Wages, Business and Taxes

The Revolt of Small Business Republicans (Robert Reich - May 18, 2015)

In case you hadn’t noticed, big corporations have extended their dominance over large swaths of the economy. They’ve expanded their intellectual property, merged with or acquired other companies, and gained control over networks and platforms that have become industry standards...

They’ve deployed fleets of lawyers to litigate against potential rivals that challenge their dominance, many of them small businesses. And they’ve been using their growing economic power to get legislative deals making them even more dominant, such as the corporate tax cut they’re now seeking.

All this has squeezed small businesses – undermining their sales and profits, eroding market shares, and making it harder for them to enter new markets.

Contrary to the conventional view of an American economy bubbling with innovative small companies, the rate that new businesses have formed has slowed dramatically. Between 1978 and 2011, as big businesses expanded and solidified control over many industries, the pace of new business formation was halved, according to a Brookings Institution study released last year.

Contributing to the drop was the deregulation of finance – which turned the biggest Wall Street banks into powerhouses that swamped financial markets previously served by regional and community banks. Not even Dodd-Frank has slowed the pace of financial consolidation. In consequence, many small businesses can’t get the financing they once got from state and local bankers. Over the past two decades, loans to small businesses have dropped from about half to under 30 percent of total bank loans. That means the Fed’s rock-bottom interest rates haven’t percolated down to many small businesses.

Tensions have also grown between giant franchisors – restaurant chains, fast-food corporations, auto manufacturers, giant retailers – and their franchisees. Franchisees have found themselves trapped in contracts that siphon off profits to parent companies, give franchisors the right to unilaterally terminate the agreements, and force franchisees into mandatory arbitration of disputes. Complaints are mounting about parent corporations closing successful franchisees for minor contract violations in order to resell them at high prices to new owners.

Meanwhile, small businesses are feeling the same financial pinch the rest of us endure from big corporations whose growing market power is letting them jack up prices for everything from pharmaceuticals to Internet connections. So the willingness of small business groups to take on big business on its top legislative priority could mark the start of a political realignment. If small businesses were willing to ally themselves with consumer, labor, and community groups, they could press for stronger antitrust enforcement against giant corporations.

[But] don’t hold your breath. Small business groups have done the bidding of big business for so long that the current conflict may be temporary. But the increasing power of big corporations cries out for new centers of countervailing power. Even if the political realignment doesn’t happen soon, small businesses will eventually wake up – and could play a central role.

Big Business Is Getting Bigger (Andrew Flowers - May 18, 2015)

If it seems like big business is getting bigger, it is. Over the last two decades, the largest U.S. companies have grown faster than the economy as a whole. And it’s the biggest of big businesses that are making up a larger and larger share of the growth.

As big business gets bigger, the biggest businesses are growing even faster. The Fortune 100, or the 100 companies with the highest revenue, have seen their proportion of nominal GDP rise from about 33 percent in 1994 to 46 percent in 2013. As a share of all Fortune 500 revenues, revenues for these top 100 companies were up to 63 percent in 2013 from 57 percent in 1994.

With a slew of mergers and acquisitions — like the Verizon-AOL deal — big businesses might be snapping up or joining with rivals, and that corporate consolidation may have led to a concentration of market power ... Global trade has exploded in the last two decades, and these giant U.S. businesses might just be leveraging their already large scale to grow further in overseas markets.

Sales Flexing Muscle at More Firms (Atlanta Federal Reserve, May 18, 2015)

This month, 70 percent of firms indicated their sales levels are at or above what they consider normal. Last November, that share was 61 percent, and one year ago, it was only 54 percent.

The Puzzle of Weak First-Quarter GDP Growth (San Francisco Federal Reserve, May 18, 2015)

The very weak initial estimate of first-quarter real GDP growth this year surprised many forecasters, in part because it was at odds with other fairly positive data, including solid employment gains over the past six months.

[Editor's Note: I'm just guessing but, if the Fed and other economists had considered the 11 million Americans who dropped out of the labor force since the recession ended because they could couldn't find meaningful employment (causing reduced demand for goods and services), maybe there wouldn't have been any surprises.]

