Classy Warfare: What Wall St. Won, Why Main Street Reacts

The former CEO of Bain Capital Management thinks Occupy Wall Street is “Class warfare.” [NatlJourn] “I think it’s dangerous, this class warfare,” Romney said to an audience of about 50 people in response to a question about the protests over such issues as high unemployment, home foreclosures and the 2008 corporate bailouts.”

So, if we question why there has been no Jobs bill coming from House Republicans, no support for the President’s Jobs bill from Republican Congressional leadership, no enthusiasm from the GOP for regulating the Wall Street Casino that created the Housing Bubble — and then left the American taxpayer to clean up the mess — no demand that after the Wall Street money machine sucked out the equity in the housing market homeowners might be able to renegotiate principle, no support for requiring Wall Street investment and banking institutions be more consumer (and taxpayer) friendly after they were bailed out with taxpayer dollars…. that’s “Class Warfare?”

If this be class warfare, the Wall Street protesters are late to the game.  The top half of the top 1% of American income earners and their allies in the financial sector have been attacking the American Middle Class for three decades — and winning.

What have they won?

They’ve won a 13.4% decrease in their effective tax rate.  “The top 400 households paid 16.6 percent of their income in federal individual income taxes in 2007, down from 30 percent in 1995. This decline works out to a tax cut of $46 million per filer in 2007, or a total of $18 billion in tax cuts for these households per year.” [CBPP]  Here’s what that looks like in graph form:

They’ve won tax deductions for  personal yachts.   Since the Bush Tax Cuts of 2003 yacht owners have been able to avail themselves of tax deductions:

“Some ultra-rich yacht buyers are expecting to deduct millions from their income tax next year by depreciating their pleasure craft under the provisions of the Bush administration’s tax-relief program passed by Congress in 2003. About 500,000 boat owners nationwide can decrease their income-tax bill every year by declaring their vessels a second home. Some others collect healthy deductions from putting their boats into charter arrangements that may skirt the provisions of the tax code. And some corporations take deductions on yachts that seem to stretch the definition of a business resource.” [SeattlePI]

“Yes, believe it or not, Uncle Sam subsidizes the purchase of sprawling, luxurious, 72-foot Viking yachts,” Senator Charles E. Schumer, Democrat of New York, said on the Senate floor in arguing to close what he sees as tax loopholes for jet and yacht owners. “As long as your yacht has a place to sleep and a place to — how shall I put it — relieve yourself, you can classify it as your ‘second home’ and claim the mortgage interest deduction.”  [NYT]

They’ve won tax deductions for multiple homes.  “The interest you pay on a mortgage on a home other than your main or second home may be deductible if the proceeds of the loan were used for business, investment, or other deductible purposes.” [IRS 936]

They’ve won special deductions for depreciation of private jets.  “Under the tax law that Congress passed in December 2010, companies purchasing new equipment — including jets — can deduct the entire cost of equipment purchases in the first year instead of taking depreciation deductions over time.” [Blmbrg]

They’ve won reductions in capital gains taxation.  Most of the benefits of these reductions have accrued to the top of the pyramid: “Almost two-thirds of total capital gains reported on individual tax returns go to people whose incomes exceed $200,000. In contrast, only 7.8% of the total gains are reported by the three-quarters of tax filers with incomes of $50,000 or less. Thus, more than any other type of income, capital gains are concentrated at the very top of the income scale.” [CTJ] (emphasis added)

Little wonder investor Warren Buffett can speak to the inequity in the taxation system because:

“Capital gains are not taxed until assets are actually sold. As a result, investors can put off tax on their gains indefinitely. (They can also avoid tax on realized gains by selectively realizing losses on other investments in the same year.) This deferral is unavailable, of course, to other kinds of income such as savings account interest, even if the money is left in the bank. Multi billionaire Warren Buffett, for example, has structured his investment company so that it hasn’t paid a dividend since 1966. Instead, Buffett’s $14 billion or so in accrued capital gains remain unrealized and thus untaxed.”  [CTJ]

They’ve won reductions in estate taxes.  The perpetual Republican whine says that estate taxes “hurt farmers and small business owners.”  That’s pure balderdash.  Closer to the truth:

“We estimate that under the Obama proposal, 100 family farms and businesses would owe tax.  (We define such estates as those where farm or business assets are valued at under $5 million and comprise the majority of estate assets.)  The Lincoln-Kyl proposal would cut the number to 40.  Even under current law, fewer than 2,700 family farms and businesses would owe tax.”  [TaxPolicyCenter]

What does this look like in pie graph form?

Republicans get irritated when progressives refer to the Estate Tax reductions as The Paris Hilton Legacy Protection Acts — but, that’s what those reductions and calls for elimination would do — protect the wealth of a very few very wealthy people.

It’s important to remember that the vast majority of the people who benefit from these tax loopholes, deductions, and benefits get their income from the financial sector.

Who are these people?

