Taibbi on point again

I've written about America's corporations and their aggressive avoidance of paying U.S. taxes before, and I've certainly excerpted the work of Rolling Stone's Matt Taibbi plenty of times as well. Today, those two items came together in a beautiful way, as Taibbi tore apart a potentially overlooked consequence of the so-called "Gang of Six" debt-reduction plan that's been bandied about this week.

At issue is a proposed "corporate tax holiday", a temporary repeal of a tax on repatriated cash from multinational corporations' overseas operations. Under current rules, multinational corporations are exempt from paying U.S. tax on cash that is held by overseas subsidiaries, but they must pay that tax if they attempt to bring the cash back stateside.

Lobbying efforts, however, have insisted that the corporations' inability to bring that cash home has hampered their ability to begin hiring American workers. Similar reasoning led to Congressional passage of a "one-time" tax holiday back in 2004--reasoning that, as Taibbi points out, turned out to be utter bullshit.

For those who don’t know about it, tax repatriation is one of the all-time long cons and also one of the most supremely evil achievements of the Washington lobbying community, which has perhaps told more shameless lies about this one topic than about any other in modern history – which is saying a lot, considering the many absurd things that are said and done by lobbyists in our nation’s capital.

Here’s how it works: the tax laws say that companies can avoid paying taxes as long as they keep their profits overseas. Whenever that money comes back to the U.S., the companies have to pay taxes on it...

Only there’s a catch. In 2004, the corporate lobby got together and major employers like Cisco and Apple and GE begged congress to give them a “one-time” tax holiday, arguing that they would use the savings to create jobs. Congress, shamefully, relented, and a tax holiday was declared. Now companies paid about 5 percent in taxes, instead of 35-40 percent.

Money streamed back into America. But the companies did not use the savings to create jobs. Instead, they mostly just turned it into executive bonuses and ate the extra cash. [Note: many of them also used the cash to increase dividends, simply returning the tax-free cash to shareholders.] Some of those companies promising waves of new hires have already committed to massive layoffs.

It was bad enough when lobbyists managed to pull this trick off once, in 2004. But in one of the worst-kept secrets in Washington, companies immediately started to systematically “offshore” their profits right after the 2004 holiday with the expectation that somewhere down the road, and probably sooner rather than later, they would get another holiday...

I’m shocked there isn’t more of an uproar about this. Could you imagine what the Tea Party would be saying right now if there was a law on the books that allowed immigrants to indefinitely avoid taxes on income sent back to family members in the old country, in Mexico and Venezuela and India?...

As it is, leading members of the Senate are seriously considering giving the most profitable companies in the world a total tax holiday as a reward for their last seven years of systematic tax avoidance.  Hundreds of billions of potential tax dollars would disappear from the Treasury. And there isn’t a peep from anyone, anywhere, on this issue.

We’re seriously talking about defaulting on our debt, and cutting Medicare and Social Security, so that Google can keep paying its current 2.4 percent effective tax rate and GE, a company that received a $140 billion bailout en route to worldwide 2010 profits of $14 billion, can not only keep paying no taxes at all , but receive a $3.2 billion tax credit from the federal government. And nobody appears to give a shit. What the hell is wrong with people? Have we all lost our minds?

I don't usually excerpt at such great length, but Taibbi is almost always worth it. Indeed, he's dead right. There's any number of reasons behind our current budgetary crisis--a couple of long and expensive wars, unwarranted tax cuts to high-net-worth individuals, Medicare Plan D, demographical shifts that have left us with fewer taxpayers and more tax recipients, and the list goes on--but one of the most overlooked items is the ever-declining share of tax revenue paid by our corporations.

Along those lines, Barry Ritholtz passes along a couple of incredibly insightful charts showing the steady decline in corporate taxes paid over the last several decades:

 

The argument, of course, is that lower corporate tax rates help stimulate the overall economy, fueling job growth at home as our largest corporations open up their hiring doors. But with unemployment remaining stubbornly high and large-firm CEO pay soaring to record highs, I think it should be fairly clear where, exactly, this lost tax revenue is ultimately ending up. If you don't tax the corporations, it's just giving another tax cut to the richest Americans, plain and simple.

Trickle-down economics is a scam. Continuing to make cuts to middle-class benefits (like Social Security and Medicare) without addressing such a significant core revenue problem as this is fraudulent. If a corporate tax holiday is indeed passed this summer, shame on the "Gang of Six"--they'd be nothing more than common thieves.

[Rolling Stone]
[The Big Picture]

Message to Sen. Warner: please heed your own advice

There's some strong language being thrown around Washington these days--some of it important, much of it hot air. But for a couple of reasons, this particular statement caught my attention:

With the enactment of an $858 billion tax cut and stimulus package last week, it may seem as if those calling for deficit reduction are spitting into the wind.

But don't be surprised if the Senate takes up the issue in 2011.

A bipartisan group of 18 senators have called on the Senate to tackle debt reduction by the end of next year.

"It is time for us in the Senate -- excuse the language -- to put up or shut up," said Democrat Mark Warner of Virginia on the Senate floor last week.

Warner and Republican Saxby Chambliss of Georgia formed the group over the summer during a number of informal meetings they convened to educate themselves and colleagues about the debt.

Last week, during the debate over extending the Bush tax cuts, all 18 members gave short speeches calling for a serious debt-reduction plan and comprehensive tax reform before 2012.

I generally like Sen. Warner (I voted for him in 2008 in favor of George Allen), and I appreciate his pointed words on an important topic. But in the short-term at least, the Senator's actions are speaking louder than his words. Both he and Sen. Chambliss, while pounding the table for fiscal discipline, voted in favor of the massive tax-cut extension which will add significantly to our deficits and debt.

