Today David Sirota warns of the demise of the Democratic party if high-finance candidates represent the party, using the upcoming Illinois Senate Democratic primary as an illustration. In that race, the bank owned by Senate candidate and Illinois Treasurer Alexi Giannoulias' family was chided recently by state regulators for essentially funneling depositors' funds into owners' pockets instead of the institution's reserves. As the Bloomberg analysis Sirota linked to points out, it's a bad time to run a high-fiance scandal-plagued candidate for office.
Sirota:
Thus, if Giannoulias, it would be a clear disaster. He is literally the walking personification of all that the public clearly despises right now - an Establishment politician closely connected to the industry that has destroyed the economy.
With him as the nominee, Democrats could lose yet another senate seat, and more broadly, they could lose any national high ground they need to reclaim. At a time when the Democratic Party desperately needs to reclaim the populist economic mantle and prevent Republicans from being able to mount their own right-wing populist campaign, Giannoulias would become the face of a Democratic Party that has already become increasingly synonymous in voters minds with the most hated aspects of the financial industry.
Like Sirota, I've been railing against big business and its too-cozy relationship with government for...years? At least ever since I've had a blog to write on. And one of the most egregious abuses of taxpayer money was the recent bank bailout, in which the high-finance institutions that caused the recent financial crash with rampant and irresponsible investing after lobbying the government to deregulate its industry received billions. (Meanwhile, we can't even pass a health care bill that would give subsidies to people without health insurance.)
There's been some financial regulatory bills circulating in Congress - most notably Chris Dodd's, which, among other things, would create a Consumer Protection Agency intended to streamline bank and finance regulations and protect consumers from the predatory actions of lenders. (Hint: you can't have a "free" market without consumer access to information and protection from swindlers.) And in the SOTU speech yesterday, President Obama vowed to impose a "fee" on the high-finance institutions that caused the crash.
Tester is less enthusiastic about the administration's plan to impose a new tax on financial firms that received government aid through the Troubled Asset Relief Program, or TARP.
"I'm very concerned that the tax could be passed on to customers," said Tester, who called for the idea to get close examination by lawmakers....
Proposals to create a new consumer financial protection agency aren't high on Tester's list of desired changes, though.
"Fundamentally, I'm not crazy about building another agency," he said, but added that the idea "wouldn't be a deal-killer on my part" and indicated that Senate lawmakers are debating whether the consumer-protection function might be folded into an existing agency, rather than assigned to a newly created one.
That's right. Our progressive populist Montana farmer is planning to use his Senate Banking Committee to...oppose consumer protection and a tax on big banks?
Let's be frank. Banks are not popular. And the Democratic party is quickly becoming identified with high financial interests, not only in Illinois, but apparently closer to home, in Montana.
And hasn't Jon seen the results of the Massachusetts special election? They weren't clamoring for more backroom dealing and a cozier relationship with corporate America. They voted against Coakley because she was seen as the establishment candidate. This position is electoral suicide. And it's bad policy.
Look, I'm fine with Jon being a one-term Senator...if he lost his seat fighting for his core values. But this? Defending huge, East Coast financial institutions' interests from the little guy?
Indeed, the IRS data shows that in 2007-the most recent data available-the top 1 percent of taxpayers paid 40.4 percent of the total income taxes collected by the federal government. This is the highest percentage in modern history. By contrast, the top 1 percent paid 24.8 percent of the income tax burden in 1987, the year following the 1986 tax reform act.
Remarkably, the share of the tax burden borne by the top 1 percent now exceeds the share paid by the bottom 95 percent of taxpayers combined. In 2007, the bottom 95 percent paid 39.4 percent of the income tax burden. This is down from the 58 percent of the total income tax burden they paid twenty years ago.
To put this in perspective, the top 1 percent is comprised of just 1.4 million taxpayers and they pay a larger share of the income tax burden now than the bottom 134 million taxpayers combined.
Holy smokes! Those poor ultra-rich!
Of course, when you think about it for about 0.0004 seconds, it becomes abundantly clear what this means, especially when you consider the tax rate of the top earners has actually fallen in recent decades: there's income redistribution going on here...into the pockets of the wealthiest Americans:
For comparison, here's a chart showing the portion of adjusted gross income earned by the top 1 percent and by the bottom 95 percent. You'll see that one major reason why the share of taxes paid by the richest Americans has risen is that the richest Americans have experienced much greater income growth...
You'll also notice that the Tax Foundation chose a rather odd benchmark - 95 percent as opposed to 99 percent - to compare tax burdens with. That's because - as made clear in the Economix site - the missing earners actually pay quite a bit of taxes, too...because they're raking it in as much as the Top One Percenters.
