Monday, March 28, 2011

Our Banana Republic

There are times when I think our republic has always been this dysfunctional, but I'm just more aware of it today thanks to technological innovation. When I was growing up we had 3 nightly news stations and 2 local newspapers. Cable News, USA Today, and the internet did not yet exist. Of course, I was also a kid and then a teenager. Didn't have time for politics all that much, though I thought Ronald Reagan was the greatest president ever. What did I know?

Then cable news took off. I watched the first Gulf War on CNN. I studied government and history in college. Economics was my favorite subject though I ended up focusing my career in a much different area. The internet slowly grew into my preferred news source. I didn't have to rely on a single source or a few sources. I could search around for "the truth".

Today the internet and cable news provides alternative news positions everywhere you look. This has been a blessing and a curse. Information is at our fingertips like never before. And disinformation is also available in quantities previously unimaginable. News seekers no longer need to see news from a perspective that does not agree with their preconceived biases. Conservatives can run to the Drudge Report, or Breitbart's cadre of websites, or Glenn Beck's page, or Fox News. Liberals can turn to the Daily Kos, ThinkProgress, Crooks & Liars, MSNBC. There is no need for truly fair and balanced reporting anymore. Fair and balance doesn't sell advertising. Fair and balanced doesn't meet the warped demand for profitability from the free press.

But that's not the point of today's post. The point of today's post is that we've entered an era of idiocy. I suspect, though I lack evidence, that the cause of this idiocy is this fractured news environment. We no longer sit down as a country and listen to Edward Morrow explain things we need to know as citizens. There is little demand for unbiased reporting and as such our citizens have their biases confirmed and a wedge is driven further between those who lean left and those who lean right.

Gone are the days when we stood as a nation and understood that we should be rightly judged for how we treated the least among us. Now we have politicians clamoring over each other to eviscerate the safety programs that protect our poor and vulnerable.

Gone are the days when we understood that the strength of our economy was based on our working citizens making a livable wage that allowed them to purchase more goods and services and continue to grow the economy. Now globalization has made U.S. wages much less important to multinational corporations.

Gone are the days when unions were accepted as a necessary protection against the over-reach of the moneyed elite. The unions, grown fat with power, alienated all but union members and have become popular targets for opportunistic corporatist politicians.

Gone are the days when education of our children was the single most important thing we could do to assure our future competitiveness as a country. Now we slash education budgets by billions of dollars while giving billions of dollars in tax cuts to the wealthy.

The absurdity is overwhelming, yet a substantial proportion of our population is never exposed to these ideas, because they seek their news from places that defend these policies as rational or even just.

We're witnessing the Fall of Rome. The conversion of the great United States of America into a Banana Republic in which power and influence are bought and sold and the working people are an afterthought in the greed driven policies of the elite.

Thank your Congressperson.

Monday, March 14, 2011

The Myth of Corporate Tax Cuts Creating Jobs

Mother Jones recently published a graphic piece called, "It's the inequality, Stupid!" laying out just how far the income inequality in the U.S. has gone. It's a pretty damning piece of recent political decisions by both Republicans and Democrats.

In discussing this with a friend of mine, he pointed out one particular figure.

This one: 

(Thanks to - hope they don't mind me borrowing it)

We always hear from the punditocracy that lowering corporate tax rates will spur job creation and increase tax revenue. Yet more and more revenue has been coming from payroll taxes. Taxes paid jointly by employees and their employers. It comes to about 12.4% of the employee's income up to the social security cap of ~$106K. Half is paid by the employer and half is paid by the employee. So employers are on the hook for 6.2% on top of whatever they're paying their employees in this payroll tax. Seems reasonable, right? It is, but just wait. 

In the meantime the corporate income tax has declined. Oh, on paper it the top marginal corporate income tax has been 35% since the Reagan administration, but the things corporations can deduct to lower their corporate tax burden has reached an absurdity.

Case #1. In 2009, GE earned over $10.3 billion in pre-tax income and received $1.1 billion back from the government. So GE's tax rate wasn't 35%. It wasn't even 15% (GE's 2007 effective tax rate). It wasn't even 5.3% (GE's 2008 rate). No. In 2009, on $10.3 billion in earnings, GE paid -10.6% in taxes. They got money back while owing nothing. 

Now I can understand if a company has operating expenses beyond their earnings, they are in the red and should not pay any corporate taxes. However, their tax burden, if that were the case, should be zero. But no. Through myriad corporate tax loopholes, the American taxpayers gave GE $1.1B just for being GE. 

How did it happen? Easy. GE Capital (GE's financial services division) wrote down $6.5B while GE made over $4.3B overseas, which can be deferred from paying corporate income tax indefinitely. Yep. GE never has to pay a cent in corporate taxes on $4.3B in profits. That's an example of a corporate loophole extraordinaire. 

Case #2. The same year, 2009, ExxonMobil made a staggering $45.2B in profits and paid $0 to the U.S. treasury in the form of corporate income tax. How? They legally sheltered billions offshore in wholly owned subsidiaries. So there are accountants sitting up in ExxonMobil figuring out how to screw the U.S. out of billions in tax revenue. 

