Studies show, Congress Favors the Rich
When Hillary Clinton recently borrowed Elizabeth Warren’s talking points and claimed “the deck is still stacked in favor of those at the top” (in our economic and political system) against regular working people, did she mention reforming the tax code — and then offer any solutions? The simple answer is “no”; and unless she is ever pressed by the mainstream “liberal” media, she will probably dodge this question the same way GE dodges taxes.
A new Pew Research study reports some 61 percent of Americans feel bothered “a lot” that “wealthy people don’t pay their fair tax share”. Besides just campaign finance reform, poll, after poll, after poll, after poll, after poll, after poll, shows most Americans also favor raising taxes on the very wealthy. So if Congress is supposed to represent the majority of the people in a democracy, why haven’t they raised taxes on the wealthy — or reformed campaign finance laws? It’s because members of Congress usually do the bidding of their biggest campaign contributors (the wealthy), those who would see their taxes increased. Not to mention, wealthy members of Congress (meaning most) would also see their own taxes increased.
As Jack Lessenberry at the Metro Times writes: “Most lawmakers don’t give a damn about what the voters need or want, and are only fixated on pleasing the superrich in order that they can get jobs from them when their terms are up.”
So is Congress primarily representing themselves? And is it because most Americans realize this, that’s why Congress’s approvals ratings have been at all-time lows? Probably. But even though Congress knows we know, most of our elected leaders still refuse to do what’s in the best interest of the American people and this nation — such as raising taxes on the rich to help pay for infrastructure. It’s so sad to witness this moral decay in our government leaders. But thankfully, there are some exceptions.
Senator Bernie Sanders (I-Vermont) sounds more like Elizabeth Warren than Hillary Clinton: “At a time when we have massive wealth and income inequality, and when corporate profits are soaring, it is an outrage that many large, profitable corporations not only paid nothing in federal income taxes last year, but actually received a rebate from the IRS. Instead of balancing the budget on the backs of the elderly, the children, the sick and the poor, as the Republicans in Congress have proposed, we need a tax system that demands that large, profitable corporations and the wealthy start paying their fair share in taxes.”
Sanders was commenting on a new report by Citizens for Tax Justice, which detailed how many of the biggest and best-known corporations in America pay little or no federal income taxes, and said the report underscores the need to close corporate tax loopholes. (Will we ever hear how Hillary Clinton stands on this issue, and what her proposals might be?)
As examples, Citizens for Tax Justice has found that:
• Media giant Time Warner paid nothing in federal income taxes last year when it received a rebate of $26 million from the IRS, even though it made $4.3 billion in U.S. profits.
• CBS made $1.8 billion in U.S. profits last year, but instead of paying federal income taxes, it received a rebate from the IRS of $235 million.
• Xerox made $629 million in U.S. profits in 2014, but received a tax rebate of $16 million from the IRS.
• Prudential Financial made $3.5 billion in U.S. profits last year, but instead of paying federal income taxes, it received a tax rebate of $106 million from the IRS.
• The toy maker Mattel made $268 million in profits last year, but received a tax rebate of $46 million from the IRS.
• Priceline.com not only paid nothing in federal income taxes last year, it received a tax rebate of $9 million, even though it made $73 million in profits last year.
• Pacific Gas and Electric not only paid nothing in federal income taxes last year, it received a tax rebate of $84 million from the IRS, even though it made $1.8 billion last year.
• Wireless technology maker Qualcomm made $3.2 billion in U.S. profits last year, but instead of paying federal income taxes, it received a refund from the IRS of $98 million.
• General Electric made over $5.8 billion in profits in the U.S. last year, but paid just 0.9 percent of that amount (less than 1 percent) in federal income taxes.
• Jetblue Airways made $615 million in U.S. profits last year, but paid just 0.4 percent of that amount (less than half of 1 percent) in federal income taxes.
So when we hear people like Stephen Moore at the conservative think tank Heritage Foundation claiming the U.S. has the highest corporate tax rate in the world, the actual “statutory” tax rate has little bearing on the actual “effective” tax rate corporations are actually obligated to pay, because of all the loopholes that members of Congress have allowed them on behalf of their campaign donors and corporate lobbyists. People such as Senator Bernie Sanders would like to change this “pay for play” in Washington (More on this further below in this post).
