Free Loans to Banks = Free Holiday Bonuses

Frank Luntz, a Republican strategist, advised attendees at the Republican Governors Association that if they give their employees an income boost during the holiday season, they should never refer to it as a bonus. "If you give out a bonus at a time of financial hardship, you're going to make people angry. Call it pay for performance."

And the CEOs of the big banks and corporations are also paying historically low capital gains taxes on their executive compensation packages that are paid as stock options. They are paying less as a percentage of their personal income than most middle-class taxpayers. So these supposed "job creators" with $7.7 trillion in free money from the Fed has not only been paying themselves big bonuses with your money, but they are also dodging taxes too.

The 25 top U.S. companies paid more to their chief executives in 2010 than they did to the federal government in taxes, according to a study done by the Institute for Policy Studies. The Bush tax cuts in 2003 that lowered capital gains taxed for bankers and corporate CEOs with stock-options and hedge-fund mangers didn't do a thing to create jobs, they just enabled the top 1% to further enrich themselves. (Read How the 1% bilks the 99% with capital gains and "performance pay".)

And the big banks contribute money to those who regulate them. Isn't that like a restaurant owner bribing the health inspector?

Dylan Ratigan Amendment "No person, corporation or business entity of any type, domestic or foreign, shall be allowed to contribute money, directly or indirectly, to any candidate for Federal office or to contribute money on behalf of or opposed to any type of campaign for Federal office. Notwithstanding any other provision of law, campaign contributions to candidates for Federal office shall not constitute speech of any kind as guaranteed by the U.S. Constitution or any amendment to the U.S. Constitution. Congress shall set forth a federal holiday for the purposes of voting for candidates for Federal office."

Excerpted and edited from this week's issue of TooMuch - The typical CEO should be able to survive the holidays quite nicely. Predicted bonus cuts for 2011 (compared to 2008, 2009, and 2010) will still leave average high-powered bond traders with $1.8 million for their daily labors in 2011. The average U.S. worker would have to labor 43 years — an adult lifetime at $41,860 a year — to take home that same $1.8 million.

In other words, by any real-world yardstick, Wall Street’s finest are doing just fine. And they owe their good fortune, blockbuster new research makes clear, to the generosity of Uncle Sam’s one and only central bank, the Federal Reserve.

During the financial meltdown, a new analysis of 29,000 pages of previously secret documents shows, central bankers at the Fed shoveled out an incredible $7.77 trillion in dirt-cheap loans to the nation’s financial institutions.

This massive wave of low-cost loans, note the Bloomberg news analysts who broke the story last week, amounted to a bailout over ten times larger than the $700 billion funneled to banks via the Treasury Department’s controversial Troubled Asset Relief Program, or TARP.

Bloomberg reporters had to win a court case to access the stunning new bailout data. How stunning? The $7.77 trillion the Fed committed to the nation’s financial industry, observes Bloomberg, equaled “more than half the value of everything produced” in the entire United States during the key crisis year.

To put the bailout in more homespun terms: The Fed provided banks the equivalent of over $25,000 per American.

The nation’s six biggest banks — J.P. Morgan, Bank of America, Citibank, Wells Fargo, Goldman Sachs, and Morgan Stanley — grabbed $460 billion of the secret loans. Morgan Stanley took in $10 billion in publicly visible TARP bailout dollars and $107 billion from the hidden Fed loan program.

All the TARP dollars came with modest strings on executive pay. To end run the strings, big banks rushed to pay back their TARP bailout and then loudly proclaimed themselves healthy and stable enough to resume business as usual.

Meanwhile, at that same moment, these “healthy” banks were taking advantage of the secret Fed loans to register billions in new profits — with no executive pay strings attached.

The Fed loans came with interest rates as low as 0.01 percent. The banks lent out these loan dollars at much higher rates and made, Bloomberg estimates, at least $13 billion on these transactions. That $13 billion, notes economist Dean Baker, essentially rates as a pure “gift” from taxpayers.

But the Fed's total giving to America's biggest banks has run much higher than that $13 billion. By backstopping big banks so energetically, former U.S. senator Ted Kaufman from Delaware points out, the Fed has served notice that the federal government would never let the big banks fail — and that notification continues to translate into favorable borrowing rates for the big banks.

The big banks, for their part, have pooh-poohed all the hubbub about the enormous subsidies they’ve received. They’ve argued that no one should be bent out of joint, since the banks have paid their loans back.

The big banks, counters financial analyst Steve Randy Waldman, have definitely not paid back the lucrative freedom from downside risk that the Fed and Treasury Department have so graciously provided them.

In financial markets, Waldman explains, “risk-bearing” has always been “the ultimate commodity.” The Fed and Treasury underwrote this risk-bearing — for big banks — at next to nothing. Middle class Americans, by contrast, have to pay for their own risk-bearing. They pay, for instance, their fire insurance bills year in and year out, without ever expecting that the Fed is going to foot the bill.

Massive federal bailout subsidies, adds analyst Les Leopold, have had another spin-off benefit. They've “allowed banks to step up their lobbying efforts.” These lobbying efforts, in turn, have saved the banks countless billions more. (See my post: Lobbyists on K St. paid like CEOs on Wall St.)

One example: Bank political pressure has forged a federal housing crisis policy that protects banks from the “downside” of the crash of the housing market.

But the generosity of top federal officials to America’s banks has gone still further. We learned last week, notes Reuters analyst Felix Salmon, that Treasury secretary Hank Paulson was “giving inside information to his old Wall Street buddies” right as the financial crisis was unfolding, insider info that helped Goldman Sachs-connected hedge fund managers score millions in easy profits. (Also read: Tax breaks for billionaires: Loopholes for hedge fund managers costs billions in tax revenue)

The bottom line of all this generosity? The total assets of America’s top six banks jumped from $6.8 trillion in September 2006 to $9.5 trillion in September 2011. The trading arms of big banks and other independent firms, the Washington Post reports, have generated over $83 billion in profit over the last two and a half years, $6 billion more than they generated over the previous eight.

Returns this massive, in turn, translated last year into the biggest bank compensation haul in history. Wall Street salaries in New York averaged $361,330 in 2010, five times the city's average private-sector pay.

And average Americans? Their economic status continues to slide. A new Rutgers University study out last week documents that just 7% of those Americans “who lost jobs after the financial crisis have returned to or exceeded their previous financial position.” Two million construction workers have lost jobs since the housing collapse began. The industry has hired back only 47,000.

That housing collapse keeps collapsing. Over a quarter of American mortgages, 28%, have now sunk “underwater,” up from 23% last year. Where I live in Las Vegas, 80% are underwater.

Some context for these numbers: The $107 billion in Fed loans that one bank alone, Morgan Stanley, pocketed in September 2008 would have been enough, notes Bloomberg, “to pay off one-tenth of the country’s delinquent mortgages.

So what ought to be done? For starters, former New York governor Eliot Spitzer urged last week, Congress ought to require banks to use the profits they made investing their almost interest-free money from the Fed “to write down the value of mortgages of those who are underwater.”

Nassim Nicholas Taleb — a New York University risk engineer, best-selling author, and a hedge fund investor — has a longer-term solution. He wants the feds to start regulating Wall Street pay. No one at a company that would require a taxpayer-financed bailout if it failed, says Taleb, should “get a bonus, ever.”

“Consider that we trust military and homeland security personnel with our lives, yet we don’t give them lavish bonuses,” he explains. “They get promotions and the honor of a job well done if they succeed, and the severe disincentive of shame if they fail.” (Of course, CEOs of defense contractors get HUGE salaries and bonuses, and they also don't pay their fair share of taxes)

For bankers, Taleb adds, the opposite holds. They get “a bonus if they make short-term profits and a bailout if they go bust.”

