The Securities Industry and Financial Markets Association, a leading lobbying organization for banks and securities firms, said that such a tax would literally stall the stock market:

Imposing a tax on financial transactions is the wrong idea at the wrong time. Such a tax would likely result in a stalling of the stock market, cutting off companies’ ability to raise capital to fund new investments in plants and equipment, and thus create jobs. Furthermore, it would directly and detrimentally affect millions of Americans by imposing a tax on their savings such as mutual funds, just as they are seeing their investment assets regain value.

An analyst in Washington at Concept Capital, which advises brokers and dealers, told clients that “we cannot completely dismiss the slight possibility it could be part of a House jobs bill,” but vowed that it has “virtually no chance in the Senate.” Even right-wing tea party organizers Americans for Prosperity got into the act, saying that the FTT would be a “disaster.”

Contrary to SIFMA’s assertion, under the proposed plan, the tax would be refunded “for those involving assets kept in individual retirement accounts, education savings accounts and health savings accounts” and the first $100,000 in annual transactions. So “millions of Americans” would not see their savings accounts slammed.

But furthermore, an FTT will make the financial system allocate capital more efficiently, as trading for the simple sake of trading will be more expensive. Center for Economic and Policy Research co-director Dean Baker estimates that an FTT could free up more than $60 billion a year in capital and labor for productive uses.

Finally, I’m not sure where SIFMA gets off suggesting that an FTT would stall the stock market, as the United Kingdom already has both a tax on stock trades and a vibrant stock exchange. Wall Street was saved by taxpayers to the tune of $700 billion dollars, plus untold amounts of guarantees against losses and cheap money from the Federal Reserve. An FTT — the revenues from which could be put towards programs or deficit reduction — seems only fair.

“The increase would apply only to the portion of income above $250,000 a year, so it would be limited to relatively high earners. And the details — including how big the hike might be — remain unclear.” The payroll tax may supplant the Senate bill’s excise tax on so-called Cadillac health care plans, which has proven unpopular with labor and the insurance industry.

The payroll increase is also quite different than the approach in the House, where Democrats passed a bill to place a 5.4% surtax on families with incomes over $500,000. Below is a comparison table of the options:

While the idea that taxpayers shouldn’t have to foot the bill when a bank fails was widely agreed upon, the FTT proposal ran into a wave of opposition, including from U.S. Treasury Secretary Tim Geithner:

U.S. Treasury Secretary Timothy Geithner on Saturday firmly opposed a proposal by UK Prime Minister Gordon Brown for a global tax on financial transactions. “That’s not something we’re prepared to support,” Geithner said, speaking after meetings of Group of 20 finance ministers and central bank governors in Scotland Saturday. He added that it is an idea that has been around a long time and has received mixed results.

While I don’t think that revenue from an FTT should contribute to the bank failure fund — because that would cause all traders, instead of just systemically-risky banks, to foot the bill — Geithner should be open to looking at an FTT as a general revenue raiser, particularly as Wall Street rebounds to record profits while Main Street stays in the doldrums.

The FTT, in theory, would be a fee of a fraction of a percent imposed on all trades. Regular investors likely wouldn’t notice it at all, but it could raise significant revenue from firms like Goldman Sachs, who are consistently churning paper back and forth.

Consider that, before the economic crash, financial service companies accounted for 41 percent of all domestic corporate profits. And just more than one year after Wall Street’s collapse, they’re back to making 31.5 percent. As Felix Salmon wrote, “financial services companies are meant to be intermediaries, middlemen.” But instead, they’re netting a huge chunk of domestic profit all for themselves, casting serious doubt on whether their activities are actually providing any social benefit.

As Dean Baker, the most outspoken advocate of the FTT, wrote, “if a financial transactions tax reduces the volume of trading, and therefore the resources used by [the financial] sector, without harming the sector’s ability to allocate capital, then it will be making the sector more efficient and freeing up resources for more productive uses”:

This could potentially be a very large benefit from an FTT. If it reduced trading volume by 25 percent (the middle scenario in Pollin et al.), leading to a corresponding reduction in resource use, it would free up more than $60 billion a year in labor and capital for productive uses.

So the tax could raise some deficit-reducing revenue, while giving us a more efficient financial system. That’s something that Geithner should be willing to spend a few moments contemplating.

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”?

