alternet logo

Tough Times

Demand honest news. Help support AlterNet and our mission to keep you informed during this crisis.

political economy

Robert Reich: Capitalism Can Be Reformed, But America's Wealthy Class Will Fight It

Can American capitalism be saved from its most predatory, selfish instincts?

Keep reading... Show less

Meet 5 Greedy Big Businesses That Rip Off Taxpayers

The April 15 tax deadline is just around the corner, and while you’re poring over receipts, let us draw your attention to a tale of two Pauls. Right now, Senator Paul Ryan is talking up a Republican budget plan that cuts Medicaid, Pell grants, and school lunches. Meanwhile Senator Rand Paul is congratulating companies that cook their books to avoid paying taxes.  The two Pauls perfectly encapsulate the insanity of GOP positioning on taxes and public investment.  

Keep reading... Show less

Is the Pope Getting the Catholics Ready for an Economic Revolution? (Maybe He Read Marx)

In 1992, the Catholic Church officially apologized for persecuting 17th-century astronomer Galileo, who dared to assert that the Earth revolved around the sun. In 2008, the Vatican even considered putting up a statue of him. 

Keep reading... Show less

Good-bye Milton Friedman, Hello Joseph Stiglitz! Progressive Economists Can Help Save Working America

For more than four decades the debate on economic policy has been dominated by an ideologically driven theory originating in economics departments of several major universities, most notably the University of Chicago. This simplistic neoliberal economic philosophy relentlessly taught that there was no problem that could not be solved by a reliance on market forces. All that was needed was for the government to get out of the way. President Reagan summed it up with the mantra: "government is not the solution; government is the problem."

Keep reading... Show less

Did You Know the Deficit Is Shrinking? Most Americans Don't, Thanks to Shameless Deficit Hawk Propaganda

Remember all those deficit hawks who screamed that the federal deficit is spiraling out of control and must be stopped with spending cuts that have a funny way of hurting the pocketbooks of the most vulnerable Americans? Their excuse for ripping us off has been literally disappearing, but a new Google survey shows that not only do the vast majority Americans not know it — half of the public actually believes that the deficit is growing.

Keep reading... Show less

How Corporate Giveaways to Applebee’s, Sears, and Other Companies Suck the Lifeblood from Your Community

You would barely know it from reading the mainstream press, but corporate subsidies given by state and local governments are big business — and getting bigger every day. Since the onset of the Great Recession, these giveaways have gotten completely out of control as locations desperate for investment throw more and more money at any project that promises to “create jobs.” That’s a false promise. What they mainly do is drain government coffers in a game of job creation musical chairs.

Keep reading... Show less

Could Senator Warren's Idea for Cheap Student Loans Help Make Rich Kids Richer?

Last month Senator Elizabeth Warren put forward her first bill as a senator, a proposal to allow students to borrow for college at a 0.75 percent interest rate, the same rate that the Federal Reserve Board charges banks for borrowing reserves. In putting forward the bill Warren noted the rapid run up in student debt at a time when recent graduates face an especially bleak job market.

As much as I think it would be good to help struggling students, I initially did not like the proposal. As a general rule it is best for the government to be transparent in its subsidies, which means appropriating money directly from the budget.

Keep reading... Show less

Four Easy Fixes for Corporate Taxation

Everyone "knows" that the corporate income tax is a mess. Ask any company. They pay too much in corporate income tax, face rates higher than in any other OECD country, and are just following the law when they use tax havens to keep profits eternally deferred from taxation and to perform general sleight-of-hand.

Don't believe a word of it. While some economists believe we shouldn't tax corporations at all, the corporate income tax (CIT) is a necessary backstop to the personal income tax (PIT). With no CIT or a rate lower than the PIT, individuals have an incentive to incorporate their economic activities so they aren't taxed on them, or are taxed less. Needless to say, this is something an average wage or salary worker would not have the ability to do. This is another area where we have one tax law for the 1%, and different rules for the rest of us.

So what should we do? The answers are simple, which is not to say that achieving them will be simple. Corporate interests hold a lot of political sway right now, and overcoming them will be anything but easy.

1. End the usefulness of tax havens for secrecy by instituting "publish what you pay." Currently, companies can hide all sorts of transactions because they are only required to publish "consolidated" accounts of their global operations. Thus, Starbucks reports losses on its British tax statements while telling investors how profitable it is in Britain.  Apple can get away with leaving its subsidiaries in Luxembourg, the Netherlands, and the British Virgin Islands off its annual report because it classifies them as not "significant." By forcing companies to un-consolidate their reports, we would know where their employees were, where their their sales (both source and destination of products and services) were, where they declared their profits and paid their taxes, etc. Part of the beauty of "publish what you pay" is that it doesn't require the cooperation of the tax havens to obtain the information.