Reforms like these still seem, at our current political moment, sheer fantasy. New research from the Center for Responsive Politics helps us understand one reason. Nineteen current members of Congress last year held personal investments in Wall Street’s most notorious bank, Goldman Sachs. These investments averaged well over three-quarters of a million dollars.

Nine of these 18 investors just happened to sit on the congressional committees that oversee the financial industry. Two of the 18 not on one of these committees just happened to be the two most powerful leaders, House SpeakerJohn Boehner(R-Ohio) and House Majority LeaderEric Cantor(R-Va.). Goldman Sachs contributed heavily to Boehner and Cantor.

Eliot Spitzer: "Congress ought to require banks to use the profits they made investing their almost interest-free money from the Fed to write down the value of mortgages of those who are underwater."

Raise Tax Revenues Without Raising Tax Rates Instead of raising taxes, we could actually lower the tax rates to bring in more tax revenues. First and foremost, just start taxing capital gains as regular income (because after all, it IS personal income for CEOs with stock options, investors with dividends, and hedge fund mangers with trades). 70% of all capital gains taxes are paid by the top 1%, which are at an historically low rate of only 15%. Then we could actually lower corporate taxes to 25% (the same as China), but eliminate ALL loopholes so ALL businesses (large and small) pay an "effective tax rate" of 25%. Allow corporations to repatriate their overseas earnings at 25% also, so long as they reinvest in their domestic workforce and facilities. Then eliminate ALL subsides for any business showing a profit (like Exxon and Boeing). And also eliminate all subsidies for individuals like Michele Bachmann too (who fosters children for profit). The top marginal rates for all individuals in all tax brackets (for personal income: 10%, 15%, 25%, and 35%) could all stay the same. The corporate rate and the capital gains rate is ass-backwards (35% and 15% respectively). It gives corporations the incentive to pocket more profits than to reinvest. If corporate taxes were lower than caption gains (25% corporate and 35% for incomes over $379,000), companies would chose to pay the lower corporate tax rate (and maybe produce and hire more). Bonuses into the pockets of the CEOs doesn't create jobs, money in the consumer's pockets creates jobs.

My related posts:

• The Real Job Creators are Poor
• Subsidies for the Rich and Famous
• It's not Class Warfare, it's just "Business"
• Historical Tax Rates on the Rich (1862 to 2011)
• The Second Gilded Age: History Repeats Itself
• Mellon: The Banker Who Rigged the U.S. Tax Code
• The GOP Tax Plan - Ignorance, Insanity, or Greed?
• We have a Revenue Problem, Not A Spending Problem
• 280 Corporations are "Too Big to Tax"
• Trickle-Down Economics: The Cruel 30-Year Hoax
• You Pay Hidden Entitlements for the Rich
• Record Profits + Record Bonuses = Zero Jobs
• Low Wages Kills Jobs, Not High Taxes

The Real Job Creators are Poor

To justify the Republican's objection to taxing the wealthy, when Bloomberg’s Al Hunt asked Representative Fred Upton (R-MI) to explain why the Bush tax cuts didn't create jobs, Upton admitted that “I don’t know specifically the answer to that question.”

CAP's Director of Tax and Budget Policy Michael Linden found, “in the past 60 years, job growth has actually been greater in years when the top income tax rate was much higher than it is now. In fact, if you ranked each year since 1950 by overall job growth, the top five years would all boast marginal tax rates at 70 percent or higher.”

Today the tax rates are actually at historical lows. The GOP, as Fred Upton displayed, simply has no explanation for these facts.

Since the days of the Bush breaks in 2001 and 2003, Republicans consistently have said that tax reductions stimulate the economy and the lost revenue needn't be offset. Jon Kyl (R-AZ), the #2 Senate Republican, asserted, for example: "You should never have to offset the cost of a deliberate decision to reduce tax rates on Americans.

He says "Americans". Not rich Americans, or the richest of the richest Americans, or the top 1% of Americans. Just Americans, as though we're all financially equal.

The GOP didn't pay for the Bush tax cuts, a decision that dramatically increased the deficit, which Republicans now say the 99% must pay by suffering slashed government services.

Rather than answering to the PEOPLE, the Republicans have loyally upheld their solemn pledge to lobbyist Grover Norquist to never, ever raise taxes. Last year, for example, they GOP refused to allow the Bush tax cuts to expire, contending that would be a tax increase, not the end of tax rates that were intended to be temporary.

Nick Hanauer, a venture capitalist writing an op-ed piece for Bloomberg, says, "The conventional wisdom that the rich and businesses are our nation’s 'job creators' is every bit false. I’ve never been a 'job creator'. I can start a business based on a great idea, and initially hire dozens or hundreds of people. But if no one can afford to buy what I have to sell, my business will soon fail and all those jobs will evaporate. When businesspeople take credit for creating jobs, it is like squirrels taking credit for creating evolution. In fact, it’s the other way around."

"Let’s give a break to the true job creators. Let’s tax the rich like we once did and use that money to spur growth by putting purchasing power back in the hands of the middle class. And let’s remember that capitalists without customers are out of business."

And the REAL job creators in America are either poor, unemployed, under-employed, part-time workers, or under-paid. And of those with jobs, 50% of all American workers earned less than $27,000 a year when the poverty line for a family of four was $22,314.

What have we all be saying for all these years? The Bush tax cuts just let people and corporations hoard money (over $2.2 trillion just in corporate off-shore banks accounts alone, not including personal off-shore accounts to avoid taxes). Taxing them is the only way we can circulate the money supply. Or, as the Republicans like to accuse us of, "redistributing the wealth", rather than concentrating it all at the very top.

The Bush tax breaks cut the capital gains tax to a tax rate lower than that on a true middle class income. (The rich primarily make most their money from "capital gains".)

Last week, Republicans found themselves confronted with a choice between raising taxes on the 99% or on the 1%. So far, millionaires and billionaires the greedy gluttons the ultra-rich the humble "job creators" have been spared.

My Related Posts:

• Subsidies for the Rich and Famous
• It's not Class Warfare, it's just "Business"
• Historical Tax Rates on the Rich (1862 to 2011)
• The Second Gilded Age: History Repeats Itself
• Mellon: The Banker Who Rigged the U.S. Tax Code
• The GOP Tax Plan - Ignorance, Insanity, or Greed?
• We have a Revenue Problem, Not A Spending Problem
• 280 Corporations are "Too Big to Tax"
• Trickle-Down Economics: The Cruel 30-Year Hoax
• You Pay Hidden Entitlements for the Rich
• Record Profits + Record Bonuses = Zero Jobs
• Low Wages Kills Jobs, Not High Taxes

Other Related Articles

• "The richest 1 percent have more financial wealth than the bottom 95 percent combined."
• The total net worth on the Forbes 400 List marks $1.5 Trillion in 2011
• The Global Super-Rich Stash: Now $25 Trillion
• Historical Tax Rates and Time-line
• Capital gains from Citizens for Tax Justice
• 1977 - 2007 tax rates from U.S. Treasury
• Economic Policy Institute on capital gains taxes
• Capital gains explained from U.S. Internal Revenue Service
• The great corporate tax scam

The Defense Department & Wall Street

Behind the growing push to slash soldiers' pensions and other military costs is a little-known advisory group—stacked with Wall Street executives.

—By Adam Weinstein

 

With time fast running out for the so-called deficit supercommittee, the mammoth amount of government money spent on the military has become a prime target in Washington. But the main focus isn't on big-ticket weapons projects or expensive wars—it's on retirement benefits for the roughly 17 percent of soldiers, Marines, sailors, and airmen who have served 20 years or more in uniform. Currently the total cost of their benefits is about $50 billion a year.

