Relevant and even prescient commentary on news, politics and the economy.

Public Transit Benefit was down, is now up again (in Senate)

by Linda Beale

Public Transit Benefit was down, is now up again (in Senate)

One of the tax provisions that lapsed last year was a very popular tax expenditure supporting public transportation–a tax credit for commuters using mass transit was allowed to lapse back to a $125 monthly benefit from the stimulus level of $230 a month.  Ironically, in a time of clear importance environmentally of cutting back on cars and increasing use of public transit, Congress had given preferential treatment to support for parking (likely supporting most those commuters at the higher end of the income scale who like to drive their BMWs from Connecticut to New York City, or commuters who don’t have decent access to public transit):  the parking subsidy actually increased to $240 a month.

Today, the Senate passed the Surface Transporation Reauthorization Bill (see summary, here; for text and other actions, see S.1813 on Thomas).  The bill as passed included a provision, retroactive to Jan first of this year when credit lapsed to the lower level, that would restore the public transit credit at the same level as the current parking subsidy.  See PR Newswire, Senate Approves Increase to Pre-Tax Benefits for Public Transportation Commuters, Commuter Benefits Work for (Mar. 14, 2012).  The House may delay action on the bill though Boehner has said he would call the Senate version for a vote if the GOP majority doesn’t agree on an alternative.  See Linda Scott,  Senate Passes Transportation Bill, PBS NewsHour (Mar. 14, 2012).

It’s good to see Congress moving to correct this.  As Sen. Lautenberg noted

“Mass transit boosts the economy, reduces dirty auto emissions and takes cars off our congested roads. We fought hard to include this provision in the bill so that transit riders can enjoy the same benefits as drivers. I’m pleased that this bill finally appears poised for Senate passage, and I urge the House to follow suit and approve this bill immediately.” Lautenberg: Increased transit rider tax benefit would help thousands of New Jersey commuters (Mar. 13, 2012). 

Favoring cars over public transit didn’t make sense except as just another example of the way tax expenditures favor high income taxpayers generally–the real face of class warfare in the U.S.A. today. 
(Though of course, it goes to show that it is much easier to get some kind of tax break through Congress these days–in spite of the right’s whining about needing to cut spending–than it is to enact a reasonable program with expenditures specifically targeted at the purpose  intended.  This is why Obama’s corporate tax proposal provides a scattershot corporatist oriented reduction in corproate tax rates for “manufacturers”, instead of doing what we should do, which is leaving the corporate tax statutory rate where it is, and providing an incentive program for corporations that bring significant numbers of new jobs back to the US.)
If you don’t believe my point about class warfare, just look at the way the balance works out between beneficiaries of the various programs that the right likes to refer to as “entitlements” and wants to cut, versus the beneficiaries of numerous tax expenditures in the Code that the right seems endlessly willing to extend, increase, and rationalize.

The result is a general pattern of reallocation of resources in ways that amount toredistribution upwards to those already at the top of the income distribution.  Looks a lot like rewarding rich Congressional cronies while punishing the poor, the elderly and the vulnerable.  See, e.g.,  Eduardo Porter, A Nation With Too Many Tax Breaks, New York Times (Mar. 14, 2012), at B1 (and, off topic but relevant given  Rush Limbaugh’s despicable slurring of the Georgetown student advocating for full coverage of contraception under the Health Care law, notice that Reagan’s signing of the 1986 tax reform act was in the middle of a slew of older white males–not a female in the picture!).  The article compares the distribution of federal benefits (programs like unemployment, Social Security, Medicare, Medicaid, housing assistance, and food stamps, but not Pell grants or Veterans Benefits) to the distribution of tax expenditures (exemptions, deductions and credits like the preferential rate on capital gains, the home mortgage interest deduction, and the deduction for charitable contributions).

The federal benefits are much more evenly distributed, though the primary benefit does go to those in the lowest two quintiles (as intended by the nature of the programs).  The bottom 40% of taxpayer families by income group get about 60% of the program benefits.  But the tax expenditures–all those goodies built into the Code through crony capitalism–go much more disproportionately to those at the very top of the income distribution:  the top 20% get a whopping 67% of the benefit of tax expenditures, with the second highest quintile getting an additional 14%, adding up to 81% of the benefit going to the top 40% of the income distribution (and this spread may undercount, since it compensates for generally larger taxpaying units in the top income layers).  The lowest 40% get only 11% of the tax expenditures.

There is a good graphic for this, that you can access through this link.

crossposted with ataxingmatter

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Illinois’s Tim Johnson (Rep.) Squirms under Norquist No-Tax-Increase Pledge

by Linda Beale

Illinois’s Tim Johnson (Rep.) Squirms under Norquist No-Tax-Increase Pledge

Back in 2002, Tim Johnson represented a safely red district in Illinois and the radical right was pressing on his back with its reaganomics-inspired program to cut-taxes-to-shrink-(nonmilitary)-government-and-eliminate-public-infrastructure-and-social-justice-programs; de-regulate-to-free-up-big-business; privatize-wherever-you-can-especially-schools-bridges-and-other-essential-services.  Not to be outdone, Tim Johnson signed the no-tax-increase pledge on the dotted line, with his right-hand aide as witness.

