- Bernie Sanders at The Monitor Breakfast
- Kuretskis Seek Certiorari at Supreme Court about Tax Court
- Election Puzzle
- Both the rich and ordinary Americans misunderstand their economic interests
- AICPA tax accountants have a new leader
- The result of taxpayers' financial bailout of GMAC
- Return to Blogging
- Time to end redistribution upwards: minimum wage increases would boost economy and lift all boats.
- Does Lowering Corporate Tax Rates Create Jobs? Answer is a resounding "no"
- FATCA Agreement with France
In an extraordinarily frank breakfast exchange with journalists, Bernie Sanders answered a number of questions about his views and the direction he thinks the country needs to move. As usual, the press tended to ask "horse-race" questions rather than substantive ones. But Sanders responded with substantive answers, not the "gotcha" answers (about other candidates) that journalists' questions encourage (and that many politicians seem quite satisfied to work into their press encounters). Having indicated that he thought it was time the US made some progress towards meeting the needs of ordinary working Americans, such as universal single-payer health care along the lines of our current Medicare program for seniors, and maternity/paternity and medical leaves for ordinary wage-earners, Sanders was asked if he would pay for those benefits, at least in part, with higher taxes. He answered forthrightly that taxes would need to be increased, especially for the extraordinarily wealthy and corporations. He noted the immense inequality that ordinary Americans face today, an inequality that steals away opportunities and makes daily life a hard grind for so many people. Just twelve (12) of the richest Americans saw an increase in their wealth over the last two years of a whopping $154 billion--that's more than the entire wealth of a majority of Americans. Corporations offshore their assets and avoid taxes with "rent" profits accruing to them while, again, ordinary Americans don't even get decent living wages. Hedge and equity fund managers who benefit from the "carried interest" loophole generally pay a lower rate of taxes than truck drivers. See, e.g., Sanders' website post on how the richest .0001% pay their taxes. These privileged elites need to be asked to step up to the plate and pay their fair share to support necessary programs. As to specifics of how those taxes should be increased, Sanders noted that he hoped to release a tax reform proposal soon. It would include, he said, a transaction tax on Wall Street business, an end to multinational corporations' ability to avoid taxes through moving business into tax havens, and a more progressive income tax (see, e.g., this post on his website). I will add here that these are many of the reforms that this blog has argued for over the years. Clearly, the right-dominated tax cut regimen of the Reagan years, the Gingrich Contract on America, the absurd Grover Norquist "never a tax increase" pledge, and the numerous revenue reduction acts passed in the Bush I and Bush II years--and of the Republican-dominated Congress and state houses during Obama's presidency--has been one of cutting taxes for the rich and big business and increasing them (if finally deemed necessary to increase revenues after cutting spending past the bone) on working people through regressive payroll, sales and excise taxes. It is time for us to return to a truly progressive tax system that asks as much of the rich as it does of the working poor. Watching the hour-long exchange is well worth your time. It is also surprisingly refreshing to see a politician respond carefully and thoughtfully with forthright answers that do not pander to billionaire interests or Wall Street. You can click on the video below.
Peter and Kathleen Kuretski submitted a 2007 tax return showing they owed almost $25,000 but they didn't pay a penny. In the administrative process within the IRS, they sought approval of an "offer in compromise" where they would pay $1000 of the tax liability over five years and nothing more. The IRS asked them to pay the full amount over a term of nine years, but they refused. So they got a Notice of Deficiency and intent to levy, including penalties for nonpayment and interest on late payment. At that point, they could have paid their tax liability and challenged the I tax liability through a refund action in district court (although on what basis isn't clear, since their own tax return admitted they owed it). They chose instead not to pay and to challenge the IRS in Tax Court. They lost. Kuretski v. Comm'r, T.C. Memo 2012-262. They then appealed the Tax Court decision to the D.C. Circuit Court of Appeals and raised a new argument--that their case should be reheard in Tax Court because their judge might have been biased because the legislation establishing the Tax Court as an Article I court allows the President to remove Tax Court judges for cause. They lost. You can read the DC Circuit opinion at this link: 755 F.3d 929 (June 20, 2014). In its decision, the DC Circuit Court considered tHE TAXPAYERS' CLAIM (not made in the court below) THAT THE SUPREME COURT DECISION IN _FREYTAG_, 501 U.S. 868 (1991) (summary with links to case on Justia, here) --which considered an Appointments Clause phrase referring to "Courts of Law" and "Department Heads" and concluded that the Tax Court was a "Court of Law" that exercises judicial power for Appointments Clause purposes-- REQUIRES THAT THE ARTICLE I TAX COURT MUST HAVE THE SAME INDEPENDENCE FROM THE EXECUTIVE BRANCH THAT ARTICLE III COURTS HAVE. The DC Circuit looked at a number of other Article I courts and found the Tax Court not so different from them. It pointedly distinguished Article III courts. So the Kuretski's have filed a petition for certiorari which essentially claims that the Tax Court is --in spite of its jurisdictional limitations--equivalent to an Article III court. If the Kuretski's win, the result is * the President's removal power set out in IRS section 7443(f) is unconstitutional, * the Tax Court's decision in their case (and presumably in any other Tax Court case) is improperly tainted by that never-exercised section 4773(f) removal power; and * the Kuretski's should get a re-hearing under a judge no longer 'biased' by the improper removal power. The