And yet, like big cry babies, we keep hearing the GOP politicians complaining that high taxes are keeping these “job creators” from creating jobs (here in America) while the stock markets have been hitting all-time record highs, as corporate profits have also been hitting all-time record highs ($1.8 trillion after-taxes last year) — and they’ve done this year after year. These multinationals have trillions of dollars stashed overseas, but they won’t invest in America and pay taxes to fix our infrastructure and create jobs (Infrastructure spending is currently at a record low in the U.S.) How “patriotic” can a “multinational” company really be when their profits are “global”?
If taxes are too high, where did these corporations find all that spare cash to make all those multi-billion-dollar mega-mergers and acquisitions over the past several years? From InvestorPlace: “2014 was the best year for mergers and acquisitions since before the financial crisis … global deal volume topped $3 trillion — a more than 50% increase from 2013 … the U.S. mergers and acquisitions were particularly robust … The U.S. M&A market saw the number of deals worth at least $1 billion rise 43% year-over-year.”
In a recent letter to President Obama, Senator Bernie Sanders outlined six loopholes that massive corporations, hedge fund managers, and the “worst of the 1%” use to dodge taxes and avoid paying us back for providing roads, courts and an educated workforce. Closing all six loopholes would raise more than $100 billion that could be invested in America — and best of all (according to Sanders) the President can do it all without Congress. The list of tax loopholes (that Congress created) reads like a how-to guide for multimillionaire hedge fund managers and multinational corporations that have abandoned our nation:
1. The “check-the-box” loophole. Simply by checking one box, companies can claim that an entity it owns should be ignored by the IRS for tax purposes. By giving different stories to different governments, they can transfer profits between subsidiaries tax free. Closing this loophole would raise up to $78 billion over the next decade.
2. The “Hewlett-Packard” loophole. Companies are supposed to pay taxes when they bring offshore profits back to America. But if their offshore subsidiaries only provide a short-term “loan” to the onshore parent company, they can dodge the law. At one point, Hewlett-Packard was found to be “borrowing” billions, tax-free.
3. The “Real Estate Investment Trust” loophole. Real estate investment trusts are like mutual funds for real estate, and they don’t pay corporate income tax. But all sorts of companies, from private prisons to casinos, now claim to be real estate investment trusts in order to dodge taxes.
4. The “carried interest” loophole. Wealthy investors pay hedge fund managers billions to manage their money. But this loophole allows those fund managers to pretend that their income is actually a capital gain from selling investments – and capital gains are taxed at a far lower rate. Closing this loophole would raise up to $18 billion.
5. The “earnings stripping” loophole. CREDO members have fiercely fought corporate inversions, where big U.S. companies merge with a smaller foreign company to avoid paying taxes. The Treasury Department has already cracked down on one tax dodge related to inversions, and closing the other, the “earnings stripping” loophole, could raise up to $13 billion over the next decade.
6. The “valuation discount” loophole. If wealthy parents put a restriction on selling a company before transferring it to their children, it is considered less valuable and so they pay less in taxes – even if that restriction is then removed or ignored. The IRS could overlook these meaningless restrictions and raise up to $18 billion over the next decade.
And these loopholes, mentioned in an earlier post at EP: 1) Ending the “step-up in basis” at death for capital gains taxes; and 2) Ending the “529 tax plans” for college savings accounts, that mostly benefit the wealthy. Here is Bernie Sanders’ petition to President Obama (where only a name, email and zip code is needed), which reads:
“Use your executive authority to direct the Treasury Department and the Internal Revenue Service to end tax giveaways to large corporations, multimillionaire hedge fund managers, and the worst of the 1% that will cost America more than $100 billion over the next decade, including the “check-the-box,” “earnings stripping,” “valuation discount,” “carried interest,” “Hewlett-Packard,” and “Real Estate Investment Trust” tax loopholes.”
According to Common Dreams, the Citizens for Tax Justice report not only reveals how corporate tax dodgers avoid paying their “fair share” of taxes, but any share at all. They also noted a major plank of the Congressional Progressive Caucus’s budget proposal, that was unveiled last month, in which corporations would start paying their fair share of taxes (which has been in a steady decline as a percent of GDP for decades).