A financial manager explained:

“Membership in this elite group is likely to come from being involved in some aspect of the financial services or banking industry, real estate development involved with those industries, or government contracting. Some hard working and clever physicians and attorneys can acquire as much as $15M-$20M before retirement but they are rare. Those in the top 0.5% have incomes over $500k if working and a net worth over $1.8M if retired. The higher we go up into the top 0.5% the more likely it is that their wealth is in some way tied to the investment industry and borrowed money than from personally selling goods or services or labor as do most in the bottom 99.5%. They are much more likely to have built their net worth from stock options and capital gains in stocks and real estate and private business sales, not from income which is taxed at a much higher rate. These opportunities are largely unavailable to the bottom 99.5%.”

Who picked up the slack?

While the top 1/2 of the top 1% were creatively reducing their tax liabilities, who was paying to make up the difference?  Quick Answer = The American Middle Class.

2001-2004: “Since 2001, President Bush’s tax cuts have shifted federal tax payments from the richest Americans to a wide swath of middle-class families, the Congressional Budget Office has found, a conclusion likely to roil the presidential election campaign.”

“The CBO study, due to be released today, found that the wealthiest 20 percent, whose incomes averaged $182,700 in 2001, saw their share of federal taxes drop from 64.4 percent of total tax payments in 2001 to 63.5 percent this year. The top 1 percent, earning $1.1 million, saw their share fall to 20.1 percent of the total, from 22.2 percent.”  [WaPo 2004]

2008-2009: “People in the top 20 percent of incomes, averaging $182,700 a year, saw their share of federal taxes decline from 65.3 percent of total payments in 2001 to 63.5 percent this year, according to the study by congressional budget analysts.

In contrast, middle-class taxpayers — with incomes ranging from $51,500 to $75,600 — bear a greater tax burden. Those making an average of $75,600 had the biggest jump in their share of taxes, from 18.5 percent of all payments in 2001 to 19.5 percent this year.”  [CBS 2009]

This handy graphic illustrates the shift from the top 400 to the rest of the U.S. taxpaying population:

Questions

Is it “class warfare” for middle income Americans to question the decision of banks who accepted TARP funds to stabilize their liquidity, made record profits in 2010, and then decided to offset the statutory reduction in “swipe fees” by gouging customers who use their debit cards?

Is it “class warfare” for middle income Americans to question tax havens, tax loopholes, tax subsidies, and tax breaks for multinational corporations after those middle income Americans have been picking up the slack in government revenues?

Is it “class warfare” for middle income Americans to suggest that bank holding companies offer more generous terms for homeowners such that fewer homes would be in foreclosure?  Especially since it was those very institutions who were only too happy to generate all the mortgages the investment houses could ask for in order to slice and dice the loans into “creative financial products,” and when the bubble inflated by these very “creative financial products” burst — the banks bought out the investment houses, turned themselves into bank holding companies, and reaped the profits in 2010? [Blmbrg]

Is it “class warfare” to contend that the American consumer and taxpayer should have some protection from the Wall Street investment houses who found it ever so much more profitable to inflate bubbles than to invest in long term capitalization of American businesses?

Is it “class warfare” to assert that American middle income consumers be protected from outrageous fees, questionably ethical pay day lenders, and other forms of predatory lending?

If Occupy Wall Street is class warfare — it’s only because middle income Americans have finally decided to fight back.

Heller, Regulations and the Tax Man

While it might be amusing to speculate on the relative merits of sound bites versus mascots in the Berkley-Heller fight for one of Nevada’s seats in the U.S. Senate, there is a fundamental difference between the two candidates in terms of tax policy.  For members of the media not caught up in  quotidian political jousting there’s a chance that this race will showcase the very different perspectives of the nation’s two major parties.

Senator Heller, anointed incumbent, has taken the stereotypical GOP stance, and it isn’t the “moderate” position he’s so often credited with taking.  Observe Heller’s latest attempt to make an extreme position look centrist:

“Heller isn’t necessarily averse to closing tax loopholes, he just doesn’t want to see one industry targeted.

“The last thing this country needs right now is a tax increase that will slow growth even further and increase the price of gas,” Heller’s spokesman Stewart Bybee said. “If they would actually like to discuss removing loopholes and simplifying the tax code across the board, that is something Sen. Heller has been championing for years.”  [LVSun]

The first line is the classic Republican apology for the oil companies, and other corporate giants in the banking industry.  Should any of their actions, policies, or positions tend to make them worthy of regulation or increased taxation — the immediate GOP response is, “You’re Picking On Me.”  This whine is quickly followed by “This Isn’t Fair,”  as if all corporate activity must be regulated and taxed equally whether the corporation be Citigroup, Exxon-Mobil, or a small corporation organizing a local family run supermarket.

Republicans have been riding the small business pony for the last three decades, and using the little beast to run interference for the corporate behemoths who support the interests of the U.S. Chamber of Commerce, the National Association of Manufacturers, and the American Petroleum Institute.  The GOP narrative has been that what is in the interest of JPMorganChase and Chevron must also be what is best for “Fred’s Family Furniture” and the “Family Pharmacy.”  Wall Street and the Energy Giants have been relentless in their propagandizing efforts to make the interests of Wall Street/Big Oil appear to align with the interests of Main Street/small business.