Kuretski case has nothing to do with their expectation that they should not have to pay their tax liability--it is clear that they owe the taxes, the late payment penalty and the interest on the late payment, and they presented no statement for reasonable cause for not paying it (as required by regulations). A rehearing before a new Tax Court judge (or the same judge who no longer faces the purported intimidation of the presidential removal power) will result in the same holding in that regard that the original Tax Court came to. Thus, the rationale for these years of litigation (and expense to taxpayers) is something else. The Kuretski's will have gained some fame and at least 7 (maybe 8) years of nonpayment (a time value of money benefit). But more importantly (and perhaps more damagingly to the government's ability to collect taxes), a victory in the suit would appear to bolster use of separation-of-powers arguments to thwart efficient government procedures and eliminate existing differences between Article III courts and Article I executive branch adjudicative determinations, with potentially wide-ranging consequences for adjudication within agencies, turning the full force of zealous advocacy in adversarial proceedings on all agency hearings. The distinction between Article I and Article III courts certainly must mean something constitutionally. It appears that a significant difference lies in the fact that Article III judges are protected from executive removal by a requirement for impeachment and conviction. The Constitution does not seem to provide in its text such absolute independence to Article I courts, and Congress in legislating those courts has not opted to provide that protection to many Article I judges who exercise an executive branch version of judicial power.
The elections got me down. I must admit that I am truly puzzled by the American electorate--that is, the very small slice of American voters that actually makes it to the polls and votes. We know that many of the right-wing efforts at voter repression --claimed as necessary to deal with non-existent voter fraud-- have succeeded. By limiting days for early voting, making registration more difficult, requiring government photo IDs and similar ploys, many people (especially minorities and young people more likely to vote Democratic) simply aren't able to vote. But that doesn't account for the huge numbers of people who don't bother to vote to prevent wacky right-wingers like Iowa GOP Senator-Elect Joni Ernst (who declared to the NRA that Americans might just have to exercise those "Second Amendment remedies"--i.e., assassinate some government officials that she/they don't like????) from getting into a position of power. I think some of the result reflects lingering racism. The GOP successfully turned the midterm election into a vote on Obama, and there are an awful lot of white Americans who still resent having an African American in the White House. But that surely doesn't account for all of it. It also reflects the influence of Koch Brother money spreading falsehoods and misleading assertions about the economy, and American voters' being seduced by them. What kind of falsehoods? That the wealthy are the "job creators". That corporations shouldn't have to pay taxes at all. That the IRS is out to get Republicans and Christians. That the Affordable Care Act is a piece of socialist legislation that is harming ordinary Americans. and on and on. It also demonstrates the reality of the economic realities among American voters and our tendency to vote against whoever seems to be in control (the President's party) when our individual lives aren't faring well. Part of the problem, then, is the fact that middle and lower-class Americans are treading water while the economic recovery is mostly being enjoyed by the rich who own the stock and other financial assets that have completely recovered from the financial recession. People know they still haven't gotten fully back on their feet, and they blame the Democrats who are in the White House and hope, pollyannaish, that the other party will be able to make things better. Not logic, just unhappiness. But there's a broader problem of economic ignorance that characterizes many American voters. We see groups of seniors spewing anti-government venom and yelling "keep the government's hands off my Medicare", seemingly unaware that it is in fact the government that makes Medicare possible. We see claims that the health reform act is costing ordinary Americans, yet in fact many uninsured Americans now have insurance, and young adults are still covered on their parent's policies, and pre-existing conditions are no longer a way insurers use to keep people off their policies. It's the same problem demonstrated by those surveys where ordinary middle income Americans think they are in the upper 20% of the income distribution or that they who make less than $75,000 a year will have to be an estate tax or believe that income is in fact fairly proportionately distributed across the population, rather than being hogged by the 1% at the top of the income distribution. But ultimately, I think a big piece of the blame goes to Democratic politicians who didn't have the guts to stand up and talk frankly with the American people about both the good and the bad. Democrats ran from Obama rather than embracing the good things he has done and noting the things they disagree with. Most Democrats were afraid to be open and genuine about the things they care about. The same thing happened when the Republicans under George Bush pushed through the ridiculous tax cuts with enormous benefits for the wealthy, including significant reduction (they tried for elimination) of the estate tax to which only the affluent are subject. Democrats went along and were unwilling to help inform Americans about the problems with the capital gains preference and the reduction of the estate tax. Similarly, in this election, Democrats seemed to run away from progressive ideas and try to mimic the right-wing talking machine. That never succeeds, and you'd think they would realize that by now. The Detroit Free Press ran a letter a few days back from a Canadian who was perplexed at the ability of Americans to vote against interest. Here's the letter, which speaks for itself.
