A new report from the Economic Policy Institute (EPI) shatters several bits of conventional wisdom embraced by the media and many in Washington, D.C., including the oft-repeated Republican mantra that lower corporate taxes boost the economy. The analysis found no evidence that changes in the statutory or effective tax rate on corporations are correlated with economic growth.
The report also finds that:
- The corporate tax rate in the United States is not high compared to other countries. While it is true that the United States has the highest tax rate on paper, because of loopholes in the system, including offshoring, few companies pay that rate. The effective corporate tax rate of 27.7% is close to the average of the wealthy countries that are comparable to the United States, with those countries averaging 27.2%.
- The current tax rate in the United States is not high compared to historical levels. The current statutory rate of 35% is lower than the rate of over 50% that was statutory in the 1950s.
- The current rate, either statutory or effective, is not impeding corporate profits. Both before-tax and after-tax corporate profits are at post-World War II highs as a percentage of national income.
The report’s author, Thomas L. Hungerford, argues that the current focus in policy and media circles makes little sense:
Given widespread concerns about federal budget deficits, it seems odd to call for tax changes that lower rates. The putative impetus for these calls is the belief that the statutory corporate income tax rate is too high—placing an excessive burden on U.S. corporations that leads to poor economic performance.
Read the full report.
Reposted from AFL-CIO NOW
Tags: aflcio, Corporate Accountability, Jobs, outsourcing, taxes
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Democratic Congressman Ed Markey and Republican private equity executive Gabriel Gomez are running to become the next U.S. Senator from Massachusetts.
The special election will be held on Tuesday, June 25, and June 5 is the last day to register to vote.
In local and national news, the coverage of the race has focused on the “horse race” and various things the two candidates have said – not so much on policy. But on issues affecting working families, there’s are huge differences between Markey and Gomez that we wish were making bigger headlines.
1.) Retirement. As a member of Congress, Ed Markey has been a longtime defender of Social Security. When both Republicans and Democrats were considering a plan to change the formula used to determine Social Security benefits to “chained CPI,” Markey opposed it.
“Chained CPI” (CPI stands for “consumer price index”) assumes that when prices go up, consumers will choose a less expensive product. This formula results in a lower “cost of living” estimate because it assumes people need less; using this formula to calculate Social Security is equivalent to a benefit cut.
Markey has said that CPI really stands for “cutting people’s income.”
Republican Gabriel Gomez, on the other hand, supports the “chained CPI” benefit cut, which he announced at an April 10 debate. As the AARP points out, if the government makes this switch for both Social Security and veterans benefits, current and future seniors veterans could lose $146 billion in benefits over 10 years.
2.) Wall Street. Ed Markey voted for the groundbreaking Wall Street reform bill, which ends some of the worst abuses of big banks and corporations (those same banks have since fought tooth and nail to weaken the reform). He also opposes Republican plans that would increase tax incentives for companies that ship jobs overseas.
Gabriel Gomez, who made his fortune as a private equity executive, has relied heavily on the support of Wall Street and the financial services industry in his run for office. Individuals working in finance have given Gomez’s campaign $278,000, 52 percent of his total campaign contributions. Bain Capital employees have given Gomez more than $12,000.
Not surprisingly, Gomez’s policy positions closely mirror that of the financial industry. He said that “onerous taxes” and “excessive regulation” are obstacles to job growth. He opposes raising taxes on the wealthiest Americans, and has attacked the Wall Street reform law.
3.) Health Care. The candidates differ starkly on the issue of Medicare. Ed Markey opposes cuts to Medicare, while Gabriel Gomez has said he favors raising the Medicare eligibility age. On his website and in his public statements, Gomez refers to Medicare as an “entitlement,” not as a guaranteed benefit.
Gomez hasn’t said at what age seniors should be eligible for Medicare, but a popular proposal would raise the eligibility age from 65 to 67. According to Roosevelt Institute fellow Matt Stoller, that would mean that 5 million 65 and 66 year olds would not be able to get Medicare coverage for at least a year, and 7 million would not be eligible for at least a month. Even with Obamacare fully implemented and every state accepting Medicaid expansion, this policy change would leave at least 200,000 seniors without health insurance, primarily those on the lower end of the economic spectrum. Those seniors would be denied the earned benefit that they paid for over the course of their lives.
