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Welfare Spending: Medicare vs Corporate/Business Subsidies (or does the GOP really support WalMart’s behavior in Bangladesh?)

by Linda Beale

Welfare Spending: Medicare vs Corporate/Business Subsidies (or does the GOP really support WalMart’s behavior in Bangladesh?)

As most readers know, the federal government is currently in what passes for negotiations between the President’s Democratic Party Senate and House members and the GOP members that control the House.
The Tea Party and its right-wing rhetoric has of course had a radicalizing impact on the GOP positions, with members not only beholden to Grover Norquist and his anti-tax pledge (all strongly supported by various right-wing propaganda tanks like the Tax Foundation, Heritage, American Enterprise, and other organizations) but also to the anti-social welfare corporatists like David and Charles Koch, the Wal-Mart heirs, and other oligarchic families that constitute the top 1% of US income and wealth.  As a result of these two strong influences, the GOP now stands for

  • tax-cuts-no-matter-what (and for tax cuts that benefit the wealthy most of all, as reflected in the rigid position in favor of the “carried interest” scam used by private equity profits partners and the extraordinarily preferential rate for capital gains and dividends included in the “net capital gain” definition under section 1(h)(11)); and
  • so-called “entitlement reforms”, by which GOPers generally mean reduction in benefits and/or privatization of social welfare programs including Social Security, Medicare and Medicaid.  (All of this is argued in terms of caring about “saving” the programs for the future, but the truth lies in the ways that the right proposes changes to the programs–not changes in costs related to profits taken out by Big Pharma and similar interests, but changes in benefits to ordinary Americans (such as raising the working age for eligibility even though those who work at the hardest labor need benefits earlier, not later, or lowering the cost-of-living-allowance adjustment to benefits for Medicare, even though seniors generally have a HIGHER cost of living because of their increased medical needs, including prescription drugs for diabetes, high blood pressure, and similar diseases particularly prevalent in the elderly population.)

The sum of those positions stands for a corporatist philosophy of benefitting the oligarchy and their business enterprises at the expense of everyday Americans who work for a living.

This is even more obvious when one looks at the same groups’ position on government subsidies for business.  The New York Times recently ran an article on this issue, noting that governments typically pay out a lot of money to support profits of companies and receive very little benefit in terms of tax revenues received and jobs created!  Louise Story, As companies seek tax deals, governments pay high price, New York Times (Dec. 1, 2012).

Over at MauledAgain, one of my fellow tax professors Jim Maule has, like me, long criticized the hypocrisy of supporting tax breaks for private enterprise and opposing earned benefits programs for ordinary citizens and has repeatedly pointed out that the economics of the tax breaks for business don’t work out for anybody but the owners and managers of the businesses.  They certainly don’t work for taxpayers of the jurisdiction providing them.  As Jim notes:

These tax breaks are nothing more than welfare payments to private enterprise. Opponents of social welfare spending defend these outlays with as much passion as they bring to their attempts to end government assistance for individuals in need of help.James Maule, The Hidden Government Spending Game, MauledAgain (Dec. 5, 2012).

Jim rebuts one of the sham arguments for corporate subsidies–that they are just “keeping what belongs to them.”  Those special subsidies to one private enterprise sector cause ripple effects throughout the economy–higher taxes to the other taxpayers to make up for the lost revenues, or cuts in important programs that can no longer be sustained without the revenues.  Prices and wages may change as well.  Id.
What I want to focus on is the hypocrisy of claiming an interest in ending “entitlements” but applying that philosophy only to programs that are intended to help ordinary citizens and not to those intended to beef up the profits of corporations or their managers and owners.  This is especially hypocritical for today’s right-wing, since they almost universally claim to ascribe to the view that competition is good and that businesses should fail when they cannot successfully compete.

Look at two cases involving WalMart, a multinational enterprise that fights unionization of its employees (and supports right-to-work laws that weaken worker rights) in every way imaginable.