Many of us Canadians are confused by the U.S. midterm elections. Consider, right now in America, corporate profits are at record highs, the country's adding 200,000 jobs per month, unemployment is below 6%, U.S. gross national product growth is the best of the Organization for Economic Cooperation and Development (OECD) countries. The dollar is at its strongest levels in years, the stock market is near record highs, gasoline prices are falling, there's no inflation, interest rates are the lowest in 30 years, U.S. oil imports are declining, U.S. oil production is rapidly increasing, the deficit is rapidly declining, and the wealthy are still making astonishing amounts of money.America is leading the world once again and respected internationally — in sharp contrast to the Bush years. Obama brought soldiers home from Iraq and killed Osama bin Laden. So, Americans vote for the party that got you into the mess that Obama just dug you out of? This defies reason. When you are done with Obama, could you send him our way? Richard Brunt Victoria, British Columbia Detroit Free Press, Nov. 10, 2010Obama is in for a rough ride with Congress under Republican control
There is class warfare going on, right now, all across this country. It's highlighted by the election gimmicks and gambits of those on the right who claim to be supporting ordinary Americans but whose real intentions show in the results. And it is ultimately a sad statement about Americans' understanding of what is required for a sustainable economy that supports decent lifestyles for all. Let's start by looking at the maps resulting from studies of well-being that identify the states where people are not at all well-off, such as the 2013 survey done by Gallup Healthways, available here. Those poor states are the reddest of the red belt in Mississippi, Tennessee, Florida and elsewhere across the Deep South--places where I grew up in a decidedly Republican household that bought the GOP economic fallacies hook, line and sinker, and places where today's populations are worse off in terms of the various measures of economic well-being and happiness than the more progressive northeast and west. Isn't it likely that the anti-government, low-tax and pro-wealthy/pro-big business policies of the GOP politicos that have run these states for several decades have something to do with these negative results, and that the more progressive policies in the northeast and northwest are reflected in the much more positive results in those areas? Yet rural, southern populations continue to proudly proclaim their allegiance, against their own economic interest, to ill-fated Reaganomics that favors tax cuts (for the wealthy and big business) coupled with use of old-time, regressive consumption taxes (toll roads, sales taxes and property taxes), privatization of public functions (e.g., charter schools managed by for-profit, nontransparent corporations), socialization of losses, militarization, and de-regulation. The results are harmful at national and state levels, as those same right-leaning voters suffer from poor K-12 education, low-quality public services including neglected roadways, nonexistent or outdated public transportation systems, inferior safety nets, inferior health results, lower literacy rates, higher teenage birth rates, less access to universities, and, yes, fewer and lower-paying jobs. Of course, those in the top 5% like to think of themselves as suffering, and therefore see any demands for increased minimum wages (that they consider cutting into their ability to capture more and more (rentier) profits beyond their already unreasonable percentages) as "class warfare." See, for instance, this Wall Street Journal video "Do You Make $400,000 a Year But Feel Broke?" from September 5, 2014 depicting the purported hard times for a couple in Chicago making $400,000 a year, buying a $60,000 car every four years, paying a mortgage on a $1.2 million house along with $25,000 a year in maintenance and , entertainment ($10,000 a year) going on vacations ($25,000 a year), club dues ($12,000 a year), and paying for their children's sports ventures ($10,000 a year). These and other "necessities" and (purportedly reasonable) discretionary expenditures take all of their after-tax money. Given that perspective, no wonder those in the top have so little consideration and sympathy for ordinary Americans who have incomes in the $50,000 to $60,000 range, much less for the poor who struggle to put food on the table and heat in the furnace! They can't even imagine such limited lives. With the growing inequality in this country, the gap between the upper class and the rest of us is increasingly wider. The broad trend is clear from a diverse set of data. Median household income growth has badly lagged per capita GDP growth, corporate profits as a share of national income have risen, and stock markets have reached record highs. Outside the sphere of political debate, you also see the real world impact of inequality. Merrill Lynch recommends an investment strategy to its clients based on the growing economic clout of plutocrats, Singapore Airlines is now selling $18,400 first class cabin tickets, and observers think Apple is going to start selling a $10,000 watch. Conversely, Walmart is now primarily worried about competition from dollar stores. The executives at these companies are not hysterical liberals trying to drum up paranoia about inequality, they are trying to respond to real economic conditions — conditions that have entailed very poor wage growth paired with decent returns for those proserous enough to own lots of shares of stock. Matt Iglesias, Vox. The ability to care about those so distant from the well-heeled in-group appears to be diminishing as the gap between the well-heeled and the rest of us widens. Those super-wealthy corporate managers and CEOs and super-rich shareholders are not likely to recognize in themselves the greed and exploitation of others that their excess returns on