Cuts to military pensions are "the kind of thing you have to consider," Defense Secretary Leon Panetta said in September. When President Obama unveiled his $3 trillion debt reduction plan the same month, it called GIs' benefits "out of line" with private employee retirement plans, saying the system was "designed for a different era of work." When Congress held a hearing on military retirements in October, Rep. Austin Scott (R-Ga.) promoted a cheaper 401(k)-style plan that would slash existing benefits for many troops. "I see nothing wrong with them being able to choose a different retirement plan," he said.

These ideas may sound like a bold new approach in an urgent moment—but in fact, the push for pension cuts and other corporate "reforms" at the Pentagon originates from an obscure advisory panel that has existed for a decade: the Defense Business Board. Its 21 members know little about military affairs, but they are rich in Wall Street experience, including with some of the biggest companies implicated in the 2008 financial meltdown. They are investment bank CEOs and CFOs, outsourcing experts, and layoff specialists who promote a corporate agenda of "behavior change" and "business solutions" in the military bureaucracy. The board proposes not only to slash and privatize military pensions, but also to have the Pentagon invest in oil futures, boost pay for its executives and political appointees, and make it easier for them to fire rank-and-file employees while scaling back those workers' collective-bargaining rights.

Indeed, "this sounds like what's being done now around the country with the public unions," affirms Charles Tiefer, a University of Baltimore law professor and defense contracting watchdog who's testified to Congress about the board's recommendations. The board was launched in 2001 by then Defense Secretary Donald Rumsfeld, who famously wanted to downsize the military and corporatize its management system. The essential reason it exists, Tiefer says, is so that "a pro-business attitude—especially on personnel issues—remains intact" inside the Pentagon.

While the board's ideas have enjoyed support on Capitol Hill over the years, it has made only a modest impact on policy. Now, the board's proposals—which they say represent "a culture of savings"—are gaining currency as politicians look to cut federal spending any way they can.

When the federal debt ceiling crisis was escalating in July, a report (PDF) from the board argued that paying soldiers and their families for 60 years after 20 years of service was "unsustainable," adding, "The 'Military Retirement' sacred cow is increasingly unaffordable." The board called for scrapping the system in favor of a mandatory 401(k)-style account whose savings could "be invested in higher yielding equities and bonds."

Over the years, the board has recommended a series of "cost-saving" measures that would channel large amounts of money to private-sector businesses.

The board's proposal would set aside 16.5 percent of a troop's base salary in a savings account to be invested in the markets. Assuming a modest annual return—hardly a safe assumption these days—the plan would still provide retired soldiers with far less money than what they are entitled to now. Critics say the proposal would also make it harder for the military to retain its most senior, most knowledgeable members. As Joe Davis, public affairs director for Veterans of Foreign Wars, put it in August: "Where will our future military leaders come from if people leave the service early because they're losing retirement money?"

It's a plan that even Rep. Joe Wilson (R-S.C.), chairman of the House subcommittee on military personnel (who's known for shouting "You lie!" at President Obama during his 2009 health care address to Congress), has called "radical…a very controversial proposal with immediate negative consequences for morale and combat readiness."

The head of the Defense Business Board's pensions task force, Richard Spencer, served as a Marine aviator in the 1970s. But more recently, he was the CFO of a web-based commodities and derivatives exchange that is under investigation in Europe for its trading in credit default swaps just before financial markets imploded in 2008. Prior to that job, Spencer worked "on Wall Street for 15 years where his responsibilities centered on investment banking services focusing on strategic advisory services and capital markets underwriting," according to his current biography on the Defense Business Board's website.

A cached version of Spencer's bio identifies the firms where he previously served: Goldman Sachs, Bear Stearns, and Merrill Lynch, three of the biggest Wall Street banks involved in the housing and credit collapse. Joining him in the board's vote to gut military pensions were the managing director of Accenture's defense industry portfolio; the chairman of HR consultant Convergys, "a leading outsourcing company"; the CEO of the Bank of Virginia; several high-profile investment bankers; and two Sears executives.

Over the years, the board has recommended a series of "cost-saving" measures that would channel large amounts of money to private-sector businesses. Its members have consistently advocated for the Pentagon to engage in fuel hedging—investing in oil futures to lock in a supposedly low cost for their long-term fuel needs. The board's fuel-hedging push was led by member Denis Bovin, who was a top investment banker for Bear Stearns until the firm went bust in late 2008. After consulting with energy giants BP and Shell, among others, Bovin's team concluded that the Department of Defense should invest based on rising oil prices, even while he conceded that "as a whole, DoD is not highly exposed to fuel price volatility." Such deals, he noted, would incur investment transaction costs of "$10 to $250 million per year." Even though no federal agency currently engages in fuel hedging, the board tasked Bovin with another study on oil futures last January.

The Defense Business Board was born in another American era, on September 10, 2001. That morning, Rumsfeld rose before a crowd of Pentagon workers to declare war on "an adversary that poses a threat, a serious threat" to the nation: "It disrupts the defense of the United States and places the lives of men and women in uniform at risk." He was speaking not of Russia or China or even international terrorism, but of the military's own bureaucracy. He announced: "We're establishing a Defense Business Board to tap outside expertise as we move to improve the department's business practices."

"Some of those ideas go way back," says Thomas Christie, a career defense analyst for multiple administrations who was called out of retirement by Rumsfeld in 2001 to help improve the Pentagon's weapons-buying process. Rumsfeld, Christie says, "just had a suspicion about the whole bureaucracy; he didn't trust it." But Rumsfeld did trust private enterprise, and the September 11 attacks only temporarily sidetracked his transformation efforts. By March 2002, the Defense Business Board held its first meeting, tasked with (among other things) achieving "a cost effective military" with private-sector employment practices and providing "civilian human resources faster, at a reduced cost and by taking advantage of the power of automated tools."

He couldn't have asked for a better group to help corporatize the Pentagon: Its original 19 members included the vice chairman of Bear Stearns; an ex-CEO of AOL; executives from PricewaterhouseCoopers and Deutsche Bank; a Goldman Sachs board member who would later land in hot water for a $1.7 million purchase of the company's stock; and Richard Perle, nicknamed the "Prince of Darkness," who gained notoriety as a Bush administration cheerleader for the Iraq War.

The leader of the board's supply chain task force was Gus Pagonis, a senior VP for Sears who, as an Army general had managed supply and logistics for the Gulf War, and whose son would hold a similar position in the second Iraq War. As the head of its "change management" task force, the board chose Dana Mead, a layoff king who titled his autobiography High Standards, Hard Choices: A CEO's Journey of Courage, Risk, and Change. As CEO of the Navy's largest shipbuilding yard in Virginia, he'd assured workers in 1994 that there'd be no layoffs; two years later, Mead had canned nearly 10,000 of the 29,000-person workforce and boasted to the New York Times that the yard was "now as efficient as any shipyard in the world." As a board member of Pfizer several years later, Mead would help secure a $83 million golden parachute for the pharmaceutical giant's outgoing CEO.

Mead's job was to help ease the Pentagon's transition to a corporate culture. In the board's view, one way to accomplish that was to start creating boardroom titles for military leaders; it recommended that Congress create a chief management officer, or CMO, to double-check admirals' and generals' business decisions. Congress approved, although the job remains open, with only a deputy CMO currently serving.

