people are moving to Texas "because they know there's still a land of freedom in America, freedom from overtaxation, freedom from overlitigation and freedom from overregulation, and it's called Texas. We need to do the same thing for America."

When many politicians and pundits proclaim Texas a low-tax state, they're referring to the fact that there's no personal income tax and that direct taxes on businesses are relatively low.

What draws less attention is that sales, property and wireless service taxes are higher in Texas than in most other states.

Which approach best serves the state's residents remains a matter of debate.

"If you don't have taxes on income, you're going to have to make it up in other higher taxes or lower spending, and it looks like Texas might split the difference," said Mark Robyn, an economist with the nonpartisan Tax Foundation.

At the state level, Texas draws most of its revenue from federal funding and sales taxes. At the local level, property taxes play a major role.

"If you look at the total system ... nearly half of taxes are property taxes, and another almost third is sales tax," said Dick Lavine, a fiscal analyst with the liberal Center for Public Policy Priorities in Austin.

While most local governments in the states levy property taxes, the approaches to state taxes vary widely, including no income or sales tax (New Hampshire), an income tax but no sales tax (Oregon) and, most common, a mix of both. Many economists say the best approach depends on a state's characteristics, such as natural resources, quality of workforce and level of tourism.

Combining state and local rates, Texas has the 14th-highest sales tax rates in the country and the 22nd-highest property tax rates, according to the Tax Foundation.

'Medium-to-high taxes'

Texas Republican pollster David Hill recently highlighted the state's sales and property tax rates in a column for The Hill , a Washington-based political newspaper.

He said he worries that those touting the Texas model for economic growth don't understand the full picture.

Among the stats he finds most eye-opening: Texas ranks near the top in property taxes as a percentage of home value.

"Once you start adding it all up and writing the check, you see there is no free lunch," Hill said. "Texas is a nice state with medium-to-high taxes."

A weakness with the Texas approach to taxes is that the state looks less attractive to businesses that need a lot of land and equipment and can pay lower sales and property taxes elsewhere, said Dale Craymer, president of the pro-business Texas Taxpayers and Research Association.

"For service-oriented businesses, for research operations, for corporate headquarters, Texas is clearly a low-tax state," Craymer said. To lure capital-intensive businesses, Craymer said Perry has effectively used tax incentives and subsidies.

The Texas Association of Business has largely cheered the state's approach to taxes, but President Bill Hammond said he would prefer it if the state relied less on property or business taxes.

"The ideal is not to tax savings and investment but to tax consumption. We think the sales tax is the fairest way to fund the state," Hammond said.

Lavine said such an approach ignores how sales taxes are tougher on poorer families. Texas has the fifth-most-regressive tax system in the country, according to a 2009 study by the Institute on Taxation & Economic Policy.

"People who are trying to move up to the middle class, you're essentially pushing them back by giving them the highest tax rate," said Lavine, who believes that an income tax could make the state's tax system fairer.

Perry's changes

Since 2006, Texas' competitiveness on business taxes has dropped compared with other states, according to the Tax Foundation's annual ranking. Five years ago, Texas had the seventh-most-favorable business tax climate in the country. In the latest rankings, Texas is 13th.

Part of the drop is due to other states lowering their tax burden on businesses, Robyn said. Another cause is likely a controversial tax overhaul Perry approved in 2006.

That legislation was prompted by the state Supreme Court declaring Texas' education funding system unconstitutional. After years of wrangling, lawmakers ultimately lowered property taxes by billions and covered the loss through raising cigarette taxes from 41 cents to $1.41 per pack and converting the franchise tax to a broader margins tax that focused more on gross revenue instead of profit.

The margins tax has drawn criticism ever since. Some businesses have said it hits certain companies more than others. A host of others say the overhaul created a structural deficit in the state budget, as the tax has never drawn as much revenue as originally forecast.

Original Post

September 26, 2011

by Virginia Young

JEFFERSON CITY • Wrestling with your state income tax return? Missouri legislators are weighing a plan that would do away with that chore.

But before you celebrate, be aware that it's not a tax cut. While state individual and corporate income taxes would be eliminated, the lost revenue would be replaced with a higher sales tax on everything you buy.

And that means everything — groceries, rent, new homes, doctor visits, child care, prescription drugs, private K-12 schooling and a host of other items not currently taxed.

It is a seemingly simple concept with vast implications. And it is being taken seriously in Capitol corridors this year largely because of one man: Rex Sinquefield.

Sinquefield, who made a fortune in the investment business in California, returned to his native St. Louis four years ago and began pouring his energy and money into politics. He founded a free-market think tank, hired a corps of lobbyists and became the state's top political donor.

Convinced that income taxes retard economic growth, he wants to transform the state's tax structure. If lawmakers balk, he may finance an initiative petition drive to get the so-called "FairTax" plan on the statewide ballot.

"If we don't get what we really want, at some point that would be the option we have to consider," Sinquefield said in a recent meeting with Post-Dispatch editorial writers and reporters.

It's no idle threat: Sinquefield has already put $1 million into a petition drive to repeal the St. Louis and Kansas City municipal earnings taxes.

The prospect of wiping out state government's largest source of revenue has turned the Capitol topsy-turvy. No one knows what the new sales tax rate would be. Estimates vary widely, from 6 percent to nearly 11 percent, not including local taxes.

Some legislators are wary.

"You have to replace a really significant amount of money," said House Ways and Means Committee Chairman Mike Sutherland, R-Warrenton. "I'm not opposed to getting rid of the income tax and replacing it with another tax if we know all the answers to what we're getting ourselves into."

national debate

Nationally, the idea of replacing the federal income tax with consumption taxes has been percolating for a decade. The movement was chronicled in a bestselling book, "The FairTax Book," co-written by a talk show host and a congressman from Georgia.

In a breezy style, the book argues that the complicated federal income tax code discourages work and encourages tax evasion. The authors propose replacing all federal income and payroll taxes with a sales tax on new goods and services. All households would receive a subsidy to cover sales taxes on necessities.

The concept galvanized anti-tax groups, who adapted it to state governments.

In Missouri, FairTax bills have been filed for at least six years but drew little attention until last year, when the House, on a 90-65 vote, passed a resolution putting the plan on the ballot. That measure died in the Senate.

But this year, after Sinquefield made a personal pitch at a Republican senators' retreat, GOP leaders moved the issue up on their agenda. Now, it is headed for floor debate, possibly this week.

Sinquefield has given millions of dollars to political candidates and causes, including thousands to key lawmakers who control floor debate: House Majority Leader Steve Tilley, R-Perryville ($100,000 last February) and Senate Majority Leader Kevin Engler, R-Farmington ($25,000 last November).

Rep. Jeanette Mott Oxford, D-St. Louis and an opponent of the plan, said Sinquefield's generosity "probably purchases some floor time for debate."

Engler bristled at that allegation. He said debating the proposal would help iron out kinks in the tax plan so that if it eventually went on the ballot, it would be more workable.

"We need to vet it," Engler said. "If you just put it on an initiative petition, nobody's going to force them to vet it. My idea is, roll it out, see what gets shot down."

Rep. Chris Kelly, D-Columbia, a co-sponsor of the plan, said it wasn't just Sinquefield's prominence as a political donor but his success as a businessman that had moved the FairTax into the spotlight.

"His participation changed it from a screwball right-wing issue to possibly a serious question of public policy," Kelly said. "Nobody thinks Rex is stupid or lazy."

Sinquefield is confident the tax overhaul would produce jobs. He cites his own experience: Dimensional Fund Advisors, the investment company he co-founded in 1981, moved to Texas instead of Missouri because Texas had no income tax.

Texas is one of nine states without income taxes. The others are: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Washington and Wyoming.

Missouri lags behind those states in production of goods and services, former Rep. Ed Robb, a retired University of Missouri-Columbia economist, told a Senate committee last month.

Missouri's growth is about half the national rate and about 40 percent of the rate of states without income taxes, he said.

Some of the states without income taxes benefit from special revenue sources, such as oil severance and mining taxes or tourism and gambling. Even so, Robb contends that their lack of income taxes is a key factor in their growth.

He noted that in 1993, Missouri raised its corporate income tax to 6.25 percent as part of a school funding package. Since then, Missouri's share of multistate corporations' profits has declined from 4.5 percent to 2.6 percent in 2006, the last year for which information is available.

"When we increased their taxes, they decided they'd be better off investing in other states," Robb said.

Others touting the tax overhaul included Joe Haslag, a University of Missouri-Columbia economist who moonlights for Sinquefield's think tank, and supply-side side economist Arthur Laffer, who taught Sinquefield at the University of Chicago.

Laffer now lives in Tennessee, which he chose because it lacked an income tax.

"It's really basic economics," said Laffer, who advised former President Ronald Reagan. "You want a tax structure that does the least damage to your state. I mean, all taxes are bad."

losing out

Opponents say the FairTax proposal would be bad for Missouri. They say losers would include:

• Working-class families, who spend a higher percentage of their income on goods and services.

• Businesses near the state's borders, which would lose sales to states with lower tax rates.

• Parents of private and parochial K-12 students, who would owe a tax on top of tuition payments.

• Groups such as historic preservationists that rely on income tax credits. If the income tax disappears, there would no longer be a market for selling tax credits.

To understand the scope of the change, consider that Missouri collects about $5 billion from the individual income tax. Corporate income taxes and other business taxes targeted for repeal produce an additional $450 million.

In addition to replacing that revenue, the new sales tax would have to generate at least $2 billion dollars to pay for the subsidy every family would receive to defray sales taxes on necessities.

So how high would the new sales tax go?

Missouri currently imposes a sales tax of 4.225 percent on retail sales. Of that, a 3 percent levy goes to the general fund and the rest goes to education, conservation and parks. Local sales taxes come on top of the state levy and average 3.5 to 4 percent, though they would probably be lowered to reflect the broader base if the FairTax passed.

The FairTax plan currently calls for a new state tax rate of 5.1 percent. But proponents concede that they relied on incorrect census information to arrive at that figure, and they say they plan to change it after more research, probably to something close to 6.2 percent.

However, the Washington-based Institute on Taxation and Economic Policy released a detailed study that concluded the rate would need to be about 11.2 percent.

Asked about that figure, Sinquefield said: "I have no idea where they get that number or what kind of drugs they're taking. And you can quote me on that."

The plan's sponsor, Sen. Chuck Purgason, said he wouldn't pursue the plan if the rate climbed too high.

"If it gets out of the sixes, it's DOA," said Purgason, R-Caulfield.

His proposal, a constitutional amendment that would be placed on the November ballot, would set up a commission to review the new tax rate. If it didn't produce enough money, lawmakers could adjust it.

One reason it's hard to calculate the rate is because no state taxes consumption as broadly as Sinquefield is proposing.

Currently, Missouri has 132 sales tax exemptions. They run the gamut from feed for livestock to textbooks for college students. Services also are exempt, including those provided by doctors, accountants, housekeepers, nursing homes, lawyers and funeral homes.

All would be taxed under the FairTax resolution.

"You can't take anything out," Robb said. "If you take anything out, you have to raise the rate."

The only exceptions would be business-to-business purchases, used goods and college tuition.

Former budget director and lobbyist Jim Moody, who testified against the plan, said that given its breadth, "This is kind of the womb-to-the-tomb tax."

The Missouri Catholic Conference has weighed in against the plan, saying it would disproportionately burden the poor. With little money to save, low-income families would be unlikely to benefit from the new tax break on unearned income such as interest, dividends and capital gains.

Every household in the state would get a monthly check, based on the number of people in the family, to cover taxes on spending up to the poverty level.

For example, the federal poverty level for a family of four was $22,050 last year, so if the state sales tax was 6 percent, such a family would receive a subsidy of $1,323 a year.

Some critics say the proposed subsidy wouldn't be enough to cover taxes on necessities such as rent, utilities, medicine, motor fuel and child care.

Engler said the Senate was exploring an expanded subsidy that would give people making up to twice the poverty level a card that would exempt them from sales taxes.

Also under consideration: exempting private and parochial school tuition from the new sales tax. The Catholic Conference has called that proposed tax discriminatory.

Sinquefield's allies say he understands the struggles of the poor. As a child, he spent six years in an orphanage when his widowed mother couldn't afford to care for him and his brother.

In the Post-Dispatch conference room, where he slid off his shoes and chatted for over an hour, Sinquefield said the poor would be better off under his plan because "up to about the poverty level, the poor will pay neither a sales tax nor an income tax."

He cautioned that legislators shouldn't turn the plan into a "Christmas tree" by exempting various products and services. "Rather than exempting food or medicine to help the poor, just exempt the poor," he said.

As for interest groups that would lose their lucrative tax credits, Sinquefield said that he supported some of those programs, such as historic preservation, but that they should get direct subsidies instead of tax breaks. "It's much healthier to do it out in the sunshine and get rid of the tax credit," he said.

He said his "fantasy" was that Missouri would 'start a wildfire" that would spread to other states and eventually, lead to elimination of the federal income tax.

Original Post

September 26, 2011

Opinion by Dennis Maley

Talking points can be a dangerous thing. When politicians, candidates and political pundits can dominate the dialog without engaging in intellectual debate, phrases and slogans start to make their way into the mouths of average Americans who, unlike the think tanks and policy groups that invent them, aren't aware that they are less than factual and often outright propaganda.

The most recent example is the 24-hour-media fodder regarding the millions of American freeloaders that we are being told are the “real problem” in our nation's fiscal woes. Why? Well, it started when serious economists began focusing on issues such as the impact that drastic wealth inequality can have on a consumer-driven, free-market system, once too little spending power exists below the very top.

They point out that while the nation has generated tremendous wealth since 1980, almost none of it has been shared by 95 percent of Americans, and skewed tax policy has made it easier for gains to accumulate at the very top, leaving tax revenues as a percentage of GDP, at its lowest point in 60 years, while suggesting that the dynamic will only continue exponentially unless corrected by policy reforms. From an economic position, it would seem clear that the only solution would be tax policy that was not so clearly designed to favor the very few, at the expense of the many – and the domestic economy as a whole.

However, the mere suggestion that taxes on the richest Americans being at their lowest in many decades might be contributing to the deficit and our lack of overall consumption, and thus contributing to the super-high unemployment that is sapping our economy on the whole, is instantly treated as a treasonous assault of the upper, upper class – or Class Warfare as the slogan makers like to deem it.

Ironically, the response has been a brutal campaign of reverse-class warfare that laughably suggests that the real problem driving the poverty epidemic is that the poor are not giving enough! For the past two weeks, the GOP-approved talking point on the tax situation and wealth inequality has been that we need to “broaden the base” and make sure everyone has “skin in the game.”

Republican presidential candidates and conservative pundits have been showering us with the claim that half of Americans “pay no taxes at all” and that this is what must change. Let's get past the talking points and cut to the facts. It is true that around 46 percent of Americans do not pay federal income tax, mostly because they are far too poor to be able to, once they pay all of the other taxes that eat up the bulk of their less-than living wage income – often at a very disproportionate rate compared to the well off, as we'll see later.

In fact, it's not even that they are excused from federal income taxes. In reality, there are several anti-poverty policies like the Earned Income Tax Credit that were designed to put more money in the hands of the consumers that drive our economy, that happen to be administered through the tax code for the sake of efficiency. So instead of the government sending a check or issuing a rebate, such policies are applied to what the person owes in federal income taxes. For the poorest Americans, they can be as much or even more than they owe, though they'll still have to pay things like payroll taxes, local taxes, state taxes, property taxes, service taxes and sales taxes.

Then there's also the fact that more and more Americans are living in abject poverty. That certainly hurts the tax base. The nature of our federal income tax is that it allows standard deductions for income up to a basic-needs level. A family of four earning less than $26,400 will get their $11,600 standard deduction and four exemptions of $3,700 each. Because there is no income above this basic subsistence level, they pay no federal income tax. They are so poor that their taxable income after their standard deductions (that the rich get too) is zero. Despite this “perk” for low earners with kids, more than a fifth of all American children still live in poverty and the number is growing!

Ironically, many of these policies, including the EITC, were implemented by Republicans and heralded as tax cut victories at the time. The EITC was passed by Nixon and expanded by Reagan, who championed removing as many Americans as possible from the federal income tax rolls. Nobody is talking about getting rid of it, but to broaden the base and get skin in the game, the way they are saying, you'd have to. I'm not sure they understand that, but again, the people who craft the message do. It's a typical empty retort to realities that do not coincide with the narrative they'd like to market.

Another factor is retirees. Social Security income is exempted from federal income tax. More than a fifth of the 46 percent who don't pay any are owed to this policy. Is someone arguing to start taxing the meager benefit of SSI in order to get some wrinkled skin in the game? True, some wealthy retirees have investment income and they won't pay income tax on that either, just capital gains. But Republicans are advocating eliminating that tax altogether, so that will only narrow the base.