capital represent. As Mitt Romney made so clear, rich folks (i) think of themselves as "meriting" their outsized incomes, in spite of the fact that they often start out with silver spoons and garner greater returns than ordinary folks simply because they have larger capital portfolios to start with and can't possible achieve a level of productivity of 100s times that of ordinary workers, as current CEO pay-levels claim under "free market" theory; and (ii) find it much easier to blame the misfortune of ordinary Americans on their purported laziness and "lack of personal responsibility." (See earlier Taxing Matter posts on Romney's self-justifying 47% remarks during his presidential campaign.) But that means the rich (and the GOP most closely aligned with big business and big capital) often support policies that can only lead to greater income and wealth inequality, fewer and fewer Americans able to enjoy a decent, sustainable lifestyle, and the growth of a very small oligarchic elite. Those policies include making it harder for poor people to vote (justified on the basis of non-existent voter fraud), making it harder for middle class and poor people to go to college (less state monies to universities, less grants and more (profitable-for-big-banks) loans), making it harder to support a family (less public transportation, lower wages, more jobs outsourced, refusal to fund Medicaid expansion, yammering for the repeal of the Affordable Care Act even though the US's market-based health care system is less efficient, more costly, and lower quality than single-payer systems in most other advanced countries), etc. The long-run result of these pro-elite pro-corporate policies may well be social chaos, as the rich oligarchy faces off against a suffering and shrinking middle class and a grievously disadvantaged lower class. That may not be so far away as many of us once thought, given the rapidly growing wealth inequality and the more radical right-wing policies that have moved into the GOP mainstream in the form of Rand Paul and other free-marketarian extremists who denigrate government and want to remove the social-economic safety nets put in place under the New Deal. They denigrate government, that is, except when they recognize that they need it, such as when the ebola crisis erupted. Suddenly, they want a Center for Disease Control that really functions well, even though they have pushed government spending down. And they want a TSA that can screen arriving passengers, even though they hated the TSA before. And they wanted the President to appoint an "Ebola Czar", even though they scoffed at the idea of administrative officials appointed to oversee important areas before. They want a vaccine for ebola, but they have made it much harder to accomplish because of their constant push for "reducing government" and cutting research funding (making one of their pet projects to seek out what they think are silly projects that have been funded by the federal agencies). The free market, in other words, is claimed to be the be all and end all -- until push comes to shove and it is obvious that market forces require government intervention. Consider the compaign for governor here in Michigan. In his ads, current GOP governor Rick Snyder claims to be a hands-on non-partisan fiscally responsible type who cares about everybody in Michigan. Those ads brag about how Snyder cares about senior citizens and education --using the (meager) increases in "meals on wheels" to claim that Snyder has made life better for senior citizens, and the state's increase in support for purportedly public charter schools. Behind that facade of political PR is a deeply partisan governor who has consistently supported the elite rich capitalists over the majority of Michiganders who are ordinary salary earners working hard (or working hard to find work). * Snyder signed a "FREE RIDER/RIGHT TO FREELOAD" BILL PERMITTING NON-UNION WORKERS IN A UNIONIZED ENVIRONMENT TO FREE-RIDE ON UNION CONTRACTS WITHOUT PAYING THEIR SHARE OF THE COSTS OF THE CONTRACTS THEY BENEFIT FROM AND PROHIBITING UNIONS FROM USING PAYCHECK DEDUCTIONS TO COLLECT UNION DUES. That kind of legislation, sought by the elite owners of capital who benefit from paying lower non-union wages, is (mis)labelled by the pro-wealthy right as "right to work". It is really a "right to freeload" law since THE UNION RULES IT REPLACES NEVER REQUIRED ANYONE TO JOIN A UNION AND ALWAYS ALLOWED WORKERS WHO BENEFITTED FROM A COLLECTIVE BARGAINING AGREEMENT TO PAY ONLY THE 'FAIR SHARE' PAYMENT OF THE CONSIDERABLE COSTS OF NEGOTIATING AN AGREEMENT AND SUPPORTING WORKERS IN GRIEVANCES rather than support all union activities. As a result, workers can now pay nothing yet call on the union whenever they have a grievance against their employer. The goal of such laws is to eliminate union support for workers and thereby increase the power of capital owners, so it is particularly sad to see how many workers are fooled into supporting these "right to freeload" laws. * Snyder supported Michigan legislation that GAVE BIG BUSINESSES A HUGE TAX CUT, while supporting another bill that GAVE SENIORS A HUGE TAX INCREASE BY TAXING THEIR (OFTEN MEAGER) PENSIONS. No wonder the wealthy who own most of the financial assets in the country and benefit from the decades of lobbying by right-wing propaganda tanks against buinsess and capital taxation think he's a good friend. * And of course, much of Snyder's 'support' for education has been cuts to state funding for Michigan universities (especially Wayne State, which serves the predominately Democratic southeastern region of the state) that has affected the state's economy in real ways, as students have to pay more of the cost and universities have less funding for research that directly impacts economic development. Snyder has also supported an unprecedented INCREASE IN CHARTER SCHOOLS in a system that PROVIDES NO ACCOUNTABILITY, DOESN'T PROVIDE IMPROVED EDUCATIONAL RESULTS, AND SIPHONS OFF PUBLIC