Because currently, these dozen corporations generate profits on taxpayer dollars through lucrative government contracts without contributing back in taxes. They leave that unwelcome burden to other businesses and ordinary taxpayers to pick up.

Maintaining the status quo is hard work. Thankfully for these companies, they have various means to influence our politicians. The same 12 corporations spent nearly $6 million in Political Action Committee (PAC) expenditures for 2008, over $37 million lobbying in 2008, and over $33 million so far in 2009. (See U.S. PIRG Report)

“We’re going to spend whatever it takes,” Brigitte Schmidt Gwyn of the Business Roundtable –- a member of the PACE coalition –- told Politico earlier this year when asked about defeating tax reforms.

In our electoral system, politicians are forced to endlessly reach out to major donors, like the 12 we cite here, to keep their coffers full. These corporate entities know that contributing to campaigns and lobbying officials can help reap valuable dividends in policy decisions. It’s a damaging cycle for average taxpayers, who pick up the tab for corporations that use tax havens.

Tax reform that addresses bank secrecy and tax schemes is a common sense solution to the loss of billions of dollars each year due to tax haven abuse. When individuals and corporations abuse the system, the rest of us — ordinary taxpayers and Main Street businesses — must pick up the tab. The necessary reforms can be found in the Stop Tax Haven Abuse Act S. 506, H.R. 1265. This is a comprehensive bill that addresses offshore shell companies, includes strong enforcement mechanisms and calls for common sense reporting. The Foreign Account Tax Compliance Act of 2009, introduced this week, contains a weaker subset of these reforms, and focuses more narrowly on holding foreign banks and corporations accountable for their clients.

We should make it law that transactions must have some real economic purpose other than the reduction of tax liability, and permanently eliminate the appeal of moving “headquarters” to a post office box in the Cayman Islands.

As important as the above reforms would be in revenue saved for Americans, we also need long-term campaign finance reform, including a voluntary system of small donor-focused fair elections. (The types of reform that are required can be found in the Fair Elections Now Act S. 152, H.R. 1826). When candidates for Congress can run for office without relying on large contributions and big money bundlers, they will be forever freed from a corrosive system in which big business is seen to dictate public policy.

Reforms to give taxpayers a greater voice in electing officials, to give lawmakers greater incentives to put taxpayers first, and to level the playing field for Main Street businesses and Main Street families are long overdue.

We need to slow the PACE of these types of corporate activities and push for real reforms to our system.

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.

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.

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.

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.

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.

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.”

Here’s one more math formula: McCullagh Twitternomics ≠ Obama Administration Analysis. Assistant Treasury Secretary Alan Krueger responded simply that the CBS “reporting” was “flat out wrong“:

The reporting on the Treasury analysis is flat out wrong. Treasury’s analysis is consistent with public analyses by the EIA, EPA, and CBO, and the reporting and blogging on this issue ignores the fact that the revenue raised from emission permits would be returned to consumers under both administration and legislative proposals. It is time for an honest debate about how to solve a long-term challenge and deliver comprehensive energy reform – not for misrepresentations of the facts.

In a follow-up piece, McCullagh quotes the response from Treasury, but somehow failed to include the lines where his reporting was called for being “flat out wrong” and using “misrepresentations of the facts.”

McCullagh is on the fringes of the right-wing Koch-Exxon pollution machine, writing for the Cato Institute (founded by David Koch and funded by ExxonMobil) and Reason Magazine (part of the Reason Foundation, funded by David Koch and ExxonMobil). Koch Industries’ revenue last year was estimated by Forbes to be $98 billion — in McCullagh’s Twitternomics, a tax on American families of $863. ExxonMobil’s record 2008 revenue was $442.85 billion — a McCullagh tax of $3,902.

McCullagh’s anti-government libertarianism sometimes reaches absurdities, as when he argued in 2004 that “Keynesian economists who believe in activist government intervention in the economy” were “fooled by the Soviet Union.” Further, McCullagh — who exaggerated his position at CBS — is an old hand at ascribing outlandish headlines to liberals that he actually made up himself. His real claim to fame is for establishing the false meme in 1999 that Al Gore made an “improvident boast” about inventing the Internet.

But none of this should come as a surprise, as McCullagh’s CBS blog is titled, appropriately, “Taking Liberties.”

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.

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.

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.

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.

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.

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.

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.

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.

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.