Ask the Right Question – on jobs and the tax code

The Young Turks have an entertaining video up from a town hall meeting with Representative Hultgren.

It’s short and tells the story.

The woman asks the right question about the Bush tax cuts, prosperity and job creation. The same question could/should be asked in a broader time frame. Since 1980, the tax table has been flattened in the model that Reagan and his acolytes have wanted and if this model worked to create prosperity, where is the prosperity? Why don’t we look at the tax model that existed in the time frame that created prosperity? The Eisenhower era tax table had tremendous incentives for businesses and the wealthy to invest in infrastructure instead of facing a top tax rate of 91% (essentially confiscatory at obscene income level). There is no incentive now for business leaders and planners to invest in their businesses when they can take huge bonuses instead and try to keep up with the Madoffs in a contest of conspicuous consumption. Fix the tax structure, fix the economy. Get the incentives right and things will turn around.

Sen. Cantwell sponsors extension of the Low Income Housing Tax Credit

At a forum on low income housing and homelessness prevention Friday, August 26, Sen. Maria Cantwell discussed the bill that she is co-sponsoring with Republican Sen. Olympia Snowe to extend and strengthen the affordable housing tax credit.  The forum took place at the Salishan housing development in Tacoma and was attended by about 300 people who have served as leaders, volunteers or activists in the area of affordable housing and shelter.  Many of the attendees represented churches that participate actively in homelessness prevention.

 Sen. Cantwell lauded the success of the low income housing tax credit in providing 90% of all affordable housing.  She said that 20,000 additional units will be needed in Tacoma over the next 10 years.  The 630 units that have been built in Salishan are the result of this tax credit.    The program is producing fewer units today, she said, because since 2008 there has been a reduced demand for the credits.  It has been difficult to find private capital and projects have been stalled nationally.  The problem is the fluctuation in the credit allocations with interest rates, so that the amount of the tax credits is currently too low.  The program is due to expire in 2013.  In introducing the extension, she and Sen. Snowe are proposing certainty in the allocation formula even if interest rates are low.

 In discussing the political aspects of getting the bill passed, Sen. Cantwell sought to frame the issue in terms of job creation.  She said the program could be sold as economic development and job creation in the construction industry.  She said that the program produced 140,000 construction jobs in the state.  Comparing the effects of public and private investment, she said that the federal government can stimulate the economy at a rate of 20 times the effectiveness of private industry.  Responding to a panelist’s question about how she would overcome political opposition, she said that she asks opponents what is holding them back from voting for the proposal.  She felt that pressure from constituents in favor of the extension would be the most means of getting it passed.

On related issues, she said that Washington State is 16th in the nation in foreclosures, with one home out of 781 in foreclosure in June.  There are 75,000 homes in foreclosure in Pierce County.

Rachel Myers of the Washington Low Income Housing Alliance said that that people who never used services before, and who had previously been donors, are now requesting services.  

Lisa Wolters of the Seattle Housing Authority discussed the severe backlog in the Section 8 housing program.  There are currently 50,000 Section 8 vouchers in use in Washington State.  The FY2011 appropriations bill cuts staff and impacts veterans’ programs.  King County recently opened up Section 8 applications for the first time in years and received 25,000 applications, from which 2500 randomly selected households will be considered.

S. Troy Christensen, who administers homeless programs in Pierce County, said that through current intake procedures, data is now available on applicants.  50% are single parents and 90% of these are single mothers.  Most of their applications have not requested social services in the past. 

Michael Mirra, Executive Director of the Tacoma Housing Authority, said that if this issue were food we would all recognize it as widespread malnutrition and pockets of starvation.  He said that public housing serves those who often can’t find other types of housing: seniors and the disabled.  He also said that for public housing to be accepted, it has to be in good shape. 

Kim Herman, Executive Director of the Washington State Housing Finance Commission, emphasized the need to make the allocation formula permanent and provided financial data.

Bryan Ketcham of Catholic Charities, provided a compelling perspective on affordable housing in rural areas, particularly for farm laborers.  He was very concerned that the HUD counseling program received no federal funding, while people are struggling to prevent foreclosures.  He said that the tax credit had less of an effect in rural areas because investors consider such development to be of greater risk.  He said that a rural family of four in the state earns $25,000, whereas in King County the mean in $39,000.  He said that the tax credit cannot fulfill the need in rural areas and that other programs are needed.  He related the stories of specific examples of families who were able to improve their situations economically from having access to affordable housing.