DOLLARS FOR PRIVATE PROFITS, through the mechanism of private charter management corporations that run the purportedly "public" charter schools. * Snyder doesn't think we need increases in the minimum wage, and his administration has generally shown little interest in figuing out how to help minimum wage workers revive from the Great Recession. For example, his administration has done nothing to deal with the myriad fly-by-night companies that cheat workers coming and going on wages. ASIDE: Here's one real-life tale illustrating the problem. I know personally of a man in Michigan hired by a Michigan-registered cleaning corporation that had contracts with at least two major national corporations to clean stores in southeast Michigan. The cleaning company claimed that the man was "in training" and therefore not required to be compensated after two weeks of full-time working for the company, including being locked inside a cavernous store overnight to do a major cleaning job. The company refused to pay for the next two weeks, claiming that "corporate headquarters" had made an error and would straighten it out in the next paycheck a month later. The man ultimately was paid only a couple of hundred dollars for that entire month, because the company produced a purported check stub showing a paycheck even when the man representing the company acknowledge that paycheck had never been issued to the man. The company paid the man on a "piecework" basis for cleaning stores, claiming that a 30,000 square foot store with public restrooms could and should be cleaned for $25(that's mopping, vacuuming, and cleaning toilets) and that the work could be done in one hour! The company required the man to pick up cleaning equipment and the company van at the "corporate headquarters" (many miles from his home and many miles from each of the stores to be cleaned) but claimed that it did not have to pay the man for the 3-4 hours per day that he had to spend to drive the company van and equipment to and from various worksites. The man quit, but has never gotten the company to issue the paycheck that he never received and has never received pay for the many hours spent working for the company moving its van and equipment.
_The following is today's press release from AICPA announcing the selection of Troy Lewis to head the AICPA Tax Executive Committee._ TROY K. LEWIS NAMED CHAIRMAN OF AICPA TAX EXECUTIVE COMMITTEE WASHINGTON, D.C. (OCTOBER 22, 2014) – The American Institute of CPAs (AICPA) has named Troy K. Lewis, CPA, CGMA chairman of its Tax Executive Committee. Lewis is vice president and chief enterprise risk management officer at Heritage Bank in St. George, Utah and is the sole proprietor of Lewis & Associates, CPAs, LLC based in Draper, Utah. Lewis will head the AICPA Tax Section as chairman of the Tax Executive Committee, one of the Institute’s most important volunteer bodies, during his two-year term. The Tax Executive Committee is authorized to act on behalf of the Institute in tax matters and oversees the work of the 14 other tax committees and technical resource panels of the Tax Section. The members of the Tax Executive Committee represent CPAs working in accounting firms of all sizes, business and industry, and academia. Prior to becoming chairman, Lewis served as vice chairman of the AICPA Tax Executive Committee; his appointment was effective October 21. Lewis succeeds Jeffrey A. Porter, whose term as committee chairman began in October of 2012. “Troy brings strong leadership and important insights to the Tax Executive Committee,” Ed Karl, AICPA vice president of taxation, said. “His work in the banking industry and as a small tax practitioner gives him an exceptional perspective on our tax laws and how they influence individual taxpayers and business decisions, as well as tax practitioners and the CPAs who work in American businesses and the financial services industry. As a member of the Tax Executive Committee for five years, he has shown an excellent understanding of tax policy and regulatory issues and has demonstrated his leadership and consensus building skills. The Tax Executive Committee will benefit from Troy’s leadership.” Lewis has been active with the AICPA for over 15 years. He was a member of the AICPA Governing Council for five years and has served on many AICPA volunteer committees, including as chairman of the Partnership Tax Technical Resource Panel and as a member of the S Corporation Tax Technical Resource Panel. Lewis also is an adjunct professor of accounting and taxation at Brigham Young University in Provo, Utah. He holds a Bachelor of Science in Accounting from Brigham Young University in Provo, Utah and a Master of Accountancy with an emphasis in taxation from the Marriott School of Management at Brigham Young University in Provo, Utah. ABOUT THE AICPA The American Institute of CPAs (AICPA) is the world’s largest member association representing the accounting profession, with more than 400,000 members in 145 countries, and a history of serving the public interest since 1887. AICPA members represent many areas of practice, including business and industry, public practice, government, education and consulting. The AICPA sets ethical standards for the profession and U.S. auditing standards for private companies, nonprofit organizations, federal, state and local governments. It develops and grades the Uniform CPA Examination, and offers specialty credentials for CPAs who concentrate on personal financial planning; forensic accounting; business valuation; and information management and technology assurance. Through a joint venture with the Chartered Institute of Management Accountants (CIMA), it has established the Chartered Global Management Accountant (CGMA) designation which sets a new standard for global recognition of management accounting. The AICPA maintains offices in New York, Washington, DC, Durham, NC, and Ewing, NJ. Media representatives are invited to visit the AICPA Press Center at aicpa.org/press.
