Tag: Honesty in Discussion of Taxes

Dark Money Keeps Flowing Into Our Politics

The Daily Escape:

Cranberry Bog, Old Sandwich Road, Cape Cod MA – October 2023 photo by Ken Grille Photography

As usual, we’re enjoying our time on Cape Cod. We visited a cranberry bog operator yesterday and learned that the number one use of cranberries in America is making crasins. Those packages of whole cranberries you purchase at Thanksgiving make up just 1% of US cranberry sales.

Two topics today: First, as much as Wrongo would like, he can’t ignore the escalating war between Israel and Hamas. Many have written about the conflict. Wrongo wants to spend a few minutes on this week’s hypocrisy by House Republicans. Ja’han Jones wrote for MSNBC:

“In February, several Republicans signed on to a bill, introduced by Rep. Matt Gaetz, R-Fla., that was aimed at ending US military and financial aid to Ukraine.”

At the time, Gaetz said:

“America is in a state of managed decline, and it will exacerbate if we continue to hemorrhage taxpayer dollars toward a foreign war…”

But on Sunday, Gaetz said on Meet the Press that we should up our support to Israel:

“The reason we have this multibillion-dollar commitment…to Israel is because we want Israel to have a qualitative military edge over everyone in the region…”

Just last week Gaetz and other Republicans were willing to shut down the federal government over aid to Ukraine. Aiding Ukraine means spending to assist in a fight against Russia, which the MAGAverse is apparently supports only very weakly. But aiding Israel, which this time means spending to assist in a fight against Hamas, is ok. Republicans like spending money fighting Muslims.

Anne Applebaum in The Atlantic warns that the “rules-based world order” is on the verge of breaking down:

“Open brutality has again become celebrated in international conflicts, and a long time may pass before anything else replaces it.”

This applies to both Ukraine and to Israel. We can’t afford to ignore one in favor of the other.

Our second issue today is that the billionaire Charles Koch is using a tax dodge to fund his ongoing political activities. From Judd Legum:

“…Charles Koch…is funneling his wealth into two organizations that can continue his right-wing political advocacy for years. Koch structured more than $5 billion in donations to…allow him to avoid paying capital gains or gift taxes. It’s not surprising that Koch is familiar with the loophole — he spent hundreds of thousands of dollars lobbying to create it.”

Legum cites a Forbes article which states that in 2022, Koch donated $4.3 billion in Koch Industries stock to Believe in People, a newly formed 501(c)4 nonprofit organization. The organization is run by Koch’s inner circle, including his son, Chase Koch along with Dave Robertson, co-CEO of Koch Industries, and Brian Hooks, the co-author of Charles Koch’s last book.

From Forbes: (brackets by Wrongo)

“ [Koch] has already quietly transferred $5.3 billion of nonvoting stock to a pair of nonprofits….Forbes estimates those shares account for nearly a tenth of the 42% stake previously held by Charles (though he still has 42% voting power).”

The other Koch nonprofit is called CCKc4. In 2020, Koch also donated $975 million in Koch Industries stock to CCKc4, controlled exclusively by Charles’ son, Chase Koch. Legum reports that in its 2020 IRS filing, CCKc4 listed its mission as “N/A.” The gift to Believe in People is now the largest publicly disclosed donation to a 501(c)4–a type of nonprofit with fewer restrictions on lobbying and politics than traditional charities.

Unlike a traditional 501(c)3 nonprofit, a C4 can own an entire for-profit company indefinitely and (so long as these activities support its principal purpose) benefit private individuals; engage in an unlimited amount of issue lobbying; and get directly involved in politics.

Since Congress exempted donations to C4s from the usual 40% federal gift tax in 2015, a number of billionaires have donated 100% of their companies to C4s. Before Koch’s gift the largest of these C4 donations was by Patagonia’s founder Yvon Chouinard, who transferred all of his outdoor clothing and gear retailer’s nonvoting stock to an environmentally-focused C4 in 2022. At the time of the gift, Patagonia was reportedly valued around $3 billion.

Legum reports that Koch’s main political spending vehicle, Americans for Prosperity Action (AFP Action), in the 2022 election cycle spent 95% of its money on Republican candidates who were formally endorsed by Trump or who actively campaigned as Trump supporters. AFP Action spent just $3.5 million on candidates not aligned with Trump and zero dollars supporting Democratic candidates.

This is America in the 2020s: $ billions “donated” by billionaires to protect other billionaires. The tax dodge was enacted in 2015 during the Obama administration. This expansion of tax-free funding of political action is something that is unknown to average people, yet it impacts our politics through its substantial invisible influence. It strips money from the government’s coffers while simultaneously further poisoning US democracy. The only way to take back control of our politics is to take back control of the flow of money into our politics.

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Two Writers Who Speak To What America Needs

The Daily Escape:

Wukoki, Wupatli National Monument, AZ – September 2023 photo by David Erickson

September is underway, and we’re about to have a negotiation about government spending. But that doesn’t mean that the news this month will be any less stupid than last month’s. Also, as the Republican presidential candidates demonstrate every day, we don’t actually know whether the GOP is a dying Party or, the rising single Party of an authoritarian state.

