The Wonk Room

Slowing The PACE: The Intersection Of Influence Peddling And Tax Reform »

Our guest bloggers are Lisa Gilbert, U.S. PIRG Democracy Advocate, and Nicole Tichon, U.S. PIRG Tax and Budget Reform Advocate.

The topic on everyone’s lips over the last three months has been health care: how the system will work, who will benefit from it, and how we will pay for it.

Congress is now considering important tax reforms that would not only help pay for health insurance reform, but also close offshore tax haven loopholes, which force American taxpayers to make up for over $100 billion per year in lost revenue.

One of the most vocal opposition groups to this reform has been the coalition called Promote America’s Competitive Edge, or PACE.

The U.S. Public Interest Research Group (U.S. PIRG) conducted an investigation into corporations who work with PACE and support their positions to better understand why it is so important to them to fight these tax reforms and maintain the status quo.

U.S. PIRG found that a group of 12 prominent corporations that have signed onto PACE letters to Congress rank among the top 100 largest publicly traded contractors that also maintain a significant presence in tax haven countries. In 2008, these 12 corporations received over $10 billion in government contracts, and they collectively have 443 subsidiaries in tax haven countries, where they pay minimal, if any, taxes.

So, why is the status quo important to these “dirty dozen”? More »« Less

Cayman Islands Financiers Celebrate Weak Baucus-Rangel Tax Evasion Bill

This week, Sen. Max Baucus (D-MT) and Rep. Charlie Rangel (D-NY) unveiled the Foreign Account Tax Compliance Act of 2009, which “would require an array of new reporting by foreign financial institutions in an attempt to give the IRS more data to detect fraud and tax evasion.” “This bill offers foreign banks a simple choice — if you wish to access our capital markets, you have to report on U.S. account holders,” said Rangel.

The Baucus/Rangel bill does go a long way toward preventing another UBS situation, in which loads of individuals are able to shelter their money offshore. However, unlike a bill sponsored by Rep. Lloyd Doggett (D-TX) and Sen. Carl Levin (D-MI), the Baucus/Rangel legislation doesn’t go after multinational corporations that set up shell companies on foreign soil in order to avoid U.S. taxes. As Doggett said, it “stops short of targeting all fat cats.”

Dogget and Levin’s legislation, the Stop Tax Haven Abuse Act, “would require more scrutiny of shell corporations’ actual owners and create a ‘blacklist’ of countries in which certain transactions would be more suspect.” “U.S. corporations should not be able to dodge U.S. taxes simply by filing a piece of paper and renting a foreign mailbox,” Doggett said.

And providing evidence that the Baucus/Rangel bill doesn’t strike fear into the tax haven world is the fact that the Cayman Islands’ financial sector is celebrating it:

Cayman Finance, representing the financial industry based in the Cayman Islands, today congratulated Chairman Max Baucus of the Senate Finance Committee and Chairman Rangel of the House Ways and Means Committee on their plan to tackle offshore tax abuse through increased transparency and enhanced reporting requirements. The new comprehensive proposal does away with the damaging features of Senator Levin’s Stop Tax Haven Abuse Act…”Cayman Finance commends Chairman Baucus, Chairman Rangel and their colleagues for their leadership on this important issue,” said Cayman Finance Chairman Anthony Travers. “This proposal is entirely consistent with the approach suggested by Cayman Finance in our many meetings with these and other U.S. policymakers.”

The Cayman News Service described the feeling amongst the Cayman’s financiers as “relief.”

Of course, the Caymans are one of world’s most well-known tax havens. The Government Accountability Office actually found that 18,857 U.S. companies maintained a post office box in one five story building in the Caymans. That building has only one occupant, the law firm Maples and Calder. Morgan Stanley has 158 subsidiaries in the Cayman Islands, while Citigroup has 90, and Bank of America has 58. Exxon, Dell, Goldman Sachs, News Corp., Pepsi, and United-Health have all set up shop there, as well.

Citizens for Tax Justice (CTJ) estimates that the stronger tax haven crackdown in Doggett and Levin’s bill would result in revenues of $9 billion over ten years. The Baucus/Rangel bill, as a whole, raises $8.5 billion over ten years.

Lincoln-Kyl Estate Tax Giveaway Now Has Matching House Counterpart

Sens. Blanche Lincoln (D-AR) and Jon Kyl (R-AZ) are leading a fight in the Senate to implement a cut in the estate tax that would lower the rate from 45 percent to 35 percent and bump the exemption (the amount to which the tax does not apply) from $3.5 million to $5 million ($10 million for a couple). Thanks to a Bush-era accounting gimmick, the estate tax is set to disappear in 2010, and come back with a much lower exemption and higher rate in 2011, thus necessitating Congressional action.

As we’ve noted here before, the Lincoln-Kyl plan constitutes a $250 billion giveaway to the rich. And not to be outdone in terms of bad bi-partisan proposals, the House now has it’s own version of the Lincoln-Kyl “compromise,” introduced by four members:

The stakes were raised today in the House, when Reps. Shelley Berkley, D-Nev., Artur Davis, D-Ala., Kevin Brady, R-Texas, and Devin Nunes, R-Calif., introduced legislation to set the rate at 35 percent going forward, with the exemption bumped up to $5 million from the current $3.5 million and indexed for inflation…Brady said it would exempt 99.8 percent of all estates from the “death tax,” calling it the “best option available today to preserve small businesses and family farms in America.”