GMAC, as most of you likely know, was General Motors' financial group. GMAC had originated as a means for the auto company to support the market for autos through its wholly owned lending group. But as with most corporate enterprises, it outgrew its origin, reaching near-collapse after becoming heavily involved in the residential mortgage securitization business and subprime loans. It was transferred to a hedge fund in 2006, and ultimately required rescue by the government's bailout program in the 2008 financial crisis. Why was GMAC bailed out when other mortgage lenders were not? The government wanted to save the auto lending business, so "auto czar" Steven Rattner says, the rescue of GMAC was necessary in that "the governmant had to act quickly and there wasn't enough time to untangle GMAC's mortgage unit from the auto lending business." _U.S. Taxpayers Earn Profit on Ally, as Treasury Cuts Stake_, Wall St. J., Oct. 21, 2014 at C4. GM, of course, ultimately established a new financial arm related to its auto business, and that company has acquired some of the GMAC's successor's businesses around the globe. See, e.g., GM Financial to Benefit from Wall Street Upgrade, Sept 24, 2014. GMAC --renamed Ally Financial in its new incarnation--was bailed out by the federal government, with remedies including government-approved board members, sales of business lines, bankruptcy of its subprime mortgage business, and more than $17 billion in government capital through TARP. Six years down the road, Treasury is selling off shares of Ally: it announced last week that it had sold $245.5 million since mid-September and had now reduced federal ownership from almost 74% to barely over 11%. The government made about "$18.3 billion from selling Ally shares--a return of $1.1 billion, or about 6.4%, on its $17.2 billion investment." _U.S. Taxpayers Earn Profit on Ally, as Treasury Cuts Stake_, Wall St. J., Oct. 21, 2014 at C4. This story is important for several reasons. * First, it reminds us of how closely Treasury's functions as tax law implementer/tax collector correlate with its other functions related to the US economy, such as the financial crisis actions to prevent the unwieldy demise of financial institutions. Today's Treasury Department is a major economic actor in the federal government, from its role in administering tax laws that use tax subsidies (tax expenditures) as a substitute for direct legislation on matters across the spectrum of government activities to its critical functions in implementing health care reforms through the Affordable Care Act and dealing with international trade and with market failures and successes. * Second, it provides evidence supporting the progressive view that government is an important actor intervening in times of market failures. The government interventions in response to the 2008 financial crisis were not perfect--_in part_, because they failed to hold the primary actors like CEOs and other managers of financial institutions accountable by including civil and criminal penalties and, at a minimum, clawbacks of excessive executive pay and so-called performance-related bonuses and _in part_, because lobbying by the very culprits of the crisis persuaded a too-close-to-industry Congress to avoid forcing those financial institutions to reduce mortgage principal amounts to aid ordinary Americans with underwater mortgages. Nevertheless, those interventions were important to maintain a viable economy and prevent the country from slipping even more deeply into recession. * Third, it demonstrates that such interventions (and other government efforts to correct market failures, such as regulatory regimes) do not, as right-wingers so often suggest, inherently prove worse than letting "the market" self correct. Interventions may appear costly to taxpayers, but they can provide necessary Keynesian stimulus and they can even be profitable--returning the taxpayer investment- and more- to the Treasury.
Most readers of this blog may be wondering what happened to create a long-term hiatus in entries on A Taxing Matter. Surely, you will say, it could not be for lack of topics, as inversions, FATCA, arguments about extenders and corporate tax and the Affordable Care Act have gone on and on, and the IMF's recognition that the so-called "washington consensus" is outdated is indeed a change. The upcoming election brings even more distortions in ads favoring candidates but funded by hidden money that allows the Money Bags to mislead and distort without reprisal, while enjoying tax-exempt status without any of that "public" nature of speech. And surely Piketty's book on Capitalism in the Twenty-First Century, alone, would be fodder for several posts. There's also the incredible forward march of same-sex marriage, and the resulting leveling of tax (and other) treatment of gay and heterosexual couples and families. And you would be correct that there's plenty to talk about. I've been keeping up with all these developments, and I've read Piketty word-for-word (a feat it is quite obvious many of the right-wing commenters have not accomplished). So lack of something to write about is most certainly not the reason for the long pause. To make a long and difficult story short--my husband died in January, and I have gone through an intense personal struggle to cope with life without my soulmate. The hard winter and too-short summer added their own tribulations, in the form of electrical outages, some basement water, and all those unexpected expenses that go along with weather-related problems, all of which must now be handled by me. I plan to resume regular postings now. There's plenty to write about, and I can't wait to start sharing my thoughts with you. Hopefully you'll also share yours in the comment areas. (But no ad hominem attacks--those, as always, will be deleted as soon as I spot them.)