Unless and until the traditional press presents these as the stakes, it is very unclear which it’ll end up being. With this as an introduction, Wrongo wants to introduce two writers who are attempting to break through our chain of bad policies and the bad ideology that threatens our democracy.

First, from Wesley Lowery in the Columbia Journalism Review:

“We find ourselves in a perilous moment. Democracy is under withering assault. Technological advances have empowered propagandists to profit through discontent and disinformation. A coordinated, fifty-year campaign waged by one of our major political parties to denigrate the media and call objective reality into question has reached its logical conclusion: we occupy a nation in which a sizable portion of the public cannot reliably tell fact from fiction. The rise of a powerful nativist movement has provided a test not only of American multiracial democracy, but also of the institutions sworn to protect it.”

Lowery is a Pulitzer Prize-winning reporter. He goes on to say:

“In 2020, I argued that the press had often failed this test by engaging in performative neutrality, paint-by-the-numbers balance, and thoughtless deference to government officials. Too many news organizations were as concerned with projecting impartiality as they were with actually achieving it, prioritizing the perception of their virtue in the minds of a hopelessly polarized audience…”

Lowery also says that news organizations often rely on euphemisms instead of clarity in clear cases of racism (“racially charged,” “racially tinged”) and acts of government violence (“officer-involved shooting”). He says that these editorial decisions are not only journalistic failings, but also moral ones:

“…when the weight of the evidence is clear, it is wrong to conceal the truth. Justified as “objectivity,” they are in fact its distortion.”

Lowery concludes by saying:

“It’s time to set aside silly word games and to rise to the urgent test presented by this moment.”

Second, Bob Lord is a tax attorney and associate fellow at the Institute for Policy Studies. He also serves a senior advisor on tax policy for Patriotic Millionaires. At Inequality.org, he proposes a graduated wealth tax on the rich:

“The United States is experiencing a level of wealth inequality not seen since the original Gilded Age. This yawning gap between rich and poor has unfolded right out in the open, in full public view and with the support of both political parties.

A malignant class of modern robber barons has amassed unthinkably large fortunes. These wealthy have catastrophically impacted our politics. They have weaponized their wealth to co-opt, corrupt, and choke off representative democracy. They have purchased members of Congress and justices of the Supreme Court. They have manipulated their newfound political power to amass ever-larger fortunes.”

More from Lord:

“In well-functioning democracies, tax systems serve as a firewall against undue wealth accumulation. By that yardstick, our contemporary US tax system has failed spectacularly….Our nation’s current tax practices allow and even encourage obscene fortunes to metastasize while saddling working people with all the costs of that metastasizing.”

Lord along with the Patriotic Millionaires propose new legislation, called the Oligarch Act (Oppose Limitless Inequality Growth and Reverse Community Harms). It is being brought forward by Rep. Barbara Lee (D-CA) and Summer Lee (D-PA). The Lees have developed a graduated wealth tax tied directly to the highest wealth in America. The Oligarch Act propose a set of tax rates that escalate as a taxpayer’s wealth escalates:

  • A 2% annual tax on wealth between 1,000 and 10,000 times the median household wealth.
  • A 4% tax on wealth between 10,000 and 100,000 times the median household wealth.
  • A 6% tax on wealth between 100,000 and 1,000,000 times the median household wealth.
  • An 8% tax on wealth exceeding 1,000,000 times the median household wealth.

Per the US Census Bureau, the median household wealth in 2021 was $166,900. So the first tier 2% wealth tax would kick in at $166,900,000, and so on.

This would affect only very high levels of household wealth. To put that in perspective, according to the Federal Reserve, the wealth level that puts you into the top 0.1% of households in 2019 Q3 was $38,233,372. So if enacted, this Act would touch a really small number of outrageously wealthy households. Also, their taxable amount would be peanuts by their own standards.

The legislation would also require at least a 30% IRS audit rate on households affected by the new wealth tax. One recent estimate indicated that the richest Americans dodge taxes on more than 20% of their earnings, costing the federal government around $175 billion in revenue each year.

The immediate argument is that this tax will never pass as long as the filibuster is intact. And here’s how the work of both authors comes together. We see the “it will never pass” objection from journalists and pundits who try to appear savvy in the ways of DC. On any cable news show, someone is sure to jump up to say it.

The paradox is that if you look at the Congressional Record and flip to the special orders section and extensions of remarks, you’ll notice they’re filled with speeches and statements on behalf of recently introduced bills which the sponsors know will never pass as written. So why do they do it?

Because the point of introducing a bill is not just to pass it in the current session of Congress. It never has been. There is a tradition going back to the earliest days of Congress of introducing bills to make arguments and advance debate. Many famous members of Congress (think Ted Kennedy, Thaddeus Stevens, John Quincy Adams) sponsored or backed multiple bills they knew were not going to become laws.

