Monday, June 8, 2015

How will the rich spend any new tax cuts?

Will the mega-wealthy in America (billionaire investors and the executives of major U.S. multi-national corporations) use any new tax breaks to fix our crumbling infrastructure, give their non-executive employees fair wage hikes, fund a strong national defense and shore up our Social Security trust funds?

The GOP wants to convince us that these people will reinvest in their businesses and create more domestic jobs. But what about the ones who already make huge profits, but still pay no taxes, and yet, are still laying off people?

With greed this good, how can you stop?

When people say neoliberalism is good for growth, they tend to be looking at the stock market and executive pay packages, not GDP or workers’ wages. And they certainly aren't talking about infrastructure.

The bailouts during the Great Recession and QE has already been described as the biggest giveaway to the super-rich in the history of the world. These corporations have been spending billions of dollars every year on mergers and acquisitions and on stock buybacks to increase the value of their executive stock-options. And CEO pay is through the roof.

But yet, very little (if any) of their company's profits are invested in employees’ wages for American workers — because (the CEOs say) raising wages would slow hiring, reduce worker hours, cause layoffs, raise consumer prices, destroy the economy, and end life as we know it on Earth.

But what the "job creators" never tell us is, if they were forced to raise workers’ wages, these CEOs might also have to buy one less beachfront mansion, a smaller private jet or a shorter luxury yacht.

Capital gains were once taxed close to 40% in 1979 (now the rate is only 23.8%) — and as a percent of GDP, corporate taxes were also once much higher as well — especially when you consider their "effective" tax rate, which corporations use as a selling point on the "investor relations" pages on their corporate websites and in their annual company reports.

But despite all that "free" money they already got, and their already low tax rates, the GOP wants to tax them LESS (as though the super-rich weren't already rich enough).

Secular stagnation: The time for one-armed policy is over: [Check out the reader comments.]

"Stagnation is gripping several of the world’s largest economies and many view this as secular, not transient ... Many economies need both demand-side stimulus and supply-side reform to close the output gap and restore potential-output growth. A combined monetary-fiscal stimulus — i.e. helicopter money — is needed to close the output gap, and this should be accompanied with extensive debt restructuring, policies to halt rising inequality, and additional public infrastructure investment."

Rick Santorum and his Flat Tax Plan

Republican Rick Santorum, who formally opened his long-shot 2016 presidential bid, promised to eliminate the Internal Revenue Service, backed a flat tax and promised to crack down on illegal immigration that he says has robbed jobs from American workers (but he didn't mention the abuses in H-1B visa program). He also vowed to cut federal spending and revoke “every executive order and regulation that costs Americans jobs.”

Evidently stuff like healthcare, a living wage, food and workplace safety, and environmental laws (for clean air and water) costs too many jobs. And does the GOP want to eliminate the IRS to give super-wealthy tax dodgers free reign? If not, then who will collect their tax revenues and audit their tax returns? Who will look at their offshore bank accounts?

The Republican's Flat Tax Plan (Version 2.0)

According to Forbes, the tax proposals set forth by the leading GOP candidates are largely devoid of inspiration, with Rand Paul, Ted Cruz and Rick Perry all embracing a yet-to-be-defined “flat tax.” Marco Rubio, on the other hand, set forth a plan that, while comprehensive in its considerations, has been ridiculed as being too aggressive in its tax cuts — even for the Republican party!

So where does Rick Santorum stand on " tax reform"? We can glean much from his prior campaign ideas, and from his interview yesterday with Chris Wallace on Fox News:

  • Santorum would condense and reduce the current seven-tax rate system applicable to ordinary income (wages, self-employment income, interest income), which currently ranges from 10% to 39.6% to two brackets consisting of a 10% and a 28% rate. Santorum never clarified where the 28% bracket would kick in, but it is assumed that the threshold would approximate the start of the current 28% bracket, which begins at taxable income of $90,751 if single (or $151,201 if married filing jointly). If the rate was 28%, it would only apply to the top 8.5% of wage earners.
  • Long-term capital gains and qualified dividends, which are currently taxed at a top rate of 20% (23.8% when you tack on the additional 3.8% tax on net investment income that applies to certain taxpayers), would be taxed at a top rate of 12%. The rate would be zero for taxpayers in the new 10% ordinary income bracket. In addition, Santorum would repeal the new net investment income tax of 3.8%. This is the tax that was added with Obamacare to expand State Medicaid for the very poor. Repealing this tax would be like repealing a big part of Obamacare.
  • The exemption for dependent children — currently $4,000 — would be tripled, which Forbes says "appears rather selfish considering Santorum has seven kids." Of course, single people or married couples without kids would see no benefit at all.
  • Santorum would retain deductions for charitable giving (to foundations?), home mortgage interest, healthcare, retirement savings, and children.
  • The alternative minimum tax and estate tax would both be repealed, as would all tax provisions of Obamacare.
  • On the corporate side, the rate would be cut in half from 35% to 17.5%; in addition, U.S. manufacturers would pay a zero — yes zero — percent rate on income. U.S. companies already pay some of the lowest "EFFECTIVE" tax rates in the world because of all the loopholes in the tax code. Many companies pay ZERO in corporate taxes and even get subsidies from taxpayers.
  • Businesses would be permitted to deduct all capital improvements immediately upon purchase; no more required capitalization and depreciation.
  • From an international perspective, Santorum would allow the purported $2 trillion of revenue U.S. companies currently have stashed overseas to be repatriated tax free — provided the corporation then reinvest the cash in U.S. plants and equipment. Any repatriated cash not used for these purposes would be subject to a 5.25% tax. This could have some merit, but only if the unused profits that were not designated strictly for those purposes were taxed at the normal tax rate...otherwise ALL overseas profits could be taxed at 5.25% — with the remainder paid to stockholders and company executives.

In 2012 the Tax Policy Center measured what the impact Santorum's proposals would have on, what was at that time, the current law ... The plan would reduce federal tax revenues by a whopping 40%, or nearly $1.3 trillion. Yesterday on Fox News Rick Santorum said that that estimate was only based on a "static economy", and that his proposed tax cuts would boost growth (like in Kansas?) In other words, it's total bull$hit as the Bush tax cuts did nothing for jobs and wages either. Cutting tax revenues IS the GOP plan, because it forces cuts in government spending — mostly to "entitlement" programs to "starve the beasts" (meaning, anyone who is NOT in the top 0.01%).

Forbes: "Can tax cuts pay for themselves? The answer is a resounding no ... Over the past few years, [Governor] Brownback and the Kansas legislature have gone all-in on this theory ... So what happened after all those tax cuts? Revenues collapsed ... Since the first round of tax cuts, job growth in Kansas has lagged the U.S. economy. So have personal incomes ... The business boom predicted by tax cut advocates has not happened, and it certainly has not come remotely close to offsetting the static revenue loss from the legislated tax cuts ... One cannot credibly argue that tax cuts increase revenue or even pay for themselves."

Also highlighted in Rick Santorum’s "flat tax plan" was the lack of progressivity: while the middle class would save, on average, approximately $4,000 per year, the wealthiest 1% would save nearly $350,000. The reasons for this disparity are obvious. When you cut the top rate on ordinary income from 39.6 to 28% and the top rate on long-term capital gains and dividends from 23.8% to 12%, the benefit to the richest portion of the population will be exponentially greater than the benefit to the remaining taxpayers, particularly when you consider that 85% of the latter two types of income are earned by the top 2% of earners. Because those in the very top of the income brackets get most of their earnings from "capital gains" (such as investment income from stocks), while the vast majority of Americans get their earnings from ordinary wages.

Rick Santorum’s move to two brackets of 10% and 28% appears to be based on the Simpson-Bowles model proposed in 2010 as part of a presidential commission. That model, however, was designed to simplify the tax law while raising federal tax revenue in hopes of reducing the mounting deficit.

Forbes: "Rick Santorum’s proposal quickly deviates from the Simpson-Bowles plan by dropping the rate on capital gains and dividends to 12%, which Bowles-Simpson instead taxed as ordinary income. In addition, the Bowles-Simpson plan eliminated nearly all preferences and deductions, while Santorum appears intent on not only drastically reducing rates, but retaining many of the tax breaks that make the tax law the morass it is today."

Rick Santorum: "The whole idea is to treat everybody fairly. That’s the reason we’re looking at a flat tax. We'll have provisions in there that make sure that lower and middle income Americans are not going to pay more taxes -- in fact, pay less taxes. The bottom line is, we have to create growth. You want to reduce the deficit. You want to grow -- you know, you want to grow jobs in America, then you have to do something to create jobs. And that means economic growth. And that’s -- means you create incentives for people who grow the economy. So, yes, I am -- that's why I said that the Republican message is a good message on growth, cutting taxes, supply side economics, but we have to make sure we orient that growth in areas where people who are suffering in America today, manufacturing, energy, construction, those types of jobs that create opportunities for good-paying jobs for working men and women, that those jobs are created here in America."