No matter how much the business lobby complains about the "business costs" of increasing the minimum wage, legislators should look past that self-serving ideology and look at reality. Workers have contributed to increased productivity but received a stagnant to declining share of the income that comes from the increased productivity. IN the meantime, top-echelon managers and shareholders reap larger and larger benefits from the increased productivity provided by the workers. At the same time, much of the tax expenditure provisions in the Internal Revenue Code--from the charitable contribution deduction (and things like contributing appreciated assets from IRAs) to the mortgage interest deduction to the life insurance exclusion to the preferential rate on capital gains and the almost non-taxation of corporate dividends are hugely beneficial to the same top echelon in the income distribution, meaning that those provisions are aiding "redistribution"--just not the kind that is condemned by those on the right as a kind of socialism, since this redistribution is upwards and favors the rich. The result of the productivity gains going to the top while the Code embeds numerous tax expenditures that redistribute upwards as well is that the rich continue to get richer, while the middle class suffers and the poor lose out altogether in the vaguely disguised, racially tainted condemnation of those in poverty or near poverty for lack of "personal responsibility" or decorum or "entrepreneurial spirit". Fact is, those who have have been ripping off those who aren't in their elite social class for decades now, and it is getting worse, as they have recovered and more from the Great REcession, while those who lost homes and jobs are suffering on. Changing the tax provisions--most importantly by eliminating the capital gains preferential rate and by eliminating or reducing other tax preferences that highly favor the wealthy--and extending unemployment benefits while lifting the minimum wage--ideally to a level that approximates where it would have been if it had been increased regularly over time, but minimally to at least $12 an hour--are three key actions that need to be undertaken to restore a broadly sustainable economy that benefits everyone rather than a select few. Extending unemployment for those out of work for long periods and increasing the minimum wage are real job creators: those payments to the poor and near-poor will be spent as earned, pouring that money back into the economy and creating new jobs for the jobless. Time to have a frank discussion about the way "free market" ideology has corrupted our sense of social justice and distorted the economic reality by increasing the inequality gap. Time to move towards "democratic egalitarianism"--a recognition that there needs to be affirmative action to redress the tendency for the rich to influence legislators and media to slant bills and stories in their favor. All this is fairly well depicted in the "nation of moochers" cartoon, below, from http://s3.amazonaws.com/dk-production/images/64993/lightbox/moochers720.png?1389641385.
For years (decades, actually), the American pro-wealthy right has argued that lowering corporate tax rates will create jobs. That is the presumed purpose behind the push by Dave Camp to enact a tax reform package with lower corporate rates, and the reason that even President Obama has voiced (tepid) support for lower corporate rates. Baucus at Senate Finance and Camp at House Ways & Means are part of an oft-cited "bipartisan consensus" (though its never clear whether there really is one) for cutting corporate tax rates through "revenue neutral" corporate tax reform. This is a consensus which, if it does exist, has resulted from decades of corporate lobbying in Congress and near-absolute capture of the media on the issue, combined with the proliferation of robotic economics and "law and economics" faculties who scribble endlessly about the "economics" of corporate and capital income taxation, producing studies that suggest policy based on simplifying assumptions commonly used by economists that ensure that the outcome of their mathematical games should have almost no application in the real world. See, e.g., Ponnuru, Max Baucus's Self-Defeating Corporate Tax Plan, Bloomberg.com (Dec. 2, 2013) (indicating that "There’s bipartisan support for lowering the 35 percent federal corporate tax rate, which is among the highest in the developed world. Both parties see the rate as a burden for the economy because it pushes investors -- American and foreign -- to seek their returns in other countries. Economists argue that the tax therefore depresses wage growth in the U.S., a claim supported by numerous studies.") So in spite of those many "studies", I've argued frequently in the past that there is no there there--i.e., that lowering corporate tax rates will do nothing to create jobs. Instead, I've said, it will simply deliver an even higher profit margin to be skimmed off by the highest paid executives and, possibly, shareholders. The higher profit margins are unlikely even to be used to increase workers' shares of the corporate revenues through higher wages, a place where they could most help the economy other than new jobs created. Thus, the drive for "revenue neutral" corporate tax reform (cut corporate taxes, cut expenditures elsewhere to make up for the decreased corporate tax revenues) is just another example of corporatism as an engine of the modern form of US class warfare. The Center for Effective Government (formerly OMBWatch) has now done a study looking at the "job creation track records of 60 large, profitable U.S., corporations (from a list of 280 Fortune 500 companies) with the highest and lowest effective tax rates between 2008 and 2010." See Scott Klinger & Katherine McFate, The Corporate Tax Rate Debate: Lower Taes on Corporate Profits Not Linked to Job Creation, Center for Effective Government, Dec. 2013. It confirms that corporate tax cuts don't create jobs. The study, for example, found that a supermajority (22) of the 30 corporations paying the HIGHEST tax rates created 200,000 jobs between 2008 and 2012, while only 8 of those 30 had any reductions in the number of employees. IN contrast, the 30 profitable corporations paying no or very little taxes in that period had an aggregate