Then there's also hedge fund managers. They had a down year in 2010, taking home 13 percent less than the year before. Still, the top 25 alone pulled down more than $22 Billion (yes, with a b) in total compensation. They don't pay income tax either. However, the same people advocating “skin in the game” blocked attempts to close this loophole over the last couple of years. So again, where is this money coming from, if not the small minority where it's so disproportionately accumulated over the past four decades as we've cut taxes on the super rich? I'm not sure, because the skin in the game guys never offer specifics.

In reality, there are more people living in poverty right now in the United States than in the history of such records being kept and 2010 census data revealed that there would be 3 million more young Americans living in poverty, had they not returned home to live with their parents because they are unemployed, marginally employed or earning too little to survive on their own. The number of impoverished Americans has risen for the 4th consecutive year and keep in mind, a family of four making $22,500 is technically above the poverty line, even though they'll bring home less than $400 per week, even in a state like Florida that has no state income tax. For the love of God, what on Earth can we take from them to get more skin in the game – beyond their actual skin itself!

Tax policy is complicated and I'm all for simplifying the tax code, but let's still be honest about the realities of the system we have. There are breaks at both the top and bottom. Those making over $106,800 stop paying Social Security and Medicare taxes on income over that amount, so they end up paying such payroll taxes at a much lower rate than upper middle-class and even the poorest Americans. Looking at “income tax” in a vacuum is deliberately misleading because it focuses on where the majority of well-off people's tax burden lies. But looking at actual total taxes as a percent of total income gives you a much clearer picture. Look at the graph below from a report by Citizens for Tax Justice and you can see that it's pretty consistent with income distribution (click to read full report).

Over the last 30 years, taxes have fallen sharply for the top 1 percent of Americans and stand at historic lows. Common sense would tell us that shouldn't be the case considering deficits are at historic highs. But the super rich, and especially those in the top .01 percent who benefit the most, have certain advantages when it comes to framing the debate. They own things like cable news networks, newspaper conglomerates, publishing houses and the corporations that support them with ad revenue, and of course, think tanks.

They also employ six and seven figure media personalities and management employees who decide how issues will be presented to the masses. Do an Internet search on the term “soak the rich.” You'll find dozens of mainstream media op/eds warning of the catastrophic consequences of developing a tax policy that is more realistic in terms of cutting the deficit and rebuilding the consumer class that our economy depends on, almost all of which intentionally misrepresent the data I've just deconstructed, while leaving out the parts I've included that don't fit the narrative. There's a lot less out there on the fact that Exxon Mobil or G.E. paid zilch in U.S. corporate taxes in recent years, but a lot of those people own Exxon stock, which it should be noted, is through the roof. Is it any surprise which issue they seek to focus the attention of American viewers on?

The result of all this whitewashing is the seemingly impossible scenario in which middle-class and even somewhat poor Americans advocate policies that do not benefit them at all, while compounding the problem at large. At some point, the wealthiest among us will have to realize that they have milked the udders dry, that the American Dream for anyone not born into that class is dead, and that they've got to move on to the next host country in order to feed off the life-blood of the masses.

That'll be no problem. They'll have the cash, the gold, the personal jets and foreign assets to do so. But for the tens of millions of suckers who were conned into buying a nonsensical myth that the only way to earn their own share is to give it all away to those who already have too much? Well, the joke will be on them. We'll just be too busy fighting each other for scraps of rotten meat to hear their distant laughter.

September 21, 2011

Editorial

Political spinning and second-guessing have dominated the discussion of President Barack Obama's jobs bill and his 10-year proposal to reduce federal budget deficits.

There's no denying the campaign dimensions of the proposals: Mr. Obama is positioning himself as the candidate of working middle-class Americans who are struggling to survive the crushing economic squeeze of the Great Recession of 2007-2009. And he will portray Republicans as faithful servants of the upper classes.

Republican leaders immediately trotted out accusations of "class warfare," ignoring the disturbing truth articulated by multi-billionaire Warren Buffett several years ago. "There's class warfare, all right," Mr. Buffett declared. "But it's my class - the rich class - that's making war. And we're winning."

Republicans also recycled their tired claims that Mr. Obama's proposals to increase some high-income taxes would wreak havoc among small business people and so-called "job creators."

There is no evidence to support these claims. A 2009 study by the Center on Budget and Policy Priorities calculated that barely 2 percent of small business owners make enough money to qualify for the top two tax brackets, as struggling small business people already know too well. And with unemployment still around 9 percent, it's fair to ask what upper-income "job creators" have been doing since their tax rates were reduced in 2001.

Political positioning aside, some of the ideas in Mr. Obama's proposed jobs bill and his 10-year budget-deficit plan are worth examining on their own terms. "Middle-class families shouldn't pay higher taxes than millionaires and billionaires," Mr. Obama said Monday. No, they should not, but the administration has been short on details for revising the insanely complicated tax code to restore balance and fairness.

One provision Mr. Obama is backing, however, would raise substantial amounts of money to help pay for crucial services and help equalize the responsibility. The idea would reduce the value of tax deductions for the wealthiest Americans to the same value those deductions have for people with more modest incomes.

For example, the mortgage-interest deduction is worth about 35 cents on the dollar to people with adjusted gross incomes above $1.5 million. Under an administration proposal, the value of the deduction would be reduced to about 28 cents on the dollar.

The administration projects that these kinds of changes to tax deductions and exemptions would increase government revenue by some $400 billion over 10 years. About 75 percent of the cost would be borne by those earning more than $1.5 million per year, with the other 25 percent paid by families with adjusted gross annual incomes of at least $275,000, according to Citizens for Tax Justice.

In his remarks Monday, the president invoked the long-standing American principle of shared sacrifice in times of trouble. He also pointed out that the lion's share of sacrifice in these troubled times has been borne by America's middle-class and working poor.

"I will not support - I will not support," he repeated for emphasis, "any plan that puts all the burden for closing our deficit on ordinary Americans.... We are not going to have a one-sided deal that hurts the folks who are most vulnerable."

Republicans may well object to being branded the party of the ultra-wealthy and the multi-national corporations. All they have to do to counter the charge is to produce some policies that prove otherwise.

Original Post

September 21, 2011

by Peter Hart

Yesterday Barack Obama made a speech outlining his deficit reduction plan--focusing attention on a variety of spending cuts and tax increases. The Associated Press, as is their habit, issued a "factcheck" piece by Stephen Ohlemacher that managed to bungle the issues involved, making it sound as if Obama was wrong about the taxes that wealthy people pay.

Here's how it started:

President Barack Obama makes it sound as if there are millionaires all over America paying taxes at lower rates than their secretaries.

"Middle-class families shouldn't pay higher taxes than millionaires and billionaires," Obama said Monday. "That's pretty straightforward. It's hard to argue against that."

The data tell a different story. On average, the wealthiest people in America pay a lot more taxes than the middle class or the poor, according to private and government data. They pay at a higher rate, and as a group, they contribute a much larger share of the overall taxes collected by the federal government.

If that's what you get from "the data," AP doesn't do a good job of showing it. The piece points out early on that about 1,400 millionaires paid no income tax at all--that's a small number of tax avoiders, they explain, though clearly this would be part of what Obama is talking about.

But then they zero in on what seems to be their best case:

This year, households making more than $1 million will pay an average of 29.1 percent of their income in federal taxes, including income taxes and payroll taxes, according to the Tax Policy Center, a Washington think tank.

Households making between $50,000 and $75,000 will pay 15 percent of their income in federal taxes.

Well, that sounds like a slam dunk, right? The rich pay twice as much as middle class earners. Or maybe not:

Obama's claim hinges on the fact that, for high-income families and individuals, investment income is often taxed at a lower rate than wages. The top tax rate for dividends and capital gains is 15 percent. The top marginal tax rate for wages is 35 percent, though that is reserved for taxable income above $379,150.

So what if much of a really wealthy person's income is investment income? AP doesn't get into that; it moves on to discussing the fact that a lot of poor people pay no income tax.

It's useful to recall that Warren Buffett--supposedly the inspiration for this plan--was saying that he made $46 million but only paid 17 percent in taxes. His secretary, he said, paid more--relative to what she earned. Is Buffett the only one who's figured out how to do this? One recent report from the Citizens for Tax Justice showed:

The IRS report shows that in 2008 (the latest year for which data are available), the 400 richest income tax filers paid just 18.1 percent of their adjusted gross income (AGI) in federal income taxes.

That is down from 22.3 percent in 2000.

And this post from the Tax Policy Center tries to explain further:

The lower taxes on investment income mean that many high-income taxpayers face a lower ETR [effective tax rate] than middle- and upper-middle-income people who get almost all of their income from working. People in the top 0.1 percent--those with income over $2.18 million in 2011--who get more than two-thirds of their income from gains and dividends face an ETR of just 12 percent, compared with 16 percent for people in the fourth quintile who get less than 10 percent of their income from investments.

It's worth recalling that Obama's actual point was this:

They should have to defend that unfairness--explain why somebody who’s making $50 million a year in the financial markets should be paying 15 percent on their taxes, when a teacher making $50,000 a year is paying more than that--paying a higher rate.

It is difficult to see what is wrong with that statement. The Associated Press took a seemingly uncontroversial point and, by magic of its "factchecking" machine, turned into an inaccuracy.

(Original Post)

By Steve Wamhoff - 09/20/11 03:07 PM ET

While House Republican Leader Eric Cantor’s staff and others have called President Obama’s jobs and deficit plan the “largest tax hike in modern history,” the unfortunate truth is that it actually cuts taxes overall and increases the deficit.
 
There is much to like about the plan, as explained below. Citizens for Tax Justice applauds President Obama’s vow yesterday to “veto any bill that changes benefits for those who rely on Medicare but does not raise serious revenues by asking the wealthiest Americans or biggest corporations to pay their fair share.”
 
However, President Obama’s proposals would ultimately reduce  taxes far more than raise them, compared to current law.

The tables in the back of the President’s 80-page plan quietly remind us that the total cost of making permanent the Bush tax cuts would be $3.867 trillion over the next ten years, but the President says he will “raise revenue” by making permanent “only” $3.001 trillion of these tax cuts. We certainly applaud the President for refusing to extend the $866 billion of these tax cuts that would go exclusively to those with adjusted gross incomes in excess of $250,000, but it’s difficult to call this a deficit reduction.
 
The President’s claims that he is raising revenue are based on the common, but misleading, practice of comparing a given proposal to an alternative “baseline” that assumes Congress has already increased the deficit enormously by making permanent the Bush tax cuts. By this logic, we do not see what stops the President from comparing his plan to a baseline that assumes Congress repealed the federal income tax, in which case his plan would “raise revenue” even more successfully.
 
Setting aside the $866 billion that the President proposes to “raise” by not extending that part of the Bush tax cuts, the net effect of the other tax provisions in the plan (excluding the parts used to help pay for his proposed new jobs provisions) is to raise only $259 billion over the next decade. That means that, overall, the President is proposing more than $2.7 trillion in deficit-increasing tax cuts through fiscal 2021!
 
The cost of these tax cuts is even greater when accounting for the additional interest payments on the national debt that will result.
 
Revenue could be raised by closing corporate tax loopholes, but unfortunately the President’s plan calls for a reform of the corporate income tax that is “deficit-neutral.” We believe that most, if not all, of the revenue-savings resulting from closing corporate tax loopholes should go towards deficit-reduction or job creation and public investments, rather than paying for more breaks for corporations.
 
There are some good ideas in the President’s tax proposals that would raise revenue compared to current law and that would ask those whose incomes have grown the most in recent years to pay something closer to their fair share. This includes his proposal to limit deductions and exclusions for the wealthy, which we estimate would affect only 2.3 percent of taxpayers. Certainly Congress should pursue these types of tax provisions and loophole-closing measures.
 
But ultimately, our nation is going to need significantly increased revenues to pay for essential public programs and services. Starting off with a gigantic tax cut that makes 80 percent of the Bush tax cuts permanent, as Obama proposes, only digs our deficit hole deeper — and makes big reductions in Social Security and Medicare even more likely.
 
Steve Wamhoff is Legislative Director at Citizens for Tax Justice (www.ctj.org), a nonpartisan public interest research and advocacy organization focusing on federal, state and local tax policies.

September 19. 2011

by Hembree Brandon

As the Washington crowd desperately seeks means of life support for an economy that seems in cardiac arrest, and presidential wannabes flit around the country claiming to have the magic potion needed to bring the patient around, one can only marvel at their ongoing insistence that it can be achieved through spending cuts alone.

And it will be a cold day in you-know-where, they staunchly aver, when they support any kind of tax, regardless of how much it might help the country's anemic revenues.

All the while, tax breaks and tax loopholes enacted by previous administrations and Congresses to benefit major corporations and the wealthiest individuals result in a loss to the U.S. Treasury of billions of dollars.

Billionaire Warren Buffet, perhaps one of the most astute businessmen of modern times, frequently points out that he and fellow billionaires pay taxes at a lower rate than many of their salaried office workers, and calls on the government to remedy the situation.

Yet, every time there's even a hint of increasing taxes on the super wealthy, the screaming reaches crescendo level by the congressional cadre that would rather have sent the nation into catastrophic default than to agree to such a move.

Consider, for example, top tier hedge fund managers, whose income may run to hundreds of millions of dollars per year. The top 25 managers last year earned $22 billion collectively, according to AR magazine, which tracks the industry.

Most of that, however, is taxed at the favorable capital gains rate of 15 percent. So, while the wheeler-dealers avoid millions in taxes, millions of middle class Americans (who've seen their salaries decline over the past decade) are paying taxes at a 25 percent top marginal rate.

Closing just this one loophole, analysts say, would bring in more than $4 billion a year*afrom just those 25 top hedge fund managers.

They aren't the only ones given favored tax status by Uncle Sammy. While the average salaried employee has taxes withheld from each paycheck, another elite class -- entertainment stars, sports stars, corporate executives -- have all manner of options for paying their taxes later, often years later.

The average employee's*atax bite is taken in advance before they ever get what's left of their salary; the stars pay sometime or other, and in the meantime they can invest that money and make even more money.

(One example of how modern day corporations are raking in big bucks by reaping the benefits of outmoded tax policy was cited in this recent*aNew York Times*aarticle:*ahttp://www.nytimes.com/2011/09/11/technology/rich-tax-breaks-bolster-vid...)

Citizens for Tax Justice, in a study of Fortune 500 companies, cited a dozen major corporations that had a collectivenegative 1.5 percent*atax rate on $171 billion in profits for the 2008-10 period,*aand got $62.4 billion in taxpayer subsidies. They included the likes of Boeing Aircraft, Exxon Mobil, FedEx, General Electric, IBM, and Wells Fargo.

Had the 12 companies paid the 35 percent corporate tax rate, the Treasury would've received $59.9 billion, the study notes. "These companies are just the tip of the iceberg of widespread corporate tax avoidance," said Bob McIntyre, Citizens for Tax Justice director.

Bruce Bartlett, a domestic policy advisor for President Reagan and a top Treasury official in the Bush I administration, noted in a*aNew York Times*acolumn that the U.S. has the lowest corporate tax burden of any of the world's wealthiest nations.

Further, he says, the federal income tax rate on the 400 richest people in America was 18.11 percent in 2008, down from 26.38 percent in 1992. The loss to the Treasury: an estimated $300 billion annually.

While the average worker's wages have showed little or no gain over the past 20 years, the super wealthy, thanks to the generosity of our elected lawmakers, have been making out like bandits.

Watch Video

September 19, 2011

by David Kerley, ABC Correspondent

ABC uses Citizens for Tax Justice figures to calculate the effects of President Obama's proposed "Buffett Rule."

Original Post

September 16, 2011

by Pat Garofalo

Texas Gov. Rick Perry (R) was on the campaign trail in Newton, Iowa today, reviving his stump speech promise to make government “as inconsequential in your life as I can.” At one point, Perry bragged about the Texas tax system and its light burden on “job creators”:

We had a tax policy in place that allowed for our job creators to not be burdened, still delivering the services that the people desire in the state of Texas. So have a tax policy that is as light on the job creators as we can.

As Matt Yglesias has noted, in reality Perry’s tax system “has done a great job of soaking the poor.” In fact, according to the Institute on Taxation and Economic Policy, someone in the poorest 20 percent of Texans can expect to face a tax rate four times as high as a Texan in the richest 1 percent:

This isn’t really surprising, considering that Perry believes that the poor and seniors don’t pay enough in taxes. At the same time, Perry has admitted that higher taxes on millionaires and billionaires “isn’t going to affect anything” in terms of economic growth.

September 15, 2011

Editorial

THE ISSUE It may be easy for cities to raise their sales-tax rate, but it's sure not rational or right.