Forbes: "In summary, Santorum’s plan combines the worst aspects of tax reform: drastic change without an increase in simplicity. While we can argue about whether reducing rates could actually increase annual tax revenue by boosting the economy, Santorum’s plan appears to do nothing to eliminate the preferences, exemptions and deductions that require paring, while simultaneously bestowing a disproportionate benefit on the wealthiest taxpayers."

Crooks and Liars: "The canard that he wants to treat everybody fairly is also another typical conservative rouse to support the flat tax. If Santorum truly wants to help the working class in this country, he needs to supports policies that help those workers and not ones that favor the 1%. It really is that simple, but little Rickie is running as a Republican and he can never abandon the rich elites. The rich don't need tax cutting incentives to create jobs because the billions they make off their backs is incentive enough."

If you give the very rich and large corporations more tax breaks, guess what they'll do with them?

Last year, the Harvard Business Review published a study on U.S. corporate stock buybacks (and CEO's stock-option pay packages) titled “Profits Without Prosperity.” The findings are as follows:

“Corporate profitability is not translating into widespread economic prosperity. Five years after the official end of the Great Recession, corporate profits are high, and the stock market is booming. Yet most Americans are not sharing in the recovery. While the top 0.1% of income recipients—which include most of the highest-ranking corporate executives—reap almost all the income gains, good jobs keep disappearing, and new employment opportunities tend to be insecure and underpaid. The allocation of corporate profits to stock buybacks deserves much of the blame.”

According to data from Birinyi Associates, for calendar years 2006 through 2013, corporations authorized $4.14 trillion in buybacks of their own publicly traded stock in the United States. Bloomberg News, citing research from Goldman Sachs, reports that companies in the Standard and Poor’s 500 “will dole out more than $1 trillion, or two-thirds of their cash, buying back stocks and repaying dividends this year.”

Companies are buying back their own stocks to boost executive pay packages (for short-term gains), rather than investing in their businesses and hiring people (for long-term gains). Then after they've squeeze every ounce of blood from the business, they’ll sell it to a foreign competitor, or merge it with another company to create a monopoly, or move it overseas to avoid taxes, or drive it into bankruptcy. And these corporate executives are supposed to be the pillars of our society and the captains of our industries? (More here at Wall Street on Parade)

All GOP candidates (on the local level, all the way up to the state and federal level) have proposed tax plans similar to Rick Santorum's with the purpose of gutting government revenues, to starve the beasts and favor the very wealthy.

Will more tax breaks create more jobs?

It appears that, instead of hiring workers when major U.S. corporations pay little tax, they lay them off instead. A report by Citizens for Tax Justice detailed how many of the biggest and best-known corporations in America pay little or no federal income taxes. But they still layoff workers.

  • Time Warner paid nothing in federal income taxes last year when it received a rebate of $26 million from the IRS, even though it made $4.3 billion in U.S. profits — but was seeking to layoff about 1,500 positions last year.
  • Xerox made $629 million in U.S. profits in 2014, but received a tax rebate of $16 million from the IRS — and laid off 1,600 workers that year.
  • Qualcomm made $3.2 billion in U.S. profits last year, but instead of paying federal income taxes, it received a refund from the IRS of $98 million — and they are rumored to layoff 1,500 employees — up from the 600 already reported.
  • General Electric made over $5.8 billion in profits in the U.S. last year, but paid just 0.9 percent of that amount (less than 1 percent) in federal income taxes — but they are planning more layoffs as well. GE has eliminated 16,000 positions in the United States since 2008.

Microsoft made plans to layoff 18,000 last year. J.P. Morgan Chase is expected to lay off more than 5,000 by 2016. Southern California Edison now plans to lay off hundreds of employees and hire foreign workers instead. Here's a few who announced layoffs last year: General Electric, Microsoft, Nordstrom, Hewlett-Packard, Caterpillar, Family Dollar, United Technologies, International Paper, Kellogg, Best Buy, Darden, Nike, Wal-Mart, Coca-Cola, Starwood Hotels, Bank of America, IBM, Pepsi, Target, Texas Instruments, Citigroup, Intel, ExxonMobil, Alcoa, Ford, JPMorgan Chase, Lockheed Martin, Macy’s, GM and Gap (off course, this is only the tip of the iceberg).

Do low "effective" tax rates create jobs? Or do additional excess profits just free-up more capital to be stuffed into the pockets of stockholders — the billionaire investors and the executives of major U.S. multi-national corporations?