loss of more than 51,000 jobs--half created a few jobs and half reduced jobs between 2008 and 2012. Here's the introductory text to the report: The American corporate tax system is badly broken. Some corporations pay a third or more of their profits in federal taxes, while others pay nothing at all. Still others legally claim large sums as refunds even though they’ve generated sizeable profits in the United States. The responsible corporations that pay their fair share of taxes – companies like Smuckers, Nordstrom, Hershey, and Automatic Data Processing – are helping to fund the schools, infrastructure, national parks, and public protections that benefit all Americans. And the taxes they pay don’t stop them from investing in their businesses and adding new jobs for U.S. workers. Many corporate leaders agree the U.S. corporate tax code is broken, but they argue that the core problem is that the tax on corporate profits (35 percent) needs to be lowered. Verizon’s CEO Lowell McAdam and 16 other CEOs who are members of the RATE Coalition wrote in a joint letter to the leaders of the House Ways and Means Committee and the Senate Finance Committee: “Our competitors in the OECD have lowered their statutory tax rates while the U.S. rate has remained relatively constant. This has resulted in an uncompetitive tax environment that discourages investment and job creation here at home…a lower corporate rate will boostinvestment in the U.S., bringing more American jobs, innovation and growth.” ... A 2013 study by the U.S. Government Accountability Office found that large corporations paid on average JUST 12.6 PERCENT OF THEIR 2010 PROFITS IN FEDERAL INCOME TAXES.1 Even when foreign, state, and local taxes were added in, the companies paid ONLY 16.9% OF THEIR WORLDWIDE PROFITS IN [ALL] TAXES in 2010. By contrast, small businesses pay an average tax rate on their profits of 19 percent, according to the Small Business Administration. U.S CORPORATE PROFITS AS A SHARE OF THE ECONOMY ARE AT A 50-YEAR HIGH, YET FEDERAL CORPORATE TAX COLLECTIONS AS A SHARE OF THE ECONOMY ARE NEAR A 50-YEAR LOW. Id. at 2-3 (emphasis added). Lowe's was an example of a relative high tax-paying company that created jobs: paying taxes at more than 36% and hiring more than 28,000 new employees between 2008 and 2012. In contrast, Verizon made enormous profits ($32 billion between 2008 and 2010), paid no taxes (receiving refunds of $951 million) and eliminated about 56,000 jobs between 2008 and 2012. The 58 firms that repatriated $218 billion in the 2004 "tax holiday" at very low profits saved $64 billion in taxes but then proceeded to eliminate 600,000 jobs. Not to mention that if corporations in 2012 had actually paid the corporate tax rate of 35 percent on their humongous $1.8 trillion in profits, the corporate tax receipts would have reached $630 billion instead of the $242 billion actually paid, resulting in a one-third reduction in the deficit. It should not be surprising that most Americans see the slide in corporate taxes relative to corporate profits as a problem--the lost revenue could go a long ways to preventing cuts to education and infrastructure spending or Medicare, Medicaid, and Social Security benefits. [A] brand new national survey by Hart Associates found that “by a remarkable nine-to-one ratio, voters want revenue generated by closing corporate loopholes or limiting tax deductions for the wealthy to be used for public investment and deficit reduction (82%), not to lower tax rates on corporations or the wealthy (9%). In other words, the public does not support “revenue neutral” corporate tax reform. Folks, it is quite clear that there cannot be a sustainable good-for-all economy if productivity gains constantly drift upwards (redistribution from the many to the few) as they have been in this country for the last two decades while at the same time tax policies "reward" the elite with lower taxes (another form of redistribution from the many to the few). One has to wonder just how tone-deaf Congress must be, to continue to listen to economists whose policies rest on mathematical silliness and the lobbyists for big corporations and their wealthy shareholders and managers, while ignoring the crisis in middle and lower-income America due to a stagnant minimum wage and the deftness of the elite in capturing all productivity gains. The tone-deafness has all the earmarks of a form of elitism--Congress is simply unable to understand the cacophony of the ordinary world and finds the neat equations of Chicago School economists, accompanied by the tender ministrations of corporate lobbyists and elbow-rubbing with CEOs and Board chairs, music to its ears.
On November 14, the US Treasury Department announced that it had signed an agreement with France relating to the implementation of the 2010 Foreign Account Tax Compliance Act (FATCA) law. That makes the 10th such agreement signed between the US and other countries to date, and helps move the law towards smoother implementation. The purpose of FATCA is to cut tax avoidance by increasing transparency--especially in the case of offshore bank accounts that have, in the past, served as key mechanisms for avoiding taxation. It requires U.S. financial institutions to withhold a portion of payments made to foreign financial institutions (FFIs) who do not agree to identify and report information on U.S. account holders. FFIs have the option of entering into agreements directly with the IRS, or through one of two alternative Model IGAs signed by their home country. The IGA between the United States and France is the Model 1A version, meaning that FFIs in France will be required to report tax information about U.S. account holders directly to the French government, which will in turn relay that information to the IRS. The IRS will reciprocate with similar information about French account holders. Id. Treasury officials praised the French government for its support in the effort to implement FATCA. "France has been an enthusiastic supporter of our effort to promote global tax transparency and critical to drafting a model of FATCA implementation," said Deputy Assistant Secretary for International Tax Affairs Robert B. Stack. "This agreement demonstrates the growing global momentum behind FATCA and strong support from the world's most important economies." Id.