They did it because they knew that debates over bills that will become laws don’t occur in a vacuum. They happen in the greater context of the debate in Congress over issues which are influenced by every other bill under consideration. And of course, you’ve gotta start somewhere.

Jumping to the conclusion “it will never pass” isn’t being savvy, it’s a sign you’ve missed the point. And it’s a sign of the vapidity of so many journalists and pundits that it’s the first thing out if their mouths. It’s never a good idea to take cues from the stuffed shirts on Fox, CNN and Meet The Press.

This graduated wealth tax is a good start and sets a precedent: There is an amount of wealth that is ruinous to democracy. Taxing it is a necessary condition for preserving democratic governance.

It is true that Congress, as it is presently constructed, will not pass this, or other badly needed legislation. A genuine revolution in thinking will be required. Both Wesley Lowery and Bob Love point us toward fresh thinking about how we start dealing with what we consider to be intractable problems.

Wrongo still has hope for the younger generations who are suffering the consequences of all this government sanctioned selfishness.

Change is coming.

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New Relief Bill Rewards Businesses

The Daily Escape:

Hayden Valley, Yellowstone NP – December 2020 photo by Jack Bell

Politico reports that Congressional leaders are nearing a deal on Covid relief. The deal could be done by the time you read this.

The relief package is divided into two parts. The first bill, with a stated cost of $748 billion, funds the Paycheck Protection Program (PPP), along with $300 per week for unemployment benefits.

The second bill ties liability protections for companies demanded by Republicans to the Democrats’ demand for funding for state and local governments.

The big-ticket items in the first bill include one-time stimulus checks to individuals in the $600 to $700 range, an extension of federal unemployment benefits with an additional weekly amount of $300. There is $325 billion for small businesses, $257 billion for the PPP, some $ billions for vaccines, and to help schools open safely.

Delayed until the New Year is bill two, including money for state and local governments faced with laying off municipal workers, and liability protection for companies that put their employees in danger from the virus through inadequate safety measures. The items in the second bill are what have stalled negotiations for weeks.

Lee Fang of the Intercept reports that the draft of the first bill circulating on Capitol Hill contains several adjustments to the PPP, the centerpiece of the government’s earlier efforts to curb job loss stemming from the pandemic. One of the revisions is a radical change that would result in a major windfall for the highest-income Americans and large corporations. That provision allows businesses claiming expenses reimbursed by PPP forgivable loans, (already tax-free), to also be used as deductions when calculating taxable income.

In other words, the change would allow a corporation that claimed $1 million in PPP reimbursements to also deduct the same $1 million on its tax return, thereby reducing their taxable income by $1 million. Until now, IRS rules prohibited tax-free government grants and reimbursements from being used as deductions. The Intercept quotes Steven Rosenthal from the Tax Policy Center, who estimates that this PPP deduction provision could reduce the taxes of the highest-income taxpayers by at least $100 billion without benefiting workers or the unemployed.

This tax deduction provision technically applies to all PPP recipients, but few will be able to take the additional tax benefit. Wealthy business owners and large corporations claim the lion’s share of business expense deductions. This group would include wealthy doctors and financial consultants, and those who make over $1 million in yearly income.

This tax provision has been pushed by Rep Richard Neal, (D-MA), and Sen Chuck Grassley, (R-IA). There has been little pushback to these tax giveaways, reflecting a general consensus in Congress around the value of more business tax cuts. Lawmakers, including Senate Majority Leader Mitch McConnell, (R-KY), have described the PPP extension and expansion as an “uncontroversial” aspect of stimulus talks.

This should be pretty simple. If you get a PPP loan, and it is later forgiven, the expenses paid with the loan proceeds shouldn’t be deductible. The company didn’t pay taxes on the PPP loan cash proceeds and thus shouldn’t receive a deduction against taxable income for the expenses paid. That’s double-dipping.

The big idea behind PPP loan forgiveness was to help businesses retain employees and pay certain qualified expenses like rent and utilities, not to enrich employers.

Also buried in the bill is another bailout for US Airlines. They stand to get another $17 billion taxpayer-funded bailout if the first bill becomes law. From Wolf Richter:

“Democrats and Republicans may not agree on much of anything these days, but they both love to bail out airline shareholders and bondholders. And that’s what this is – dressed up as payroll protection and airline support program.”

The new airline bailout comes on top of what they received in the original stimulus bill: $25 billion in payroll support, an additional $25 billion in loans for passenger airlines, and over $10 billion in grants and loans for cargo airlines and aviation contractors.

Let’s remember that the top four airlines have burned their cash by repurchasing $45 billion of their shares since 2012. They don’t need more of our money, Chapter 11 bankruptcy works. Delta, American and United have previously restructured in bankruptcy court, and it worked fine. They know how to do that.

And let’s tell it like it is: If there wasn’t a majority of Republicans in the Senate, the people would get the checks and the unemployment relief they really need.

Win in Georgia!