How will the super-rich spend their new windfall with more tax cuts?

After they have paid off the politicians and rigged the elections (and what they don't invest in overseas labor markets, H-1B visa workers and robotics), how they will spend their extra cash from more GOP-sponsored tax breaks — if they're not hording it in offshore bank accounts?

And what they can't spend during their lifetime, they'll leave to their kids — tax free — especially if the GOP also kills the estate tax. After all, they want to starve those damn beasts.

This might be one way they'll spend that windfall cash...

More tax breaks for the very rich.

What's in your wallet?

3 comments:

  1. New York Times (June 2015)

    While some states led by Democrats are having budget problems too, there are far more states where Republicans control both the legislature and the governor’s office: 23, compared with 7 states controlled by Democrats. Some of the bitterest budget fights this year pit conservative Republicans against centrist Republicans over how to cut spending or raise taxes. Longtime bipartisan neglect of pension obligations has caught up with lawmakers in Illinois, New Jersey and Pennsylvania, and deep tax cuts in Republican-dominated states like Kansas, Louisiana and Wisconsin have contributed to budget shortfalls as economic growth has fallen short of projections. A lot of governors have cut their taxes with the hopes that that would bring increased economic activity and they could postpone painful decisions about spending reductions. But those increases in economic activity haven’t come to pass.

    http://www.nytimes.com/2015/06/08/us/states-confront-wide-budget-gaps-even-after-years-of-recovery.html?partner=rss&emc=rss

    In Minnesota, the Republican-controlled House and the Democratic Gov. Mark Dayton have been unable to agree on a budget despite a surplus of $1.9 billion — but recently the parties have come to a tentative deal. Gov. Mark Dayton said Minnesota's surplus (which he credited to the state’s well-performing economy) should be used to invest in education and the state’s infrastructure as a way to spur future economic development. But Republican legislators are calling for much of the surplus to be returned to taxpayers.

    http://minnesota.cbslocal.com/2015/06/01/state-workers-get-layoff-notices-as-shutdown-threat-looms/

    http://www.startribune.com/projected-minnesota-budget-surplus-swells-to-1-9-billion/294370441/

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    1. What happens when you tax the rich and raise the minimum wage?

      During his first four years in office, Minnesota Gov. Dayton raised the state income tax from 7.85 to 9.85 percent on individuals earning over $150,000, and on couples earning over $250,000 when filing jointly -- a tax increase of $2.1 billion. He's also agreed to raise Minnesota's minimum wage to $9.50 an hour by 2018, and passed a state law guaranteeing equal pay for women. Between 2011 and 2015, Gov. Dayton added 172,000 new jobs to Minnesota's economy -- that's 165,800 more jobs in Dayton's first term than Pawlenty added in both of his terms combined. Even though Minnesota's top income tax rate is the 4th-highest in the country, it has the 5th-lowest unemployment rate in the country at 3.6 percent. According to 2012-2013 U.S. census figures, Minnesotans had a median income that was $10,000 larger than the U.S. average, and their median income is still $8,000 more than the U.S. average today.

      https://www.dailykos.com/story/2015/02/25/1366806/-What-happens-when-you-tax-the-rich-and-raise-the-minimum-wage-Meet-one-of-USA-s-best-economies

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  2. I have to chime in here with regard to GE and their corporate headquarters in Connecticut. I live 30 minutes from GE's headquarters and I have to add that GE abandoned Connecticut decades ago. Please see this link: http://www.ctpost.com/local/article/Brick-by-brick-massive-GE-plant-is-3357552.php

    From what I've read they have perhaps 800 employees left in Connecticut. Most of those jobs are most likely corporate attorneys that handle taxes and GE's financial structure amongst their many divisions.

    That being said they, along with Aetna insurance have the gall that being asked to pay a bit more towards the infrastructure that keeps their CT employees (what's left of them) able to commute to their jobs is just to much to ask.

    The numbers GE employs in CT has dropped precipitously from decades past when they actually hired blue collar workers at a living wage.

    I'm so sick of these psychopathic corporations complaining about being asked to pay any more towards the commons that I say don't let the door hit them in the ass. THier employment impact on Connecticut is now close to negligible. That goes for Aetna the insurance giant headquarted in CT that has outsourced the majority of it's middle class jobs to India. FUCK THEM... GO GET LOST

    Most middle class Connecticut residents have been force to move on without you parasitic scumbags.

    Connecticut is one of the most unequal states in the union due to rebpulikkkan economic policies established at the federal level.

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