Remember, the special election is on Tuesday, June 25, and the last day to register to vote in this election is Wednesday, June 5. If you live in Massachusetts or know someone who does, please share these three crucial pieces of information about where Markey and Gomez stand.
Tags: ed markey, gabriel gomez, Health Care, Jobs, Massachusetts, Medicare, social security, taxes, Wall Street
A wealthy businessman is running on the Republican ticket for U.S. Senate in Massachusetts, but he has a problem: he thinks he should get to play by different tax rules than the rest of us.
I could be talking about Mitt Romney, who ran unsuccessfully against U.S. Senator Ted Kennedy in the Bay State’s 1994 election. Or I could be talking about what’s going on right now in 2013.
Gabriel Gomez, a private equity investor who made his fortune working with companies like upscale apparel store Lululemon, is the Republican nominee to succeed former senator and current Secretary of State John Kerry. The Massachusetts special election will be held on June 25. And he has more in common with Mitt Romney than you think.
A special rate for some
During the presidential campaign, we learned a lot about Mitt Romney’s tax rate, which was effectively 14 percent in 2011 despite making $13.7 million that year. (For context, a single person making $50,000 paid roughly 23 percent that year.) This is because much of Romney’s income came from stock dividends and investments rather than salary, which are taxed under a lower rate for “capital gains.”
President Obama proposed changing this with the “Buffett Rule,” which would ensure those making $1 million or more a year wouldn’t pay a lower rate than middle class families. Romney rejected that proposal, calling it a “gimmick,” and a 45 Republican Senators blocked the proposal for even coming up for debate.
Free money for not breaking the law
As a fellow investor, Gomez also made much of his income in the form of capital gains, allowing him to pay that lower tax rate than those of us who earn wages – but that’s not all. In 2005, he also used a special deduction to effectively pay $281,500 less in taxes for doing…nothing.
That’s right. In 2005, Gomez claimed a deduction for making “no visible changes” to the façade of his 112-year old home in Cohasset, Massachusetts. Using a federal tax loophole, Gomez claimed this as a charitable contribution to protect historic homes. So poof! An extra $281,500 in the bank.
Here’s the catch: local laws already prohibited Gomez from making changes to his historic home. In other words, Gomez saved over five times the median household income in the United States just by not doing something that was illegal.
Gomez isn’t the only one who has pulled this trick. The IRS considers it one of the “Dirty Dozen” of most common tax cheats, and the organization that Gomez made the easement to has been targeted by the Department of Justice.
There were many reasons the American people rejected a potential President Romney last year, but certainly the idea that he saw no problem with keeping special breaks for a wealthy few was one of them. Gabriel Gomez has demonstrated that he feels the same way: first by making a fortune thanks to the special capital gains tax rate, and then by exploiting a loophole to maneuver an extra $281,500 into his bank account.
We need less of this greedy maneuvering and exploitation, not more.
Tags: gabriel gomez, massachuetts, Mitt Romney, taxes
Reposted from AFL-CIO NOW
Current laws in the United States allow corporations to use offshore havens to avoid paying their taxes and, if it’s up to many in Washington, the problem will only grow larger, particularly if the so-called “territorial” tax system is passed. The details of the use of such tax havens were discussed in a conference call with Campaign for America’s Future (CAF), Americans for Tax Fairness (ATF) and Citizens for Tax Justice (CTJ).
Current tax laws encourage the offshoring of America’s jobs, manufacturing and profit centers, which has led to the hollowing out of the middle class, manufacturing and much of the country, according to Dave Johnson of CAF. Changes in the tax code in recent decades have led to a series of dangerous statistics for America’s working families:
- Corporate tax revenues as a share of GDP are at near historically low levels.
- In 2009, the U.S. share of GDP made up of corporate tax revenues was only 1.7%.
- The top corporate tax rate in 1970 was 52.8%, now it is 35% (although the effective rate is much lower).
- The United States has the third-lowest effective corporate tax burden in the world.
- Corporate taxation as a share of total tax revenue was 26.4% in 1950 and was down to 7.4% in 2010.
- Personal income, Social Security and Medicare taxes were 51.4% of total tax revenue in 1950, now they are up to 83.4%.
