What’s
Wrong Today:
The Wall
Street Journal published a letter signed by 80 CEOs, calling it a “Deficit Manifesto”, last Thursday.
The
letter, designed to pressure Congress to reduce the federal deficit, says in
part:
“Policy makers
should acknowledge that our growing debt is a serious threat to the economic
well-being and security of the United States. It is urgent and essential
that we put in place a plan to fix America’s debt. An effective plan must
stabilize the debt as a share of the economy, and put it on a downward path.”
(Emphasis by the
Wrongologist)
So,
What’s Wrong?
Who are these guys?
They are members of the “Fix
the Debt ”
coalition, who claim they know best
how to deal with our nation’s fiscal challenges. The group boasts a $60
million budget
just for the initial phase of a massive media and lobbying campaign to make sure
congress implements their view of the “correct” solution.
The Fix the Debt
coalition is using the over-reported
“fiscal cliff” as an opportunity to push their usual corporate agenda of more
tax breaks. If America’s CEOs really wanted to Fix the Debt, they would first commit to eliminating the loopholes
that have allowed large corporations to limit their taxes.
The irony is that these
coalition CEOs have been among the major contributors to the very national debt they now claim to know
how to fix. Their companies have
mastered every tax-dodging trick in the book. Who wrote America’s byzantine and crazy-quilt
tax code? Was it lefties calling for special rules for their pet political
causes? No, it was the large corporate
lawyers and lobbyists bribing the congress critters over many years.
Fix the Debt claims their agenda is not just about spending
cuts. But includes tax
reform as well: Their tax proposals use the slippery term “pro-growth reform”
to push for cuts in deductions that are likely to include credits for working
families and you guessed it, more corporate
tax breaks. Chief among these is a proposal to switch to a territorial
system under
which foreign sourced corporate earnings would
be permanently exempted (instead of being taxed when they are returned
to America).
This idea, also supported by the Bowles-Simpson
deficit commission that the Manifesto CEOs suggest as the starting
point, would make it even more
profitable for big corporations to use accounting tricks to disguise
U.S. profits as income earned in tax havens. Citizens for Tax Justice estimates that such tax haven abuse will cost the Treasury more than $1
trillion over the next decade.
All of their
plans to cut the Debt by lowering taxes for corporations and the rich to create
growth sounds like the quest for a perpetual
motion machine.
Money is
cheaper now than it has been in living memory: the debt markets are telling corporate America that they are more
than willing to fund investments at unbelievably low rates.
And yet
these CEOs continue to say “no thanks”, despite
the fact that the IRS
reports that US corporations held more than $3.1 TRILLION in offshore accounts
in 2009, the last year for which the IRS has final records.
This is a serious threat to the economic
well-being of the United States: US companies refusing to invest for the future, even when the markets (and
their country) are begging them to.
It is even worse than this: It isn’t just
that corporations aren’t investing now; they weren’t investing in the last
expansion. The corporate sector in aggregate
is disinvesting: Here is a chart from the St. Louis Federal Reserve showing Gross Private
Domestic Investment:
This
indicates that private investment has
been declining since the start of FY 2005. As you will remember, Mr.
Bush, a former CEO, was president then.
So, these Manifesto
CEOs are criticizing the size of the Federal debt, saying it stalls growth. Yet, if it wasn’t for the Federal
deficit, the economy would be a disaster. The Federal government is easing some
of that pain right now.
And this is what the Manifesto CEO dudes
are trying to derail, without any increased investment on their part.
And these big companies are the biggest
sinners.
Know why Mr. Obama and Mr. Romney fawn over small businesses? If you include all
less-than-500 employee firms as “small”, they have been the drivers of job
growth for the last decade, while the
biggest companies have shed workers.
In fact, since the 1980s, medium sized and smaller
companies have gained in share of assets, employment, and revenues
relative to the biggest companies.
So big companies, like those in the Fix The
Debt coalition, have lost share relative to the rest of the corporate sector, yet they have the
temerity to preach to the rest of us as
if they speak from genuine accomplishment, as opposed to having been
lucky or politically savvy enough to assume the leadership of companies with
well established franchises.
Despite
whomever is elected next week, the economy remains mired in anemic growth and even
worse job growth. And Mr. Bernanke’s expansionary
monetary policy isn’t getting the job done. The problem is that the Republicans
have not allowed fiscal policy to be used by Mr. Obama
The really
huge, important and urgent issue facing the US right now is the problem of
unemployment, and specifically of long-term unemployment. That will only be fixed by
increased demand.
Cutting spending will further reduce demand and that is what will drive
the economy off of a cliff.
We have ample historical evidence to demonstrate that.
Ordinary
Americans have been sold on the false idea that deficit cuts are necessary and
salutary and this CEO “Manifesto” is more of the same.
Both the
global economy and the US economy are very fragile right now, and every central banker in the world is
begging for help from fiscal policymakers. That means higher deficits,
not lower ones.
The problem is that Pete Peterson and the
Fix The Debt cabal have been much more effective at corralling CEOs than Mr.
Obama or Mr. Bernanke are.
It is past time to get our priorities
adjudicated and a true fix underway.