Thomas Green, a veteran with an honorable medical discharge, who was homeless for almost two years, discussed how a state and federally subsidized apartment enabled him to go to college.  He said that the possibility of applying for and obtaining a job while homeless was nonexistent.

The Adam Smith hardly anyone knows

http://www.huppi.com/kangaroo/Quotes-economics.htm

The Adam Smith that everyone knows:

Every individual… intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his original intention. By pursuing his own interest he frequently promotes that of society more effectively than when he really intends to promote it.”
— Adam Smith, Wealth Of Nations

The Adam Smith that hardly anyone knows:

“All for ourselves, and nothing for other people, seems, in every age of the world, to have been the vile maxim of the masters of mankind.”
— Adam Smith, Wealth of Nations

“No society can surely be flourishing and happy when part of the members are poor and miserable.”
— Adam Smith, Wealth Of Nations

“Our merchants and master-manufacturers complain much of the bad effects of high wages in raising the price, and thereby lessening the sale of their goods both at home and abroad. They say nothing concerning the bad effects of high profits. They are silent with regard to the pernicious effects of their own gains. They complain only of those of other people.”
— Adam Smith, Wealth Of Nations

“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”
— Adam Smith, Wealth Of Nations

“As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed, and demand a rent even for its natural produce.”
— Adam Smith, Wealth Of Nations

“The liberal reward of labor, therefore, as it is the necessary effect, so it is the natural symptom of increasing national wealth. The scanty maintenance of the laboring poor, on the other hand, is the natural symptom that things are at a stand, and their starving condition that they going backwards fast.”
— Adam Smith, Wealth Of Nations

“The rate of profit… is naturally low in rich and high in poor countries, and it is always highest in the countries which are going fastest to ruin.”
— Adam Smith, Wealth Of Nations

“The subjects of every state ought to contribute toward the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state ….(As Henry Home (Lord Kames) has written, a goal of taxation should be to) ‘remedy inequality of riches as much as possible, by relieving the poor and burdening the rich.'”
— Adam Smith, Wealth Of Nations

“The interest of dealers, however,… is a always in some respects different from, and even opposite to, that of the public… The proposal of any new law or regulation of commerce which comes from this order ought… never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.”
— Adam Smith, Wealth Of Nations

The Only Real Solution to our Economic Problems is Active Democracy

In a recent article in the Los Angeles Time, economist James Galbraith argues that “Stimulus Alone was Never going to bring Recovery.” See http://www.latimes.com/news/opinion/commentary/la-oe-galbraith-economics-20110815,0,843976.story

I agree in part with his solution: “Let’s build a new financial system to serve public purpose and private business. And let’s start to act on our actual needs and problems: jobs, foreclosures, public investments, energy security and climate change.”

I also agree that the patient, our national economy, is not going to recover on its own. In fact, I have long predicted that until we address the underlying causes of our economic problems, our economy will only get worse. However, I disagree with Galbraith’s assessment about the “causes” of the Great Recession. I therefore also disagree about the effectiveness of his proposed solution. Given that our economy is in the worse mess it has been in 70 years, we need to look much deeper than merely economics to understand what our problems are and how to solve them.

I have taught courses in problem solving for 20 years. One of the key principles of problem solving is that one must determine the “underlying” or hidden causes of a problem in order to create a truly effective long term solution. Economists tend to think the solution to all problems must be economic – just as carpenters see the hammer as the solution to every problem. But we can not solve problems merely by focusing in on symptoms – or by proposing solutions that solve only a part of the problem. Instead, we must examine our assumptions and peel the layers away from this onion. This requires going back over time and seeing where we took a wrong path – so that we might better recognize how to get back on the right path.

The reason the federal stimulus program did not restore our economy was primarily that the money was given to the wrong people and used for the wrong purpose. Instead of directly creating jobs on Main Street , nearly all of the money was given away to corporate bankers on Wall Street. Corporations were handed trillions of dollars. This led to a fake Stock Market rally and billions in Wall Street bonuses for the super rich.