The problem with being ranked No. 1 is that it's hard to stay on top. Almost every week, it seems, someone does something to shake up the rankings. This week, it was Trussville's city government.

What, you thought we were talking college football?

No. We're talking sales tax rankings. The Trussville City Council on Tuesday approved a 1-cent sales tax increase, raising that city's combined state, county and city levy from 9 cents to 10 cents on the dollar. When the increase goes into effect Nov. 1, Trussville will join Birmingham and a growing number of other local cities at the top of the heap in Jefferson County with a 10-percent sale tax rate.

You may recall Birmingham, with its 10-cent combined general sales tax, earlier this year was tied with Montgomery for the highest combined sales tax in the country for cities with a population of 200,000, according to the Tax Foundation, a nonpartisan tax research group in Washington, D.C.

Many of the cities in Jefferson County have jumped to double-digit combined sales taxes in the past year: Rising to 10 percent were Gardendale (October), Bessemer (April), Brighton (April) and Hueytown (April). Fairfield, Fultondale, Irondale, Leeds, Lipscomb, Midfield and Tarrant already were collecting 10 cents on the dollar in sales taxes.

Shelby County is starting to see a move toward 9 percent combined sales taxes. (Its county tax is 1 percent while Jefferson County's is 2 - call it the Larry Langford effect.) Vincent is already at 9 percent, and the Montevallo City Council is scheduled on Sept. 26 to vote on a 1-cent increase to 9 cents in combined sales taxes.

The explanations for what these cities plan to do with the extra money sound rational enough. Montevallo, for example, wants to revitalize its downtown and have a capital reserve fund to use on improving City Hall and other public buildings.

But as tax policy, raising sales taxes to extreme levels is anything but rational. It may be easy - cities can raise sales taxes without going to the Legislature for permission - but it isn't rational or right. All sales-tax hikes do is make Alabama's upsidedown tax system even more upside-down.

The state's tax structure is upside-down because it is so unfair. Low- and middle-income families pay twice the share of their incomes in state and local taxes that wealthier families do. A big reason is because of high sales taxes.

Alabama families in the lowest 20 percent of income ($10,400 a year average income) pay 4 percent of their incomes on general sales tax, according to a recent report by the Institute on Taxation & Economic Policy. That compares to 0.6 percent of the incomes of Alabama families in the top 1 percent of income (an average of $1.2 million a year) spent on general sales tax.

Adding injury to insult, Alabama is one of just two states (the other is Thank God for Mississippi) that don't offer some kind of state sales tax relief on food. Other states exempt food from sales tax, reduce the sales tax on food, or offer tax credits to poor families to offset some of the cost of the sales tax on food.

Even though Alabama is one of the lowest-tax states in the country (ahead of only South Carolina in the amount collected per person, according to recent Census data), it doesn't feel that way to low- and even middle-income families.

With growing numbers of cities in the Birmingham area and around the state opting for sales tax increases to restock their coffers, it will only get worse for those families.

Original Post

September 18, 2011

WASHINGTON (Reuters) - Large U.S. corporations are pressuring Congress and the White House to exempt overseas corporate profits from taxes, a policy shift that critics say would hurt the economy and increase the federal deficit.

A fight is shaping up between supporters of territorial taxation, as this policy proposal is known, and opponents who favor a different reform -- repealing a tax law that allows corporations to defer paying taxes on their overseas income.

The two sides are facing off over an old and worsening problem -- how to fix the system for taxing companies' foreign income. Both sides agree the system is not working and a new approach is needed, but their solutions are direct opposites.

"A tax system that raises little revenue, but imposes high compliance and administrative burdens on taxpayers and the IRS is the very definition of a bad tax system. Unfortunately, that is the system we have," said Philip West, a former U.S. Treasury Department tax official, at a Senate hearing.

Case in point: business software and hardware giant Oracle Corp. Based in California, Oracle generates 60 percent of its nearly $36 billion in annual sales overseas.

Much of its overseas profit never comes home to the United States, however. Oracle has at least $20 billion in profits parked abroad avoiding taxation, and that is perfectly legal under the overseas income deferral law.

Oracle is a strong supporter of territorial taxation, along with many other Silicon Valley high technology companies, drug makers and other businesses with large foreign operations.

Under territorial taxation, in its strictest form, overseas profits of U.S. companies would be taxed only by the country where they are earned, no longer by the United States.

That would allow companies such as Oracle to bring home their active foreign business income tax-free or nearly so.

This would be a big change because, under present law, foreign profits are supposed to be taxed when they come home at the same 35-percent rate applicable to U.S. domestic profits.

The trouble is that many large multinationals -- like Oracle and others -- do not pay the full tax, or often any U.S. tax at all, on their foreign income.

That is because of the overseas income deferral law, which lets them put off indefinitely the payment of tax on active foreign earnings as long as the earnings remain abroad.

The solution to this problem is not to exempt those earnings permanently from U.S. taxation, say opponents of territorial taxation. Instead, they say, the solution is to repeal the overseas income deferral law.

That would make overseas profits immediately taxable, like domestic profits. And, proponents say, it would lift government revenues, perhaps making room for a corporate tax rate cut.

POSSIBLE SHIFT

The Obama administration is considering a limited version of territorial taxation, although details of its plan are still unclear, The Wall Street Journal reported on Saturday.

Multinational corporations have an estimated $1.5 trillion in profits parked overseas right now, avoiding taxes. They want to be able to bring those profits home tax-free, or with only a small tax hit, and they would like that arrangement to be permanent, as territorial taxation would accomplish.

Such far-reaching reform is unlikely to happen without broad tax reform. That is unlikely to come soon. Congress' "super committee" on deficit reduction, which had its first hearing on Monday, does not have enough time for tax reform and November 2012 elections will make it difficult, analysts said.

The White House's bipartisan Bowles-Simpson deficit reduction panel last year endorsed territorial taxation. Major corporate lobbying groups are banging the drum for it.

The business community is not solidly in favor, however. Multinationals tend to back it. Small and mid-sized companies with less to gain generally are not as enthusiastic.

"I'm a proponent of a territorial system," said Harvard Business School Professor Fritz Foley, citing his concern about other nations, including Japan and Britain, embracing it.

"Having said that, any move to territorial needs to be ... thought through quite carefully," he said.

As for the inevitable political firestorm that would accompany a major push for tax reform, Foley remarked:

"Anything is going to be a tough sell politically, but ... some adults need to stand up and say, here are the trade-offs, here is our fiscal reality, let's think about the best way forward ... My reading of the situation in Washington now is that we're not exactly close to that."

SOME COUNTRIES GO TERRITORIAL

The main argument made in territorial taxation's favor is that everyone is doing it, so the United States should too.

Territorial taxation has been adopted, in one form or another by Canada, France, Germany, the Netherlands, Australia, Switzerland, Japan and Britain. Not adopting it puts the United States at a competitive disadvantage, say its supporters.

"We are so out of step with the rest of the world right now. It is important for us to adopt a territorial system," said University of Michigan Law School Professor James Hines.

Others take a different view.

"I do not agree that we should go to a territorial system," said University of Michigan Law School Professor Reuven Avi-Yonah. "The United States has traditionally been a leader, not a follower, in international tax matters."

Nations that still have a worldwide system of taxation for foreign corporate profits, resembling the U.S. system, include Korea, Chile, Greece, Ireland, Israel and Mexico.

China, Brazil and India, growing economies with thriving manufacturing sectors, also tax the foreign income of their companies much the same way the United States does. "Those are our real competitors," not tax-haven nations, said Avi-Yonah.

A territorial system would prompt U.S. companies to shift offshore even more income than they already do and jobs would follow, worsening unemployment and the economy, critics say.

"Giving corporations a permanent tax exemption for their purported offshore profits will make things much worse. The only real solution is for Congress to do the opposite" and repeal foreign income deferral, said Bob McIntyre, director of Citizens for Tax Justice, a left-leaning tax watchdog group.

Original Post

September 10, 2011

by NPR Staff

The idea that America's 35 percent corporate tax rate is stifling U.S. economic growth is almost an article of faith among some politicians.

The sound bites from Republican presidential debates to campaign stops are basically interchangeable: "We need to bring that corporate tax rate down."

But in fact, very few corporations pay taxes on 35 percent of their profits. With the help of complex international tax loopholes, some companies manage to pay almost no corporate tax at all.

'Double Irish, Dutch Sandwich'

It's not necessarily big oil or pharmaceutical companies that are cashing in on complex offshore tax loopholes. In fact, the corporation with one of the most advanced tax-shirking techniques may have helped you find this very article: Google.

"If Google paid taxes at the full 35 percent rate on all of its profits, it would lose almost a quarter of its total profits," Bloomberg reporter Jesse Drucker tells weekends on All Things Considered host Guy Raz.

Drucker says the company saved more than $3 billion from 2007-2009 through a winding system of offshore subsidiaries. Google's not the only company that does this, he says; many other tech giants like Microsoft and Apple have similar structures. But Google's offshore tax rate — 2.4 percent by Drucker's count — bests its peers in the technology sector in ways that a retail giant like Wal-Mart could never hope to.

In 2003, Drucker says, Google transferred all of its non-U.S. intellectual property rights to a subsidiary in Ireland.

"From that point forward," he says, "any profits coming from sales overseas would be contributed not to the U.S. parent — where they would be taxed at a rate of 35 percent — but to the Irish subsidiary."

The corporate tax rate in Ireland? 12.5 percent.

But Google didn't stop there, Drucker says. The company used a financial tool known in the corporate tax world as the "double Irish."

"The Irish subsidiary pays royalties to a second Irish subsidiary," Drucker says, this one that declares its tax residency in Bermuda, where there's no corporate income tax.

Google faced another problem it had to work around. The company would have to pay taxes to move money directly from Ireland to Bermuda, Drucker says, so it used another tool known as the "Dutch sandwich."

"So the payments go from the Irish sub to the Dutch sub to the Bermuda-resident Irish sub," Drucker says.

"The combination of these strategies has helped Google cut its effective tax rate overseas to the low-single-digit rate," he says.

Bermuda Or Bust

Google, like most corporations, will be the first to tell you that this is all completely legal under U.S. tax law.

"We have an obligation to our shareholders to set up a tax-efficient structure, and our present structure is compliant with the tax rules in all the countries where we operate," a spokesperson told NPR.

To some politicians and economists, that sounds like a good reason to lower the U.S. corporate tax rate and draw Google's profits back home.

But draw them from where?

"We know that the corporate income tax rate in a number of countries overseas — even in our competitors, in the G-7 countries — is in the mid- to high-20 percent range," Drucker says.

"U.S. companies are not shifting income into those countries. They are not shifting income into the U.K., France and Italy. They are shifting income into Bermuda and the Cayman Islands," he says, "jurisdictions where there is no corporate income tax at all."

"If that's the case, it seems to me that it raises questions about whether cutting the U.S. corporate income tax rate would do anything to change any of this behavior," Drucker says.

Taxes On Holiday

All of Google's crafty accounting applies only to profits it collects overseas.

Consumer advocate Ralph Nader says the situation in the U.S. isn't much better.

He cites a recent report by the liberal Citizens for Tax Justice, which lists 12 corporations that — thanks to various loopholes, subsidies and other advantages written into the tax code — paid zero federal income taxes over the last three years.

"This is a seismic change in what might be called any semblance of U.S. corporate patriotism," Nader says.

So what would a fair corporate tax rate look like?

"I think we need to get back to where the OECD countries are, in the low- to mid-20s," says economist Stephen Slivinski of the conservative Goldwater Institute, referring to the international Organization for Economic Cooperation and Development.

If that happens, Slivinski says, "you could probably see some kind of capital coming back into the U.S."

Drucker says that even under a proposed corporate tax holiday that would allow major U.S. corporations to bring profits home at a low rate of around 5 percent — marketed by the likes of Cisco and Pfizer as a "second stimulus" — Bermuda and the Cayman Islands would still offer lower rates.

A similar tax holiday in 2005 wasn't very productive at all, he says.

"All of the cash brought back from overseas was used to buy back stock and give companies a boost in their stock prices," Drucker says. "It wasn't used to hire people and build factories."

Original Post

September 9, 2011

by Tyler Kingkade

WASHINGTON -- Listening to Republicans on the campaign trail or the House floor, one might think the quickest way to eliminate the deficit is to make Americans who earn the least pay more in taxes. "Part of the problem is today only 53 percent pay any federal income tax at all; 47 percent pay nothing,” Rep. Michele Bachmann (R-Minn.) told a crowd in South Carolina, repeating a conservative meme. "We need to broaden the base so that everybody pays something, even if it’s a dollar."

Beyond Bachmann, the idea has been spread by Republicans from Texas Gov. Rick Perry, Florida Sen. Marco Rubio and former Utah Gov. Jon Huntsman to members of the House and Senate leadership. It was brought up again in Wednesday's GOP presidential debate by other candidates.

"Daily Show" host Jon Stewart recently zinged the GOP for its relentless focus on the poor, noting that even if the government took absolutely everything the bottom 50 percent owned, it would still raise only about $700 billion (never mind the starvation that would result).

But that's wealth. What about income? What if the government taxed those who Republicans say are getting off scot-free at the rate of 50 percent of all they earned and disallowed deductions? How much would that raise?

Not that much.

Using data from the Internal Revenue Service compiled by the Tax Foundation, a HuffPost analysis found that if the bottom 50 percent of Americans (those earning less than $33,048 a year) had their gross income taxed at a flat rate of 50 percent, the government would net around $537 billion. However, taxing the top 1 percent (earning $380,354 or more) at the same 50 percent rate would rake in about $843 billion.

The gross income figures in this analysis include capital gains -- more likely to be a source of income for the top 1 percent -- which are currently taxed at lower rates than income. Of course, no one is seriously pushing the idea of taxing the richest 1.4 million Americans at a 50 percent rate.

This analysis also uses a 50 percent flat tax, rather than the current progressive tax rates. The flat tax is another idea championed by conservatives and Republican presidential candidates. Even at the lower flat tax rate that conservatives propose -- 17 to 20 percent usually -- the money raised from the bottom 50 percent of Americans would still pale in comparison with how much the top 1 percent would pay in total. Yet such a rate would represent a significant tax increase on the bottom 50 percent, in some instances doubling their burden, while cutting taxes on the wealthy almost in half.

The suggestion to return to the Clinton-era top marginal rates on the richest Americans alone would send an addition $72 billion pouring into federal coffers annually, according to Citizens for Tax Justice.

To see the wealth gap from another perspective, consider that the net worth of the bottom 60 percent of all U.S. households, roughly 100 million households, is lower than that of the Forbes 400 richest Americans -- an analysis confirmed by various economists for PolitiFact.

Further, the amount raised over 10 years by increasing tax rates on the top 2 percent of Americans to the rates that prevailed in the Clinton era would be greater than half the net worth of the bottom 60 percent of U.S. households. Ending the Bush tax cuts for those households earning more than $250,000 would add almost $830 billion to U.S. coffers over 10 years, after factoring in the cost to finance the debt.

The Tax Policy Center said the Bush tax cuts, which lowered the top tax bracket from 39 to 35 percent, have cost the United States more than $2.3 trillion since they were enacted. The Center on Budget and Policy Priorities has shown that the Bush tax cuts, if extended, would become the largest contributor to the deficit within a decade.

And, of course, the argument that half of Americans aren't paying federal income tax ignores a host of other levies, including federal payroll taxes, as well as various state taxes the poor cannot escape -- such as income, sales, property and gas taxes -- which are actually paid at a similar rate across all income levels.

Original Post

August 9, 2011

by Zach Carter

Includes VIDEO of CTJ's Rebecca Wilkins

WASHINGTON -- During a Monday press conference addressing Standard & Poor's downgrade of U.S. debt, President Barack Obama reaffirmed his commitment to raising taxes on the wealthy. But as he pushes to get the rich to pay more into federal coffers, Obama is also urging Congress to approve a trade agreement that would cement a key tax avoidance tactic deployed by some of the richest Americans.

"What we need to do now is combine those spending cuts with two additional steps: tax reform that will ask those who can afford it to pay their fair share and modest adjustments to health care programs like Medicare," Obama said during the address, referring to steps the U.S. should take in addition the cuts agreed to to raise the federal debt ceiling.

Just two days before, during his Saturday radio address, Obama urged Congress approve three trade deals, including one with Panama that would permit Americans to easily stash assets in the Central American country, a notorious tax haven for the wealthy and American corporations.

"It’s time Congress finally passed a set of trade deals that would help displaced workers looking for new jobs," Obama said, "and that would allow our businesses to sell more products in countries in Asia and South America -- products stamped with three words: Made in America."

