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The Wrongologist

Geopolitics, Power and Political Economy

Monday Wake Up Call – May 18, 2020

The Daily Escape:

Colorado River, from South Kaibab trail, Grand Canyon NP, AZ  – photo by DJ Memering. The bridge is called the Black Suspension Bridge. It is 5,260 ft below the canyon rim.

The CARES Act was sold as emergency funding for individuals and small businesses. In all, Congress has authorized $3.3 trillion in coronavirus relief in four separate acts over the last two months. The stated intent of those bills was to protect the American economy from long-term harm caused by the overall impact of the virus.

Alas, Congress also took care of their true constituents, Big Oil and other fossil fuel companies. Those companies got CARES Act tax breaks. The subsidies were supposed to help bail out small businesses pounded by the pandemic, but at least $1.9 billion of it was sent to fossil fuel companies and their executives.

Bloomberg News reports:

“$1.9 billion in CARES Act tax benefits are being claimed by at least 37 oil companies, service firms, and contractors”

Bloomberg used the example of Diamond Offshore Drilling Inc. who manipulated the bailout: (emphasis by Wrongo)

“As it headed toward bankruptcy, Diamond Offshore Drilling Inc. took advantage of a little-noticed provision in the stimulus bill Congress passed in March to get a $9.7 million tax refund. Then, it asked a bankruptcy judge to authorize the same amount as bonuses to nine executives.”

But, Diamond’s refund wasn’t all. Some went to their larger competitors. More from Bloomberg:

“…$55 million for Denver-based Antero Midstream Corp., $41.2 million for supplier Oil States International Inc. and $96 million for Oklahoma-based producer Devon Energy Corp.”

In addition, Kevin Crowley reports that Marathon Oil got $411m, Occidental $195m, and Valero $110m.

Hats off to all of our Senators, Congresscritters and the Trump administration! They all continue pursuing a pro-fossil fuel agenda, even as the economic disaster of the pandemic unfolds. Bernie Sanders tweeted:

“Good thing President Trump is looking out for the real victims of the coronavirus: fossil fuel executives,”

But, Bernie apparently voted for the bill, which passed the Senate in a unanimous vote. Hypocrisy much, Bernie?

These loopholes in the Act were deliberately written in so that corporations could feed at the trough along with small businesses, and we the people. Moreover, the initial bill was written in the House, although presumably in consultation with Trump and the Republicans. So, you can view this as either the cost of doing business for Democrats, or as just another day at the office listening to the lobbyists. Subsidy legislation has been a bipartisan objective.

Its always been this way. Here’s a cartoon from 1920 that could be drawn today:

Let’s remember that a big issue was the requirement for oversight, particularly after Trump said he wasn’t interested in having any. A compromise was struck so that an oversight commission could be empaneled to keep track of how the money was spent.

Today, it remains without a leader. Four of the five members of the Congressional Oversight Commission have been appointed, but Speaker Nancy Pelosi, (D-CA) and Senate Majority Leader Mitch McConnell, (R-KY) have not agreed on a chair.

While the current members of the panel can perform some oversight, without a leader, it can’t hire staff or set up office space. In addition, the four members have not met as a group since the economic rescue law was passed. The PBS NewsHour quotes John Coates, a professor of law and economics at Harvard Law School:

“If the commission is not functioning — which it is not — then there is no oversight on a huge part of the economic rescue law…”

We seem to be able to bail out the rich every few decades, and we always seem to do it on the backs of the poor. It will probably happen again in another 10 years or so. Between these bailouts, politicians and pundits appear on all of the news shows, and write very serious articles proclaiming the need to resist socialism and to preserve “the free market” for the sake of “wealth creation and innovation”.

Time to wake up America! This great con has been going on for all of Wrongo’s lifetime and by looking at the cartoon above, for a few lifetimes before. Yet voters seem to be oblivious to this insidious form of corruption each and every time they go to the polls.

To help America wake up, let’s listen to Drive by Truckers, and their tune “Armageddon’s Back in Town” from their 2020 album, “The Unraveling

Sample Lyric:

There’ll be no healing
From the art of double-dealing
Armageddon’s back in town again

Those who read the Wrongologist in email can view the video here.

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America Is OK With a Wealth Tax

The Daily Escape:

Navajo Trail, Bryce Canyon NP, UT – November 2019 photo by biochemistry_unicorn

Over the past year, progressives have made a wealth tax a central part of the policy discussions in the Democratic primary. Both Sens. Bernie Sanders and Elizabeth Warren have proposals to tax the wealth of billionaires to help pay for improvements to the social safety net and infrastructure.

Currently, the US mostly taxes individuals on the income earned from their jobs and investments. The wealth tax is different since it would tax assets like stocks, yachts, artworks, and vacation homes.

Critics of the wealth tax have made a variety of arguments against them. The most prominent that the US government couldn’t enforce them effectively. Consider this from Business Insider:

“Usually, progressives cast Europe as a model for the cradle-to-grave social benefits that nations like Norway provide because of steeper tax rates on richer citizens. But most…countries have ditched them [wealth taxes] over the last few decades.”

Twelve European countries had a wealth tax in 1990, but the number now stands at four: Spain, Switzerland, Norway, and Belgium, which just introduced a limited wealth tax of its own.

Emmanuel Saez, economist at the University of California, Berkeley, who has analyzed the Warren and Sanders wealth tax proposals, says the European wealth taxes failed because governments created many exemptions that undercut their ability to draw revenue:

“The wealth taxes in Europe have failed by and large….they didn’t raise that much revenue because of big exemptions for asset classes….”