US Corporate Profits reach a new record in 2010

(Annual Profit in Trillions $):

SOURCE: US BUREAU OF ECONOMIC ANALYSIS (BEA)
http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

 

But because there were no strings attached that this money be used to create jobs, very few jobs were created (less than a million jobs, when more than 10 million jobs were actually needed). Thus, the recovery went no where. But this latest saga of corporate corruption was only the latest chapter in a very long and corrupt story.

Our economic problems did not start in 2008. For many years before that middle class families were being slowly driven into bankruptcy. During the Bush years, there is a tendency to focus on the big problems – the fact that he ballooned the national debt by giving away trillions in tax breaks to the super rich and added another trillion to the debt by putting two wars on our national credit card. But there were many other smaller wounds inflicted on middle class families. Not only were banks deregulated – leading to predatory lending and causing credit card interest payments to triple, but oil companies were also deregulated – causing gas and energy prices to triple. Health gouging corporations and drug companies were also deregulate – causing health care costs to triple. Together, corporate deregulation cost middle class families thousands of dollars a year – money which was no longer available to spend at local small businesses supporting an expanding local economy. Instead, the money went towards wealthy corporations further increasing the concentration of wealth at the top.

In addition to tax breaks for the rich, rules were also re-written to essential exempt wealthy corporations from paying State and federal taxes. This caused two problems. First, in order to pay for essential services like schools, the tax burden was transferred from the rich to the middle class – costing working families even more thousands of dollars a year. The Tea Party blamed the government for raising their taxes. But in fact, as a percent of income, government is much smaller now than it was 10 years ago. Taxes on the poor, including payroll taxes and sales taxes, went up to pay for tax breaks for the rich.

The second problem was even worse. Granting corporate tax breaks and expanding corporate tax havens gave wealthy corporations a huge financial incentive to ship capital and jobs overseas. Because Free Trade agreements were not fair trade agreements, the US economy was essentially destroyed long before the collapse in 2008.

A final “symptom” is the corporate control of the media which promotes propaganda such as the nonsense that the unemployment rate is only 9% when even basic math confirms it is closer to 25%.

To find a time when the government and the media actually told the truth and treated people fairly, we would need to go back to the 1950’s under Eisenhower when the “effective” tax rate on corporations and the wealthy was 50%, when the media was required to be balanced and serve the public and follow the “Fairness and Equal Time” Doctrines in order to receive a license. Banks, oil companies and health insurance companies were regulated which meant that costs to working families for essential things like health care and gasoline were kept very low. Taxes on the poor and middle class were also much lower because taxes on the rich were much higher. This meant that the middle class had much more discretionary income which they could spend at local businesses helping to expand the local economy – growing jobs from the bottom up.

But if all of these things are mere symptoms than what is the underlying or common problem?

One can certainly blame banks and corporations for destroying our economy. One can also blame a weakening State and National government for deregulating the banks and oil companies. But before every economic calamity, there must have been a political calamity to allow the deregulation which led to the economic calamity.

Elimination of the Media Fairness Doctrine did not just happen. It happened because some corrupt politicians allowed it to happen. Elimination of Glass Steagall Banking regulations did not just happen. It happened because corrupt politicians in Congress passed a bill in 1999 to permit it to happen. Even in Washington State , tax breaks for wealthy corporations did not just magically skyrocket from $20 billion per year in 2000 to $50 billion per year in 2010. This huge expansion of corporate welfare occurred because corrupt State legislators passed several specific bills – such as the “no strings attached” Boeing Tax Break Bill in 2003 – which illegally transferred billions of dollars away from our public schools and into the pockets of private corporations – money which Boeing then used to outsource jobs to South Carolina, Italy and China.

This is why I concluded years ago that our underlying problems are not economic – but rather they are political. Our problem is extreme corporate corruption of both political parties – whereby corporations bribe politicians and pay for the re-election campaigns of the most corrupt politicians. Elections have turned into bidding wars in which the most corrupt person accumulates the most corporate campaign contributions and is most likely to win. The only solution to this problem is not public financing of campaigns – but rather active participation in Democracy. This means becoming a PCO for your precinct and organizing your neighbors and building a political network in your community and attending political party meetings and demanding that the long term needs of people be placed ahead of the short term greed of corporations.