As National Journal noted, the House measure “would be much more expensive than extending the 2009 rate.” For the record, under current law, 99.7 percent of households will be completely exempt from the tax. So by Brady’s own calculation, $250 billion will buy an exemption for .1 percent of households.

And as for looking to “preserve small businesses and family farms,” current law would only affect about 100 of them, and “all but a handful would have sufficient liquid assets on hand (such as bank accounts, stocks, and bonds) to pay the tax without having to touch the farm or business.” The House plan would drop that number to 40.

House Democratic leaders are pushing for a permanent extension of current law. But if there is wide disagreement, Congress may punt, install a one year extension, and revisit the issue before 2011. Can a better deal be worked out? I certainly hope so.

Obama Administration Shelves Corporate Tax Reform After ‘A Blitz Of Complaints From Businesses’

Earlier this year, the business lobby went into high gear to prevent the Obama administration’s plans for corporate tax reform, with the Business Roundtable promising to spend “whatever it takes” to ensure that the reforms never saw the light of day. That determination seems to have had some effect, as the Wall Street Journal reported today that administration “has shelved a plan to raise more than $200 billion in new taxes on multinational companies following a blitz of complaints from businesses.”

As the Journal noted, the particular reform in question — which would have limited the ability of corporations to defer taxation on profits that they earn overseas — drew the ire of the corporate world, and “companies ranging from Microsoft Corp. to General Electric Co. to International Business Machines Corp. put the topic at the top of their Washington agendas.”

Meanwhile, the CBO has predicted that this year’s “dramatic fall in corporate profits, combined with tax breaks designed to offset the burden of the economic recession, will drive corporate tax revenues down by more than 50 percent this year, to just $139 billion.” And, as Professor Joann Weiner pointed out, “even if corporations were not chalking up losses, the federal government would still face a shrinking tax base due to changes in the organizational structure of U.S. businesses”:

Since companies can essentially choose their form of taxation, largely through relatively permissive federal and state tax laws, it’s no wonder that the U.S. has one of the largest shares of income earned in non-corporate form…Profitable companies have an incentive to organize in a tax-favored form, while unprofitable companies have an incentive to remain in corporate form where they may one day offset future profits with today’s losses.

Currently, just 12 cents out of every federal dollar comes from corporate tax revenue. David Weidner, meanwhile, noted that “corporate income tax as a share of gross domestic product has fallen from 6% in 1951 to about 2% last year,” and that “the decline is mostly due to a shrinking corporate tax rate.”

Because of the administration’s move, not only does the U.S. lose $200 billion (over ten years) that could have gone towards remedying long-term budget deficits, but the drive to fix our nonsensical corporate tax code has stopped cold before it really got underway. Some administration aides did say that the tax deferral may be revisited “as part of a broader tax overhaul sometime next year,” but I’m worried that the business lobby will only feel emboldened by its ability to prevent reform and come out even stronger next time.

David Koch And Americans For Prosperity Push Tea Party Activists To Help Cut Taxes For Billionaires

Earlier today, I pointed out that Big Business — deciding that its chances of repealing the estate tax aren’t looking good — has thrown its support behind Sens. Blanche Lincoln (D-AR) and Jon Kyl’s (R-AZ) estate tax “compromise.” (Remember, due to a Bush budget gimmick, the estate tax vanishes in 2010, only to come back in 2011 at a 55 percent rate for estates over $1 million.)

Instead of embracing the Obama administration’s proposal to make the 2009 estate tax permanent (45 percent for estates over $3.5 million, or $7 million for a couple), Lincoln and Kyl want to cut the tax to 35 percent and increase the exemption to $5 million (or $10 million for a couple), which amounts to a $250 billion giveaway to the heirs of multi-millionaires.

But even the colossal, unwarranted tax cut that is Lincoln-Kyl is not enough for far-right, anti-tax crusaders like Grover Norquist’s Americans for Tax Reform or the American Family Business Institute, who are standing firm in their commitment to see a full repeal of the estate tax. And these organizations are getting an assist from Americans for Prosperity (AFP), founded by libertarian oil-tycoon David Koch.

As David Weigel reported, Koch appeared at AFP’s annual Defending the American Dream summit over the weekend, where AFP activists were told that they are on the verge of saving mega-millionaires mega-bucks, if only they can cause Congress to slow down more than it already has:

Activists learned that they were on the cusp of saving the long-planned, one-year elimination of the estate tax. If Democrats fail to pass a bill extending the estate tax in 2010, one of the key Republican victories of George W. Bush’s presidency would be realized. And the more the Tea Party movement could slow down the works in Congress, the better the chance of Democrats forgoing that bill. “If we run out the clock,” said Phil Kerpen, AFP’s policy director, “the estate tax is gone in 2010, and it would be tricky for Democrats to try and bring it back.”

This is exactly what the Bush administration was banking on in setting the estate tax the way that it did. By having the tax come back in full-force for 2011, the long-term cost of abolishing it was hidden. However, the Bush administration figured that Congress wouldn’t have the stomach to reinstate the tax after a tax-free year, and thus would simply reauthorize the 2010 law every year, for an effective repeal.

