Saturday, March 26, 2011

Tax Cheats and Trickle-Down Chicanery

James and Delsey Green*  are parents of two children, a 4 year old girl with autism and one typically developing six year old boy in first grade, who live in Hennepin County in Minnesota.  James is a retail store manager with a bachelor’s degree in business and Delsey in a public school junior high school teacher.  James earns $38,943 per year and Delsy’s salary is $41,503.  James has been moonlighting weekends working on tax returns for a commercial tax preparing company.  They own a $248,600 home in a comfortable residential area of south Minneapolis five blocks from Lake Harriet. Their monthly mortage payment is $915.  Last year they paid about $17,500 in Federal taxes, $6,315 in state taxes, and their property tax was $2,700.  They pay $3700 per year for health insurance.  Because Jeremy has autism, he has many other health expenses, including a monthly co-pay of $600 for his intensive early autism services. Delsey has an IRA for $200 per month for retirement, and James is putting away $150 each in a Special Needs Trust account for Jeremy and Tasha's college account.  That doesn't leave much for living expenses.  They cancelled their plans for a Spring Break vacation in Florida because they couldn’t afford the extra expense and plan to visit their relatives in Chicago for next summer’s driving vacation instead of a planned trip to Scandinavia. It’s tough for the Green's making ends meet.

Last year the General Electric Company grossed $14.2 billion dollars and paid no federal income taxes. The Bank of America had $17.9 billion in earnings parked overseas in tax-free accounts at the end of 2010 and paid no federal taxes.  Returning that amount to the U.S. would have incurred $2.6 billion in taxes. Walmart’s annual income for last year was $258 billion in sales and they paid about $6 billion in US and State taxes or about 2% of income gross income.  Although the corporate tax rate is 35%, most corporations pay 7-8% for their taxes, but many like GE and BoA pay no taxes whatsoever. 

Of federal tax revenues used pay for all domestic “discretionary” expenses, like roads, health care, education, Homeland Security, etc., 81% comes from private individuals through withholding and annual taxes paid, and 12% comes from corporations.  I repeat, 12%.  You pay the rest.  When the greedy profligate managers at AIG, Goldman Sachs, Morgan, Wells Fargo and the other wall-street gamblers nearly brought the American economy to collapse in 2008 by their irresponsible actions, James and Delsey Green and other average Americans bailed them out, admittedly not very willingly, but we did the right thing because there was no practical choice.  When BP's and Haliburton's irresponsibility lead to the largest environmental disaster in US history with the oil spill in the Gulf, we were told that the federal Oil Spill Liability Trust Fund from taxes paid by oil companies would cover $1 billion dollars for the clean up, which sounded pretty good.  But wait a minute, the estimated cost of the cleanup and paying for the losses of all the fisherman and business in the Gulf is estimated to $14 billion. Who's on the hook for that?  It's likely it will be thee and me...  US and Gulf State taxpayers will foot most of the bill for the remainder.  This is sounding like a familiar refrain. Socialism for the rich.  

I think you get the picture.  This has to stop.   Sooner than later. 

The tax give-aways to corporations by Governors of Wisconsin, Michigan, Ohio, Pennsylvania, New Jersey and Florida should be impeachable offenses.  Acting out of blind ignorance, as one can argue Ronald Reagan did, is one thing. But today there is 30 years of abundant evidence that give-aways to corporations does not yield economic dividends for ordinary people. Those government gifts amount to dereliction of duty to the taxpayers of their states.  It isn’t as though this is really a terrific idea based on hard financial evidence.  In fact the evidence is 180 degrees out of sync with such irresponsible policies. Economists Case and Fair concluded:

The extreme promises of supply-side economics did not materialize. President Reagan argued that because of the effect depicted in the Laffer curve, the government could maintain expenditures, cut tax rates, and balance the budget. This was not the case. Government revenues fell sharply from levels that would have been realized without the tax cuts.” (Karl Case & Ray Fair, Principles of Economics (2007), p. 695)

Ronald Reagan’s “trickle-down economics” was based on seriously flawed assumptions and never worked.  In January 1981, when Reagan declared the federal budget to be "out of control," the deficit had reached almost $74 billion, the federal debt $930 billion. Within two years, the deficit was $208 billion, a yearly three-fold increase in only two years! The debt by 1988 totaled $2.6 trillion. In those eight years, the United States moved from being the world's largest international creditor to the largest debtor nation thanks to Ronald Reagan.  Mr. Reagan’s Budget Director David Stockman, himself a very conservative economist, wrote July 11, 2010 “If there were such a thing as Chapter 11 for politicians, the Republican push to extend the unaffordable (George W.) Bush tax cuts would amount to a bankruptcy filing. The nation’s public debt — if honestly reckoned to include municipal bonds and the $7 trillion of new deficits baked into the cake through 2015 — will soon reach $18 trillion.” (Stockman, D,  Four Deformations of the Apocalypse

Giving more tax breaks to the wealthiest individuals and corporations as those Midwestern governors are doing, accomplishes three things: (1) It makes those corporations and individuals who run them enormously wealthier, (2) it shifts a greater percentage of the burden of the country’s and states’ financial responsibilities to individuals least able to afford to pay for them, people like the Greens and (3) it greatly increases the deficit and the national debt, just opposite of what those dogmatists claim to be accomplishing.  Objective evidence shows it does next to nothing to stimulate economic investment leading to jobs. It's all smoke an mirrors. As George Bush Sr. called it, "VooDoo Economics."

Three things need to change.  The Federal Tax code needs to be completely overhauled so corporations and private individuals are deprived of off-shore tax havens, and tax loop holes so they are forced to pay their fair share of US federal and state tax burden. Please don't tell me it's REALLY complicated and will take many years to rectify.  Start fixing it tomorrow if not sooner and complete job done within one year.  Second, the extremists seated in Governor’s offices in Wisconsin, Michigan, Ohio, Pennsylvania and Florida need to be recalled or unseated in the next election. Their radical cronies in those state legislatures need to go back to short-changing their customers instead of the citizens of their states. Finally, in 2012 every one of those seats won by Tea Party zealots in the US House of Representatives in 2010 need to be vigorously challenged by Democrats or Progressive Republicans. It's time grown ups are in charge of our government. 

See:  Where’s my Trickle  by Paul Krugman

* Fictitious names.  All income and tax figures are based on publically available websites for median salaries by occupation, taxes and TEFRA co-pays paid by income level, family status, state and county.

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