I often listen to conservative talk radio in my car for a couple of reasons. First, I like to keep informed of all sides of political arguments and even though most of conservative talk radio is more akin to propaganda than information one can still get an idea of the right wing viewpoint by listening to Rush Limbaugh or Sean Hannity. The good news is that you don’t have to listen for very long in that they endlessly repeat the same talking points ad nauseum (see the definition of propaganda). Second, since I live in an area that is heavily right wing in its general political leanings there is virtually no left wing or progressive radio available without having satellite radio which I don’t happen to have in my car.
I don’t normally have much of a reaction to what I hear on these shows beyond the amusement that comes from realizing how childishly simple and devoid of actual study most of these points are in reality. It is interesting to follow the careful application of facts and editing that Limbaugh employs in trying to make his points. He really is quite masterful at avoiding telling the whole story about anything while at the same time emphasizing and carefully stacking the half truths of his narrative to build his positions. On average I would say that he rarely goes over a sentence or two without badly distorting the truth or taking a half truth and expounding it as irrefutable fact. There is an old maxim that says “a little knowledge is a dangerous thing”; in Limbaugh’s case I would expand this to “a little knowledge combined with a lot of half truths endlessly represented as the whole truth is a dangerous thing” (again, see the definition of propaganda).
As I was listening today I heard Limbaugh launch into his normal ridicule of Democratic positions by one of his favorite tactics of sarcasm combined with satire. The specific issue he was talking around today was the upcoming budget battles and the attempt by Republican’s to cut further into discretionary spending and Medicare programs. What is interesting is that both parties agree that rising health care concerns are an issue that is to a large extent driving much of our national debt problems. Unfortunately, this is about the only thing that both parties agree upon when it comes to health care. Typical of Limbaugh and his tactics he was not discussing the issue today or offering solutions to the problem but rather ridiculing the idea that Obama put forward in his speech yesterday that he was not willing to stand by and let the Republican party do away with Medicare programs that are the only means many Americans have of receiving the health care they need to survive. Limbaugh launched into an insulted tirade describing how Democrats are trying to paint the Republican party as the party that would have these people put out in the street without healthcare.
This is typical of the way Limbaugh operates, avoiding the substance of the issue by concentrating on the satirical implication that Democrats are only interested in demonizing Republicans. He went on to describe how offensive and silly it is to suggest that Republicans don’t care about people, that they are somehow immune to feeling of empathy for the needy. I doubt there are very many people who believe that Republicans want people to suffer or that they desire to somehow punish the poor and needy by denying them health care. The point that Limbaugh purposefully avoids and goes to great lengths to disguise is that this WILL be the result of doing away with Medicare programs and privatizing them with a public voucher system that everyone recognizes will lock people into set benefits at a time when actual health care costs are skyrocketing. Intentions count less than results when it comes to basic necessities of life. The fact that no one intends for people to suffer does not change that fact that people do in fact suffer and die when they can’t get the basic health care they need to survive. While it might be worthwhile in Limbaugh’s opinion to point out this was not the intention of such measures this is actually of no consolation to the people who will be suffering and dying as an inevitable result of the measures themselves. It is neither wrong nor imprudent to point out inevitable results of cutting such programs; it is in fact criminally irresponsible to avoid doing so.
There are two possible ways to interpret this behavior. The first and most obvious possibility is that Limbaugh simply doesn’t know what he is talking about. While it is easy to dismiss this out of hand there is perhaps a grain of truth to it. I would submit that it is hard to understand the concerns of those of us whose families are often at the mercy of such systems when you are as far removed from the cold hard realities of having to make hard choices as Limbaugh currently happens to be. Limbaugh makes some 28 million dollars a year in direct income without including endorsement contracts. This amounts to some 116 thousand dollars a day which probably does make it hard for him to have any understanding of the world that most of listeners deal with every day. It stretches the imagination to believe that someone who makes that much money could have any understanding of what it is like to do without basic needs. I would suggest that it has probably been quite some time since Limbaugh was even directly personally exposed to anyone who is struggling in today’s economy. While this also explains his undying and ridiculously nonsensical ideas about taxation and Reaganomics which preaches that lowering taxes is the best way to stimulate the economy, it doesn’t say much for his ability to be objective when he twists fact and figures so relentlessly to prove such a theory makes any sense economically while pocketing the results of the tax cuts so directly.
The second possibility is that Limbaugh actually is what he appears to be, a willing shill for corporate America who has as little use for truth and factual information as his hero Ronald Reagan. Reagan, who made a living many years being a direct employee of corporate interests as a spokesman in their campaigns to increase profit margins at any cost later graduated to a position in government where he could be even more effective in this pursuit; the President of the United States. It is impossible to know which possibility is correct or even if it is the combination of the two is what drives Limbaugh in his daily rants but it is easy to know the practical results of his choices; a show unmatched in its propaganda value if you are a wealthy American or a large corporation in its ability to influence voter opinions of the very people that such interests routinely abuse to build their wealth and power.
It is hard to imagine a better methodology for enriching the wealthiest amongst us than the talking heads of conservative radio. If I were to suggest a scenario that involved the wealthiest Americans gaining control of the levers of power with the full aid and support at the ballot box of the working class they are pilfering their profits from you would suggest that such a scenario is at best unlikely. However, both Limbaugh and Hannity, who manage to portray themselves as protectors of the common man while collecting millions of dollars each year from the wealthiest corporate interests in this country, are in fact two of the most effective agents for making sure this is exactly what happens. Hannity makes some 22 million dollars a year in salary before endorsements in case you are wondering. Not surprisingly, he is just as adamant that any increase in taxes on the wealthiest Americans would be a disaster of the first order. One basic mantra that all conservative commentators constantly repeat is the idea that tax cuts lead to net increases in revenue.