Others argue that the super-rich already donate big amounts to charity. One of Saez’s co-authors, Gabriel Zucman, says that the annual giving of Bill Gates and Warren Buffett equates to ~3%–4% of their wealth, while the other top 20 billionaires’ giving equals ~0.3% of their wealth. Like a really tiny wealth tax. Here’s his chart:

Annual charitable giving of the top 20 richest Americans: $8.7 billion, equaling just three tenths of one percent of their wealth. For the top 400 richest Americans, their taxes paid = 1.5% of their wealth, while their charitable giving = 0.4% of their wealth.

But, the average American paid taxes equal to 5.5% of their wealth, while their charitable giving = 0.3% of their wealth. Joe Six-pack gave the same amount of his assets to charity as did the top 20 billionaires.

If Warren’s 6% wealth tax was enforced on the top 20 richest Americans above, they would pay $60 billion to support the social safety net.

Moreover, despite the nay-saying by the rich, surveys show that Warren’s 2% tax is broadly popular:

(This was an online survey of 2,672 adults conducted by the polling firm SurveyMonkey from Nov. 4 to Nov. 11)

The survey by the NYT and Survey Monkey shows that 75% of Democrats and more than half of Republicans say they approve of the idea of a 2% tax on wealth above $50 million. The proposal receives majority support among every major racial, educational and income group.

The majority of college-educated Republican men disapproved, with only 41.5% approving of it.

The NYT reports that the proposed wealth tax is even more popular than the Trump tax-cut enacted in 2017. Only 45% of Americans said the tax cut was a good move:

“The movement against the Trump tax cuts since then has been powered, oddly enough, by Republicans. They largely still back the law — by 76% over all, compared with 20% of Democrats — but that support has dropped six percentage points since April.”

The shift on the tax cut is highest among high-earning Republicans: Americans earning more than $150,000 a year are far more likely to favor a tax increase on the very wealthy than the Trump tax cuts.

America’s tax code is designed to allow massive fortunes to grow ever larger. Wealth is concentrating in a tiny segment of the population, as the middle class shrinks.

We see that even the most high-minded billionaires can’t even give money away faster than their piles of dough are growing. And when Democrats like Warren and Sanders suggest a way towards tax reform, the GOP and the conservative think-tanks condemn them as socialists who want to punish success.

Most Americans are fed up with a government and an economy that overwhelmingly benefit corporations and the rich at the expense of everyone else. A wealth tax can work if Congress doesn’t get rolled by lobbyists that demand loopholes for their clients.

Wrongo will have no trouble backing a candidate who supports a wealth tax. But, increasing the taxes on corporations and a financial transactions tax should come first.

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Monday Wake Up Call – April 1, 2019

The Daily Escape:

Racka Sheep, Hungary, April 2017 – photo by Laszlo Balogh.

The Trump legacy keeps on giving. Forbes reports that when Trump’s tax bill passed in late 2017, it included:

“A new tax on litigation settlements: no deduction for legal fees…..That means many plaintiffs must pay taxes even on monies their attorneys collect. Of course, the attorneys must also pay tax on the same money.”

Robert W. Wood, a Forbes contributing writer who follows taxes, cites the case of Edwin Hardeman who won $80.5 million in a suit against Monsanto’s Roundup. From Forbes:

“Hardeman was awarded a bit over $5 million in compensatory damages, and $75M in punitive damages. The combined contingent fees and costs Mr. Hardeman pays his attorneys might total as much as 50%. If so, the plaintiff would get to keep half, or $2.5 million of the $5 million compensatory award. Since it is for his…non-Hodgkin’s lymphoma, that part for physical injuries should not be taxed. Then, of the $75 million punitive award, $37.5 million goes to legal fees and costs, and $37.5 million to Hardeman. So before taxes, the plaintiff’s take home is $40 million.”

But because of Trump’s new math, Hardeman’s $75 million punitive damages award is fully taxable, with no deduction for the fees he pays to his lawyer. Between federal taxes of 37% and California taxes of about 13.3%, Hardeman could lose about 50% to the IRS and California Franchise Tax Board. He would still owe another $37.5 million to his lawyers, so his after-tax take from an $80 million verdict only $2.5 million.

A $2.5 million award isn’t chump change, but this is another effort by corporations and Republicans to discourage law suits seeking punitive damages by plaintiffs. Notably, compensatory damages for physical injuries or physical sickness are still tax-free, but not punitive damages.

Doesn’t paying taxes on money you don’t receive seem un-American? The reach of corporate interests into our laws cannot be overstated. It will take a generation to reverse all of the inroads corporate lobbyists have made into our tax laws alone.

So, wake up America! It’s time to change capitalism so that it works for the people, not just for the owners and managers of corporate America. Bill Maher had a great discussion on his show “Real Time“. He echoed FDR’s “Four Freedoms” while commenting on how countries with a higher socialism-to-capitalism mix rank as happier than the US in the recent World Happiness Report. Maher says;

“Happiness isn’t only about what you have. It’s also about what you don’t have to worry about,”

Maher recommends rebranding Capitalism Reform as “Capitalism Plus.” Because, “It’s a plus when you get sick and you can focus on getting better instead of not going broke“. Or, ending up sleeping under an overpass.

Maher ends with:

“Does pure unbridled capitalism work? I guess that depends whether you’re on the board of Boeing, or onboard a Boeing.”

Those who read the Wrongologist in email can view the video here.

 

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