Not All Corporations Are Created Equal

This argument breaks down quickly at the intersection of Main Street and Wall Street.  For example, there is a reason for the regulation of Wall Street banking activities above and beyond the regulation of Main Street retail businesses.   We have the recent, and highly unfortunate, example of Wall Street’s enthusiastic speculation in credit default swaps, collateralized debt obligations (CDOs), and other financial esoterica which fueled the housing bubble and left the residue of “toxic assets” on bank books.

Neither Main Street construction companies, nor Elm Street average residents, had the financial muscle to create the subsequent mess in the financial sector, but to hear the representatives of the finance industry tell the tale (a) the residents of Elm Street had a vested interest in bailing out the financial sector lest their money market accounts vanish to vapor and (b) once the financial sector was re-established the Elm Street/Main Street contingents were to quietly acquiesce in whatever the remaining bank holding companies wanted — because “What could possibly be more important than returning the bank holding companies to short term profitability?”

There are reasons for regulations, and most often they are pretty good ones

Senator Heller provides a glimpse at his anti-regulation perspective:

“Heller believes that private capital, not the federal government, as the primary source of mortgage financing housing market is essential to long-term stability. As a conservative, Dean supports financial regulatory reforms that stop taxpayer-funded bailouts and addresses the growing liabilities of Fannie Mae and Freddie Mac.”

Note that the only “financial regulatory reforms” he supports are those which “stop taxpayer funded bailouts”  (Done by the Dodd-Frank bill which he opposed) and those that target the Mortgage Twins, a popular ultra-conservative target aimed at by those who want Wall Street to take over the secondary mortgage market.  Senator Heller has other quick and corporate remedies for all our ills:

“Heller said the country’s “best days are still ahead, but we need to change course now” by passing balanced budget amendment, repealing President Obama’s healthcare law and expanding energy exploration throughout the country while cutting regulations that are “tying the hands of entrepreneurs.” [UPI]

What might those regulations be that tie the hands of entrepreneurs?  While broadly hinting that it’s the EPA with all those “job killing” regulations, Senator Heller’s also been very leery of banking regulations as well.  During  this session of Congress he signed on to Senator Jim DeMint’s S.712 “Financial Takeover Repeal Act,” which would repeal the Dodd-Frank Financial Regulatory Reform and Consumer Protection Act.  [GovTrack] 

What is it that Senator Heller is anxious to repeal?

The Dodd-Frank Act (1) establishes the Financial Stability Oversight Council made up of representatives of the Federal Reserve, the Department of the Treasury, the Office of the Comptroller of the Currency, the Security and Exchange Commission, the Commodity Futures Trading Com., the FDIC, FHFA, NCUA, and CFPB.  The council is an early warning system, gathering financial information and assessing potential risk to our financial sector.  The FSOC is an exercise in the adage: An ounce of prevention is worth a pound of cure.  Better we should know about potentially dangerous financial waters ahead than we should continue to plow into uncharted waters and hope everything works out.

What the Wall Street bankers wanted was “self regulation” and they were quite comfortable with “jurisdiction shopping,” i.e. conforming their corporate structures to find the most lenient regulation available.   The latter leads to another objection from ultra-conservatives like Senators DeMint and Heller.

(2) updates the regulatory jurisdiction and revises areas of authority.  The old and obsolete Office of Thrift Supervision, which thoroughly demonstrated its incompetency during the housing bubble is dis-established, and jurisdiction over thrift holding companies now resides with the Federal Reserve, the OCC now regulates thrifts and national banks, the FDIC regulates state thrifts, and the SEC now requires the registration of hedge funds managing over $100 million, and the threshold for investment managers is raised from $25 million to $100 million.   In short, the thrifts may no longer go “jurisdiction shopping” and some of them still aren’t happy about it.

(3) establishes some rules for securitization of assets (like mortgages).   For those wishing to get into the weeds on this there is a “cheat sheet” (pdf) explaining the provisions regarding the retention of risk by those securitizing the assets, required disclosures, representations and warranties — including the requirement that credit rating agencies must explain their ratings, and the creation of different levels of risk which may be regulated accordingly.  Dodd-Frank is reasonably clear:  Those who sliced, diced, and tranched securitized assets into esoteric and synthetic CDOs will have to retain some of the risk, and must explain what they’re manufacturing.  This doesn’t shut down the Wall Street Casino, but it does manage the games a bit better.

(4) Title VII of the Dodd-Frank Act imposes a “regulatory regime” on Wall Street derivatives trading and the market participants.  [MoFo]  The trading of derivatives (credit default swaps, etc.) helped stoke the hot air filling the housing balloon, and since it was unregulated to a great extent much of the heat that blistered the housing market came from this source.  Again, Wall Street would very much like to return to the “good old days” in which there were no restrictions on the nature of the derivatives they could trade.

(5) Other provisions (a) give the SEC more powers to protect financial product consumers; (b) require the credit rating agencies to register with the SEC;  (c) impose the Volker Rule restricting a bank’s proprietary trading; (d) place new reporting requirements on executive compensation.

(6) In the interest of preventing another bubble such as the one which put the U.S. economy into a nose dive in 2007-08, the Dodd Frank Act imposes more stringent capital requirements on financial institutions and requires that the FSOC make recommendations to the Federal Reserve about prudent standards for risk based capital, leverage, liquidity, and contingent capital.

