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Big Business believes in taxpayer subsidies, not "free markets"

by Linda Beale

Big Business believes in taxpayer subsidies, not “free markets”

David Cay Johnston, former NY Times reporter and now Syracuse professor, writes about the thing that most journalists don’t bother to (or are told not to) write about–the way that Big Business successfully lobbies legislators and regulatory agencies to write the rules to favor Big Business, at the expense of ordinary Americans, all under the false claim that they are pushing de-regulation for the good of competition and ordinary consumers.  Johnston, Missing the Story, American Journalism Review (March 2013).

Johnston describes a number of ways that state legislatures, Congress and state and federal regulatory agencies have made life easy-street for Big Business at the cost of ordinary consumers.  He notes it is often discussed as “deregulation” but that “is a misnomer because, literally, no such thing exists in commerce….Everything in business is regulated in some fashion, and has been since long before the first nearly full set of laws we have….  [Thus, d]eregulation typically means reregulation under new rules that favor business interests.”  Id.

Businesses claim that the ‘deregulation’ they seek is just another step towards their ideal of “free markets” to help competitiveness.  Not so, Johnston replies.  The regulatory climate that results is almost always one that creates “moats” making competition much harder for small businesses and allowing duopolies or monopolies to arise that can set prices as high as they wish. And often the captured regulatory agencies allow the most absurd subsidies imaginable.

The Bush Treasury did that in spades.  One example is the changes the pro-business Treasury under Paulsen made in the regulations under section 368 governing corporate reorganizations, in which the Bush Treasury (many officials of whom are still part of the Obama Treasury) promulgated rules that provide, for the first time, the possibility of a loss recognition by shareholders in the nonrecognition reorg exchange.  Settled law at the time said no such loss could be recognized.  And the Bush Treasury also did it in setting up (through regulations) yet  another tax subsidy of Big Oil (as an add-on to an already ridiculous subsidy enacted by Congress when it allowed Big Oil to operate as limited partnerships).

Here’s how Johnston describes this.

The simple story is that Congress in 1986 exempted monopoly pipelines from the corporate income tax if they organized themselves as Master Limited partnerships. The George W. Bush administration then let these pipelines include the nonexistent tax in the rates they charge.

The cost of this fake tax is both tiny and huge.

The pipelines raise prices to cover the cost of the tax, which in turn means they have to raise prices even more to cover the taxes on the extra earnings, known as “grossing up.” A 42 percent tax on profits, grossed up, means a pipeline gets to earn its profit plus 75 percent for taxes. These higher costs are then built into prices people pay for gasoline and natural gas to heat homes. Paying this fake tax costs each American less than three cents per day, about $10 per year, I calculate. That is the tiny part. The huge part is that collecting just a penny a day from everyone in America adds up to $1.1 billion in a yearor $3.3 billion at three cents per day per American. Id.

 (emphasis added).

Note, folks.  That’s an unnecessary $3.3 billion subsidy provided to already-profitable businesses that comes entirely at the cost of ordinary Americans.  It is a subsidy put into law entirely through Big-Busienss-friendly tax administrators in ways that most Americans do not see it–or, if they see it, they believe it is a “real” tax cost of the businesses rather than just another theft subsidy.

This is another aspect of the problem of the way the media treats any discussion of “free markets.” The fundamentalist approach to free markets (that I have sometimes labeled “free marketarianism” or “friedmania”) claims to believe that deregulation helps people by increasing competition and opening up markets.  In fact, it is usually the opposite.  Deregulation helps Big Business by decreasing competition and allowing the development of powerful oligarchs and powerful monopolies or near-monopolies.  Brute capitalism, that is, allows those who hold capital to hold power, and those who hold power act against the interests of ordinary people in order to consolidate their power.  Another blog addressed this well:

A free market requires that everybody plays nice and follows the rules. Guess what. There’s always someone who will do whatever evil they think is required to make money. Once you realize that, you know there can be no such thing as the free market.


That’s one of the primary reasons that uncontrolled capitalism has been such a gross failure since the Reagan/Thatcher “revolution”, leaving us with record inequality and damaged democracy, and bringing the world economy to the brink of total collapse that simply evaporated trillions of dollars. Random Notes from the Exasperation File, Class War In America.