Congress is now proposing lowering corporate taxes even more and even, possibly, eliminating taxes on earnings reported as having been earned outside the country.
ATF has been working to highlight the massive corporate tax loopholes big corporations exploit, says the organization’s campaign manager, Frank Clemente. Those loopholes allow some corporations, such as General Electric—who had an effective corporate tax rate of 12% in 2011—to pay less in taxes than individuals. There are currently $1.6 trillion in corporate revenues waiting offshore. The corporations who own those revenues want Congress to pass a new tax holiday (previous holidays taxed those profits at only 5%, instead of the standard corporate tax rate) or a territorial tax system, wherein U.S. corporations would pay no taxes on foreign profits. Clemente says that would create an incentive for corporations to ship more and more revenues overseas, as well as shipping manufacturing, patents and jobs to countries with no corporate taxes.
CTJ works to give ordinary people a greater voice in the development of tax laws. It focuses on exposing corporations that pay little or no taxes. CTJ argued that the tax code needs to be reformed, but in a way that ends incentives to shift profits and jobs offshore. Currently, corporations have heavy incentives to disguise U.S. profits as offshore profits to avoid paying taxes.
An example of this problem is a report from the Congressional Research Service that found in 2008 that American multinational corporations reported earning 43% of their $940 billion in foreign profits in five tiny tax-haven countries that house only 4% of their foreign workforce and 7% of their foreign investments.
The three organizations say they have three basic policies they favor to deal with tax havens and the offshoring of America’s profits and jobs.
- Rejecting revenue-neutral tax plans that close loopholes and lower statutory tax rates. Instead they favor revenue-positive tax proposals that would increase government revenue.
- Closing tax loopholes that encourage the offshoring of profits, and making sure foreign profits for U.S. corporations are taxed at the same rate as domestic profits. One example of legislation that would accomplish this is a bill by Sen. Bernie Sanders (I-Vt,), the Corporate Tax Fairness Act, that would require corporations to pay the same tax rate on domestic or foreign profits and would raise $590 billion over 10 years.
- Rejecting the territorial tax system, which they call “tax havens on steroids.”
Tags: aflcio, ceo, CEO Pay, inequality, Jobs, outsourcing, tax fairness, taxes
Working America members are in the midst of a fight to protect public education in North Carolina.
Since 2011, the state’s public school budget has been cut by $450 million, leading to overcrowded classrooms and outdated textbooks. Now the state legislature wants to continue weakening our public schools through the expansion of charter schools and voucher programs.
Both charters and vouchers take public money to send children to private and sometimes for-profit corporate-run institutions. These corporate run schools have little accountability, and make large profits by underpaying teachers.
Do we really want corporations teaching our students – and using tax-payer money to do so?
Working America member Joyce Mers is taking a stand against privatizing education. Joyce organized a church forum to discuss issues surrounding public education and promoted the event though her church newsletter. She even enlisted the help of education policy expert Dot Kearns to answer questions.
When discussing the immediate threats to public schools, Joyce referenced a bill that would restructure the oversight of charter schools. Under the proposal, charter schools would no longer be held accountable to the State Board of Education, which oversees all K-12 public schools. Rather, charter schools would have a separate board, whose members would be appointed by Republican Governor Pat McCrory and the legislature. The bill also has provisions to eliminate certain charter school requirements.
“Right now only 50 percent of teachers in charter schools are required to have a teacher’s license and this bill would do away with that requirement completely,” said Joyce, “Also, the schools would not be required to perform a background check, which just doesn’t make sense to me – especially when there is a bill in the legislature trying to put armed guards in schools.”
Under this proposal, corporations have even more power to use taxpayer money to create and oversee charter schools.
When discussing public school funding, both Joyce and Dot noted that despite past cuts, student performance is high. “It’s a popular thing now to say everything is failing, but that just is not the case,” said Dot. She then cited the increase in North Carolina’s graduation rates. However, it will become difficult to maintain this success if more charters and vouchers drain public education resources and are held to different accountability standards.
The forum ended with Joyce collecting a dozen petition signatures from the group, which urge Governor McCrory to protect public school funding. But we need to continue this pressure. Our state needs to fully invest in public schools. If you’re in North Carolina, email me at cmedlock-walton@workingamerica.org to find out how you can help.
