Thursday, February 23, 2012

Wall Street Journal Debunked on Obama Tax Plan

A very famous and world renowned economist and winner of the Sveriges Riksbank Prize in Economic Sciences and the Nobel Memorial Prize in Economic Sciences (commonly referred to as the Nobel Prize in Economics) thoroughly debunks right-wing billionaire Rupert Murdoch's Wall Street Journal on President Obama's new tax plan - - NOT!!! - - but a little-known amateur blogger named Bud Meyers sure does make a very compelling case (read through all the links he provided).

(Las Vegas) February 23, 2012 - The Obama administration released its proposal to revamp corporate taxes, partly by cutting loopholes and subsidies that enable so many savvy companies to pay so little. The proposal also adds tax expenditures for manufacturing companies.

Tax expenditures can come in many forms, including deferrals, special tax rates and tax credits, and inhabit both the personal and corporate income tax codes. Tax expenditures usually cost the government a lot more money on the personal income tax side. Some well-known examples include the mortgage interest deduction and exclusions for employer-sponsored health insurance.

The New York Times makes the point that tax expenditures for manufacturing can also deprive the federal government of tax revenue, and must be made up elsewhere, but Obama's plan accomplishes this.

Obama's tax plan is to cut the highest official tax rate for all corporations to 28 percent from 35 percent (25 percent for manufacturing companies) — without reducing federal revenue. A wide range of economists, and policy makers in both parties, say such a change would distribute the burden of taxation more fairly and reduce the warping influence of the tax code on investment decisions.

The government estimates that corporations spend $40 billion each year figuring out how much they owe in taxes, and considerably more figuring out how to reduce that number, such as hiring an army of tax attorneys, hiring lobbyists, and contributing to political campaigns to influence our elections (see the top all-time donors).

Obama's proposed tax plan includes ways to offset new tax breaks for manufacturers by raising taxes on a wide range of other companies. Some of the prospective losers are familiar targets, including oil and gas companies, private equity firms and companies that move jobs overseas.

The Wall Street Journal reports that "the plan faced immediate resistance from BIG CORPORATE LOBBYISTS "business groups" and many Republicans, with critics alleging it favored some industries while penalizing others." They complained that the plan appears designed to force large, multinational, non-manufacturing companies to pay more by requiring them to pay taxes on their foreign income.

Banks and insurance companies would pay more because of new limits on the tax deductibility of interest on debt. Managers of hedge funds and private-equity firms could pay more because much of their income could be taxed at a higher rate. Also read: Tax breaks for billionaires: Loopholes for hedge fund managers by the Economic Policy Institute (a non-profit and non-partisan think tank).

The Obama administration would also raise taxes on the oil and gas industry by eliminating many of its numerous deductions and subsidies. And it would restrict the ability of certain companies to avoid paying corporate income taxes because they are structured as "partnerships" (described below).

At the same time, the plan could lower taxes for renewable-energy producers, retailers, companies that invest heavily in research, domestic manufacturers and many small businesses. For example, besides lowering the top "effective" tax on domestic manufacturers to 25% from around 32%, it would also expand tax incentives for small businesses to expense more of their investments.

What was really reprehensible was, Dean Garfield, president of the Information Technology Industry Council, a lobbying group that includes Apple Inc., Microsoft Corp. and Cisco Systems Inc., had the nerve to say the plan "would punish successful companies and push investments out of the United States." WTF?!?!?! They already do! (Read the article: How Apple Screwed the U.S. Middle-Class)

Catherine Schultz, vice president for tax policy at another lobbying group, the National Foreign Trade Council, whose members include tax dodgers such as Boeing Co., Caterpillar Inc., Pfizer Inc. and Procter & Gamble Co., said, "This is not real tax reform but tinkering around the edges."

Jack Gerard, chief executive lobbyist of the American Petroleum Institute, whose members include other tax dodgers such as Chevron Corp., Dow Chemical Co. and Exxon Mobil Corp., said "this isn't a serious effort for uniform tax reform, if all he's doing is shuffling the deck chairs and picking winners and losers." Read my post Lobbyists on K Street paid like CEOs on Wall Street. (more on big oil at the end of this article below)

No matter what Obama proposes, these big multi-national corporate conglomerates will always complain, as mentioned in another Wall Street Journal article: "Obama's proposals would add new layers of inequity and inefficiency to the tax code. One principle of tax reform is to create neutrality within and across industries—a level playing field. Meanwhile, the plan punishes those the White House doesn't like, such as companies in oil and gas or with operations abroad."

