One of my favorite websites of late is
that of the Citizens for Tax Justice (CTJ). In their words CTJ was
“founded in 1979, is a 501 (c)(4) public interest research and
advocacy organization focusing on federal, state and local tax
policies and their impact upon our nation. CTJ's mission is to give
ordinary people a greater voice in the development of tax laws.
Against the armies of special interest lobbyists for corporations and
the wealthy...”
As I browse the website I note there are articles and analyses of President Obama's budget (they find it gives plenty of tax breaks to business despite raising taxes); an analysis of the Wisconsin budget issue (they point out the inconsistencies in Gov. Walker's policies and note that he increased tax breaks for business $117 billion); and a host of other articles on tax cheats, corporation handouts and other manipulations of the tax systems on the federal, state, and local levels.
Of particular interest to me was testimony given by CTJ Director Bob McIntyre before the Senate Budget Committee on March 9, 2011, regarding Business Tax Subsidies Administered by the Internal Revenue Service. It amounts to about eight pages of testimony in which McIntyre asks members of Congress to give up one of their favorite things - “providing subsidies to those who don’t need them, in particular, for business subsidies administered by what seems to have become Congress’s favorite agency, the Internal Revenue Service. ”
McIntyre details reasons for doing so by going back a quarter of a century to 1986 when the last big Tax Reform Act was passed. Remember who was President at that time? If you said Ronald Reagan, you're right. Reagan – the champion of big business (really? Well maybe some of the time). Under Reagan big business (and even small business) experienced a curbing of offshore corporate profit shifting, leasing tax shelters and numerous industry-specific tax breaks, and despite a reduction in the statutory corporate tax rate, increased corporate tax payments by 34 percent. Reagan also equalized the personal income tax treatment of wages and realized capital gains, and he made the tax system more progressive overall. ”
I make no bones about it. I am not a fan of Reagan. I think there was much more that could have been done on behalf of poor people that he didn't do. I think he was wrong in borrowing as he did to run government and provide for tax incentives to business. But I'll give the man his due. He did a few thing right. And McIntrye points out that following Reagan, big business and its lobbyists spent the next dozen or so years poking and prodding and quietly finding ways to dismantle a good share of the Reagan Tax Reforms.
McIntyre testifies that business lobbyists “eviscerated the corporate Alternative Minimum Tax (designed to curb the huge tax advantages that go to highly-leveraged activities such as equipment leasing), adopt the so-called “check the box” and “active-financing” rules that vastly expanded offshore corporate tax-sheltering opportunities, and reestablish preferential tax rates on realized capital gains.
During the George W. Bush administration, business and investment tax breaks were expanded considerably further. Both political parties are at fault in this sad repudiation of President Reagan’s tax legacy.
By the early 2000s, McIntyre testified, “corporate subsidies had risen so much that the average effective U.S. Federal corporate tax rate paid by America’s largest and most profitable corporations on their U.S. Profits had fallen to only 18.4 percent — barely over half the 35 percent statutory rate. 1 Those tax subsidies have grown even larger since then. ”
Remember that the corporate tax rate under Reagan had been increased by 34%. And Republicans are fond of pointing out that the economy recovered mightily under Reagan, and oh yes, under Clinton as well. They are equally fond of pointing out that the economy seemed to grow under George W. Bush though they conveniently forget that because of the special deals that were rubber stamped and the the laxity of regulators, the end of the Bush reign ushered in the most serious economic melt down since the Great Depression. That was on Bush's watch, not Obama's.
What was left for Obama was a mess to clean up. And worse, it was a mess in which some of the tools to clean it up were tools left over from the Bush administration. But enough of that for now. I want you to understand why CTJ opposes the most of the tax breaks for business.
McIntyre testified that business tax subsidies fall into three categories. “(1) They are hugely expensive. (2) They are often economically harmful. And (3) they conflict with fundamental tax fairness.”
Subsidies are overly expensive
According to McIntyre business tax subsides in 2011 totaled $365 billion. That's $365 billion that could be put toward reducing the deficit. But if you listen to business and the Chamber of Commerce, you would hear them claim that what is needed is more not fewer tax subsidies. Otherwise, they will locate their businesses over seas (China is a favorite lately).
“Imagine,” McIntyre says, “if, despite our deficit problem, someone called for big cuts in direct spending programs, but then proposed using all the money to cut tax rates...it seems just as crazy to do so when it comes to cracking down on subsidies that happen to be administered by the IRS. ” And yet, in effect, that is what business is asking.