Budgets as large as our national budget can be extraordinarily complicated instruments but the basic laws of addition and subtraction are not magically suspended when it comes to evaluating them. National budgets, just like personal budgets, are a balance between money coming in (revenue) and money going out (expenditure). While it is possible to increase relative revenue if you cut expenditures enough the net gain is simply a one to one ratio, every dollar saved equals a dollar available to pay against the debt. Common sense tells us that to decrease the deficit we must have a combination of reduced expenditure and increased revenue. Not surprisingly, history does as well. Contrary to the cherished magical myth that conservatives love to repeat about cutting taxes while simultaneously increasing government revenue it simply does not occur and we have proved that on four separate occasions since 1980. Reagan’s first tax cuts drastically reduced government revenue to the point that three later tax increases were necessary to keep us from breaking the government then. The difference is that the later tax cuts worked to shift the largest proportion of the burden from the rich to the middle class. Even with the later tax increases, the deficit doubled during Reagan’s tenure.
When Bush senior came into office with his “read my lips, no new taxes” pledge he soon found that it was necessary to renege on this promise because we were still sliding into a deeper deficit and the only way to begin to pull us out of it was to increase revenue by raising taxes. While this may or may not have cost him the next election, it did manage to begin to increase revenue. With Clinton, we got more of the same in the way of increased taxes along with expenditure cuts that were well on the way to balancing the budget. With Bush junior we got another round of tax cuts that led directly to higher deficits. It is hard to stress this fact enough; tax cuts do not increase revenue. It really is voodoo economics to suggest that it does and recent history has pointed this out repeatedly no matter what conservative commentators say to the contrary. As anyone who has passed third grade math knows you cannot get larger numbers by subtracting no matter how many times you do it.
Beyond the simple mathematics of why this doesn’t work there is also the basics of how capitalism works to explain this more clearly. Capitalism is largely based upon the idea that accumulations of wealth can be used for investment which will spur more economic growth. It is a repeating cycle of continuous growth based upon the idea that one must first have accumulations of capital before there can be investment. If our country was in a situation where there was not enough capital to spur growth temporary tax cuts as a stimulus might be a viable option but we would still have to realize that any tax cut must be offset by expenditure cuts to keep from bloating the deficit. However, everyone agrees that there is a huge surplus of capital in this country right now; although much of it has been hoarded into offshore tax havens so that its owners can avoid paying taxes on it. In other words, cutting taxes on the wealthiest is not only unnecessary , it is actually counterproductive to inducing investment because it has been proven to further reduce the likelihood of investment for the simple reason that there is no inducement to reinvest this capital. This is largely the reason why there was such huge investment in the unregulated financial markets that crashed the economy in the first place. Every time there is a tax cut on the wealthiest Americans along with deregulation of the financial industry there is a corresponding increase in unfeasible financial markets that inevitably crash. Radical tax cuts to the top level of income earners in the twenties (70%-24%) immediately preceeded the rampant speculation that fostered the Great Depression. After the initial Reagan tax cuts we had the Savings and Loan crash. After the Bush tax cuts we had the recent financial crash of the whole US banking system that we are still trying to claw our way out from under. Nothing stimulates the ingenuity of the confidence men amongst us as much as large piles of cash reserves that become available with such tax cuts. In case anyone hasn’t noticed, we as the taxpayers bailed out the wealthiest Americans in each case so we not only don’t get to participate in the party; we have to pay the bill after the party is over.
What is actually needed is not further reductions in capital gains taxes and the income taxes of the wealthiest Americans, but the increase of such taxes to induce them to reinvest the money in industries that produce jobs in this country instead of encouraging further tax havens for shifting jobs overseas. Tax incentives could easily be written to encourage investment in industries that create jobs by tying tax rates directly to the number of jobs created while increasing tax rates on financial markets that do not. In other words, we have plenty of capital for investment. Tax cuts to increase the capital available for investment aren’t what we need. Tax increases with incentives designed to induce investment from existing capital in industries that produce jobs are what we need.
Limbaugh, Hannity, and their ilk would be comical if they weren’t doing so much damage to our political structure by deliberately spreading corporate propaganda. Shills have been a component of the business world since the first halting steps of capitalism but they have rarely been as effective as this new crop of them happens to be. While Reagan himself is their patron saint, they are all cut from the same cloth. It is up to the American public to recognize they are being fleeced by the people who proclaim to protect their interests but I find it especially ludicrous that two men who make 48 million dollars a year between them are widely seen as the protectors of the working class public by a large portion of the voting populace. They remind me of the peddler of the magic beans in the fable Jack and the Beanstalk with the exception that they are peddling “magic tax cuts” instead of “magic beans”. Unfortunately, there is no such thing as “magic tax cuts” that will grow us out of the deficit situation we are in. There are only real numbers and the reality that it takes addition to make larger numbers and tax increases to create more revenue.
Friday, April 15, 2011
Tuesday, April 12, 2011
A Swing to the Right
The far right in this country has managed to shift the whole political spectrum to the right in the last thirty years. While most of the conservatives on talk radio and Fox News would have everyone believe that the exact opposite is underway, the right wing media has managed to use propaganda very effectively in this country since Reagan eliminated the Fairness Doctrine (see my posts Propaganda? and the Fairness Doctrine). Reagan himself was the first to successfully demonize the liberals in this country but he has been followed by many others with even more right wing conservative agendas; to the point that the political middle in this country today has shifted drastically to the right. To a certain extent the pendulum swing of politics is inevitable in a democratic based government, but the effective use of propaganda techniques utilized by the far right has shifted things further than any other time in recent history in this country.
