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Defining Rich IV: Corporate vs Personal Tax collection patterns 1934 to present

When I left this series in September, I had introduced the idea of looking at past tax tables as a means of understanding how We the People define rich. One specific note from history was a surcharge on top of themarginal tax rates to pay for the Great One (WWII). Obviously, that aspect of our moral character has gone right out the window.

Also for a brief period (1936 to 1943,on 6 occasions) business paid more of the income tax revenue collected than did people. I also noted that 1983 and 2009 the corporate share of income tax revenue was just over 6% of the totalrevenues (FICA included). Its lowest points. Reagan/Bush II. However, interestingly enough, Bush II did manage to get thecorporate tax collections as a percentage of personal collections(excluding FICA) up to 33.9%! Clinton only managed 26.6% in 1995. The last time we saw a ratio where corporate collections were in the30% range was 1979. In 1959 it was 47.1%. 1980 heralded the new standard of the mid to low 20% range. Of course Reagan wins thispersonal verses corporate relationship with a corporate total that is only 12.8% of the personal in 1983.

One other very interesting aspect ofour tax history using the same table is that from 1934 to 1983 when tax revenue from personal collections became less than the year prior, this was only for one year with the exception of 1945/46. Corporate revenue follows the same pattern except for 3 periods where there was a decline for 2 years running: 1946/47, 1958/59 and1961/62. From 1983 until 2001 the personal revenue is more every year than the year prior. It’s like a switch was thrown after 1983. The corporate revenue declines twice for 1 year each in this 1983 –2001 span; 1990 and 1999. Starting in 2001, the decline in revenuecollections for both personal and corporate last for 3 years running;2001 to 2003 and 2008 to 2010. Someone threw a double pole switchhere. We’ll have to wait to see for 2011.

Obviously, from this bit of history we can see a few trends at least. We have been reducing the burden on corporations as paying their share for the use of the commons. From1984 to 2000 the personal collections never declined yet thecorporate did twice. Prior to 2001, our tax tables and all their loop holes produced a fairly stable ever rising stream of revenue. However, after 2001, the stability is less in that any time there isa reduction in revenue collections, it lasts 3 times longer. Finally, except for 2005 to year ending 2007, since 1980 we think that corporations should only pay between 20 to 26% of what We thePeople pay in to our government.
I mention all the above because it isevident that more than just the marginal rates are changing and, as far as my assessment of these changes go, they are leading us to anever less stable adjusted gross income base for then calculating the tax due. That is, the base has been adjusted such that it is moresensitive to down turns in the economy. Prior to the Reagan taxrevolution, both the personal and corporate base were fairly evenlysensitive with the corporate being maybe a little more sensitive.
For 50 years (1934 to 1983) there wereonly 3 periods in which the corporate collections were less for 2years in a row and none of them were the back to back Reaganrecessions. After 1983, the base for personal taxation has changedsuch that it is not effected by any recession. However, thecorporations got relief twice. Considering that from 1934 to 1982there are only 2 recessions listed by NBER as lasting more than a year (1973/75and 1981/82, 16 months each) 1 year of less revenue does not seembad. However, for the last 2 recessions, the revenue collectionshave been less each year for 3 consecutive years for both thepersonal and the corporate collections even though the latestrecession is listed as lasting 18 months.
Withinthis 3 year pattern, we also see that the declines are greater. Fromthe high to the low for 2000 to 2003, by 2003 personal collectionsare 79% of the high and corporations are 63% of their high. For thepresent recession personal became 78.4% of the high and corporationswas 62.9% of their high. Even in 1983, when Reagan wins thepersonal/corporation differential the declines were only 97% personaland 75.2% corporations. For another perspective, that 2 year declineof personal revenue collections for 1945/46 the personal declinedonly to 81.7% of the high. During this period the corporations onlydeclined for 1 year (1947) to 72.5% of the high. In 1947, corporaterevenue collections were 48% of the personal collections. In 2000,the peak corporations revenue was 20.6% and in 2008 it was 26.6% ofthe personal revenue collections.
Obviously we made more than marginalrate changes after 1980. We changed the way the base is calculatedsuch that corporations paid significantly less as a share of thetotal income taxes and was more tied to a change in the economy suchthat corporate taxes due were less during a recession where as thepeople had no reprieve. How’s that for fairness? Then came Bush II. The base changed even more… so such that now the decline inrevenue collected lasted longer than the recession and the declineswere greater.
We do not just need to raise the rates,we need to return to a broader base. That is, when all thedeductions are done, the adjusted gross income needs to be higher. On the other hand, what we are seeing here could be the results ofthe massive shift of income up the line combined with the decreasedrates. Considering this history, the cry to lower rates and get ridof loop holes just will not work. This is a cry for flattening theincome tax, which is what we have been doing since the 60’s which wasaccelerated since Reagan. It will create a tax base that is moreunstable and thus runs even greater deficits during times of economicdecline not to mention the overall decline in total revenue collectedduring good times. And, it totally ignores the issues of equality ofpower along with the concept of the commons. You know, that We thePeople premise.

But before you get to excited aboutthis suggesting or, that I am saying that the poor need to pay moretaxes and the rich are over taxed consider the tax table from 1936,its lowest income tax bracket is 4%. This is on an income up to$4000. Let’s bring that forward to 2010 using my favorite money converter. CPI states that $4000 is now $60,400. Today’s rate for $16,750 to $68,000 is 15% instead of 4%. Of course,I like the unskilled labor and nominal GDP/capita numbers of $145,000and $275,000 respectfully.

Alright, I’ll be fair. The lowest rate in1967 is 14% for up to $1000. That figures to 2010 of $6540 CPI,$6670 unskilled and $11200 nominal GDP/capita. Though, the $4000 in1936 is $9640 in 1967 which puts one in the 22% bracket ofthat year. Using the $12000 for the top of that 1967 bracket brings us to$78,300 CPI adjusted gross income for 2010. $78,300 puts one in the25% bracket for 2010. Obviously another issue we have here when itcomes to setting up marginal rates based on historical records is howmuch the base (adjusted gross income) is effected by how the CPI iscalculated. Any way you figure it, we have been pushing the marginalrate higher and deeper into the lower end of the income pool.