I have often noted that the media treat the daily ups and downs of the stock market as though it is an accurate reflection of the entire economy.  It is not.  When the stock market is up, it is likely that one or another segment of Big Business is doing well or exceptionally well.  That means the affluent–those in the top 30% who own most of the financial assets of this country, including Big Business’s CEOs and board members, are doing well.  So as the stock market has resurged after the 2007 financial crisis brought on by the excess of Big Financial Businesses, the wealthy who run and own those Big Businesses are doing mighty well indeed.

This is corporatism at its worst–the takeover of the economy and all of its institutions by a corporate mindset that favors the wealthy and the managers/owners of Big Business over ordinary people, leaving ordinary people’s views unheard.  It often is associated with class warfare, wherein the rich ensure that their money buys laws and regulations written by, for, and of the rich.  Corporations pay less in taxes and ordinary workers pay more–either in direct taxes or in the indirect tax of wage and benefit loss that is a tax subsidy for the wealthy.

Those at the bottom of the economic distribution are of course the ones most hurt by the decline and by the class warfare policies of the rich.  They are most likely still doing poorly or just barely getting by, mostly because those big profits at Big Business are taken at their expense–through constantly rising prices not reflected in increased quality or costs of production, or through increasingly unfair worker wages and benefits that have been cut in order to increase the rents to the owners/managers.  And usually with the assistance of legislators and regulators.

Take a friend of mine, who was laid off from an auto parts manufacturer for almost three years and has been struggling to make a full-time living at it since he was reinstated–at a much lower salary then before the crash (conveniently for the company but not so good for the workers).  He bought a new truck about a year before the financial crash.  The payments were supposed to be around 250 a month.  In the first months of the layoff he couldn’t find any substitute work, and he fell behind in payments on the truck (his family depends on him as the sole breadwinner; his family has almost no assets and no liquid assets; he depends on the truck to allow him to take odd jobs when his job at the factory is on hiatus–often landscaping, mowing, etc.).  The interest rate on the loan went up to 32% almost immediately.   That would once have been treated as illegal usury.

Not now, since “deregulation” has allowed financial firms to rip off their customers coming and going for their own profits.   Now his payments are around $400 a month and he owes as much on the truck as he did several years ago in spite of all the payments he has worked hard to make since then.  This Thursday he missed the payment again, after keeping up for most of the year.  He missed it because his company began selectively laying off workers for a week or 3 days at a time during the winter, and he didn’t work for about ten days of the month before the payment was due.  On Wednesday he talked to his adviser at the financial firm that gave him the loan.  It was a new “adviser”. They replaced a more understanding one with one who was considerably harsher.  The adviser told him on Wednesday that he would give him til Friday to make the next payment.  On Thursday, however, he sent a repo man who took the truck.  Friday my friend got a paycheck and could have made the payment (as he’d told the adviser on Wednesday).  Instead, when he went to make the payment thinking he could get the truck back that day, the financial firm advised him that he now had to pay off the truck in full–as well as a bunch of additional charges due to the repossession.

What would that be, he asked?  He assumed he owed about $3500, in his calculations the amount still due on the original loan.  Oh, no, the finance guy told him.  You will have to pay $4975 on Monday, and that amount will increase by $25 a day for every day you do not pay.  It’s that much because of all the late fees we added on the bill.  Oh, and we are charging you $400 for repo-ing the vehicle on Thursday (even though we had promised we would not do so)…..
Again, deregulation of financial institutions has made these rent-seeking add-on charges customary for anyone in the lower part of the income distribution.  Big Business sells it as competitive services for the underprivileged but it is really deregulated excess profits for the financial firms for acting like modern equivalents of plantation owners with a captive workforce unable to ever build up financial assets and always dependent on the firms’ calculations as to what they owe or are owed.

How is my friend (who happens to be an African American) supposed to ever advance beyond the near-serfdom in which he currently exists?   Lucky for him, we are willing to offer him a personal loan at market-rate interest so that he can finally pay off his overseer and begin to dig himself out of the hole that our deregulated, GOP-ideology-driven state puts most Detroit low-income residents in.   Mass transit hardly operating and not permitted to expand as it should to permit low-income residents to commute easily to work in the region.  White suburbs that cannot be annexed into the city, so continue their oblivious lives exploiting Detroit’s assets while pitying the poor black residents that just can’t seem to do anything right.  Businesses that charge white folks in the suburbs less than black folks in the city.  Insurance companies that rip off their Detroit clients.  And on and on.