In spite of the decades of extraordinarily well-funded anti-tax/anti-government propaganda spewed by purported think tanks like the “Americans for Prosperity” arm of the Koch Bros, the anti-estate tax “American Family” coalition arm of the Walton heirs, the Big-Business oriented Chamber of Commerce and Club for Growth and similar groups, the American public seems to be finally beginning to learn to read between the lines and recognize self-serving propaganda for what it is.    Even with all the money being spent to misrepresent and distort the truth about taxes, it is worth noting that Rasmussen polls (run by a leaning-right head) are finding Americans more willing to support tax increases than they were a few years ago.  For example, back in December 2011, despite the anti-tax nonsense of the Tea Party and other radical right-wing groups, only 52% thought tax cuts would help the economy–in the low end of the 51% to 63% range answering that question affirmatively since July 2008.  Similarly, a recent poll showed that 47% favor a candidate who wants to raise taxes on the rich over a candidate who wants no tax increases.  Back in September 50% of Americans favored a mix of spending cuts and tax increases (but 64% weren’t willing themselves to pay higher taxes, a product of the NIMBY syndrome).  And a March poll found a significant decrease in Americans responding who thought that America is an “over-taxed” nation.

[N]ew Rasmussen Reports national telephone survey finds that 56% of Likely U.S. Voters believe America is overtaxed. But that’s down from 66% two years ago and 64% last year. One-out-of-three (33%) now believe the country is not overtaxed, while another 12% are not sure. (To see survey question wording, click here.)

[ASIDE:   The problem with the question about whether Americans are overtaxed–especially in this age of 527 groups spending buckets of money to convince them that they are–is that it depends on who you are asking and what facts they actually know about taxes, the economy, and what the difference is between effective tax rates and statutory rates.  Everybody hears the radical right prattle on about how high our (statutory) tax rates are.  Very few hear much about effective tax rates and fewer still understand the difference.  The wealthy are not over-taxed, though they have spent a good bit of their money to convince typical Americans that they are.  Those who escape federal income taxation because they earn amounts covered by the standard deduction and personal exemptions and earned income tax credits–amounts intended to keep lower income taxpayers from having to pay income tax–nonetheless have to pay signficant state and local property and sales (and often also income) taxes and have to pay significant federal payroll taxes.  Not surprisingly, they may well feel overtaxed when their wages are going down and their tax burden is staying the same and they hear the think tank spew of anti-tax stuff on the airwaves day and night.]

And now Tim Johnson’s district has changed.  He represents a more Democratic electorate, that is less likely to swallow the Tea Party tax aversion hook, line and sinker.  So he is backtracking.  Which is good. It’s a shame he backtracked bit by bit, at first claiming he’d never signed and then suggesting his aide signed for him before he finally admitted he had signed the pledge but just didn’t consider it cast in granite.   See Are you Now and Have You Always Been?, New York Times editorial (March 11, 2012).

But to give him credit, he finally did take a  stand against the idiocy of the tax pledge.   See Pat Garofalo, GOP Rep. Blasts Norquist’s Anti-Tax Pledge as “Disingenuous and Irresponsible”, Think (Mar. 8, 2012).  He ought to do it more straightfowardly–by admitting that it is a mistake to assume that tax cuts are always good or that tax increases are always bad and by acknowledging that there is plenty of room to tax the rich more without harming anybody’s economic recovery.  His statement (quoted on ThinkProgress) weasles by making clear that he is leery of tax increases other than fixing tax loopholes or raising the Social Security tax…..

One hopes that these few quasi- brave Republicans who are beginning to speak out against the idiocy of a “pledge” to cut off a key tax policy tool of democratic institutions for supporting public infrastructure and public needs will cause Norquist’s pledge to go to the same ignominious fate that awaited Joe McCarthy’s anti-liberal binge (under the name of anti-communism) when a lone lawyer questioned his decency.  As a constitutent told GOP representative Rick Berg in a North Dakota town hall meeting (quoted on Think Progress), these guys are supposed to work for their constituents, not for Norquist.

crossposted with ataxingmatter

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Hey, didn’t the GOP say it cared about deficits?

by Linda Beale

 Hey, didn’t the GOP say it cared about deficits?