It is reasonably obvious at this point that Senator Heller isn’t primarily focused on the Main Street end of the spectrum.  Indeed, it’s pretty obvious that his heart lies with the major banks who want to revert to the Wild West Days of rampant and unregulated speculation on asset-based derivatives and other Wall Street creations…with the foxes guarding any and all hen houses.

Not all corporations are created equally, and not all corporations require as much supervision as others.  Senator Heller, Senator DeMint and others would prefer a system in which there is minimal regulation of the financial sector, and in which “the markets” will eventually straighten out all the dangerous curves — we’ve seen that movie before and the ending wasn’t all that entertaining.

We don’t want what?

By Senator Heller’s lights we don’t want “a tax increase that will slow growth and  increase the cost of gas?”   This does indeed sound homey in the extreme. Let’s look at the “slow growth” notion first.

It is an article of ideological faith among ultra-conservative Republicans that taxation slows economic growth.  [Heritage] All that is required to make this argument is the adoption of some Causal Magic: Congress cut taxes on capital gains in 1997 and the economy boomed (also known as the Dot.com Bubble).

We can haul out the “Lost Decade” charts again.  The “Bush Years”  in which there were exceedingly low rates of taxation have not been all that good for Main Street economics.  GDP growth was down. The percentage increases in personal income and personal consumption were down, and the percentage change in non-farm payrolls went south.

If we are to have an intelligent discussion on tax policy then it would be helpful to get a grip on what taxes we are talking about.  Senator Heller’s been clear on the subject: “In 2009, President Obama said that we should not raise taxes during a recession,” Sen. Dean Heller said in a statement on Obama’s speech. “I agreed with him then, and believe it is the right policy today.” [LVSun] Someone might want to tell Senator Heller that the Conference Board signaled the end of the last recession in August 2009. [MSNBC] The National Bureau of Economic Research which officially times these things put the end in June 2009.  [NBER]

Senator was a little  more explicit about taxation issues  in this press release:

“The current tax code is too costly, too complex, and too burdensome.  Broad-based tax reform will allow families to thrive and employers to create jobs.  We must broaden the tax base by closing loopholes and reducing marginal tax rates on both individuals and businesses.  Tax simplification would also save individuals and businesses both money and time allowing Americans to infuse much-needed capital.  Equally important, is that we must reduce our corporate tax rates which are currently too costly and putting us at a disadvantage.  Many of the top 50 economic countries have reduced their corporate tax rate in the last eight years.  Lower corporate tax rates in the U.S. will allow our businesses and manufacturers to have a level playing field in the global economy and will allow them to demonstrate the exceptionalism of American made goods and services around the world.”

What we’re supposed to consider “broad based tax reform” is left to the imagination.  Apparently, Senator Heller is calling for closing loopholes and lowering the marginal (statutory) tax rates for everyone and everything.  He’s had an opportunity to demonstrate his enthusiasm for closing loopholes before — and hasn’t done it.

On February 18, 2011 Heller could have voted in favor of the “Markey Amendment” to close a royalty loophole which benefits Big Oil.  He chose to vote against the amendment. [DB]  On April 11, 2011 Heller might have voted against the inclusion of the $40 billion Big Oil loopholes included in the House version of the Budget — he chose not to do so. [DB]  On May 5, 2011 he might have voted to close the “domestic manufacturing” loophole for Big Oil, and again he didn’t. [DB] As is often the case, Republicans argued that closing loopholes was “picking on” a particular industry — yes, the one that benefited from the loophole.  However, this fits with the overall GOP message — It is “unfair” to single out an industry for “special treatment” and therefore the singular treatment of a loophole for a specific set of corporations must remain in place.  It’s tautological — but that’s the only way the GOP argument works.

We “must,” according to Senator Heller, reduce ALL marginal tax rates.  This is the ideological knee jerk response of ultra-conservative members of the Grand Old Party to any issue — let’s have another round of tax cuts.   This might make more sense if the effective corporate rate of taxation has been increasing, but in fact the reverse is the case. [TaxAnalysts]

If we are speaking of the marginal rate corporate taxes would seem high — but we’re living in a reality in which the effective tax rate is the most pertinent.  If Republicans are loathe to repeal Big Oil loopholes (because that wouldn’t be fair to Big Oil) and unwilling to consider closing any other loopholes because that wouldn’t be equitable for corporation X, Y, or Z, then we need to look at what corporations are actually paying.

“Between 2000 and 2005, U.S. corporate taxes amounted to 2.2% of the GDP. The average for the 30 mostly rich member countries of the Organization for Economic Cooperation and Development was 3.4%.”  [SM]  At this point we should probably ask Senator Heller — What about having an effective tax rate 1.2% lower than 30 other industrialized nations puts us at an “international disadvantage?”