In fairness to Sen. Warner, I'll post an extended version of his comments here, and not just the media-friendly soundbite (it's a rough transcription, but it's the best I could find).

And while I believe as imperfect as this compromise between the president and others in terms of short-term stimulus, that we will vote on later tonight, we also have to demonstrate that this body can actually walk and chew gum. We can do short-term stimulus now but next year engage in meaningful tax reform and deficit reduction.

I don't personally buy Sen. Warner and others' distinction between "short-term" and "long-term" spending, but I'm willing to wait and see if he follows through on his rhetoric. In my mind, deficits are deficits, no matter when you spend the money--continuing to kick the can down the road will do nothing, and words cannot undo the damage of our senators' votes. Few of our senators have shown the will to do the politically unpopular--as has been done throughout Europe in the face of often violent protests--and until they do so, I remain skeptical of any tough talk.

Sen. Warner, if you really believe your words, it's time to start voting "Nay" on spending and/or tax-cut bills that come across your desk. Otherwise, the voters will simply say "Nay" to you in 2014, much as they did to many Congressmen across the country last month. It's time to put up or shut up.


[CNN Money]
[Roanoke Times]

The letter I wrote to my senators

It's been years since I wrote a letter (or even an e-mail) to one of my elected representatives. In fact, the last time I did so had very little to do with government or politics--it was a letter to Sen. Ted Kennedy telling him how disappointed I was that he had caved to political pressure and severed ties with my beloved Owl Club.

So it's no small matter that I chose to break my silence this week, writing a letter to both Virginia senators urging them to vote against legislation aimed at pressuring China to revalue its currency. With the Senate apparently "poised to act" on this bill (I had previously expected them to wait until after the election), I felt that sending both a letter and an e-mail was absolutely vital and urgent.

This bill is government at its worst. It is pure political grandstanding, and it will have incredibly dangerous consequences. My letter honestly could have stretched to 4 or 5 pages with all the complexity of our current relationship with China (and the power that they hold), but I kept it short for our apparently mentally-challenged members of the Senate.

If you've been reading my posts for a while, you already know where I stand. But I think this is one of the most dangerous pieces of legislation to move through our government in many years, and that's saying a lot.

Dear Senator (Webb/Warner),

I am writing to you today to express my strong opposition to current legislation aimed at pressuring China to revalue its currency. The legislation is drawn up on false premises, caters to the whim of the xenophobic, and threatens our nation's economy at a time when it is at its most vulnerable. This bill represents government at its very worst--scapegoating foreign governments for our own problems, to the benefit of politics alone. This political grandstanding is extraordinarily dangerous, and as a result you must vote against passage of these proposed currency sanctions against China.

First, as to the issue of "false premises" mentioned above, I direct you to economist and investment advisor Mish Shedlock, who summarizes the key issues in an admirably accessible manner. He writes, 

"What would happen if China raised prices 20% across the board via an export tax or revaluation of the Yuan, starting tomorrow?

For starters, the Chinese economy would implode overnight along with collapsing exports. U.S. importers such as Wal-Mart, Target, Best Buy, and Kohl's would seek new supply chains from Vietnam, Korea, Singapore, or India, but that would take time. In the meantime, U.S. stores would run out of some goods. U.S. consumers would go on strike until the supply chains were restored. Hundreds of small businesses would go bankrupt. Finally, businesses going bankrupt would pressure the banking system."

This is what we risk so that we can supposedly "save" manufacturing jobs. But this premise is faulty. Manufacturing jobs will return to the United States ONLY IF there is no cheaper alternative. Vietnam, India, and even Germany are currently still better options for our corporations (even despite our rapidly declining dollar), and they will turn there first for their manufacturing labor.

Even if those jobs eventually do return to the United States, it will serve only to increase those corporations' input costs, forcing them to raise consumer prices and feed the inflation that our weak dollar policy has already begun to cause (see the recent rapid increase in commodity prices, from crude oil to corn to oats to gold). For various reasons, inflation always hurts the poorest Americans most, as increases in food costs directly hit their bottom line. Unlike richer Americans, they don't have the option to trade steak for hamburger or organic milk for non-organic milk---they already have done so.

In addition, these "saved" manufacturing jobs will come only at the cost of dock workers unloading ships and truckers hauling goods from the west coast throughout the nation, not to mention the harm done to employees of Wal-Mart, our nation's largest non-government employer. Any projections of a positive jobs impact from this currency revaluation are grossly overoptimistic.

Therefore, AT BEST, the inflation caused by this legislation will perversely do the most harm to the very workers whom it is purporting to help. At worst, this turn toward protectionism will spark an international trade war reminiscent of the Smoot-Hawley Act, which sent the world spiraling deeper into the Great Depression. This is a price that should be deemed far too high to pay for the political "win" that Washington politicians may be seeking during this election season. This legislation must not pass. We must learn the lessons from past generations and refuse to repeat the sins of Smoot-Hawley.

Sincerely,

Evan J. Powers

Hopefully my words will not fall on deaf ears. But either way, I urge you to do something similar. This legislation is just that dangerous. I've also posted below all of my previous rants on the topic. This is not a good situation.

[9/17/10: The Unintended Consequences of Globalization]
[9/23/10: Globalization Issues Heat Up]
[9/30/10: Begun the Trade Wars Have]
[9/30/10: Uh oh... (more from Mish on the trade wars)]
[10/8/10: A Great Summation of the Budding Currency War]