The Defense Business Board also champions corporate tactics on personnel issues. It calls for more and better-paid senior executives, while depriving middle- and lower-level Defense Department employees of basic job security. "We believe the DoD should have a leadership corps composed of senior executives, managers, professionals, and political appointees drawn from the best of America's diverse population," the board argued in 2002 in a "Human Capital Transformation" report. They proposed boosting the pay for upper-management positions in the department from $130,000 to $225,000. "The gap between what they can earn in service to their country and employment in the private sector is too great a sacrifice for them and their families," the board said. "No high-performing private organization aspiring to upgrade its management talent would permit such a situation to exist; neither should DoD."

The board further argued that individual Pentagon bosses should have the right to fire their subordinates without involving the workers' union, the American Federation of Government Employees: "Under the existing system of employment, individuals have rights not to be terminated without due process safeguards. But, in an organization charged with protecting the nation's interests and safety, no individual has the right to be maintained in his or her position."

In 2004, Rumsfeld got Congress to approve the National Security Personnel System (NSPS), a new HR policy that offered workers performance bonuses while giving supervisors more hiring and firing authority. The change "severely crimped the power of the unions to handle grievances and bargain collectively," says Tiefer, the University of Baltimore law professor.

A 2008 investigation by Federal Times found that the first round of bonus pay under the new policy had been riddled with iniquities. And a May 2009 investigation by the Pentagon itself found that employees previously making below $60,000 ended up making less under the policy—while workers with salaries above $80,000 ended up making more. In summer 2009, Congress killed funding for the National Security Personnel System, and the Obama administration considered ending it outright. But that August, after the pay system had lost virtually all of its defenders, the Defense Business Board issued a report saying it should be saved: "[T]he performance management system that has been created is achieving alignment of employee goals with organizational goals."

Union leaders called the board's opinion bunk. "A steady stream of DOD managers and supervisors have told us that NSPS is unfair, dishonest and effective," says John Gage, president of the American Federation of Government Employees. "We know that those under the NSPS system suffer from low moral and lower productivity."

The Defense Business Board also believed that one path to transforming military culture was to recruit more business-school graduates; they could "bring new ideas, energy and private sector management techniques to the Department of Defense," according to a board report. The board discussed the possibility of changing federal pay rules to hire MBAs at a senior pay grade, even with no military or workplace experience. One board member, David Walker, pointed out an obvious complication of hiring so many business school alums to run the military bureaucracy: "Most MBA candidates are not motivated by public service. This makes long-term retention very difficult."

Nevertheless, the board studied how companies like Bear Stearns, Goldman, General Electric, and McKinsey recruited MBAs, then recommended that the Pentagon start offering business school grads senior positions starting at $70,820 a year (which normally required two years of relevant experience). Rumsfeld loved the idea, but according to notes from a 2006 Defense Business Board meeting, an unnamed congressional opponent kept the MBA recruitment plan from being adopted.

If you wanted to search for ways to make the Pentagon's ponderous bureaucracy more efficient—an ambition nobody would disagree with—"why wouldn't you have a balanced task force?" Tiefer asks. A pro-business perspective could of course be a valuable component of such a task force, if it were balanced with alternative viewpoints. "If you want to make reforms, you have to offer some of the sweet along with the bitter," he says. But when it comes to the Pentagon's key advisory panel, "that's not what Rumsfeld set up, and it's what Obama didn't change."

The Defense Business Board operates under a renewable two-year charter; it was last renewed in early 2010. As the deficit battle consumes Washington, it appears to be capitalizing on an opportunity to exert more influence. "There was a left side and a right side to the defense establishment when Obama came in," Tiefer says. "The DBB represents the continuity of the right side."

If the congressional super-committee fails to come up with a deficit plan, it will trigger $600 billion in non-optional cuts to the military budget. Some in Congress have already vowed to never let that happen. But either way, Pentagon funds will be on the chopping block, and the designs of the Defense Business Board may be seen as more useful than ever. Even Christie, the conservative defense analyst, is wary of that. "We look askance at all that [corporate influence], particularly with respect to the uniformed military," he says. "This business, the MBA thing, it's for managers, not for war fighters."

My Related Posts:

Defense Industry Launches Propaganda Campaign

Defense Spending, Bogus Parts, Transnational Mergers

Simple Math Proves Jobs Report a Lie

UPDATE DEC 12, 2011 - Reince Priebus, the head of the Republican National Committee (RNC), was on CNN's Piers Morgan Tonight yesterday and said there were more people unemployed this month than there were last month -- because a bunch of people just threw their arms up in the air and said "I'm not even going to file a paper with the Department of Labor."

File a paper with the Department of Labor? Nobody that I know that's unemployed has ever done that.

It seems that nobody, besides those who work at the Bureau of Labor Statistics (and 27 million unemployed Americans) know that the head of the RNC has no clue at all as to what he's talking about.

The Department of Labor's Bureau of Labor Statistics GUESSES how many people stopped looking for work based on a household survey (CPS) conducted by the Bureau of Census.

The only thing unemployed people can file is a claim for unemployment benefits from their State every week -- until they no longer qualify, and then run out of unemployment benefits. After that, they can't file anything, with anyone, at the Department of Labor -- even though they're still out of work. END UPDATE

The jobless numbers are much worse than they say. A conservative estimate is 17% unemployed, but it could be as high as 19%.

"This in not class warfare, it's math." No mister President, it's worse than class warfare when our government doesn't even acknowledge 8.4 million unemployed Americans; when they don't count them in the unemployment rate and doesn't honestly report the statistics to the general public. We want honest math, not sugar-coated convoluted numbers.

A New York Times article that came out yesterday is the subject of my post today. The writer says, "The number of long-term unemployed workers is starting to fall." He, like most in the media, takes the government (the Bureau of Labor Statistics) at their word. I don't, and rarely have, especially when I know politics is involved. It is our U.S. Labor Department's "Lies, damned lies, and Statistics". So I did my own research and math.

First, there are many more than 13.3 million unemployed (8.6%) It's also interesting to note that 16-year-olds who are still in high school and living at home are also counted in the CPA " household survey" as among those who are employed.

Today in December 2011 there are actually over 27 million working age Americans (18 to 65*) with no job at all (and who are not on Social Security, and so therefore, are not counted). So we have a REAL unemployment rate of well over 17% (based on a workforce of 154 million in 2008).

*According to the 2010 Census, there were 40.3 million people 65 and older (13% of population), and 33.5 million are retired and collecting Social Security. Out of a total U.S. population of 308.7 million, 63% are between the ages of 18 and 65 (194.5 million) and 24.0% are under 18 years old.

It is possible to be neither employed nor unemployed by ILO definitions, i.e., to be outside of the "labor force." These are people who have no job and are "not looking for work". Many of these are going to school or are retired. Family responsibilities keep others out of the labor force. Still others have a physical or mental disability which prevents them from participating in labor force activities.

Typically, employment and the labor force include only work done for monetary gain. Hence, a homemaker is neither part of the labor force nor unemployed. Nor are full-time students nor prisoners considered to be part of the labor force or unemployment. As of 2005, roughly 0.7% of the US population is incarcerated (or 1.5% of the available working population at that time).

But disregarding those people, and with only 141.1 million income tax filers last year for 2010 (out of 194.5 million between the ages of 18 and 65), and if we called this our "new reduced work force", based on the government's own numbers, the actual unemployment rate could really be an astounding 19.1%...higher than many years during the Great Depression, and many more people too.

Let's just go back two years to the present...

Over two years ago in October 2009 (at the supposed "peak" of unemployment) the Bureau of Labor Statistics reported that the national unemployment rate was at 10.2% with 15.7 million Americans out of work. So we can safely assume that, even if every single person received the maximum of 99 weeks in unemployment benefits, they would have all expired two months ago (and 15.7 million jobs have not been created in the last 26 months).