But Panama's entire annual economic output is around $26.7 billion a year, according to The World Bank -- only about two-tenths of one percent of the U.S. economy -- making the effect on jobs minuscule at best. Some economists expect other agreements with South Korea and Colombia to create net job losses in the U.S., as corporations ship American jobs overseas to take advantage of cheaper labor.

It may not have a large economy, but Panama does have some of the most stringent bank secrecy laws in the world, making it extremely easy and inexpensive for U.S. citizens to set up offshore corporations and bank accounts. Establishing the corporation and bank account costs less than $2,000, and any money that Americans stash in these entities is not taxed. Bank secrecy laws and extremely lax corporate registration standards make it very difficult for the Internal Revenue Service to track transactions transferring funds to these Panamanian destinations from the United States. Small surprise, then, that Panama is home to nearly 400,000 offshore corporations, more than any other nation except Hong Kong.

"A tax haven . . . has one of three characteristics: It has no income tax or a very low-rate income tax; it has bank secrecy laws; and it has a history of noncooperation with other countries on exchanging information about tax matters," said Rebecca Wilkins, senior counsel with Citizens for Tax Justice, a nonpartisan nonprofit dedicated to improving U.S. tax policy. "Panama has all three of those. ... They're probably the worst."

The trade agreement with Panama would effectively bar the U.S. from cracking down on this activity. The U.S. would not be allowed to treat Panamanian financial services transactions differently from transactions in nations that are not tax havens. It would also be unable to pursue some standard anti-money laundering techniques in Panama. Combating tax haven abuse in Panama would be a violation of the trade agreement, exposing the U.S. to fines from international authorities.

"It directly undermines Obama's putative domestic agenda of job creation, cracking down on tax havens and collecting revenue from tax-dodging corporations," said Lori Wallach, Director of Public Citizen's Global Trade Watch. "The [free trade agreement] would forbid future use of existing policy tools to combat financial crime."

The deal with Panama was first negotiated by President George W. Bush in 2007, but in April, Obama met with Panama President Ricardo Martinelli to announce the signing of a new information sharing agreement as part of the broader deal to help facilitate tax enforcement.

"Thanks to the leadership of President Martinelli, there have been a range of significant reforms in banking and taxation in Panama," Obama said. "And we are confident now that a free trade agreement would be good for our country, would create jobs here in the United States."

But the tax enforcement agreement amounts to little more than a gesture, relying on a decades out-of-date framework that is not very effective at recovering lost tax revenue. Thanks to the TIEA, American tax officials can now obtain tax information on U.S. citizens stashing money in Panama. That's great -- if they already know which citizens are using Panama-based schemes to dodge U.S. taxes. But, of course, the IRS doesn't actually know who is doing this -- if it did, it wouldn't need to gather bank account information in the first place.

"The Tax [information] Exchange Agreement that we've executed with Panama is really weak," said Wilkins. "There's just a lot of reasons why it's not going to be very effective."

The U.S. has negotiated much more helpful TIEAs with other countries in the past. The IRS, for instance, is automatically notified whenever U.S. taxpayers deposit money in a Canadian bank, making it effectively impossible for a U.S. citizen to hide money in Canada.

Raising taxes on wealthy Americans, of course, will have little effect if those same citizens can simply hide funds from the IRS in Panama.

While the IRS is starved for information on U.S. individuals hiding money in Panama, it has the opposite problem among U.S. corporations. In 2008, the Government Accountability Office issued a report noting that 17 of the 100 largest American companies were operating a total of 42 subsidiaries in Panama, suggesting that these subsidiaries could be used to help firms skimp on their U.S. tax bills.

But while the IRS knows that firms are operating in Panama, it doesn't have the resources to investigate or prove that the offshore activities of U.S. companies are devoid of economic substance other than tax-dodging. While 17 of the 100 largest corporations were operating Panamanian subsidiaries, a total of 83 were operating sub-companies in nations the GAO labeled as tax havens, with some corporations using dozens of different subsidiaries.

According to the Bureau of National Affairs' Daily Tax Report, IRS official Samuel Maruca told an audience at a National Association for Business Economics conference that his agency didn't have enough funding to chase cases of "transfer pricing" abuse -- a technique in which U.S. corporations sell their own goods to foreign subsidiaries at bizarre prices in order to reduce their tax bills.

"To put it bluntly, we can't afford to pursue every case -- even cases that may have considerable merit," the official said. "We have to be strategic about where we are willing to invest our resources."

The U.S. Chamber of Commerce and the Business Roundtable, two lobbying groups pushing hard to approve the Panama deal, declined to comment for this article.

Original Post

September 9, 2011

by Wayne Ruple

U.S. Congressman Mike Rogers told diners in Jack’s Restaurant in Heflin last week that a lack of jobs is America’s biggest problem coupled with consumer confidence.

And to help remedy the problem Rogers said he is supporting a bill dealing with manufacturing which he hopes, if passed, will bring many factories back to America.

He said the bill exempts any manufacturer from paying taxes for the first two years they come back into the states and also reduces the regulations they would be under.

“The workers will pay taxes,” he said while pointing out that such a program has worked in Alabama with many of the auto industries. “It’s been a boon for us. They pay no taxes” he said of the auto manufacturers, while workers pay taxes on their salaries and then what they have left over trickles down into the economy. “I’m excited about that,” he added.

But according to GoodJobsFirst.org “Alabama’s remarkable tax giveaways have not brought the state broad prosperity; indeed, it still has one of the nation’s highest poverty rates.” Since 1993 Alabama has spent roughly $1.4 billion of taxpayer’s money subsidizing some of the worlds wealthiest companies to locate here including ThyssenKrupp, Mercedes-Benz, Honda, Hyundai and Wal-Mart.

But “trickle down” doesn’t always occur as planned. An article in savannahnow.com notes that “serious growth never came” to the small community of Vance, where Mercedes-Benz located it’s plant. “The plant is ringed with unsold land” – some of which jumped to $10,000 per acre, notes the article. And an assistant vice president of First Financial Bank in Vance told savannahnow.com that a planned housing development was an “immense failure.”

“Whether it (giving Mercedes $430 million in subsidizes) was an appropriate use of public tax dollars remains an issue,” noted savannahnow.com. Alabama even agreed to pay workers for first years on the job and spent an estimated $220,000, including training, per worker as most of the jobs paid around $60,000 per year.

In 2008 the plant reduced production, shortened the paid workweek to four days and offered buyout packages. Last year the company needed more workers but decided to use 500 temporary workers.

And while bringing good pay to workers, each facility over time has had ups and downs including Honda, who in 2009, cut their output in nearby Lincoln and “workers forced to take unpaid leave and were offered buyouts,” due to economic downturns. GoodJobsFirst.org says “Wal-Mart was found to have more workers than any other employer in the state relying on publicly-funded health insurance."

Rogers also stated that a major problem in the states is that the US has the “highest corporate tax rate on the planet of 35 percent.”

However, The Week magazine for Sept. 2 in a “Briefing” article noted that while the rate is the highest in the world, “In reality, most U.S. companies pay far less by exploiting tax breaks and hoopholes” until some pay no more than 4.5 percent or less.

What the lunch crowd at Jack’s were not told is that of the 500 major companies on the S&P stock index, 115 companies paid less than 20 percent over the past five years.

And as the “Taxing corporations” story pointed out, “Nearly 40 paid less than 10 percent” with Boeing, a company mentioned in Roger’s presentation, paying a mere 4.5 percent on profits for the past five years.

Capital IQ reports that General Electric will pay little or nothing, thanks to its 975 lawyers and accountants, on its $14.2 billion in global profits.

And what might come as a greater shock to the fried chicken and hamburger eaters is that during the 1950s 30 percent of all federal taxes came from businesses but now only a mere 9 percent of federal revenues come from corporations – a paltry $191 billion compared to individual taxpayers who must pay $899 billion or 91 percent of the tax burden.

“It’s unpatriotic, it’s unfair, and we can’t afford it” Samuel King of the Greenlining Institute told The Week. King said Congress is willing to cut Medicare, Social Security, food safety, education and health without collecting additional monies from the wealthy corporations.

Said The Week, “It is estimated that U.S. companies have parked more than $1.5 trillion offshore” to prevent paying taxes.

Citizens For Tax Justice issued a report in June listing 12 major Fortune 500 companies that pay an effective tax rate of negative 1.5 percent on $171 billion in profits while reaping $62.4 billion in tax subsidies from the government.

According to the CIA’s Gini Index the distribution of income and wealth in America is among the worst on earth. America has a rating of 45 while the worst country on earth with the largest difference between rich and poor is Namibia with a 70 rating and the best nation is Sweden with a 23 rating. Nations with better ratings than the US include Iran, Nigeria, Russia, Jordan, Ghana, Yemen, Vietnam, India, Egypt, Algeria and other so-called Third World nations.

In his speech, Rogers said Gibson Guitar has been “raided by the feds and told to move to Malaysia.”

Indeed, according to The Wall Street Journal, Sept. 1, 201l, federal authorities have raided Gibson but no charges have yet been filed. The feds claim ebony exported from India to Gibson was “fraudulently” labeled to evade Indian export laws. Gibson has worked with environmental groups to demonstrate responsibility in forestry issues and a spokesman told the Journal that a wood broker may have made a mistake. There was no mention in the article that government officials told Gibson to leave America.

Rogers said that during the last election, Americans said they wanted the spending and borrowing to stop in Washington. “There has been a lot of stuff stopped, but there hasn’t been much passed,” he said.

And with the nation $15 trillion in debt, he expects talks in Washington to start getting very ugly. “One party wants to spend less, one wants to spend more,” he added. “The credit card is maxed out. We have got to get spending down and revenues up. We’ve got to repeal Obamacare and repeal the Dodge/Frank bill” ( supposed to have restrictions preventing a future Wall Street financial meltdown)

But istockanalyst.com noted in a July 19, 2010 article that, “history will likely judge the financial overhaul bill that president Obama will soon sign into law as a major dodged bullet for Wall Street -- and a time when its army of Capitol Hill lobbyists really earned their pay.”

Rogers said Social Security and Medicare are “worthy” of trying to maintain but “The administration is trying to do through regulation what they can’t do by statute.”

McClatchy Newspapers recently surveyed a random sample of small business owners across the nation and found that regulations and taxes were not their problems – rising insurance costs and bureaucracy to secure government backed loans seemed to be the major stumbling blocks..

During a question/answer period one man asked why there is always talk in Washington about cutting Social Security and other benefits but not the pay of congressmen and senators. “Why are there always cuts to the poor and disabled since they are easy targets. Why not make cuts elsewhere,” asked the man who suggested a 30 percent cut in pay for Rogers and a reduction in his staff of 18.

Rogers responded, “You want live people you can deal with when you call my office. If you are not happy you can run me off if you don’t like the way I do it,” while adding that congressmen haven’t had a raise. “We cut them. We haven’t got a raise in three years. I don’t need this job. I took a pay cut. We want to make sure that those who are getting Social Security and disability benefits aren’t scamming the system and get rid of them. There is a lot of that going on. The system perpetrates it.”

Rogers agreed that the Republicans spent too much in past years but suggested Democratic spending is “on steroids.”

Cleburne County Commissioner Emmett Owen questioned Rogers about high gas prices that are “killing the working people.” He added, “I see it everyday. People can’t afford to come to work or get off unemployment because they can’t buy groceries and take care of kids with these high gas bills.”

Owen also suggested maybe it is time for term limits on senators who “get all this power and you can’t get them out.”

“You can run me off anytime you want but it is a seniority based system in Washington – it is driven by seniority. You can run everybody off and you will not get the time of day,” said Rogers.

On lowering gas prices, Roger said, “We need to get the tree huggers out of our way and start drilling off the coast of Florida, Virginia and South Carolina. Cuba has already given rights to China. The biggest thing in the US is that the administration (Obama) will not let us. We’ve got enough natural gas.”

Owen said there are thousands of wells off the coast of Alabama that are being leased to foreign countries and questioned why American companies are not getting tax incentives to drill or open capped wells.

Rogers said “Obama gave $2 billion to Brazil to help them drill. If we had drilling there would be competition” to drive down prices. “Competition is going to bring it down,” he said. “We can make a car that runs on water (hydrogen) but we’re only spending $4 billion on new energy. We’ve got to incentify” and indicated that, with the governments’ help new energy saving, non-gas, vehicles could be produced at an affordable price.

Another man asked Rogers how much the nation was in debt when Obama took office and after the nation borrowed money for two wars. “Obama came into office with debt” the man said.

The Washington Post recently reported that between 2001-2009 the defense budget rose by 70 percent to $699 billion and the US spends, “more on defense than the planet’s remaining countries put together” with much paying for the military’s “socialist economy” and wasteful weapons programs.

Roger’s said one of his greatest accomplishments while in office is the Medicare Part D that provides prescriptions drugs for seniors. “I don’t make any apologies,” he said.

One local resident, skeptical of global warming, said that American businesses would be far better off if the government would stop passing regulations that affect them. “Follow the money trail – there is no global warming. We are all smart enough to make our own decisions,” she said.

Rogers agreed, saying that her comments were “music to my ears” because he feels Americans can mass produce hydrogen powered cars to get the nation off of reliance on oil.

Another local resident said it cost Exxon Mobile about 60 cents per gallon to get crude from the well to the pump. “Gas prices have nothing to do with supply and demand. It is all about what goes on in the commodity exchange. Why can’t we make these people (on the commodity exchange) be buyers and sellers instead of gamblers? And talk about taxes, Wal-Mart pays no taxes. Exxon Mobile doesn’t pay a dime in taxes. Their CEO received $987 million in perks and not taxed. Most all businesses located overseas don’t pay taxes. Why are they getting a free ride? As for Obamacare, the US government pays health care on over 100 million people and private health care providers make 50 percent profit. Why are we running health care insurance through private companies so they can get rich and nickel and dime you? You (politicians) all are letting insurance companies rip the taxpayers off. Bush was in office for eight years and his administration was one of the most corrupt in American history. Bush left with $1.8 trillion budget deficit debt that Obama inherited. And, why don’t we put the brakes on the wars?”

Rogers responded by saying he would like to see the country go to a flat tax. “We ought to have a flat tax with no shelters, no nothing. That is the only way to be fair. GE made $26 billion last year and paid zero in taxes. It’s not fair,” he said.

However another resident took exception to that idea saying that contributions to colleges would fall because people who make a lot of money make donations to colleges.

Another resident said he feels many congressmen and senators are so old that they don’t know what they are voting for while another man suggested that voters should start writing letters to all congressmen and senators “and the idiot on Air Force One.”

Asked about signing pledges, Rogers said he had only signed a pledge and that was the first year he ran. He said he now has a voting record that can be checked and confirmed. “I am 100 percent NRA, 100 percent anti-abortion and I’ve never voted for a tax increase,” he said.

And while noting that America has many problems, he ended his presentation by saying that “We are the envy of the world.”

Original Post

August 30, 2011

Aug. 31 (Bloomberg) -- Twenty-five of the nation's best- paid chief executive officers earned more in salary and other compensation in 2010 than their companies' federal income tax expenses as disclosed in public filings, according to a report by the Institute for Policy Studies.

The Washington-based nonprofit group's report, released today, examined 100 publicly traded U.S. corporations with the highest-paid CEOs. It found that companies whose CEOs' compensation exceeded reported tax expense in 2010 had average global profits of $1.9 billion.

Companies in this group, according to the report, included EBay Inc., General Electric Co., Verizon Communications Inc., Boeing Co. and Dow Chemical Co.

The tax expense reported in annual financial statements can differ from actual tax payments, which are confidential, for a variety of reasons.

The group said its findings underscore the need for an overhaul of the U.S. tax code that would reduce the number of tax strategies available to companies, especially their ability to lower tax payments by parking profits overseas.

"Tax reform has to close up some of these loopholes and the offshore system," Chuck Collins, one of the report's authors, said in an interview. "We might be able to lower the overall corporate rate by broadening the base."

Eighteen of the 25 companies mentioned in the report operated subsidiaries in countries known as offshore tax havens, Collins said.

Tax-Avoidance Practices

Legislation proposed by Senator Carl Levin, a Michigan Democrat, would eliminate many of the tax-avoidance practices used by companies in the study, Collins said.

"Businesses and CEOs shouldn't be rewarded for so aggressively avoiding their responsibility to pay taxes," he said.

Twenty of the 25 companies on the institute's list reported spending more on lobbying Congress than they did on federal taxes, the organization said. Data for the report was taken from annual reports and other public filings. The institute's website says it works to promote a society based on "justice, nonviolence, sustainability and decency."

The report echoes some elements of a study released in May by Citizens for Tax Justice, a Washington-based nonprofit group backed by labor unions, which said 11 U.S. corporations reported $62 billion in domestic profits while paying a negative 3.6 percent tax rate in 2010.