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Trump Gives More Tax Breaks to Corporations

The Daily Escape:

Sunrise at Delicate Arch, UT – 2019 photo by going_postal

While we were all celebrating New Year’s, the NYT published a story about how Trump’s Treasury Department quietly weakened elements of the 2017 Trump tax law, making it even friendlier to wealthy individuals and corporations.

As a result, the tax bills of many big companies are even smaller than what was anticipated when the bill was signed. This means that the federal government may collect hundreds of billions of dollars less over the coming decade than previously projected. The budget deficit has jumped more than 50% since Trump took office. It is expected to top $1 trillion in 2020, partly as a result of the tax law.

Lobbyists targeted two provisions in the original 2017 law designed to bring in hundreds of billions of dollars in revenue from companies that had been dodging US taxes by stashing profits overseas. From the NYT:

“Starting in early 2018, senior officials in President Trump’s Treasury Department were swarmed by lobbyists seeking to insulate companies from the few parts of the tax law that would have required them to pay more. The crush of meetings was so intense that some top Treasury officials had little time to do their jobs…”

Because of the way the bill was rushed through Congress, the Treasury Department was given extra latitude to interpret the law. Add the fact that the law was sloppily written, helped to make the corporate lobbying campaign a resounding success.

Treasury has issued a series of obscure regulations that carved out exceptions allowing many leading American and foreign companies to pay little or nothing in new taxes on offshore profits. The NYT says companies were effectively let off the hook for tens if not hundreds of $billions in taxes that they would otherwise have been required to pay under the 2017 law.

You may remember that the idea behind the Trump Tax Cut was that companies would get the tax cuts that they had spent years lobbying for, but the law would also fight corporate tax avoidance and the shipment of jobs overseas.

A few facts about the Trump tax cut: Republicans used a Congressional process known as budget reconciliation, which blocked Democrats from filibustering and allowed Republicans to pass the bill with a simple majority.

To qualify for that parliamentary green light, the net cost of the bill, after accounting for different tax cuts and tax increases, had to be less than $1.5 trillion over 10 years. But the bill’s cuts totaled $5.5 trillion. To close the gap between the $5.5 trillion in cuts and the maximum allowable price tag of $1.5 trillion, the package sought to raise new revenue by eliminating deductions and introducing new taxes.

The two key provisions are known by the acronyms BEAT (base erosion and anti-abuse tax) and GILTI (global intangible low-taxed income). Shortly after Trump signed the tax bill, lobbyists from major American companies like Bank of America and General Electric as well as foreign banks, swarmed the White House in an effort to gut the BEAT and GILTI taxes.

Trump’s Treasury Department largely granted the lobbyists’ wishes, turning what was already a massive corporate handout into an even more generous gift to big companies and banks.

In the last 2 quarters of 2019, we saw massive corporate share buybacks. The richest families and corporations pocketed most of that money, with minimal re-investment into company assets, increased employee pay, or benefits.

The folks who didn’t get what they needed were the bottom 90% of Americans. Welcome to the plutocracy where billionaires whine about getting picked on, and the bottom 80% own just 7% of the nation’s wealth.

The mission of the Trump presidency is nearly complete. He’s packed the Supreme Court with reliable conservatives. He’s delivered the Randian wet dream of low corporate taxes while leaving most corporate tax loopholes in place.

Trump’s version of the Republican Party is in their end game: Bankrupting the government, privatizing government’s remaining services, and stealing the silverware on their way out the door.

We have entered the smash-and-grab portion of the GOP’s program. They care, but only marginally, if Trump is re-elected in 2020. Their work is done.

The narrative that our economy is the best ever, was enabled by a record federal deficit. When it’s time to protect Social Security, or provide better access to healthcare, the GOP will cry about the budget deficit that’s likely to be more than $1 trillion/year, from here to forever.

Normalized insanity is in full swing. Welcome to the asylum!

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Saturday Soother – Amazon Bails on NYC Edition

The Daily Escape:

Marijuana Museum, Amsterdam, Netherlands – 2017 photo by Wrongo

When Alexandria Ocasio-Cortez and Michael Bloomberg agree on something, it’s worth taking seriously, and neither wanted the Amazon deal with NYC. And this week, Amazon scuttled its plans to build its HQ2 in Long Island City, (LIC) Queens, New York City, citing opposition by “state and local politicians.”

Amazon’s abrupt announcement to withdraw from the deal came after it was roughed up at two City Council meetings along with enduring the indignity of having to contend with anti-gentrification protestors and union leaders.

There were two big problems that Amazon faced in LIC. First, they were getting a huge tax subsidy, about $2.8 billion. The tax subsidy looked even worse when we learned this week that Amazon nearly doubled its profits to $11.2 billion in 2018 from $5.6 billion the previous year and, once again, didn’t pay a single cent of federal income taxes.

It didn’t help that the state and city announced the massive subsidies when both are also contending with large budget deficits. NYC Mayor Bill de Blasio, citing a shortfall of $1 billion in revenues, told city agencies to cut their budgets by $750 million by April. And these cuts would have to be recurring.

This helped build outrage about the nearly $3-billion corporate welfare program for Amazon.