Another way to address the numbers is to look at the corporate tax revenue as a percentage of corporate income.  Yes, corporate apologists may cite 24.1% as an average effective tax rate, but one needs to look across the chart at the numbers preceding the average.   The percentage has declined from 27.3% to 19.4% from 2001 to 2008. [TTF]

Senator Heller’s views on taxation may be infered from his signature on Grover Norquist’s Americans for Tax Reform pledge, “By signing the Pledge, Heller commits to the taxpayers of Nevada that he will “oppose any and all efforts to increase the marginal income tax rates for individuals and/or businesses … and oppose any net reduction or elimination of deductions and credits, unless matched dollar for dollar by further reducing tax rates.”

In short, heads the corporations win and tails the corporations win — there will be no closure of any tax loopholes or any other impairment of corporate havens and deductions without an equal reduction in corporate taxes “dollar for dollar.”

The 2012 Nevada Senate race will see in Senator Heller’s campaign the usual Republican focus group tested talking points about “gas prices,” “high taxes,” and “controlled spending,” without much content provided by the candidate in terms of specificity and analysis.  Boiled down to its core, Senator Heller’s message is a direct reflection of Tea Party favorite Senator Jim DeMint’s (R-SC) platform — “balanced budget amendment” pie-in-the-sky, corporate tax reductions, and deregulation.

This is really nothing more than Bush 2.0.

Taking Our Medicine: Prescriptions For Job Creation

How does the United States, and the state of Nevada in particular, get out of the economic doldrums?  There will be all manner of prescriptions for this malady, and some of them will manage to tread carefully all round the one solution that might make a difference: An increase in aggregate demand.  At the moment we seem to be all but ready to admit that it isn’t politically likely that government at any level can contract for projects to create jobs, so we might have to adopt policies to get the private sector to create employment.  Let’s take a quick look at some of these prescriptions.

Rx 1.  Offer tax breaks to businesses which hire unemployed workers?  This might add some workers to employment rosters, but frankly no business manager worth his or her salary is going to recommend additional hires — no matter how worthy the sentiment, or generous the tax benefits — when current staffing levels are sufficient to keep up with the demand for goods and services.

Rx 2. Allow business owners to pay workers at less than the minimum wage?  The argument goes that companies could afford to hire more workers if each worker didn’t cost so much.  This prescription still doesn’t answer the question in item #1. Why would any competent business owner hire anyone, at any wage level, unless there is a gap between the demand for its goods and services and the company’s staff’s ability to meet the demand and provide quality customer service? This formula doesn’t so much share the wealth, as it spreads the poverty, and poverty line employees can’t contribute much demand to the economic equation.

Early automobile manufacturers were appalled at Henry Ford’s 1914 decision  to pay his workers $5.00 per day.  What happened?  “The move proved extremely profitable; instead of constant turnover of employees, the best mechanics in Detroit flocked to Ford, bringing their human capital and expertise, raising productivity, and lowering training costs.“  [...] “Ford’s policy proved, however, that paying people more would enable Ford workers to afford the cars they were producing and be good for the economy.”   The moral of this venture into what was once called “Welfare Capitalism,” is that if we want people to be able to purchase what American companies want to sell, then we have to pay them enough to do so.

Rx 3.  Allow easy exemptions from the Davis-Bacon Act prevailing wage levels?  This prescription is closely aligned with the second prescription in that both seek to restrict wages, and both assume that more employees might be hired IF wages for each individual employee were reduced.  This assertion raises a quick line of inquiry:  If the purpose of the exemption is to add consumer spending capacity to the economy, then why would a government promote a policy which reduces individual consumer spending capacity?

Rx 4. Reduce marginal tax rates for upper income earners, and these “job creators” will invest in companies, thus leading to expansion and employment increases?   We’ve tried this, and it obviously has not been working.  One problem is that we have not differentiated between income earned by long term industrial investment, and income earned from short term stock market speculation.  At the moment it is more remunerative for a high income investor to speculate (15% tax rate), than it is for investors to tie up money in very long term investments in industrial or commercial ventures.

Rx 5. Reduce corporate taxes to spur expansion and thereby increase jobs?   This is self-defeating.  When corporate taxes are higher the incentive is there to invest in the company, because expenses can be deducted.  If corporate tax rates are lower, then there is less incentive to re-invest in the company by making deductible expenditures.   Consider the hypothetical question: If Corporation A has $10 million in earnings, in an extremely low tax environment, would it make more sense to put the $10 million back into the business in the form of deductible expenses, or to keep the money as profit?   Now, reverse the hypothetical and consider those $10 million in a higher tax environment — which makes more sense, to expend some of the $10 million in deductible expenses, or to keep the $10 million as profit?

Rx 6. Explore the possibility of revising and negotiating more economically rational free trade agreements?   The term “rational” is used advisedly.  There’s nothing “rational” about an FTA which essentially sells the ranch, and does little more than facilitate the flight of capital out of the United States.  There are rational arguments to be made for FTA’s which are environmentally and economically responsible, and which level the playing field instead of tipping the scales for capital rather than employment.

Rx 7.  Close tax benefits, loopholes, and other incentives for those corporations which off-shore jobs?   If Mega-Giant Inc. expects the benefits of U.S. protection around the globe, or enjoys the benefits of American trade representation and policies, then why should it not be an American company?  Or, phrased less politely, why should American taxpayers shoulder the liability for paying for the corporation’s protection, advocacy, and representation, when it’s sending jobs overseas?