Since October 2009 Obama says that according the Bureau of Labor Statistics 3 million jobs were created. During the past 2 years during that same period of time 6 million Americans also graduated from high school and college.

15.7 million unemployed + 6 million new people entering the labor force = 21.7 million MINUS 3 million new jobs created = 18.7 million. Today the Bureau of Labor Statistics reports 13.3 million unemployed + 2.6 million marginally attached (and not counted in the media-reported U-3 rate) = a total of 15.9 million unemployed.

So right away we see a difference of 2.6 million (15.9 MINUS 13.3 million = 2.6 million) being reported of ALL people who are without any work at all. Add to those 2.6 million "missing workers" all the additional layoffs there were since October 2009.

Job cuts announced in 2011 are up, already more than 2010's full-year total. The Bureau of Labor Statistics reported 1.2 million separations in 2010 alone, with many more on the way (the media is only reporting half this figure). Now add those 2.6 million "missing workers" + approximately another 2.4 million laid off worker in the last 2 years = 5 million.

The banks have already announced thousands of planned layoffs. Bank of America confirmed it will slash 30,000 jobs over the next few years and HSBC previously said it will also slash 30,000 jobs by 2013. (The Bureau of Labor Statistics' next Mass Layoffs news release for November is scheduled to be released on Thursday, December 22, 2011, at 10:00 a.m. EST)

And today the Bureau of Labor Statistics also reports that 7 million people are CURRENTLY receiving unemployment benefits. Remember, over 2 years ago 15.7 million were unemployed and as late of May 2010 when unemployment was reported lower as 9.7% 10 million of those were receiving unemployment benefits (that have since expired), so we know that at any one time over the last 2 years, at least 17 million were receiving some form of unemployment benefits.

So, not even counting those that didn't qualify for unemployment benefits, 17 million who received benefits MINUS the reported 13.3 million unemployed today = 3.7 million MINUS 3 million new jobs created during that time = 700,000. Now add all the layoffs since October 2009 over the last 26 months. (700,000 + approximately another 2.4 million laid off in last 2 years = 3.1 million + 2.6 million "missing workers" = 5.7 million).

Today the Bureau of Labor Statistics also reports that, just last month alone, 315,000 Americans were reported as "no longer looking for work" and they were no longer counted in the media-reported unemployment rate of 8.6%. How many more are no longer being counted over that last 2 years, or since the "peak" in October 2009? Since keeping track over the last 2 years, I'm estimating about 2.7 million more, for at total of 8.4 million not counted at all, in ANY measure by the Bureau of Labor Statistics (either as unemployed, marginally attached, or discourage...in either the U-3 rate or the higher U-6 rate.)

And most of the 3 million job gains were nothing to brag about either, as most were part-time (or temp) low-paying jobs (like the holiday help that is now being hired).

According to one study, just 7% of those who lost jobs after the financial crisis in 2008 have returned to or exceeded their previous financial position and maintained their lifestyles. About 15 percent say the reduction in their incomes has been drastic and will probably be permanent. Even among those who found work, many made much less than before the downturn. More than two years after the "recovery" officially began, American employers have reinstated less than 25% of the jobs lost during the downturn.

Even among the college-educated, there is one cohort that is still feeling more pain: older workers. More than half of all unemployed workers 45 to 54 years old have been out of work for six months or more.

Some domestic manufacturing may be picking up a little, but employers are not hiring...workers in the United States are increasing their "productivity" (working harder). But these manufacturers could face strains overseas in important export markets, especially if Europe’s debt crisis worsens and leads to another recession. China, the world’s second-largest economy, is also slowing. Manufacturing in China contracted in November for the first time in nearly three years.

One article in the New York Times gleefully reports that the number of long-term unemployed workers (or the number of unemployed) is starting to fall...but they're NOT! They're just no longer being counted in the U-6 rate and described by the Bureau of Labor Statistics as "no longer looking for work" (whether or not they are).

Already, millions of people have exhausted their benefits (10 to 17 million). Failing to renew the federal benefit extensions will cause 5 million additional people (by eliminating federal extensions) to lose benefits next year. Unemployment benefits are believed to have one of the most stimulative effects on the economy, because recipients are likely to spend all of the money they receive quickly and pump more spending through the
economy.

This blogger estimates that of those who already exhausted all their benefits and are no longer counted in Bureau of Labor Statistics' U-3 unemployed rate (media-reported), "marginally attached", or as "discouraged workers" (the U-6 rate) to be approximately 8.4 million (also known as UI "exhaustees", of which about 3 million are "99ers".)

8.4 million (reported as "not looking for work) + 13.3 million reported by the Bureau of Labor Statistics U-3 rate + 2.6 million reported as marginally attached = 24.3 million + 6 million kids graduated from high school and college = 30.3 million MINUS 3 million jobs were created = over 27 million with no job at all and a REAL unemployment rate of over 17%.

According to the IRS, for 2009 142.2 million individual federal tax returns were files with the IRS. In 2010 it was only 141.1 million, a difference of 1.1 million less. For 2008 there were 154.3 million tax returns filed (what the total work force used to be). That's a difference of 13.2 million less federal tax returns that were filed for 2008 and this year for 2010 (Note: That's about what the Bureau of Labor Statistics reports as unemployed. Also note: Even people who received unemployment benefits are required to pay federal taxes and file a federal income tax return).

Today the joke is: 8.6% are unemployed, but 17% are without a job.

And expect more layoffs as companies like American Airlines go through bankruptcy in hopes to be able to rewrite its labor contracts, shed obligations and debt and perhaps reduce the pension commitments. (I recently heard Richard Branson of Virgin Airlines say that these companies shouldn't be bailed out or allowed to go bankrupt, they should stand or fall on their own viability.)

And according to this article, even if the unemployment rate ever does significantly drop, it would be mostly for low-paying jobs, because more and more jobs will continue to go overseas for cheaper labor. Read: Workers of the Western World. In the past 10 years alone we've already lost 56,000 factories and 8.2 million jobs.

One hedge fund manager had said at a recent dinner speech in New York, “The low-skilled American worker is the most overpaid worker in the world.”

China's largest employer is Foxconn, a Taiwanese-owned company which has nearly 1 million employees making products for American companies. (READ "America's Race to the Bottom). The worker's average pay: about $149.24 a month. But for Foxconn, even that is too much for payroll, so now they want to automate jobs such as such as spraying, welding and assembling. Foxconn's CEO unveiled a plan to hire 1 million robots by 2013 (because robots are easier to manage and don't commit suicide).

So I guess low-paying jobs and high unemployment in America is here to stay.

A Better Way to Count the Unemployed If the Social Security Administration and the Internal Revenue Service and all 50 states' Employment and Security Division had computerized records of EXACTLY when everybody worked, what they earned, where they were employed, how much tax they paid (or owed), and when they were no longer showing earnings on a W-4 form, can't all this information be easily cross referenced and shared (in part or completely) with the Department of Labor's Bureau of Labor Statistics? It seems it would be fairly easy to do. You would have an EXACT count, at any given time, of how many people are working and how many aren't. You could also say for certain how many people had exhausted all their unemployment benefits and still remain unemployed. You could also determine EXACTLY what percent of high school and college graduates find jobs after completing school. The Bureau of Labor Statistics CPA "household survey" is extremely obsolete and flawed in this day and age of technology.

They're lying again! 17.8% are unemployed!

Using the Bureau of Labor Statistics' own numbers, 8.4 million Americans that were unemployed are no longer being counted in the "reported" unemployment rate. They say it's 8.6%, when it's closer to a whopping 17.8%.

