Taxing Our Credibility

Anyone who says they will never raise taxes on anyone isn’t doing lower and middle income taxpayers any favors. Our state and federal income tax (and not all states have individual income taxes) system is made up of rates at various income brackets or based on corporate status, tax credits (monies which you can apply directly against the taxes you owe) and various deductions which lower the income against which the tax is charged. If you know how to play the system, generally the skill-set of the highest income earners who are well-represented with great accountants and better tax lawyers, you can actually earn tons of income that never makes it into your federal income tax earnings column. You get the money, but to the IRS seeking to tax it, it just doesn’t exist.

Complicated trusts, moving assets and earning power off-shore but keeping the deductions and tax credits on-shore is a product of some very intentional loopholes that are too complex for almost anyone other than tax experts to understand. So most folks don’t care about what they do not understand. Like moving your patents and copyrights to a foreign entity that charges for their use (which your domestic operations pay for and deduct), but where that foreign income is effectively owned and controlled by the US company. Huh? Precisely. Or working as a fund manager getting your fees treated with extremely favorable capital tax rates… when you yourself did not invest any capital.

Just about everybody elected to Congress promises to close loopholes and simplify the tax code, but when you trace which elected officials got the most money from the wealthiest taxpayers, you can always be sure that to these politicians, no matter what they utter in public, those loopholes are sacred and are never going away (unless they are replaced with comparable income exemptions for the rich). The official federal tax rate on U.S. corporations, for example, is around 35%, but when the Government Accountability Office looked at companies with at least $10 million in assets, all those loopholes generated an effective tax rate of 12.6% for these elite players. Too many Fortune 100 companies pay their chief executive officers more per annum than they pay in federal taxes.

A vast majority of Republicans elected to Congress (but no Democrats) have “signed the pledge,” a written promise never to raise taxes fomented by ultra-right wing conservative Grover Norquist (of Americans for Tax Reform, pictured left above). Sounds good in theory, but it is an absurd anomaly that has accelerated the extreme economic polarization between the top 5% earners against everyone else. If you need money or have some egregious tax anomaly that screams unfairness, those that have signed the “never raise taxes for anyone pledge” cannot fix the system. If those at the top can legally avoid paying remotely their fair share, having effective tax rates lower than their assistants, then the burden in taxation as well as bearing the national debt (the deficit) fall on everyone else. The rich do in fact get richer as a matter of official governmental policy. Can this be fixed? Sure, but it won’t be!

President Obama’s “2016 budget will impose a one-off 14% tax on US profits stashed overseas, as well as a 19% tax on any future profits as they are earned…The $238bn (£158bn) raised will be used to fund road projects in the US. [Enacting this proposal] would require approval from the Republican-controlled Congress to be made law, something seen as unlikely.

“Research firm Audit Analytics calculated last April that US firms in total have $2.1 trillion-worth of profits stashed abroad…It found US conglomerate General Electric had the most profit stored overseas at $110bn. Tech giants Microsoft and Apple and drugs companies Pfizer and Merck all featured in the top five.

“No tax is currently due on foreign profits as long as they are not brought into the United States… As a result some companies put their earnings in low tax jurisdictions and simply leave them there.” BBC.com, February 1^st. Simply, these companies get to pretend they never got the money, effectively a repeal of a significant portion of US corporate income tax, which simply puts a greater burden on all those real taxpayers who cannot engage in such fantasy denials of income.

The same disruptive anomalies exist at the state level as well. One of Grover Norquist’s favorite politicians was GOP uber-conservative Kansas Governor Sam Brownback (pictured right above), a man whose goal it was to eliminate Kansas’ state income tax. Starting in 2010, Brownback began a phased slashing of income tax rates, heading to zero. The wealthiest got instant gratification, as he zeroed the tax rate on almost 200,000 privately-held companies. He bragged at how cutting taxes would be more than offset with new jobs and economic growth from all that extra money flowing into the local economy.

Naturally, those with the highest incomes benefited the most, but since these were the much-heralded “job creators,” Brownback believed this is where the greatest trickle-down benefits would be generated (i.e., the extra money would create local jobs). He had apparently bought into the myth that supply-side/trickle-down economics worked despite decades of hard economic statistics that proved they did not.

Norquist touted Brownback and his policies as the ideal he wished all states and the federal government would follow. He visited Brownback, used the governor as an example to all of his followers, and even suggested that this smart Republican governor would be perfect presidential candidate in 2016. Surprise… unless you actually believe in reality. Unfortunately for Brownback, Norquist and the State of Kansas, those hard economic statistics showing that such policies never really work decimated Brownback’s plans. The economic growth surge and massive increase in solid, well-paying jobs just didn’t happen. Years passed. Nothing. Seems that the “job creators” had better things to do with their money than invest in Kansas employment. Supply-side economics continues to be a myth that cannot be resurrected under the “job creators” mantra. But this empty and disproven slogan remains the backbone of the GOP solution to income inequality.

What’s worse, Kansas’ school funding, state services – literally at every level – found that the necessary spending cuts that followed the tax cuts literally impaired their ability to function. Things went downhill fast, and it was clear that Kansas could not operate under the new fiscal policies; each year was even worse than the preceding year. Class size rose, programs were cut, the state could not afford enough teachers or to maintain its schools.

Brownback was ultimately forced to find new sources to support his public schools, the state police, etc. Now the governor has presented new “raise sin taxes” on alcohol and cigarettes as a starting point. Slowing down the income tax cuts was also on the agenda, although despite the clear writing on the wall, Brownback still clung to his belief that zero state income taxes was still possible.

Norquist was stunned. He promptly assaulted Brownback’s sin-tax efforts as a disproportionate tax on the poor (all sales taxes are considered regressive, hitting lower income constituents proportionately more than higher income players). Norquist turned on Brownback, despite a massive $710 million budgetary shortfall through 2016. For those who believe in trickle-down economics and tax cuts as magic bullets to solve income inequality and create jobs, the lessons of Kansas are harsh reminders of the total stupidity on repeating the mistakes of the past as a future solution for the same problems.

So what is the general Republican response to all this? Insist that supporting the rich “job creators” with lower taxes and cutting environmental and financial regulation is the only path to the solving the income inequality that plagues America. Even if applying that policy only increases income inequality. If they say it enough times, thus, it must be true!!!

I’m Peter Dekom, and it is difficult to believe that just by changing the name of a failed policy gives it new life in the political arena.