Thursday, February 21, 2013

It's the Tax Code Stupid! 

As of last year, there were 73,608 pages of tax loopholes in the U.S. tax code, loopholes that most Americans in the middle-class (or poor) couldn't use to their own advantage when filling out a 1040-EZ form. The tax code is rigged for the wealthiest among us, and has been since the preferential capital gains tax was first introduced back in 1921.

Over the past 40 years, for people who grew up and worked during this time, many of us have known that something was terribly wrong, but we weren't quite sure why; because no matter how hard we worked, we just couldn't seem to get ahead.

Many of us have always thought it was a combination of high taxes, political corruption and corporate greed. But because we were so busy working and raising families (and trying to get ahead), most of us had just accepted the status quo thinking, there was very little we could do to change the system, except to vote. Phone calls and letters to congress, as well as letters to the editor of the local newspapers, accomplished very little.

And while although we complained, it seemed as though our voices were never heard. After decades, most of us still didn't fully understand, despite our best efforts to find out, why rather than getting ahead, we were always falling behind.

It wasn't until 2008, since the Great Recession, when the massive layoffs put millions of Americans out of work, did many of us begin searching for the answers. Movements such as Occupy Wall Street helped increase our awareness as the unemployed began using their collective idle time researching the cause our demise.

We discovered that wealth inequality, and the exceedingly wide gap in income disparity over the past 40 years, wasn't a mirage at all, but a deliberate decades-long effort by domestic forces working against us, those who were once part of the middle-class, but now find ourselves poor.

As for myself, no other resource better exemplifies this than the website Too Much Online | Inequality and Excess (from which I receive their weekly newsletters). They provide us with a wealth of information --- using the latest research, data and thoughtful insights ---- as to how staggering incomes and excess wealth has exploded at the expense of the middle-class and poor.

Through the extrapolations of people such as the notable Paul Krugman, we've learned that the middle-class had peaked around 1973 --- that was 40 years ago when I, as an unskilled worker who had just dropped out of high school in my senior year, and because I belonged to a labor union, was earning $7.25 an hour while working in a sheet metal shop in Massachusetts. Today, that would have been equivalent to $36.95 an hour in today's dollars (Try the inflation calculator here). 40 years later, $7.25 an hour is now the federal minimum wage.

But why is there so much disagreement as to why this is happening, when we've already known the answers for the past 40 years...political corruption and corporate greed, and too little taxes on the ultra-wealthy and the largest corporations --- and not because we were necessarily over-taxed. It was also because of depressed wages that didn't keep pace with the cost-of-living (and/or inflation). That's what kept us from getting ahead.

It started a long time ago when the very wealthy amongst us gave bribes campaign donations to members of congress to write the tax laws that are the most favorable to them. And when large corporations were allowed to bribe lobby congress to write laws that were also very favorable for them. Even though we've known these things, and although most of us want change, congress refuses to reform the election and campaign finance laws.

The ultra-wealthy (the top 1%) and congress (the top 2%) has had a wonderful relationship together and enjoy the status quo; and despite whatever the rest of us think, congress refuses to make the changes we seek --- no matter what political party we vote into power (although, the Republicans have usually been more pro-business for the last 100 years).

Someone had commented on another article I wrote about corporate taxes, saying "Businesses don't gain much from being incorporated in the United States, so they have little incentive to incorporate here."

Oh really? I have found the exact opposite to be true.

The Organization for Economic Cooperation and Development (OECD) estimates the United States (the richest country on earth), collects less corporate taxes (relative to the overall economy) than almost any other country in the world.

Nobel-prize winning economist Paul Krugman rebutted the right-wing talking points that claim "the U.S. has the highest corporate tax rate in the world" (which is currently 35%). Krugman points out that "in the 1950s, incomes in the top bracket faced a marginal tax rate of 91%, while taxes on corporate profits were twice as large, relative to national income."

The right -wing blames a lack of education and growing entitlements (aka government debt) for holding back our economic growth; but the economy of the rich has been doing very well. Not long ago the Dow Jones Industrial Average hit a 52-week high of 14,058 and is on track to match its all-time historical high of 14,164 --- when almost four years ago on March 9, 2009 it was down to only 6,547.

Just as Mitt Romney had said last year, "I'm not concerned about the very rich, they're doing just fine."

The middle-class economy grew and peaked between 1946 and 1973. It's THE OTHER ECONOMY that's been suffering since then --- the economy of the middle-class and poor, which has been declining for the past 40 years. The economy of the rich has been doing "just fine".

And in arguing the other right-wing talking points, wouldn't low tax rates on the ultra-wealthy and largest corporations, in conjunction with stagnant and declining wages, contribute to lower tax revenues (as a share of the economy), and driving up our debt? Wouldn't a more fair tax code help us to stave of government debt? There was no deficit BEFORE the Bush tax cuts.

And doesn't low wages also contribute to the growing need for government entitlements (aka government debt); and aren't "government entitlements" really just wage subsidies, with the largest corporations (such as Walmart) being the greatest beneficiaries?

And who is it that wants to cut funding for education, is it the Democrats?

But no matter which side of the argument you take, what difference does it really make what the corporate tax rate actually is, whether it be 35% or 52%, when with all the tax loopholes, they're ultimately only obligated to pay 10% to 20%? --- and sometimes they pay no taxes at all --- or they might even get a tax credit! ("What part don't you understand?")