2. End the usefulness of tax havens for avoidance by enacting unitary taxation. Upheld by the U.S. Supreme Court in 1983, unitary taxation treats multinational corporations the same way many states already tax the income of multistate corporations: considering all of a company's subsidiaries as a single entity, and using a formula to determine what portion of its global profits are taxable in your jurisdiction. The most common factors to put in the formula are sales, employment, and assets. Like "publish what you pay," this has the advantage of not requiring the cooperation of the tax havens, which have largely shown themselves to be minimally cooperative at best with global efforts to combat tax evasion and tax avoidance.

A big roadblock is the Organization for Economic Cooperation and Development (OECD), which promotes allegedly "arm's length" transfer prices that companies long ago learned to run rings around. Via the Tax Justice Network, Bloomberg reports that this allows U.S. and European companies to save over $100 billion a year on their taxes. As an indication of how uncertain lost tax estimates are, note on the one hand that this is significantly less than the $189 billion TJN estimates is lost to illegal tax evasion, but at the same time Bloomberg reports that the European Union says it loses EUR 1 trillion ($1.3 trillion) annually to tax avoidance and evasion, far in excess of these other two estimates. We're talking big money here. The OECD has begun a project called Base Erosion and Profit Shifting (BEPS), but there is widespread doubt about how much progress will come out of this. Bloomberg notes a major revolving door where OECD tax officials leave to work for tax avoidance consultants, and documents how many OECD conferences on tax are underwritten by the very enablers of tax avoidance in the accounting and legal professions. Unitary taxation would make the BEPS project unnecessary, but the OECD has long opposed unitary taxation.

3. In the United States, end the deferral of taxes until profits are repatriated. In other words, require companies to pay tax in the year the money is earned, rather than when it comes back home years later, if ever. Tax deferred is tax reduced, at the very least. To show just how difficult this will be politically, Robert Gilpin of Princeton University recommended this in his book U.S. Power and the Multinational Corporation--all the way back in 1975. (By the way, this book was quite influential on my thinking in graduate school and ever since.) Even now, U.S. multinationals are trying to get a "repatriation holiday" that would allow them to bring back $1 trillion in profits at a nominal tax rate, even though the 2004 repatriation holiday was a dud in terms of investment and job creation.

4. Don't cut the corporate income tax rate. There is a big difference between the headline rate of 35%, which is indeed tops in the OECD, and the effective rate of 12.1%, one of the lowest in the OECD. In fact, there is a significant economics literature showing that large countries can charge higher taxes than smaller ones do without suffering for it, just like the federal government can charge a much higher CIT than state governments can. There is no need for the U.S. to content itself with revenue neutral combinations of rate cuts and base broadening when government will actually put the money to work, something companies have avoided doing ever since the beginning of the recession which, need I remind you, began over five years ago.

While the road to truly fixing corporate income tax will not be easy, we seem to have reached a promising juncture in the battle with government initiatives like the Foreign Accounts Tax Compliance Act (FATCA) and the massive International Consortium of Investigative Journalists (ICIJ) tax  haven investigations. Last week (via markthshark at Daily Kos), the U.S., British, and Australian tax agencies reported that they had received an even larger data leak than ICIJ had, and that one was gigantic. We certainly can't count our chickens yet; instead, we need to redouble our efforts to force governments to stamp out tax abuse by corporations and the wealthy.

Straight Talk About the Next American Revolution

Editor's note: Historian and political economist Gar Alperovitz remembers the McCarthy era of the 1950s, when people thought the dark days would never end. But then came the 60s, which changed many things in a burst of human energy that no one expected. Today a lot us are feeling deep despair. Elections happen, debates drone on, but the most pressing problems of our time go unaddressed. So what do we do? What organizing and system-shaking strategies can really work to transform our future?  Alperovitz puts aside the pessimism and talks about possibilites – not with rose-colored glasses, but with a clear-eyed view of the fundamental changes we need and the methods that could work to acheive them. The following is an excerpt from his compelling new book, What Then Must We Do? Straight Talk About the Next Revolution. Think of it as a primer in possibility. A breath of fresh thinking from one of our most respected progressive voices.

Keep reading... Show less

Nobel Prize-Winner Joe Stiglitz Blasts America's 1 Percent-Coddling Tax System

It’s a sign of how well relentless propagandizing works that Joe Stiglitz has to devote a lengthy op-ed in the New York Times to debunking the idea that our income tax system, whose salient characteristic is low tax burdens for the rich, is good for anyone other than the rich. Economists have increasingly taken note of the fact that the US experiment in lowering taxes produced the opposite of the outcomes that were claimed for it, namely, spurring growth and increasing incomes in all cohorts (the barmy “trickle down” theory). Cross-country comparisons show that advanced economies with higher growth rates, like Germany, typically tax their wealthy more, showing that high taxes on the rich are not a negative for growth. Instead, giving tax breaks to the rich has turbo-charged rentier capitalism:

Keep reading... Show less

10 Tax Dodges That Help the Rich Get Richer

Have you read about the billionaire who pays a lower income tax rate than his secretary and gives advice for how much income tax other people ought to pay? You might want to ask: “How does he do it? ”

Keep reading... Show less