And AFP is encouraging its membership to play right into that strategy — with the double-whammy of bogging down the rest of the Democratic domestic agenda — despite the fact that 99.8 percent of estates will owe no estate tax at all. Fortunately, Democrats in Congress seems pretty determined not to let the 2010 lapse occur at all.

At the summit, Koch said that in creating AFP “we envisioned a mass movement, a state-based one, but national in scope, of hundreds of thousands of American citizens from all walks of life standing up and fighting for the economic freedoms that made our nation the most prosperous society in history.” And evidently one of those economic freedoms involves needlessly giving millionaire families (like the Koch family) billions in tax breaks, despite the country’s budget situation.

Big Business Throws Its Support Behind Lincoln-Kyl Estate Tax ‘Compromise’

Sen. Blanche Lincoln (D-AR)

Fortunately, the gimmick has not taken hold, and there is a concerted effort in Congress to ensure that some sort of estate tax stays in place for 2010 and beyond. Thus, the question becomes the rate at which the tax will be set.

The Obama administration has proposed making the current rate permanent, while Sens. Blanche Lincoln (D-AR) and Jon Kyl (R-AZ) are stirring up interest in bringing the rate down to 35 percent and raising the exemption to $5 million ($10 million for a couple). And here’s the wildcard in the debate: Big Business, not seeing a full repeal in the tea-leaves, has thrown its support behind the Lincoln-Kyl plan:

A letter to members of Congress from forty-six business associations shows that industry lobbyists are putting their muscle behind a compromise, even if it means putting aside the long-held industry goal of repealing the tax on inherited wealth…Groups signing the letter include the American Farm Bureau Federation, Food Marketing Institute, National Association of Manufacturers and U.S. Chamber of Commerce.

On the one hand, Big Business’ decision to forego pushing for a full repeal is a good sign. As Chuck Collins, co-founder of Wealth for the Common Good, pointed out, “sometimes you can’t declare victory until the other side concedes defeat.” However, the Lincoln-Kyl alternative is a not a compromise worth making. The plan would cost $250 billion, 99 percent of which would go to the heirs of multi-millionaires.

It’s worth remembering that as recently as March, the Chamber of Commerce called for sending the estate tax “to the grave once and for all.” The business community has made the calculation that a repeal is not happening now, and thus it should put its weight behind watering the law down as much as possible. Bill Rys, tax counsel for the NFIB, admitted as much, saying that business groups “think [Lincoln-Kyl is] a good solution right now.”

As Warren Buffett put it, “dynastic wealth, the enemy of meritocracy, is on the rise. Equality of opportunity has been on the decline. A progressive and meaningful estate tax is needed to curb the movement of a democracy toward plutocracy.” Even if it can’t get a full repeal now, the business lobby is angling to gut the estate tax, costing the country valuable revenue — raised from those most able to pay — in a time of economic distress.

Krugman: Reducing Long-Term Deficits Not Hard Economically, But ‘Politically Impossible Right Now’

During CAP’s conference yesterday on when and how to begin addressing the country’s long-term deficits, Nobel Prize-winning economist Paul Krugman explained that “this is a really bad time to enage in fiscal retrenchment; it’s a bad time on almost every dimension.”

But eventually deficits will have to be brought to some sort of sustainable level, which will require action on multiple fronts — health care reform, tax increases, and spending cuts. And according to Krugman, these are easy steps to take economically. The problem, he said during an interview with The Wonk Room, is that we have a political system in which you can’t talk about tax increases “without it being political suicide”:

If we can do health care reform that really does bend the curve downward — I hate that phrase, but — health care reform that really does limit the growth in health care cost, then what’s left is a problem that we can deal with with fairly moderate policy. Things that would be politically impossible right now, but economically aren’t hard at all.

We could probably make do with a few percentage points of GDP in revenue, which we could get partly from the sale of emissions licenses, maybe some additional taxes, find some cuts in military spending, find some way to not just bend the curve but actually bring some real efficiencies in health care. It’s not really hard to give the economic numbers and make the whole thing work.

You would end up still with the U.S. having lower taxes than almost all other OECD countries. And you’d end up with our social programs enhanced, not reduced, because we’d have universal health care coverage and some other improvements in the social safety net, and we would be good for the foreseeable future. All of this hinges on being able to actually talk about tax increases, even modest ones, without it being political suicide. It requires that you be able to talk about spending health dollars wisely and not have people start screaming about death panels.

Watch it:

On his blog yesterday, Krugman referenced the “victims of politics” under the Reagan administration, who saw a surge in household debt that “can largely be attributed to financial deregulation.” When asked what the victims of politics would look like if today’s problems go unaddressed, Krugman said that inaction would lead to another economic bubble that “will just leave the eastern seaboard of the United States a smoking ruin”:

Watch it:

Krugman’s point about tax increases not crippling the U.S. economy is well taken. The U.S. currently has the “fifth lowest taxes as a share of GDP among economically developed nations,” and even if we tried to balance the budget entirely on tax increases (which no one is trying to do), “the United States would still be in the bottom 10 out of 30.”

DeMint: Instead Of Regulating Wall Street Banks, We Should Cut Their Taxes

Yesterday, President Obama spoke at Federal Hall in New York — right across the street from the New York Stock Exchange — to lay out his vision for reforming the country’s financial regulations. “We will not go back to the days of reckless behavior and unchecked excess at the heart of this crisis, where too many were motivated only by the appetite for quick kills and bloated bonuses,” he said. “Those on Wall Street cannot resume taking risks without regard for consequences, and expect that next time, American taxpayers will be there to break their fall.”