Ok, onto the fondly remembered tax yearof 1936. Next post.

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The right’s smoke and mirrors scam about Social Security–it ain’t broke (unless China is too)

by Linda Beale

The right’s smoke and mirrors scam about Social Security–it ain’t broke (unless China is too)

We’ve noted in these postings the growing inequality between rich and the rest of us in America, and that is the appropriate backdrop against which to investigate further the right’s smoke-and-mirrors scams about tax policy and earned benefits.  Let me remind you with Kevin Drum’s Mother Jones article on The Price of Plutocracy: “For all practical purposes, every year about $700 billion in income is being sucked directly out of the hands of the poor and the middle class and shoveled into the hands of the rich.” (That sentence is illustrated with a great chart, with data drawn from Joseph Hacker of Yale and Paul Pierson of Berkeley, the authors of Winner-Take-All Politics, a book I highly recommend.)

The national debate about deficits has been part of a relentless push by the right to reduce as much as possible the New Deal earned benefit programs of Social Security and Medicare. The right twists the facts to suit the arguments it wants to make.  Krugman hones in on this issue, noting Dean Baker’s similar anger at the Washington Post’s inconsistency in considering Social Security in a recent article by Post writer Lori Montgomery, who seems to be miming for the hard right, anti-New Deal crowd in Washington .  See Krugman, Social Security, Bait and Switch, a Continuing Series, New York Times (Oct. 30, 2011).

Social Security is a program that is part of the federal budget, but is by law supported by a dedicated source of revenue. This means that there are two ways to look at the program’s finances: in legal terms, or as part of the broader budget picture.

In legal terms, the program is funded not just by today’s payroll taxes, but by accumulated past surpluses — the trust fund. If there’s a year when payroll receipts fall short of benefits, but there are still trillions of dollars in the trust fund, what happens is, precisely, nothing — the program has the funds it needs to operate, without need for any Congressional action.

Alternatively, you can think about Social Security as just part of the federal budget. But in that case, it’s just part of the federal budget; it doesn’t have either surpluses or deficits, no more than the defense budget.

Both views are valid, depending on what questions you’re trying to answer.

What you can’t do is insist that the trust fund is meaningless, because SS is just part of the budget, then claim that some crisis arises when receipts fall short of payments, because SS is a standalone program.  Id. (emphasis added).

Further, the right refers to these programs as “entitlements”, a term that is meant to dredge up resentments against those who have some rights to benefits from these programs.  The right uses “personal responsibility” and “entitlements” as though they refer to two non-intersecting worlds, whereas in fact the opposite is true.

Workers pay into Social Security to support current workers who paid into it in the past.  The trust fund was established, and amended with a good deal of actuarial research under Reagan in 1983, with the knowledge that the baby boom generation would be passing through and create a bulge of benefit needs and that US birth rates tended to be smaller now than they were a century ago.  In other words.  what is happening now in terms of the baby boomer population reaching retirement age and the decline in US birthrates was exactly the information on which the Social Security changes made in the 1980s were predicated.  Either we believe that these kinds of predictions are reasonable (in which case it is utterly silly to raise nightmare scenarioes about bankruptcy, because there is nothing of the sort) or we believe that it is impossible to predict for sure what will happen (in which case it is utterly silly to raise nightmare scenarios about Social Security bankruptcy, because GDP could grow just a little faster than predicted, easing all future problems, or boomer needs could grow just a little less than predicted, easing all future problems).  Either way, the crisis-bell ringing being done by the right as a way to attribute deficits to Social Security is a smoke and mirrors scam.

It is even more so since the Social Security trust fund is invested in US Treasuries and those Treasuries plus new tax funds coming in pay all the benefit costs.  Is the US going to default on Treasuries.  Well, if so, we have a bigger problem with Japan and China not liking that–not just the Social Security trust fund.  The hard right seems to think it is okay to play political games with US debt, but American citizens should be aware that this is what they are doing.

For a good overall exposition of these issues, see the article in  Salon by Gene Lyons, How the Rich Created the Social Security ‘Crisis’ (Nov. 3, 2011) (noting the “decades-long propaganda war against America’s most efficient, successful and popular social insurance program”).

[T]his is the beneficiaries’ money, invested by the Social Security trustees in U.S. Treasury bonds drawn upon “the full faith and credit of the United States.” Far from being “meaningless IOUs” as right-wing cant has it, they represent the same legally binding promise between the U.S. government and its people that it makes with Wall Street banks and the Chinese government, which also hold Treasury Bonds.

A promise not very different, the Daily Howler’s Bob Somerby points out, from the one implicit in your bank statement or 401K (if you’re lucky enough to have one). Did you think the money was buried in earthen jars filled with gold bullion and precious stones?  Id. (emphasis added).

One might add that many of our multinational corporations that are currently lobbying heavily for yet another tax break in the form of a “repatriation holiday” for their offshored, untaxed profits actually have the substantial portion of those profits invested in those same U.S. Treasury notes.  So, as ataxingmatter has noted before, much of that money is already in the US and repatriation will generally not be of much benefit merely from bringing cash back to go through the US economy.  As the article notes, allowing repatriation would lead to corporations dumping about a trillion of US Treasuries on the market, and likely cause a rise in the interest rate the US government must pay to borrow.  Not a win-win situation.  IN fact, clearly a loss for the US government and the majority of US taxpayers, both in Treasury interest rates and in lost corporate tax revenues.

 

originally published at ataxingmatter

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the right’s smoke & mirrors scams about corporate tax "reform"

by Linda Beale

the right’s smoke & mirrors scams about corporate tax “reform”

One could get a pretty gloomy picture of the state of Social Security, and the need to “reduce entitlements” while at the same time hearing about the (faked) urgency of cutting corporate taxes in order to give our US multinationals an edge in global competition, if you pay much attention to the GOP presidential candidates talk and listen to their echo chambers in the right-dominated GOP factions in the House and Senate and their marketers in the Koch etc. funded propaganda tanks like the misnamed “Americans for Prosperity” (should be “Americans for prosperity for the have-mores”).

