"Legal" corporate crime

 Krugman @ NYTs:

In recent decisions, the conservative majority on the Supreme Court has made clear its view that corporations are people, with all the attendant rights. They are entitled to free speech, which in their case means spending lots of money to bend the political process to their ends. They are entitled to religious beliefs, including those that mean denying benefits to their workers...

There is, however, one big difference between corporate persons and the likes of

you and me: On current trends, we’re heading toward a world in which only the human people pay taxes.

The federal government still gets a tenth of its revenue from corporate  profits. But it used to get a lot more — a third of revenue came from profits taxes in the early 1950s, a quarter or more well into the 1960s.... Part of the decline since then reflects a fall in the tax rate, but mainly it reflects ever-more-aggressive corporate tax avoidance — avoidance that politicians have done little to prevent.

Which brings us to the tax-avoidance strategy du jour: “inversion.” This refers to a legal maneuver in which a company declares that its U.S. operations are owned by its foreign subsidiary, not the other way around, and uses this role reversal to shift reported profits out of American jurisdiction to someplace with a lower tax rate...

Job creation and tax increases - evidence from the real world

David Cay Johnston takes on the conventional conservative "wisdom" - using DATA!

Dire predictions about jobs being destroyed spread across California in 2012 as voters debated whether to enact the sales and, for those near the top of the income ladder, stiff income tax increases in Proposition 30. Million-dollar-plus earners face a 3 percentage-point increase on each additional dollar.

“It hurts small business and kills jobs,” warned the Sacramento Taxpayers Association,

Anti-taxation cranks keep the crazy coming!

the National Federation of Independent Business/California, and Joel Fox, president of the Small Business Action Committee.

So what happened after voters approved the tax increases, which took effect at the start of 2013?

Last year California added 410,418 jobs, an increase of 2.8 percent over 2012, significantly better than the 1.8 percent national increase in jobs.

California is home to 12 percent of Americans, but last year it accounted for 17.5 percent of new jobs, Bureau of Labor Statistics data shows.

America has more than 3,100 counties and what demographers call county equivalents. Eleven California counties, including Sacramento, accounted for almost 1 in every 7 new jobs in the U.S. last year.

California raises taxes and recovers from fiscal crisis, while the right-wing fiddles and burns

 Professor Krugman on California's recovery from budget crisis as tax-cutting Kansas sinks:

The states, Justice Brandeis famously pointed out, are the laboratories of democracy. And it’s still true. For example, one reason we knew or should have known that Obamacare was workable was the post-2006 success of Romneycare in Massachusetts. More recently, Kansas went all-in on supply-side economics, slashing taxes on the affluent in the belief that this would spark a huge boom; the boom didn’t happen, but the budget deficit exploded, offering an object lesson to those willing to learn from experience.

And there’s an even bigger if less drastic experiment under way in the opposite direction.

California has long suffered from political paralysis, with budget rules that allowed an increasingly extreme Republican minority to hamstring a Democratic majority; when the state’s housing bubble burst, it plunged into fiscal crisis. In 2012, however, Democratic dominance finally became strong enough to overcome the paralysis, and Gov. Jerry Brown was able to push through a modestly liberal agenda of higher taxes, spending increases and a rise in the minimum wage. California also moved enthusiastically to implement Obamacare.

I guess we’re not in Kansas anymore. (Sorry, I couldn’t help myself.)

Needless to say, conservatives predicted doom. A representative reaction: Daniel J. Mitchell of the Cato Institute declared that by voting for Proposition 30, which authorized those tax increases, “the looters and moochers of the Golden State” (yes, they really do think they’re living in an Ayn Rand novel) were committing “economic suicide.” Meanwhile, Avik Roy of the Manhattan Institute and Forbes claimed that California residents were about to face a “rate shock” that would more than double health insurance premiums.

What has actually happened? There is, I’m sorry to say, no sign of the promised catastrophe.

The Heritage Foundation's epic "data" fail

 Media Matters catches the current state of intellectual credibility among conservative economists:

Heritage Foundation chief economist Stephen Moore was caught using incorrect statistics to mislead readers about the relationship between tax cuts and job creation in the United States.