Rx 8.  Negotiate with or otherwise diplomatically inform foreign countries that if they artificially manipulate their currency such that American manufacturers are put at a disadvantage, we can and will take steps to correct the situation?  Yes, we’re speaking of the Yuan, and there isn’t all that much reason to be frightened — the Chinese do not own us, in fact their holdings account for only 8% of our outstanding indebtedness.  Not that 8% isn’t a significant number, but this doesn’t excuse our reticence to at least politely ask for a more level playing field, and to keep asking.

Rx 9.  Try something to stabilize the U.S. housing market?  And, it should be more than the current programs available to help homeowners in financial difficulties with their mortgages.   The really heinous part of the Housing Bubble is that of all the sectors in our economy likely to produce the most damage, this was the very worst.  Housing is a mid-stream economic activity, and a collapse in this sector sends out waves in one direction toward primary industries (timber, metals), out toward secondary sectors (manufacturing, milling), and on to tertiary activities (banking, brokering).

People who are “upside-down” on their mortgages, or worse still going through the foreclosure process, aren’t going to be considering new furniture, new appliances, or much of new anything.  This isn’t the group that’s going to create the aggregate demand necessary to cause American firms to consider expansion and/or increased capacity — i.e. new jobs.

Rx 10.  Invest in American physical infrastructure?  This drum’s been beaten steadily by everyone from the AFL-CIO to the U.S. Chamber of Commerce.  We have antiquated water treatment facilities, congested roads, out-dated airport facilities, sewer systems -  some of which are a century old, bridges that ought to be repaired or replaced, national parks that are in desperate need of refurbishment, and a plethora of other projects that have already been deferred too long.  Better still, physical infrastructure projects call for the expertise of the very sector — construction — that’s been hardest hit by the Housing Bubble collapse.

Medicine to avoid?  The U.S. Congress has wasted time and effort since January 2011 on everything EXCEPT job creation legislation.  Our Representatives ( and not a few Senators) have dawdled around debating DADT, discussing abortion, drafting plans to eliminate our present Medicare system, fulminating over union elections, fighting the implementation of financial reform legislation, bemoaning the radicalization of foes real and imagined, and they took months to battle over what should have been a simple bill to raise the debt ceiling.

What the House didn’t fritter away the Senate filibustered.  Every moment spent on these tangential issues was a moment lost discussing and deciding upon legislation specifically designed to increase our aggregate demand for goods and services in this country, and by doing so lead manufacturers and other business owners to observe that they needed more employees to meet the needs of their customers.

Clear As Mud: Debt Deal Negotiations

There are about as many analyses of the content of “debt deal” negotiations inside the Beltway as there are reporters covering the subject, which tends to make the overall picture as clear as mud.  However, one strand appears to have some validity, if only because more commentary surrounds it.  The strand goes something like this: The Obama Administration is willing to put a “chained” cost of living allowance formula  for Social Security recipients on the table in exchange for Republican agreements to allow some tax increases.  Deal talk speculation is included the following articles:  [NatJournal] [NatJournal] [TalkPtMemo] [ThinkProgress] [WaPo] [Klein WaPo] [NYT] [Bloomberg]

The reports, if true, are fraught with problems for both sides.

Breaking the chain —   Democrats are not happy with the notion of chained COLA formulas.  Attaching such formulas to the cost of living statistics tends to mean lower benefits over time due to inflation.  “Switching to a chained CPI arrangement would generate $59.6 billion in revenue from 2012 to 2021, according to the Joint Committee on Taxation. By 2021, the JCT found, more than two-thirds of the revenue would come from taxpayers making less than $100,000 a year — 69 percent of it coming through taxes paid by those with incomes below that amount.”  [NatJournal]

Breaking the leash — Republicans are caught in their No New Tax pledges.  The articles cited in the list above tend to include vague promises from various Republicans in positions of Congressional leadership to review closing tax loopholes, or revising user fees, or revising tax related rules.  Semantics appear to be a crucial element — tax revenues can be increased but only if there is a way to prevent them from being called tax increases.

Breaking the deal? — There is nothing on paper yet, much less carved in stone, concerning the content of the deal and this may well add to Democratic anxiety over the final content.  If the Administration agrees to $X dollars in cuts and “reforms” to Social Security and Medicare, then the Republican leadership in the House and in the Republican filibuster prone Senate MAY (as yet the operative term isn’t SHALL) agree to revenue increases from closing loopholes, increasing user fees, and rescinding taxpayer subsidies.

Unfortunately, the GOP has a reputation for doing the Charlie/Lucy/Football routine in political negotiations, i.e. agreeing in principle to take certain actions and then re-opening negotiations with a salvo of new demands.   Even a cursory retrospective contains a plethora of examples. (1)  Cap and Trade emission control was initially a Republican “free market idea” to improve air quality — the notion is now vilified as socialism and worse; (2) The Individual Mandate for health care insurance was first offered by the Republicans, and supported by them for some 30 years — now they are decrying it as unconstitutional.  [Benen] (3) Seven Republican Senators sponsored PAYGO legislation in 2005.  When the idea was adopted by the House under Democratic control, and when it was suggested by President Obama — all seven Republican Senators opposed it.  [MSNBC] (4) And then there were the debt ceiling increase votes:

Under George W. Bush, the United States Senate voted to raise the debt crying seven separate times, and each time it enjoyed all sorts of Republican support.  In 2002, 31 Republicans in the Senate voted to raise the debt ceiling.  In 2003, 50 Republicans voted to raise the debt ceiling.  In 2004, again, 50 Republicans said let‘s raise the debt ceiling.