These same right-wing politicians and funders were gung-ho for two budget-busting manuveurs under George W. Bush–outrageous tax cuts of primary benefit to the rich (such as the gradual reduction of the estate tax to its one-year repeal in 2010 and its rebirth in 2011 at an absurdly low rate with an equally absurdly high exemption amount) and outrageous spending for more and more militarization of the US society (wars of choice in Iraq and Afghanistan, where hundreds of thousands have died but little in the way of lasting peace has been gained, and a gigantic “homeland security” apparatus that has eroded the civil rights of US citizens, including allowing one to be targeted and assassinated on solely the say-so of the executive branch without any of the due process protections supposedly guaranteed by our pre-Bush constitution). Cheney of course famously quipped that deficits don’t matter any more, when he was helping to push the $1.3 trillion 2001 tax cut that would give him and George W. huge tax cuts in the tens of thousands for 2001 alone. Then there was the 2003 tax cuts aimed especially at relieving the have-mores of taxes on the money their money earned (cutting dividend rates on corporate stock to the same low rates as net capital gains) and the 2004 tax cuts aimed especially at giving multinational corporations the many tax breaks they’d been lobbying for avidly for the last two decades, along with a “repatriation holiday” that allowed the ones who’d worked most assiduously to avoid paying US taxes on their profits from intangible intellectual property rights to spend the money on outsize managerial compensation and shareholder stock buybacks while firing regular employees with very little or even no tax consequences.

Now, the right wants to repeat all of that.

Dave Camp, minion of multinational corporations, is crafting a give-it-all-away package of so-called corporate tax reform that may cut back on loopholes but in the process will lower rates and allow multinationals to offshore money-making enterprises, with the results that even fewer multinationals will actually pay any federal corporate income taxes. (The text of Camp’s release about his corporate tax “reform” proposal is appended at the end of this posting). Camp calls for a 25% rate and a territorial tax system that would cut corporate tax revenues even further. The Joint Tax Committee has noted that cutting all the loopholes in a base-broadening attempt would allow lowering the corporate tax rate only to 28%. See Wall Street Journal report on the JTC report.

All of this is rationalized by the right as necessary to help US multinationals “compete” on the global stage.

You’d think that US corporations were slaving away under incredibly heavy US federal income tax burdens, but there’s no truth to that at all. Most of the griping about the corporate tax talks solely about federal statutory rates and not about either the effective tax rates (what corporations actually pay) or about the lack of most of the other kinds of corporate taxes paid by corporations housed in other developed nations (much higher Value-Added Taxes and excise and transfer taxes).

In fact, most US multinational corporations are not heavily taxed at all, and most of the smaller US corporations zero out their profits with shareholder “salaries” (deductible) and other often easily manipulated expenses (personal expenses of ‘family farmers’ whose homes and cars and everything else are “owned” by the family farm corporation, etc.). Citizens for Tax Justice has for several years looked at publicly reporting US corporations’ fiscal statements on taxes and profits to tell the real story about profitabilty and taxes. It’s not the story the Chamber, the National Association of Manufacturers, or the anti-tax, anti-government funded groups or the Koch brothers want known. But it’s the facts. CTJ’s most recent study makes clear that US multinationals have no trouble competing due to taxes. See the report: Corporate Taxpayers and Corporate Tax Dodgers, 2008-2010.

As Andrew Leonard reports today, the study shows that 37 of the country’s largest corporations paid zero taxes in 2010.

In 2010, Verizon reported an annual profit of nearly $12 billion. The statutory federal corporate income tax rate is 35 percent, so theoretically, Verizon should have owed the IRS around $4.2 billlion. Instead, according to figures compiled by the Center for Tax Justice, the company actually boasted a negative tax liability of $703 million. Verizon ended up making even more money after it calculated its taxes.

Verizon is hardly alone, and isn’t even close to being the worst offender. Perhaps most famously, General Electric raked in $10.5 billion in profit in 2010, yet ended up reporting $4.7 billion worth of negative taxes. The worst offender in 2010, as measured by its overall negative tax rate, was Pepco, the electricity utility that serves Washington, D.C. Pepco reported profits of $882 million in 2010, and negative taxes of $508 million — a negative tax rate of 57.6 percent.

Andrew Leonard, America’s Corporate Tax Obscenity, Salon (Nov. 3, 2011). Four industries–finance, utilities, oil/gas/natural resources and IT– reap huge windfalls from the current corporate tax code. Those windfalls that aren’t likely to be eliminated in any “reform” that passes the right-wing Congress–just look at the current lobbying for maintaining the “active financing” exception for banks’ passive income, an exception that allows banks to defer taxation on their passive earnings, unlike most other industries.

There’s no way that a territorial tax system (that allows US corporations to continue moving active businesses offshore tax free and moving patents and other rights off shore to ensure that the income from the rights aren’t taxed in the US) combined with incredibly low rates will raise an appropriate amount of income from corporations. It is a giveaway to the corporations that think they have now bought Congress. At the same time, as the CTJ report authors note, most of these reform schemes actually will allow corporations to move even more jobs and businesses offshore. If we really wanted to enact good corporate tax reform, we’d remove the loopholes favoring big industries like Big Oil, get rid of the accelerated depreciation allowances that let companies expense long-term investments, require an “exit tax” of ordinary income on all appreciated assets and untaxed earnings whenever a corporation restructures itself into a foreign company or moves its active business assets abroad, and otherwise tighten up the corporate tax rules to ensure that corporations pay a fair share in taxes.

It is up to the people to show that they haven’t loss the power to take control in our democracy, but given the lack of understanding of tax and fiscal issues in this country, and the deep pockets of corporations to fund the Chamber and other group’s misleading information and distortion of facts on these issues, it is questionable whether US democracy can save itself.

Appendix: Camp release about proposal for corporate tax “reform”

Today, Ways and Means Committee Chairman Dave Camp (R-MI) unveiled an international tax reform discussion draft as part of the Committee’s broader effort on comprehensive tax reform that would lower top tax rates for both individuals and employers to 25 percent. In addition to rate cuts, the plan would transition the United States from a worldwide system of taxation to a territorial system – a move virtually every one of America’s global competitors has already made.