The second problem was gentrification in the LIC neighborhood. Immediately after the announcement, real estate prices zoomed, precisely when Manhattan prices were falling. The NY real estate industry was to be one of the primary beneficiaries of the HQ2 project, but local residents would be driven out of their neighborhoods.

Amazon has a poor track record in Seattle. They had fiercely opposed a local tax on large companies to fund housing for the homeless, and got it reversed one month after it had taken effect. Microsoft, after the tax law was scuppered, pledged $500 million to fund affordable housing for the low and middle income in the Puget Sound area, and encouraged other companies to make similar efforts.

Amazon didn’t join with Microsoft.

All is not lost. Amazon says it will still be expanding employment in NYC. And LIC has been a hot real estate/development market for several years, long before Bezos started playing his urban version of the Hunger Games. If the commercial construction in LIC over the past five years was happening in a second-tier US city, it would be equivalent to an entirely new business district.

A third problem was Amazon’s sense of entitlement. They expected zero push back, and their New York City campaign was inept. Amazon seems to have thought that since it had the governor and mayor in its pocket, all it had to do was show up for photo ops. The NYT points out Amazon didn’t even hire a native to grease the wheels:

“…the company did not hire a single New Yorker as an employee to represent it in discussions with local groups. Its main representatives traveled between Washington and Manhattan, and only one had moved into an apartment to work with community members and foster support.”

Amazon’s leaving was celebrated by Rep. Alexandria Ocasio-Cortez (D-NY), who represents the district. She complained about the “creeping overreach of one of the world’s biggest corporations“, and maybe that was the final straw for Bezos.

So props to AOC, and to the local politicians for standing up to this example of corporate welfare.

It’s possible that Jeff Bezos’s sudden change of heart was that he couldn’t stomach the idea of not being able to push around NYC the way he bullied Seattle into dropping its homeless tax. In NYC, he’d have to curry favor, feign interest in the concerns of locals, and make occasional contributions to the city.

Bezos may have felt all that was too high a price. But we should assume Amazon penciled out the deal, and didn’t like the result. For Amazon, it may have been a prudent business decision, artfully dressed up as a response to the political opposition the incentive package was facing.

Maybe, it’s no longer business as usual in America. AOC and other young people may not have money, but that doesn’t mean they can’t use power.

These corporate tax subsidy deals never add up for the cities that make them. Maybe people in other cities will learn from this NYC moment, and fight against the selling of our cities and towns to the uber-wealthy.

Now, it’s time to let go of Amazon, AOC, and Trump’s National Emergency. It’s time to get some Saturday Soothing.

Start by brewing up a vente cup of Roasting Rabbi Coffee, where the company slogan is: “Releasing the Holy Spark in Each Bean!” Try their Breakfast Blend.

Now settle into your most comfy chair and listen to Valentina Lisitsa play Liszt’s Hungarian Rhapsody No. 2, recorded live in May, 2010 in Leiden, Holland:

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

 

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Tax Abatements Are Killing School Budgets

The Daily Escape:

Egmont National Park, NZ – photo by vicarious_NZ

A new report shows that US public schools in 28 states lost at least $1.8 billion in tax revenues last year as a result of tax incentives granted to corporations. The study analyzed the financial reports of 5,600 of the nation’s 13,500 independent public school districts.

Good Jobs First examined the first full year of reporting under a new accounting standard for school districts, adopted by the Governmental Accounting Standards Board (GASB), the body that sets accounting rules for all states and most localities. The new rule, GASB Statement No. 77 on Tax Abatement Disclosures, requires most state and local governments to report annually on the amount of revenue they’ve lost to corporate tax abatements.

This is extremely important, since most local schools are very dependent on revenue from property taxes, but they rarely have influence over corporate tax abatements granted by their towns, and/or the cities or counties where they are located.

And local voters have had no way to see how much they are forced to pay in additional taxes that were lost to enrich the pockets of corporate employers.

Good Jobs found that the 10 most affected states could have hired more than 28,000 new teachers if they were able to use the lost revenues. Or, they could have avoided higher home property taxes, or provided their teachers with better resources, or higher pay.

States and cities have long used abatements and other tax incentives to lure companies, or to keep them from leaving, and/or to encourage them to expand locally. Often, those companies make their choice of location based on the quality of local schools and colleges.

These abatement deals are made by local politicians and are meant to boost local economic development. Their proponents say the lost tax revenue is worth it, because they grow the local economy. But it is difficult to know whether the benefits outweigh the burdens.

And until GASB 77, it has been impossible to see just how much a school system may have lost because of a company’s tax break. The new rule is especially helpful in understanding local schools finances, because it requires the reporting of revenue losses even if they are suffered passively by the school system as the result of decisions made by another body of government.

Of the five districts that lost the most, three are in Louisiana. Together, they lost more than $158 million, or $2,500 for each student enrolled. The School District of Philadelphia, which only last year regained local control from the state after climbing out of a deep fiscal crisis, lost the second most revenue at $62 million.