Two years later, in 2006, that number was up to 51 Republicans.  In 2007, 26 Republicans.

In 2008, there were two votes to raise the debt ceiling supported by 34 Republicans the first time, and 33 Republicans the second time. [MSNBC]

The hyper-partisanship is palpable, and not very productive.  Republicans have argued, without much objectivity, that “this is different” because of the “scale” of the debt.  However, when the Bush Administration launched the upward line on “the scale” the GOP level of concern was insufficient to initiate a hostage situation with debt ceiling legislation.  With this legislative history in mind, it isn’t difficult to understand why Democrats are anxious about the intentions of their Republican cohorts with regard to any deals crafted in concert.

It isn’t too difficult to imagine that after Democratic leadership in the Senate and White House agrees to “reforms” in Social Security and Medicare, the Republicans will want to revisit such marginal ideas as the Flat Tax (shifting more of the burden from the wealthy and onto the middle class,)  and using the savings from spending cuts to introduce yet more tax cuts — rather than actually reducing the debt.  [WaPo]  Rather than signalling that the GOP is willing to enhance revenue to reduce the federal debt — all that the GOP has said to date is that they will discuss closing some loopholes IF this is done in tandem with reducing taxes.  In short, from the Republican side of the aisle tax break cuts would only reduce taxes — not the debt or deficit.

There are some conclusions that can be reached without speculating beyond the stratosphere.

#1. The Republican demands for budget cuts are ideological, not necessarily founded upon what is fiscally sound, financially responsible, or even economically productive.  [Brookings]  Republicans promised to cut environmental protections and the enforcement of Clean Air and Clean Water statutory provisions.  Republicans are intent upon gutting the capacity of the federal government to supervise and regulate Big Banks.  Republicans are intent upon cutting taxes for the top income earners in the United States.  When Senator McConnell (R-KY) took to the Senate floor to announce that “job creators” were “struggling,” he’d obviously missed the memo:

The final figures show that the median pay for top executives at 200 big companies last year was $10.8 million. That works out to a 23 percent gain from 2009. The earlier study had put the median pay at a none-too-shabby $9.6 million, up 12 percent.

Total C.E.O. pay hasn’t quite returned to its heady, prerecession levels — but it certainly seems headed there. Despite the soft economy, weak home prices and persistently high unemployment, some top executives are already making more than they were before the economy soured.  [NYT]

Evidently, hyper-partisanship requires inhabiting a Fact Free Zone.  Contrast McConnell’s “struggling job creators” with Forbes take on what the employees were making:

Contrast that with new data from Hay Group, a Philadelphia consulting firm that does periodic employee compensation surveys. Today Hay released research provided by 310 U.S. companies from March through June of this year. The compensation forecast for workers: a net pay cut of 0.6% in 2012. Though median pay is expected to increase by 3% in 2012, when you factor in inflation (the consumer price index is growing at 3.6%), expect a reduction in compensation for most employees.  [Forbes](emphasis added)

#2.  Whatever concession are made by the Senate Democrats and the White House they will be deemed insufficient by Republican standards.  The Senate will remain gridlocked by the insistence of Republicans on filibustering every major piece of fiscal legislation in the Senate.  The Conrad compromise budget plan will not see the floor if the super-minority of Senate Republicans has anything to say about it.  [Hill]  There doesn’t seem to be any movement in the Republican controlled House either.  “The House GOP leadership isn’t drafting alternative bills to boost the debt ceiling, and they’ve ruled out any short-term agreement to forestall a default by the U.S. government on its $14.4 trillion debt, an option that one House Republican lawmaker said could not muster more than 100 GOP votes.” [WaPo]   This state of affairs says more about the ideological intransigence of the Republicans than it does about any solutions to reducing the nation’s overall level of indebtedness.

#3.  The American public must insist that reductions in spending are immediately applied to debt/deficit reduction — not tangentially applied to it in some magical pseudo-academic formulation in which tax reductions for the rich are supposed to create potential  “economic growth.”  The Supply Side Hoax hasn’t worked for the last 40 years and there’s no data to indicate that it ever will.

#4.  Although the “debt crisis” is another classic example of a Republican manufactured outrage moment, it does contain a kernel of truth.  We do need to reduce unnecessary federal spending and rescind unproductive tax breaks, havens, loopholes, and subsidies.  The closing of the “carried interest” loophole, giving hedge fund managers special treatment for their income, cannot be used as an excuse to further reduce taxation on highly profitable corporations and exceedingly wealthy individuals who benefit from GOP tax philosophies.  Another example of responsible action might be the suggestion from the Simpson-Bowles commission that revenue for Social Security could be easily increased by raising the cap from $106,800 in annual income.

