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

Four easy fixes for corporate taxation

Everyone “knows” that the corporate income tax is a mess. Ask any company. They pay too much in corporate income tax, face rates higher than in any other OECD country, and are just following the law when they use tax havens to keep profits eternally deferred from taxation and to perform general sleight-of-hand.

 

Don’t believe a word of it. While some economists believe we shouldn’t tax corporations at all, the corporate income tax (CIT) is a necessary backstop to the personal income tax (PIT). With no CIT or a rate lower than the PIT, individuals have an incentive to incorporate their economic activities so they aren’t taxed on them, or are taxed less. Needless to say, this is something an average wage or salary worker would not have the ability to do. This is another area where we have one tax law for the 1%, and different rules for the rest of us.

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Here we go again and again!

Rjs sends a link filled note on the ongoing federal financial merry go round:

It’s been a pretty slow week, with neither major monthly economic reports nor widespread kerfuffles in the blogosphere…as we figured, all the budget proposals floated earlier this year have gone nowhere, and it now appears that the republicans wont negotiate on any compromise until they have the democrats and the president and backed up against the debt ceiling…in case you forgot, the artificial federal debt limit is set to kick back into effect a week from now, on May 19th, after a three-month hiatus…according to the inane deal negotiated with the tea party contingent in late January, the debt ceiling was suspended until that date so the anti-everything crowd would not be on record as having raised it; then, on May 19th, the new debt ceiling will suddenly become whatever amount of script the Treasury has outstanding at that time, effectively forcing the government immediately into accounting legerdemain to run the show while the clock runs out…estimates were that would be by mid August, but with revenues now higher than expected, it could be stretched till early September or even October, around the same time the stop gap continuing resolution to fund government functions expires, September 30th, at the end of the fiscal year…

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F-35 and sequester dollars and cents

With constant delays due to significant engineering issues and design flaws, the cost of the F-35 has risen to $395.7 billion. But that’s just to build the planes. When you add in the cost of testing, operations and support, it will cost an additional $1.1 trillion — bringing the overall price tag to an incomprehensible $1.5 trillion.2

Think about this — the sequester, which cut $1.2 trillion from the budget, is actually less money than the entire F-35 program. Instead of cutting vital programs like Medicare, education, Head Start and unemployment insurance, we could end the F-35 program and invest in jobs and crucial services in our communities.

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The most money goes to which law enforcement agency?

Think Progress offers a note of caution when we think we have reality nailed for government spending and results. And how ‘public displays’ by our politicians offer up little information:

During the 2012 fiscal year, the federal government spent more on immigration enforcement — $18 billion — than on every other federal law enforcement agencies combined, according to a new report from the Migration Policy Institute. The spending on Immigration and Customs Enforcement and Customs and Border Protection dwarfs the combined $14.4 billion spent on the FBI; Bureau of Alcohol, Tobacco, Firearms and Explosives; Drug Enforcement Administration and U.S. Secret Service.

The U.S. has spent more than $187 billion on immigration enforcement since President Reagan signed the Immigration Reform and Control Act in 1986 — which first made it illegal for employers to hire undocumented workers along with strengthening U.S. border security. Adjusted for inflation, the U.S. now spends 15 times as much on immigration enforcement as it did in the mid-1980s. And the number of deportations and immigration-related prosecutions has also jumped along with the increased spending:

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Romney Says He’ll Shoot Farm Price Supports, Draught Relief and Veterans’ Benefits, Right Along With Big Bird!

Slate’s William Saletan has a terrific article there today, with a terrific title: Tax Evasion: Romney’s preposterous arguments for not telling you which tax breaks he’d abolish.  And, yes, elsewhere, too, mainstream-media folks are showing some morning-after queasiness about their debate verdict, by getting into the “um … huh?” stuff now.
But in pointing out that Nixon really doesn’t have a plan to end the Vietnam War—er, I mean, that Romney doesn’t really have a plan to balance the budget—they’ve been talking mostly about Romney’s refusal to identify the tax loopholes and deductions he’ll end. They haven’t mentioned much Romney’s other demonstration of, um, willingness to be specific about extremely important budget matters: His statement that he’ll end all programs that, in his opinion, aren’t worth borrowing money from China for. 

Which include Medicaid and Sesame Street.  But what other programs?

The effective end of federally supported Medicaid is obviously too serious a subject to joke about, and it needs much more attention from the news media than it’s getting—as well as from the Obama campaign, which should put up ads featuring nursing home residents and nursing home owners; i.e., small-business owners who are jobs creators, to explain the issue.