Overall, nearly 250 school districts lost at least $1 million each, and in four districts, tax abatements reduced classroom resources by more than $50 million.

But most school districts have not yet complied with Rule 77, which was implemented in 2015. Good Jobs First estimates that another $500 million of subsidies and abatements are currently unreported.

Most of us believe that our governments are supposed to govern in the interests of the “general welfare,” that when voters put people in positions of power, based on the legitimacy of our electoral process, is the limit of our responsibility as voters.

We accept that somebody has to say what the rules are, and then enforce them.

But in our neoliberal economic times, voters have to remember that our governments often act as wholly owned subsidiaries of the 1%. It takes suspension of belief to accept that our republic, ruled as it is by an oligarchy, is working for the general welfare of all of our citizens.

Why do we think that, our “governments”, all of which are subject to capture and ownership by the few, are going to somehow provide decency, comity, or fairness to all of us?

We need to abandon the article of faith that the free market, one without government oversight, promotes the best economic outcome for all of us.

Today’s inequality says the opposite.

We need a new vision of the role of government. But it isn’t really a “new” vision. It is simply a return to insisting on the “promotion of the General Welfare for all” as the paramount object of government.

Here’s another thought from Gordon Wood, in his book, Creation of the American Republic:

In a republic each individual gives up all private interest that is not consistent with the general good, the interest of the whole body. For the republican patriots of 1776 the commonweal was all encompassing—a transcendent object with a unique moral worth that made partial considerations fade into insignificance.

The last outcome that American revolutionaries wanted was to be ruled by oligarchs. But, here we are.

We need to reform our capitalism.

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Monday Wake Up Call – December 4, 2017

The Daily Escape:

Old railroad tracks near Folsom, CA – December 2017 photo by Merrill Dodd

This will be Wrongo’s last column discussing the tax bill. Here is a chart describing the differences between the Senate and House tax bills:

Source: WSJ

The big question is will the tax bill really go through reconciliation, or can Paul Ryan convince House Republicans to vote for it essentially as is? The three factions Ryan has to deal with inside his own party might make a straight agreement a hard sell. Will a successful reconciliation happen? Odds seem to be in its favor. However, things could go sideways. There’s plenty in the bills to anger just enough of the three Republican House factions, and they’re more exposed to a potential 2018 wave election than the Senators. State and local tax deduction are a sticking point, and what about the deficit? It will be an interesting and stressful next few weeks.

Returning to yesterday’s David Stockman’s analysis: The standard deduction is doubled in both bills to $24,000 per household, costing $737 billion while changing the tax brackets from seven to four (in the House bill) costs $1.17 trillion.

When all the puts and takes are finished on the personal income tax side, what America gets from 2018-2027 is a $1.20 trillion net reduction in personal income taxes. But, as we showed in yesterday’s chart, dead people and rich people stand to benefit the most.

So, what’s left is a tiny $352 billion tax cut for rest of America’s 145 million tax filers over the entire next decade. On average, that’s about $242 per person per year!

Couldn’t $1.4 trillion been better spent on refurbishment of our infrastructure rather than in giveaways to corporations? Do corporations really need more government aid at a time when they are recording near-record profits, and hold huge cash reserves that they are not spending on hiring, wage increases or investment in the USA?

It’s long past time for America to wake up!! Whether you support the tax bill or hate it, it’s also past time to clean out the sewer that is Congress. It will take about six years of organizing, finding progressive candidates, and GETTING OUT THE VOTE, to deliver mostly new faces in DC.

We must break up the “old thugs club” that Congress has become. To help us wake up and start on political renewal, let’s listen to George Harrison’s “Taxman”. This was the Beatles’ musical complaint about how much they were paying in taxes in the UK. “Mr. Wilson” and “Mr. Heath” are mentioned in the lyrics. They are former British Prime Ministers Harold Wilson and Edward Heath, who contributed to writing English tax laws that at one point had a 95% marginal tax rate.

There are no high-def video recordings of the tune available online by the Beatles (it was released in 1966 on “Revolver”), so here is Joe Bonamassa performing “Taxman” live at Liverpool’s Cavern Club, in June 2016. It’s his bluesy take on the Beatles’ pop sensibilities:

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

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Saturday Soother – December 2, 2017

The Daily Escape:

St Petersburg Russia’s Church of the Saviour – photo by Amos Chapple

As Wrongo writes this on Friday, it appears that the Senate Republicans have the votes to pass their version of the tax bill. The House passed their version on November 16th. The House Republican’s tax bill includes a major shift in tax policy that will mean a hidden tax increase on every American taxpayer over the coming decades. From the Washington Times:

Republican tax-writers have decided to shift the tax code’s inflation index from the Consumer Price Index, or CPI, to something known as chained CPI, which is a slower-growing method of calculating cost-of-living increases.

How would this work? The new tax proposal replaces the current CPI, which is based on changes in prices for urban consumers, with the chained CPI. Various estimates show that this method would lower reported inflation by as much as 0.30% a year.