On July 7, Moore published an op-ed in The Kansas City Star attacking economic policies favored by Nobel Prize-winning economist Paul Krugman. The op-ed claimed that "places such as New York, Massachusetts, Illinois and California ... are getting clobbered by tax-cutting states." Moore went on to attack liberals for "cherry-picking a few events" in their arguments against major tax cuts, when in fact it was Moore who cited bad data to support his claims. 

Stephen "Pants On Fire" Moore

 On July 24, The Kansas City Star published a correction to Moore's op-ed, specifically stating that the author had "misstated job growth rates for four states and the time period covered." The editorial board of the Star inserted this annotation to Moore's inaccurate claims:

Please see editor's note at the top of this column. No-income-tax Texas gained 1 million jobs over the last five years, California, with its 13 percent tax rate, managed to lose jobs. Oops. Florida gained hundreds of thousands of jobs while New York lost jobs. NOTE: These figures are incorrect. The time period covered was December 2007 to December 2012. Over that time, Texas gained 497,400 jobs, California lost 491,200, Florida lost 461,500 and New York gained 75,900. Oops. Illinois raised taxes more than any other state over the last five years and its credit rating is the second lowest of all the states, below that of Kansas! (emphasis original)

On July 25, Star columnist Yael Abouhalkah explained the correction in more detail. Abouhalkah wrote that Moore had "used outdated and inaccurate job growth information at a key point in his article" and that Moore should have used data from 2009 to 2014, rather than from 2007 to 2012. Abouhalkah also argued that "the problems with Moore's opinion article damaged his credibility on the jobs issue."

U.S. is a world leader in class conflict over government spending

Political science Prof. Larry Bartels at WaPo:

(Data from International Social Survey Programme; tabulation by Larry Bartels)

The United States does less to redistribute income than virtually any other economically “advanced” democracy. So why does class conflict loom so much larger in U.S. public opinion about government spending than in other affluent democracies? The answer may have something to do with our peculiar system of taxation.

The claim that America is riven by class conflict may come as a surprise to people who like to think that “There are no classes in America,” as Rick Santorum put it during his 2012 presidential campaign. But the fact is that rich and poor Americans disagree about government spending to an extent virtually unmatched elsewhere in the world.

Financial Transaction Tax Gains Traction

High-frequency trading accounts for roughly half of all stock market volume in the United States. Michael Lewis' recent book on the gaming of markets by high-frequency traders makes a financial transaction tax increasingly attractive.  Nelson Schwartz @ NYTs:

It’s not every day that you find a fan club for new taxes, especially among economists and legal experts.

But a burst of outrage in recent days generated by Michael Lewis’s new book about the adverse consequences of high-frequency trading on Wall Street has revived support in some quarters for a tax on financial transactions, with backers arguing that a tiny surcharge on trades would have many benefits.

“It kills three birds with one stone,” said Lynn A. Stout, a professor at Cornell Law School, who has long followed issues of corporate governance and securities regulation. “From a public policy perspective, it’s a no-brainer.”

Not only would the tax reduce risk and volatility in the market, Professor Stout said, but it would also raise much-needed revenue for public coffers while making it modestly more expensive to engage in a practice that brings little overall economic benefit.

Increasing the minimum wage saves taxpayers food stamps expenditures

"9 Things The Rich Don't Want You To Know About Taxes"

An Oldie but Goodie from David Cay Johnston @ AAN (4/11):

Illustration by Justin Rose (Metro Times)

For three decades we have conducted a massive economic experiment, testing a theory known as supply-side economics. The theory goes like this: Lower tax rates will encourage more investment, which in turn will mean more jobs and greater prosperity -- so much so that tax revenues will go up, despite lower rates. The late Milton Friedman, the libertarian economist who wanted to shut down public parks because he considered them socialism, promoted this strategy. Ronald Reagan embraced Friedman's ideas and made them into policy when he was elected president in 1980.