1) In Champlain Illinois (personal experience), WalMart had a huge spralling complex on one side of the road.  It had gotten various tax support for the complex.  It decided to move across the road and down the block into another jurisdiction.  It got new tax subsidies there.  It abandonned the old building and left whatever environmental pollution there.  Who gained?  Mostly WalMart managers and owners.  Not the town and counties.  Not the employees.  Not even the consumers who shopped there, who had to deal with the blight of the abandonned building and the multiplication of vast expanses of ugly parking lots.

2) WalMart in Bangladesh.   WalMart delivers cheap goods because it outsources its clothing and other manufacturing needs to impoverished countries where workers can be paid almost nothing and get almost no protections.  In Bangladesh last month, a clothing factory burned, killing hundreds of workers.  It was a WalMart supplier. See  Natasha Leonard, WalMart’s Connection to Bangladesh Clothing Factory, Salon.com (Nov. 26, 2012), where a critic noted that:

“Wal-Mart is supporting, is incentivizing, an industry strategy in Bangladesh: extreme low wages, non-existent regulation, brutal suppression of any attempt by workers to act collectively to improve wages and conditions.” Id.

This was a modern-day repeat of the Triangle Shirt Factory incident in the early nineteen hundreds in New York City:  workers unable to escape burned to death in factory rooms without fire exits and yet dangerously littered with lint and other debris that made their workplace a fire hazard.

WalMart, in fact, has led the fight against workers’ rights and spending on safety at that factory and others.  See Natasha Leonard,  WalMart wouldn’t pay for Bangladeshi factory safety improvements, Salon.com (Dec. 6, 2012).

These things are all tied together: hostility to workers rights to bargain collectively for some fair share of the productivity gains that their labor brings about, hostility to workers rights to a safe working place; hostitlity to workers rights to decent health care; hostility to ordinary people’s rights to a sustainable lifestyle; and hostility to any effort to make the oligarchic uber-rich pay a fair share of the costs of the infrastructure to sustain an economy and a people.

Tax policy, spending policy, policy towards workers, policy towards the wealthy uber-rich–these are all closely intertwined and must be considered of a piece.  Tax policy needs to establish reasonable levels of contributions based on a progressive income tax that takes into account the marginal utility of the dollar.  Spending policy needs to set priorities based on something other than the lobbying by special corporate and oligarch interests for tax-and-spending provisions that privilege themselves.    Policy towards labor rights and workplace safety need to recognize that the worker is disemplowered within the workplace and needs some legal support to provide a reasonable share of productivity gains–minimum wage laws, unionization laws, workers safety laws need to protect workers rights against the all-powerful employer.

If the right succeeds in continuing to pass right-to-work laws (Michigan’s lame duck GOP is trying to do that right now), if the oligarchs succeed in capturing all the profits from workers’ labor–there will be social unrest on the scale of the Great Depression.  Everybody will suffer from that kind of austerity and class warfare policy.  Broad based economic growth that comes from workers sharing in the profits of their industry and those at the top not getting an unreasonable share of the productivity gains is better for all.

cross posted with ataxingmatter

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NYT: $80 Billion in State and Local Subsidies Annually (Updated)

by Kenneth Thomas

NYT: $80 Billion in State and Local Subsidies Annually (Updated)

In today’s New York Times, Louise Story begins a series, “The United States of Subsidies,” ten months in the making, with a story focusing on General Motors closures, the border war for investments between Kansas and Missouri in the Kansas City metropolitan area, and a new estimate of state and local incentives to business, $80 billion a year. Backing this up, and no doubt contributing to the long lead time, is a database of 150,000 state and local subsidy deals going back at least 20 years. Given its appearance in the country’s newspaper of record, the series is sure to elevate the issue of state and local subsidies to a prominence it has never known before.