The regulatory reform effort has encountered stiff opposition in Congress from both the financial services industry and Republicans, who contend that the legislation is “an unwarranted intrusion on markets that could hamper the nascent economic recovery.” But Sen. Jim DeMint (R-SC) went a step further, claiming that instead of looking at better ways to regulate Wall Street, Obama should really be looking for ways to cut Wall Street’s taxes:

Instead of looking at more regulation, we could do a lot by fixing our tax system here in this country, to make us globally competitive. The President needs to focus on what really has caused problems and look at what has really made America so prosperous, and I’m afraid that’s not the lens he’s looking through right now.

Watch it:

So in DeMint’s world, Wall Street placed huge bets on the mortgage market and leveraged itself 40-1 because its taxes were too high? And lowering their taxes would prevent them from ever again imploding the financial system?

Actually, Wall Street banks already pay far below the statutory corporate tax rate of 35 percent by taking advantage of myriad tax credits and write-offs, as well as by sheltering income in low-tax (or no-tax) countries. For instance, Morgan Stanley had an effective tax rate of 21 percent in 2008, which was huge compared to the one percent (yes, one!) that Goldman Sachs paid. And this is by no means a phenomenon restricted to Wall Street, as many U.S. corporations lower their tax rate by ten or twenty points thanks to tax havens and other intricacies of the corporate tax code.

DeMint is espousing the same rhetoric as the CNBC crew, which believes that as long as Wall Street is making money, regulation is unnecessary, and that money-making should be abetted by all aspects of the tax code. But Goldman Sachs made a record breaking $3.44 billion profit in the second quarter of this year, so the tax code doesn’t seem to be holding it back. In fact, the profits that Wall Street is starting to rack up make a financial transactions tax (which levies a small tax on trades and, as Dean Baker pointed out, “would be too small for normal investors to even notice”) something worth exploring.

Over Ten Years, Bush Tax Cuts Cost 2.5 Times As Much As House Democrats’ Health Care Plan

One of the main criticisms opponents of health reform have been wielding is that it is simply too expensive. “The costly government-run health care plan put forth by President Obama and Speaker Pelosi is just the latest in a long line of expensive Democratic experiments,” said House Minority Leader John Boehner (R-OH). Sen. Orrin Hatch (R-UT) has said that, “unfortunately, the path we are taking in Washington right now is to simply spend another trillion dollars of taxpayer money to further expand the role of the federal government.”

However, as a new report from Citizens for Tax Justice (CTJ) pointed out, “many of the lawmakers who argue that the health care reform legislation is ‘too costly are the same lawmakers who supported the Bush tax cuts,” which cost almost $2.5 trillion over the decade after they were first enacted (2001-2010). Comparably, the health care reform plan proposed by Democrats in the House costs about $1 trillion over ten years. And while the Democratic plan goes toward reforming a broken health care system, “a staggering 52.5 percent of the benefits [of the Bush tax cuts] will go to the richest 5 percent of taxpayers.”

Both Boehner and Hatch voted for the Bush tax cuts across the board. So as CTJ put it, “their own voting record demonstrates that health care reform is not a matter of costs, but a matter of priorities.”

And those priorities seem very misplaced, considering this new analysis by the Center on Budget and Policy Priorities, which shows how much of the last economic expansion flowed to those at the top of the income scale:

Two-thirds of the nation’s total income gains from 2002 to 2007 flowed to the top 1 percent of U.S. households, and that top 1 percent held a larger share of income in 2007 than at any time since 1928, according to an analysis of newly released IRS data by economists Thomas Piketty and Emmanuel Saez. During those years, the Piketty-Saez data also show, the inflation-adjusted income of the top 1 percent of households grew more than ten times faster than the income of the bottom 90 percent of households.

Plus, we’re talking about tax cuts that significantly contributed to skyrocketing deficits versus a health care bill that is required by the budget framework to be deficit neutral (through savings within the system or raising new revenues), so those supporting the former but opposing the latter because of costs are doubly hypocritical.

To Calculate Huge Top Tax Rate, Fox Pretends All Of Health Reform Will Be Paid For With Tax Increases

Today, the Wall Street Journal reported that Democrats, in light of the realization that they may have to go it alone on health care reform, are revisiting some of the tax increases that they had previously ruled out to placate Republicans, including limiting tax deductions for the richest Americans. “Bluntly…the idea of getting Republicans on board is becoming much more fantastical, so some ideas that were jettisoned for that reason are coming back,” said one Senate Democratic aide.

Never missing an opportunity to lament the plight of the richest one percent of Americans, Fox News went on the offensive against the tax hike proposals today, aided by a disingenuous calculation from its “Brain Room.” The network falsely claimed that the entirety of the $1 trillion cost of health care reform is going to paid for with tax hikes on the richest one percent of Americans, and used that notion to calculate a potential top income tax rate of 52.5 percent:

They’re talking about raising taxes on those who make more than $250,000 a year. Remember the CBO says it’s going to be $1 trillion over ten years. To get that $1 trillion, you would have to raise the tax rate for those making two-fifty plus from 35 percent to 52.5 percent, that is a 50 percent increase and that would give you the grand total of your $1 trillion. That’s a pretty hefty increase.