I would like to point out a few examples of what I am talking about. As I have written about in a past post (The Redistribution of Wealth Parts I and II) we have seen a rather drastic upward shift in the wealth of this country since Reagan took office in 1980. This is the direct result of changes in our basic tax structure. Reagan cut income taxes for the wealthiest Americans some 40% and started a trend that has more or less continued without pause in the ensuing 30 years. What is less well understood is that cuts of an even more drastic measure were also made in other taxes designed to tax the wealthiest Americans; inheritance taxes, luxury taxes, and capital gains taxes. At the same time even though corporate taxes are posted at 35%, loopholes for the largest corporations have culminated with 8 of the top 12 corporations on the Fortune 500 list not only paying NO income tax last year; but also receiving almost 4 billion dollars in tax credits. The combination of these policies has resulted in the top 1% of wealthiest Americans now owning 45% percent of the wealth in this country instead of the 17% they owned when Reagan came into office.
If the right wing argument that cutting taxes is the best way to stimulate the economy actually held true we should be in the biggest economic boom this country has ever seen after the tax policies of the last 30 years. Instead, we find ourselves in the worst economic downturn since the Great Depression brought about by the unimaginable greed of the wealthiest Americans. Where is the great investment in jobs and infrastructure that Reagan and his supporters predicted? It is in the internationally collapsed financial markets that the average American financed with huge losses to his 401K and hard earned retirement plan. Almost all of corporate America is healthy and showing near record profits but we don’t see job creation or infrastructure investment in this country. Instead, we see continuing shifts of jobs overseas and more investment in the same financial markets that collapsed the last time and had to be bailed out by the US government. Leaving aside the fact that it is reprehensible that the wealthiest amongst us just received government bailouts of their business interests it is plain that the jobs creation that tax cuts were supposed to produce are actually jobs overseas. Financial derivatives markets that are more profitable than production are the favored investment for this money and will continue to be as long as the tax structure remains tilted in favor of this type of market. Anyone who takes a look at the new Republican budget plan fostered by Paul Ryan will quickly see that one of the tenets of this plan is the further reduction and elimination of capital gains taxes. What we should actually be doing to stimulate the creation of jobs is raising capital gains taxes on these unregulated markets. This would induce investors to invest in industries that actually create jobs instead of putting all of their money in financial markets and overseas manufacturing owned by US companies that are specifically designed and structured to avoid paying US taxes. Investors seek profit so as long as there is greater profit margin in financial markets as opposed to manufacturing or production we will not see jobs created in these markets.
One form of conventional wisdom that the right wing loves to express concerning tax systems is that cutting taxes stimulates the economy. As I have noted in several other posts, a fair taxation system is one that taxes according to the benefit one receives from the government. The US government has explicitly been corporate business oriented since WWII in this country, especially since the Reagan years. The massive buildup of defense spending which Reagan used to boost the economy by doubling the money spent on defense spending in the first five years of his administration was a stimulus program aligned directly towards lining the pockets of the biggest American corporations. Reagan cut taxes on the wealthiest Americans while he at the same time fed them the largest increase in government spending ever seen up until that time in the form of defense contracts. It is little wonder that the budget deficit that we are still struggling with today originated during Reagan’s term. Reagan managed to more than double the deficit in just eight years; a feat that has not been matched before or since. It is true that Reagan cut taxes, what is not usually understood is that he stimulated the economy by doubling our defense spending and that all of this extra 600 billion dollars went to large American corporations. If this isn’t bad enough, the extra spending went directly towards the deficit because we also cut government revenue in the form of taxes at the same time.
Another conventional wisdom along the same lines is that any increase in taxes on the wealthiest Americans leads directly to a decline in our economy. The basis of this particular myth is an attempt to directly correlate profit margins with taxes. The gist of the myth is as follows; since the wealthiest Americans are the ones who have money to invest and create jobs, raising their taxes leads directly to them cutting their investment and raising prices. In the first place, if American investors are so averse to paying taxes that they want to invest overseas to avoid it I suggest that they do so. What they will find is that without the force of the US government backing their investments with foreign policies explicitly designed to further their profits they will find the sledding a little tougher. Again, it goes back to the fact that they are the beneficiaries of a government system friendly to their interests and should be willing to repay the subsidies and support they get by paying their fair share of the taxes needed to support the government. Second, it is both disingenuous and ridiculous to suggest that higher taxes lead directly to higher prices. Oddly enough, such muddled logic is espoused by the same people who purport to be the biggest supporters of free markets and the capitalist system. Even a casual acquaintance with capitalist theory leads to the understanding that profits are based upon supply and demand; not some arbitrary decision by the owner of the manufacturing interest as to what his profit margin should be. I would suggest that if owners could set profit margins based strictly upon what they want to make, no one could afford to buy any of their products. In other words, profit maximization is one of the basic tenets of capitalism. Owners of manufacturing interests maximize profits as a matter of course based upon pricing that is the maximum that the market will bear; not upon what profit margin they would like to realize. To suggest that raising taxes on these owners will lead directly to them passing this cost directly along to the consumer is to suggest that they can somehow suspend the free market system in favor of some imaginary notion of desirable profit margins.