According to another new report, this one by the Center for Effective Government and the Institute for Policy Studies, American companies have around $2.1 trillion in untaxed profits stashed overseas — and about half of that amount is held by 26 large companies like Apple, General Electric, and Microsoft. If these companies paid federal taxes on their offshored profits from 2014—and got refunds for taxes they’ve already paid to other countries— they would owe an estimated $364 billion. Key findings from their report show that:
• Just 26 firms account for more than half of the $2.1 trillion in untaxed profits U.S. corporations are currently holding offshore. Each of these firms has accumulated more than $20 billion in overseas earnings. Together, they operate 1,086 subsidiaries in tax haven nations.
• These 26 firms’ offshore profits have exploded more than five-fold since the last tax holiday on overseas earnings. Microsoft, Google, Apple, and Qualcomm each grew their offshore stashes by more than twenty-fold between 2005 and 2014.
• If these companies were to pay the taxes they owe on their overseas profits, the government could gain about $364 billion, enough to cover the cost of repairing all of the country’s wastewater and storm-water systems; and repair or replace all of the country’s deficient dams; and restore all the nation’s local, state, and national parks.
• Closing the offshore tax dodging loophole for ALL corporations could raise at least $590 billion over the next decade, and $90 billion more every year thereafter. This would represent a significant down payment on the nation’s overall infrastructure investment needs.
Corporate inversion (re-incorporating overseas) is one of the many strategies that multinational corporations use to escape domestic tax liabilities. Previously, our own domestic corporations enjoyed the advantage of doing business in the U.S. because of our educated work force and superior infrastructure (and because of our copyright laws, court system, law enforcement, etc.); but now our infrastructure is in decline — and the proposed TPP trade agreement would allow multinational corporations to sue governments (including U.S. taxpayers) in an international court to recover lost profits if governments impose regulations that hurt their profits. From the Washington Post:
An increasingly common feature of trade agreements is called “Investor-State Dispute Settlement” (ISDS.) Agreeing to ISDS in this enormous new treaty would tilt the playing field in the United States further in favor of big multinational corporations. Worse, it would undermine U.S. sovereignty. ISDS would allow foreign companies to challenge U.S. laws — and potentially to pick up huge payouts from taxpayers — without ever stepping foot in a U.S. court.
And we could potentially expect to see more U.S. multinational corporations use “inversion” to move their headquarters overseas, and then sue American workers (the U.S. taxpayers) for lost profits if we passed (say, for example) environmental or minimum wage laws (they way Coke sued Australia for passing a container deposit law). Robert Reich and Richard Trumka at the L.A. Times say it would be a grave mistake for Congress to authorize fast-tracking this giant trade deal.
And how does Hillary Clinton feel about these trade agreements? The latest poll shows that by 62%, voters oppose passage of fast-track negotiating authority for the TPP deal. But Congress never listens to “The People”— but only to lobbyists representing big businesses and the top 0.01% — because in another blow to organized labor and the middle-class, the Huffington Post reports:
“Congress’ tax committees announced an agreement Thursday to speed through a bill to give President Barack Obama the fast-track authority that he will need to push mammoth new trade deals through Congress … The fast-track authority would likely pave the way for both the controversial Transatlantic Trade and Investment Partnership agreement with the European Union, and the Trans-Pacific Partnership with a dozen Asian nations. Both deals are vastly larger than NAFTA, and would involve about two-thirds of the entire world’s economy.”
As an aside (but related to this topic): In the House and Senate budget proposals for fiscal year 2016 (passed with only Republican votes), besides defense spending and contractors, here are the biggest winners: Very wealthy people. And according to the Huffington Post, the biggest losers are us (meaning, everybody else):
People making more than $1 million a year would get a $50,000 average tax cut from the repeal of the Affordable Care Act (ACA) and the Alternative Minimum Tax (AMT) in the House budget. The overall taxpayer loss would be more than $1 trillion in revenue over 10 years. The Senate budget includes a last-minute amendment to repeal the estate tax, which benefits only the wealthiest 0.2 percent of Americans with estates worth over $5.4 million for an individual or $10.9 million for a couple. An estimated 5,400 wealthy estates would save $2.5 million each with a taxpayer loss of $269 billion dollars between 2016-2025.
Also, from the Washington Post (regarding the GOP tax plan): “The new Rubio-Lee plan would cut capital gains taxes from 23.8 percent to zero, dividend taxes from 23.8 percent to zero, and the estate tax from 40 percent to zero. That’s a lot of zeroes. Not only that, but it would also cut the corporate tax rate from 35 to 25 percent and stop taxing overseas earnings.”