Subsidies are economically harmful
Common wisdom holds that subsidies on both the national and the local levels are necessary to induce business to do what it is in business to do – produce a product. McIntyre says ”... business tax subsidies are simply an economically useless waste of resources. That’s because companies don’t ask for subsidies that would force them to change their behavior. Why would they? Instead, they ask for subsidies to reward them for doing what they would do anyway. ”
McIntyre goes on to highlight a few examples to support his contention – most notably Boeing.
Boeing recently won a contract $35 billion dollars in competitive bidding. That sounds positive. The Pentagon gets its planes, and Boeing gets a lucrative contract. But wait – Boeing also got a bonus. From 2008 to 2010, Boeing reported $9.7 billion in pre-tax profits. At the usual 35%, the government should have collected $3.3 billion in taxes. But as a result of tax subsidies, Boeing got $3.5 billion from the government. As a result, Boeing paid no taxes for the past three years. In fact, according to my math, Boeing was able to pocket about $200 million (probably to pay bonuses).
By now some brilliant lobbyist will be starting to say, but Boeing needs that money to build its planes and employ people. But that dog won't hunt.
The business that Boeing is in is building planes. That's what it does. What it needs is more buyers of its product. That's the way capitalism works. Get an idea, make the product sell the product, reap a profit. That equals a great idea. If they can't sell the product and have to eat a loss, then it's a bad idea, and they deserve to fail and go out of business. Isn't that the American way? Isn't that what the Republicans and the Tea Party brats are constantly preaching?
And that's just one example. Go to the CTJ website and read the testimony for yourself and see if it still makes sense to support corporate tax subsidies.
Tax Fairness
McIntyre points out that since 1990, “...expanded business subsidies have sharply reduced taxes on capital income, so that such income is now taxed at far lower rates than workers pay on their wages.” In addition, “...capital income is so concentrated on high-income people, the tax subsidies for capital income also undermine the progressivity of our tax system.”
In the current tax year, “...tax subsidies are expected to reduce corporate income taxes by a staggering 44 percent.” A new on going study by CTJ suggest that “...corporate tax subsidies are now larger than corporate taxes paid. ”
Subsidies that reduce federal income taxes on C corporation allow for little if any tax. The same can be said for subsidies that reduce federal income taxes on C corporation shareholders (individuals) McIntyre testified. “...70 percent of the tax savings from the low tax rates on the small portion of capital gains and stock dividends that is subject to personal income tax goes to the best-off one percent. ”
There is nothing inherently wrong with being wealthy or of becoming “rich.” What is morally wrong and bankrupt is gaining that wealth through taking advantage of others and gaming the system. Using wealth to gain special favors and treatment is inherently unfair and immoral.
As I browse the website I note there are articles and analyses of President Obama's budget (they find it gives plenty of tax breaks to business despite raising taxes); an analysis of the Wisconsin budget issue (they point out the inconsistencies in Gov. Walker's policies and note that he increased tax breaks for business $117 billion); and a host of other articles on tax cheats, corporation handouts and other manipulations of the tax systems on the federal, state, and local levels.
Of particular interest to me was testimony given by CTJ Director Bob McIntyre before the Senate Budget Committee on March 9, 2011, regarding Business Tax Subsidies Administered by the Internal Revenue Service. It amounts to about eight pages of testimony in which McIntyre asks members of Congress to give up one of their favorite things - “providing subsidies to those who don’t need them, in particular, for business subsidies administered by what seems to have become Congress’s favorite agency, the Internal Revenue Service. ”
McIntyre details reasons for doing so by going back a quarter of a century to 1986 when the last big Tax Reform Act was passed. Remember who was President at that time? If you said Ronald Reagan, you're right. Reagan – the champion of big business (really? Well maybe some of the time). Under Reagan big business (and even small business) experienced a curbing of offshore corporate profit shifting, leasing tax shelters and numerous industry-specific tax breaks, and despite a reduction in the statutory corporate tax rate, increased corporate tax payments by 34 percent. Reagan also equalized the personal income tax treatment of wages and realized capital gains, and he made the tax system more progressive overall. ”
I make no bones about it. I am not a fan of Reagan. I think there was much more that could have been done on behalf of poor people that he didn't do. I think he was wrong in borrowing as he did to run government and provide for tax incentives to business. But I'll give the man his due. He did a few thing right. And McIntrye points out that following Reagan, big business and its lobbyists spent the next dozen or so years poking and prodding and quietly finding ways to dismantle a good share of the Reagan Tax Reforms.
McIntyre testifies that business lobbyists “eviscerated the corporate Alternative Minimum Tax (designed to curb the huge tax advantages that go to highly-leveraged activities such as equipment leasing), adopt the so-called “check the box” and “active-financing” rules that vastly expanded offshore corporate tax-sheltering opportunities, and reestablish preferential tax rates on realized capital gains.