Just when you think those on the radical right had gone about as far as they could go without recognizing their own zaniness, those in Congress have revived their version of a tax “reform” for businesses.  It was first proposed in 2009–as an alternative to real stimulus spending on infrastructure .  And yes, it is yet another tax cut.  An even zanier one than the rest that they’ve come up with while at the same time whining of deficits and suggesting that longstanding social programs like Social Security and Medicare must be cut back.
Eric Cantor, in a memo last month to fellow Republicans, announced that the House would be putting this proposal forward–let every business with 500 employees or fewer deduct off the top 20% of their income.  And they want to pass this rot by the filing deadline–on the pretense that it will help ordinary folk.
See Richard Rubin, Hedge Fund Tax Break May Come in Republican Small Business Plan, San Francisco Chronicle (Bloomberg News, Mar. 8, 2012).

Now, folks, there are some mighty BIG businesses with fewer than 500 employees.  Like just about every hedge fund and leveraged buyout fund. (The latter, of course, like to call themselves “private equity” these days–let’s people overlook the fact that they have destroyed many a stable, profitable business by loading them up with debt and sucking out all the cash while firing employees or making the business focus on paying back the debt and not on doing business).  Why would the GOP want to reward those funds with even more tax breaks than they already grab for themselves–carried interest, pass-through taxation, and the ability to avoid the payroll taxes since they treat their compensation as though it were an investment gain?  Because that is what they are all about–making sure the richest people in the country get all the breaks.

Then there are sports teams.  Liquor stores.  Golf courses. Gambling dens….. Hotels. Restaurants.  Engineering firms. Accounting firms.  Law firms.  Architectural firms.  Big Business that normally make Big Money.
Just goes to show that the corporatist GOP never saw a tax break for the monied class that it didn’t like.

crossposted with ataxingmatter

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Greg Mankiw attempting to justify carried interest

by Linda Beale

Greg Mankiw attempting to justify carried interest

Greg Mankiw wrote an op-ed in the Sunday Times Money section: Capital Gains, Ordinary Income and Shades of Gray, New York Times (Mar. 4, 2012).

Mankiw notes the historical trend in the US to differentiate between capital gains and ordinary income regarding tax rates (though we have had notable experiements, both in the regular tax and in the AMT, to the contrary). He asserts that there are “good reasons” for the preference for capital gains income–offering only the standard idea of lack of indexation for inflation/deflation as an example.

The purpose of the piece is to justify the carried interest treatment of money managers’ gains from dealing with other people’s money as equivalent to a carpenter who fixes up a dilapidated house and gets capital gains on the sale of the home, though the gains are really paying off the carpenter’s sweat equity. Since the carpenter gets capital gains under our system, he says, why shouldn’t the money manager who does an analogous activity (assuming–which may be a rather big jump– that hedge fund, private equity and other money managers are doing “sweat equity” that adds to the value of the assets under management, and should be viewed analogously to the carpenter).

The problem with making these analogies, especially in the area of capital gains, is that the idea of capital gains is problematic to start with. We’d be much better off with a code that made no such distinction, since there are certainly instances where the distinction is an arbitrary one. Since the line drawing isn’t easy (and it isn’t), then the distinction shouldn’t exist at all in the tax code. That would be the right solution overall.

Nonetheless, the fact that a category is hard to apply generally doesn’t mean that there isn’t a right answer–or at least a better one– in particular circumstances. It is particularly inapt to compare money management with rehabilitation of dilapidated property. Rehabilitation of real property adds “real” value, in that the property is upgraded and will physically last longer than it would have without rehabilitation. Money managers don’t necessarily add any value–they may make money for themselves and others, but there is no real productivity gain in the economy in many (if not most) instances and certainly in any case where the gain is primarily speculative (often the case with hedge funds) or destructive of domestic businesses (often the case with private equity funds).

Private equity fund managers, you will recall, invented the leveraged buyout (or maybe it would be more accurate to say that the idea of the leveraged buyout led to private equity funds). The idea behind leveraged buyouts was to take a stable, money-making company that wasn’t heavily debt-ridden, load it up with debt to cover the acquisition cost of the company, and use the cash flows from the company to pay off the acquisition debt. Private equity funds like Bain Capital could then leverage a minimal investment of their own with the purchased company’s debt to get huge profits, once the debt was paid off with good cash flows (already existing out of the company, with nothing due to the “management” of the money manager). The better the company taken over was, the more its cash flow could be counted on to pay off the debt, the more leverage would be added, the quicker the debt was paid off, and the better the ultimate profit. Sometimes this takeover was relatively harmless for the “good” company, but many times it was harmful–the takeover changes and debt resulted in focus solely on profits and not on long-term investment, and the company’s long-term stability was destroyed. The process was seldom positively beneficial for the company over the long term or for its community (though it may have been for particular shareholders and the managers themselves). The point here, of course, is that the LBO was targeted to (already)”good” companies with low leverage and high cash flow that could easily borrow in the market to cover the cost of the acquisition.