Over two years ago in October 2009 the national unemployment rate was at 10.2% with 15.7 million Americans out of work. So we can safely assume that, even if every single person received the maximum of 99 weeks in unemployment benefits, they would have all expired two months ago (and 15.7 million jobs have not been created in the last 26 months.).

Today the Bureau of Labor Statistics reports that 13.3 million people are unemployed (a difference of 2.4 million - - - were 2.4 million NET jobs created during the time period?)

The Bureau of Labor Statistics also reports today that 7 million people are CURRENTLY receiving unemployment benefits.

So out of 13.3 million reported unemployed today, 7 million of those collect unemployment benefits (a difference of 6.3 million).

So the Bureau of Labor Statistics is saying that 6.3 million unemployed Americans ARE NOT collecting benefits. But we had 15.7 million who we know for sure have already exhausted all benefits (if they ever qualified), not 6.3 million. So the Bureau of Labor Statistics is not counting at least 8.4 million people in their 13.3 million figure. That would make 21.7 million total (or 14% unemployment).

Over two years ago in October 2009 the national unemployment rate was at 10.2% with 15.7 million Americans out of work. How many found jobs and/or got laid off again? How many more were since laid off?

Now add another 6 million people who graduated from school during that same period of time over the last two years who weren't even counted then as part of the labor force yet. That would make 27.7 million total unemployed, or 17.8%. So the REAL unemployment rate is even higher than what MSNBC just reported today. They said the REAL unemployment rate is 15.6%

During the Great Depression in 1931 the unemployment rate was only 15.9%, and back then we had a much smaller population! At 17.8% in 2011, it's much worse today.

According to this article, even if the unemployment rate ever does significantly drop, it would be mostly for low-paying jobs, because more and more jobs will continue to go overseas for cheaper labor. Read: Workers of the Western World

One hedge fund manager had said at a recent dinner speech in New York, “The low-skilled American worker is the most overpaid worker in the world.”

I guess low-paying jobs and/or high unemployment is here to stay.

The Economy is Roaring!

The U.S. unemployment rate fell last month to its lowest level in more than 2 1/2 years! Wow!

Charles Payne, a Fox Business Network contributor and CEO of  Wall Street Strategies reported yesterday: "One of the best days in the history of the stock market follows the best ever Monday after a Thanksgiving holiday week, and there could still be a ton of upside from here."

Two days ago on November 30, 2011 the DOW JONES closed 466 points higher, and as of this post, it is up again today.

Corporations are still profiting, executive pay is still very high (and they're still partying like it's 1929), and the unemployment rate dropped from 9% to 8.6% (I imagine a few elves were hired to help Santa get through the upcoming Christmas holiday with part-time low-paying jobs.)

But MSNBC just reported that the REAL unemployment rate is 15.6%. But we all know that just a few weeks after jobless benefits expire, the unemployed are no longer counted, and the Bureau of Labor Statistics reports them as "no longer looking for work". 315,000 Americans were reported as "no longer looking for work" just since last month.

I wonder how many just had their unemployment benefits expire? It's odd that so many people would just all of a sudden just give up trying to find a job. I wonder why? Don't they have to pay for food, heat, and rent?

So in other words, with this fabulous news,13.3 million Americans still remain unemployed (8.6%), but 24.2 million don't have a job (15.6%). Now I understand!

Of those who are still working, half of them earn less than $27,000 a year.

155.0 million total workforce - 77.5 million earn less than $27,000 a year     77.5 million sub-total - 24.2 million don't have a job    53.3 million are doing OK (about a 1/3 of the work force)

The economy is roaring! Happy days are here again! After all, we shouldn't complain, because in China the wages are "too high", so now they're hiring robots! Yikes!

Chinese Wages Too High - Now Hiring Robots

China's largest employer is Foxconn, a Taiwanese-owned company which has nearly 1 million employees.

American companies using slave labor in sweatshops for Foxconn: Amazon.com, Apple Inc., Barnes & Noble, Intel, Cisco, Hewlett-Packard, Dell, Microsoft, Motorola, and Vizio.

The basic wage at Foxconn, the world's largest maker of electronic components, is only CNY 940 per month (or 2% more than the local Chinese minimum wage. (1 CNY = 0.1571 USD) which makes the average wage for a typical Apple Inc. employees at Foxconn approximately $149.24 a month...or about what we would earn a day for one 8-hour shift at $18.65 a hour.

An iPad costs $499 in the U.S., but they're still complaining just because the workers want a little more for wages. And now, as though $149.24 a month is far too much for payroll, they want to automate. Foxconn's CEO unveiled a plan to hire 1 million robots by 2013 (because robots are easier to manage and don't commit suicide).

The robots will be used to do simple and routine work such as spraying, welding and assembling which are now mainly conducted by workers. Is this what they pay for "skilled labor" (e.g. college graduates with engineering degrees?). Are these the "skills" that CEOs are telling us that Americans lack, just to work on an assembly line?

At $149.24 a month for wages, automation becomes relatively more profitable. And it is to automation that most jobs go to die.

The robots are being used at Foxconn for the same reason that self-service checkout counters are being used in supermarkets. The change in relative prices between labor and machines means the machines are being used to replace people.

As with many manufacturing jobs, minimum wage jobs, service jobs, (whatever) the result is always the same: raise the price of labor to a "living wage" and more automation will happen. It seems that poverty wages are here to stay.

Apple was once going to Brazil, but it would have cost much more for production (by moving production into Brazil, Apple would be able to address the country's market of 190 million consumers at lower price points.)

The new iPhone released last October comes at several price levels, from $199 to $399. The new Apple CEO Tim Cook is getting $383.6 Million worth of Apple stock, while his workers only get $149.24 a month to make cell phones costing you $400. But robots will make them even cheaper to make.

Related Posts:

• Apple Inc. is Rotten to the Core
• America's Race to the Bottom

How the 1% bilks the 99%

We already know how they gouge us with high prices, excessive interest rates, the cap on their Social Security taxes, taxpayer subsidies, hidden charges, low wages, etc. But there's other ways they bilk us too...by dodging income taxes. But don't "raise" taxes on the rich, just make them pay what they should have been paying all along...ever since 1921.

Besides hiring lobbyists to have Congress rig the tax code in their favor, the ultra-wealthy can also hire expensive tax attorneys to find "loopholes" - - and that's why our tax code is so complicated, and how the rich get off paying their fair share of taxes.

* The middle-class was actually doing their very best when taxes on the rich and corporations were at their highest levels ever (and the wealthy still prospered). Read my post: Tax Rates during the Fabulous Fifties (Remember when mom didn't have to go to work to help dad pay the mortgage?)

The current debate over payroll taxes:

The GOP wants to freeze federal wages and/or lay off more government workers to "pay" for extending the payroll tax cut, instead of taxing people who EARN $1 million annually to help offset the cost.

The Republicans have argued against that - - - they argued against taxing private and corporate jets (or cutting oil subsidies), and that even if we did tax the rich an additional 3.25%, it wouldn't be enough...and that's their argument, "It's not enough". So in other words, they don't want to tax them any more, at all, for any reason.

If a starving man needed a whole loaf of bread to cure his hunger pangs, but the GOP only had a single slice, they wouldn't give the starving man any bread at all!

If that's the GOP's best argument ("It's not enough"), then tax them more! Read: Tax the Rich! In Fact, Let's Double Their Taxes!!! by Richard (RJ) Eskow, Consultant, writer and Senior Fellow, Campaign for America's Future

They ultra-wealthy have already had their tax breaks for a decade now, and they haven't created more jobs. Just the opposite. They have either outsourced, cut wages and benefits, or laid off and downsized - - - but not created enough jobs; and all while they've been earning record profits and salaries. But yet, the Republicans still INSIST on calling them "job creators", when all they've created was more personal wealth for themselves.