Oh yeah. And all this data ignores the payroll tax.
From Steven Pearlstein's otherwise excellent challenge to Blue Dog Democrats to step up to the challenge of health care reform:
And, to help pay for universal coverage, they would back some sort of tax on gold-plated benefit packages that encourage patients to consume too much health care or become indifferent to what things cost.
This assertion has been making the rounds lately among progressives looking to put a cap on the tax credit for employer-based health insurance policies.
Look, it's one thing to say we need to find ways to pay for reform, and that the consumers of upper-end insurance policies should help out a little, but it's another to bang on the insurance industry's meme that bad insurance leads to smarter consumption of services.
Please, can anyone show me any evidence that better policies lead to patients opting for more costly treatments? Or even make more unnecessary doctor's visits? Because, frankly, humans aren't calculating machines, and don't blithely respond to rational economic incentives. Most humans don't like to visit their doctor. And giving consumers an extra incentive to not visit their caregiver means they'll wait even longer to see someone about a condition -- which costs more money in the long run.
So discouraging people from getting "gold-plated" policies might actually drive health care costs up.
Now if we're talking about doctors opting for more expensive, more unnecessary treatments or tests because of the patient's insurance policy, that's another ballgame. In those cases, we need to examine the financial incentives for doctors at particular institutions...
When you look at percentage of total tax liabilities, the rich do in fact bear a heavier burden. But it's because they have so much more money. They are not bearing a heavier burden as a percentage of their incomes. They're bearing it in relation to everyone else's incomes. Indeed, it's only because the sheer levels of income inequality in this country are frankly unintuitive that Fleischer can even write this sort of dreck....
Add the fact that progressive tax reform would actually help most Americans, some recent polling data that shows a majority of Americans think their tax rate is "fair." What's remarkable is that the polling data indicates that Americans' current attitudes to their own taxes is extraordinarily friendly, historically speaking, and this whole "Tea Party" think looks absolutely absurd.
Here's a startling editiorial from former Bush administration spokesflack, Ari Fleischer. In it, he complains that the top wage earners are paying too much in taxes...
Picture an upside-down pyramid with its narrow tip at the bottom and its base on top. The only way the pyramid can stand is by spinning fast enough or by having a wide enough tip so it won't fall down. The federal version of this spinning top is the tax code; the government collects its money almost entirely from the people at the narrow tip and then gives it to the people at the wider side. So long as the pyramid spins, the system can work. If it slows down enough, it falls.
It's also what's called redistribution of income, and it is getting out of hand.
If the premise feels skewed, that's because it is. Fleischer, for example, argues that the top 10 percent of earners "pay 72.4% of the nation's income taxes," and represents the "tip of the triangle" of his oddly unbalanced pyramid metaphor. But...every table and piece of data I can get my hands on shows that the top 10 percent of earners has more than 72.4% of the wealth...which makes the figure Fleischer quotes...reasonable -- until you realize that payroll taxes, which aren't counted as "income taxes," drive up the tax rates of anyone making under $90K, so that an average earner actually pays a much higher tax rate than the upper income brackets.
But the oddest thing about Fleischer's proposal is that he favors the elimination of the payroll tax and a straight, loophole-free progressive income tax as a solution. Which would dramatically reduce the tax burden of the poor and middle class and jack up the rates on the very people he claims are being oppressed in our system...
And you wonder why the "Tea Parties" make so little sense. According to Fleischer, most of the people out on the streets are protesting taxes and government spending of which they are the ungrateful recipients of their betters' largesse. Not that there's much reason behind the protests, which appear to have gotten a friendly boost from FoxNews, whose media personalities are hawking the protests as if they have a financial stake in the whole deal. (Oops! They probably do!) But...why would a bunch of people stand out with signs protesting to protect the tax rates of the ultra-wealthy when those rates are at a historical low, and the distribution of income historically lopsided. If anything, the government distributes income upwards.
Whatever. I'm still waiting for a rational response from the right on how to steer the economy out of the recession. Not that I'm unwilling to listen: I'm personally abivalent about the massive bank bailouts and doubtful about the efficacy of the recently passed stimulus bill, when so many of the bankrolled projects were things like massive and unneeded highway projects...
CNN has a nice little report on the different tax reforms we can expect to hear about as the federal goverment looks to raise revenue for its stimulus spending while still giving middle-class taxpayers a break. In short, there's talk of increasing revenue by going after offshore tax havens and international corporations, taxing hedge fund managers at normal rates, reinstituting the estate tax, and taxing health benefits; and extending the Bush tax cuts for middle-class families and making permanent the work pay tax credit. Max Baucus will have his finger in all of these pots.