Camp unveiled the draft legislative language with a specific request – that employers, academics, practitioners and workers provide comment and add their voices to the legislative process.

Commenting on the release of the proposal as a part of his overall approach to comprehensive tax reform, Camp stated, “Instead of having laws on the books that encourage hiring U.S. workers, our outdated international tax system encourages employers to keep profits and jobs outside of America. If we are serious about creating a climate for job creation, now is the time to adopt tax policies that empower American companies to become more competitive and make the United States a more attractive place to invest and create the jobs this country needs.”

The Ways and Means discussion draft would:

– Reduce the corporate tax rate to 25 percent – bringing it in line with the average of countries in the Organization for Economic Cooperation and Development (OECD). The Committee continues to examine base broadening measures that will replace the revenue foregone by reducing the corporate tax rate, so these measures are reserved in the discussion draft for future release.

– Shift from a worldwide system of taxation to a territorial-based system. The new plan:

* Exempts 95 percent of overseas earnings from U.S. taxation when profits are brought back to the United States from a foreign subsidiary.

* Includes anti-abuse rules to ensure companies do not avoid paying their fair share of U.S. taxes.

* Frees up existing overseas earnings to be reinvested in America after they are taxed at a low rate in line with current repatriation proposals.

* Makes American companies more competitive on the global stage with little or no impact on the federal deficit.

In advocating the need for international tax reform, Camp cited several reasons why current U.S. tax policies are putting American employers and workers at a competitive disadvantage:

– America will soon have the highest corporate tax rates in the industrialized world: Only Japan has a higher corporate tax rate than America, which has a combined federal-state rate of 39.2 percent – and Japan has already indicated its intent to lower its rate.

– Our “worldwide” system of taxation is a remnant from the Cold War: While it has been 25 years since Congress reformed the tax code, it has been almost 50 years since it undertook a bottom-up review of our international tax laws. In other words, our international tax rules were written when the United States accounted for 50 percent of the global economy and had no serious competition from others.

– American employers face double taxation compared to their foreign competitors: As a result of our “worldwide” system of taxation, when U.S.-based companies try to bring profits back home, they must pay U.S. taxes on top of the tax they already pay in the foreign market U.S. tax laws encourage investing in a foreign country instead of bringing profits back home: Because U.S.-based employers face additional taxes if they bring their overseas earnings back to invest in the United States, it is cheaper for these companies to reinvest profits overseas instead of creating jobs here.

– America is losing ground: In 1960, U.S.-headquartered companies comprised 17 of the world’s largest 20 companies – that’s 85 percent. By 2010, just six – or a mere 30 percent – U.S.-headquartered companies ranked among the top 20.

– Our foreign competitors are actively reforming their tax laws: Other countries are actively reforming their international tax codes – giving employers lower rates and moving towards a territorial tax system. Countries like the United Kingdom, Canada, and Germany, have recently lowered their tax rates to spur job creation and economic growth. Yet, America is sitting on the sidelines doing nothing. The United States cannot sit back and watch jobs go overseas because the tax code provides such perverse incentives.

originally published at ataxingmatter

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Joined the GE Capital Board in 1997

The cause of that “small tax bill”:

Immelt said a small tax bill for 2010 was due to more than $30 billion in losses related to GE’s financial services business during the financial crisis. In 2009, GE Capital’s losses were so large that it company overall lost money on its U.S. operations.

GE’s federal taxes, Immelt said, would rise as the performance of its financial arm improves. [emphasis mine]

Heckuva job, Jeffrey.

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Repatriation Tax Holiday–WIN America is pushing hard…

by Linda Beale

Repatriation Tax Holiday–WIN America is pushing hard…

I get a press release a day from WIN America, the coalition of almost two dozen multinationals and about two dozen business organizations (like the Chamber of Commerce) that is pushing for another big “repatriation holiday” tax cut for the multinationals.

Now they’re touting the Hagan-McCain Foreign Earnings Reinvestment Act with lots of quotes from those that are on board .

Most are unsurprising members of the right-leaning arm of the GOP.

  • Douglas Holtz-Eakin wants “private-sector driven initiatives” and claims repatriation represents “a welcome step in the right direction” by meeting “near-term needs for more jobs and …long-term creation of a competitive tax code.”

Nah.  A repatriation holiday, in the first place, isn’t a “private-sector” initiative.  It is government policy acting to single out multinationals for a special tax break compared to the current rules.  That is as much a public as a private action.  And nothing about the tax holiday is likely to lead to much “near-term” job creation–maybe a few, but at a steep price.  And it certainly hasn’t got anything to do with reasonable changes to the tax code.  It isn’t clear, to start with, that “competitive tax code” is a goal we should be striving for.  Who are we helping compete with whom, if we design our tax code for “competitiveness” rather than for fair taxation?  Note that the demand for government to create a “competitive tax code” is essentially a demand that government intervene to establish special market rules for multinationals that will work in their favor (letting them have more money)…..

Holtz-Eakin, by the way, was paid by the U.S. Chamber of Commerce to write a report on the repatriation tax holiday.

  • Eric Cantor claims “American companies currently pay one of the highest tax rates in the world” and that repatriation “will spur investment, economic growth, and job creation”.

On the first, the answer is clearly no.  US companies have slightly higher than average statutory federal income tax rate, but they don’t pay that tax rate on their economic income.  The majority don’t pay any federal income tax most of the time.  Those that do may pay at an effective tax rate of around 20-25%, but even that is likely an overstatement because of the way they can manipulate income.  We don’t have a VAT here, as most European countries do.  There are just about as many state loopholes as federal tax loopholes.  etc……

On the second, the assessment is clearly no.  The last (supposedly ONLY) repatriation holiday in 2004 was an expensive bust, costing the fisc more than 60 billion and mostly going to share buybacks that merely changed shareholders’ investment portfolios.

  • Kevin Brady says repatriation will allow US multinationals to “invest in jobs and expand their businesses in our backyard.”