This, my friend, is “starving the beast” (Forcing cuts in government spending by deliberately reducing tax revenues). And guess who the beasts are? They are us, those who benefit from government — e.g. Social Security, etc.
And what do most of these multinational corporations do with all their savings from low or NO corporate tax liabilities? Many buy back their own company shares (stock buybacks), to increase the value of the corporate executives’ stock-options, that many CEOs and company execs take in lieu of a base salary (to escape higher tax rates and payroll taxes). 24/7 Wall St. has evaluated some of the biggest buybacks to date by Apple Inc., Cisco Systems Inc., Exxon Mobil Corp., Intel Corp., International Business Machines Corp., Microsoft Corp., Procter & Gamble Co. and General Electric Co.
Pay-for-performance bonuses, suggests new research from business school profs at the University of Melbourne in Australia and the University of California at Berkeley, can tempt top corporate executives to egregiously mismanage their companies. Notes Dr. Peter Cebon in an interview on this new research: “If you want to live in an economy full of companies that create long term capability in their organizations, then a regulated cap on bonuses would appear to be what you want.”
GE (one of the poster children for tax dodgers) has a market cap of about $287 billion, and will soon make a $50 billion stock buyback, greatly increasing their share values — which in turn, will greatly increase the value of GE executive’s stock options in their compensation pay packages. CEOs at large U.S. companies have collectively realized at least $6 billion more in compensation than initially estimated in annual disclosures in the five years after the financial crisis first hit (according to a Reuters analysis). The reason for the windfall: the soaring value of their stock awards. And the capital gains tax rate they pay on these benefits is lower than the tax rate Warren Buffett’s secretary pays. (Just ask Mitt Romney, he’ll tell you.)
One analysis wrote: (regarding the stock buybacks), “In the long run CEO Jeff Immelt and GE just devalued the company, and will hurt its long-term profit potential. Of course, none of this really matters to Jeff Immelt and GE as he will have long since retired from the company. The smart shareholders will take the quick profits from the stock buyback run in the stock! And over time the reduced earnings will ultimately punish any bag holders not smart enough to realize this is just a financial gimmick from a company just like IBM that has seen its best days a decade ago.” (It should be noted that Jeff Immelt received compensation valued at $18.8 million in 2014 — paltry when compared to some hedge fund managers, those that the GOP likes to define as “small businesses”.)
General Electric also expects to pay about $6 billion to the Internal Revenue Service in order to repatriate about $36 billion in foreign earnings from the sale of GE Capital. By paying the tax bill and then using the cash as part of the huge payout to shareholders, GE estimates that its actions can return $90 billion to investors, the windfall coming from the $50 billion stock buyback and from the sale of GE Capital — and GE says that paying this tax was better than hoping for a change in the existing tax law (regarding repatriated earnings from overseas.)
According to Credit Suisse last March, they too reported cumulative earnings parked by S&P 500 companies overseas is over $2 trillion. From EconoSpeak, regarding the taxes on this earnings:
“Under current law, the repatriation tax would be 35% — minus any Foreign Tax Credits. Let’s assume that foreign taxes are 20% of foreign earnings. This would mean the U.S. Treasury could net 15% of this $2 trillion if deferral benefits were ended … Washington is proposing to change this tax. President Barack Obama has proposed a one-time 14% tax on $2 trillion of overseas earnings, followed by a 19% minimum tax on future profits, and former House Ways and Means Committee Chairman Dave Camp proposed a one-time tax of 8.75%. For companies whose foreign earnings are in tax havens, these proposals would raise at least some tax revenues, but for companies where the foreign tax rate is above 19%, even the Obama proposal would effectively eliminate the repatriation tax given the Foreign Tax Credit.
The House Republicans are voting to give a handful of heirs and heiresses of America’s largest fortunes (the children of the top 0.01%, which includes these corporate CEOs) a multi-billion tax break by repealing the federal inheritance tax. Robert Reich reports that six of today’s ten wealthiest Americans now owe their good fortune to the huge fortunes they’ve inherited. It’s amazing how favors (like tax breaks) can be bought in Washington. Will Hillary Clinton ever address this issue? (Here’s a petition to oppose this massive transfer of wealth.)
A year-long analysis by the Sunlight Foundation* found that between 2007 and 2012, 200 of America’s most politically active corporations spent a combined $5.8 billion on federal lobbying and campaign contributions. However, what they gave pales compared to what those same corporations got in return: $4.4 trillion in federal business and support — and tax breaks. (More from links here and here).