People would like to believe that they can passively sit back and that government will solve our problems – or that big business will solve our problems. But until we take back our Democracy and recognize that WE ARE THE GOVERNMENT, our economic and social problems will only get worse. There is no doubt that corporations bought the election in 2010. We are seeing today the disastrous consequences for our economy and for the American people. But there will be another election in 2012 and 2014. Just as the people took back our Democracy by electing Progressive Democrats in 1932 – saving our country from Fascism or worse – so can we work to elect Progressive Democrats in 2012. Until we kick the current group of corrupt “corporate” politicians out of office, and replace them with progressive Democrats, there will not be an economic recovery.

Just as our underlying problems are political rather than economic, so to is the solution political. Only after the election of progressive Democrats will we see restoration of a fair tax system and a fair economy with opportunity, liberty and justice for all.

Oil Subsidies and the US Debt: Where to find $77 Billion

by Japhet Koteen

Editor’s note: This post was written by Japhet Koteen, a community builder, urbanist, and real estate developer in Seattle. He wrote this post as part of a project for Taxpayers for Common Sense.

It’s not the trillions elected leaders are looking for today in Washington, DC, but I know where they can find $77 billion: outdated subsidies to the oil and gas industries.

Oil and gas are two of the largest, most profitable industries in history. Yesterday, the big five oil companies, ExxonMobil, BP, ConocoPhillips, Chevron, and Shell posted combined profits of over $35 billion for the year to date. Yet US law treats them like fledgling businesses in need of public support. Ending their preferential treatment could trim the federal debt by tens of billions of dollars over the next five years. Here’s how:

1.) End the “Volumetric Ethanol Excise Tax Credit” — The VEETC gives refiners 45 cents for each gallon of ethanol blended with gasoline. Because US ethanol is mostly made of corn, this subsidy drives up food prices. Clipping the VEETC would put $31 billion in the US Treasury (over five years, as in each figure in this article).

2.) Fix the Accounting Rule for “Intangible Drilling Costs” — Since 1918, a bizarre and illogical accounting exception has persisted in the tax code, allowing oil companies to include all expenditures incidental to drilling a well as “current expenses” rather than “capital expenses.” This elementary accounting mistake, canonized in law, makes all the difference at tax time: Congress’ Joint Committee on Taxation says ending this handout would supply the Treasury $9 billion.

3.) Correct Errors in “Oil and Gas Royalty Relief” — Oil and gas companies that drill on public lands, whether onshore or off, pay royalties for the fuel they remove, but the Deepwater Royalty Relief Act of 1995 mandated royalty-free extraction when market prices are in the basement. Clerical errors—or corruption?—at the famously mismanaged (and subsequently abolished) Minerals Management Service of the US Department of Interior left a batch of 1998 and 1999 contracts written to exempt drillers from royalties at all prices. The result has been a windfall for holders of those leases. Fixing the contracts would yield almost $7 billion for the Treasury.

4.) Stop “Expensing” Refining Equipment –The Energy Policy Act of 2005 let companies deduct as expenses half the capital cost of investing in certain equipment used to refine liquid fuels. As for drillers’ Intangible Drilling Costs (see #2) so for refiners, “expensing” capital costs dramatically lowers tax bills. The Energy Reform Act of 2008, extended this credit to include refineries that are processing fuel derived from oil shale. The Joint Committee on Taxation estimates that putting a halt to this accounting lie would direct $2.3 billion into public coffers.

5.) Deep Six the “Geological and Geophysical Costs Tax Credit” — Included in the Energy Policy Act of 2005 and modified in the Tax Increase Prevention and Reconciliation Act of 2005, this credit gives extractors a handout for their spending on the search for oil and gas deposits. Ending this subsidy would yield for the treasury about $700 million, according to the Joint Committee on Taxation.

Beyond these subsidies that specifically favor oil and gas are others, general business tax rules that allow energy companies to avoid paying their fair share of taxes:

6.) Bar “Last In, First Out (LIFO) Accounting” for oil and gas — LIFO permits oil companies to tally each barrel sold as though they had bought it at today’s price, even if they bought it for half as much. That rule understates their profits and slashes their tax bill. For example, if a company bought a barrel of crude 2 years ago at $35, and bought another last year at $75, then sold both barrels at today’s price of $100.  The actual profit would be $90, but under LIFO they can claim that both barrels cost $75 to buy, so their taxable profit is only $50. (More details here.) Barring LIFO would augment the Treasury by $11 billion from the oil and gas industries alone.

