The Wrongologist

What’s
Wrong Today:

What is
America’s corporate tax rate? According to the Tax
Foundation, it is 39.1%, the highest in the world:

The
reality is that they pay nowhere near that rate. According to a report by the General Accounting
Office, (GAO) the effective tax rate in 2010 was 13%:

The stated
rate is reduced by large domestic corporate tax breaks and by the ability of
multinationals to keep foreign profits offshore and free from US taxes, both
are permitted by various laws passed by the best Congress money can buy.

In fact, Bloomberg, that bastion of socialist news
coverage, reports
that US multinationals have parked $1.95 trillion of profits offshore (you can see a detailed infographic at the
above link). GE leads the parade, with $110 billion, followed by Microsoft with
$76 billion. 22 companies hold $984 billion, while another 285 companies hold
an additional $963 billion.

So, how
did this happen? As Yves
Smith says: (brackets by the Wrongologist)                           

The
implied tradeoff for the country and our social contract was clear: Give corporations bigger tax breaks and the
economy will grow faster and the average person will be better off. But
that plan hasn’t worked out:

Source:
davecokerblog

Private
domestic investment has dropped like a stone since 2006, two years before the
start of the domestic crash, and today it is at 2003 levels. Right-wing pundits
have maintained that we will not see employment return to the pre-crash levels until
we cut taxes further to unleash the power of business to create more jobs, and Republican
policymakers have dutifully followed that script.

And what
are corporations doing with their big offshore cash hoards? They are investing it in the US stock
market. Take a look at this
chart (gated), at the Financial Times
by Andrew Smithers:

The chart
shows net buying and selling of equities by corporations, institutions, households
and global investors. The purple color reflects buying by corporations, and the
purple bulge since 1997 reflects how
the US stock market has been driven almost entirely by corporations buying
stocks.

What funds
have they used to jump into the market so strongly? It’s largely the offshore
cash that they hold.

So companies
have not lived up to their half of the “lower our taxes and we will grow the economy”
bargain. Instead, they have been feathering their nests by using their cash to
buy back their shares. Here is another chart from Smithers:

This chart
compares US Corporate investment as a percentage of their cash flow (Left axis
and blue line) with US Corporate buybacks of their own shares (right axis and
red line).

Buybacks
are at historic highs and investment is at historic lows in the post WWII
period. As The FT’s Smithers
writes: (emphasis by the Wrongologist)

So, large
corporations continue to find it more attractive to game their stock than compete
in their marketplace, and they are using their offshore cash hoards to play the
game.

Congress
has built a foundation for the corporate elite to continue looting. Corporates
have used some of their cash to make sure that Congress continues to listen to their
needs and votes correctly. Meanwhile, ordinary citizens contend with a hostile
job market, where total employment is still less
than it was in 2007. They have little reason to hope that their financial
condition will improve.

Welcome to
the paradise of oligarchs and corporatists.

We should
be discussing whether or not we are prepared to live in what looks like a neo-feudal
country, dominated by an entrenched oligarchy. The Occupy movement tried to bring attention to this
situation, but, since they were inarticulate and not schooled in media spin, no
one listened. Now what? Today there is no dissident movement, no political
opposition to the status-quo, and Republicans may be poised
to take control of the Senate in November.

What sort
of society do we want to live in? This is one of the basic questions we must
answer, and unless we get better politicians, the beatings will continue.

The issue
should not be only about corporate growth and investment, but also about how well
corporations (which are socially
sanctioned entities) are working to move us toward being the society we
want to become.

Viewed
from this standpoint, it is clear that corporations and their Congressional
supporters are at war with the rest of us, and with the society we need.

We can safely come to some
conclusions. Politics in America is largely determined by dedicated interest
groups that play for keeps. We can’t keep crying that “it’s not fair”, while arguing
that politics is about “issues”. The people have to do something.

America, you citizens and voters: How
about actually “doing” something that brings about a change? How about voting for true reformers in November?

It shouldn’t just be true in college basketball that an underdog can win, it should also be true for a few underdogs in our Congressional elections.