Tags: budget cuts, cyber schools, Education, North Carolina, pat mrcrory, privatization, taxes
Reposted from AFL-CIO NOW
A new study from the Center on Budget and Policy Priorities (CBPP) shows states that cut tax rates do worse in terms of economic growth than other states. Numerous Republican governors have pushed for tax cuts under the premise that lower tax rates lead to greater economic growth, but the CBPP study concludes that this premise is wrong.
The five states that implemented deep tax cuts during the 1990s experienced slower job growth over the next economic cycle than states that did not, and none of those states experienced income growth that exceeded inflation, CBPP found.
The five states that cut taxes the most in the mid- and late-1990s saw job growth of less than 0.3% from 2000-2007, while the remaining states averaged 1.0% growth. Similarly, the states with the biggest tax cuts saw slower income growth than the other states, on average.
At least seven Republican-led states are currently pursuing massive tax cuts.
Tags: aflcio, Jobs, tax cuts, taxes
Reposted from the AFL-CIO NOW Blog
While congressional Republicans are heavily focused on cutting Social Security, Medicaid and Medicare benefits and other harmful budget cuts that threaten the 98%, a better approach is to eliminate loopholes that allow the wealthiest 2% of Americans and Wall Street to pay much less than their fair share of taxes. Focusing on loopholes keeps money in the hands of working families, which helps the economy grow without increasing hardship and economic insecurity for working people.
Many current loopholes just aren’t fair. Take, for example, what Think Progress calls the “Mitt Romney Loophole.” People like Mitt Romney who manage investment funds get paid in two ways. Part of their income is a management fee that is taxed as ordinary income, currently at a top rate of 39.6%. But fund managers also get a cut of the profits of the investments, which is taxed as a capital gain, with a top tax rate of only 20%. The typical investment manager takes a management fee of 2% and gets a 20% cut of the profits, meaning they avoid paying the normal tax rate on the vast majority of their income, something working families are not able to do. As Think Progress explains:
This loophole is one of the main reasons that Mitt Romney paid a tax rate of just 13.9 percent on income of more than $20 MILLION. Meanwhile, millions of middle-class workers pay a much higher rate on their much, much lower salaries.
Closing this loophole would not only make our tax code fairer and more progressive, it would help raise revenue to protect vital programs and leave room in the budget for investments to grow the middle class. Closing just this one loophole that often benefits the ultra-wealthy would raise $21 billion over 10 years.
Photo by Gage Skidmore on Flickr
Tags: Corporate Accountability, deficit, Medicare, Mitt Romney, Retirement, social security, taxes
In a 51-48 vote, the U.S. Senate has taken an important step towards fairer taxes, passing a bill that extends current tax rates for income under $250,000—but ending the Bush tax cuts on the richest 2%.
As we wrote earlier today, the Middle Class Tax Cuts Act would implement President Obama’s proposal to end the Bush tax cuts on income over $250,000.
About an hour earlier, the Senate defeated, in a 54-45 vote, a proposal by Senate Republicans that would extend the tax cuts for the rich, but end a number of middle-class tax credits.
Especially gratifying is that the Senate broke a frustrating recent trend of requiring cloture votes on nearly every vote, subjecting a number of important bills to a minority filibuster.
In order to become law, the bill would still have to go through the U.S. House—and Republican leadership there could decline to even bring it up for a vote.
Tags: Bush tax cuts, Jobs, taxes
Today in the Senate, a vote will be held on whether to debate the Middle Class Tax Cuts Act, a bill that would implement President Obama’s proposal to extend current tax rates for most people but restore 1990s-era tax rates on income over $250,000.
This is an overwhelmingly popular position, and one that makes a lot of sense. The new tax rates would only affect the richest 2 percent—and only on income they make above $250,000. The wealthy have been doing well over the past few years even as most working people have fallen behind, so this plan would make sure everyone is paying their fair share.
The Senate Republicans have also made a proposal—one that’s upside-down from the Middle Class Tax Cuts Act. They would extend all of the current tax rates, including the big cuts Bush gave to the very richest, but they would also eliminate tax credits that the President passed under the Recovery Act in 2009—credits for working families with kids and credits to help people pay for college. In fact, under the Senate Republicans’ plan, millions more people would be paying higher taxes than under the bill
There’s a lot of overlap between the two sides’ plans—but where they differ is in who benefits. The Middle Class Tax Cuts Act mostly benefits those at the lower end of the scale and middle-class families with kids; the Senate Republicans’ proposal would continue to give huge tax cuts to millionaires and billionaires.