It appears that the Democrats need to seize the national microphone and make a better case to the public that Republican aspirations to cut out some loopholes in exchange for lower taxes on the wealthy is NOT a debt reduction plan.

Democrats also need to secure one of those ubiquitous pledges Republicans are always signing that if they give way on chained increases in Social Security benefits then the GOP will actually and truly cut out the havens, loopholes, tax breaks and subsidies for wealthy individuals and highly profitable corporations.

Democratic leadership at the national level must do more to convince its base that it understands the nature of Republican ideological intransigence and the manufactured “crisis” moments the GOP finds so convenient.  Indeed, Republicans are never slow to take advantage of any crisis — especially those they have manufactured.

Democratic leadership should improve its articulation of how the party stands with Main Street America.  They are doing a bit better at this in recent times, but there’s much work to be done.  No voter in the United States of America should have any doubt when entering the polls in 2012 that the Republicans are the party of Wall Street.

Perhaps then, some of the mud can be filtered out and solutions to national problems can be more clearly discerned.

Heller’s Promise: Protect the Big Guys

Senator Dean Heller (R-NV) has repeatedly stated his opposition to any increase in corporate taxes.  Therefore, it would be interesting to find out his reaction to a couple of recent report.

The first report comes from the Boston Consulting Group which looked at the corporate cash piling up in their various treasuries and found that U.S. publicly traded companies have stockpiled approximately $9 trillion (yes, that’s Trillion with a “T”) in cash.  This is not money that is going into corporate investment, as in expanding the companies and creating more jobs. This is not money that is being divided among shareholders as dividends.  Some investors are beginning to get the picture — and demanding that management “put the cash to work for shareholder value.”  Nor are the shareholders particularly impressed with stock-buy back programs which most believe are mis-timed, and improperly executed.

The question for Senator Heller becomes:  If low rates of taxation, and the availability of tax havens, loopholes, and taxpayer subsidies for corporations are supposed to be “job generating,” then why have the corporations been focused on hoarding cash — even in the face of criticism from their own shareholders?

The second report comes from CTJ, on 12 top American corporations which have paid a negative 1.5% corporate tax rate (excluding deferred taxes) while making  $171 billion in profits and benefiting from $62.4 billion in taxpayer subsidies.

The corporations challenged the CTJ report, citing their deferred taxation as part of the total reported.  [WSJ]  However, while most American taxpayers pay their taxes ahead of time in the form of payroll deductions; American corporations can defer some of their liabilities — thus keeping the cash in their own pockets for a while.   ExxonMobil was disturbed because the CTJ didn’t include state and local taxes.  Again, the CTJ study was of federal corporate taxes, not the overall tax rate right down to and including the price at the pump.   General Electric cried poverty because its financial interests collapsed in a credit crunch heap (partially of its own making).

All told, solely in terms of federal corporate taxes paid (the only taxes on which Senator Heller would be voting),  Verizon paid a -2.9% rate.  General Electric paid a three year -61.3% rate, and DuPont paid a -3.4%. [CTJ]

The next question for Senator Heller is: If most of your constituents are making between $34,500 and $83,600 annually, assuming the median wage in Nevada is about $54,000, and are paying their taxes at a 25% marginal rate — then why would you vote to protect huge corporations which are (a) hoarding cash and not creating jobs and (b) paying far lower percentages of their taxable revenues than average Nevadans?

Just asking.

(H/T Tasini Dkos)

>One List Nevada Didn’t Make

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Nevada has thus far been able to avoid being on at least one list of misfortunes: The number of Republican controlled states in which taxes for corporations are to be reduced while the taxes on middle class Americans are to be increased. [ThinkProgress] Now, which Party was it that was going to “raise your taxes?”

>Heads Up: Who’s Paying For What?

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The Nevada Rural Democratic Caucus reminds us of all the things the GOP would like to cut, slash, and eliminate. Ever so much of which we could easily afford IF corporations had not “mastered the art of not paying their fair share of taxes,” and we’ve known a large majority of corporations are paying no income taxes since 2008. [NYT] Further, the figures can be substantiated by  GAO study issued in July 2008, on tax liabilities between 1998 and 2005.  The 2008 study should have come as no surprise since the GAO had already reported a study in March 1999 reporting that a majority of corporations, both foreign and domestic, didn’t pay any income taxes, between 1993 and 1998.  This is certainly a skewed form of “shared sacrifice?”  The corporations don’t pay any taxes and middle class Americans have to face program and services cuts so the corporations can continue to this nice arrangement — like turning the entire nation into one big “Nevada” where corporate incomes aren’t taxed.

Those corporate apologists who would like to continue the myth that current budget shortfalls are the “fault of union member state workers,” need to be reminded that for Nevada state employees there are no negotiations on wages, benefits, and working conditions. Nevada state employees get only what the Legislature gives them. [NSEF] (NSEF links to the statutes that apply) Governor Sandoval will have to find another scapegoat.

 The budget issues faced at the state and national level are only so great as the level of GOP intent to place a higher priority on providing low taxes for corporations, corporate executives, Wall Street and hedge fund operators, than on providing services for the majority of the American people.