But Obama also should say—yes, say—when he’s campaign in, maybe, Iowa, eastern Colorado, Wisconsin and North Carolina that Romney doesn’t think farm subsidies, flood insurance, hurricane and tornado disaster relief are worth borrowing money from China from. 

And when campaigning in North Carolina, Virginia, Ohio and, well, everywhere else, he should say that Romney doesn’t think veterans’ benefits are worth borrowing money for China for.  And that that might make it harder to recruit those additional 100,000 people into the armed services that he says he wants to add, although of course he might just have a military draft in mind.  You never know; he’s not all that keen on revealing specifics, after all.  (Does Romney ever think beyond the end of whatever sentence he’s mouthing at the  moment?)

Seriously. The only way to start to nail down Romney’s plans is to start actually filling in his blanks.  Say, outright, that Romney plans to end farm price supports, drought relief, disaster relief and veteran’s benefits.  Romney then will have to say that he has no such plans.  Great! Then say that Romney plans to shut down the FDA and the National Transportation Safety Board; a few hundred deaths from dangerous medications and airplane crashes each year aren’t worth borrowing money from China to prevent.  Not when you have more important needs, such as incessantly spiraling tax cuts for the wealthy. 

Which, despite his Wednesday protestations, he does think are worth borrowing money from China for.

Or here’s another idea: Let’s develop a contest in which the winner accurately predicts Romney’s selections for Programs Worth Borrowing From China For.  And a bonus contest in which the winner correctly calls the tax loopholes and deductions eliminated in Romney’s tax-code revision plan.

The winners will be announced on the same day as the announcement of the Publishers Clearinghouse winner for 2015. The prize?  We can have another contest to guess that.

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Weapons That Didn’t Work Out

by reader ilsm
The Campaign to Preserve Pentagon Waste is in High Gear:

From Forbes, Defense Advocate Loren Thompson:
 
How To Waste $100 Billion: Weapons That Didn’t Work Out

One of the most unsettling facets of federal finance is the way the government devalues past investments. The political system is so focused on the next budget — and the next election — that it ignores sunk costs. Thus, every program termination is considered “savings,” without regard to the money that was spent to get the project in question to its current state.”
“This fiscal myopia is especially pronounced in the defense budget, where the government makes most of its capital investments. Cancellation of weapons systems that have been in development for a decade or longer is typically greeted as evidence that policymakers have made “hard choices” and had the courage to stand up to the “military-industrial complex.” The fact that previous administrations may have spent billions of dollars trying to satisfy a valid military requirement is barely mentioned — as is the fact that future administrations will have to spend additional money starting over on a replacement project.

Thompson is not an economist. More here.

What Thompson is advocating is to continue throwing good money after bad, which is poor economics; decisions on future “investments” need to be made on the performance of the project and the continued need for the projects’ performance. Neither are evident in the “defense” cuts that do indeed go against the jobs and PAC funding of the “military-industrial complex.”
For example, the F-35 should be killed based on failed tests, over runs delays and dangerous outcomes in several critical safety issues.
Walking away from the $50B is a problem for Thompson, but it will free up nearly $1000B in the next 20 years for uses that work, and benefit the US.
The “don’t throw good money after bad argument” was made in “Of Mice and Economics Dan Seligman, Forbes Magazine, Aug 28 1998 (Dan here…Also see Naked Capitalism US Wars are far from over)

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House passes spending bill

by Linda Beale

  House passes spending bill

While the Senate was wrangling over what of the noxious provisions in HR 3630 they would have to keep in order to get expanded unemployment compensation and a payroll tax cut, the House passed a spending bill 296-121 (with 147 Republicans and 149 Democrats in favor) to carry the government through September 2012.  Steinhauer & Pear, Senate Leaders Agree to a Two Month Extension of the Payroll Tax Cut, New York Times (Dec. 16, 2011).

The GOP strategy is to obstruct and demand–one right-wing idea after another is inserted into every bill, just so the Dems will think they have won something when they give the Republicans ten things instead of 100!

As wrangling over the tax has continued, Republican leaders have sought to build support for the measure by adding conservative policy provisions, which have replaced earmarks as the legislative sweetener for Republican lawmakers in a Congress where fundamental differences about the role of government in American life deeply divide the parties.
That conflict, which mirrors the broader political dynamic across the country, is unlikely to ebb in the second session, as Republicans labor to make life more difficult for President Obama and Democrats struggle to hold the White House and the Senate.  Id.