I bring up these reforms, because big sage mentioned in the comments of the "Links..." post that Baucus and Tester voted to raise the cap for the estate tax...
The estate tax was phased out under the Bush adminsitration, but scheduled to re-emerge from its slumbers in 2010 at pre-2001 cap levels. Baucus wants to raise the cap to $3.5 million for an individual and $7 million for a couple at 45 percent, and adjustable for inflation.
Now I'm a big advocate for the estate tax. We tax lottery winnings -- why not tax the biggest lottery winners of them all, the inheritors of fortunes not earned? And those fortunes were no doubt built on the infrastructure that tax dollars provided -- roads and lines of communications, a secure marketplace, education for the workforce, etc & co -- why not take some of that money back to ensure a working society so that Richie Rich, Jr. can make his stab at a fortune (with 55 percent of mom and dad's millions as a starter kit)?
But I hardly find a $3.5 million cap too lenient...you know? While the meme that the estate tax hurts family farms is 95 percent myth, keeping the threshold well above the value of your typical farm isn't a bad idea...
As Bobby S pointed out, the New York Times wrote an editorial calling for a crackdown on tax cheats -- specifically those that use offshore accounts to hide their earnings from Uncle Sam. The editorial was spurred largely by a tax haven bill proposed by Max Baucus, as a counter the Levin/Obama bill.
Now this tax haven business, and Max' association with it, is something I've been writing aboutforsometime. But basically, here's what's happened thus far. Way back in 2007, Michigan's Carl Levin introduced a bill called "The Stop Tax Haven Abuse Act" (pdf), which would "restrict the use of offshore tax havens and abusive tax shelters to inappropriately avoid federal taxation," only the bill died in committee. Max Baucus' Tax and Finance committee, to be specific. But Max said a proposal was on its way; sure enough, a draft is making the rounds.
So...what's the difference between the proposals? The Levin bill (pdf), which he reintroduced a few days ago, would give pretty robust powers to the US Treasury to combat offshore tax cheats. One of the bill's features is the creation of a list of economic rogue nations -- nations that have overly secretive tax codes intended to enable tax abuse by US citizens. Any transaction to and from one of the listed rogue nations by a US citizen is assumed suspect and investigated accordingly. Noncompliance with US investigations could cause foreign banks to be shut out of the US financial system. In short, the bill intends to end the practice of tax haven abuse by putting pressure on the countries that harbor tax cheats.
Pretty heady stuff, eh? It's the economic equivalent of necon foreign policy! Naturally property rights' mavens are apoplectic -- and probably not without cause -- that it might do unforeseen damage to our trade.Think of all those Swiss Army knives we'd miss out on...
The Baucus bill -- surprise! -- is much more moderate:
The more targeted draft by Senate Finance Committee Chairman Max Baucus would require entities transferring funds offshore to report to the Internal Revenue Service the amount and the account or destination to which the funds are being moved. Baucus, D-Mont., also would extend to six years, from three, the statute of limitations for the IRS to scrutinize tax returns that reported, or should have reported, certain international transactions.
In an effort to deter offshore tax evasion, Baucus would require offshore entities to file foreign bank account reports, known as FBARs, with their income tax returns, not just to the Treasury Department's Financial Crimes Enforcement Network. Under current law, any U.S. resident who has a financial interest or account in a foreign country exceeding $10,000 has to file an FBAR.
Under Baucus' bill, the IRS would require tax preparers to ask a series of questions designed to determine whether an FBAR needs to be filed. The draft also would establish a $10,000 penalty for foreign trusts that fail to file tax returns, and would treat transfers of artwork and jewelry from foreign trust the same way that "marketable securities" are treated under tax law.
The draft would double fines and penalties for underpayment of taxes on certain offshore transactions.
Basically, Baucus' plan gives a few more tools to the IRS to detect tax cheats, and imposes a stiffer fine for violators. Sure, it'd bring in more revenue, maybe make tax cheats sweat a little bit more at night, but does nothing to try and get at the root of the problem. You'd think a compromise should include some of Levin's "nuclear" options -- like his threat to shut noncompliant foreign banks out of the U.S. financial system. That'd be a neat punishment for repeat offenders...
Still, it's early. And I'm no tax code expert. Mark T? Are you there?