Original Post

August 31, 2011

by Michael Hiltzik

Criticism of low earners who pay no federal income tax is in fact a not-so-veiled assault on government aid for those in need.

Amid the crowd-rousing shorthand employed by some American politicians, surely one of the hardiest chestnuts is the notion of the "undeserving poor."

You know the spiel, which plays to old and discredited stereotypes. It defines welfare recipients as spongers, drunks, tomcats and loose women; anyone with a swarthy visage or Hispanic accent as likely an "illegal immigrant"; anyone on unemployment as a lazy good-for-nothing; anyone receiving government assistance (other than bankers and oil company executives, of course) as a chiseler.

The most modern variation on this theme aims to be somewhat more politically correct by branding these people as "non-taxpayers."

There's a tiny kernel of truth nestled within this phrase. According to the most recent calculations by the nonpartisan Tax Policy Center, about 46.5% of all tax filers pay no federal income tax. That's a bit down from the peak of 50.8% reached in 2008 and 2009, but up from 39.9%, the figure for 2007. And it's way ahead of the 21% to 26% range during the 1990s, as calculated by the nonpartisan Tax Foundation.

The number has inspired a new talking point for anti-tax conservatives. Their claim is that relieving half of all taxpayers of the burden of taxation reduces the constituency for tax reform — the half of all voters who don't pay tax have no incentive to improve the system.

This is a transparently false rationale: The politicians making tax policy are now and have always been far more sensitive to the desires of the taxpaying sector, especially the wealthiest of them, than to the low-income earners, seniors, and students who constitute almost all of the non-taxpaying group.

It's far more instructive to view this argument in the historical context of the "undeserving poor" meme. In olden times, before taxes became such an obsession of policy wonks, the label was most often applied to relief clients, especially when politicians or the newspapers found people collecting welfare while living high on their own wealth — the "lady in mink" phenomenon, as it was known after the New York papers turned up said lady wearing said garment to collect a check at her local welfare office in 1947.

The New Yorker's legendary press critic A.J. Liebling subverted the whole yarn in a piece memorably entitled "Horsefeathers Swathed in Mink." He determined that despite having collected a five-figure divorce settlement many years before, the woman now depended for survival, along with her 5-year-old daughter, on $5.40 a day from the city welfare department. The mink was a ratty and torn old thing worth a few hundred bucks.

Liebling identified the underlying theme of all undeserving-poor narratives: "that the poor are poor because of their sins and whatever they get is too good for them." He might have added a corollary widely favored today especially by the GOP, that the rich are rich because of their inherent virtues and whatever they get is barely enough, because they're our "job creators."

Leaving aside the sad fact that the wealthy haven't created so many jobs lately even though their top marginal income tax rates are at their lowest level since 1992, it's not hard to draw a line between the 1940s view of the poor and contemporary discussions of tax policy. The Wall Street Journal editorial page did it succinctly in 2002, when the percentage of non-paying tax filers was about 30%. The editorialists labeled these people, almost all of whom were gathered at the lowest end of the income scale, as "lucky duckies" and attributed their good fortune, dismissively, to "a welter of tax credits for things like child care and education."

What's most important to keep in mind is that this critique of tax policy is necessarily selective. For one thing, the Journal's pundits didn't pay any attention to the luckiest duckies of all — wealthy non-taxpayers. The Tax Policy Center calculated that in 2009, about 123,000 tax returns reporting cash income over $200,000 also reported owing zero federal income tax — including 6,000 returns showing income over $1 million.

Moreover, by focusing on the federal income tax, which is progressive (it levies proportionately more on the wealthy than the not-so-wealthy), the critique overlooks the strongly regressive slant of the other taxes, including state and local taxes, paid by the middle class and working class. The most comprehensive analysis of state and local tax burdens comes from the Institute on Taxation and Economic Policy, another nonpartisan tax policy think tank. (How many of these things are there in Washington?)

The institute's figures show that the poor are hardly objects of envy. In its most recent survey, the institute found that in 2007, the lowest 20% of income earners (earning less than $18,000 and averaging $10,700) paid an average 10.9% of their income in state and local taxes. The biggest bite was sales and excise taxes, which took 7.1%, followed by property taxes, which even renters pay through their rent, at 3.7%. Income taxes come in last, at 0.2%. If you apply the theory that tax exemptions make the poor uninterested in tax policy, these figures should dispel that. They pay plenty.

The state and local tax burden declines pretty steadily as one rises along the income ladder. The rich don't pay nearly as high a proportion of their income as the poor. The top 1% of earners, who made $476,000 or more and averaged $1.8 million in income, paid an average of 5.2%, after deducting state and local taxes from their federal tax bills. The pre-deduction total comprised 4.2% in income tax, but only 0.9% in sales and excise taxes and 1.4% in property taxes.

Among major federal taxes, only income taxes are progressive. The effective personal income tax rate in 2007 for the lowest 20% was a negative 6.8%, thanks to all those tax credits that drive the Wall Street Journal's editorialists up the wall. For the top 1%, it was 19%. Corporate income taxes are also progressive, though it's harder to attribute them consistently to individual taxpayers.

But payroll taxes, especially for Social Security, helped narrow the difference: the effective Social Security and Medicare tax rate for the lowest 20% of wage earners was 8.8%, and for the top 1%, only 1.6%. That's because Social Security tax is levied only on the first $106,800 of wage and salary income; the further your wages rise beyond that point and the more your income comes from dividends, interest, or capital gains, the lower your effective rate.

An unspoken subtext of the non-taxpayer argument is resentment over how the tax code has become the instrument for delivering government assistance to the needy. The underlying idea of proposals such as the flat tax is that taxes should be economically neutral — designed to raise revenue, period, not to promote any particular government policy.

But why? Taxation is the most effective way of communicating policy choices, and the most efficient. If the government decides it should assist the poor, why not use an established bureaucracy to get the checks out? (Social Security is a special case, since its bureaucracy manages a discrete revenue stream.) The Supreme Court has upheld the taxing authority of the federal government for almost any purpose, which is why we have tax provisions favoring homeownership, retirement security, and oil and gas exploration, among other things.

So let's not forget what's the real issue in the debate about non-taxpayers. It's antagonism toward the government for helping out those in need. If anyone tells you anything else, that's horsefeathers.

Original Post

August 30, 2011

by George E. Curry

If there was ever any lingering doubt that Republicans favor the rich over poor and middle-class Americans, it should be removed by the GOP’s opposition to President Obama’s proposal to extend the payroll tax cut for another year.

Let’s face it: Republicans oppose almost everything advocated by the nation’s first Black president. And Republican leaders have made it clear that their top priority is defeating Obama in 2012, even if that means wrecking the country in the process.

Whether it was coming up with a budget compromise last December or the most recent round of deficit haggling, Republicans have adamantly refused to roll back the tax rate for the wealthiest 2 percent of Americans to the pre-George W. Bush level. That move alone would cut the federal deficit by half. GOP leaders also refuse to close tax loopholes that allow some U.S. companies to pay little or no federal taxes.

Last year, Congress approved President Obama’s 1-year plan to reduce the share of payroll taxes designated for Social Security from 6.2 percent to 4.2 percent. Now, Obama is proposing adding another year, a move that would affect 46 percent of all taxpayers, saving the average family $1,000.

But Republicans, who, until now, had never met a tax cut they didn’t like, are balking.

Republican Sen. Lamar Alexander of Tennessee said: “We don’t need short-term gestures. We need long-term fundamental changes in our tax structure and our regulatory structure that people who create jobs can rely on.”

A spokesman for another Republican, Eric Cantor, told the Associated Press, that the House majority leader “has never believed that this temporary tax relief is the best way to grow the economy.”

Republicans are conveniently ignoring the fact that the Bush tax cuts, enacted in 2001 and 2003, were supposed to be temporary. When they were set to expire, both Republicans and President Obama extended them.

When he was a candidate, Obama pledged to end the Bush tax cuts for the top 2 percent of taxpayers – individuals earning at least $200,000 a year and couples making $250,000 or more. Under pressure from Republicans, however, Obama agreed last December to extend the cuts.

According to Citizens for Tax Justice, 52.5 percent of the Bush tax cuts benefit the richest 5 percent of taxpayers.

David Stockman, the budget director in the Reagan administration, called for letting the Bush tax cuts expire and said the rich are getting richer while the poor are getting poorer. In an interview with 60 Minutes, he said: “In 1985, the top 5 percent of the households, the wealthiest 5 percent, had a net worth of 8 trillion dollars, which is a lot. Today, after serial bubble after serial bubble, the top 5 percent have a net worth of 40 trillion.”

Republican National Chairman Ed Gillespie defends the GOP’s defense of the wealthy by contending that 80 percent of the tax relief to the rich goes to job-creating small businesses. FactCheck.org debunks that myth.

“It may be true that 79% of upper-income taxpayers have some income from business, but Gillespie’s definition of ‘small’ business actually includes big accounting firms, law firms and real-estate partnerships, and ‘businesses’ that are really only sidelines – such as occasional rental income from a corporate chief’s condo,” it said. “In fact, tax statistics show that upper-income taxpayers get more of their income from salaries, capital gains, stock dividends and interest than they do from small business.”

The Tax Policy Center found that slightly more than 22 percent of income reported by the wealthy will be derived from business income.

According to the Congressional Budget Office, providing tax cuts to the wealthy is the least effective way to stimulate the economy because rich people are more likely to save the money. A more effective way to encourage spending is by placing money in the hands of poor and middle-class citizens, people more likely to spend the funds.

And that’s exactly what President Obama seeks to do by extending the payroll tax cut, which would benefit almost half of all Americans. If it is not extended, it will expire Jan. 1.

Social Security payroll taxes apply only to the first $106,800 of wages. Many people are unaware that the rate was reduced by 2 percent last year because they pay little attention to their pay stubs. The employer’s share was not reduced from its rate of 12.4 percent for each worker.

Many Republicans have put themselves in a box by pledging to never raise taxes. Over the past 25 years, Grover Norquist, president of the conservative Americans for Tax Reform, has encouraged Republicans to sign a pledge that they won’t raise taxes. More than 200 members of Congress have signed that pledge.

Republicans have voted against letting the Bush tax cuts expire because, according to their reasoning, that would amount to a tax increase. Many of those same Republicans, however, object to extending the payroll tax cut proposed by Obama. It shows how far Republicans are willing to go to protect the wealthy, to oppose Obama, and to be insensitive to the poor and middle-class.

Original Post

August 27, 2011

by Bernie  Becker

The back-and-forth over a proposed corporate tax holiday continues.

Citizens for Tax Justice, a liberal group, is the latest to jump back into the fray over a proposed corporate tax holiday, releasing a report that found that 20 large U.S. multinationals have tripled the amount of profits they have offshore in the five years or so since the end of a previous tax holiday.

“Rewarding corporations that shift profits to offshore tax havens is a terrible policy,” CTJ, which also has significant ties to organized labor, said in its Friday report. “It was tried before, it failed, and it should not be repeated.”

The study found that Johnson & Johnson, for instance, held $37 billion outside of the United States at the end of 2010, up from $11.9 billion in 2005. Hewlett-Packard’s offshore holdings, meanwhile, zoomed from $1.2 billion in 2005 to almost $22 billion in 2010.

CTJ was responding to an analysis released this week by the New Democratic Network, another left-leaning group.

In its study, NDN suggested that it did not believe that enacting a second repatriation holiday less than a decade after the first would encourage corporations to shift more profits to other locations, as critics of the idea have said.

And, unlike a congressional analysis released this year, the group also projected that the holiday would raise revenue — close to $9 billion over a decade.

The dueling reports come as such corporations as Apple, Cisco, Google and Oracle are lobbying hard for another crack at a repatriation holiday, with proponents saying the idea is one of the few feasible options policymakers have right now to inject new capital into the struggling economy.

One of the current proposals would, as the previous holiday did, allow multinationals to bring profits home from abroad at a 5.25 percent tax rate, instead of the top corporate rate of 35 percent.

Groups of both Democrats and Republicans on Capitol Hill have either publicly backed or sounded open to the idea of a holiday — including a pair of lawmakers who don’t often find common ground, House Majority Leader Eric Cantor (R-Va.) and Sen. Chuck Schumer (N.Y.), the chamber’s No. 3 Democrat.

But the idea also has strong opponents in Congress, with foes citing reports that showed that companies used the last holiday more for stock buybacks and dividend payments than to create jobs.

The Obama administration has also said it will look at the idea only as part of a broader overhaul of the corporate tax code. And some major corporations, including IBM and Caterpillar, have signaled that they believe the repatriation push might distract from the bigger prize of tax reform.

In its study released Thursday, NDN challenged the findings of a report released this year by Congress’s nonpartisan Joint Committee on Taxation, which found that a new holiday could lose close to $80 billion over a decade.

In particular, the NDN report — authored by Robert Shapiro, a Clinton administration official, and Aparna Mathur — took issue with JCT’s projection that corporations would park more profits offshore in the aftermath of another holiday, in preparation for future ones.

The study was also skeptical that, as JCT believes, corporations would hurry to bring profits into the United States at holiday-level tax rates that would have eventually repatriated at the regular tax rate. According to NDN, repatriated profits did shoot up during the 2004 holiday, but then basically returned to pre-holiday levels.

As for CTJ, it’s clearly more on the side of the Joint Taxation Committee, declaring that the NDN report “assumes away” the idea that corporations would build up offshore profits in anticipation of future holidays.

Using annual corporate reports, CTJ found that 20 American corporations greatly increased the amount of profits they held since the 2004 holiday ended, from $152 billion in 2005 to $426.5 billion in 2010.

Of course, given increased globalization, the companies would almost certainly argue that they hold profits in other countries for more than just tax reasons.

Original Post

August 26, 2011

Staff Editorial

Don't ever let anyone tell you the government can't afford Pell Grants to help you go to college, because it's not true. It is a lie that some are attempting to make true by sheer repetition, and your ability to afford your college education may depend on how many people they are able to convince.

There is no excuse for cutting financial aid at a time when tax rates on millionaires and billionaires are at a historic low.

The Pell Grant is a grant from the federal government for undergraduates in financial need and "is generally considered to be the foundation of a student's financial aid package," according to the department of education.

"Spending cuts" has been Washington's mantra for well over a year. In April, Congress passed a budget agreement which cut funding for Pell Grants and ended year-round Pell Grants, designed to help students complete college faster. The Republican plan would have cut $5.7 billion from the program, reducing the maximum award by $845 per year, according to US News.

It it very likely we will hear calls for further cuts in the coming year; elections are little more than a year away.

Most undergraduate students started college after the recession hit in late 2007. They have only known higher education in the context of a nation "needing to tighten its belt."

Yes, the federal government is deeply, perhaps dangerously, in debt and spending has been cut and could be cut further. But the government insists on giving tax cuts to the wealthiest Americans, protecting those who need it least at the cost of those who could benefiting most.

Tax policy is one of the central disagreements political philosophies in the history of America. It has been and will continue to be. What is relatively new is the concept that the richest handful deserve priority over the education of millions. In 1979, the maximum Pell Grant covered three-fourths of the cost of college for low-income students; today it covers about one-third, according to the National Education Association.

Meanwhile, the current tax code makes almost no distinction between household incomes of $380,000 and $380 million, or even $38 billion.

Citizens for Tax Justice estimates that re-implementing tax brackets for millionaires and billionaires would raise more than $74 billion, more than double the Pell Grant's $36.6 billion price tag.

One of the favorite arguments against fair taxes is that the best talent will emigrate and take the jobs with them. Nothing in our history suggests that is true.We do know that education often produces the best talent, along with an educated workforce for them to hire. It's time we tell those who made (or in many cases inherited) vast amounts of wealth invest in the country that invested in them.

Original Post

August 24, 2011

by Heide B. Malhotra

Warren Buffett contended in a recent New York Times op-ed article “Stop Coddling the Super-Rich” that America’s finances would make a leap forward if its elite, the super-rich, would pay their fair share of taxes.

Buffett forgot to include in his forward-looking statement the elimination of corporate tax subsidies, especially for companies that export America’s jobs but want Americans to keep buying their products.

Corporate welfare, which comes in the form of subsidies, has been under fire for some time. Proponents claim that subsidies should result in the creation of more jobs and bring people back to work, while opponents outright laugh at this suggestion.

Already at the end of the last century, an article in the Encyclopedia of Business stated, “Fortune 500 firms, which are the main beneficiaries, have eliminated more jobs than they have created during this period.”

At the beginning of 2011, a Cato Institute article argued against corporate subsidies by recounting a typical scenario in which subsidies had just the opposite effect.