* The Sunlight Foundation was founded by Ellen S. Miller, a proponent of open government. Prior to her work in the nonprofit sector, Miller held several positions in the United States government, working for the House Permanent Select Committee on Intelligence, Senate Committee on Governmental Affairs, and the Senate Intelligence Committee.
In the 2014 congressional elections, less than 2 percent of Americans made a campaign contribution. Of those who did contribute, the biggest 100 donors gave as much as the bottom 4.75 million. These are the people calling all the shots in Washington — not the “man on the street”.
From the latest report by Americans for Financial Reform, Wall Street banks and financial interests spent $1.4 billion over the two-year course of the 2014 election cycle. That total amounts to over $1.9 million per day — “or an average expenditure of about $2.6 million to elect or influence each of the 535 members of the Senate and House of Representatives.” Nearly 350 financial firms and trade associations spent at least $500,000 in the lead-in to last November’s congressional elections.
Robert Borosage recently reported that, “The total spent on the 2016 presidential campaign is likely to reach near $5 billion, with each major party candidate raising over $1.5 billion directly. To raise that money, the candidates will spend far more time talking to the wealthy than addressing the voters. It should surprise no one that the winner of the money primary is the money.”
Now we will also have Hillary Clinton. According to The Center for Public Integrity:
• Employees of giant financial firms represented five of Hillary Clinton’s top 10 contributors during her 2008 presidential run.1
• Clinton’s top 2008 presidential donors generally came from four places: K Street, Park Avenue, Broadway and Beverly Hills.
• In 2013, a New York City businessman pleaded guilty to illegally supporting Hillary Clinton’s 2008 presidential campaign with more than $608,000 in campaign services.
• If it wasn’t for Hillary Clinton, the Citizens United v. Federal Election Commission case (which turned campaign finance law inside out) would not have likely come before the Supreme Court.4
• Donors to the Clinton Foundation include numerous corporations and foreign governments.5 [Might this be one reason why Hillary deleted all those personal emails?] The Huffington Post reports: “Hillary Clinton’s presidential campaign will accept donations from lobbyists and political action committees, a difference in policy from the man she’s hoping to replace, President Barack Obama.” (Thanks Citizens United!) But according to The Guardian, Hillary Clinton jumped on the constitutional amendment bandwagon for campaign finance reform, agreeing with the 80% of Americans who support limits on political donations to candidates. Clinton suggested that action was needed to reverse Citizens United and the other Supreme Court decisions that allow corporations, wealthy individuals and well-funded groups to dominate the political process. Clinton said: “We need to fix the dysfunctional political system and get unaccountable money out of it once and for all, even if that takes a constitutional amendment.”
But can we really believe her when she says she cares that “the deck is still stacked in favor of those at the top”? As usual, just like for any other politician, the American voters are only left with her credibility and past actions when it comes to any claims for reforming campaign finance laws — or taxing corporations and the wealthy their fair share. She knows very well that with a majority GOP Congress, just like with Obama now, there’s little she can do but to veto egregious GOP bills. At least with the GOP candidates (if not by their words, but through their actions) we know for a fact that they favor big businesses and the very wealthy over average working-class Americans. The tax bills the GOP currently proposes actually favors people like Hillary Clinton.
Ever since Speaker John Boehner accepted those “campaign contributions” on the House floor from the tobacco companies (which was just before a vote on tobacco subsidies), the American people have only witnessed more corruption in government, not less. And it is reflected in the tax code, campaign finance and election laws, trade agreements, and in the decline of the American middle-class and their infrastructure.
And the revolving door between members of Congress and lobbyists is only the tip of the iceberg. Politico:
House Transportation and Infrastructure Committee Chairman [Rep. Bill Shuster (R-Pa.)] is dating a top lobbyist for the leading U.S. airline trade association, an organization that spends millions of dollars trying to influence his panel. The Pennsylvania Republican is currently at the center of high-stakes negotiations to enact the most sweeping overhaul of the Federal Aviation Administration in decades. The package could include changes to the nation’s air travel system, including the privatization of the air traffic control system.
It’s very sad that our “leaders” have come to be a voice for the very rich and powerful — those that don’t need a voice at all, but yet, are allowed to have the biggest megaphones. The rich have already won the class war (just ask Warren Buffett), because the political representatives of “The People” (who favors the rich) have allowed them to win.