As David Atkins correctly puts it, Senate Republicans are “flat-out running on a campaign of lowering taxes on the super-rich while raising them on lower and middle incomes.”
So what’s likely to happen this afternoon? Well, if you’ve watched the Senate at all over the past year, you’ll recall a familiar story: popular bills get majority support in the Senate but get blocked by a minority filibuster before they can even get a debate. That’s the story of the Bring Jobs Home Act, the Paycheck Fairness Act, the “Buffett Rule” and an infrastructure jobs bill, to name a few.
You’d think that the chance to keep tax rates at their current low levels for 98 percent of Americans would break this pattern. But we’ll have to wait and see where the Senate’s Republican minority stands.
If you want to call your Senators and tell them how you feel, click here and we can connect you.
Tags: Bush tax cuts, Jobs, taxes
Reposted from the AFL-CIO NOW Blog
The huge export of American jobs (some 6 million manufacturing jobs in the past decade) by U.S. corporations has become a focal point of the presidential campaign. Today, a new report from the Center for American Progress (CAP) outlines how Republican Mitt Romney’s proposals would “encourage and further accelerate the outsourcing of American jobs to foreign countries.”
While today’s current corporate tax laws offer tax incentives to firms that move jobs overseas, companies still face some U.S. tax obligations on their foreign profits. But Romney’s proposal would completely exempt all overseas profits by American companies from U.S. taxes. That would, writes Seth Hanlon, CAP’s director of fiscal reform, “exacerbate the worst features of our current tax system.” Romney’s tax-free scheme would:
- Enhance the tax code’s rewards for moving jobs and investments overseas;
- Provide a gratuitous windfall to some of the very companies that have already shifted jobs and profits overseas; and
- Further invite the offshore tax haven abuse that deprives the U.S. Treasury of tens of billions of dollars in revenue every year.
What are we talking about in windfall dollars? According to Hanlon, exempting overseas profits from tax would provide a tax cut for multinational corporations of $130 billion over 10 years. When combined with Romney’s proposal to slash the top corporate rate from 35 percent to 25 percent, which would cost more than $900 billion, it pushes the total corporate tax cuts in the Romney plan to more than $1 trillion.
Romney claims that U.S. firms would use the $1 trillion tax cut to create jobs in the United States. That’s either a naive and Pollyannaish view of corporate commitment or a cynical campaign lie. My bet’s on the latter. Here’s what Hanlon has to say.
His theory is based on the flawed belief that some of the world’s largest corporations would invest more in the United States if only they had more cash at their disposal. Yet large corporations already are holding onto near-record levels of cash—$1.7 trillion at the end of 2011—and are also able to borrow at historically low rates. Given a windfall tax cut on their foreign earnings, they are likely simply to buy back shares or pay dividends to investors.
There’s precedent for that prediction. That’s exactly what happened, says Hanlon, when Congress enacted a one-time “tax holiday” for foreign profits in 2004:
Corporations used the tax-amnestied profits for share buybacks and dividend payouts rather than investment or job creation in the United States. Many corporations claiming the tax break actually shed jobs.
The report also deals with other corporate-friendly aspects of the current tax code and how Romney’s plan would make them even friendlier (click here for the full report). In addition, it contrasts President Obama’s agenda—including the Bring Jobs Home Act—on corporate taxes to Romney’s tax swag bag for corporations. Obama proposes:
- A minimum tax on corporate profits to ensure that multinational corporations cannot avoid taxes by exploiting tax havens;
- Curtailing tax deductions that subsidize foreign investment; and
- Denying deductions for expenses associated with outsourcing jobs abroad while providing a 20 percent credit for “insourcing.”
Writes Hanlon:
President Obama’s international tax plan and that of his presidential rival Romney offer a clear contrast. By exempting the foreign profits of U.S. corporations from U.S. tax, Romney’s plan would reward and potentially accelerate the shift of jobs and profits overseas. President Obama’s plan, by contrast, helps level the playing field for job creation here at home.
Tags: Corporate Accountability, Mitt Romney, taxes