This is all happening in a world where white folks with money set all the rules and now, in Michigan, have made it very hard for any union to form and exert some worker-power on behalf of the employees. Michigan’s new, so-called “right-to-work” law that the religiously right-wing Republican party of Michigan passed with no input at all from the people and with misinformation galore–all of the newspaper coverage talked about workers being “forced” to join a union unless you have “right-to-work” and how “right-to-work” would free them not to have to pay for the union and encourage more economic growth and more jobs.  None of the newspaper articles or the legislators reported the fact that right-to-work states tend to have lower wages for their workers, less good jobs, and poorer economies.  Of course, the information was wrong to start with–no one was forced to join a union without right-to-work laws–they were merely required to pay some amount (less than union dues) for the services that the union provides.  Now, they can demand the same services and pay nothing.  No Republican business would provide services on that basis, but Republican legislators serving their oligarchic base ensure that no true freedom exists for anybody without money.

Michigan, of course, has also just taken over the City of Detroit, with Gov. Snyder’s appointment of an emergency manager.  This is as undemocratic as it gets, given the state vote rejecting the last EM law and the fact that the EM will have dictatorial power to ignore the Mayor, the City Council and all other elected officials.  Snyder is a right-wing tool, in office backed by a majority-GOP legislature that reflects the racism of most of the “upstate” part of Michigan and blames Detroit’s problems on its predominately black residents.  The legislature passed right-to-work to retaliate against unions for trying to get protection for workers’ rights in the constitution.  Apparently, the GOP thinks the constitution should only protect the wealthy, as it does by prescribing a flat tax, ensuring that the wealthy in Michigan get to choose what they support but are hardly taxed at all by the State. The rabid right in this state forget that what condemned Detroit was the “white flight” to the suburbs and Michigan’s foolish state constitution which does not allow Detroit to take the suburbs into the city.  So Royal Oak’s mayor a few years ago could refuse to fund metropolitan buses because he didn’t want Detroit’s black population able to cross the border into Royal Oak and pollute the city by taking jobs there.  And the wealthy residents of the 90% white suburbs of 80% black Detroit come into the city for its amenities–opera, plays, sports, museums–and its work, but take their pay out of the city to maintain their schools and shops and amenities while complaining about how awful Detroit is.  We Detroit residents are very worried that the GOP’s takeover of the Democratically elected city government will result in the rape of the city’s assets–Belle Isle is a jewel in Detroit’s crown that the state covets; Detroit’s water system is another asset that the state–and the white suburbs–covet and want to control.  The EM will be pressured by Snyder and the rest of the upstate Detroit haters to take over those assets and make Detroit pay for being a center of unionism and Democratic voters.

The Michigan passage of the so-called “right-to-work” law and the renewal of the emergency manager law AFTER it was defeated by the people in November are perfect illustrations of the contempt that the current Republican party shows for ordinary people when it is in power in a state.  And it also illustrates well the capture of legislators and agencies by oligarchs, monopolies and duopolies.  This is, as Johnston notes, a sad state of affairs that will only get worse unless the press reinvigorates itself to inform rather than kiss Big Business’s ass.

cross posted with ataxingmatter

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Tenneco CEO’s Wall St. Journal on "American Capitalism"

by Linda Beale
crossposted with Ataxingmatter

Tenneco CEO’s Wall St. Journal on “American Capitalism”

Gregg Sherrill, the CEO of Tenneco, Inc., seems to think that Capitol Hill and the White House are “bashing” the “entire free enterprise system”–saying that the business world has “taken a pounding on Capitol Hill and at the White House” but except for the copmanies that were part of the “easy credit and disguised risk that so spectacularly collapsed”, American business “has nothing whatsoever to apologize for.” Speaking up for American Capitalism, Wall. St. Journal Op-Ed, Jul. 15, 2010, at A17.

But the op-ed is a straw man argument tilting at windmills.