Another conventional wisdom that the conservatives love to use as camouflage is the idea that small business owners who create most of the jobs in this country are being stifled by high tax rates. As in most common sense ideas there is a grain of truth to this notion. Small businesses without the means to hire large teams of tax attorneys do wind up paying the high tax rates and this is without a doubt a drain on their ability to create jobs. However, what most conservatives don’t like to admit is that the statistics they like to throw around about “small business” include some of the largest corporations in this country. The classification itself is so skewed as to be meaningless under current government regulations. What we really need to do is separate small business owners from the large corporate interests they are grouped with in our efforts to stimulate small business. I am all for giving tax breaks to companies under 100 employees or some like category. However, the current definition of the term “small business” allows some of the largest companies in this country to fall under this heading. It is this heading that conservatives from both parties use to disguise the fact that there is a difference between what most Americans consider a small business and what the US government specifies as a small business. This gives them the ammunition they need to loudly proclaim the sad stories about actual small businesses suffocating under high taxes and continue to attempt to cut taxes for all business interests, including those that are not paying taxes now because they can afford to hire teams of attorneys to find loopholes in the system.
This same tactic is used in the income tax tables for individuals. Currently in this country those that make from 53 to 174 thousand dollars in this country pay 28% of their income in federal income tax. The highest rate is 35% for those reporting above 379 thousand dollars in income. It is indeed debatable where the dividing line should be for paying higher rates of tax but I don’t think anyone in this country could reasonably argue that someone who makes 53 thousand dollars gets the same benefit to his business interests that someone who makes 379 thousand dollars from living in this country. Let’s take this analogy a little further and compare someone who makes 53 thousand dollars and someone who makes 2 million dollars a year. Can anyone seriously suggest that both receive the same benefit to their interests from the US Government? In previous years, when the US deficits were small and manageable, we had a progressive tax rate that topped out from 70-90% for the highest wage earners. However, these tax brackets were also progressive for much higher incomes. In other words, the tax tables topped out from 1 to 5 million dollars and were graduated accordingly. Who benefits the most by grouping themselves with those who earn less in deciding what their tax rate will be? It is not accidental that the top brackets were lowered when Reagan came along as it makes it possible for the very wealthiest to group themselves with those who make much less income. In reality the business interests most favored by living under the US government are the very wealthiest Americans and a tax table that accurately reflects this would in fairness progress at a much steeper rate for those Americans who make the highest incomes.
Much has been made recently about excessive executive compensation, especially amongst those large companies that the US taxpayer recently bailed out. The rate of pay for top US executives is literally hundreds of times higher than they are in the rest of the world. They are also on average some 700 times higher than they were just thirty years ago in this country. What is not well understood is that the elimination of the higher tax brackets that Reagan brought about during his administration was the catalyst for this change. There is a direct correlation between the Reagan tax cuts and the beginnings of the runaway executive pay system. I would also point out that there is a direct correlation between these astronomical rises in compensation for top executives based upon profit margins for the corporations they manage and the rise of corporate fraud and illegal bookkeeping practices that have crashed numerous large corporate entities in this country in the last 30 years. It is simply too tempting for many of these executives to obtain almost limitless wealth by cooking the books and often destroying their own companies in the process. This factor should not be underestimated in many of the recent large financial disasters that recently crashed the world economy. By replacing the top 35% brackets with 90% brackets we could remove much of the temptation for such avarice while at the same time adding immensely to government revenue at a time when we are suffering from record deficits.
If anyone is unconvinced that we have swung to the far right of the political spectrum in this country, try to remember the last time you heard any such discussion on the US tax structure on a news network. In actuality, what we hear is not discussion at all but carefully choreographed commercials aimed at convincing us that anyone who dares suggest higher taxes is either a socialist or simply unable to understand basic economic theory. Meanwhile, the rich get richer and the working middle class is disappearing under a mountain of seemingly insurmountable public and private debt.
I would like to point out a few examples of what I am talking about. As I have written about in a past post (The Redistribution of Wealth Parts I and II) we have seen a rather drastic upward shift in the wealth of this country since Reagan took office in 1980. This is the direct result of changes in our basic tax structure. Reagan cut income taxes for the wealthiest Americans some 40% and started a trend that has more or less continued without pause in the ensuing 30 years. What is less well understood is that cuts of an even more drastic measure were also made in other taxes designed to tax the wealthiest Americans; inheritance taxes, luxury taxes, and capital gains taxes. At the same time even though corporate taxes are posted at 35%, loopholes for the largest corporations have culminated with 8 of the top 12 corporations on the Fortune 500 list not only paying NO income tax last year; but also receiving almost 4 billion dollars in tax credits. The combination of these policies has resulted in the top 1% of wealthiest Americans now owning 45% percent of the wealth in this country instead of the 17% they owned when Reagan came into office.
If the right wing argument that cutting taxes is the best way to stimulate the economy actually held true we should be in the biggest economic boom this country has ever seen after the tax policies of the last 30 years. Instead, we find ourselves in the worst economic downturn since the Great Depression brought about by the unimaginable greed of the wealthiest Americans. Where is the great investment in jobs and infrastructure that Reagan and his supporters predicted? It is in the internationally collapsed financial markets that the average American financed with huge losses to his 401K and hard earned retirement plan. Almost all of corporate America is healthy and showing near record profits but we don’t see job creation or infrastructure investment in this country. Instead, we see continuing shifts of jobs overseas and more investment in the same financial markets that collapsed the last time and had to be bailed out by the US government. Leaving aside the fact that it is reprehensible that the wealthiest amongst us just received government bailouts of their business interests it is plain that the jobs creation that tax cuts were supposed to produce are actually jobs overseas. Financial derivatives markets that are more profitable than production are the favored investment for this money and will continue to be as long as the tax structure remains tilted in favor of this type of market. Anyone who takes a look at the new Republican budget plan fostered by Paul Ryan will quickly see that one of the tenets of this plan is the further reduction and elimination of capital gains taxes. What we should actually be doing to stimulate the creation of jobs is raising capital gains taxes on these unregulated markets. This would induce investors to invest in industries that actually create jobs instead of putting all of their money in financial markets and overseas manufacturing owned by US companies that are specifically designed and structured to avoid paying US taxes. Investors seek profit so as long as there is greater profit margin in financial markets as opposed to manufacturing or production we will not see jobs created in these markets.