Again, this is the same argument that was made for the failed 2004 repatriation effort.  It is even weaker this time around, because companies have even more cash.  They can already do whatever investing they really want to do in their U.S. business.  A repatriation provision without any teeth (to require proof of new US jobs that wouldn’t have been created without it–taking into account, that is, the fungibility of money– and to clawback the tax benefit without the proof) is just another corporatist giveaway.

  • Grover Norquist (the “no new taxes ever no matter what” president of Americans for Ending Earned Benefits–oops, Americans for Tax Reform) says that “Repatriation is simply too good of an idea not to do” because the 2004 deal brought back billions “from locked up overseas accounts” and it can be accomplished “without Congress spending a dime” so “[t]here is literally no downside to doing this.”

Wrong, wrong, and wrong.  First, as noted repeatedly, there is miniscule good in the repatriation idea.  A much better job creator would be to dedicate the $80 billion from repatriated fund taxes over the next ten years to direct jobs programs (like the New Deals CCC, etc.) building infrastructure.   Second, repatriated funds aren’t “locked out” overseas–they may be sitting in U.S. bank accounts in the foreign affiliate’s name, or sitting in U.S. investments in the foreign affiliate’s name.  And even if they aren’t actually already in the US (so “bringing them home” wouldn’t add a penny more to the cash awash in the country), the parent can bring them home already at very low tax cost–the $80 billion over ten years shows that there isn’t a huge tax cost to repatriating funds.  That’s because multinationals get a foreign tax credit, and the Bush tax cuts included a host of provisions that were corporate-friendly, including modifications to the way the credit works to make it much easier to use credits against US income.  Further, even if these cash-rich US multinationals need a little more money for a planned investment, they can borrow against their assets now at exceptionally low rates.  Third, a tax holiday is not a freebie that doesn’t cost the fisc.  Grover Norquist of course knows all about tax expenditures, but he also knows that most Americans don’t.  This is PR and nothing else.  That $80 billion would either fund needed programs (see above) or help the US avoid an additional $80 billion deficit.  And that’s really important, since the rightwingers are intent on using every deficit dollar to support their goal of decimating the earned benefits programs established in the New Deal.

But there are several on the “quotes” list that are disappointing, at least.

  • Simon Rosenberg, Founder of the New Democrat Network, says “The Foreign Earnings Reinvestment Act is smart public policy…[that will help bring hundreds of billions back home, to be invested in the United States.”

There’s nothing progressive about a corporatist provision that puts money in the hands of the biggest multinationals that have most easily used gimmicks with the intended purpose of offshoring profits to avoid U.S. tax.  (Unfamiliar readers might look at prior posts about repatriation and the transfer pricing gimmick on intangible intellectual property ‘sales’ to foreign affiliates.)  As noted, this extra money from avoided taxes is most likely not to be used to create jobs (they can do that already if they want to) but to be paid out in bonuses for improved performance to already excessively overpaid managers and in share buybacks to (mostly wealthy) shareholders with the primary result of portfolio diversification that may in fact lead to more investment of those dollars offshore in emerging markets.

Rosenberg claims to espouse “new progressive” ideas.  But folks, there isn’t anything progressive about a repatriation holiday–it’s just more favors for Big Money.

  • Barbara Boxer says bringing back a trillion dollars “that’s sitting overseas” will “create jobs, strengthen the economy, and reduce the deficit.”

Not likely.  If a company already has plenty of money to invest and can borrow against its foreign cash extraordinarily cheaply and sees an opportunity to expand its business by investing, it will invest.  You don’t need the tax holiday to do it.

Boxer, by the way, is bound to be under pressure from her Silicon Valley constituency- all those big IT companies that find it easiest to “transfer” their intellectual property to foreigners and then avoid US taxes, and who have great stores of funds overseas that would benefit from the repatriation tax holiday.

 

originally posted at ataxingmatter

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Repatriation Holiday Lobbying–Money Speaks…

by Linda Beale

Repatriation Holiday Lobbying–Money Speaks…

We’ve discussed repatriation before–the tax break being pushed by multinationals who want to bring some of their offshore profits home without paying taxes, as they did in the 2004 “one time only” repatriation break.

The reason they have so much money offshore is that they use gimmicks–such as transfers of intellectual property rights to offshore subsidiaries in low-tax jurisidctions.  These are pseudo transfers (to affiliates) of property they would NEVER really sell out of their companies to independent third parties.  Having the affiliate “own” the right means that the profits associated with the innovation carried out in the US go to the offshore company and aren’t subject to US tax until they’re officially treated as being transferred back to the parent.  “Selling” the IP to the affiliate is done solely to defer/avoid US taxes on those profits.  Of course, the transfer pricing for the intellectual property is gimmicky too–since no company would sell its main moneymaker, the idea of a comparable market price is foolish to start with.  So most of those profits should have been treated as US profits all along–and subject to tax.

A repatriation holiday would just mean more money in the pockets of the uberrich–the managers and some of the owners.   It’s just another corporatist tax giveaway that pushes upward redistribution that moves us even more resolutely towards oligarchy.  It won’t create jobs–companies already have plenty of cash to invest in this country if they thought they had customers to make money from.
But the companies probably have a pretty good chance of getting the break, even though it is a stupid waste that adds to the inequality problem and does nothing for creating jobs.  Why?
Read after the jump!
First, because some of the wealthiest and most powerful companies want it. And these days, what powerful companies want, Congress tends to be willing to give.  Google, Apple, Cisco, Oracal, and many other companies that depend on their outsourced IP are hoping they can avoid even the little bit of tax that they’ve paid in the past.

Second, because those companies have hired as lobbyists people who were very recently staffers to members of Congress who will be writing the law.  The most notorious of these is Max Baucus’s former Chief of Staff, Jeffrey Forbes. See Rubin & Drucker, Google Joins Apple in Push for Tax Holiday, Bloomberg.com, Sept. 29, 2011.  The piece notes that Forbes is part of an army of more than 160 lobbyists, 60 of which are former congressional staffers, who are pushing for the repatriation holiday.  And those aren’t really all the lobbyists–they are just the “registered” lobbyists–i.e., the proverbial ‘tip of the iceberg’.  Then there’s the WINAmerica coalition and the firm working with it.  This army of lobbyists is out to rape the country, and the same congresspeople who moan and lament about deficits are likely going to give the multinationals an $80 billion (over ten years) tax break just cause their buddies ask them nicely for it.