Watch it:

Rep. Marsha Blackburn (R-TN) did not disavow Fox of this notion, of course, but instead trotted out the thoroughly debunked line that the tax increases under consideration would be harmful to small businesses and job creation.

The Obama administration has been very consistent in its insistence on covering two-thirds of the cost of health care reform by eliminating inefficiencies in Medicare and cutting subsidies to insurance companies. The final one-third (from $300-600 billion) would come from tax increases. No one is proposing to put the cost of the entire reform effort onto the backs of the richest one percent.

Under President Obama’s budget, the effective tax rate on the richest one percent of Americans will be 32.4 percent (and would presumably go up a few points if the House’s plan to implement a surtax is adopted), which is decidedly less than 52.5 percent. This is simply more tax fearmongering from the team at Fox News.

Norquist’s Bizarre Foreclosure Prevention Plan: Tax Repatriation And Congressional Vacations

Today, the Wall Street Journal reported that foreclosures in commercial real estate could potentially deliver “a roundhouse punch to the U.S. economy just as it struggles to get up off the mat.” Combined with continuing delinquencies on residential mortgages, these commercial foreclosures could spell real trouble for any burgeoning economic recovery.

For the last few months, members of Congress and various economists have been looking at ways to stem the foreclosure crisis, putting forth a series of legislative solutions. However, when MSNBC needed someone to discuss the situation, it turned to Americans for Tax Reform president Grover Norquist, the anti-tax crusader who famously quipped that he’d like to “reduce [government] to the size where I can drag it into the bathroom and drown it in the bathtub.”

When MSNBC’s Carlos Watson asked Norquist how he would prevent foreclosures, he launched into a bizarre non-sequiter about Congressional vacations and the stock market, which ultimately culminated in his advocating for corporate and capital gains tax breaks:

WATSON: So you’re saying the constructive thing that Congress could do is go on vacation for two months, number one, and number two is to say that we won’t issue or pass any additional taxes? That’s what you’re saying would be the solution to stem the foreclosure crisis, both on the residential and commercial side?

NORQUIST: Both of those would help. If we could actually get Congress to agree, we should do another repatriation — 2004, 2005, Congress said ‘companies that have money overseas, you can bring it back and not pay a prohibitive 35 percent tax’…We could do that again this year…And what we ought to do also is abolish the capital gains tax.

Watch it:

It’s abundantly clear that Norquist has no idea what’s happening in the mortgage sector, and merely fell back on the conservative tax cut wish-list. The inclusion of tax repatriation is particularly egregious, as not only does it have nothing to do with mortgages, but studies have shown that the 2004 version was simply a tax windfall for corporations. The break allowed corporations to bring back money that they held offshore at a lower tax rate, for the purpose of domestic reinvestment. But the National Bureau of Economic Research found that very little money was actually reinvested:

Now the most detailed analysis of what actually happened — using confidential government data as well as corporate reports — has estimated what happened to the $299 billion companies brought back from foreign subsidiaries. About 92 percent of it went to shareholders, mostly in the form of increased share buybacks and the rest through increased dividends. There is no evidence that companies that took advantage of the tax break…used the money as Congress expected.

In light of this performance, I hope MSNBC will think twice before bringing Norquist on to speak about foreclosures again.

Right-Wing Fearmongers That Health Care Bill ‘Totally Eliminates Tax Privacy’

The right-wing, seizing on this report from CBS News, has begun claiming that the health reform bill currently before the House of Representatives will destroy tax privacy as we know it. The provision in question calls for income verification of those claiming the low-income subsidies (which are available for purchasing health insurance) that are established in the bill. “This totally eliminates the idea of tax privacy,” Dick Morris told Fox News’ Greta Van Susteren. “It’s really the equivalent of publishing your tax returns in The Congressional Record. It’s unbelievable!”

Fox also ran a segment today, excoriating Democrats for taking “information for health care, but not for preventing terrorism”:

Even more concerns this morning surrounding the President proposed health care reform bill. Provisions that would force the IRS to give your personal information to a new government health choices commissioner. So Democrats can take Americans’ information for health care, but not for preventing terrorism. Got it?

Watch it:

First, as even Fox’s analyst conceded, it makes sense to verify income for people claiming subsidies. Otherwise the subsidy system would be ripe for fraud and abuse. For an organization so often concerned with the government wasting money, you’d think Fox would be against giving subsidies to those who don’t qualify.

Second, data-sharing of this sort already happens, and from an efficiency standpoint makes perfect sense. Why require persons applying for subsidies to submit another income statement to the government, when the IRS already has the data? As the Georgetown University Health Policy Institute pointed out, state governments access IRS information — among other sources — to verify income for Medicaid and CHIP applicants:

Verifying income using other government databases requires cooperation and coordination with other programs…States typically use four to five databases to confirm income information—Food Stamps, TANF, Social Security, the IRS, and state wage and unemployment compensation programs. Typically, state Medicaid agencies already have access to these databases.

And then there’s this section of the health care bill which expressly forbids use of the information for purposes other than income verification:

(B) RESTRICTION ON USE OF DISCLOSED INFORMATION – Return information disclosed under subparagraph (A) may be used by officers and employees of the Health Choices Administration or such State-based health insurance exchange, as the case may be, only for the purposes of, and to the extent necessary in, establishing and verifying the appropriate amount of any affordability credit described in subtitle C of title II of the America’s Affordable Health Choices Act of 2009 and providing for the repayment of any such credit which was in excess of such appropriate amount.’