Great. It now sounds as if the administration is jumping on board Baucus' proposal to tax health care benefits. And on the same faulty premise of "moral hazard":
Mr. Orszag, an economist who has served as director of the Congressional Budget Office, has written favorably of taxing some employer-provided health benefits and using the revenue savings for other health-related incentives. So has another Obama adviser, Jason Furman, the deputy director of the White House National Economic Council.
They, like other proponents, cite evidence that tax-free benefits encourage what Mr. McCain called "gold-plated" policies, resulting in inefficient and costly demands for health care and pressure on employers to hold down workers' pay as insurance expenses rise. And, they say, the policy discriminates against those - many of whom are low-income workers - who do not have employer-provided coverage.
In short, they're considering taxing some benefit payments for two reasons: to raising revenue, and to discourage use of "gold-plated" policies.
Just curious, but does anyone have any evidence that good health insurance policies lead to higher, patient-driven insurance costs?
As for the policy discriminating against those who don't have employer-provided coverage, why not offer those consumers tax deductions for their health-care policy purchases?
A couple of days ago, Max Baucus dumped a bombshell into the lap of the uneasy coalition that's formed to create health care reform:
Sen. Max Baucus says he'd prefer funding health care reform by taxing people's health benefits rather than phasing out tax deductions on the richest Americans....Currently, the portion of health benefits that are covered by a person's employer is tax-free income. Baucus said last week that taxing those benefits should be considered. That way, health care reform would be funded with health care dollars.
Baucus says taxing health benefits wouldn't necessarily be harmful to lower- and middle-class Americans.
President Obama is proposing to phase out income tax deductions for people making more than $250,000 a year. Baucus has told Obama he doesn't like that idea.
According to a Reuters report, "critics say the tax break encourages workers to seek a more generous benefit package than they might want if it was taxed." That is, by instituting a tax on benefits, workers would seek cheaper, less comprehensive health care.
Frankly, that's the same old "moral hazard" rationale that got us into this health care mess in the first place. Malcolm Gladwell eviscerated this argument years ago; the "moral hazard" rationale is responsible for the Byzantine paperwork that has driven up administrative costs for health care, and has encouraged people to avoid routine checkups or treating minor illnesses and injuries -- which leads to more emergency care and higher treatment costs later. Basically we should be encouraging people to have good and comprehensive health care. Healthy people are less of a burden to the system; illnesses and injuries treated early reduce long-term treatment costs. Comprehensive health care for all saves money in the long run.
Taxing all health benefits is also regressive tax policy. That is, it affects middle-income families and small businesses disproportionately. It's also the same policy that John McCain was slammed for by Obama during the election. And to be honest, Obama's proposal -- phasing out health care benefits for those making over $250K -- isn't all that hot, either. We should be encouraging people to have health care, not punishing them for it.
But let's face facts. Health care reform will cost money. So...how do we go about raising the funds needed?
Most of America's largest publicly traded corporations -- including several that are receiving billions of dollars from U.S. taxpayers to finance their recovery -- have set up offshore operations that could help them avoid paying U.S. taxes on their profits, a government study released yesterday found.
This whole tax haven thing has got to be addressed by the new government. Baucus aimed some rhetoric at these people with his talk of closing the tax gap, and Obama co-sponsored a bill with Carl Levin to end tax haven abuse (pdf), so there's hope here something happens. It'd be nice if the next stimulus package included some strings requiring companies to start paying taxes.
On the other hand, Baucus' committee was where the Obama/Levin bill went to die, and there are plenty of Democrats who'll fight to protect their corporate sponsors. And you know the free-maket mavens, who for some reason still have access to power, will tell you requiring companies to pay their taxes will just drive them overseas...
...or maybe we just do what David Cay Johnston proposes:
The Obama administration could tell the Caymans - now fifth in the world in bank deposits - to repeal its bank secrecy laws or be invaded; since the island nation's total armed forces consists of about 300 police officers, it shouldn't be hard for technicians and auditors, accompanied by a few Marines, to fly in and seize all the records. Bermuda, which relies on the Royal Navy for its military, could be next, and so on. Long before we get to Switzerland and Luxembourg, their governments should have gotten the message.
Now there's a war I could get behind!
Update: Speak of free-market mavens slamming corporate tax rates, and lo! Enter Grover Norquist:
The other tax cut you could do is cutting the corporate rate. The U.S. corporate rate is 35 percent; the European rate is 25 percent. Obama is a more international guy, so we should be close to the European average. We'll stop torturing people, we'll stop torturing corporations, and that will make us more like Europe.
Sunday's Great Falls Tribune had a story about a scuffle in DC about tax credits for wind energy, a tax system that enabled wind energy producers to build in Montana. No brainer, right? We want innovated, forward-thinking energy production in the state, right?