One form of conventional wisdom that the right wing loves to express concerning tax systems is that cutting taxes stimulates the economy. As I have noted in several other posts, a fair taxation system is one that taxes according to the benefit one receives from the government. The US government has explicitly been corporate business oriented since WWII in this country, especially since the Reagan years. The massive buildup of defense spending which Reagan used to boost the economy by doubling the money spent on defense spending in the first five years of his administration was a stimulus program aligned directly towards lining the pockets of the biggest American corporations. Reagan cut taxes on the wealthiest Americans while he at the same time fed them the largest increase in government spending ever seen up until that time in the form of defense contracts. It is little wonder that the budget deficit that we are still struggling with today originated during Reagan’s term. Reagan managed to more than double the deficit in just eight years; a feat that has not been matched before or since. It is true that Reagan cut taxes, what is not usually understood is that he stimulated the economy by doubling our defense spending and that all of this extra 600 billion dollars went to large American corporations. If this isn’t bad enough, the extra spending went directly towards the deficit because we also cut government revenue in the form of taxes at the same time.
Another conventional wisdom along the same lines is that any increase in taxes on the wealthiest Americans leads directly to a decline in our economy. The basis of this particular myth is an attempt to directly correlate profit margins with taxes. The gist of the myth is as follows; since the wealthiest Americans are the ones who have money to invest and create jobs, raising their taxes leads directly to them cutting their investment and raising prices. In the first place, if American investors are so averse to paying taxes that they want to invest overseas to avoid it I suggest that they do so. What they will find is that without the force of the US government backing their investments with foreign policies explicitly designed to further their profits they will find the sledding a little tougher. Again, it goes back to the fact that they are the beneficiaries of a government system friendly to their interests and should be willing to repay the subsidies and support they get by paying their fair share of the taxes needed to support the government. Second, it is both disingenuous and ridiculous to suggest that higher taxes lead directly to higher prices. Oddly enough, such muddled logic is espoused by the same people who purport to be the biggest supporters of free markets and the capitalist system. Even a casual acquaintance with capitalist theory leads to the understanding that profits are based upon supply and demand; not some arbitrary decision by the owner of the manufacturing interest as to what his profit margin should be. I would suggest that if owners could set profit margins based strictly upon what they want to make, no one could afford to buy any of their products. In other words, profit maximization is one of the basic tenets of capitalism. Owners of manufacturing interests maximize profits as a matter of course based upon pricing that is the maximum that the market will bear; not upon what profit margin they would like to realize. To suggest that raising taxes on these owners will lead directly to them passing this cost directly along to the consumer is to suggest that they can somehow suspend the free market system in favor of some imaginary notion of desirable profit margins.
Another conventional wisdom that the conservatives love to use as camouflage is the idea that small business owners who create most of the jobs in this country are being stifled by high tax rates. As in most common sense ideas there is a grain of truth to this notion. Small businesses without the means to hire large teams of tax attorneys do wind up paying the high tax rates and this is without a doubt a drain on their ability to create jobs. However, what most conservatives don’t like to admit is that the statistics they like to throw around about “small business” include some of the largest corporations in this country. The classification itself is so skewed as to be meaningless under current government regulations. What we really need to do is separate small business owners from the large corporate interests they are grouped with in our efforts to stimulate small business. I am all for giving tax breaks to companies under 100 employees or some like category. However, the current definition of the term “small business” allows some of the largest companies in this country to fall under this heading. It is this heading that conservatives from both parties use to disguise the fact that there is a difference between what most Americans consider a small business and what the US government specifies as a small business. This gives them the ammunition they need to loudly proclaim the sad stories about actual small businesses suffocating under high taxes and continue to attempt to cut taxes for all business interests, including those that are not paying taxes now because they can afford to hire teams of attorneys to find loopholes in the system.
This same tactic is used in the income tax tables for individuals. Currently in this country those that make from 53 to 174 thousand dollars in this country pay 28% of their income in federal income tax. The highest rate is 35% for those reporting above 379 thousand dollars in income. It is indeed debatable where the dividing line should be for paying higher rates of tax but I don’t think anyone in this country could reasonably argue that someone who makes 53 thousand dollars gets the same benefit to his business interests that someone who makes 379 thousand dollars from living in this country. Let’s take this analogy a little further and compare someone who makes 53 thousand dollars and someone who makes 2 million dollars a year. Can anyone seriously suggest that both receive the same benefit to their interests from the US Government? In previous years, when the US deficits were small and manageable, we had a progressive tax rate that topped out from 70-90% for the highest wage earners. However, these tax brackets were also progressive for much higher incomes. In other words, the tax tables topped out from 1 to 5 million dollars and were graduated accordingly. Who benefits the most by grouping themselves with those who earn less in deciding what their tax rate will be? It is not accidental that the top brackets were lowered when Reagan came along as it makes it possible for the very wealthiest to group themselves with those who make much less income. In reality the business interests most favored by living under the US government are the very wealthiest Americans and a tax table that accurately reflects this would in fairness progress at a much steeper rate for those Americans who make the highest incomes.