Translated to mean: "Boo-hoo! Our taxes are being lowered by only 7%, but manufacturing gets their taxes lowered by 10%. Not fair!"

That WSJ post also went on to falsely claim that "the oil and gas industry already pays at or near the highest effective federal tax rate of any industry." A blatant lie. Companies like GE, Exxon Mobil, and 10 other major corporations actually paid a negative tax rate. But still they complain. Tax subsidies (corporate welfare) for oil companies is considered OK by the Republicans, but they label investments in green energy as "tax giveaways".

Admittedly, Solyndra may be one glaring example of why that due diligence is needed, but then again, why do we still give the oil companies billion of dollars every year in government subsides? Last year, on a partisan vote, all the Republicans and a few Democrats voted to re-new $35 billion in corporate welfare checks for big oil and gas...pennies compared to Solyndra.

And the author of that same WSJ article made a wild claim that last week Obama created "a 41% tax rate on nearly 30 million businesses that are not corporations, and thus pay taxes on profits as personal income" without providing a source or link to any documentation of that claim. (I Googled it and found nothing). The top marginal income tax rate is currently 35%, and Obama proposed taxing anybody earning over $1 million a year to pay a 30% tax rate.

Corporations want a lower corporate tax rate so they can pay their CEOs more in stock options as "pay for performance", which is only currently taxed at 15% for "capital gains".

Beside personal tax loopholes such as capital gains (which are already historically low), carried interest (Mitt Romney), trust funds, SWAG investments (silver, wine, art, and gold), gifts, trust funds and generation-skipping estates (Kim Kardashian and Paris Hilton), annuities, interest (etc.) all get favorable tax rates for the very wealthy. This should ALL be taxed as "ordinary" personal income. Read: The "SWAG" Economy of the 1% and How the 1% bilks the 99% (The top 1% are taxed LESS than the wages you labor for, yet the top 1% is also more prone to evade income taxes too!)

That very same WSJ article also falsely claims, "What the White House reformers don't like to admit is that corporate profits are taxed twice—first, via the corporate tax, then again at the shareholder level through the dividend or capital gains levies. Mr. Obama wants to cut the top corporate tax rate by 20% but raise the capital gains tax by almost 60% and nearly triple the dividend rate."

This is total fear-mongering and a lie. If the Bush tax cuts were just allowed to expire, the capital gains tax rate would go up from their historical low of 15% back to 20% - - - a 25% increase, not 60%. I personally believe that all capital gains (etc.) should just be taxed as ordinary income, depending on what an individual's tax bracket is. If Obama wants to tax people earning $1 million a year (the "Buffett Rule", which the majority of voters agree with), then essentially capital gains would be taxed at 30%, which is still less than the current top marginal rate of 35%.

Also, "double taxation" is another deliberate lie. All financial transactions are taxed as soon as money changes hands from one person (or entity) to another. As I wrote in another article, if corporations don't want to pay corporate taxes, they can just as easily "un-incorporate". After I get a paycheck, I still gets taxed again if I earn interest from a bank account or buy tires.

By now the general public has been well aware of these businesses that the Republicans favor - - and who they have allowed to run slip-shod over the American consumers - - but sympathizers for these specific corporate tax cheats businesses are far and few between.

And then there is also the matter of "partnerships" (as I mentioned earlier). The government has long allowed businesses to organize as partnerships, which avoid corporate income taxes by “passing through” the profits to the partners. But what began as a shelter for small businesses, the so-called subchapter S partnerships, has increasingly attracted very large ones. About 69 percent of domestic companies were organized as partnerships in 2008, according to the latest Internal Revenue Service data, and they distributed about $1 trillion in income to their partners. (One being Mitt Romney's Bain Capital)

Recent news accounts have highlighted the low "effective tax rates" paid by companies like Google, Boeing and General Electric. The top corporate tax rate of 35 percent is a theoretical marker. Corporations actually paid an average of 26 percent of income in federal taxes in 2007 and 2008, according to the Treasury Department, thanks to a wide range of deductions, subsidies and loopholes. As a result, some large companies pay little or nothing, while some pay more. Also read: 280 Corporations are "Too Big to Tax". For the past 25 years, the average "effective tax rate" was only 18 to 22%.