All in all, it seems like conservatives are making much ado about nothing.

CNBC Host: Tax Havens ‘Help Prevent Tyranny’

Yesterday, the Swiss bank UBS announced that it was turning the names of 4,450 American account holders over to the IRS, in the culmination of a three-year IRS investigation into UBS’ work helping wealthy Americans evade taxes. These accounts contain an estimated $18 billion in assets, and as the Guardian noted, the move is expected to “reveal the secretive world of international wealth management in which complicated webs of sham trusts and shell companies are created in tax havens to protect the assets of the super-rich.”

I wrote yesterday that UBS’ acquiescence is a victory for the U.S., and a small first step in the much larger fight against tax evasion. But CNBC’s Michelle Caruso-Cabrera did not see it that way:

This is a terrible terrible thing that has happened today. You may think this is about rich tax cheats, but no matter what your income is, your taxes are lower because of tax havens and they help prevent tyranny by corrupt governments.

Watch it:

It should come as no surprise that the same network that repeatedly and vigorously went to bat for bailed-out bankers and their million dollar bonuses is now carrying water for wealthy tax evaders. But Caruso-Cabrera (despite her claim that she does not condone tax evasion) seems to think that the best way to force a change in tax policy is to have people avoid paying on such a large scale that the government resigns itself to lowering the rate.

There can be a legitimate debate over whether U.S. tax rates are too high or too low, but that doesn’t change the fact that there is a tax rate on the books and it’s against the law to avoid paying it. Tax evasion simply shifts the tax burden onto the law-abiding citizens and companies who don’t hide assets or set up sham subsidiaries in the Cayman Islands:

Over ten years, an estimated $1 trillion in revenues is lost due to the use of tax havens and the government must make up for this shortfall. This diversion ends up being shouldered by other companies and taxpayers and is transferred as higher debt for future generations…The $100 billion annual burden of these tax havens impacts every state in the union.

So does CNBC honestly think that tax evaders are doing their patriotic duty by dumping their tax burden onto everybody else? Are countries like Sweden, Austria, and the Netherlands tyrannical due to their higher income tax rates? Earlier this month, CNBC labeled unemployment benefits a “fraud,” but when faced with actual tax fraud, the network defends it.

UBS: Just The Tip Of The Tax Haven Iceberg

After a three-year investigation that opened up “a deep diplomatic rift between the United States and Switzerland,” the Swiss bank UBS has finally succumbed to the IRS and is going to “hand over 4,450 accounts that contain a staggering $18bn”:

The 4,450 accounts soon to be in the possession of US investigators are expected to reveal the secretive world of international wealth management in which complicated webs of sham trusts and shell companies are created in tax havens to protect the assets of the super-rich. Switzerland shields nearly a third of the world’s $7tn of privately held wealth. Under US law, the IRS must be notified of offshore accounts holding more than $10,000.

For what it is, this is a good outcome. While the U.S. did not receive anywhere close to the 52,000 names that it requested from UBS earlier this year, as Bob Williams at TaxVox pointed out, the UBS probe has “really juiced the amnesty program,” under which tax evaders turn themselves in for smaller (though still hefty) penalties. Last month, for instance, the IRS reported that more than 400 evaders showed up in one week, “four times as many as in all of last year.” So the mere fact that the IRS wore down UBS is chasing other tax evaders out of the woodwork.

However, UBS is really the tip of the iceberg when it comes to tax evasion. The IRS estimates that about $5 trillion in assets is held in tax havens worldwide. In a report released last month, the Congressional Research Service said that the U.S. loses $40-$70 billion in annual revenue due to tax avoidance by individuals and another $10-$60 billion in corporate tax evasion. This squares with a report from the U.S. PIRG, which found that tax evasion shifts a $100 billion annual tax burden onto the individuals and corporations that do pay taxes in the U.S.

According to the Government Accountability Office, 83 of the 100 largest U.S. corporations have subsidiaries in nations judged by the US to be tax havens. In the Cayman Islands, for instance, “one mailing address alone houses 18,857 corporations.”

So this is a very widespread problem. To deal with it, the administration has proposed a handful of changes to the tax code — which are being vigorously opposed by the business lobby — and a doubling of the tax enforcement budget. These are good steps that would mitigate at least some of the evasion that is going on (although I’m willing to bet that armies of tax lawyers are already figuring out new ways around all of the changes). That UBS finally caved is definitely a victory, but there is far more that needs to be done.

As The Rich Got Richer, The Poor Got Poorer

Last week, University of California, Berkeley economist Emmanuel Saez released new data showing that U.S. income inequality in 2007 (the latest data available) was the worst that it has ever been. Saez found that the top ten percent of Americans made 49.7 percent of the total wages, a level “higher than any other year since 1917 and even surpasses 1928, the peak of stock market bubble in the ‘roaring’ 1920s.” Paul Krugman called the data “truly amazing.”

And as those at the top of the income scale have been getting richer, those at the bottom have been getting poorer. Bloomberg reported today on a new analysis by Tax Notes:

A separate analysis by the weekly journal Tax Notes suggested the poor got poorer in 2007. The share of all U.S. income made by the 66 million Americans who earn less than $30,000 a year shrank by 2.3 percent from 2006, a decline of $149 per taxpayer.