The House last year narrowly approved legislation extending the tax credit, which expires at the end of this year. It amounts to 2 cents per kilowatt-hour of electricity generated. Montana Rep. Dennis Rehberg voted with the majority of his fellow Republicans against the extension and plans to vote against it again.
In the Senate, Republicans were able to block the legislation by one vote. President Bush threatened to veto it because it would have been paid for by canceling tax breaks that now go to oil and gas companies.
The rationale behind Rehberg's opposition? Raising tax rates for Big Engery means passing on costs to consumers. Neat, huh? Of course, big corporations never pass on tax cuts to consumers -- and eliminating the tax credit for wind energy will also pass on costs to consumers!
Sweet, huh? Rehberg opposes wind energy tax credits because Big Energy will have to pony up a little more from its record-setting profits to pay into the system from which it derives its wealth, and Big Energy has deep pockets to ensure it doesn't pay its fair share.
Hm. Makes you wonder exactly who Rehberg is representing in Congress.
The Notorious Mark T wrote a post about the inequity in our current tax code, which actually favors the wealthiest among us at the expense of the middle class. In fact, Mark's post reminded me of this little post over at TMM, which pointed me to the story on Chuck Rangel's proposed halt to IRS audits of folks living and operating a business out of the U.S. Virgin Islands. Apparently a number of would-be beneficiaries under the proposed legislation are - surprise! - Rangel constituents.
Tax havens are one way the ultra-wealthy wiggle out of their tax obligations. Rangel's bill would basically legalize a regressive tax code. Obviously this is a wrong, and Rangel's proposal should die -- preferably a miserable, agonizing, and very public death.
I've written about these offshore tax shelters before in the context of Baucus' "tax gap" talk. In fact, Senators Obama and Levin (Democrats, both) came up with legislation to curtail the practice, "The Stop Tax Haven Abuse Act" (S681), which was introduced in February and has seen little action since.
Now TMM used the incident to slam all Democrats, implying that the cry for folks to pay their "fair share" is simply hollow rhetoric. That's not fair, of course. In some ways the real split in American politics is between the folks that support the government's current corporate policy, and the folks that don't, and the fault lines run through both parties.
But the sad part is that Democrats are supposed to be the party of the little guys.
Luckily, our state's elder Senator, Max Baucus, can do something about both Rangel's "Help My Constituents Cheat on Their Taxes" and the Obama and Levin tax haven bills. After all, Baucus and Rangel enjoy a close working relationship, and Baucus has expressed a desire to close the tax gap - the difference between the taxes that are owed and that are paid. Going after offshore cheats seems like logical policy.
When I emailed Baucus' office about the Levin/Obama bill, I got this response:
The Obama/Levin bill has been referred to the Finance Committee. Max agrees that individuals should not be able to hide income in tax havens.
Max has been looking at several options on how best to address this issue, and is developing legislation to help curb the use of tax havens.
Obviously tax havens haven't been in the news much - feel free to speculate why - and this issue hasn't reached much of a boiling point. Whether Max will favor the "Stop Tax Haven Abuse" bill, write his own bill, or kill it remains to be seen. His rhetoric is in the right place.
All I'll say is this: going after wealthy tax cheats will do wonders for your reputation among your state's electorate.
To be honest, I don't understand the issues at play here. Apparently some folks are up in arms because of the way revenue was calculated, and claim that the trigger for the $140 tax credit wasn't legally met.
On this blog, there's been some push against legislative fiscal analysts for the flap, which was considered and rejected by the Flathead Beacon's Dan Testa. Bottom line: I don't know if this is partisan bickering, or genuine concern for the principles of accounting. Both?
What I do know is that it's not going to reflect well on Republicans. Sarpy Sam:
Talk about a stupid maneuver. Republicans opposed to a tax rebate. It doesn't matter if the Republicans are right or not about the Governor figuring it out wrong, the public is just going to see that they are opposing the rebate. If the public doesn't remember Republicans opposing the tax rebate, I am sure the Democrats will remind them come election?
As if to underscore Sam's point, enter the Good Guv (from the Gazette's report):
In response to the filing, Gov. Brian Schweitzer said Wednesday, "It's the dangedest thing. I've cut so many taxes for so many Montanans that now I'm being sued by a Republican to stop me from cutting more."
One gets the feeling from this flap that there are a group of conservatives who dislike Brian Schweitzer so much that they're willing to destroy themselves just to prove that he's wrong. About an accounting procedure.
Imagine the reaction if there had been an ad. In the newspaper.