At the end of his term, former Pennsylvania Gov. Ed Rendell announced the creation of a $10 million grant, to be awarded to any corporation willing to reopen a former Sony Corporation plant in Pennsylvania. Companies at that particular site had been subsidized by the state’s taxpayers three times in the past.

Germany’s Volkswagen Group (VW) had been awarded $70 million in 1977 for the site by former Gov. Milton Shapp. In 1987, VW moved on to greener waters. Sony moved into the empty plant in 2005 and out in 2007. It had received a $40 million state subsidy and then another $1 million before it moved out.

In mid-1999, the Cato Institute testified before the Committee on the Budget: “Corporate welfare is a large and growing component of the federal budget. … In 1997 the Fortune 500 corporations recorded best-ever earnings of $325 billion, yet incredibly Uncle Sam doled out nearly $75 billion in taxpayer subsidies. … There are roughly 125 such business subsidy programs in the federal budget.”

Scrutinizing Corporate Welfare

“The problem is that not everyone defines it [corporate welfare] in the same way,” states the Cato Institute’s handbook, published on the organization’s website.

Cato describes corporate welfare/subsidies as any allowance or grants the federal and local U.S. governments dole out to certain industries, giving them an advantage over competitors.

Narrowing it down, Cato points to direct or indirect grants. Indirect grants refer to those that are awarded to one firm, which then distributes it to other companies in the supply chain.

Next comes research, through which government employees from the Agricultural Research Service, the Economic Research Service, the U.S. Department of Energy, and other agencies develop new products, improve upon a product, or come up with innovative processes and then give these innovations to a corporation for free or little cost, saving the firm untold dollars in research and development.

Then there are subsidized loans and insurance or guarantee programs, in which the U.S. government takes the majority or all of the risk. These programs come in different forms and from different government agencies, including the U.S. Commerce Department, Department of Agriculture, Department of Defense, and export-oriented agencies.

There are also a number of visas that allow companies to bring foreign workers into the United States to reduce labor costs and train candidates for future outsourcing of jobs. Such visas include H-1B for professional-level positions, L1 for company transfer of an employee from a foreign subsidiary to the United States, E for treaty traders or treaty investors, and J for bringing foreign workers into the United States for training.

The average wage for a U.S. computer programmer is $74,700, while the same individual earns $10,200 in India, $10,000 in China, and $5,900 in the Philippines. An electrical engineer earns $135,900 in the United States, $13,200 in India, $26,000 in China, and $7,000 in the Philippines.

“Evidence shows the visa programs to be increasingly a means to help outsource U.S. jobs or recruit cheap temporary labor. … In some cases foreign workers are brought to the United States for job training by American workers, then after the training, foreign workers return home and do the same work for less pay, while the American workers may be laid off,” stated a 2010 Rochester Institute of Technology research report.

Eliminating Subsidies

“The [congressional] super committee has many options to increase revenue, particularly by eliminating or reducing subsidies provided through the personal income tax and corporate income tax to business and wealthy investors,” stated Citizens for Tax Justice (CTJ) in its Aug. 11 online publication.

The super committee was created under Title IV of the Budget Control Act of 2011, which called for the establishment of the Joint Select Committee on Deficit Reduction. The committee includes 12 members: six senators and six members of the House of Representatives, who have been appointed by the majority and minority leaders of the Senate and the House.

There are already voices in the House and Senate that claim that this super committee is unconstitutional.

Making the above argument ineffective is Article 1, Section 5 of the U.S. Constitution, which states “Each House may determine the Rules of its Proceedings.”

“The establishment and the planned operation of the Joint Select Committee are constitutional, whatever pragmatic objections there might or might not be to this approach,” argued Eugene Volokh on his blog about the constitutionality of the Joint Select Committee on Deficit Reduction.

Super Committee Gift to K Street

“Congressman Ron Paul has called the ‘Super Congress’ a gift to K Street,” according to an Aug. 10 article on the Cynical Revolution website.

The selected members of the super committee include seasoned and unseasoned politicians, but they all have experience in the tax and budget arena.

Experts’ dispute claims warn that the committee would be governed by bipartisan squabbling. Others charge that given the background of each member, violations of ethical integrity would be an issue. The members received millions in campaign contributions from lobbyists over the past years.

The MAPLight website published a list of donations received by the members of the super committee during the past two years. Sen. Patricia Lynn Murray (D-Wash.) came in as the Senate Democrats’ leading fundraiser; she received major campaign donations from Boeing Inc.

Sen. Max Baucus (D-Mont.) received contributions from law firms, hedge funds, health care firms, Goldman Sachs, and others. Rep. Dave Camp (R-Mich.) collected close to $3 million in funds from special-interest groups in 2009 and 2010. Sen. Jon Kyl (R-Ariz.) received $13.6 million in campaign contributions between 2005 and 2010.

Insulating Super Committee

Voices from all corners of the United States are suggesting that the super committee members must forego political donations from any company or individual and not attend meetings with interest groups and representatives of companies going forward.

“The best way to insulate the committee is for appointed members to end all fundraising and to be fully transparent regarding with whom they meet while they serve on the committee,” wrote a coalition of 25 public interest groups in an open letter to Congress dated Aug. 4.

Suggestions include having the super committee raise revenue by getting rid of subsidies for both corporations and individuals, and keeping their hands off further spending cuts that were already detailed under the recently enacted debt agreement.

More than half of voters see the super committee as another whitewash because most members are too beholden to special interest groups, according to a recent poll by the Democracy Corps and Greenberg Quinlan Rosner Research.

“Seventy-one percent of all voters say they would be more likely to support committee members who give up campaign donations and agree to not meet with lobbyists while serving on the bipartisan super committee,” said the Democracy Corps survey report.

Tax subsidies are on everybody’s mind. The Treasury published a partial 2011 tax subsidy list for firms and investors. Annualized, the cost to the American economy is around $365 billion, according to the 2011 testimony before the Senate Budget Committee by CTJ’s Director Robert S. McIntyre.

“Tax subsidies cost [the United States] a billion dollars a day,” stated a recent publication by CTJ.

Opposing Buffett’s View

“The first problem with Buffett’s view is that the number of super-rich is too small for higher rates to make much difference to our budget problems,” said Jeffrey A. Miron, director of undergraduate studies at Harvard University, in a rebuttal article published on a number of different websites.

Miron points to many different issues, including the too-big-to-fail principle that Buffett could have addressed but didn’t for unknown reasons.

Using 2009 numbers, the article suggests that increased taxation of the super-rich would add $73 billion in revenue to the U.S. budget, which comes to no more than 2 percent of the federal budget.

Going after the wealthiest people is counterproductive, as it might stymie innovation, hard work, and entrepreneurship.

“Policy should target the wrongdoing directly, not demonize everyone who hits it big,” said Miron in the article.

Original Post

August 24, 2011

By Dylan Matthews

Greg Sargent has been doing some great reporting on Rick Perry’s walk-back on his past support for repealing the 16th amendment, which enables the federal governments to levy income taxes, and enacted the “Fair Tax” proposal for a national sales tax. The fair tax plan has been around for a while now, and it got a boost during the last presidential cycle when Mike Huckabee embraced it, and Herman Cain is touting it this time around. The proposal claims it would replace almost every federal tax, including payroll, personal and corporate income, and estate taxes, with a 23 percent national sales tax.

The first problem is with that number. The actual proposal could impose a tax of 30 percent of the cost of a given purchase. Advocates for the fair tax claim that this amounts to a 23 percent tax, because if one is purchasing an item that lists for $1, the total cost will be $1.30, and 30 cents divided by $1.30 is a little over 23 percent. So if one uses the same terminology that is commonly used in discussing state and local sales taxes, the fair tax is actually a 30 percent national sales tax.

But even a 30 percent national sales tax probably won’t raise as much revenue as the taxes the fair tax replaces. The Institute on Taxation and Economic Policy estimates that the rate would have to be between 45 to 53 percent to raise as much as the income taxes, payroll tax, estate tax and so forth. What’s more, ITEP found that the change would be highly regressive, despite the fair tax’s inclusion of a lump-sum payment to all households, which is meant to cover the cost of taxes on basic goods such as rent or food. ITEP found that the bottom 80 percent of earners would pay an average of $3,200 more in taxes, or a 51 percent bump. The top 1 percent would see an average tax cut of $225,000. Of course, Rick Perry has called for higher taxes on poor and middle-income Americans, and wrote in his book (page 183) that he supports a fair tax because it “provides only the modest revenue needed to perform the basic constitutional functions of the federal government.” So the fair tax’s low revenues and regressivity could be features, not bugs, for him.

The tax also has enforcement issues. Many difficult-to-tax items that traditional sales taxes exclude would be subject to the fair tax, including rent, health care and even government spending. So when the Pentagon buys a tank, it will pay sales tax to the federal government, which will then be used, in part, to pay for the Pentagon’s tanks. What’s more, the potential for tax evasion is high. William Gale, a tax expert at the Brookings Institution, estimates that, if current income tax evasion rates hold, the fair tax would lose 20 percent of its tax base, forcing rates even higher than ITEP’s 45 to 53 percent range. However, Gale notes that evasion is likely to be much higher than it is for the income tax, because the sales tax depends on honest collection by businesses, and cannot use withholding to ensure compliance.

“Other countries have attempted to implement some variant of a national retail sales tax with little success on the enforcement front when rates climb to more than 10 percent,” Gale notes. And any plausible fair tax rate will be several times that cutoff.

So the fair tax will cut revenue and increase the deficit, make the tax code more regressive, and could be very difficult to enforce. If Rick Perry really is revoking his support for it, good for him.

Original Post

August 24, 2011

by Edward D. Klienbard

Harvey Golub is a very rich man filled with righteous indignation. The former CEO of American Express (and briefly the Chairman of AIG), Golub directed his umbrage at Warren Buffett and President Obama, for suggesting that the rich in general, and by implication Mr. Golub in particular, should pay somewhat higher income tax rates than they do now. In Golub's own words, from his recent Op-Ed piece on this subject in the Wall Street Journal:

I deeply resent that President Obama has decided that I don't need all the money I have not paid in taxes over the years... I certainly don't feel 'coddled' because the various governments have not imposed a higher income tax. After all, I did earn it.

Golub's Op-Ed relies on critical mischaracterizations of fact. Setting the record straight is not an exercise in nitpicking, but rather is needed to keep public discourse on this important topic from being derailed by inflammatory half-truths. Perhaps even more important, Golub's article accurately reflects the ethos of a large swath of the privileged classes, but in doing so reveals unexamined forms of arrogance that lie at the heart of our deteriorating ability to govern ourselves.

First, the facts. Golub writes that about half of all filers "pay no income taxes at all." From this Golub argues that nonpayers "should pay something and have a stake in our government ... too."

Let's put to bed for all time this trope that half of Americans have no "skin in the game." The income tax is simply one of a suite of federal taxes imposed on rich and poor in different proportions and collected through different mechanisms. The nonpartisan staff of the Congress's Joint Committee on Taxation -- the official scorekeepers to Congress for all tax matters -- looked at this question last year. They projected that in 2010 about 37 percent of all income tax returns would show no federal income tax liability. But when all federal taxes borne by individuals were toted up, the JCT staff found that every stratum of society -- even those making less than $10,000/year -- paid federal taxes. (The details of the study are available online at www.jct.gov -- it's document JCX-19-10. The study excludes dependents on someone else's returns, so the data are not skewed by the children of the affluent earning a few thousand dollars from a summer job. It also excluded estate tax, which did not apply in 2010.) Everyone has skin in the game.

When one includes state and local taxes, many of which are notoriously regressive, the effective tax rate on the poor is surprisingly high. In a 2010 study, Citizens for Tax Justice calculated that those in the lowest income quintile (with an average cash income of $12,400) paid about 16 percent of their income in tax. The top 1 percent, with an average income of $1,328,000, paid at an all-in rate of about 31 percent.

Turning to the fortunate affluent, Golub writes that the 250,000 American families who earn $1 million or more pay 20 percent of all federal income taxes. The same nonpartisan JCT study actually projected the number of 2010 tax returns showing incomes of $1 million or more to be 336,000 (good news for Mr. Golub!); that group (just 1/500 of all returns) was projected to earn about 11 percent of total personal income in the United States, and pay 26 percent of all federal income taxes -- but less than 14 percent of all federal personal taxes in the aggregate.

The simple lesson here again is that the income tax is just one of a suite of taxes; by design, it burdens higher incomes in particular, just as others are borne disproportionately by the poor or middle class. It's the aggregate tax burden that's relevant, and here one discovers that the U.S. federal tax system in its entirety is not nearly as progressive as many believe. In fact, it's taxpayers with incomes in the $200,000 -- $500,000 range, not Mr. Golub and his crowd, who get the worst of the deal; their all-in federal tax rate is significantly higher than that borne by those earning over $1 million.

Looking at federal income taxes alone, the JCT staff found that the over $1 million club faces effective income tax rates of a little over 24 percent -- hardly the punitive rates implied in Golub's Op-Ed piece. And when one gets to the superrich, effective federal income tax rates actually decline further, because so much of their income is taxed as long-term capital gain, at a 15 percent rate. The IRS publishes data annually on the 400 highest-income tax returns for the year. For 2008 (the most recent year), their effective federal income tax rate was only 18.1 percent. If one measured their tax liabilities against their true economic income (including items like tax-exempt municipal bond income and capital gains not yet harvested through a sale), that rate would decline still further.

Finally, let's return to the underlying themes that really tick Mr. Golub off. First, referring to his many tens (hundreds?) of millions of dollars, he observes that "he earned it." Of course that's true, in the sense that he apparently inherited very little wealth, is highly intelligent, has worked very hard his whole life, and in return has been paid extremely well for his labor. But is it really possible that Golub and his ilk are blind to how lucky they also have been? Many of those without tens of millions of dollars also work very hard, and many are as smart as Mr. Golub. The nature of life is that we do not control it; both our native talents and our good fortune are distributed through processes that we cannot fathom and do not "earn."

The income tax in particular is a kind of insurance policy. Imagine that we are all sentient disembodied beings, waiting to be born. We know the full range of possible paths that any new life might take, including the great probability that we will end up struggling to make ends meet. But we know nothing about our future selves. We do not know who our parents will be, how healthy we will be, or with what native endowments we will embark on life. We are offered insurance, in the form of a promise of some minimum level of support if we are unfortunate -- but being disembodied beings, we have no cash with which to pay the premium. The deal is we can pay in arrears -- if we hit the jackpot, we kick in a fair chunk of money, and if we end up with the short end of the cosmic stick, we get helped out enough to mitigate the most abject misery. Who among us would be so foolish as not to sign up?

Second, Mr. Golub writes that the federal government today violates "the implicit social contract between me and my government that my taxes will be spent -- effectively and efficiently -- on purposes that support the general needs of the country." Here Golub betrays the unconscious great arrogance that he shares with many other successful people. There is no contract, express or implied, between the United States of America and Harvey Golub. "The consent of the governed" does not mean that Harvey Golub, or any citizen, gets to pick and choose which government spending programs are smart, and therefore deserve his funding, and which are dumb, and from which he therefore can opt out. I happen to agree with many of his criticisms of wasteful tax expenditures and the like, but that's not by itself a principled basis for not contributing an appropriate share to fund whatever government our democratic system has delivered to all of us.

To date, Mr. Golub and I both have failed to convince our fellow Americans, and through them those rascals in Congress, that these programs are indeed wasteful. Instead of driving a wedge between Americans on the false issue of income tax statutory rates, or suggesting that he won't play ball until Congress meets his demands, Mr. Golub should apply his formidable talents and some of his considerable wealth to rallying support for his generally sensible list of spending and tax reforms.

Original Post

August 23, 2011

By Adam Serwer

Republicans have finally found a group they think deserves a tax hike: People who don’t make enough money to pay income taxes.

At the recent GOP debate, all the 2012 presidential hopefuls were unanimous in claiming they would reject a deficit-reduction deal if it contained a 10-to-one ratio of spending cuts to tax increases. But as Dave Weigel writes, the GOP’s supposed anti-tax zealots have been strangely unified in arguing that Americans who pay no income taxes — but pay a variety of other taxes — should see their taxes go up:

Republican politicians didn’t make this argument — until the Obama era. What changed? For decades, the “lucky ducky” number, the percentage of Americans that pay no taxes, never rose above 30 percent. The Bush tax cuts pushed it over 30 percent, but not too far over. Then, in 2008 and 2009, the economy collapsed. The government responded with, among other things, new tax deductions.

The result: The percentage of people paying no income taxes spiked up to 47 percent and stayed there. When the Tea Party started rallying in 2009, it wasn’t protesting higher taxes, because federal income taxes were lower, with more loopholes. It was protesting the perception that productive Americans were shelling out for an ever-expanding class of moochers. And Republicans have taken the Tea Party’s lead.