First, Sherrill notes a study cited by The Economist that finds that most Americans “prefer the free enterprise system to any collectivist alternative.” Reading that, you’d think that there was a major debate in this country about switching from capitalism to socialism. But there’s no such thing going on. Nobody is pushing a socialist agenda, in which the government would permanently take over means of production. Many politicians are reluctant to speak out strongly for the traditional American values of a market that is regulated for the common good rather than allowing corporate titans (and their wealthy elite shareholders) set the laws to suit themselves. In fact, the push for the last four decades (dating from Reagan’s swearing in) has been the opposite–to change America’s system of tempered capitalism to one of no-holds-barred “free markets” along the lines espoused by the Chicago School’s Milt Friedman, who didn’t care much about democracy but did care a lot about starving government and letting capital have a free reign no matter what the detriment to ordinary folks.

Second, Sherrill himself explicitly acknowledges that business cannot function “without the appropriate regulation and incentives government can provide.” That is what tempered capitalism is all about–encouraging people to establish and run businesses but restraining the more harmful aspects of rent-seeking profitmaking. Key to decent democratic government is the role of government in protecting consumers from overweening corporate power and the public interest from the kind of reckless private greed that can lead to the “socialization of losses, privatization of gains” that we have seen in the causes of our Great Recession. Forty years of Reaganomics bred negative attitudes towards government regulation fostered within government itself and gave brutal, greed-is-good capitalism a chance to wreak havoc on the economy and on the lives of vulnerable Americans not in the elite upper quintile.

But most of the rhetoric in the piece is straight from the “starve the beast”, free marketarian guidebook of the Cato Institute and other think tanks pushing the Chicago School version of “free enterprise.” It uses the rhetoric of “the moral case for free people and free markets.” It argues against enlarging government “in a way that would fundamentally shift its level of involvement in our overall economy.” Yet Sherrill knows that there is no such thing as “free” enterprise–since without contracts and social networks and societal restraints, his corporation would be nothing but a local business, involved in a dog-eat-dog world with everybody enabled to act like the Mafia and exact whatever “protection payments” brute force permitted. He also knows that “free market” is not synonymous with “free people”–in fact, there is a good deal of tension between the two terms, since a people is only free when the democratic freedoms that underlie our way of life are not subordinated to the power of megalithic market enterprises. Unrestrained markets with monopoly players are antagonistic to genuine human freedom: labor is treated as quasi-property (remember Lochner) and wealth is treated as quasi-god.

And finally, he knows that there is no consideration in the offing for an enlargement of government in a way that would “fundamentally shift its involvement in the economy.” First, government is inherently “involved in the economy”, since government must make decisions about revenues, expenses, programs and public interest every day, and every decision about taxing, spending, punishing, rewarding and encouraging behavior has economic consequences. second, corporations like Tenneco push avidly for government to fundamentall shift its involvement in the economy with every lobbying dollar spent, which is intended to influence government to enact business and corporate-favorable programs. Subsidies of the oil industry that exist right now–that’s government involvement in the economy. And the oil companies are fighting to retain all of them. Implicit and explicit guarantees of the financial system–that’s an incredible involvement in the economy, providing cheap funding for banks. And investment banks clamored to be eligible for the largesse, even as their version of casino capitalism spun out of control. So while the rhetoric warns about government involvement, the reality cozies up to government subsidies and merely frowns when government involvement means acting to balance the relationship between business and consumer, as in the fight against the consumer protection agency provisions of the financial reform legislation and the intensive lobbying by the auto dealer industry for an exemption (i.e., for permission to go on ripping off auto consumers as they have frequently been doing).

But the most pernicious part of Sherrill’s op-ed is his warning that “people will buy into the false perception that government can fix our current crisis, which will lead to policies making our economic recovery more difficult.” Business can’t fix the crisis alone, because business as usual has become too short-sighted and too intent on rentier profits. However, government, with economic stimuli targeted to those at the bottom who are hurt the most, can do much to avert the harm of the Great Recession for its people and to provide a path for a sustainable economy out of the recession. But this blather about fearing that people will depend too much on government covers an agenda on the right to make sure that government isn’t there to make a difference for the people, so that Big Business can continue its self-interested focus without the kinds of restraints that make democracy and the economy sustainable.

Buyer beware. Much that comes in the guise of setting the record straight about American capitalism is just more of the same attempt to mislead Americans into distrust of their government and reliance on Big Business instead.

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