This will create two pocketbook issues for taxpayers. First, using a lower rate of inflation to calculate future tax rates will mean that tax brackets will adjust more slowly than with regular CPI. Therefore, taxpayers will move into higher tax brackets if their income increases faster than chained CPI, paying more in taxes. More from the Washington Times: (emphasis by the Wrongologist)

It works out to taxpayers paying $128 billion more to Uncle Sam than they would otherwise over the next decade, and $500 billion more in the subsequent decade.

Second, chained CPI will change how the government calculates inflation for the purpose of adjusting Social Security payments. CPI is the basis for cost-of-living adjustments that affect many government benefits. If the measure of inflation is reduced, then the increases in Social Security payouts to the public would also be lowered.

This, despite the fact that CPI already tends to under-report price increases. If chained CPI is implemented, Barry Ritholtz says: (emphasis and brackets by the Wrongologist)

It would allow Congress to come up with about half of the funds needed to cover the proposed GOP tax cuts by pushing more people into higher tax brackets and [by]…creating a hidden tax on everyone who will ever get Social Security in the future.

This is based on the long-held Republican idea that “if only we could lower inflation as reported in the consumer price index, we could afford more tax cuts.”

And adopting chained CPI will reduce future Social Security payments without America having any sort of honest debate about it. You can compare the two measures of inflation side by side at this Bureau of Labor Statistics page: Chained consumer price index for all urban consumers (C-CPI-U) and the consumer price index.

When Trump was elected, the floodgates were opened. Any old, bad Republican idea is now legitimate.

Assuming that the House and Senate bills are reconciled and a tax bill is passed and signed by Trump, it may well be the worst piece of legislation in a century. It would finally undo the legacy of both FDR and Lyndon Johnson, something that has been a wet dream of the Right for generations. Emboldened by its passage, the GOP will follow it by taking a scythe to much of what remains of the social safety net.  Worse still, since the GOP is doing away with the inheritance tax, Republicans will have ensconced themselves as a permanent, hereditary financial and governing elite.

That will surely make America Great Again.

We have to get up off the couch, and fight for what remains of the New Deal and Great Society programs. This fight will be town-by-town, political office by political office, until progressives can compete in every red state for control of its legislature and governorship.

It’s another Saturday, the end of a long week in which it became clear that the country is approaching a cliff. We need some inspiration. So we turn to Meghan Markle.

Wrongo hadn’t heard of Meghan Markle until her engagement to the guy who is 6th in the line of succession to the throne in England, splashed across the news. But, it turns out she is an intelligent, independent person with agency. Markle was named the UN’s Woman’s Advocate for Political Participation and Leadership in 2015. Here she is speaking about advocacy at the 2015 UN Women conference. It’s a winning and inspiring performance, and, while it’s a sample of one, it shows that Millennials are gonna do a fine job with the planet:

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

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Reagan’s Tax Cuts Are No Model for Today’s GOP

The Daily Escape:

Colima Volcano, Mexico, December 2015 – photo by Sergio Tapiro, National Geographic 2017 photographer of the year

Republicans are patting themselves on the back about their coming tax cuts, comparing it to the famous (infamous?) Regan tax cuts, known as the Tax Reform Act of 1986. From the Economist:

During the three decades since its passage, Democrats and Republicans alike have hailed the law not only for overhauling the country’s tax system…but also for doing so with bipartisan support in both houses of Congress.

Unlike the bi-partisan review of our tax system that occurred from 1984 to 1986, Donald Trump has promised to sign a bill by Christmas, just two months after the first legislative text was introduced.

Congressional Republicans originally promised that any reform would not reduce overall revenues. But they have flip-flopped: The current plan is expected to raise deficits by between $1.3 and $1.5 trillion over its 10-year life. And according to figures from the Joint Committee on Taxation, most of the benefits will go to the rich. Reagan’s reform did the opposite. The left hand chart below shows the Reagan tax cut in blue and the Trump tax cut in red. The x axis is annual income, while the y axis is the percentage of taxpayers receiving a tax cut:

Source: The Economist

The gaps in share of taxpayers receiving a cut are stunning. Between 35-55% of those under $40k in income will receive a benefit under the Trump plan, while between 70-80% of the same group received a cut under the Reagan tax plan.

It gets worse when we look at the right hand chart above. The x axis shows the percentage change in after-tax income by earnings level. Reagan’s cut gave those making between $10k-$50k an increase in take home pay by between 0.25% and 1.5%. Trump’s plan will leave them at ± 0% change in take-home income, while those who make from $50k to $200k will do significantly better under the Trump plan than under Reagan.

And an article of faith for the GOP is that the tax cut will stimulate the economy. Let’s unpack this a bit. The bill provides interim tax relief of about $1.38 trillion during 2018-2025 before the tax sunset provisions kick-in. That equals 4.2% of current tax revenue collections during the 8- year period, and only about 0.8% of GDP.

It’s hard to see how an 0.8% stimulus to GDP is going to bring on a growth tsunami, or add tons of new jobs.

Back to the Reagan tax cut, it had no measurable effect on the trend rate of economic growth, and when it was fully implemented, it amounted to 6.2% of GDP, not 0.8%, .

