Happy Sequester Day! For those living in a cave, the sequester here in the US is a large indiscriminate slashing of government spending designed to be a poison pill that was so terrible that both Democrats (wanting to prevent large non-military cuts) and Republicans (wanting to prevent large military cuts) would be motivated to come to an agreement on revenues and spending.
But as it turned out, this was all a miscalculation. While Republicans have been traditionally in favor of spending cuts, they have normally treated military spending as a sacred cow, never to be touched. But increasingly, there are more Republicans in Congress who are so anti-spending that they don’t care anymore about even cutting military spending.
So the result was largely Republican indifference about negotiating a deal before the March 1 deadline, and some were even cheering Speaker Boehner for allowing the sequester to happen by refusing to deal with President Obama.
What is behind this impasse? In short, it is about the power of corporate America over our government. In the recent debt ceiling agreement at the beginning of the year, the president got the Republicans to finally agree to let the Bush tax cuts expire for those making over $400,000 a year. But while that is a good start, the government is losing vast amounts of revenue from what can only be described as corporate welfare – subsidies to hugely profitable industries like oil and big agriculture along with tax loopholes that allow very profitable companies to pay little or no income tax.
The president wants to address the corporate part of the revenue equation in this round while the Republicans desperately want to keep the corporate subsidies and loopholes intact, arguing that the expiration of the Bush tax cuts counts as a tax hike and that no others will be considered.
So how do large multinational corporations manage to make profits that can be in the billions while often completely avoiding paying any taxes? One major way is for these multinationals to establish subsidiaries in havens for low taxes such as the Cayman Islands. Through an abusive practice called transfer mispricing, corporations can manipulate where they report most of their profits for tax purposes. So to take advantage, an artificially high percentage of profits are reported as being made in the tax haven countries while a low percentage is reported for US tax purposes – and thus little or no taxes on those profits. The interested reader can check out the documentary We're Not Broke available on hulu, Netflix, or for free in this link which offers an excellent background on these practices that the average viewer can understand. And Democrats, including the president are not spared from criticism.
Ah, but there’s only one problem from the corporations’ standpoint. While they have their cake, they can’t quite eat it – yet. Profits reported as being made in a foreign country cannot be brought into the US until their US tax obligation is satisfied. It has been estimated that as much as a trillion dollars is being stockpiled overseas which does nothing to address our deficits or in general, help our economy. So what to do? Simple. Congress just asks for a corporate tax holiday to allow this money to come home either tax free or at greatly reduced tax rates under the guise of this money being able to help the economy. But we’ve been there and done that!
Goaded by battalions of corporate lobbyists, members of Congress are working to give a select group of U.S. multinational firms like Apple, Oracle and Pfizer a lavish tax break on a trillion dollars stashed offshore.
The avowed goal is to generate jobs and investment, but the offshore tax holiday was tried before, in 2004, and the lion’s share of the benefits went not to unemployed workers and their families, but to corporate shareholders and executives.
There is a lot of brainwashing of America by and on behalf of corporate America. There is the cry that “America is Broke” so we are told that to fix the economy, we are forced to cut government spending (also known as austerity) while ignoring the significant amount of additional tax revenue available from just making corporations pay their fair share of taxes. How much is a ‘fair share’ is subject to debate, but certainly at or near zero is clearly unfair.
And then there is the ultimate big lie “We don’t have a revenue problem, we have a spending problem.” which ignores that much of our present deficit is due to the Bush tax cut giveaways to the wealthy with the result that individual tax rates in the US have been at or near historic lows. And while the US statutory corporate tax rate of 35% is among the highest in the world, the largest corporations pay an effective tax rate (after deductions and loopholes) that is among the lowest in the world.
So how much will the sequester hurt America? Some say a lot, others say not so much. But there is now at least some agreement on both sides of the aisle that cutting government spending will result in the loss of jobs rather than the gain of jobs. So why would corporate America favor a policy of austerity when the result has been demonstrated in Europe to be a disaster for those who have tried it? Are these people just ignorant of basic economic principles? Or do they have an agenda that benefits their self-interest at the expense of others. After reading the following comment to an op-ed on European austerity by NYT reader Jeff Anderson-Lee, I just wished that I had written this.
If austerity appears to be the correct answer to some, then what is their goal? Certainly not the recovery of the general economy. The time is long passed to give them a pass on simply being ill-informed, but rather ill-intentioned. Even many Republican governors are now expressing fear over the potential negative economic effects of the forthcoming "sequestration" in the USA. So they are not unaware.
Which means they must be desiring the outcomes: A poor economy provides cover for asking for tax-cuts for "job-creators", for increased "corporate-welfare", for cuts to social programs, for more "right-to-work" laws, for practically free overnight funds from the Fed to the banks, for opportunities to "privatize" government services in the name of "efficiency", and so on. Productivity is up as salaried workers put in unpaid overtime out of fear for their jobs. Wage demands are lowered and wage increases forgone because of "tough economic times" and high-unemployment, yet somehow many large corporations are having record profits (and record executive compensation).
No. The heads of Europe are not calling for austerity out of ignorance, but rather malice.
So we have a situation where because of the wealthy and large corporate interests being able to avoid taxes so skillfully, those at the middle and bottom of the economic food chain have to pay the price by way of cuts in their safety net along with other vital functions such as education, police and fire fighting. In effect, the middle and lower classes are subsidizing the rich.
To add insult to injury, because of this depressed economy, many companies while making handsome profits that benefit those at the top, are taking advantage of downward pressure on wages so that many of the working poor have to resort to government assistance to have enough money to live on and/or secure some form of health insurance. This is not only unfair because this is another subsidy for corporations, but when more people are put out of work (no longer paying taxes) and need more help from government safety net programs, the deficit usually increases.
There is the argument that corporations are the ‘makers’ and that those at middle and bottom who need help to stay afloat in this miserable economy are the ‘takers’ or for the Ayn Rand devotees like Paul Ryan are ‘moochers’. They argue that corporations exist to make as much profit as possible while paying as little in tax as possible. So what’s the harm in that? This overlooks that those who gain their wealth do so because they benefit from a country that has allowed them the opportunity to get to where they are. They benefit from publicly funded education to give them workers along with the infrastructure and other vital taxpayer funded services too numerous to mention that many of us take for granted.
Taxes are the dues we must pay to keep our government and our society running properly. When corporations and the wealthiest among us don’t pay their fair share of taxes while calling others who must sacrifice because of their greed, moochers, they need to look in the mirror to find the real moochers!