Tax Notes said the richest 0.01 percent of Americans has had greater income growth than the rest of the country since the early 1970s. From 1973 to 2007, the average income for taxpayers in that category grew 758 percent, or more than $30 million. Excluding the wealthiest 10 percent, the rest of the population got an average increase of $286 over that period, or about $8.41 annually, adjusted for inflation, Tax Notes said.

At the same time, the consulting firm Hewitt Associates found that “salary increases for 2009 were below 3%, on average, for the first time in the 33 years it has been keeping records.” Companies are also making “variable pay” (essentially incentive-based compensation) a much greater percentage of payroll. So as Businessweek put it, “while companies are paying less, they’re also making you work harder and perform better to get the pay you do receive.”

The Tax Notes report is indicative of two things: lower-income wages dropping and middle class wages stagnating. Of course, these income numbers are going to change in 2008, since the recession surely hit the wealth of those in the top percentiles pretty hard. Be that as it may, the trend for the last few decades has been toward wealth concentration in the hands of the few, and unless systemic changes are made, there’s no reason to think that this trend will change after the economy recovers.

As Matthew Yglesias put it, “using the tax code to take some of this wealth and transform it into more and better public services for the broad mass of people would do a lot of good.” Indeed, those vigorously opposing implementing a surtax on the richest Americans in order to pay for health reform need to square their position with these inequality numbers and the fact that executives made one-third of all the wages in the country in 2007.

Tax changes will not solve all of the problems keeping middle- and lower-class wages stagnant, but throw in the data showing that the effective tax burden of the richest one percent has been falling for nearly 15 years, and there’s little excuse for not using the tax code to address some of this inequity.

Tech Industry Giants Plan ‘Lobbying Blitz’ To Save Offshore Tax Deferral

National Journal reported today that some tech-industry giants are getting ready to “intensify their opposition” to the Obama administration’s plan to limit the use of offshore tax deferrals:

High-tech industry giants such as Hewlett-Packard, IBM, Microsoft and Oracle will intensify their opposition this fall to an Obama administration proposal aimed at limiting what critics insist are offshore tax breaks…[T]he high-tech sector is fighting back with a lobbying blitz aimed at positioning the deferral as a necessary mechanism that enables U.S. companies to remain competitive in foreign markets — and not as a tax break.

NJ reports that “while proposals to limit tax deferrals and other international tax law changes have yet to find their way into legislation, the tech sector isn’t taking any chances.” “Threats persist,” said Bartlett Cleland, senior director of tax and e-health policy for TechAmerica. The Business Roundtable has also promised to “spend whatever it takes” to preserve the status quo.

As usual, these companies are leaving out the convenient fact that they use a variety of tax havens and loopholes to pay far below the statutory corporate tax rate of 35 percent. For instance, Hewlett Packard (HP), which kept $5.2 billion in earnings overseas in 2008, lowered its effective tax rate by 16.9 points last year. And HP was not even close to the most effective at this, as General Electric managed to drive its rate all the way down to 5.5 percent last year.

The Obama administration’s proposal to deal with this problem is fairly benign, saying only that companies choosing to keep their profits offshore “must also defer taking their deductions until their overseas profits are brought back to the country.” It seems only fair that companies keeping their profits offshore be prevented from claiming deductions on those earnings. The administration also wants fix a tax rule known “check the box,” which was meant to simplify classification of corporate subsidiaries, but unintentionally created a tax loophole.

According to a report from the U.S. PIRG Education Fund, a $100 billion annual tax burden is shifted to US-based individuals and companies, thanks in part to corporations stowing their profits offshore. Research has also shown that corporations allowed to defer taxation on offshore profits will leave that money offshore regardless of their home nation’s tax rate. These two measures proposed by the administration, meanwhile, will raise an estimated $146.6 billion over ten years, while putting some small sense of fairness back into the corporate tax code.

Bloomberg News Finds Holtz-Eakin’s Shoddy Research ‘Very Impressive’

Today, Douglas Holtz-Eakin, economic adviser to Sen. John McCain (R-AZ) during his presidential campaign, appeared on Bloomberg News to talk about his latest endeavor: pushing for a complete repeal of the estate tax. Holtz-Eakin relies on a shoddy study that he put together for the American Family Business Foundation that falsely claims that an estate tax repeal would create 1.5 million jobs (which he upped to 2 million in the interview).

However, Bloomberg’s crew, which is usually much better about calling guests out on their nonsense, seemed very taken with Holtz-Eakin’s perspective, at one point saying that the numbers are “very impressive.” The most critical question in the entire segment was simply “how did you get those numbers,” and Holtz-Eakin’s explanation went unchallenged. Watch it:

Before Bloomberg has another guest on to talk about the estate tax, it should read up on the facts. Only 1.3 percent of the .24 percent of all estates who pay estate taxes are small businesses, making it very unlikely that a repeal would result in this much job creation. As The Tax Policy Center pointed out:

[T]he estate tax can’t have much effect on hiring by small business because hardly any owners ever face the estate tax. Most small businesses are worth far less than the exemption level (currently set at $7 million per couple and higher for many small business owners who value their firms at below market price). We estimate that only 100 small businesses and family farms would pay any tax in 2009.

