Fiscal Cliff Was Just Another Gift to Corporate America

The real story of the fiscal cliff negotiations, and the coming debt ceiling debate, is a continuing tale of corporate America tax cuts and the CEOs who love them.

The abject hypocrisy over deficits can be illustrated with one simple statistic. According to the Institute for Policy Studies, 25 of the most-well-paid chief executives got higher compensation than their companies paid in federal taxes. If there really is a wealth re-distribution going on, I think we can see which direction it’s going..and it’s not to the middle class.

The drive for austerity, which I’ve clearly identified as fiscal lunacy, (when attempted during an economic downturn or the recoveries from them) carries with it a host of mini-outrages making this point. All you have to do is look at countries who are trying it now. The UK was in the midst of a full-fledged recovery when the new conservative Prime Minister Cameron came into office two years ago, and decided to join clearly failing strategy that Angela Merkel was forcing on the Euro zone and cut back on all government spending. Of course it took only six months for the UK’s economy to dive right back into a double-dip recession. Same for the Euro zone (except Greece which was simply so mismanaged they fell apart at the seams) with Spain, Italy, Portugal and Ireland in particular at Depression-level unemployment ( over 25%).

Americans heard a lot about the fiscal cliff but never understood what it really was or that it was the direct result of the last attempt by the GOP to hold America’s economic stability hostage by threatening not to pay the very bills they approved the spending for.

What You Don’t Know Is What Corporate America Counts On

Fiscal cliff negotiations ended that the final agreement, that was supposed to be about “tax hikes for the wealthy,” extended huge corporate handouts. Another ruse perpetrated on the American people. Included in the final deal were:

  •  Special breaks for NASCAR and help for Hollywood movie studios
  •  $3 billion a year for General Electric
  • Support for mining and railroad companies
  • Even a push for electric scooters.
  • No reduction in the $4 billion the U.S. gives to each oil company, despite the fact that the U.S. now exports more oil than it imports

Outrage over this story was totally unreported by the media, but everywhere from the floor of the House of Representatives to cable news networks, including ESPN, people are angry. The anger at these corporate subsidies was justified because breaks like these are a symbol of a budget process designed to shift money and power to people who already have too much of it. The “free market” crowd clearly doesn’t understand that as long as the chosen few elite corporation continue to have their operating expenses subsidized, there is NO free market. Free markets, by definition, compete on level playing fields which the U.S. clearly and hypocritically ignores.

Lower corporate tax rates make sense. Too many other countries offer tax rates half the rate of the U.S., and it’s hard to justify to shareholders to keep their corporations in the U.S. when we have the highest corporate tax rate in the world. But there are way too many corporations that don’t pay any taxes. Even worse, under the fiscal cliff negotiations just passed, they then pass along some of that increased profit to their CEOs, who are allowed to legally shelter their income from the Internal Revenue Service. It’s an authentic circle of life.

As David Cay Johnston has illustrated in his excellent book, The Fine Print, the middle class is at a double disadvantage. One, we actually have to pay taxes every year on our income. Two, we have to deal with a frightening overly complex tax code.

Let’s start with the corporations who don’t pay taxes. AT&T didn’t pay any in 2011. GE and The New York Times got into a fight over an article about whether the sprawling electronics and banking conglomerate didn’t pay any taxes, or paid far too little. Bank of America, which got one of the biggest federal bailouts, also got a billion-dollar refund in 2010.

Meanwhile, the Treasury Department quietly gave the insurance giant American International Group (AIG), the insurance giant at the heart of the 2008 financial meltdown, received the biggest government bailout of all, AND a multi-billion-dollar tax break to make its bailout numbers look better. The company is now running a massive TV ad campaign trumpeting that it not only paid back the bailout money, but the nation made a profit. It’s hogwash.

Political Theater

Politicians and media pundits argue ad nauseum that closing corporate tax loopholes is necessary, but neither party lays out which loopholes. If corporate loopholes like the ones above were actually closed and the revenue were raised to the proportion of federal taxes they made up in 1950, about half of our trillion-dollar deficit would disappear.

The lack of tax revenue from corporations, all of whom benefit from the U.S. government’s court systems, legal protections, military protection and infrastructure, is plenty cause for outrage. But the real scam is much deeper.

Corporate CEOs and many officers don’t pay taxes on most of their income, despite the fiscal cliff deal that was publicized as a tax hike on the very wealthy; a change in the tax code that Annie Lowrey of the Times wrote would make the tax code more progressive than it has been since the Carter years.

“About 79 percent of chief executive officers at Fortune 100 companies,” according to Bloomberg.com, “were offered so-called non-qualified deferred compensation plans,” which allow them to “defer an unlimited amount of their salaries or bonuses on a pre-tax basis until a future date.”

These plans let high-paid business executives defer taxes for years. Moreover, these plans allow them to work in a high-tax state, such as New York, but pay taxes where they retire, in a state like Florida, that has no income taxes.

This means that the parade of CEOs flowing through the White House in November and December to show support for the fiscal cliff deal weren’t supporting a deal that raised their taxes, but others weren’t so lucky.

Among those that did benefit, Douglas R. Oberhelman, chairman and CEO of Caterpillar, supposedly a proponent of raising taxes on the wealthy in the fiscal cliff deal, got $4 million in deferred compensation last year.

Not only do middle-class taxpayers confront a tax code that is frightening, they routinely buy overpriced software or predatory lending tax prep services as their supposed allies. You guessed it, more hogwash.

Governments all around the world, as well as in a trial project in California, now do their taxes for their citizens. But Intuit lobbied to kneecap the IRS from doing this, from actually making our lives easier, because it may have threatened their ability to sell us software.

Unlike the CEO class, who appear to have never met a handout they couldn’t gorge on, the middle class doesn’t get to claim government benefits it’s due – $108 billion of unemployment insurance payouts went unclaimed in 2009.

Basically, taxpayers are subsidizing companies for the cost of doing business. A Transformers movie should be able to make money without tax breaks. Mining companies do not need tax breaks to buy safety equipment and train their workers in safety procedures — they need to be told to not kill their workers and to be held accountable if they do. A big chunk of GE’s profits shouldn’t depend on its ability to manipulate the tax code.

And CEOs shouldn’t get their income-tax-free compensation linked to profits enhanced by rebates from the IRS.

In 1950, corporate income taxes provided $1 in every $4 of federal tax revenue, and slightly less than half of state tax revenue. By 2012, corporate taxes provided about $1 in every $10 of federal tax revenue, and about $1 in $8 of state tax revenue. Under that 1950s system, the nation paid off the massive public debt we incurred during World War II.

If confronting the deficit is a major concern, the path is clear: Make corporations pay taxes. Make the GOP leadership, the Democrats’ leadership, and President Obama come clean.

And make the damn corporate CEOs live in the same world we do.

 

Harvey Gold

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