Even though we have proof that repatriation doesn’t create jobs–the 2004 tax holiday resulted in thousands of jobs LOST as companies fired workers even while repatriation millions–Congress is still contemplating another one.  Why?  The article notes that one thing that is being touted as an advantage is ‘flooding the US with cash.’   Doubtful.  Much of that cash may already be sitting in US banks even though not repatriated through the company.  And what is actually brought over and then paid out to managers (in even bigger outsized bonuses) and shareholders (in buybacks or dividends) is perhaps more likely to be invested in Asian markets than it is to stay in the US.  Or it will be just more fodder for the rich managers and shareholders to use to buy shares in the secondary markets from their rich peers, that top crowd that owns most of the financial assets.  Lot of good that will do the carpentars and drill press operators and other ordinary workers.

One of Boehner’s aides says that former staffers don’t make policy.  Balderdash.  Those staffers are hired to lobby because they have access and they know their former colleagues.  They have access that ordinary Americans don’t have.  They are pushing for legislative action on behalf of corporate giants.  None of them likely gives a damn that the policies they are pushing for don’t make economic sense at all for ordinary Americans.  Why should they care?  They are lobbyists in it for their own financial rewards from “selling” an idea to their former colleagues that will benefit their current bosses.

Martin Sullivan has it right, as quoted in the Bloomberg article:
The proposed holiday would reward the companies that have most aggressively parked profits in tax havens such as Bermuda, the Cayman Islands and Switzerland, said Martin A. Sullivan, a former Treasury Department economist and contributing editor for the non-partisan Tax Notes.
“A lot of what companies report as foreign profit is really U.S. profit that should be subject to U.S. tax,” Sullivan said. “Those earnings didn’t get overseas by accident. Many of these companies intentionally put them there to avoid paying U.S. taxes.”

Originally published at ataxingmatter

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This is the reality of a real small business

 By Daniel Becker

This is a bit of an interlude in my writing regarding the income tax of yore. Though, this does involve taxation. This is also a continuation in my postings regarding real world small business experiences. Yes, you are going to get to read about a real situation that involves a real small business and tax policy.
Before I mislead anyone, the taxes of concern are not about income taxation. Your business has to actually have an income for that tax to matter. I’m not talking personal income. I’m not talking capital gains taxes. Darn few honest to goodness small businesses ever have to worry about that in their daily activities. Maybe in the end you will have some capital gains after you pay yourself back all the personal money you put into your small business. I’m not talking payroll taxes cuts. Yeah, on what was a $100,000 payroll you gain maybe a couple thousand dollars, but on what was a ½ million business that is now 55% of what it was with payroll adjusted to match, it means little. I mean, that business is sure going to be hiring new people with that!
 Oh, just in case you think I’m off the mark, consider this poll from 11/10.   In the poll, 90% hired what was needed or fewer than needed. The catch: Only 1% hired because of the a new tax break. 41% were to replace an employee. When asked why they hired fewer than needed: 79% worried that sales or revenue would not justify more employees. However, 13% did hire because business was better. The lucky ones. So go ahead, keep giving me tax cuts, blah, blah, blah and all that monetary relief because that US Chamber of Commerce sure represents my thoughts and desires. NOT! Idiots!
Some perspective on small business.

“In 2009,there were 27.5 million businesses in the United States, according to Office of Advocacy estimates.The lastest available Census data show that there were 6.0 million firms with employees in 2007 and 21.4 million without employees in 2008. “

I know it is soothing to croon over the days when the Dodge Brothers, Ford, Colt, Walton and Gates were small and became major examples for their time of the American Dream of economic power. But really, the truth is most small business were and are people earning a living on their own vs working for Microsoft (the definition of part time abuse) or Walmart or GM, or GE or Boeing… They were huge numbers of small local retail. All gone. Small local banks? Going. Small local agriculture (RI used to have a state fair), forget about it.  Look around.
So lets get to the heart of it. First a bright spot. The flower shop had it’s first month this year that was better than last year. August. No, I’m not assuming this is a trend and here is why.

The city of Woonsocket has lost it’s Walmart to the town of North Smithfield, it’s neighbor. Major tax hit to the city. N. Smithfield got the Walmart because it decided that building a 650K sq ft shopping development would offset their rising taxes. I mean really, when in the last 30 years have we seen big business pay enough in taxes such that they actually were paying for their presence? Cut, cut, cut has been their chant. So, I can expect my property and inventory taxes to rise unless something replaces that Walmart. Say the state stepping up. Which tends to happen via the state giving less to the towns like North Smithfield.
I wrote about this type of tax chasing in one of my first posts.

“You know what is missing in this discussion (a discussion happening in every town USA)? The question: Compared to what? What are we basing the above statements on? Is it simply that we have less money after the bills are paid? Well, from 1955 to 1998, GDP rose by a factor of 20. Tax burden as a percent of income rose by a factor of 26.7. But income for a family of 4, 2 people working (sound familiar) only rose by a factor of 11.5. From 1976 to 2001 the top 1 % share of income went from 8.6 % to 21%. Yes, we have less money at the end of the day. Unfortunately, not benefiting from the national wealth as we had in 1955 (when the tax burden was 18% of your pay and would be today if all was equal) is a national policy issue.”

This is the issue of small business. See, we are all just trying to earn an income. Just like the person who works for the multinational. The income is much less because business sales are down. So, how should I plan for the pending tax rise? Do not just give me an answer that involves further big business moving into the area, because as I showed in the post on property taxes and development, it’s not so simple as welcoming Mr and Mrs. big business into the neighborhood.

“But, for my purposes Smithfield (an abutting town) presented the most interesting data. They had a new retail development go in, but ½ the size of that proposed for my town. It’s citizens have seen since 1999 in sequence a 9.8, 4, re-val, 5.5 and 8.7 percent rise in the tax rate. It’s commercial development has been only 10% industrial. My town only had a 6.4% total rise in the same time span.”