For the past decade, we have doubled down on this theory of supply-side economics with the tax cuts sponsored by President George W Bush in 2001 and 2003, which President Obama has agreed to continue for two years. You would think that whether this grand experiment worked would be settled after three decades. You would think the practitioners of the dismal science of economics would look at their demand curves and the data on incomes and taxes and pronounce a verdict, the way Galileo and Copernicus did when they showed that geocentrism was a fantasy because Earth revolves around the sun (known as heliocentrism). But economics is not like that. It is not like physics with its laws and arithmetic with its absolute values.

Tax policy is something the Framers left to politics. And in politics, the facts often matter less then who has the biggest bullhorn.

The Mad Men who once ran campaigns featuring doctors extolling the health benefits of smoking are now busy marketing the dogma that tax cuts mean broad prosperity, no matter what the facts show.

As millions of Americans prepare to file their annual taxes, they do so in an environment of media-perpetuated tax myths. Here are a few points about taxes and the economy that you may not know...  (All figures are inflation adjusted.)

Taxes and income inequality

Kevin Drum @ Mother Jones:

Here's a remarkable chart from EPI. Actually, no: Strike that. It's true that in a normal world it would be remarkable, but in the world we live in it's actually totally unsurprising. It illustrates the rise in income inequality over the past three decades (top dark blue line),  and as you can see, it's been rising steadily. Totally unsurprising.

But then author Andrew Fieldhouse did another calculation. The middle blue line shows rising inequality after you account for taxes and transfers. But what if we had the same tax system we did in 1979? Well, inequality still would have gone up, but it would have gone up significantly less (bottom light blue line). In other words, during an era in which the rich were getting richer anyway, we deliberately set out to reduce their tax burdens so that they could become even richer...

Instead of trying to ameliorate the effects of a broad economic trend, we've done everything we possibly can to accelerate it. That includes tax policy, financial deregulation, trade policy, anti-labor policy, and much more. And since there's approximately zero evidence that any of this has actually increased economic growth, it means that U.S. policy for the past 30 years has been aggressively dedicated to shifting income share away from the poor and middle class and into the pockets of the already rich...

The truth about "Job Creators"

The real "Job Creators" are the Middle Class - from Hullabaloo:

Nick Hanauer, successful entrepreneur and one percenter, gave testimony on income inequality a few days ago before the U.S. Senate. His testimony in full should be posted in every break room in America:

For 30 years, Americans on the right and left have accepted a

particular explanation for the origins of  Prosperity in capitalist economies. It is that rich business people like me are “Job Creators.” That if taxes go up on us or our companies, we will create fewer jobs. And that the lower our taxes are, the more jobs we will create and the more general prosperity we'll have.

Many of you in this room are certain that these claims are true. But sometimes the ideas that we know to be true are dead wrong. For thousands of years people were certain, positive, that earth was at the center of the universe. It’s not, and anyone who doesn’t know that would have a very hard time doing astronomy.

My argument today is this: In the same way that it’s a fact that the sun, not earth is the center of the solar system, it’s also a fact that the middle class, not rich business people like me are the center of America’s economy.

A Stock Market Boom in the midst of a faltering economy

James Surowiecki  @ The New Yorker takes a look at the stock market boom - driven by a growing disconnect between the welfare of Americans and the profits of "U.S." corporations:

With the stock market setting new highs on a nearly daily basis, even as the

real economy just slogs along, there seems to be one question on everyone’s mind: are we in the middle of yet another market bubble? For a growing chorus of money managers and market analysts, the answer is yes: the market is a house of cards, held up by easy money and investor delusion, and we are rushing all too blithely toward an inevitable crash. Given that we’ve recently lived through two huge asset bubbles, it’s easy to see why they’re worried. But in this case the delusion is theirs.

The bubble believers make their case with a blizzard of charts and historical analogies, all illustrating the same point: the future will look much like the past, and that means we’re headed for trouble. Smithers & Company, a London market-research firm, says that, according to a number of market indicators, stocks are, by historical standards, forty to fifty per cent overvalued. The bears admit that corporate profits are high, which makes the market’s price-to-earnings ratio look quite normal, but they insist that this isn’t sustainable.

They think that earnings will return to historical norms, and that, when they do, stock prices will be hit hard. Today, after-tax corporate profits are more than ten per cent of G.D.P., while their historical average is closer to six per cent. That’s a vast gap, and it’s why bears believe that the market is, in the words of the high-profile money manager John Hussman, “overvalued, overbought, overbullish.”