And the GOP has also used all the other tired old arguments too...like "punishing success" or "waging class war" on people earning over $1 million a year (not millionaires per se, just those who "earn" that much annually).

Most people who earn an income of over $1 million a year are:

1. Not small business owners
2. Earn the bulk of their earnings with capital gains. This includes bankers, hedge-fund mangers, CEOs, and investors like Warren Buffett.

How the 1% Bilks the 99%

Stock buy-backs, stock-options, off-shore bank accounts, low capital gains taxes, and "prepaid forward” deals.

People who earn over $1 million a year aren't just paid a salary or weekly paycheck (if at all), but have stock-options and "variable prepaid forward contracts" (see the gray box at the end of this post).

The tax rates are currently at historical lows, but I would suggest, don't "raise" taxes on the rich, but rather just tax them according to their current marginal rate (over $1 million a year in personal earnings would put them in the top income bracket with a tax rate of 35%).

The top 1% pays 70% of all capital gains taxes. Instead of slapping a 3.25% "surtax" on incomes above $1 million, just tax capital gains as “regular” income (which is 35% for the top marginal income earners). Right now they're only paying 15% for capital gains taxes (a rate they have not seen since 1921, when capital gains were once taxed at 12.5%). 

Before 1921, capital gains were taxed as "regular" income. Why did that change? That is money going into people's pockets, not into a corporate treasury for expansion and business growth (and creating more jobs).

CEOs only “earn” bonuses when their company “performs.” One measure of that performance: “earnings per share,” or company income divided by outstanding shares of stock. Execs have figured out that they don't have to actually boost earnings to hit their per-share targets. They simply reduce the number of company shares — by having their companies “buy back” shares of their own stock off the open market. U.S. corporations overall have so far this year authorized $445 billion worth of buybacks.

The CEO and board of directors puts this cash into a bonus pool and pays themselves with stock options and pays a capital gains tax of only 15% after they're vested and sells after one year.

Herman Cain's want to lower the capital gain tax that these CEOs pay on those stock options from 15% to 9%. Newt Gingrich and others wants it to be 0%. That's how they escape paying the top marginal rate of 35% over $376,000.

That's why Warren Buffett's secretary pays more in taxes as a percentage of her earnings than Warren does. And with corporations only paying an average effective corporate tax of 18% (and NOT 35%) they can afford to back more stocks from their profits and pay themselves more, and pays a less effective income tax rate than the rest of us.

* See these links to learn more on how CEO's stock-options work and how hedge-fund mangers benefit from this preferential tax treatment for the rich.

U.S. Obtains Data From 10 Swiss Banks In Tax-Dodging Probe 

(September 10, 2011) - Switzerland, a noted tax haven that is the global capital of offshore private banking, has been under attack from U.S. Justice Department and Internal Revenue Service officials conducting a broad criminal investigation into private banking services that U.S. authorities say enabled wealthy Americans to evade billions of dollars in taxes.

http://www.huffingtonpost.com/2011/09/10/us-tax-dodgers-switzerland-probe_n_956693.html

More GOP Propaganda

[Fox News] pollster Frank Luntz giving advice to the Republican Governor’s Association:

Luntz told Republicans to re-frame the concept of the bonus payment — which bailed-out Wall Street doles out to its employees during holidays — as “pay for performance” instead.

– Don’t Mention The Middle Class Because Americans Don’t Trust Republicans To Defend It: “They cannot win if the fight is on hardworking taxpayers,” Luntz instructed the audience. “We can say we defend the ‘middle class’ and the public will say, I’m not sure about that. But defending ‘hardworking taxpayers’ and Republicans have the advantage.”

– Don’t Talk About Taxing The Rich: Luntz reminded Republicans that Americans actually do want to tax the rich, so he recommended they instead say that the government “takes from the rich.”

Also see my post: Republicans Use Psychology to Promote Fear

Another Way the Rich Dodge Taxes From TooMuch: The rich can use complex transactions not available to most Americans to get cash from their appreciated stock without paying any taxes at all. Today's super rich can't turn tin into gold, but they can get Uncle Sam to loan them free money. At the expense, of course, of the bottom 99% How much money is pouring into the pockets of America's richest 1 percent? How much of this income are America's richest paying in taxes? Major media outlets have been asking questions like these ever since the Occupy Wall Street movement first started gaining traction earlier this fall. But the numbers in their answers, suggests a groundbreaking new analysis from Bloomberg reporter Jesse Drucker, aren't telling the full story. America’s mega rich are actually taking in much more in income, Drucker shows, than their tax returns indicate. Hundreds of millions more. And this hidden income has reduced their effective tax rate — a figure already lower than the rate average Americans pay (15% for capital gains) — even lower. We’re not talking patently illegal tax evasion here. We’re talking complex financial transactions that would do medieval alchemists proud. Those alchemists long ago struggled mightily to turn common metals into gold. Lawyers and money managers for today’s mega rich can routinely pull off a trick almost as lucrative: They can make money off of unrealized capital gains. This trick carries various arcane labels like “variable prepaid forward contracts.” But the goal always remains simple and straightforward: to grab as much tax-free cash as possible out of assets that have increased in value. How does the trick work? Imagine yourself a major corporate CEO. You hold a huge stash of stock in your company. That stock has appreciated. If you sold your shares, you could clear a quarter billion dollars in personal profit. But you would also immediately face a capital gains tax on that quarter billion. Now that prospect shouldn’t leave you particularly upset. The capital gains tax you face, after all, only runs 15 percent. That’s less than half the 35 percent you would be paying if capital gains were taxed at the same rate as ordinary income. Some super rich in this situation do indeed just take their capital gain, pay Uncle Sam his 15 percent, and buy a bigger yacht. Others get creative. They don’t pay Uncle Sam. They get Uncle Sam to pay them. These super rich go ahead and sell their shares — for colossal sums — but don’t deliver them to the buyer until a few years after they cut the deal. At delivery time, these mega rich do report the income from the sale on their tax returns and pay the capital gains tax upon it. But in the meantime they’ve enjoyed what amounts to an interest-free loan from Uncle Sam. Setting these deals up can cost the super rich millions in dollars in fees. But the returns make that outlay to accountants and tax lawyers well worth the expense. The rich, observes former New York State Bar Association tax section chair David Miller, “can use complex transactions not available to most Americans to get cash from their appreciated stock without paying any taxes at all.” Dole Food chairman David Murdock, notes Bloomberg’s Jesse Drucker, played this game in 2009 when he pocketed $228.6 million for his Dole shares. He won’t “deliver” them until next November. Hank Greenberg, the former CEO at insurance giant AIG, parlayed a “prepaid forward agreement” into $278.2 million. Clear Channel Communications founder Red McCombs grabbed $259 million. “Prepaid forward” deals first became all the rage for the wealthy about a decade ago, the New York Times reports. The IRS is still playing catch-up. An IRS crackdown of sorts did start in 2008. But the super rich haven't flinched much. One reason: The odds of getting audited remain low. Another: Even if wealthy taxpayers do get challenged on prepaid forwards, notes New York tax analyst Robert Willens, they can count on a tax court settlement that lets them keep a hefty chunk of whatever the prepaid forward helped them make. “Who wouldn’t want that?” asks Willens. Maybe the 99 percent. And what could protect the 99 percent from the continuing super-rich drive to exploit appreciated assets? David Miller, the New York State Bar Association tax expert, wants the super rich to have to pay a tax on the annual increase in the value of their immense stock holdings. Such a tax, even if only levied on America’s richest 0.1 percent, could raise as much as three-quarters of a trillion dollars over a decade’s time. At that prospect, even the super rich might have to flinch.