During the George W. Bush administration, business and investment tax breaks were expanded considerably further. Both political parties are at fault in this sad repudiation of President Reagan’s tax legacy.
By the early 2000s, McIntyre testified, “corporate subsidies had risen so much that the average effective U.S. Federal corporate tax rate paid by America’s largest and most profitable corporations on their U.S. Profits had fallen to only 18.4 percent — barely over half the 35 percent statutory rate. 1 Those tax subsidies have grown even larger since then. ”
Remember that the corporate tax rate under Reagan had been increased by 34%. And Republicans are fond of pointing out that the economy recovered mightily under Reagan, and oh yes, under Clinton as well. They are equally fond of pointing out that the economy seemed to grow under George W. Bush though they conveniently forget that because of the special deals that were rubber stamped and the the laxity of regulators, the end of the Bush reign ushered in the most serious economic melt down since the Great Depression. That was on Bush's watch, not Obama's.
What was left for Obama was a mess to clean up. And worse, it was a mess in which some of the tools to clean it up were tools left over from the Bush administration. But enough of that for now. I want you to understand why CTJ opposes the most of the tax breaks for business.
McIntyre testified that business tax subsidies fall into three categories. “(1) They are hugely expensive. (2) They are often economically harmful. And (3) they conflict with fundamental tax fairness.”
Subsidies are overly expensive
According to McIntyre business tax subsides in 2011 totaled $365 billion. That's $365 billion that could be put toward reducing the deficit. But if you listen to business and the Chamber of Commerce, you would hear them claim that what is needed is more not fewer tax subsidies. Otherwise, they will locate their businesses over seas (China is a favorite lately).
“Imagine,” McIntyre says, “if, despite our deficit problem, someone called for big cuts in direct spending programs, but then proposed using all the money to cut tax rates...it seems just as crazy to do so when it comes to cracking down on subsidies that happen to be administered by the IRS. ” And yet, in effect, that is what business is asking.
Subsidies are economically harmful
Common wisdom holds that subsidies on both the national and the local levels are necessary to induce business to do what it is in business to do – produce a product. McIntyre says ”... business tax subsidies are simply an economically useless waste of resources. That’s because companies don’t ask for subsidies that would force them to change their behavior. Why would they? Instead, they ask for subsidies to reward them for doing what they would do anyway. ”
McIntyre goes on to highlight a few examples to support his contention – most notably Boeing.
Boeing recently won a contract $35 billion dollars in competitive bidding. That sounds positive. The Pentagon gets its planes, and Boeing gets a lucrative contract. But wait – Boeing also got a bonus. From 2008 to 2010, Boeing reported $9.7 billion in pre-tax profits. At the usual 35%, the government should have collected $3.3 billion in taxes. But as a result of tax subsidies, Boeing got $3.5 billion from the government. As a result, Boeing paid no taxes for the past three years. In fact, according to my math, Boeing was able to pocket about $200 million (probably to pay bonuses).
By now some brilliant lobbyist will be starting to say, but Boeing needs that money to build its planes and employ people. But that dog won't hunt.
The business that Boeing is in is building planes. That's what it does. What it needs is more buyers of its product. That's the way capitalism works. Get an idea, make the product sell the product, reap a profit. That equals a great idea. If they can't sell the product and have to eat a loss, then it's a bad idea, and they deserve to fail and go out of business. Isn't that the American way? Isn't that what the Republicans and the Tea Party brats are constantly preaching?
And that's just one example. Go to the CTJ website and read the testimony for yourself and see if it still makes sense to support corporate tax subsidies.
Tax Fairness
McIntyre points out that since 1990, “...expanded business subsidies have sharply reduced taxes on capital income, so that such income is now taxed at far lower rates than workers pay on their wages.” In addition, “...capital income is so concentrated on high-income people, the tax subsidies for capital income also undermine the progressivity of our tax system.”
In the current tax year, “...tax subsidies are expected to reduce corporate income taxes by a staggering 44 percent.” A new on going study by CTJ suggest that “...corporate tax subsidies are now larger than corporate taxes paid. ”
Subsidies that reduce federal income taxes on C corporation allow for little if any tax. The same can be said for subsidies that reduce federal income taxes on C corporation shareholders (individuals) McIntyre testified. “...70 percent of the tax savings from the low tax rates on the small portion of capital gains and stock dividends that is subject to personal income tax goes to the best-off one percent. ”
There is nothing inherently wrong with being wealthy or of becoming “rich.” What is morally wrong and bankrupt is gaining that wealth through taking advantage of others and gaming the system. Using wealth to gain special favors and treatment is inherently unfair and immoral.