It’s certainly unusual for corporate profits to soar during a slow recovery. But the argument for a stock-market bubble is flawed: when it comes to the role that corporations play in the U.S. economy, the present looks very different from the past, which means that historical comparisons to the nineteen-fifties, let alone the thirties, tell us little. The four most dangerous words in investing may be “This time, it’s different.” But this time it is different.

Take taxes: one big reason that after-tax corporate profits are much higher than their historical norm is that corporations pay much less in taxes than they used to. In 1951, corporations had to pay almost half of reported profits in taxes. In 1965, they had to pay more than thirty per cent. Today, they pay only around twenty per cent.

"A Tax System Stacked Against the 99 Percent"

Reflections on tax day by Joseph Stiglitz @ NYTs:

No one enjoys paying taxes, and yet all but the extreme libertarians agree, as Oliver Wendell Holmes said, that taxes are the price we pay for civilized society. But in recent decades, the burden for paying that price has been distributed in increasingly unfair ways.

About 6 in 10 of us believe that the tax system is unfair — and they’re right: put simply, the very rich don’t pay their fair share. The richest 400 individual taxpayers, with an average income of more than $200 million, pay less than 20 percent of their income in taxes — far lower than mere millionaires, who pay about 25 percent of their income in taxes, and about the same as those earning a mere $200,000 to $500,000. And in 2009, 116 of the top 400 earners — almost a third — paid less than 15 percent of their income in taxes.

Conservatives like to point out that the richest Americans’ tax payments make up a large portion of total receipts. This is true, as well it should be in any tax system that is progressive — that is, a system that taxes the affluent at higher rates than those of modest means. It’s also true that as the wealthiest Americans’ incomes have skyrocketed in recent years, their total tax payments have grown. This would be so even if we had a single flat income-tax rate across the board.

What should shock and outrage us is that as the top 1 percent has grown extremely rich, the effective tax rates they pay have markedly decreased. Our tax system is much less progressive than it was for much of the 20th century. The top marginal income tax rate peaked at 94 percent during World War II and remained at 70 percent through the 1960s and 1970s; it is now 39.6 percent. Tax fairness has gotten much worse in the 30 years since the Reagan “revolution” of the 1980s.

Patriot Games

Think Progress:

Even as American corporations are raking in record profits, the largest among them are shifting larger amounts of money away from the United States and into offshore tax havens that allow them to pad their bottom lines even more, according to multiple analyses of legal filings made since the beginning of 2013.

The Wall Street Journal found that the 60 largest companies moved $166 billion offshore in 2012, shielding 40 percent of their earnings from American taxes and costing the U.S. billions in lost revenue:

The amount of money at stake is significant, particularly when the U.S. budget deficit is high on the political agenda. Just 19 of the 60 companies in the Journal’s survey disclose the tax hit they could face if they brought the money back to their U.S. parent. Those companies say they might have to pay $98 billion in additional tax—more than the $85 billion in automatic-spending cuts triggered this month after the White House and Congress couldn’t agree on an alternative.

(Long Past) Time for a financial transaction tax

Katrina vanden Heuvel @ WaPo:

(A)fter years of Wall Street excess, and at a moment when new revenues are badly needed, the time has surely come for a financial transaction tax .

Indeed, support for such a tax has never been stronger — or broader. Many on the progressive left have long favored it . Now, though, another group of bleeding-heart liberals, otherwise known as the American people, is on board. When it comes to cutting the deficit, 6 in 10 Americans prefer taxing the financial industry to cutting social spending.

But this idea doesn’t just have the masses on its side; it has the elites, and even some Republican elites. Once championed by the granddaddy of liberal economics, John Maynard Keynes, the banner of a financial transactions tax has been picked up by conservative economists including Sheila Bair, George W. Bush’s appointee to the Federal Deposit Insurance Corp.