Oh save me great god of the mega corporations from the evils of local taxation. Yeah, I didn’t think praying would work.
Next up involves a CVS move. CVS is headquartered in Woonsocket. It obviously has some new hot shot who has a better way. They are looking to own their stores and not lease. They are consolidating 2 stores into one bigger store on new property. Yes, about ½ the property was zoned commercial, the other ½ was residential (real houses on it) turned commercial. This is important, because the CVS consolidation will leave 2 existing commercial spaces empty. We’ll add them to the Walmart space and potentially the Lowe’s space as it is suppose to be moving to the new North Smithfield development which is built on what was 126 acres of woods.
Sticking with Woonsocket, the location of my flower shop, the city has managed to add to its commercial property stock while turning a good portion of it into none productive commercial property stock. How soon do you think those empty places will fill up? Don’t hold your breath.
Some more good news. I managed to cut a major expense for the shop just this June to the tune of $379/month. We were in a unique position in that they kind of needed us. It’s not going to happen again. $4548 per year. Nice. It’s the heating expense for a year assuming the speculators don’t get active again. Yep, get rid of those government regulations as they sure are doing me harm. NOT!
The plaza that one of the CVS stores is moving out of is a customer of ours. We do seasonal decorating for them. It is about $3900/yr. Well, we’re not decorating with mums this fall and Christmas looks to be out too. How much you wanna bet spring next year and for some years to come is out? Gonna bet enough to do Washington a favor and higher someone?
Are you seeing where all this is going? I saved us some big coin. I’m loosing the same amount. Now, this is not the first hit from a CVS decision. Some other person there decided to make it simple for them to pay for their flower needs by going with Pro Flowers instead of feeding the 4 local florists which they had done for decades. They think they are getting a 20% discount from Pro Flowers. Little 
do they understand the flower business. Not the first time mega corps thought they new more than the little guy. It represented about 2.4% of our business at the time. May not sound like a lot, but when you consider the extra business generated by CVS using one’s shop to send flowers, it becomes significant.
Let’s add a third issue. Refi. Time to take advantage of the low rates. The purpose is to improve, that is reduce your monthly cash outlays. But as any real small businesses owner learns, there is no such thing as a fixed rate. We have paid off 22.2% of the loan that combined the original purchase of the business and property with the rehab that needed to be done in 2004. We have about 36% of the tax appraised value in equity of the property.
Here’s the concern, do you take a 20 yr loan with a rate of between 5 to 5.5% to be reset in 5 years or do you take 6 to 6.5% to be reset in 10 yrs? Do I bet that in 5 years business is better because the economy is better which could also mean all that projected inflation do to the Fed monetary policy and at least protect my self for 10 yrs? Or do I bet that nothing will be much better and try to preserve my cash flow (in a small business it’s always about cash flow, accrual be damn) and go for the 5% figuring the Fed money flood won’t roost for at least another 5 yrs? Oh, the refi cost are going to run you about $4000. There goes that big saving from my hard nosed negotiations again.
Your facing tax increases beyond the usual but, not because the public employees are paid too much. Your running out of area’s to cut. Major corporation moves are working against you just as off shoring is working against the middle class, the very class of your concern as you are in it and draw your income from it. And all the policy talk being pushed has little to do with the issues that you are facing because the number one issue you are facing is a lack of a middle class.
Have you heard of the “hourglass strategy”? Look it up. Ah, no it’s not a strategy you can use, but is one that will work against you.

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Tax Havens in Reverse

Reuters provides a synopsis of a report by the OECD on tax-avoidance strategies by multinational corporations:

30/08/2011 – Due to the recent financial and economic crisis, global corporate losses have increased significantly. Numbers at stake are vast, with loss carry-forwards as high as 25% of GDP in some countries. Though most of these claims are justified, some corporations find loop-holes and use ‘aggressive tax planning’ to avoid taxes in ways that are not within the spirit of the law.

This aggressive tax planning is a source of increasing concern for many countries and they have developed various strategies to deal with it. Working cooperatively, countries can deter, detect and respond to aggressive tax planning while at the same time ensuring certainty and predictability for compliant taxpayers.

Corporate Loss Utilisation through Aggressive Tax Planning [report is gated], which builds on Addressing Tax Risks Involving Bank Losses (2010), looks at a number of commonly used schemes and identifies three key risk areas: corporate reorganisations, financial instruments and non-arm’s length transfer pricing.

David Cay Johnson presents his interpretation of the data:

The latest evidence of this tax after-the-factism comes from an eye-popping global tax avoidance study by the Organization for Economic Co-operation and Development.

What makes the study by tax authorities in 17 major countries so astonishing is not just the size of the losses, but when they were booked.

Country after country showed corporate losses equal to a 10th or more of an entire country’s economic output.

In Germany, corporations list 576.3 billion euros of tax losses on their books one year, equal to one quarter of German economic output that same year. What matters there is not just the stunning size of these losses, but also that they were booked before the global meltdown. The German data are from 2006.

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Corporate Taxes from the AEI perspective–the AEI report gets an F

by Linda Beale

Corporate Taxes from the AEI perspective–the AEI report gets an F
crossposted with Ataxingmatter

[edited to correct typos and add link to CTJ and Leonhardt articles 2/19pm]

Kevin Hassett, an economic grunt at the American Enterprise Institute and frequent contributor to the Wall Street Journal op-ed pages, prepared a report for the institute on corporate taxation. Guess what–it claims that the US overtaxes its corporations and that is the reason that we are losing jobs.

There are all sorts of things wrong with this report.

1) it disregards the impact of globalization on corporate decisions to move enterprises, and the fungibility of operations if jurisidictions left don’t make the exit a highly taxing moment. It also disregards the lack of protection for US workers–yes, US workers are better paid than workers in undeveloped countries, and if multinational enterprises (MNEs) can merely substitute the one for the other, they will.

2) It first spends a lot of ink on the US statutory rate, complaining that it is higher than that of most other OECD countries. That is true, but really meaningless in itself. You can’t have a decent understanding of a country’s tax policies without looking at both tax rates and the base against which they are assessed. Since the corporate tax base in the US has more holes than Swiss cheese, looking at the rate tells you almost nothing about the corporate burden.