Finally, when the Tax Policy Center costed out the Senate Finance Committee bill, it showed that by year 10, not one of the 150 million individual filers will still be getting a tax benefit. And most importantly, the single tax cut item left in the statute, the 20% corporate rate, which stays in place permanently, costs America $171 billion in lost revenue in 2027. From David Stockman:

Likewise, the latest distributional analysis [probably from the Center on Budget and Policy Priorities] shows that in 2025, before the sunset,-the bottom 30 million tax filers would get an average “tax cut” which amounts to the grand sum of $1.15 per week….the next 30 million filers would only get $7 per week; and the middle quintile—-the 30 million tax filers between $55,000 and $95,000 per year and the heart of the middle class—– would get just $17 per week of tax relief in 2025.

Hardly seems worthy of Paul Ryan’s gloating about how he’s helping the middle class. The people know that they have no control over what happens, they just want to see how much more they will have to spend (pay?) when the dust settles.

And that’s why Paul Ryan and Donald Trump gloat. They show the rubes a dollar, and then send $1000 to their corporate benefactors.

This will be the GOP’s paradise after they enact the Trump tax plan:

 

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Here Comes the Retail Apocalypse

The Daily Escape:

The Oberlausitzische Library of Science, Gorlitz Germany

There is a growing concern that the mall as we know it is in big trouble. RadioShack, The Limited, Payless, and Toys“R”Us were among 19 retail bankruptcies this year. From Dave Dayden: (brackets by the Wrongologist)

This story is at odds with the broader narrative about business in America: The economy is growing, unemployment is low, and consumer confidence is at a decade-long high. This would typically signal a retail boom, yet the [retail store] pain rivals the height of the Great Recession.

Many point to Amazon and other online retailers as taking away market share, but e-commerce sales in the second quarter of 2017 were 8.9% of total sales. There are three reasons for so many sick retailers.

First, while online sales are “only” 8.9% of total retail sales, these businesses have very high fixed costs and low net profit margins. The Stern School at NYU tracks net profit margins on thousands of businesses across many sectors, including retail. The margins for Specialty retail for the year ending January 2017 was 3.17%. It was 1.89% for Grocery and 2.60% for General retailers. If a high fixed cost business loses 9% of sales, it can easily wipe out the bottom line.

Second, many retail companies carry high debt levels. Bloomberg explains that private equity firms (PE’s) have purchased numerous retail chains over the past decade via leveraged buyouts, where debt is the primary source of the money used to buy the business. There are billions in borrowings on the balance sheets of troubled retailers, and sustaining that load is only going to become harder if interest rates rise.

Third, there are just too many stores in our cities and suburbs to sustain sales in a world where online shopping is growing rapidly.

Worse, billions of dollars of that PE-arranged debt come due in the next few years. More from Bloomberg:

If today is considered a retail apocalypse…then what’s coming next could truly be scary.

This chart shows what percentage of retail real estate loans are delinquent by area:

Source: Trepp

There are large areas of America where more than 20% of the loans are past due. More from Bloomberg: (emphasis by the Wrongologist)

Through the third quarter of this year, 6,752 locations were scheduled to shutter in the US, excluding grocery stores and restaurants, according to the International Council of Shopping Centers. That’s more than double the 2016 total and is close to surpassing the all-time high of 6,900 in 2008…Apparel chains have by far taken the biggest hit, with 2,500 locations closing. Department stores were hammered, too, with Macy’s Inc., Sears Holdings Corp. and J.C. Penney Co. downsizing. In all, about 550 department stores closed, equating to 43 million square feet, or about half the total.

This threatens the retail sales staff and cashiers who make up 6% of the entire US workforce, a total of 8 million jobs. These workers are not located in any one region; the entire country will share in the pain.

These American retail workers could see their careers evaporate, largely due to the PE’s financial scheme. The PE’s, however, will likely walk away enriched, and policymakers will share the blame since they enabled the carnage.

Our tax code makes corporate interest payments tax-deductible. So the PE kingpins load up these companies with debt and when they walk away, they get tax credits for any write-offs, incentivizing them to borrow and play the game again. The PE firm might lose some or all of its equity, but in most cases, it already drew cash out via special dividends and fees, so it has made its money.

The lenders, employees, state development authorities are the ones left holding the bag.

The GOP’s new tax plan proposes a cap on the deductibility of interest payments over 30% of a company’s earnings. But, the GOP left a loophole: Real estate companies are exempt from the cap.

Surprisingly, this benefits Donald Trump’s businesses! It also helps PE firms that split the operating side of the businesses they buy from the property side, as most do. They put the borrowing onto the property side, and continue to deduct the interest.

So financialization businesses like PE will continue to strip the value out of companies with hard assets.

Billions in asset-stripping and thousands of operations sent overseas. Labor participation rate is stagnant, yet we are assured that if we pass big corporate tax cuts, the US economy will grow fast enough to more than compensate for the losses.

What’s wrong with this picture?

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