The Walmart World

George Packer @ The New Yorker  takes a look at the fragility of the Walmart consumer economy after decades of increasing income inequality and years of Great Recession:

If you were to write a social history of America through the story of business, what would be the most significant companies in the years since the Second World War? I’d divide the period into two: from 1945 to the mid-seventies, I might name General Motors and Woolworth’s. They set the standard for corporate success and behavior during a period that could be called the Roosevelt Republic, when a social contract underwrote American life. It included an expanding middle class, a strong safety net, high marginal tax rates, a white male establishment that grudgingly made way for other groups, a bipartisan approach to legislation in Washington, and a business culture that was cautious, loyal, hierarchical, and unimaginative.

In the decades since the mid-seventies—you could call it the Reagan Republic, but I prefer the “Unwinding”—the social contract has frayed to the point of disintegration. The middle class has shrunk; tax rates (especially on upper brackets) have plunged; inequality has exploded; the safety net (especially for the poor) has weakened; the old power structure has given way to a more diverse and broad-based upper class based on education; bipartisanship—well, you know; and business culture has become entrepreneurial, fast, risk-taking, and harsh. The trade-off: more freedom, less security.

Two companies have defined the years of the Unwinding: one is Apple, the other, Walmart. Steve Jobs’s genius for design and marketing helped create the consumer taste of that educated upper class—the spare, sleek, Bauhaus-inspired devices; the turtlenecks and jeans; the self-congratulatory language of revolution and inspiration; the Einstein fetish—with the Apple Store a kind of secular temple for devotees in prosperous cities and suburbs, mostly along the two coasts.

Jobs’s stylistic and philosophical opposite was Sam Walton. He came out of the heartland, where he saw the potential for a strategy of low cost and high volume in overlooked backwaters like Siloam Springs, Arkansas, and Coffeyville, Kansas. Walmart’s period of explosive growth coincided with decades of wage stagnation and deindustrialization. By applying relentless downward pressure on prices and wages, the company came to dominte both consumer spending and employment in small towns and rural areas across the middle of the country. The hollowing out of the heartland was good for Walmart’s bottom line: its slogan might have been an amoral maxim attributed to Lenin—“The worse, the better.”

"The Endless Cliff"

Robert Kuttner @ American Prospect:

Beyond yesterday’s narrow escape from the dreaded fiscal cliff are … more cliffs. President Obama and Congress averted one fiscal calamity of tax-hikes-for-all only to face even steeper cliffs—the sequester, the debt ceiling, the Social Security shortfall, ad infinitum. It is a fiscal Wizard of Oz, an extended odyssey with perils on every side.

The question progressives are asking themselves this morning is whether President Obama settled for too little in the fiscal mini-deal, having traded away his best single piece of leverage—the automatic tax increase on all Americans scheduled to hit today unless Congress acted.

Some, like our colleague Robert Reich, have argued that it would have been better to “go over the cliff”—let tax hikes briefly take effect on everyone, thus increasing pressure on Republicans—rather than to make this agreement.

Mercifully, Obama backed off any “grand bargain.” The deal was a defeat not only for the Republicans but for the Fix the Debt corporate gang. It spared the economy cuts in Social Security or Medicare (for now).

But on the other side of the ledger, it included no agreement to raise the debt ceiling. The impact of the automatic “sequester” of $120 billion in other spending cuts was postponed only 60 days. These issues will now have to be negotiated separately.

Both Democrats and Republicans want to raise taxes...

Kevin Drum @ Mother Jones (w/ link to Ezra Klein):

Both Democrats and Republicans want to raise taxes on certain people. The main difference is which people they want to raise taxes on:

Democrats do want to raise taxes on families making more than $250,000. You sometimes hear Democrats say they just want to "restore the Clinton-era rates" for these folks, but that's misleading. In addition to letting the Bush tax cuts expire, the White House wants to add about $700 billion in further tax increases on these taxpayers. And that's in addition to the high-income taxes passed in the health-care law. Under Obama's plan, taxes on the richest Americans would be much higher than under the Clinton tax code.

So yes, Democrats want to raise some taxes. But so do Republicans. They want to let the payroll tax cut and the various stimulus tax credits (notably the expansion of the Earned Income Tax Credit and the Child Tax Credit) expire. Those are the tax cuts that primarily help poor and middle-class Americans. In fact, 87.8 percent of the payroll tax cut's benefits go to taxpayers making less than $200,000 and 99.9 percent of the stimulus tax credits' benefits go to taxpayers making less than $200,000.