The spending bill isn’t much better.  See Sonmez, Government Funding Bill That Will Avert Shutdown Passed by House, Washington Post Blog, Dec. 16, 2011; Steinhauer & Pear, Senate Leaders Agree to a Two Month Extension of the Payroll Tax Cut, New York Times (Dec. 16, 2011). Defense gets $518 billion and military gets a 1.6% pay raise.  (Remember that this same house in HR 3630, the unemployment extension bill, wanted to freeze all federal workers’ pay for another year, and require greater retirement contributions, among other stingy things for ordinary people.)

In line with the GOP’s anti-regulations ploy, the House bill makes it harder for the government to regulate marketing for food targeted at kids–now there has to be a cost-benefit analysis.  Regretably, cost-benefit analysis is one of those “economics”-based policy ideas that essentially favors the retention of the status quo: any regulation will cost businesses something (restrained marketing to kids costs junk food businesses a whole sector of potential targets, er, customers), and the business world portrays the benefit of healthy food or less exploited kids as miniscule compared to the wonders of their profits and what that can do for society (the wealthy will get wealthier, no doubt).

The House doesn’t care much for ordinary people.  Low-income heating assistance spending will be cut compared to last year and the National Institutes for Health will be barely increased.  The GOP is placing its moral oprobrium of gays in the limelight by prohibiting health money from being used in needle exchange programs, which have been shown to be effective in curbing the spread of AIDS.  Obama’s education initiative is cut 20%–in spite of the fact that education is key to economic growth and the development of human capital.

crossposted with ataxingmatter

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Obama road tests hopey changey 2.0

Yves Smith spells out her strong opinion of our dilemma nationally for the elections of 2012. This particular arena of regulating banks and non banks and and accountability also takes on a wider symbolic meaning in this election cycle. How this plays out in determining national budget spending priorities through the lens of an explosion of money spent on national and state elections makes for a need for voters to pay close attention to actual issues and to gain some knowledge underlying economic understanding…a complicated task for a potentially interested public. We in Mass. have another election to follow closely through Elizabeth Warren, who has a different take on the issues.

Yves Smith at Naked Capitalism has a long post worth a visit to read the whole piece…here is a portion:

…So let’s return to the rebranding of Obama. From the Financial Times:

Barack Obama outlined a plan to toughen penalties against banks that commit fraud in a speech on Tuesday that hardened his attacks on Republicans for “collective amnesia” in backing policies that caused the financial crisis and economic downturn.

Speaking in Osawatomie, Kansas, Mr Obama summoned the spirit of another president, Teddy Roosevelt, who spoke in the same city a century ago about his “new nationalism” and the need for a fairer system that supported the middle class..

Mr Obama was scathing about the banks’ opposition to new financial regulations, saying they were only feared by “financial institutions whose business model is built on breaking the law, cheating consumers or making risky bets that could damage the entire economy”.

“I’ll be calling for legislation that makes [anti-fraud] penalties count – so that firms don’t see punishment for breaking the law as just the price of doing business.”

The misdirection is blindingly obvious. The claim is that the Administration needs new tools to get tough on banks. No, it has plenty of tools, starting with Sarbanes Oxley. As we’ve discussed at length in earlier posts, Sarbox was designed to eliminate the CEO and top brass “know nothing” excuse. And the language for civil and criminal charges is parallel, so a prosecutor could file civil charges, and if successful, could then open up a related criminal case. Sarbox required that top executives (which means at least the CEO and CFO) certify the adequacy of internal controls, and for a big financial firm, that has to include risk controls and position valuation. The fact that the Administration didn’t attempt to go after, for instance, AIG on Sarbox is inexcusable. The “investigation” done by Andrew Ross Sorkin in his Too Big To Fail (Willumstad not having a good handle on the cash bleed, the sudden discovery of a $20 billion hole in the securities lending portfolio, the mysterious “unofficial vault” with billions of dollars of securities in file cabinets) all are proof of an organization with seriously deficient controls.

But more broadly, it’s blindingly obvious this Administration has never had the slightest interest in doing anything more serious than posture. As we wrote in early 2010:

Recall how we got here. Early in 2009, the banking industry was on the ropes. Both the stock and the credit default swaps markets said that many of the big players were at serious risk of failure. Commentators debated whether to nationalize Citibank, Bank of America, and other large, floundering institutions..

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