Of course, as Weigel reminds us, these people do pay sales taxes, payroll taxes, gas taxes and the like. As an April 2010 report from Citizens for Tax Justice explained: “Most of these other taxes are regressive, meaning they take a larger share of a poor or middle-class family’s income than they take from a rich family. This largely offsets the progressivity of the federal income tax.” Fat City!

This tax-the-poor attitude is widely held among Republicans, who are currently positioning themselves to oppose an extension of the payroll tax credit. After having demanded Obama extend the Bush tax cuts for the wealthiest Americans, Republicans are now fretting that the payroll tax cut will increase the deficit. Extending the Bush tax cuts increased the debt by far more than an extension of the payroll tax cut will, but that was worth it, because cutting taxes on the wealthiest Americans is the GOP’s highest priority. It’s far more important than stimulating the economy by giving a tax break to people who might actually need the money.

Of course, we’re not supposed to call the GOP’s commitment to making sure the wealthiest Americans pay as little as possible in taxes — and to increasing taxes on lower income folks — by its rightful name: “Class-warfare.” That term only applies to socialists who think we ought to return to Clinton-era tax rates.

Original Post

by RALPH NADER

August 23, 2011

It was only a matter of time before the “pull down” NAFTA and WTO trade agreements on U.S. wages and jobs would be followed by “pull down” contract demands by U.S. corporations on their unionized workers toward levels of non-unionized laborers.

The most recent illustration of this three-decade reversal of nearly a century of American economic advances for employees is the numerous demands by Verizon

Here are just a few of the concessions the new Verizon CEO, Lowell McAdam, is insisting upon:

–More power to contract out and offshore jobs to add to the 25,000 already in that category; thereby undermining job security.

–a freeze on pensions;

–elimination of the sickness and death benefit program;

–reduction in sick days; and

–a major increase in employee contributions to and deductibles under their health insurance coverage.

Mr. Lowell McAdam would surely have trouble feeling the pain of his workers who brave the elements storm or shine to afford him a salary of over 1.5 million dollars PER MONTH plus perks and benefits.

Watching Verizon profits soar year after year, noticing Verizon stock rise faster than its competitors, knowing that the company’s top five executives took in over $250 million between them in the last four years, the Communications Workers of America (CWA) took their members on strike on August 7, 2011. “Unfair and unacceptable” was their cry on the picket lines up and down the east coast.

These workers pay their taxes. While the tax lawyers for their bosses have figured out how to turn Verizon into a vast tax escapee. According to the super-accurate Citizens for Tax Justice, Verizon Communications made a total of $32.5 billion dollars in pretax U.S. profits during 2008, 2009, 2010. Far from paying the maximum federal corporate income tax rate of 35 percent on these ample profits, Verizon’s federal income tax was negative $951 million or negative 2.9 percent!

Some of these saved tax revenues have been getting into expensive daily full page advertisements (not deductible it is hoped) in the Washington Post, The New York Times, and other large newspapers. Verizon’s brazen assertions reflect the limitless arrogance of a multinational behemoth.

Verizon’s headlines its ad with these words: “They claim we’re asking union-represented employees to contribute to their own health care premiums. THEY’RE RIGHT. Verizon is proposing that its union-represented employees contribute more toward the cost of rising health care. 135,000 non-union Verizon employees already pay a portion of the healthcare premium. We’re just asking our union -represented employees to chip in like everybody else. We think that’s fair.”

There you have it – the “pull down” ultimatum to the level of the voiceless majority of Verizon workers. Of course Verizon bosses with their fat paychecks do not have to worry at all about co-payments and larger deductibles in their gold-plated health plan.

Another anti-union Verizon ad featured this assertion: “They claim we want to strip away 50 years of contract negotiations. THEY’RE RIGHT. The union contracts that have expired were drafted over 50 years ago, when people still used rotary phones. Verizon is proposing to update the contracts in a reasonable manner to reflect the changing times.”

The CWA leaders recognize that some changes need to be made and have offered compromises. But fifty years ago, a telephone company CEO never dared pay himself anywhere near the multiple that today’s Verizon executives get compared to the average workers. Maybe then the CEO would get 20 times the entry level wage. Now it is between two hundred to four hundred times.

Verizon does have one last argument. At the bottom of each full-page ad, it describes exacting concessions from its workers as “all in an effort to best position Verizon to serve our customers.” Are those the same customers who are subject to all kinds of extremely one-sided fine print that spells suppression of rights, overcharges, termination fees, penalties and other straitjackets of contract serfdom? Are those the same customers who have to wait and wait to get their service and billing complaints addressed and questions answered? Are those the same customers who can never get Verizon to put what its spokespersons say on the phone in writing?

The CWA workers went back to their jobs on August 22, 2011. Verizon had threatened to cut off their medical, dental and optical benefits by August 31.Their 2008 contract continues until ongoing negotiations with the company are concluded for a new contract.

Verizon keeps saying that what they’re doing just “reflects the changing times.” The times are changing – skyrocketing executive pay packages and corporate profits – slashing benefits for the workers and their families – shredding of all moral authority by example from the top.

If negotiations break down in the coming weeks and the CWA goes out on strike again, consumer advocates and their organizations should make it explicitly clear that Verizon can’t excuse what they’re doing to workers in order to better “serve our customers.”

Verizon is going increasingly wireless. They are also going increasingly shameless!

Original Post

September 7, 2011

by Jim Hand

Obama's plan to be challenged by Republicans

President Barack Obama and the U.S. Chamber of Commerce rarely agree on anything, but they both want the country to embark on a major rebuilding of its infrastructure.

In their view, rehabilitating deteriorating bridges, highways and train tracks would not only make the country more efficient, it would create badly needed jobs.

The chamber said so in a proposal Tuesday. Obama is expected to re-enforce the point in a jobs speech Thursday.

There is just one problem - congressional Republicans have already rejected the idea, saying the country cannot afford it.

The chamber and most Republicans, however, are on the same page when it comes to wanting free trade agreements with South Korea, Colombia and Panama to be ratified, saying they will create jobs by boosting exports. There is just one problem - congressional Democrats oppose the agreements as they now stand, saying changes are needed to protect jobs from being exported along with products.

That is the dilemma Obama faces Thursday as he goes before Congress and the nation with ideas of how to boost the economy and stimulate job growth.

The partisan divide in Washington has grown so large that it will be a struggle to get even the smallest of a jobs bill passed.

Brian Gilmore, president of Associated Industries of Massachusetts, said the gridlock in Washington has not only brought governing to a halt, it has cast a pall over the economy by creating a great sense of uncertainty.

The near collapse last month of talks to prevent a government default and extend the federal debt limit is an example.

"The partisan bickering and grandstanding really has to stop," he said. The partisanship was never clearer than on the president's proposal to extend a payroll tax holiday that has lowered the amount of Social Security taxes workers pay, putting an average of $1,000 in family pocketbooks this year.

The tax cut is set to expire at the end of the year. The president wants to extend it and is reportedly considering proposing to expand it to employers and employees.

U.S. Sen. Scott Brown, R-Mass., is backing the idea, although many in his party are not.

"Senator Brown supports extending the payroll tax cut and believes it is an important boost for middle-class taxpayers and for job creation. He also looks forward to reviewing proposals that would extend it to the employer side," a spokesman said.

The Republican leadership, which usually favors tax cuts, this time is opposed.

Sen. James DeMint, R-S.C., said the tax cut has not worked so there is no reason to extend it.

"It seems like just by the mere fact that the president's name is on it means Republicans are going to oppose it," said Steve Wamhoff of Citizens for Tax Justice.

He said his group supports extending the tax cut for workers, but also believes there are more effective measures the president and Congress could take.

The most effective, he said, would be direct spending. If the federal government would give more aid to the states, the jobs of thousands of state and municipal employees who are about to be laid off could be saved, he said.

Obama, however, seems to be convinced that spending measures will not pass Congress so he is concentrating on tax cuts, Wamhoff said.

The payroll tax would put money into the hands of people most likely to spend it, Wamhoff said, but Obama's expired "Making Work Pay" income tax cut from 2009 would get "more bang for the buck," he said.

Tax cuts for businesses are unlikely to help the economy, he said, because corporations are already profitable. They are not hiring because their consumers are not buying, not because they lack money. That is why it would be better to give tax cuts to consumers so they could spend more, he said.

Gilmore, the AIM president, said he likes the idea of rebuilding infrastructure to create jobs, backs the free trade agreements and believes coming up with a long-term deficit-reduction plan would help create some certainty in the economy.

Brown has his own ideas about creating jobs that have not been mentioned by the president.

One Brown proposal would lift a pending tax on medical device manufacturers that he calls "a wet blanket" on the industry.

Another bill supported by Brown would provide businesses with a tax credit for hiring a military veteran.

Jack Lank, president of the United Regional Chamber of Commerce based in Attleboro, said the one issue he hears his members talking about is the cost of providing health care.

He said he would like the president to address ways of making health care more affordable.

Although partisanship is standing in the way, Wamhoff said the high unemployment rate will help create public pressure for Congress to act.

Gilmore said he remains optimistic despite the politics.

"You have to be hopeful. It has to get dark before it is light," he said.

Original Post

August 22, 2011

by PAUL BUCHHEIT

Most wealthy Americans will recoil at the suggestion that they should pay higher taxes, likely responding with the tired mantra that the top earners already pay most of the income tax. But, two points can be made in response to this: (1) Federal income tax is only a small part of the burden on the middle class. Based on data from the Institute on Taxation and Economic Policy, the total of all state and local taxes, social security taxes, and excise taxes (gasoline, alcohol, tobacco) consumes 21% of the annual incomes of the poorest half of America. For the richest 1% of Americans, the same taxes consume 7% of their incomes. (2) The richest people pay most of the federal income taxes because they've made almost all of their new income over the past 30 years. Based on Tax Foundation figures, the richest 1% has tripled its share of America's income since 1980, after taxes.

But, there are better reasons why the rich should pay higher taxes.

The very rich benefit most from national security, government-funded research, infrastructure, and property laws. Defending the country benefits the rich more, because they have more to defend. Taxpayer-funded research at the Defense Advanced Research Projects Agency (the Internet), the National Institute of Health (pharmaceuticals), and the National Science Foundation (the Digital Library Initiative) has laid a half-century foundation for their idea-building. The interstates and airports and FAA and TSA benefit people who have the money to travel.

Here's another good reason for the rich to pay more taxes: With the drop in tax revenue, funding for the preservation of American culture is disappearing. Do we want our national treasures deprived of maintenance because of budget cuts, as is currently happening in Italy? Do we want our national parks sold to billionaires? Do we want programs for music and the arts eliminated from schools, so that only children of the wealthy can
participate in them?

The 1912 book, "Promised Land," by Mary Antin revealed the wonder of a Russian immigrant coming to the U.S.: "In America, then, everything was free...light was free...music was free."

Not that capitalist markets don't have their place. But, the current view of democracy has gone to the other extreme. An extreme that allows individualism and personal gain to trump societal responsibility. The growing inequality makes community support and safeguards unnecessary for the privileged elite.

Finally, back to the tax statistics. Why should financial earnings (i.e., capital gains) be taxed less than wage earnings from actual work? The richest 10% of Americans owns over 80% of stocks, the gains from which are taxed (long-term) at a 15% rate, while most wage earners pay more than that on their income.

Furthermore, over the past 15 years millionaires have seen their income tax rates drop from 30% to 22%. During approximately the same time period, American economic growth declined from an annual 3.2 percent rate to 1.7 percent. Lower taxes for the rich do not lead to productivity.

Will the rich stop investing or move to another country if their taxes are increased? Not likely. They have it too good here. As Warren Buffett recently stated, "I have worked with investors for 60 years and I have yet to see anyone - not even when capital gains rates were 39.9 percent in 1976-77 - shy away from a sensible investment because of the tax rate on the potential gain."

Mr. Buffett is admitting what everyone else is beginning to realize. The rich take much more than they pay for.

Original Post

by Melissa Block

August 22, 2011

Audio File

MELISSA BLOCK, host: Stop coddling the super rich. That was the headline over a recent op-ed in the New York Times that has ignited a fervent debate. The writer? Investor Warren Buffett, a billionaire perhaps 50 times over.

Buffett argued that his federal tax bill last year, about $7 million, was too low, that he and the rest of his super rich friends should pay more in taxes.

We're going to explore that idea now with Joseph Thorndike. He directs the Tax History Project at the nonprofit group Tax Analysts.

Thanks for coming in.

JOSEPH THORNDIKE: Oh, my pleasure.

BLOCK: Warren Buffett, in his op-ed, is explaining that he's part of a class making money with money and that accounts for his federal tax bill for 2010 ending up at about 17 percent of his taxable income. Explain how that works.

THORNDIKE: Well, by and large, someone like Warren Buffett makes his money from capital gains income and capital gains income has always been treated preferentially under the tax system. Almost always.

I mean, if you go back decade after decade, you find only a few windows where it was treated like ordinary income. By and large, we give it a break and the theory being that, if you give a break to that sort of income, you'll encourage the kind of growth-producing investment that everybody wants.

BLOCK: And the argument for keeping capital gains taxes lower is that capital gains are effectively a double tax, that this is already taxed as corporate income?

THORNDIKE: Well, there is some truth to that, that corporate income is taxed at the corporate level and then taxed again at the individual shareholder level, but it's also true that a lot of capital gains income is never taxed.

Also, if people choose not to realize their capital gains, then for year after year after year, they're making money in the stock market. Warren Buffett is getting richer by billions and billions and billions all the time, but if he doesn't ever sell any of that stuff, then he doesn't actually pay any taxes on that.

BLOCK: Well, let's say that capital gains for Warren Buffett and everyone else were taxed at the same rate as regular income. Are there estimates of how much revenue that would bring in?

THORNDIKE: There are estimates. They vary somewhat. But I think it's fair to say that it would raise 30, 40 billion dollars a year.

BLOCK: Warren Buffett is also calling for a new, higher marginal tax rate for the top .3 percent of taxpayers, the very wealthy. And why don't we start with those making more than $1 million a year. First of all, there are about 237,000 of them. If their tax rates were to go up, why don't you pick a point and tell us how much it might bring in?

THORNDIKE: Well, for instance, if you raise the top rate to 50 percent from 35 percent now, then you might make about $34 billion annually. At least, that's what the Tax Policy Center has estimated.

BLOCK: Now, that would be a huge jump from 35 to 50 percent.

THORNDIKE: Yeah. Huge and probably politically impossible, but - yeah.

BLOCK: Well, there are currently six tax brackets. What do you make of the argument that we need actually more tax brackets, not fewer, that there's not a single wealthy class now?

THORNDIKE: Well, historically, there's plenty of precedent for having lots of tax brackets. I mean, there used to be dozens of them, so the notion that we only need one or two or three or five is really sort of a modern idea and, to my mind, not really defensible because I think that there's a big difference.

You know, the top bracket now starts in the sort of $350,000 range. There's a big difference between somebody like that and somebody like Warren Buffett. I mean, someone who makes $350,000 or somebody who makes $350 million in a year. I don't see any reason why those people would be treated the same under the tax system.

BLOCK: It's interesting, though. I've seen numbers from the group Citizens for Tax Justice, a liberal leaning group, which says that the richest one percent - their share of total income is 20.3 percent. They end up paying about 21.5 percent of total taxes. Would you say that is their fair share? That they're paying a percentage commensurate with what they make as income?

THORNDIKE: I mean, that's really a very hard question to answer because it's sort of a gut level question. Does it seem fair to you? There's no equation that you can plug in that will tell you whether that's fair or not. It's just an issue of whether it seems like they're carrying their part of the burden.

I think, if you look at effective tax rates over time, which is, to me, a very illuminating number, you see them declining substantially for those who are very rich.

They decline for people in the middle class and for poor people, as well, but the rich have done particularly well. I think that's an argument for increasing taxes on the rich, especially in a bigger context where we're really going to be raising taxes on everybody.

BLOCK: Joseph Thorndike, thanks so much.

THORNDIKE: My pleasure.

BLOCK: Joseph Thorndike directs the Tax History Project and is the author of the forthcoming book "Their Fair Share: Why Americans Tax the Rich."

(SOUNDBITE OF MUSIC)

ROBERT SIEGEL, host: This is NPR News.

Original Post

August 21, 2011

by Brad Knickerbocker

Jon Huntsman and Rick Perry represent very different views of how a Republican can beat Barack Obama in 2012. To jazz up his campaign, Huntsman laid into tea party favorite Perry Sunday.

In the end, whoever wins the GOP presidential nominating contest will have to take on Barack Obama, who’s looking more and more vulnerable.

But for now, the fight is over the Republican Party’s vision for the country – and perhaps just as critical, for itself. At the moment, that intramural struggle is best seen in the contrasts between Jon Huntsman and Rick Perry.