Much has been made recently about excessive executive compensation, especially amongst those large companies that the US taxpayer recently bailed out. The rate of pay for top US executives is literally hundreds of times higher than they are in the rest of the world. They are also on average some 700 times higher than they were just thirty years ago in this country. What is not well understood is that the elimination of the higher tax brackets that Reagan brought about during his administration was the catalyst for this change. There is a direct correlation between the Reagan tax cuts and the beginnings of the runaway executive pay system. I would also point out that there is a direct correlation between these astronomical rises in compensation for top executives based upon profit margins for the corporations they manage and the rise of corporate fraud and illegal bookkeeping practices that have crashed numerous large corporate entities in this country in the last 30 years. It is simply too tempting for many of these executives to obtain almost limitless wealth by cooking the books and often destroying their own companies in the process. This factor should not be underestimated in many of the recent large financial disasters that recently crashed the world economy. By replacing the top 35% brackets with 90% brackets we could remove much of the temptation for such avarice while at the same time adding immensely to government revenue at a time when we are suffering from record deficits.
If anyone is unconvinced that we have swung to the far right of the political spectrum in this country, try to remember the last time you heard any such discussion on the US tax structure on a news network. In actuality, what we hear is not discussion at all but carefully choreographed commercials aimed at convincing us that anyone who dares suggest higher taxes is either a socialist or simply unable to understand basic economic theory. Meanwhile, the rich get richer and the working middle class is disappearing under a mountain of seemingly insurmountable public and private debt.
Wednesday, April 6, 2011
The Fruits of Supply Side Economics
We often hear the right wing Reaganites espousing the same old supply side rhetoric that Reagan himself pushed so successfully. I suppose this is a natural response, trying to continue a lie that worked once until it is finally disproved to the point that you can no longer use it effectively is a basic strategy. While most of those using the arguments today have fallen away from some of the terminology Reagan used because it has been proven to be disastrously wrong, there is still strong sentiment for the basic idea of smaller government and more free market enterprise. Without bothering to repeat that this didn’t work in Reagan’s time and has had disastrous results ever since, I want to go a little deeper into how big business in this country really works and explode the myth that the free market has anything to do with corporate business in this country.
Of the top ten Fortune 500 companies in the United States in 2010 3 were oil companies who between the 3 of them generated some 34 billion dollars in after tax profits last year. Taking the time to add up all profits from these same top ten Fortune 500 companies and divide this total number into the oil company profits I realized that these 3 oil companies account for 36% of the total profits of the top ten corporations. The interesting connection that most people fail to make after this point is that the US government supports this industry in a very large way financially. While it is near impossible to pin down exact amounts in the form of government subsidies these companies receive in various forms the best estimates are somewhere between 15 and 35 billion a year industry wide. For arguments sake let us take the lowest number of the two and say that 15 billion a year is an accurate number.
Adding up the total oil production of the top 50 companies in the US and dividing this into the production of the big three oil companies we see that these three oil companies account for about 37% of the total oil production in the US. Assuming these top three companies get an equal share of government subsidies this comes up to some 5.5 billion dollars a year these companies receive in the form of subsidies or 16% of their total profits. While this is fairly typical of the large corporations and their working agreements with the US government it hardly makes for a level playing field for the rest of us. Talk to any small business owner in this country and ask them if a 16% subsidy would help them. The subsidies themselves come in many different forms; the following of which are just a partial list:
• Construction bonds at low interest rates or tax-free
• Research-and-development programs at low or no cost
• Assuming the legal risks of exploration and development in a company's stead
• Below-cost loans with lenient repayment conditions
• Income tax breaks, especially featuring obscure provisions in tax laws designed to receive little congressional oversight when they expire
• Sales tax breaks - taxes on petroleum products are lower than average sales tax rates for other goods
• Giving money to international financial institutions (the U.S. has given tens of billions of dollars to the World Bank and U.S. Export-Import Bank to encourage oil production internationally, according to Friends of the Earth)
• The U.S. Strategic Petroleum Reserve
Looking a little deeper into oil companies in the US and their deals with the government we come upon another set of circumstances that work differently in the US than any other industrialized nation in the world. Presently, most of the oil reserves in the US are under public lands or in publicly owned waters offshore. While this is not unique to the US the sweetheart royalty deals that US oil companies get with our government in the use of these lands most definitely is different. US oil companies typically pay some 40% of their profits on the oil from these publicly owned lands back to the government while the average in the rest of the world on such deals is 65%. This number is further reduced on offshore deepwater rigs to 18%, or in special cases where the extraction is prohibitive; eliminated entirely. What this amounts to is another 25-38% of profits that oil companies in the US get to keep as opposed to the way this business works in the rest of the world.
How any of this fits into the description of free market enterprise is beyond me; a more accurate description would be government subsidized enterprise and the dirty little secret that the Republican party and Conservative commentators don’t want you to know is that all large corporations in this country operate under a similar umbrella while usually at the same time complaining that they are taxed too high. If they actually paid the 35% tax rate they are supposed to according to the law they might have a point. As we shall see, this is not the case.
For example, oil field lease agreements and drilling equipment are taxed at 9% in this country while almost all similar equipment cost taxes are in the 25% range. What this amounts to is that government subsidized corporations not only get incentivized deals to support their industry but they also don’t pay their fair share of the taxes on the profits they make. In 2009 Exxon advertised that they paid some 15 billion on a 34.2 billion profit before taxes. What they failed to point out was that this 15 billion was paid out to foreign governments where they had set up offshore tax structures specifically to avoid paying US taxes. In actuality they paid absolutely zero in US income taxes that year but were able to receive tax credits for the taxes they paid overseas while simultaneously taking advantage of the subsidies that the US government affords them. During the same time period Chevron paid some 200 million in US income taxes on 10 billion dollars reported profits. In case you are wondering, this comes out to about a 2% tax rate which is a little high for a large US corporation as we will see.