3) It notes that corporate taxes raise much less in revenue as a percent of GDP in the US than in other OECD countries. Somehow, the report intends this to be an indictment of the US corporate tax system as overtaxing corporations. I suppose the authors reach that by implying that corporations have fled the system and that’s why. But it is really an indication that the thesis in the title of the report–that the US gets an F for bad taxes that are making US corporations uncompetitive–is wrong. The US has such a loophole riddled corporate tax system that corporations are easily able to avoid paying their fair share of taxes. IN fact, other countries have more effective tax systems that get more corporate taxes out of their corporations as a percent of GDP, so the US must be a tax haven. It is rather surprising that we haven’t had an upsurge of grass-roots, tea party-style protests against all the big MNEs that manage to benefit mightily from the use of tax revenues (from roads to water to workers’ comp to subsidized health care) yet pay next to nothing in taxes in return.

For some examples of these MNEs with low taxes and much use of benefits, see David Leonhardt, The Paradox of Corporate Taxes in America, New York Times, Feb. 2, 2011 . Leonhard points out that Carnival Corporation “wouldn’t have much of a business without help from various branches of government” from the Coast Guard to Customs to road building and bridges and port maintenance, but the biggest benefit mayh be the price it pays, since it has only paid total (federal, state, local and foreign) taxes over the last five years equal to 1.1% of its $11.3 billion in profits.” Other major US corporations with substantial economic profits pay corporate taxes less than 10%–Yahoo (7%), Boeing (4.5%), Prudential Financial (7.6%). Id. (And wasn’t Prudential one of the banks that got to use the Treasury’s ultra vires notice permitting banks that acquired other banks to use their losses without the strict limitation provided in the tax code section 382?)

4) It claims that the US corporations’ effective tax rate is still way higher than for other countries. To do this, it uses two formulaic calculations for effective tax rates, neither of which is particularly trustworthy as to actual effective tax rates. It finds that its two hypothetical measures of effective tax rates come out at 29% and 23.6%. These are probably too high, but are considerably less than the statutory rate. it doesn’t, for example, look at the amount of actual taxes paid compared to the amount of taxable income reported. That figure would suggest a higher effective rate than actually experienced, since taxable income is much less than economic income. It doesn’t do what makes even more sense, look at actual current taxes paid as noted on financial statements of reporting companies compared to economic income as noted on financial statements of reporting companies. That number would be fairly accurate, and in fact comes out very low indeed. See, e.g., CTJ study, Revenue-Positive Reform of the Corporate Income tax, Jan 25, 2011 (noting that a Bush study in 2007 found only a 13.4% effective tax rate for 2000-2005, compared to a 16.1% rate for other OECD countries).

5) In comparing US corporations’ statutory taxes to those in other OECD coutnries, it takes into accout state and local corporate taxation (average) rates. But note that the US has primarily corporate income taxes, while OECD countries may have a host of other taxes, including in most cases a substantial value-added tax system (VAT). The report doesn’t bring that tax into the comparison. As a result, its comparison is again meaningless, because it isn’t really comparing the overall tax burden to determine whether the US corporations are in fact paying tax haven rates or being stymied in competition.

6) And of course, these corporate excusers provide only the slimmest of rationales for asserting that the US is aided by improving the competitiveness of MNEs in other countries–usually along the lines that helping them invest more abroad will also have a spillover effect in terms of more investment here. Actually if we help them succeed there by reducing taxes here, we are cutting off our noses to spite our face, since they will move operations there and do less here. We’d be much better off using that money to fund education and basic scientific research that can improve our quallity of life and give us new things to manufacture!

As usual with the AEI, the ideological agenda has resulted in a report that primarily serves a propaganda purpose. I’d say that it isn’t US corporate taxes that get an F, but rather this AEI report!

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Price elasticity, taxes and wages: Or, why I don’t take wingnut economics seriously

by Bruce Webb

It is I think a truism that in any economic enterprise all costs ultimately have to come out of price, that in the end ‘the customer pays’. But what is not true is that price is infinitely elastic, at some point price in and of itself will restrain demand, and while you can prop up demand through some things like advertising and marketing (the ‘gotta have it factor’), at some point the ancient principle ‘what the market can bear’ will kick in. This principle is so obvious as to hardly be worth stating yet many on the Right simply turn it off and on as needed.

This was highlighted in what Kevin Drum aptly called a checkbo9ok tax:

The Democrats supporting the current legislation have assured an anxious electorate that whatever funds are used to create whatever regulatory scheme created will come from the banks, not the taxpayers. Let me emphasize that so that even casual readers will catch it: the Democrats promise that you won’t pay for their legislation, banks will.

Really?

Since when have corporations ever paid taxes, fees or penalties? Employees end up paying in the form of lower salaries and benefits. Customers end up paying in the form of higher costs.

And in this case, every account holder will be forced to pay higher fees on their checking account and savings account. That’s you, my friendly reader. Can you say “checkbook tax”? I can, and I think lots of candidates will be saying it come November.

Yes, just as the entire Republican membership of the Senate is repeating Luntz’s last gem: “Taxpayer funded bailout”. But it is crap economics.

In wingnuttia, prices are entirely elastic in regards to taxes, they just flow through to customers. Yet they are sticky in regards to anything else, for example increases in minimum wage just cost jobs. Nowhere in the argument is the real claim revealed, that taxes squeeze profits, and that managers and owners are simply looking out for their own interests.

The argument that corporate taxes somehow are just double taxation because ultimately all cost has to come out of price is just bullshit, it is the internal division of the proceeds from that sale that make all the difference, and ultimately the sales price is disconnected from simple cost. Yet the Frank Luntz’s of this world trot this same ‘elastic for thee but not for me’ argument time and time again. And it WORKS! They can always sell just about anything by pretending that the main concern of the commercial operation is jobs on the one hand and low prices on the other when the reality is that the suits could give a crap about either, if they can boost profits by closing a plant here and boosting a price there they will. Everyone knows this yet somehow the Frank Luntz’s of this world can still sell this message with a straight face.

I just don’t get it.

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