Later, of course, as the age of financial speculation got fully underway, private equity firms started taking over companies that could never expect to pay back the additional debt the LBO loaded them with. The private equity firms made their money in these cases by driving them into bankruptcy and laying off or firing the workers. Equity firms still got their profits out of the deal by selling off the components. But the companies (and especially their workers) were done for–if the companies survived at all, they were just parts of some conglomerate with very different functions.
Making money from managing other people’s money, in other words, is not per se productive for the economy as a whole and is not something we should reward with low taxation that acts as an incentive to the activity. We should recognize the money manager’s take as what it is–compensation for work done–and tax accordingly.

As an aside, I’ll note that it wouldn’t be unreasonable to have a handyman take ordinary income on his share of the profit that serves as reasonable compensation for his labor, but in most cases that’s a difficult facts and circumstances issue for the Service to sort out after the fact. One reason carried interest is such an obvious place to repair the problematic categorization of labor income as preferential capital gains is that there will be a partnership and there will be records of “management fees” and “carried interest allocations”. Given our sophistication about partnership allocations, identifying and classifying the carry as ordinary income is a relatively simple endeavor.

crossposted with ataxingmatter

James Kwak
has a take on it also.

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Defining Rich VI: 1936 tax tables

Today we are continuing to look at the historical tax tables to see how we viewed and possibly defined rich. I introduced this idea with my post: Defining Rich III.
I found a source for all sorts of historical data from the Census Bureau. You can down load it or the better way is to click on the PDF file which brings up the Intro and then click on any of the listings of the table of contents which takes you to that set of PDF data.  For this posting regarding income data I am using this section.
The average weekly income for all manufacturing was $22.82 per week on 39.1 hours work. The highest paid was printing/publishing newspapers/periodicals at $35.15 per week on 37 hours work. The lowest was cotton goods at $13.80 per week on 37.5 hours of work.
In the non-manufacturing sector the I calculated the average weekly income to be $23.76 on 40.28 hours of work. The highest earnings were electric power/lights manufactured gas at $31.70 per week on 40.2 hours work. The lowest was hotels at $13.97 per week on 48.3 hours of work. For the Walmart greeter retail trade-general merchandising it was $17.51 per week on 40.8 hours work.
There were regional differences also. The most glaring is the north/south difference. The hourly wage ranges from 12.5 cents to 19 cents less if you worked in the south. The greatest differences being between the East South Central and the Pacific North.

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It’s Almost April so Tax Tips Are Flowering

by Linda Beale

It’s Almost April so Tax Tips Are Flowering

You can tell when it is getting close to the April filing deadline for individual calendar-year taxpayers. All of the major tax firms release their “handy tax tips” to entice new clients for this tax season.
The American Institute of CPA’s handy tips (released Mar.1, 2012) include some helpful reminders that taxpayers should claim deductions they are entitled too but shouldn’t be piggy and claim deductions–like the home office deduction–that they aren’t entitled to.

  1. Expenses. “Keep a daily diary.”
  2. Deductions. Take advantage of all of the deductions to which you are legally entitled. “The most common deductions for small business owners include entertainment, travel, meals, capital assets, home office and health insurance. Travel miles, meals and entertainment deductions require that you maintain a diary with daily entries that tie into receipts and other records.”
  3. Traps. “[C]laiming deductions that exceed your income for more than one year is a definite red flag. The home office deduction, which is allowable only under specific circumstances, may be another red flag.”
  4. Retirement. “income each tax year to qualify for a tax-deductible retirement plan.”
  5. Equipment. “For tax years beginning in 2011, a small business may deduct up to $500,000 in equipment purchases as long as the business spends $2 million or less for equipment for the year.”
  6. Payroll. “One of the most common and costly tax-related problems for small business owners is that they use the payroll taxes withheld from employees to finance business operations. Not only does the IRS often go after a small business owner’s personal assets to collect the unpaid payroll taxes, but also it may attempt to assess significant penalties.” In other words, those taxes you’ve withheld aren’t your money to spend–you are collecting on behalf of the government and must turn them over.
  7. Insurance. “If you have health insurance coverage for your employees, check to see if you are eligible for the small business health care tax credit. The IRS website has a page describing the credit, eligibility requirements and how to claim it. ”
  8. Veterans. There’s a credit for employers who hire veterans. The IRS website has details.
  9. Contributions. “Be sure to get a valuation for any non-cash items your business donates to charity”
  10. Help. “If you are unsure about anything related to your tax obligations under the law, you should seek professional help “

crossposted with ataxingmatter

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Comparisons of charitable giving among presidential candidates

by Linda Beale

Comparisons of charitable giving among presidential candidates
[Hat Tip to Tax Prof]

Len Burman, now a professor at Syracuse but still affiliated with the Tax Policy Center, wrote a blurb for Forbes on Stingy Rich People, Santorum-Gingrich Edition, Forbes (Feb. 20, 2012), which was a followup to Caron’s comparison of presidential contender giving based on “Romney and Obama vie for title of most charitable; Santorum gave least to charity,” Washington Post (Feb. 16, 2012).