Let’s look at some other of the corporations on the Forbes ten lists for a moment. GE, which is listed as number 4 on the list with some 11 billion in profits last year, paid zero in US income taxes over that same period. As a matter of fact they have some 2.4 billion in tax credits for the same year. Hold onto your hat, it gets worse. GE, as a large corporate conglomerate, managed to relieve itself of most of its tax burden by shifting jobs overseas and hiring a small army of ex IRS examiners to help it file its taxes. Let’s look at this a little closer. GE makes a substantial amount of its profit margin in government contracting so it is a direct recipient of government funds while at the same time is steadily laying people off in the US to help its tax burden. From the US government’s point of view, this is a lot like handing someone a gun and paying them an obscene amount of money to shoot you in the foot.
Bank of America is listed at number five on the list. In 2010 Bank of America showed some 6.2 billion dollars in profits on their books. Of course this was after they received almost 1 trillion in interest free bailout money from the government so it isn’t hard to see how good their business acumen is to start with. Nevertheless, they also paid zero in income taxes while at the same time receiving a 1.9 billion dollar tax refund; not a bad way to make a living if you ask me.
Conoco-Phillips is next at number six on the list. As an oil company they also receive the same subsidy treatment that Exxon listed above does. The best figures available show them receiving some 16 billion in profits in the last three years while paying 450 million in income taxes. Obviously they need to hire better accountants because they paid in to the US coffers at an astounding 2.8% while Exxon paid zilch. Of course this is probably because of their less effective use of money spent lobbying Congress. They only spent 19 million dollars in that effort in 2009.
Ford Motor Company comes in at number eight on the list. They only reported 3 billion in profits in 2010. To their credit Ford didn’t take a government bailout last year. To the discredit of their accountants they actually paid in some income tax as well, some 69 million for a whopping 2.3% tax rate. Try to keep in mind as you read this that the unfair tax rate that all conservatives regularly complain about for business interests is 35%.
Earning honorable mention is Citi Group at number 12 on the list. While they didn’t manage to crack the top ten last year in total revenue they did manage to make some 4.4 billion in profits while paying exactly zero in income taxes. I don’t suppose their board of directors is too despondent about those two slots out of the top ten because they also managed to garner 2.5 trillion in federal money in the recent bailout.
Let’s see if we can make sense of all of this. Of the 8 corporations I have listed (all within the top 12 on the Forbes 500 list) they took in some 63.9 billion in reported profits last year. From these profits they paid in a total of 283 million in income tax over that same period. Wait a minute, I almost forgot; they also received 4.3 billion in tax credits over that same period. In actuality that means on 63.9 billion dollars in profits they paid in a -4.27 billion dollars in taxes (or made an extra 4.27 billion in refunds). Yet the American public is somehow supposed to believe that we live in country that is not business friendly.
Our government in actuality has evolved into a bunch of well paid cheerleaders for large corporations and the wealthiest one percent of Americans. Not only is our foreign policy built around supporting large business interests; much of the legislation bought and paid for by lobbyist from these same interests in Washington is specifically designed to help them line their pockets with subsidies. Our tax structure is an abysmal joke and if you are by any chance wondering who is the butt of the joke look at your pay stub next week to figure out where these subsidies come from. They are listed under income tax withholding.
The beginning of the deficit issues we are currently smothering under in this country occurred when Ronald Reagan came into office and began drastically cutting the tax rates on corporations and the wealthiest Americans. The truth of the matter is that we would not be in a deficit situation if we had not been handing out free passes in the form of subsidies and tax loopholes to the wealthiest among us for the last thirty years while steadily shifting the burden for paying for everything to payroll deductions on the middle class.
Of the top ten Fortune 500 companies in the United States in 2010 3 were oil companies who between the 3 of them generated some 34 billion dollars in after tax profits last year. Taking the time to add up all profits from these same top ten Fortune 500 companies and divide this total number into the oil company profits I realized that these 3 oil companies account for 36% of the total profits of the top ten corporations. The interesting connection that most people fail to make after this point is that the US government supports this industry in a very large way financially. While it is near impossible to pin down exact amounts in the form of government subsidies these companies receive in various forms the best estimates are somewhere between 15 and 35 billion a year industry wide. For arguments sake let us take the lowest number of the two and say that 15 billion a year is an accurate number.
Adding up the total oil production of the top 50 companies in the US and dividing this into the production of the big three oil companies we see that these three oil companies account for about 37% of the total oil production in the US. Assuming these top three companies get an equal share of government subsidies this comes up to some 5.5 billion dollars a year these companies receive in the form of subsidies or 16% of their total profits. While this is fairly typical of the large corporations and their working agreements with the US government it hardly makes for a level playing field for the rest of us. Talk to any small business owner in this country and ask them if a 16% subsidy would help them. The subsidies themselves come in many different forms; the following of which are just a partial list:
• Construction bonds at low interest rates or tax-free
• Research-and-development programs at low or no cost
• Assuming the legal risks of exploration and development in a company's stead
• Below-cost loans with lenient repayment conditions
• Income tax breaks, especially featuring obscure provisions in tax laws designed to receive little congressional oversight when they expire
• Sales tax breaks - taxes on petroleum products are lower than average sales tax rates for other goods
• Giving money to international financial institutions (the U.S. has given tens of billions of dollars to the World Bank and U.S. Export-Import Bank to encourage oil production internationally, according to Friends of the Earth)
• The U.S. Strategic Petroleum Reserve
Looking a little deeper into oil companies in the US and their deals with the government we come upon another set of circumstances that work differently in the US than any other industrialized nation in the world. Presently, most of the oil reserves in the US are under public lands or in publicly owned waters offshore. While this is not unique to the US the sweetheart royalty deals that US oil companies get with our government in the use of these lands most definitely is different. US oil companies typically pay some 40% of their profits on the oil from these publicly owned lands back to the government while the average in the rest of the world on such deals is 65%. This number is further reduced on offshore deepwater rigs to 18%, or in special cases where the extraction is prohibitive; eliminated entirely. What this amounts to is another 25-38% of profits that oil companies in the US get to keep as opposed to the way this business works in the rest of the world.