Aside from the fact that they’ve both been governor of a western state, they have very little in common. Perry is a tea party favorite; Huntsman is more moderate in tone and substance. Perry’s family was not wealthy; Huntsman’s father is a billionaire. Perry is all-Texan; Huntsman has a world view shaped by years abroad as a Mormon missionary and ambassador to Asian nations under presidents George H. W. Bush (Singapore) and Obama (China).

It’s hard to imagine Huntsman whipping out a pistol with a laser sight and blasting a coyote, as Perry once did while jogging. Yet Huntsman has been taking rhetorical potshots at his outspoken Texas rival lately, a recognition that the former Utah governor needs to jazz up his campaign if he is to join the top-tier candidates.

On ABC’s “This Week” Sunday, Huntsman criticized Perry’s recent comments on global climate change (“a scientific theory that has not been proven”) and evolution (“a theory that’s out there”).

“When we take a position that isn’t willing to embrace evolution, when we take a position that basically runs counter to what 98 of 100 climate scientists have said, what the National Academy of Science has said about what is causing climate change and man’s contribution to it, I think we find ourselves on the wrong side of science, and, therefore, in a losing position,” Huntsman said.

Huntsman also took aim at Michele Bachmann, another strong candidate and tea party favorite, for claiming in South Carolina last week that her energy policy would bring gasoline prices back down below $2 a gallon – a promise Huntsman called “completely unrealistic.”

“We live in the real world. It’s grounded in reality. And gas prices just aren’t going to rebound like that,” he said. “Again, it’s talking about things that, you know, may pander to a particular group or sound good at the time, but it just simply is not founded in reality.”

Aiming more broadly, Huntsman blasted all his GOP opponents for refusing to support the recent congressional compromise on raising the debt ceiling and avoiding default. (He was the only one to do so.)

"I wouldn't necessarily trust any of my opponents right now … when every single one of them would have allowed this country to default," Huntsman said on ABC. "So I have to say that there was zero leadership on display in terms of my opponents."

Huntsman isn’t the only one targeting Perry, who jumped into the race a week ago and quickly became the focus of attention and support.

Republican mastermind Karl Rove said Perry’s charge regarding Fed chairman Ben Bernanke (potentially “treasonous”) was “over the top” and “not presidential.” (There’s a long history of competition and dispute between the Perry and Bush camps in Texas, of which Rove is a key figure, but that needs much more space to explain.)

Meanwhile, now that Perry is officially in the race, his political record is coming under greater scrutiny.

“A review of Mr. Perry’s years in office reveals that one of his most potent fund-raising tools is the very government he heads,” the New York Times reported Saturday.

“Over three terms in office, Mr. Perry’s administration has doled out grants, tax breaks, contracts and appointments to hundreds of his most generous supporters and their businesses,” the Times reported. “And they have helped Mr. Perry raise more money than any politician in Texas history, donations that have periodically raised eyebrows but, thanks to loose campaign finance laws and a business-friendly political culture dominated in recent years by Republicans, have only fueled Mr. Perry’s ascent.”

Other analysts note that Texas – governed by Perry for the past ten years – has less-than-sterling rankings among states on high school graduation, child poverty, and relatively regressive tax laws that “redistribute income away from ordinary families and towards the richest Texans,” as the Institute on Taxation and Economic Policy puts it.

All potential debating points for Huntsman and the other Republicans hoping to deflect Perry on the way to ousting Obama.

Original Post

September 6, 2011

by Andy Kroll

As he unveiled his plan to jumpstart the American economy [1] at a North Las Vegas trucking company Tuesday afternoon, GOP presidential hopeful Mitt Romney kept brandishing his iPhone 4. The smartphone symbolized America's global, 21st-century economy, while President Obama's economic policies, Romney explained, were backward, ineffective, stuck in the past. "President Obama's strategy is a pay phone strategy," he said, "and this a smartphone world."

But unlike Apple's innovative and regularly revamped iPhone, Romney's new economic plan, "Believe In America," is pretty stale. The 160-page proposal consists largely of stripping away federal regulations, slashing taxes, amping up domestic oil drilling, and embracing free-market principles. In other words, pretty much the same stuff he advocated during his last presidential campaign. Of the ten actions Romney says he would take on day one of his would-be presidency, six appeared in near-identical form in his old plan. (The list includes repealing Obama's health care reform bill, which obviously wasn't possible in 2007. So really call it six out of nine.)

Take Romney's new tax reform prescriptions. He calls for keeping marginal tax rates [2] at basement-low rates. He wants to eliminate the capital gains tax [3] for middle-income taxpayers, and slash corporate taxes to supposedly make US corporations more competitive with their overseas counterparts. (The US, in fact, is "already one of the least-taxed countries for corporations in the developed world," according to (PDF [4]) the Center for Tax Justice.) Romney's new plan would also kill the federal estate tax.

These ideas are straight out of Romney's old plan. In February and March 2007, according to Romney's old campaign website [5], the candidate pledged to slash taxes on savings for the middle class, lower marginal tax rates, eliminate the death tax, and "make our corporate tax rate competitive with its international partners." Sound familiar?

The similarities don't end there. On his day one to-do list, Romney promises to cut non-defense discretionary spending—comprising 15 percent of the federal budget [6], this includes money for jobless benefits, public education, veterans aid, environmental protection, and health research—by $20 billion in his first year. In 2007, he similarly pledged to trim non-defense discretionary spending by $30 billion a year. His new plan also pledges to turn Medicaid into a block grant program run by the states, which he suggested in the 2008 campaign under the guise of "promot[ing] innovation in Medicaid."

Echoing a typical GOP talking point, Romney's new plan includes a proposal to roll back regulations that "unduly burden the economy or job creation." Romney's old plan advocated the same, proposing a "regulatory relief board" to trim regulations that "choke off growth." Both plans call for weakening the Sarbanes-Oxley Act [7], the much-needed package of accounting reforms enacted after the Enron, Tyco, and WorldCom scandals, and also for consolidating federal job retraining programs to help laid-off workers develop new skills and find new employment. Tort reform, a favorite rallying cry of GOPers, features in both plans, too.

When it comes to powering the future, the new Romney plan advocates for more domestic oil drilling and coal mining to wean the US off of foreign energy sources. Ditto the old plan, which suggested drilling for oil in the Arctic National Wildlife Reserve in Alaska and the Outer Continental Shelf as well as developing alternate energy sources such as biodiesel, ethanol, nuclear, and clean coal.

This isn't to say "Believe in America" is completely cribbed from the Romney 2008 campaign. Proposals to sanction China for artificially devaluing its currency and sign free trade agreements with a trio of countries are new additions to Romney's economic manifesto. So is repealing the Dodd-Frank financial reform bill and creating free-trade-friendly "Reagan Economic Zones." But, to borrow Romney's smartphone metaphor, the former governor's vision for transforming America's looks a lot like repackaging an old iPhone 1 in an iPhone 4's shell.

August 7, 2011

Gannett news service

Unlike last year, there will be no "back-to-school" sales tax holiday in Illinois this year.

State Sen. Toi Hutchinson (D-Chicago), who was chief sponsor of the state's holiday last year, says Illinois "just cannot afford it this year."

New York was the first state to enact a back-to-school sales tax holiday in 1997.

Other states soon followed, sometimes to keep residents from crossing state lines to shop in states with tax holidays.

National Retail Federation CEO Matthew Shay says the holidays "bring people into stores like few other promotions."

Studies have shown, however, that the holidays simply shift the timing of purchases consumers already planned.

The Tax Foundation and the Institute on Taxation and Economic Policy say the holidays mostly benefit wealthy families. Low- and middle-income families don't have the discretionary income or time to shop only on the tax holidays, the groups contend.

The Tax Foundation says states should simply cut sales taxes if they want to give consumers a break. Policy think tank ITEP says states should instead offer sales tax credits to consumers who need them the most. To get the credits, eligible consumers would have to ask for them on their tax returns.

A sales tax credit could be designed to target the low- and middle-income families lawmakers want to help, says ITEP's Matthew Gardner.

"The striking thing about sales tax holiday laws," Gardner says, "is that policy people all over the ideological spectrum agree they're a dumb idea."

by Chuck Sudo

August 7, 2011

How deadbeat of a state is Illinois? So much so that the state won't be offering a sales tax holiday for back-to-school sales this year because we need the money to pay bills.

Suspending the sales tax holiday may not be a bad thing. They're evidently great for retail sales but the Institute on Taxation and Economic Policy says http://www.timesnews.net/article/9034508/critics-say-tax-free-holiday-benefits-mostly-wealthy-families"sales tax holidays mainly benefit wealthy families who have the discretionary income and flexible schedules to take advantage of them.

Instead, the tax think tank recommends states reduce their sales tax rates or offer sales tax credits to middle and lower-class families on state income tax returns if they truly want to give them a break. An example of how much tax revenue a state loses with a tax holiday is Louisiana, which forfeits $3.7 million when they offer a back-to-school sales tax holiday. At a time when state fiscal budgets are tightening across the nation, that loss of revenue leads to cuts in services and programs elsewhere.

ITEP analyst Matthew Gardner said, "The striking thing about sales tax holiday laws is that policy people all over the ideological spectrum agree they're a dumb idea." Yet politicians continue to offer them because they're popular with voters.

Original Post

September 1, 2011

by Rania Khalek

With the campaign season for Republican presidential primaries in full bloom, the candidates are falling all over each other in a fierce competition to tout their conservative bona fides. Even as housing foreclosures reach all-time highs, and unemployment in some states climbs into the double digits, Republican presidential contenders remain insistent in their demands for reducing government assistance to those suffering under the weight of economic disaster. So, let's have a look at how the candidates themselves are faring on this dismal economic landscape.

1) Rick Perry

Texas Gov. Rick Perry, the GOP's presidential frontrunner, according to the latest Gallup poll, is hardly an elitist. Born into a farming family of modest means in rural Haskell County, Perry continued farming cotton and raising cattle even after he was elected to the state legislature in the mid-1980s, according to the Texas Tribune, yielding him and his wife a combined income of just $45,000 -- a pittance compared to his current $150,000 annual salary as governor (not to mention the millions he's earned on the side in real estate).

You would think that a past of manual labor would have instilled in Perry a sense of solidarity with the working class, but it's just the opposite. Although Perry wasn't born into wealth, he might as well have been, given the ease with which he became accustomed to a life of privilege, which is currently being funded by the taxpaying residents of Texas.

Based on Perry's tax records, the Texas Tribune's Jay Root reveals that "Perry's biggest income gains have come from buying and selling land" during his 30 years in public office. "Since the early 1990s, when Perry began serving as a statewide elected official, the transactions have helped him earn about $2 million in pre-tax profits," according to Root.

Even with all that money, Perry finds it appropriate to use taxpayer funds to pay for his extravagant and temporary mansion, while he and his family await renovations and repairs to the governor's mansion. (An unknown arsonist practically destroyed the residence in 2008.)

According to a May 2010 Associated Press investigation, Perry "has spent almost $600,000 in public money during the past two years to live in a sprawling rental home in the hills above the capital." Texans are forking up over $10,000 a month to cover Perry's rent, which includes "utilities and upkeep to house Perry in a five-bedroom, seven-bath mansion that has pecan-wood floors, a gourmet kitchen and three dining rooms."

The AP breaks down the costs:

His 6,386-square-foot rental sits on more than three acres and was advertised in 2007 for sale at $1.85 million. Perry's state-paid expenses at the home include $18,000 for "consumables" such as household supplies and cleaning products, $1,001.46 in window coverings from upscale retailer Neiman Marcus, a $1,000 "emergency repair" of the governor's filtered ice machine, a $700 clothes rack, and a little over $70 for a two year subscription to Food & Wine Magazine. Maintenance on the heated pool has cost taxpayers at least $8,400, and the tab for grounds and lawn maintenance has topped $44,000, the records show. All told, taxpayers have spent at least $592,000 for rent, utilities, repairs, furnishings and supplies since Perry moved in.

While charging the Lone Star state a steep fee to maintain his fancy abode, Perry has kept busy slashing funds to public education and the social safety net to solve his state's budget woes. In 2011 alone, he cut $4 billion from public education and $4.8 billion from Medicaid to fill a $27 billion two-year budget gap (even as one in four Texas children are living in poverty).

He also put in place a state tax structure that redistributes wealth from the working class to the rich, a conclusion reached in a recent analysis by the Institute on Taxation and Economic Policy.

Meanwhile, Perry complained about "the injustice that nearly half of all Americans don't even pay any income tax" during his announcement of his presidential candidacy, referring to the 50 percent of Americans who earn too little to pay income taxes, or whose tax payments are refunded through programs such as the Earned Income Tax Credit, which is a form of aid to families with children. (All legally employed Americans, however, pay federal taxes for Social Security and other benefits.)

However, Perry was kind enough to "cut back on some luxuries in response to the state's tight finances," a spokeswoman told the AP. She explained that the Perrys have restricted their help to just "one housekeeper, one full-time chef -- although a second chef works part time -- and a mansion administrator who left and was not replaced."

Read the rest and summaries of other candidates here.

Original Post

September 1, 2011

By Roger Bybee

America's CEOs are truly in a league of their own when it comes to pay and power.

Total CEO pay at the largest 292 corporations averaged 325 times what the average worker made in 2010, a far higher ratio than in any other Western nation. This figure had actually declined from an incredible 525 times the typical worker’s wage in 2000. But the CEOs of the Top 100 are truly in another stratosphere. They averaged an astounding 1,723 times what their workers earned in 2007, according to Les Leopold’s excellent book, The Looting of America.

The Washington, D.C.-based think tank Institute for Policy Studies has come up with a different, but equally stunning, way of gauging CEO pay by making a simple comparison. For its new report, Executive Excess 2011, the IPS placed the compensation packages of America's Top 100 CEOs alongside the tax bills of their corporations, and discovered that

Of last year’s 100 highest-paid U.S. corporate chief executives, 25 took home more in CEO pay than their company paid in 2010 federal corporate income taxes.

U.S. corporations and their stooges in Congress, including some Democrats, frequently whine that the U.S. corporate tax rate is far too high for U.S. firms to remain competitive. In fact, the multitude of loopholes mean that the official 35% tax rate is almost never imposed. Corporate tax rates for U.S. firms are actually among the lowest among the 30 advanced nations belonging to the Organization of Economic Cooperation and Development, reports Citizens for Tax Justice:

According to a 2007 study by the Bush Treasury Department, between 2000-2005 US corporations paid only 13.4% of their profits in corporate income taxes, well below the Organization of Economic Cooperation and Development (OECD) average of 16.1%.

Just in case those figures are too complex for the average congressperson to comprehend, the IPS study offers some very memorable facts:

• ZERO OR LESS TAX BILL: Fully 25 of the 100 firms paid no U.S. corporate taxes for last year, and in fact gained tax refunds.

• MORE ON LOBBYING THAN TAXES: No less than 20 of the 25 firms spent more on lobbying than they paid in taxes, no doubt because in some cases the lobbyists helped craft the obscure language of the tax legislation and regulations. The “investment” of these giant corporations thus paid off very handsomely.

• DONATION TO CANDIDATES MORE THAN TAX BILL: Campaign contributions were similarly a great investment for 18 of the 25 no-tax firms which “gave more to the political campaigns of their favorite candidates than they paid to the IRS in taxes.”

• SKY-HIGH PAY: The 25 tax-dodging CEOs the IPS report spotlights “averaged $16.7 million in pay last year, well above the $10.8 million Standard & Poor’s 500 CEO average."

• TAX-HAVEN HEAVEN: The use of these tax havens”—like the Cayman Islands, Bermuda, and Panama—which collude with corporations in concealing assets from the IRS—proved to be another highly profitable maneuver.

These tax havens provide U.S. firms with the privilege of setting up a foreign "subsidiary"—often consisting of merely a mailbox—to which it can assign ownership of brand names, logos, and other valuable "intellectual property rights."

The U.S. branch of the corporation is then charged huge fees for the use of this intellectual property, thereby dramatically reducing the firm’s profits on paper. The advantages of the tax havens made them popular with 72 percent of the no-tax corporations.

This point underscores the dangers in the proposed NAFTA-style “free trade agreement” with Panama, one of three that President Obama has been promoting. The FTA with Panama, if approved by Congress, would erect a permanent shield for US corporations using Panama as a tax haven, according to Global Trade Watch.

Eighteen of the 25 firms operate subsidiaries in offshore tax havens, for a combined total of 556 tax haven subsidiaries. Of the seven companies that reported losses in U.S. pre-tax income, five have a combined total of 267 tax haven subsidiaries and a sixth, Nabors Industries, is headquartered in Bermuda.