Romney gave about 13.8% of his income to charity in 2010, and Obama gave about 14.2% of his in 2010. The Gingrichs (with about $3.1 million in income) gave only about 2.6% of theirs in 2010 and the Santorums (with about $0.9 million in income), only about 1.8% of theirs in 2010.
Burman professes his surprise at Gingrich and Santorum’s relative stinginess, given their avowed commitment to religion (and their open claim to religious merit) and the Christian doctrine of tithing 10% of one’s income to the church.

But Burman finds that the relative stinginess of the two candidates is about on a par with members of their respective income classes. The group of people making between half a million and a million give an average 2.6% in 2009 and the group making between $2 and $5 million gave about 3.2% on average. Conclusion–Santorum and Gingrich are “in the middle of the pack” in terms of generosity for people of their income level.

Personally, I’ve always thought candidates should keep their religious faith to themselves. I don’t think we have any business at all taking into consideration whether a presidential candidate is a Mormon, a Baptist, a Muslim or an atheist. But if they do make a point of their religious faith and present it as a worthy attribute qualifying them for the presidency, then it is rather revealing when those who openly “brag” about their religiosity don’t comply with the most fundamental concept of sharing and generosity in the bible, the tithing requirement

crossposted with ataxingmatter

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The Supreme Court’s corporate monsters–if money buys them "free speech" rights, can it help them avoid giving others human rights?

by Linda Beale

The Supreme Court’s corporate monsters–if money buys them “free speech” rights, can it help them avoid giving others human rights?

The Supreme Court decided in Citizens United that corporations could intevene to influence elections–giving money and aide to their selected candidates. This was an inordinate broadening of corporate “personhood”, claimed to be necessary under the warped First Amendment precedents of the Supreme Court that count “money” as speech and thus consider that limitations on money spent to influence elections as a limitation on speech.

Yet most economists and tax professors argue against the corporate tax–which has been in place longer than the individual income tax–on the grounds that taxes distort and that the claimed “double taxation” of corporate income distorts the allocation of capital. See, e.g., Tax Foundation, 2004 paper on integrating corporate and personal income taxes; seminal 1985 integration piece from NBER. Much of the argument boils down to an a prior assumption that “only people can pay taxes.”
(Of course, we used to think that only people could engage in campaign speech or bribe politicians for quid pro quo policies or otherwise influence the course of society. We were naive.)

As a result of this “received wisdom” about economics and corporate taxes–mostly based on the mathematically correct but practically challenged Chicago School approach to understanding economic systems (by assuming away most of the real world, including life, death, and everything in between)– corporate lobbyists and their allies in Congress have been pushing for decades to eliminate corporate taxation through integration of the corporate and individual tax schemes or at a minimum to drastically reduce the liability of corporations for federal income taxes.
Every presidential candidate has one scheme or another to reduce corporate taxes, with even Obama falling prey to the continuing influence of the Wall Street facilitators like Timothy Geithner in the Treasury and Larry Summers. See Citizens for Tax Justice, President’s Framework Fails to Raise Revenue (pointing out that there is no reason not to fix the loopholes in corporate tax to help address the deficit without having to lower corporate rates, and noting that although Obama at least called for making his rate reduction framework for so-called corporate tax reform revenue neutral, his plan fails to raise about a trillion dollars to make up for the corporate taxes that it gives up). As CTJ notes, many organizations have called for the opposite–to raise revenues from corporations that have been paying very little in taxes, especially since the 2003 Bush “reforms” that granted most of the items on corporations’ wish list for tax cuts.

Last year, 250 organizations, including organizations from every state in the U.S., joined us in urging Congress to enact a corporate tax reform that raises revenue. These organizations believe that it’s outrageous that Congress is debating cuts in public services like Medicare and Medicaid to address an alleged budget crisis and yet no attempt will be made to raise more revenue from profitable corporations. Id.

Nonetheless, most candidates call for making the corporate income tax territorial and thus making it even more lucrative for US multinationals to move more of their corporate businesses (and jobs) abroad. Most call for reducing the rates on corporations to a historically unprecedentedly low level–making it even more likely that the US trade deficit and corresponding budget deficit will continue to grow, even at a time when these self-nominated fiscal “conservatives” are claiming that the current deficit requires monumental sacrifices from ordinary people in the way of reduced medical care and old age security (the effort to cut back drastically on the benefits payable under Medicare and Social Security).

Most treat the owners of corporate equity as though they were some kind of revered engine of growth, when in fact they are usually merely rich people who are interested in reaping as high a profit as possible from sales of corporate shares but very little interested in entrepreneurship, and as likely to engage in quick trades (the profits of which go into their pockets and not into the working capital of the corproations) as to hold long-term based on analysis of corporate business fundamentals. Most don’t accompany their form of integration with eliminating the category distinction between capital gains and ordinary income.