According to one report, Boeing paid less than nothing in taxes on its billions of dollars in profits over three years --- and General Electric received a tax benefit of $3.2 billion. And Facebook is also getting a multi-billion-dollar tax break. It seems as though the bigger they are and the more they earn, the less they have pay as a percentage of their profits in corporate taxes.

The New York Times reported, "Companies have been increasingly using a maze of shelters, tax credits and subsidies to pay far less in corporate taxes."

Citizens for Tax Justice and the Institute on Taxation and Economic Policy released a report: Corporate Taxpayers and Corporate Tax Dodgers, 2008-2010” --- with a study that shows 280 of the most profitable U.S. corporations shelter half their profits from taxes --- and naming 30 U.S. companies who paid less than ZERO in taxes. (Full Report as pdf)

The Wall Street Journal reported that U.S. corporations are hoarding a huge pile of cash --- well over $2 trillion according to federal data, and the Federal Reserve figures don't even include the substantial amount of cash being held at many U.S. companies' foreign subsidiaries, which would be subject to taxation if the companies repatriated it.

And a separate Wall Street Journal study found, by using numbers from the Congressional Budget Office, that with tax breaks, corporations are paying an effective rate of 12.1%, the lowest in at least 40 years, while the nominal tax rate had been 35%. By contrast, all throughout the 1950s the corporate tax rate was 52%.

But what does it matter --- whether the corporate tax rate is 35%, 52%, or 91% --- if with all the tax loopholes, the largest U.S. corporations are only legally obligated to pay 12%...and sometimes pay no taxes at all?

And who benefited the greatest from our lop-sided tax code.? The Congressional Research Service found that the Bush tax cuts primarily benefited the rich, and were the primary driver of the growth in income inequality over the past decade, when capital gains and dividends were taxed at 15% (and now, only 20%). "Since rich people have the majority of the investment income, they get the majority of the tax break," said Clint Stretch, managing principal for federal tax policy at Deloitte Tax.

As an aside: The Revenue Act of 1862 was passed by Congress to help fund the Civil War. The War Revenue Act of 1917 was passed to fund WWI. The crisis of World War II led Congress to pass four excess profits taxes between 1940 and 1943. The Korean War induced Congress to re-impose the excess profits tax from 1950 to 1953. Various taxes were raised in 1969 because of Vietnam. But no additional revenue was ever raised during the Bush years to fund the wars in Iraq and Afghanistan. Instead of raising taxes, taxes were cut.

In a report by TooMuchOnline, we learned that the IRS revealed 400 Americans (who may be or may not be on the Forbes Fortune 400 list) reported that they had at least $110 million in income on their 2008 federal income tax returns, but averaged $270.5 million each.

In the study "Executive Excess 2011 - The Massive CEO Rewards for Tax Dodging", we learned that 25 major U.S. corporations paid their CEOs more money than they paid in corporate taxes. And on average, American CEOs took home 325 times more in pay than their average employees.

In 1953 GM’s president, “Engine Charlie” E. Wilson, took home $586,100 a year when the minimum wage was $0.75 an hour. Between the 1940s and 1970s CEOs only received gradual and modest increases in the pay. Since then, with stock options and "incentive payments", their salaries have skyrocketed. (Study: Historical trends of executive compensation from 1936 to 2003 (pdf)

Now the AFL-CIO reports that the average CEO pay of companies in the S&P 500 Index is just under $13 million a year, and they will pay a 20% capital gains tax rate on their stock options, a lower tax rate than Warren Buffett's secretary. People like Mitt Romney averages $20 million a year and sometimes is only legally required to pay a 13% tax rate. (Remember, congress write the tax laws, but sometimes go on TV to complain about these tax loopholes.)

While people are collecting a weekly unemployment check of $300 they are still obligated to pay federal income taxes, when people like Mitt Romney, who are worth over $250 million, can take a $77,000 tax deduction for a horse.

Mitt and Ann Romney can also leave their children an inheritance totaling $10 million tax free, but a waitress who is working at a diner on Interstate 40 in Oklahoma (and only earning only $27,000 a year) is taxed on all her tips.

According to their latest figures, the Social Security Administration reports that 50% of U.S. workers earn $26,965 or less a year. In his State of Union Address President Obama said he'd like congress to slowly raise the minimum wage to $9.00 an hour by 2015 (that equates to only $18,720 a year.) But if the minimum wage were to keep pace with inflation, by 2015 that $9.00 should already be at $10.56.

If corporations refuse to pay better wages (which would also increase federal income tax revenues to the Treasury), then our only recourse would be in the form of a "claw back" --- by extracting more by way of corporate taxes.

We can accomplish this by NOT raising corporate tax rates at all (keeping the current 35% statutory rate), but just by eliminating all the tax loopholes that congress has endowed them with over the past 40 years.

And despite what some on the right might claim, any additional tax revenues from the corporations will not be passed on to the consumers in the form of higher prices.

The top 1% likes to refer to the money they put in THEIR pockets as "investment income" (aka capital gains), money they earn on their company stocks --- as opposed to the money you put in YOUR pockets, the money they pay you as "hourly wages" by working in their fast-food joints, warehouses, big-box stores and factories.

Capital gains ("investment income") hasn't been taxed as ordinary income for over 90 years; and corporate tax revenues (as a share of their corporate profits) have continually gone down for the past 50 years. But will members of congress ever reform the tax code?

The answer to that question is best answered with another question, "When was the last time congress has ever reformed the tax code to better address this inequality in income?"

***For more, read The Second Gilded Age: History Repeats Itself

No comments:

Post a Comment