7.) Cut off the “Foreign Tax Credit” — The US tax code allows multinational companies to receive a 100 percent credit on their US taxes for foreign taxes paid. Many of the payments made to foreign government are not taxes, but rather royalties or access fees. These are a legitimate cost of doing business, which should be deducted from their income, but should not be eligible for the 100 percent credit. Requiring oil companies operating overseas to honestly report royalty and lease payments would add $5.2 billion to the Treasury.

8.) Stop abuse of the “Domestic Manufacturing Tax Deduction” – Designed to slow the offshoring of US manufacturing jobs, this law allows companies to deduct 9 percent of their income as an expense of doing business in this country. But oil and gas fields cannot move, so the Domestic Manufacturing Tax Deduction shouldn’t apply. Excluding them from the deduction would direct $6.2 billion to public coffers.

Ending a raft of other handouts in the tax code like the “Passive Loss Exemption”, and allowing “Expensing of Tertiary Injectants,” boosts the total savings to $77 billion over 5 years. Learn more about them here and here.

One other upside to this deficit-reduction strategy: it will won’t cut jobs or hurt consumers. Because the annual subsidies are only a tiny fraction of the profits, and have no effect on gas prices.

Again, the trillions of dollars of deficit and debt that Washington, DC, is currently debating won’t be wiped out by a measly $77 billion. But, you know, $77 billion here . . . $77 billion there . . . pretty soon, you’re talking real money.

Source for subsidies:Subsidy Gusher: Taxpayers Stuck With Massive Subsidies While Oil and Gas Profits Soar,” prepared by Taxpayers for Common Sense, May 2011.

We can’t do this work without you!

Originally published at Sightline Daily

Hitler Holds News Conference, Thanks Balanced Budget Amendment For U.S. Defeat

(FNS – Washington, New Germany, April 17, 1947) America’s new Führer, Adolf Hitler, announced today that his official War History would in fact acknowledge that one of the biggest contributing factors to the defeat of the Allies was the insistence of the former United States of America on sticking to its Balanced Budget Amendment, which left them unable to fund the wartime conversion of the US economy for the benefit of the Alliance.

“All those ideas Mr. Roosevelt spoke of”, said Hitler, “Lend-Lease, modular shipbuilding, War Bonds, secret weapons…in the end, all of them were just words, since the Americans’ Congress was never willing to allow the country to fully fund its war effort.”

As has been previously disclosed, Waffen SS historians have already located caches of documents in Washington describing plans to fund a massive military expansion in the former United States by selling War Bonds.

These debt instruments would have allowed the Roosevelt Administration to spend up to 40% of the Gross Domestic Product of the former Nation in defending itself, the former United Kingdom, and other nations against the Fatherland, but for reasons that are still not well understood Conservative politicians demanded that the former US Government never “take on debt for outsiders”, or, in the words of Mae Cadoodie, leader of the American Tea Party movement, “Never invite a foreign entanglement that raises our taxes”.

Had the Americans been allowed to sell War Bonds, or to raise taxes to fund the War, it is estimated that they could have provided tens of thousands of aircraft, millions of military vehicles, and hundreds of ships, but the Balanced Budget Amendment prevented any of that.

This represents the end of a series of political arguments that had been taking place since the 1930s, when some American economists were suggesting that a new idea called “deficit spending” could be helpful in bringing the former USA out of the Great Depression; at that time the Roosevelt Administration was unable to establish agencies such as the Work Projects Administration, which would have built public works projects throughout the USA in an effort to revive the moribund economy.

Mae Cadoodie and others fought back successfully against these ideas, pointing out that the last thing the US economy needed in a bad economy was new taxes; they made the same arguments when the Roosevelt Administration first proposed Lend-Lease as a war emergency measure.

“We cannot inflict punishing new taxes on American industry at this fragile time in our recovery” Cadoodie said in a famous speech in 1939, “and if the market is really there for this military materiel, if it’s not just some boondoggle manufactured by Roosevelt to take money out of the pockets of the American people, then I’m sure the British will be able to find the funding they need from the markets or from charitable donations”.

Cadoodie was unavailable for comment, as she and most other former American politicians are still serving on the Eastern Front, and will be for the foreseeable future.

In a related story, the conversion of the remainder of the American industrial base is underway for the fight against the Russians, and millions of otherwise unemployed Americans are being drafted into the military services in preparation for the final assault.