Most “corporate reform” plans call for continuing most of the absurd provisions that have larded the pockets of corporate management over the last few decades, such as

  • accelerated depreciation and expensing (including all the depletion allowances for the heavily subsidized oil and gas extractive industry, even while it complains about the petty little incentives put in place in recent years for environmentally sound energy generation–accelerated expensing creates “phantom” deductions that reduce taxable income well below economic profits), and
  • the “research & development” credit, which was first enacted as a stimulus that was to be in place for a very short period of time but has been extended in fits–even retroactively for several years–as corporations demand making every single “stimulus” tax break they get permanent.

(As readers of this blog know, I see little merit in the R&D credit. Corporations can already deduct way too much “phantom” expenses–excess interest expense that allows them to operate with too much leverage, facilitating equity firm buyouts by leveraging up the purchased entity to pay off the equity strippers. Further, as with so many of the GOP’s favorite programs of tax subsidies for multinationals and the upper crust, it hasn’t bothered to conduct studies to see if the R&D credit indeed results in more research done in this country. Clearly, a retroactively enacted credit does NOT incentivize research.

Probably the times it’s been enacted without being retroactive haven’t either–it takes extensive labs and equipment to do research, and such labs and equipment have to be purchased far ahead of when they pay off. Most of the R&D that the credit supports is likely to be of the “tweak-a-patent” variety that seeks merely to find a way to extend a monopoly profit from a particular profit–something the patent law should frown upon.)
So the drumbeat for lower corporate taxes–at a time when corporations are paying less as a proportion of GDP than they did in the time of our most sustained economic growth–continues unabated from the right joined by only slightly less enthousiastic accompaniment at the White House and think tanks like the Tax Policy Institute.

Meanwhile, the Supreme Court, having anointed corporations with a kind of personhood that lets them intervene in elections even though they have no vote, has taken for consideration a case that challenges the rights of individuals to hold corporations accountable as people are held accountable for human rights violations. The case is Kiobel v Royal Dutch Petroleum (2d Cir. 2010), in which Nigerian plaintiffs seek to hold Royal Dutch/Shell liable for violating the Alien Tort Statute (“ATS”), 28 U.S.C. § 1350, which upholds international norms of human rights.

The Second Circuit held that US courts cannot entertain such suits, holding that jurisdiction under the Alien Tort Statute against corporations requires an international norm approving sanctioning corporations for torts and that requires more than the mere fact that most countries treat corporations under their domestic law as capable of committing torts. The court in the Second Circuit opinion makes a point much like economists tend to make about taxes–essentially implying that “only people commit heinous acts”.

From the beginning, however, the principle of individual liability for violations of international law has been limited to natural persons—not “juridical” persons such as corporations—because the moral responsibility for a crime so heinous and unbounded as to rise to the level of an “international crime” has rested solely with the individual men and women who have perpetrated it. Second Circuit in Riobel.

While people are the “deciders” of corporate decisions, nonetheless the corporate form permits corporations to engage in conduct that individuals alone cannot engage in–from amassing huge resources to carrying out massive enterprises that pollute and steal human dignity. To ignore that reality of corporate wrongdoing, especially in an age that has anointed corporate personhood with rights that seem furthest from ones that corporate entities should be permitted to enjoy, would be folly.

For further discussion of the implications of the case, see Peter Weiss, Should corporations have more leeway to kill than people do?, New York Times (Feb. 24, 2012).
Suffice it to say that this case raises the specter of full-blown corporatism overtaking the entire U.S. economic and social system. If the Supreme Court accompanies its “personhood for free speech/election intervention rights” with “not people so can’t be touched for human rights violations”, there will be even fewer ways to hold multinationals accountable, and they will forge even stronger relationships with autocratic dictators who treat their citizens like slaves and their environments like garbage pits. Meanwhile corporations will continue to intervene in our elections at will (usually the will of their ultra-wealthy managerial class), using the extraordinary power of the resources at their command.

We will all be the worse for any decision that would allow multinationals to expand their quasi-sovereign rights without saddling them with a strong obligation to comply with international norms respecting human rights. Rights without obligations are invitations to corruption.

crossposted with ataxingmatter

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Rick Santorum’s tax policies and more–imposing his moralizing choices on all

by Linda Beale

Rick Santorum’s tax policies and more–imposing his moralizing choices on all

Rick Santorum is a man who seems to hold sincerely held religious beliefs. The problem is that he thinks everybody that matters holds (or should hold) the same beliefs that he does, or at least should be forced to live in a country that operates by the principles that follow from those beliefs.
Santorum has accused Obama of operating from a “phony theology” (one not based on the Bible). That suggests that Santorum thinks a president is supposed to impose a biblical theology on all presidential work–and that Santorum intends to impose his own “correct” theology if he were to be elected president. See Santorum Questions Education System and Criticizes Obama, New York Times (Feb. 18, 2012). That approach fits with Santorum’s idiosyncratic views on how religion is supposed to influence public life: Santorum has made a point of claiming that he does not hold with the founding principle of separation of church and state–a principle enunciated by Thomas Jefferson, ascribed to by Abraham Lincoln, and articulated splendidly by John F. Kennedy. See Joan Walsh, Santorum’s JFK Story Makes Me Want to Throw Up, (Feb. 26, 2012).