Since my 2011 estimate was $70 billion per year in total subsidies to business, and $46.8 billion in location incentives, the Times figure represents a substantial increase if accurate. Ever since David Cay Johnston reviewed my book when it first came out, he has argued that my $70 billion figure was probably an underestimate, and the new report would seem to back him up. Nevertheless, I will certainly be spending some time analyzing the database to see just what is in it. According to the story, $18 billion per year is accounted for by corporate income tax breaks, a whopping $52 billion by “sales tax relief,” and the other $10 billion unspecified but most likely property tax breaks. I have some questions about these numbers, however.\

First, it seems to me that property tax breaks likely exceed $10 billion a year. When California axed tax increment financing earlier this year, it was generating $8 billion in tax increment all by itself. Although California cities were by far the biggest user of TIF, municipalities in almost every other state still use it, as well as myriads of property tax abatements offered at the local level. Story is well aware of this. She writes:

The cost of the awards is certainly far higher. A full accounting, The Times discovered, is not possible because the incentives are granted by thousands of government agencies and officials, and many do not know the value of all their awards.

Thousands of local governments give subsidies, and these are overwhelmingly related to property tax. In my most recent estimate, there were several states in Missouriwhich local subsidies exceeded state subsidies, including Missouri and Michigan, so my default assumption was that they were equal if I did not have adequate information on local incentives, as is usually the case due to the huge number of governments involved.

On the other hand, there is some chance that the $52 billion in sales tax subsidies could be an overestimate; it all depends on what The Times includes in this category. My own thinking about sales tax has changed since I first created the subsidy estimates in my 2000 book, Competing for Capital. My estimate for Minnesota, for example, included many hundreds of millions per year in sales tax exemptions for business services. Now, I tend to think of these tax breaks as methods to avoid tax cascading (paying the sales tax on a good more than once, by taxing the full value of every intermediate good) and not a subsidy at all. They have been removed from my estimate of total subsidies in my more recent work, which did not prevent my estimate for 2005 (published in 2011) from being $20 billion higher than that for 1995 (published in 2000). I do still count some sales tax breaks as subsidies, particularly those on plant and equipment, which apply to the initial investment rather than ongoing operations.

While this may seem like a sterile academic argument, in fact it makes a big difference whether incentives are $50 billion a year or $80 billion a year, approximately 600,000 public sector jobs paying $50,000 annually. The larger the true figure, the more pressing is the case for subsidy reform. The inauguration of this new series of articles, plus the database, will help us put a better number on the value, a critical first step toward galvanizing public opinion to force politicians to rein in subsidies.

I will be commenting more on this series over the course of this week.

UPDATE: Text corrected to reflect that although I had specific data for local incentives in Michigan, the total of local incentives was somewhat lower than that of state incentives. In addition, it is clearly true that TIF in California exceeded state subsidies, so obviously so did the total of local subsidies. However, I did not know this at the time I made the estimate.

cross posted with Middle Class Political Economist

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Corporations pushing for job-creation tax breaks shield U.S.-vs.-abroad hiring data

The Washington Post points us to a thought that needs to be included in public debate. (h/t Stormy)

Corporations pushing for job-creation tax breaks shield U.S.-vs.-abroad hiring data

Some of the country’s best-known multi­national corporations closely guard a number they don’t want anyone to know: the breakdown between their jobs here and abroad.

So secretive are these companies that they hand the figure over to government statisticians on the condition that officials will release only an aggregate number. The latest data show that multinationals cut 2.9 million jobs in the United States and added 2.4 million overseas between 2000 and 2009.

Some of the same companies that do not report their jobs breakdown, including Apple and Pfizer, are pushing lawmakers to cut their tax bills in the name of job creation in the United States.



Apple, by the way, is at the top or close to the top, in recent profits. GE has deceased its per centage of US workers from 54% to 46% in the last decade. Few contenders in the presidentail elections or Congressional elections make this notion a part of their campaigns. The debate in regular media usually stops at words like ‘protectionism’. The next time you read about tax cut money flowing to create jobs, hold in mind global trade demands that companies actually respond to, and do not think US jobs are a priority. The rhetoric merely implies a vague ideal…not company policies.

Perhaps multi-national companies need to be lean and mean to thrive, and raising the overall living standards of the world has trememdous benefits for people in general, and of course some problems that go with it. Just don’t think that election political rhetoric has US public benefit in mind overall as a priority high on the list.

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