But you want numbers, don't you? How much do Democrats want to raise taxes on the rich? How much do Republicans want to raise taxes on the poor? This is a little tricky... I don't have numbers for the entirety of Obama's most recent proposal. However, the Tax Policy Center gives us a good rundown of the major points of contention in the chart below, which I've compressed and annotated. Bottom line: allowing the payroll tax cuts and the stimulus tax cuts to expire will raise taxes on the poorest Americans by nearly 3 points. Allowing the high-end Bush tax cuts to expire will raise taxes on the richest Americans by nearly 4 points. Take your pick.

Reject "chained CPI" Social Security cuts as part of any budget deal

 Richard Eskow at Campaign for America's Future:

News reports say the President’s proposed deal includes the “chained CPI,” which would impose drastic Social Security cuts and tax hikes for everybody but the wealthy.  And House Minority Leader Nancy Pelosi says that “Democrats will stick with the President.”

They should both think again.

The “chained CPI” is being offered as part of a “deficit reduction” deal, even though Social Security is forbidden from contributing to the deficit.  Even if you accepted this unreasoned act, it remains morally unacceptable to reduce spending on the backs of the elderly, women, the poor, veterans, disabled Americans, and the poor.

It’s even more unethical to do it when other options available could save much more money, And it’s even worse when we see who isn’t “sharing in the sacrifice” – a list that includes hedge fund managers, Wall Street gamblers, billionaires, drug companies, defense contractors, and tax-dodging corporations.

Independent estimates say that the “chained CPI” will slash Social Security benefits by $122 billion over the next ten years. Here are eight solutions that will save more money  - and really will reduce the deficit – without compromising either our ethics or our sense of fairness:

1. Close multiple loopholes in the capital gains law: $174.2 billion. (1.42x)
Lawmakers could save nearly one and a half times as much money as they’ll get from stripping seniors, the disabled, veterans, and children of their benefits - 1.42 times as much, to be precise – by closing capital gains loopholes.

The Public Opines

Washington Post poll on "Fiscal Cliff" negotiations:

Q: In order to strike a budget deal, would you accept Cutting spending on Medicaid, which is the government health insurance program for the poor or is this something you would find unacceptable?

Accept    28%

Unacceptable    68%

Q: In order to strike a budget deal that avoids the so-called 'fiscal cliff', would you accept Cutting military spending or is this something you would find unacceptable?

Accept    42%

Unacceptable    55%

Q: In order to strike a budget deal that avoids the so-called 'fiscal cliff', would you accept Raising taxes on Americans with incomes over 250-thousand dollars a year or is this something you would find unacceptable?

Accept   74%

Unacceptable    24%

Q: In order to strike a budget deal that avoids the so-called 'fiscal cliff', would you accept Raising the age for Medicare coverage from 65 to 67 or is this something you would find unacceptable?

Accept   36%

Unacceptable  60%

Q: In order to strike a budget deal, would you accept Changing the way Social Security benefits are calculated so that benefits increase at a slower rate than they do now or is this something you would find unacceptable?

Accept  34%

Unacceptable  60%

Cliff notes...

Laura D'Andrea Tyson @ New York Times:

...The economy continues to operate far below its capacity. The unemployment rate is at least two percentage points higher than what most economists consider consistent with a full recovery. Other measures, such as the high rate of long-term unemployment and the low labor-force participation rate, reflect an impaired labor market.

According to the Congressional Budget Office, gross domestic product is still about 6 percent, or about $973 billion, below the potential level the economy is capable of producing at full capacity. This is the largest gap between actual and potential output following a recession in modern American history.

The weakness of government spending at the state and local level and more recently at the federal level has been a significant factor behind the slow recovery. The phasing out of earlier federal stimulus measures, the expiration of temporary payroll-tax relief and extended unemployment benefits scheduled at the end of the year, and the tight caps on discretionary federal spending already in force mean more federal fiscal drag on the economy’s growth next year even if the fiscal cliff is averted...