This issue is worth pointing out clearly. Here’s what Santorum said

I don’t believe in an America where the separation of church and state is absolute. The idea that the church can have no influence or no involvement in the operation of the state is absolutely antithetical to the objectives and vision of our country. (emphasis added)

And here’s what the statesman Kennedy said when confronting the concerns of the Southern Baptist Convention that a Catholic in office would implement the laws under the dictate of the Pontiff in Rome rather than the U.S. Constitution.

I believe in an America that is officially neither Catholic, Protestant nor Jewish; where no public official either requests or accepts instructions on public policy from the Pope, the National Council of Churches or any other ecclesiastical source; where no religious body seeks to impose its will directly or indirectly upon the general populace or the public acts of its officials; and where religious liberty is so indivisible that an act against one church is treated as an act against all.

What does Santorum’s theology look like and how will it influence public policy under a Santorum presidency? Santorum apparently thinks public schools are a bad idea (he’s likened them to “factories”) and that all children should be able to be home schooled (and indoctrinated in a parent’s religious preferences) at taxpayer cost. See Santorum Questions Education System and Criticizes Obama, New York Times (Feb. 18, 2012); Santorum Exposed: why is Santorum spending your tax dollars on his family (noting that Santorum took $100,000 from Pennsylvania for an online program for his home-schooled kids, even though he resided in Virginia at the time). He thinks kids get “weird socialization” in public schools. Rick Santorum, Kids Get Weird Socialization in Schools, Huffington Post (Feb. 22, 2012).

We already have weakened public schools by permitting taxpayer funds to pay for “nonreligious” items at religious private schools, such as text books and transportation. Since money is fungible, that payment merely subsidizes more religious expenditure on religious education and deprives children in public schools of much needed resources to deal with the huge lingering infrastructure problems of our public school systems. We don’t need to go even further in that direction by moving religion into public schools wholesale, or moving even more children into ideological indoctrination through taxpayer-funded schooling.

Santorum’s theology is backward on women as well, seeming to think more women should be anchored in the kitchen with numerous progeny pulling on apron strings that signify the most satisfying role for women (in his book). One worries how that would play out in a Santorum presidency that could cut off funding for disfavored activities through executive orders, and his public statements bode ill for how it would pan out. Santorum apparently thinks the feminist revolution is bad, because it has made it harder for women to choose to stay at home. See Santorum faces questions on women in the work force, New York Times (Feb. 12, 2012).

 In contradistinction to the importance of individuals’ rights under the First Amendment, he seems to think that every religious institution should be able to impose its beliefs on its workers (no matter what their beliefs are): under Santorum, a woman working in any capacity for the Catholic Church could not be covered in her health care plan provided by her employer for contraception. See Social Issues Rule Day in Candidates Race, AP (Febl 12, 2012) (noting Santorum’s comment that the contraception rule forces churches to do something against their basic (institutional) tenets). He thinks voters should be aware of his religious faith and should consider that in determining whether to vote for him. And his religious faith doesn’t believe in birth control, so he wants to be sure that the tax code provides a huge tax exemption for each child in multi-child families–but not a refundable tax credit that would be of real use to a poor working mother with one child to care for. See Santorum letter, Raise the exemption for children, not the child tax credit, Wall St. J (Feb. 25, 2012) (claiming that he wants an $11,100 personal exemption per child for working families but is against a child tax credit that would be refundable, so is “innocent” of “expanding welfare”).

Santorum’s theology doesn’t seem to find it problematic when a government system systematically redistributes resources upwards to the benefit of the wealthy. His tax plan would result in zero taxation on unearned income, the primary type of income of the wealthy. Welfare for the rich is apparently fine and dandy under Rick Santorum’s version of morality.

crossposted with ataxingmatter

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American Enterprise Institute’s Arthur Brooks on budgets and taxes

by Linda Beale

American Enterprise Institute’s Arthur Brooks on budgets and taxes

Arthur Brooks of the American Heritage Institute had an op-ed in Friday’s Wall Street Journal, “Obama’s Budget Flunks the Marshmallow Test” (Feb. 24, 2012), at A13, in which he claimed that “unfunded entitlements to the middle class, runaway deficits to be repaid in the undefined future, and immense tax increases on the entrepreneurial class” meant that the Obama budget proposal would damage national prosperity and even worse, harm “our national character”.