Of these few businesses, “all but a handful would have sufficient liquid assets on hand (such as bank accounts, stocks, and bonds) to pay the tax without having to touch the farm or business.” And since the tax exemption is so high (with the first $7 million untaxed), the average effective rate the heirs to these estates will pay will be just 14 percent of their inheritances.

And while Holtz-Eakin expressed great concern about federal spending, no one pointed out that, were the estate tax repealed, “not only would Treasury lose nearly a half-trillion dollars over ten years that would have been collected directly by the levy, but also billions more that would be lost due to the new gaping hole in the tax code.”

As CAP’s Michael Ettlinger has said, harping on the estate tax amounts to “flacking for the Paris Hiltons, the rich heirs and heiresses who have nothing to do with small businesses.” So unless Holtz-Eakin believes that Paris Hilton is going to single-handedly create a host of jobs, his numbers need some work. And Bloomberg should know better than to let him use them unchallenged.

Wall Street Journal Falsely Claims Employer Mandate Is The ‘Pelosi Jobs Tax’

As part of a compromise with the Blue Dogs, Chairman Henry Waxman (D-CA) has agreed to make some changes to the health care bill being crafted in the House Energy and Commerce Committee. One facet of the compromise involves raising the small business exemption on the employer health care mandate. Under the original bill, businesses with a payroll greater than $250,000 would be charged for not providing health insurance. The compromise pushes that to $500,000 in payroll, with the exemption not completely phased out until $750,000.

Of course, the Wall Street Journal editorial board is on the march against the very idea of an employer mandate:

To understand why, consider how the Pelosi jobs tax works…A tax credit would help very small businesses adjust to the new costs, but even a firm with a handful of workers is likely to be subject to this payroll levy. As we went to press, Blue Dogs were taking credit for pushing those payroll amounts up to $500,000 and $750,0000, but those are still small employers.

As Igor Volsky explained, “in the context of comprehensive reform, an employer mandate would preserve employer coverage and keep the employer contribution in the system.” The Congressional Budget Office said that the original House bill, which includes a strong employer mandate, would “drive 9 million people off of employer-provided insurance plans but that 12 million people who do not have such coverage now would get it — a net increase of 3 million people insured through their employers.”

Furthermore, the notion that this mandate would decimate small employers is nonsense. If the compromise comes to pass, 87 percent of businesses would be completely exempt from the mandate, since they have a payroll of less than $500,000.

Actually, even before the compromise, 77 percent of businesses would have been unaffected by the mandate. The only small employers that will be affected by the full scope of the mandate are firms with few employees who are making a lot of money. And chances are, businesses of that sort already provide insurance.

This is essentially a mandate on large employers, to ensure that they can’t simply drop their coverage, sending their employees into the health insurance Exchange or the non-group market. A huge influx of formerly covered employees into the Exhange would prove costly and overwhelming, since the Exchange is intended for small business employees and the self-employed.

By covering the very largest firms with this mandate, you actually ensure that a vast majority of workers are affected, as the 13 percent of firms with a payroll larger than $500,000 employ 81 percent of the country’s workers. So in the end, the bill is not about taxing small businesses, but providing America’s workers with stable access to health insurance.

Sen. Thune: Under House Health Care Bill ‘Most Americans’ Will Pay ‘Fifty Cents Of Every Dollar’ In Taxes

Today, Sen. John Thune (R-SD) appeared on the Senate floor to decry the health care bill that has emerged in the House. During his speech, Thune claimed that “most” Americans and small businesses would pay “fifty cents of every dollar in taxes” if the House’s plan to implement a surtax were adopted:

Frankly, if you think about most Americans and most small businesses, when you start paying half, or fifty cents of every dollar in taxes, you’re getting to a point where it’s going to be very difficult for these businesses to say, you know, “why should I continue to try to create jobs?”…I think that’s the risk that we run with the job creators, the small businesses in the country, who are the economic engine and create as many as two-thirds to three-quarters of all the jobs in our economy.

Watch it:

First, let’s dispense with a few myths. The surtax would only affect 1.3 percent of taxpayers, not “most.” Only 4 percent of taxpayers that make any income at all from small businesses would feel the surcharge, which as Citizens for Tax Justice noted, should have “no effect on their hiring decisions.”

But Thune also seems to be a bit hazy on the concept of marginal tax rates (or he’s deliberately obfuscating the issue) when he says “fifty cents of every dollar” will be taxed. For those richest one percent of taxpayers, the surtax would be assessed on every dollar after the first one million dollars. In fact, right in the House bill, it says that the surtax will be on income “as exceeds $1,000,000.” It’s the 1,000,001 dollar that gets taxed at 5.4 percent, not the preceding one million.

Jonathan Schwartz at A Tiny Revolution calculated the actual amount that a millionaire will pay in higher taxes, responding to the notion that “a family earning a million dollars a year should now cough up $54,000 of that” due to the surtax:

Someone making $1,000,000 per year wouldn’t pay $54,000 more in taxes under this bill. They’d pay $9,000. That’s because the 5.4% surcharge would only apply to someone’s income over $1,000,000. Your tax bill wouldn’t suddenly go up by $54,000 if one year you made $1,000,000 instead of $999,999.

Thune is also ignoring the fact that top marginal tax rates in this country have historically been far higher than the rate proposed by the House, even with the surtax factored in. Of course, this is all coming from a senator who like to think of economic initiatives in terms of how many times the required money could be wrapped around the Earth.