How any of this fits into the description of free market enterprise is beyond me; a more accurate description would be government subsidized enterprise and the dirty little secret that the Republican party and Conservative commentators don’t want you to know is that all large corporations in this country operate under a similar umbrella while usually at the same time complaining that they are taxed too high. If they actually paid the 35% tax rate they are supposed to according to the law they might have a point. As we shall see, this is not the case.
For example, oil field lease agreements and drilling equipment are taxed at 9% in this country while almost all similar equipment cost taxes are in the 25% range. What this amounts to is that government subsidized corporations not only get incentivized deals to support their industry but they also don’t pay their fair share of the taxes on the profits they make. In 2009 Exxon advertised that they paid some 15 billion on a 34.2 billion profit before taxes. What they failed to point out was that this 15 billion was paid out to foreign governments where they had set up offshore tax structures specifically to avoid paying US taxes. In actuality they paid absolutely zero in US income taxes that year but were able to receive tax credits for the taxes they paid overseas while simultaneously taking advantage of the subsidies that the US government affords them. During the same time period Chevron paid some 200 million in US income taxes on 10 billion dollars reported profits. In case you are wondering, this comes out to about a 2% tax rate which is a little high for a large US corporation as we will see.
Let’s look at some other of the corporations on the Forbes ten lists for a moment. GE, which is listed as number 4 on the list with some 11 billion in profits last year, paid zero in US income taxes over that same period. As a matter of fact they have some 2.4 billion in tax credits for the same year. Hold onto your hat, it gets worse. GE, as a large corporate conglomerate, managed to relieve itself of most of its tax burden by shifting jobs overseas and hiring a small army of ex IRS examiners to help it file its taxes. Let’s look at this a little closer. GE makes a substantial amount of its profit margin in government contracting so it is a direct recipient of government funds while at the same time is steadily laying people off in the US to help its tax burden. From the US government’s point of view, this is a lot like handing someone a gun and paying them an obscene amount of money to shoot you in the foot.
Bank of America is listed at number five on the list. In 2010 Bank of America showed some 6.2 billion dollars in profits on their books. Of course this was after they received almost 1 trillion in interest free bailout money from the government so it isn’t hard to see how good their business acumen is to start with. Nevertheless, they also paid zero in income taxes while at the same time receiving a 1.9 billion dollar tax refund; not a bad way to make a living if you ask me.
Conoco-Phillips is next at number six on the list. As an oil company they also receive the same subsidy treatment that Exxon listed above does. The best figures available show them receiving some 16 billion in profits in the last three years while paying 450 million in income taxes. Obviously they need to hire better accountants because they paid in to the US coffers at an astounding 2.8% while Exxon paid zilch. Of course this is probably because of their less effective use of money spent lobbying Congress. They only spent 19 million dollars in that effort in 2009.
Ford Motor Company comes in at number eight on the list. They only reported 3 billion in profits in 2010. To their credit Ford didn’t take a government bailout last year. To the discredit of their accountants they actually paid in some income tax as well, some 69 million for a whopping 2.3% tax rate. Try to keep in mind as you read this that the unfair tax rate that all conservatives regularly complain about for business interests is 35%.
Earning honorable mention is Citi Group at number 12 on the list. While they didn’t manage to crack the top ten last year in total revenue they did manage to make some 4.4 billion in profits while paying exactly zero in income taxes. I don’t suppose their board of directors is too despondent about those two slots out of the top ten because they also managed to garner 2.5 trillion in federal money in the recent bailout.
Let’s see if we can make sense of all of this. Of the 8 corporations I have listed (all within the top 12 on the Forbes 500 list) they took in some 63.9 billion in reported profits last year. From these profits they paid in a total of 283 million in income tax over that same period. Wait a minute, I almost forgot; they also received 4.3 billion in tax credits over that same period. In actuality that means on 63.9 billion dollars in profits they paid in a -4.27 billion dollars in taxes (or made an extra 4.27 billion in refunds). Yet the American public is somehow supposed to believe that we live in country that is not business friendly.
Our government in actuality has evolved into a bunch of well paid cheerleaders for large corporations and the wealthiest one percent of Americans. Not only is our foreign policy built around supporting large business interests; much of the legislation bought and paid for by lobbyist from these same interests in Washington is specifically designed to help them line their pockets with subsidies. Our tax structure is an abysmal joke and if you are by any chance wondering who is the butt of the joke look at your pay stub next week to figure out where these subsidies come from. They are listed under income tax withholding.
The beginning of the deficit issues we are currently smothering under in this country occurred when Ronald Reagan came into office and began drastically cutting the tax rates on corporations and the wealthiest Americans. The truth of the matter is that we would not be in a deficit situation if we had not been handing out free passes in the form of subsidies and tax loopholes to the wealthiest among us for the last thirty years while steadily shifting the burden for paying for everything to payroll deductions on the middle class.
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