He spends a lot of the op-ed talking about experiments that showed that youngsters who were able to defer gratification tended to be more successful in life (higher SAT scores, finishing college, more money, etc.) He suggests that the “national character” problem is that we have too many people who think the government should “shove marshmallows in our collective mouths” and “protect[] us from the consequences of our actions.” The implication, of course, is that anyone receiving Social Security and Medicare is harmed by those “entitlements” and being moved “away from the national entrepreneurial ethos, teaching dependency and changing our relationship to the state.”

This is the typical right-wing argument that the safety net is really harmful to people and we’d all be better off returning to the turn of the 18th century when people had to pull themselves up by their own bootstraps and government policy was intended oh so clearly to benefit the wealthy class. By “unfunded entitlements” one assumes that he means to refer to Social Security, Medicare, unemployment benefits and other measures that we have decided as a society make sense. Social Security, of course, is not “unfunded”–we committed to funding it, and therefore borrowed the funds paid into it by workers. We are morally obligated to tax ourselves to pay the pensions we have promised. Brooks (like the GOP and its other “think tank” friends) apparently wants citizens to overlook the moral obligations to those who worked hard all of their lives and paid into Social Security and Medicare and blame the recipients for being unable to defer gratification.
Meanwhile, we are supposed to overlook the subsidies –from the mortgage interest deduction to the charitable contribution deduction for phantom gain we’ve never paid tax on to the preferential rates for unearned income–and pity the upper crust that bears the “immense tax increases on the entrepreneurial class.”

But this is wrong twice. First, the Obama proposals are not “immense tax increases”. They are in fact mostly just allowing the law as written to come into place, rather than continuing extensions of the “temporary” tax cuts installed in the Bush era . As a result of letting the 2001-2003 Bush cuts finally lapse for this high-income group as currently slated to do, we would have a very modest and reasonable restoration of some of the tax rates that existed for the upper crust, a group that has profited enormously from tax policies of the last decades that have favored their type of income over the type of income that the vast majority of working Americans receives.

 Second, these upper crust elites are not an “entrepreneurial class”. A few of them are, and so are some of the poor. When a private equity fund attacks a stable, profitable but not exciting company, leverages it highly, rakes off the borrowed funds as rentier profits, then splits up the company, firing workers, sending it into bankruptcy to break up the union, and walks away, that is not being entrepreneurial. It is being exploitative in ways that destroy communities and companies that provided steady employment. When the upper crust buys and sells shares on the market, they are not being entrepreneurial–they are just engaging in trades of shares. When the wealthy live on the income from their wealth and buy expensive baubles and paintings and names on opera houses, they are not being entrepreneurial, they are just consuming the income from their wealth. Even on those rare occasions when the wealthy invest some of their excess income (and the top 1% has lots of that) directly in a business, they are as likely to (more likely to?) do that in Singapore as in the United States.

And all the while Brooks complains about letting the sunset on the Bush tax cuts for the wealthy tax place as scheduled (just returning us to more or less the reasonable tax rates on the upper class that existed before Bush), he bitches about the deficit. This is the typical right-wing rant. Only cutting earned benefits is viewed as a reasonable way to attack the deficit–and the right tends to cast the recipients of earned benefits as undeserving, as lacking in moral fiber, as Brooks does here. Letting taxes on the upper crust return to something like (but still less than) the taxes in 2001 before the Bush tax cuts is treated as horrible–even though there’s no foundation for claiming that it damages prosperity, much less interferes with real entrepreneurial activity.

The deficit is, ultimately, a real problem. We should think about how to address it long-term and begin to take action to do so. For starters, we should consider how to rejuvenate the US domestic manufacturing sector so that we import less from China and India and export more to them. We should create more government incentives for, and provide more startup funding to, intracity and intercity rail systems, to bring the US into the twenty-first century in public transportation. We should take more steps towards a solvent health-care system, instead of continuing to add on the rentier profits of the insurance companies to the rentier profits of the for-profit hospitals and the exorbitant pay of the MDs. Moving towards a single-payer system should be the first item on the agenda of every person who seriously raises concerns about the deficit. We should cut our military spending starkly in a measured, long-term fashion–not just reduce the annual increases to the budget. We should increase taxes on multinational corporations that have been raking in profits but paying almost no taxes for the last decade. And we should tax the wealthy on their unearned income (and their earned income) at least at the same rates that we tax the rest of us–i.e., we should eliminate the preferential rate for unearned income and the absurd “carried interest” provision that allows private equity managers to pay taxes at half the rate that ordinary workers pay on their compensation.

When Brooks supports removing the instant gratification giveaways (like accelerated depreciation and expensing in the corporate tax code and preferential rates for unearned income and the charitable deduction for value rather than investment in individual tax provisions) that are overly generous to Big Business and the wealthy, then he can come back and we can talk about what further should be done to set the country on a surer national footing.

crossposted with ataxingmatter

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