One financial analysis concluded that 115 of the Fortune 500 companies in the Standard and Poor’s stock index paid a total corporate tax rate — federal and otherwise — of less than 20 percent over a five-year period. And a study by the Government Accountability Office in 2008 found that 55 percent of American companies paid no federal income taxes during at least one year in a seven-year period it studied.

Over the years corporate taxes have been making up an increasingly smaller share of the federal government’s revenue, in part because of tax-avoidance maneuvers by businesses.

Just two popular tax breaks — for accelerated depreciation of businesses’ capital investments and write-offs of research and experimentation costs — account for the bulk of the revenue the government foregoes to benefit corporations. Not only are those two provisions unlikely to be repealed; the Obama administration and both parties in Congress also support making a separate research credit permanent.

For multinational corporations, officials say the administration will oppose any shift to a territorial system of taxing offshore profits, which could exempt most of corporations’ foreign earnings from American income taxes. Representative Dave Camp of Michigan, the chairman of the House Ways and Means Committee, and many other Republicans and corporations, favor such a change and are certain to oppose Mr. Obama’s proposal for a minimum tax on foreign earnings.

Many companies such as GE have made the bulk of their earnings overseas as jobs continue to be outsourced and the middle-class in America continues to shrink (Read China's Greatest Generation and the Chinese Dream.

While the United States is virtually alone in taxing multinational companies’ foreign earnings, it does allow the companies to avoid taxes indefinitely by keeping profits overseas. But that only encourages accounting schemes and offshore investments (Mitt Romney again).

A Republican, Dave Camp agreed: “More than half of all business income is taxed at the individual tax rate rather than the corporate tax rate, and a corporate-only proposal does not address the needs of those job creators, the vast majority of which are small businesses.” But it DOES include more tax expenditures as I noted before.

Mr. Romney’s top economic adviser, Glenn Hubbard (a "Visiting Scholar" at the conservative American Enterprise Institute), accused the Obama administration of a “full-throttle attack on multinationals,” and said Mr. Romney too would propose shifting to a territorial system that would not tax corporate income earned overseas.

But Obama counters, “It is time to stop rewarding businesses that ship jobs overseas, and start rewarding companies that create jobs right here in America." The Obama administration proposed a new minimum tax on foreign earnings, though it didn't specify a rate. I would argue this tax rate should be 25 percent, just as it is in China. Then we'll see if it's really cheap labor or "over-taxation" as the REAL reason why American jobs go overseas.

A new paper by the Brookings Institution’s Metropolitan Policy Program lays out the case for manufacturing exceptionalism in detail. The report, by Susan Helper, Timothy Krueger and Howard Wial, puts forward four main arguments.

First, it argues that manufacturing “provides high-wage jobs, especially for workers who would otherwise earn the lowest wages.” To show that, the study controls for workers’ personal characteristics, like their level of education, to compare similar workers in different industries. The researchers find that wages tend to be higher for manufacturing workers than for non-manufacturing workers, perhaps because manufacturers are willing to pay to retain higher-skilled employees. It is a point the administration echoes when it says that manufacturing will be an important source of middle-class jobs.

Second, the paper argues that manufacturing is important for innovation. Manufacturers tend to plow significant funds into research and development, much more so than other businesses in the private sector. Though manufacturing makes up about 11 percent of economic output, the paper says, manufacturing businesses account for 68 percent of the research and development spending by domestic business.

The paper cites studies showing that the “co-location” of research and production are important for improving business practices and generating innovation. It also argues that that manufacturers’ innovation and research can spill over to other workers and firms.

“The interdependence between production and innovation is apparent in many industries, and policy makers ignore this fact at the peril of eroding America’s competitive edge in both current and future industries and in services as well as manufacturing,” the study says.