Depressed Wages: An Extension of 19th Century Slavery

"The Star-Spangled Banner" is the national anthem of the United States of America. The lyrics come from the poem "Defence of Fort M'Henry" by Francis Scott Key. Much of the idea of the poem is derived from an earlier song by Key known as "When the Warrior Returns" (in honor of Stephen Decatur and Charles Stewart on their return from the First Barbary War).

According to the historian Robin Blackburn, the words "the hireling and slave" allude to the fact that the British attackers had many ex-slaves in their ranks, who had been promised liberty and demanded to be placed in the battle line "where they might expect to meet their former masters".

Michael Perelman, Professor of Economics at University of California/Berkeley, writes:

"Keep in mind that the militias [who are] referred to in the Second Amendment seem to have been the groups that hunt down escaped slaves. The elevation of slave owners’ property rights easily morphed into the expansive property rights of those who hired wage labor. This power allowed capitalists to call upon the state rather than militias of slave captors to keep workers’ rights and wages in check. This arrangement supposedly served the public interest because low wages mean high profits, which, in turn meant increased investment, which translates into shared prosperity, presumably even including otherwise downtrodden labor."

Read Perelman's fascinating and historical article about the rise of the Tea Party dating back to the Civil War (not to the Dixiecrats during the 1940s, or to uprising of the "anti-Obama" gang in 2009). His article shows how slave traders in the South in the 1800's have influenced modern day American politics, government policy, business, and the economy — and how it relates to depressed wages today.

Which also bring us to taxes...

Republican Presidential candidates are pushing the Flat Tax (again). The proposed rate could be between 10 percent and 20 percent for individuals and businesses, but exempts all investment income (capital gains) the the super rich make from their stocks. Lowering taxes on the rich means "less affluent" taxpayers (what's left of the middle-class) would end up paying more of the overall tax burden. As a "percentage of their income", the poor already pay more than the rich. Like Bill O'Reilly, the Republicans must think the rich aren't rich enough.

William G. Gale (co-director at the Urban-Brookings Tax Policy Center, who was a senior economist at the Council of Economic Advisers under President George H. W. Bush) said the biggest flaw in both the flat tax and other Republican proposals to cut top rates from today’s levels was the claim that they would spur a locomotive of economic activity. “It’s ideology,” he said. “The evidence does not support the view.”

The low tax rates would generate too little money, and further starve the beasts.

Stephen Moore, a senior fellow at the conservative Heritage Foundation: “The way to sell the flat tax is as the ultimate Washington-versus-America issue,” he wrote in a recent issue of The Weekly Standard, a conservative magazine. “The only people who benefit from a complicated, barnacle-encrusted 70,000-page tax code are tax attorneys, accountants, lobbyists, I.R.S. agents and politicians who use the tax code as a way to buy and sell favors.”

Sure. The very rich and large multi-national corporations don't benefit at all. The economist Paul Krugman calls Stephen Moore " an incompetent hack". I believe Moore is a corporate shill.

Companies get credits for taxes they pay to other countries, and they don’t have to pay taxes on foreign profits until they bring them back to the United States. For these reasons, highly profitable companies sometimes pay little or no taxes in the United States. And with the all the current "loopholes" in the tax code, despite what Stephen Moore always says, corporations DON'T pay the highest tax in the world. Their "effective" tax rate is almost one of the lowest.

The flat tax enables a Republican candidate to appeal to the party’s most conservative constituents, including libertarians, deficit hawks (starve the beasts) and Tea Party members (those whose ancestors/predecessors favored slavery for cheap labor.)

Senators Marco Rubio of Florida and Mike Lee of Utah want a tax system with just two brackets: one at 15 percent for joint filers earning $150,000 or less; and a second at 35 percent --> and eliminates taxes on capital gains and dividends.

FYI: Senators make $174,000 a year and don't pay Social Security taxes on earnings over $118,500 — and half in Congress are already millionaires.

Arkansas Gov. Mike Huckabee would take that concept even further, replacing the entire federal tax system, including payroll taxes, with a national sales tax on all goods and services, whether provided by a doctor or a babysitter. What better way to pay for Defense and Social Security!!! (sarcasm)