To wrap up on corporate taxes, a 2008 Government Accountability Office report found that 2/3 of U.S. corporations did not pay taxes from 1998 to 2005. Many did so legally by not earning a profit, but many more used accounting loopholes and offshore subsidiaries to shelter their money. 

So the result of this shift in accounting practices and the never ending inflow of corporate tax loopholes has resulted in what we see in the above graph. An ever falling corporate tax revenue and an ever increasing payroll tax revenue as a percentage of the total tax revenue for the U.S. government. All without appreciable job growth. 

Put simply, lowering corporate taxes (or creating more loopholes) provides a disincentive for businesses to invest in new workers. Not only can they hide most or all of their profits in various ways, but they also save themselves 6.2% of everything any new employee would earn by avoiding the payroll taxes. It is also an incentive to automate services (reduce the number of employees), because you again save that money regardless of whether the automated system increases productivity. 

So if you really want to spur job creation, lower the payroll tax rate on the employer side. Make it cheaper for companies to hire people. Lowering the corporate income tax rate only puts more money into the pockets of the shareholders, but does little to nothing to encourage growth.

Tuesday, March 8, 2011


There is a grassroots effort brewing. Workers are taking to the streets like they haven't done in decades. The "busy middle" has awoken as austerity measures have targeted worker's compensation and collective bargaining.

Unions are easy punching bags these days, because they're often bloated, inefficient machines of a bygone era. However, they still serve an invaluable function - providing collective bargaining power to individual workers who would be powerless against their employer otherwise, especially in times of economic distress.

However, a curious thing has happened. On Tuesday, February 15th, 2011, the sleeping lion awoke. Public union workers in Wisconsin were organized by their union officials to protest in the state capitol. They've been there ever since. Three weeks of continuous protests! The protests have continued to grow in size rather than diminish. Union members not affected by the pending legislation in WI have joined to rally with the at-risk workers.

The organized GOP effort to pit private sector workers against public sector workers has backfired. While some still buy the idea that public sector workers are fat cats sucking off the government teet, many more are now realizing that this represents a threat to all working class people. The gutting of collective bargaining power will likely affect how effectively private sector unions can negotiate as well.

Mirror protests have sprung up all around the country in support of Wisconsin. "Workers of the World, Unite!" echoes in these efforts.

But the most interesting rallying cry might be the simplest. After Wisconsin house members passed the bill stripping public employees of collective bargaining rights in a late night session cries of "Shame!" erupted from the public gallery. As the lawmakers broke for the evening the gallery overran the legislative floor as the cries of "Shame!" followed the lawmakers out into the corridors.

Here is that video:

And then it happened again. Over the weekend Michael Moore, rabble-rouser and documentarian extraordinaire, flew to Madison, WI to speak to the protesters directly. His rousing and entertaining speech, America is NOT Broke, was at times inflammatory, at times hilarious, and always impassioned. Shouts of "Shame!" popped up as he spoke about the transgressions of the moneyed elite in their attempts to buy our democracy.

His full speech here:

I don't always agree with his documentary methods and I think he's sometimes over the top in his rhetoric, but he's definitely a lover of the working man and sincere in all he does. He's someone I'd be proud to have a beer with.

And most recently, the "Shame!" chant popped up in a Wisconsin Town Hall Meeting. Remember a couple summers ago when Democratic representatives were ambushed by angry citizens in their town halls over health care reform? Well, payback appears to have come to Republicans. Only the Republicans aren't taking it. They adjourned the meeting without responding to the protester's concerns.

Video here: 

And "Shame!" is what it is. Blaming the working class for the economic problems our country faces is not only incorrect, it is dishonest and at its root demonstrates a disdain for the citizens of our country. School teachers don't become school teachers to get rich. Most don't even become school teachers because they have outstanding benefits. Most become school teachers to teach our children. A similar truth exists about public employees. Many public workers choose those careers in order to serve their communities. In other to improve the lives of their fellow citizens.

It is time that the austerity hawks be shown what shame they bring on themselves and our country for the way they've attacked the working class while protecting the plutocracy.

Shame on every last one of them.

Friday, March 4, 2011

At least one politician gets it ...

With all the hue and cry about austerity and budget cuts, there is at least one lone politician on Capitol Hill who is consistently and loudly advocating for the less fortunate in the wake of the rape of our economy by Wall Street and the unfunded $3 trillion spending spree also known as the Iraq War. Want to look for a single cause of our burgeoning national debt? Look at the accounting practices regarding Afghanistan and Iraq War funding from 2001-2008. 

Nevertheless, while our politicians target safety net programs and public employee pensions as potential cost savings measures, let's remember that these same politicians have given enormous handouts to Wall Street and extended an enormous tax cut for the wealthy. 

Without further delay I give you Senator Bernie Sanders (VT-I) first expounding on how he sees things and then asking pointed questions to Treasury Secretary Timothy Geithner. 

The trouble with Bernie, of course, is that he's a self avowed Democratic Socialist. That means he is a socialist who embraces democratic principles. Remember, socialism is an economic system, not a political system. While democracy is a political system, not an economic system. When I say "the trouble with", what I really mean is that many find it easy to dismiss Bernie Sanders, because of his aversion to unfettered capitalism. Of course, when you stop and think about his position in this video clip, it is very difficult to contradict him without being a complete tool (of the plutocracy).