Finally, the paper argues that manufacturing can help reduce the country’s trade deficit, and that smart manufacturing can promote environmental sustainability.

On the other side, conservative and right-wing economists argue that such claims about manufacturing are overstated, and that most manufacturing jobs will be low-wage and low-end, and therefore will go overwhelmingly to workers overseas. (DAH!!! That's why we need better trade agreements and labor unions.)

One way or another, it is undeniable that manufacturing employment is growing, even if that is just a bounce back from the depths of the recession. The economy has added about 330,000 manufacturing jobs in the last two years, after losing 52,000 factories during the George W. Bush years.

On the flip side...

In Mitt Romney's article in the Wall Street Journal today he says, "I believe we must make the tax code simpler and fairer. We must reduce tax rates for job creators to promote economic growth." I completely debunk his tax plan in my article Obama Tax Plan vs. Mitt Romney's.

Romney also claims, "I will abolish the death tax, whose primary effect today is to foster elaborate schemes for transferring wealth." What in the hell does he mean by that? Isn't it really low taxes and the many loopholes on trust funds, gifts, and generation-skipping estate taxes A.K.A. "inheritance taxes" ("death taxes") that REALLY fosters elaborate schemes for transferring wealth?

What is the most laughable is, Mitt Romney also says in his WSJ article, "One recent study estimated that simply returning policy certainty to pre-Obama levels could create 2.5 million jobs in less than two years." That's LESS than Obama has created in the last two years! The last I heard, Obama created 3.7 million NET new jobs.

The Wall Street Journal, the Republicans, the lobbyists, and Mitt Romney have all been completely debunked, and they all totally failed my Truth- Meter.

More on Big Oil

I was searching for historical data for U.S. oil exports, consumption, prices, and production – - and found this article (which also includes 30 charts) about oil from 1868 to the present:

I was hoping for a brief and less comprehensive (but more comprehensible) synopsis on this article.

The very long-term data and the post World War II data suggests a “normal” price far below the current price for a barrel of oil. However, the rise of OPEC, which replaced the Texas Railroad Commission as the monitor of spare production capacity, together with increased interest in oil futures as an asset class, introduced changes that support prices far higher than the historical “norm.”

It appears that speculation (by those who never actually take delivery) in oil futures is the biggest driving force of oil prices. Goldman Sach’s alone has huge blocks of stock in oil companies and trades vast quantities of oil futures.

Domestic production under Obama has risen (even with the moratoriums) and domestic consumption is down, and supplies have not been disrupted, but prices are still going higher…even before discussions of the Keystone pipeline and Iran’s threats to close the strait (which our military could still keep open if that was ever attempted).

If the Keystone pipeline only adds to the “world supply” at “market prices” that can be sold to other countries, how can it help domestic prices and supply, and give the U.S. “energy independence” (or for that matter, besides just oil, any other energy “asset”, including bio-fuels)?

While I understand that many average Americans benefit from profits made in the oil industry, like day traders, or if our 401ks, pensions, or Roth IRAs are invested in oil companies, when WE withdrawal our funds, we’re taxed as ordinary income.

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  1. Should C-corporations and S-corporations both be taxed at the same rate of 28%?

    And should dividends and capital gains also be taxed at 28%?

    And should the top marginal income bracket for individuals who own sole proprietorships also be taxed at 28%?

    "Many analysts believe that the tax treatment among different forms of business organization ought to be equalized. The White
    House-Treasury report estimates that the effective marginal tax rate on new investments is 32.3 percent for C-corporations and only 26.4 percent for pass-through entities. This distortion biases economic decision-making and is ultimately bad for growth."

  2. US taxes are near 50-year record lows -- yet roads, bridges, and electricity networks are allowed to crumble & fail. Under Republican deregulation, investment & maintenance have been forgone in favour of extracting profits..

    The US's foreign debt has been almost entirely created since Reagan in 1981 -- by policies of "unfunded tax cuts". Clinton was the only president who brought the deficit back down. America's been captured by "vulture capital", who want to extract every last ounce of capital & run the business into the ground.

    This kind of management spells death for a company. America should not be allowed to fail, in the same way.

    These are the facts.. draw your own picture. All the rest is BS, lies & politics.