My Related Posts:

• Subsidies for the Rich and Famous
• Historical Tax Rates on the Rich (1862 to 2011)
• The Second Gilded Age: History Repeats Itself
• Mellon: The Banker Who Rigged the U.S. Tax Code
• The GOP Tax Plan - Ignorance, Insanity, or Greed?
• We have a Revenue Problem, Not A Spending Problem
• 280 Corporations are "Too Big to Tax"
• Trickle-Down Economics: The Cruel 30-Year Hoax
• You Pay Hidden Entitlements for the Rich
• Record Profits + Record Bonuses = Zero Jobs
• Low Wages Kills Jobs, Not High Taxes

Other Related Articles

• "The richest 1 percent have more financial wealth than the bottom 95 percent combined."
• The total net worth on the Forbes 400 List marks $1.5 Trillion in 2011
• The Global Super-Rich Stash: Now $25 Trillion
• Historical Tax Rates and Time-line
• Capital gains from Citizens for Tax Justice
• 1977 - 2007 tax rates from U.S. Treasury
• Economic Policy Institute on capital gains taxes
• Capital gains explained from U.S. Internal Revenue Service
• The great corporate tax scam

Defense Industry Launches Propaganda Campaign

Read: After the Deficit Committee, A New Propaganda Push from the War Profiteers

Now that the deficit committee failed, war profiteer CEOs are launching an all-out propaganda campaign to protect their profit margins. They and their allies in Washington are working to protect the massive, corruption-filled war budget by slashing social safety nets that help create jobs. This would be a disaster for our economy.

With the failure of the deficit committee, Congress must act to cut the bloated, corruption-filled war budget. War Costs' latest video shows that military spending actually costs jobs compared to other ways of spending the same money. Yet, incredibly, many elected officials are publicly contemplating shielding the military from cuts while slashing other programs far better at job creation. This is absolutely unacceptable.

Now is the time to make budget changes to put the most people back to work. The cuts to the military budget have to be your top priority. Use our tool to send Congress War Costs' latest video to make sure they understand the consequences of failing to make real cuts to the military budget: Send our petition to Congress: http://warcosts.com 

One Nation, Under Arms - by Todd S. Purdum

The private papers of the late George F. Kennan: Military spending had become a national addiction. “We could not now break ourselves of this habit,” Kennan wrote, “without the most serious of withdrawal symptoms. Millions of people, in addition to those other millions that are in uniform, have become accustomed to deriving their livelihood from the military-industrial complex. Thousands of firms have become dependent on it, not to mention labor unions and communities.”

American military spending accounts for 43 percent of all defense spending worldwide, 6 times the share of China, 12 times that of Russia. The U.S. Navy is larger than the next 13 navies combined. Overall, defense spending increased about 70 percent under George W. Bush.

That does not include what is spent by related agencies, such as the Department of Homeland Security, or by the myriad intelligence services. Despite the winding down of the wars in Iraq and Afghanistan, and recent talk in Washington about reining in military spending, the trend shows every evidence of continuing. Last spring, the Pentagon identified some $178 billion in potential savings and efficiencies through fiscal year 2016, but then proposed to keep $100 billion of it and redirect it to other programs.

The amorphous bogeyman of global terrorism has made the notion of significant adjustments in defense spending off limits. Officials who should know better—including Defense Secretary Leon Panetta, an old deficit hawk in his days as a congressman from California—warn of the dire consequences of potential cuts.

FULL ARTICLE:
http://www.vanityfair.com/politics/2012/01/Todd-Purdum-on-National-Security

Read my post: Defense Spending, Bogus Parts, Transnational Mergers

The 99% "Mic Checks" Eric Cantor (the 1%)

By Carl Gibson - Reader Supported News - November 21, 2011

As the lead Republican negotiator during the manufactured debt crisis, Eric Cantor had the podium all summer long. He walked out of the early debt talks, insisting on a cuts-only solution. The House Majority Leader readily dismissed sensible proposals like ending billions in wasteful tax giveaways for corporations and the super-rich. Cantor's callousness is legendary - he even withheld FEMA assistance to his own and other hurricane-ravaged districts until disaster-relief spending was offset by cuts.

With Cantor at the helm, Republicans in the House refused to end $20 billion in wasteful subsidies to tax-dodging oil companies, stalled on closing corporate tax loopholes that bleed out $100 billion annually, and even refused to close a tax loophole for corporate jet owners. Republicans got everything they wanted thanks to Cantor - cuts to public services, no new revenues and a "super-committee" tasked with making even more harmful cuts.

So on November 10 in Houston, a handful of brave Rice University grad students interrupted the House majority leader with a "mic check" protest live on C-SPAN, despite an overwhelming security presence (and my own arrest).

All Cantor could do was smile sheepishly and be quiet while law-abiding, taxpaying Americans directly confronted him and spoke loudly, in unison, against his cruel policies. With Occupations in hundreds of cities across all 50 states, and past mic checks of the likes of Wisconsin Gov. Scott Walker, Michele Bachmann, Karl Rove and Wells Fargo CEO John Stumpf, the goons of the corporatocracy will now always have to be wary of a mic check wherever they go.

The mic check can disrupt the most powerful people in the world and demand the attention of every person and every camera. It evades all metal detectors, x-rays and pat-downs. All it requires is a handful of people with loud voices and determination. The mic check has recently become the Occupy movement's preferred method of speaking directly to the corporate executives and government officials who actively work against the interests of the 99 percent. And when it starts, those within earshot have no choice but to be quiet and listen, even over attempted shout-downs and police intervention.

Critics of mic check protests accuse Occupiers of denying these politicians and CEOs their right to free speech by interrupting their speeches. This is equivalent to telling a kid he was wrong for shouting a pithy insult at the bully who just bloodied his nose and stole his bike. Of course, such accusations are nonsense - these are powerful people who own cable-news networks, newspaper conglomerates, radio airwaves and gerrymandered Congressional districts. They can call press conferences and have swarms of reporters record every word at a moment's notice. And for all the ceaseless attacks on public-sector jobs, Medicare/Medicaid, food stamp assistance, and pensions by Cantor, Walker and their ilk, they rightly deserve some verbal pushback from their victims. Just like with the Tea Party's 2009 town hall shout-downs over universal healthcare, free speech is still free speech, even when it disrupts the 1 percent.

As the super-committee nears its deadline of proposing massive cuts to the services the 99 percent pay for and depend upon, Washington should take note of the Occupiers at McPherson Square and Freedom Plaza. They should be ready for a surge of Occupiers in the coming weeks as Occupy Wall Street activists march toward Capitol Hill on foot. And Congress should be prepared for thousands more to bring the fight right to their doorstep next month in defiance of unforgiving December weather.

If they can't hear our voices in our own cities, we'll raise them loudly right under their noses. The mic check might even find its way inside the House and Senate galleries.

Carl Gibson, 24, of Lexington, Kentucky, is a spokesman and organizer for US Uncut, a nonviolent, creative direct-action movement to stop budget cuts by getting corporations to pay their fair share of taxes. He graduated from Morehead State University in 2009 with a B.A. in Journalism before starting the first US Uncut group in Jackson, Mississippi, in February of 2011. Since then, over 20,000 US Uncut activists have carried out more than 300 actions in over 100 cities nationwide. You may contact Carl at carlATrsnorgDOTorg

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