Pity the billionaires, for they are losing hope and falling into a pit of darkness and despair. Alas! They're losing hope they will get any tax breaks in the coming year or get a chance to lower the corporate tax rate.

From the part of the Wall Street Journal that isn't behind a paywall:

Corporate tax executives are overwhelmingly doubtful that the U.S. corporate statutory tax rate will come down this year and worry that lawmakers might instead look to raise revenue by targeting loopholes, deductions and overseas income.

Just 2% of tax executives now believe comprehensive tax reforms that would address the overall corporate rate will be enacted this year, down from 31% who expected significant reforms in 2013 last year, according to a recent survey of 163 business tax executives released by law firm Miller & Chevalier and the National Foreign Trade Council this week.

Oh, dear. What's behind this sudden spate of weeping and gnashing of teeth? Well, it appears that CEOs actually thought that this Congress, with all of the wingnuts they helped to elect, might actually pass some form of corporate tax reform that included an overall lower rate.

They need a lower tax rate, you see, because they've squeezed every last drop out of the economy -- and consumers, in particular. In order for their bottom lines to continue to rise and serve the shareholders properly with out-of-proportion returns, they've got to find a balance sheet entry they can reduce. Snap! Reserves for taxes! That ought to do it.

Cisco CEO John Chambers went on a tear last week, declaring a moratorium on any new acquisitions in the United States until tax rates come down. That translates for rational people into a simple "I'm holding my breath until I turn blue" tactic, which should receive a properly resolved response of "have at it, John." But he's not the only one:

RESEARCH TRIANGLE PARK, N.C. — John Chambers, never the one to mince words and who openly campaigned for Republican Mitt Romney last fall, is stepping up his threats against Congress and the Obama Administration.

Lower corporate taxes, he says, or he simply won't create any more jobs in the U.S.

Other companies are on the record as lobbying for lower corporate taxes or they, like Cisco, will keep profits estimated at a whopping $1.7 trillion "parked" overseas to avoid U.S. taxes. Cisco alone is sitting on $46 billion in cash, some 80 percent of it offshore.

As CNBC noted, Microsoft has 87 percent of some $67 billion outside the U.S.

Oracle is keeping 87 percent of $32 billion away from the U.S.

And Apple tops them all with some 68 percent of $121 billion kept from U.S. tax coffers.

These firms simply won't "repatriate," as they call it, the profits until changes are made.

Given the state of government in Washington, we can expect Cisco's 5,000-employee campus in RTP - its second largest - NOT to grow bigger anytime soon.

"Tax policy will determine where our growth and head count will be," Chambers told CNBC in an interview last Wednesday as Cisco disclosed quartertly earnings.

Not consolidating more tech under Cisco's umbrella is actually a good thing, as far as I'm concerned.

As for the corporate hissy fits, wait them out. They're just trying to scare people into pressuring Congress to do their bidding. There are millions -- even billions -- of reasons not to.

If you needed evidence that corporate tax rates are far too low and large corporations receive far too many tax benefits, look no further than the new study just published by Citizens for Tax Justice.

CTJ undertook a study of the 280 largest companies in the United States to see what they actually paid (or didn't pay) in taxes. From their press release:

“These 280 corporations received a total of nearly $224 billion in tax subsidies,” said Robert McIntyre, Director at Citizens for Tax Justice and the report’s lead author. “This is wasted money that could have gone to protect Medicare, create jobs and cut the deficit.”

30 Companies average less than zero tax bill in the last three Years, 78 had at least one no-tax year.

Financial services received the largest share of all federal tax subsidies over the last three years. More than half the tax subsidies for companies in the study went to four industries: financial services, utilities, telecommunications, and oil, gas & pipelines.

U.S. corporations with significant foreign profits paid tax rates to foreign countries that were almost a third higher than they paid to the IRS on their domestic profits.

That $224 billion number is really significant. If we were to extrapolate that into a ten-year number to compare with CBO analyses of various revenue proposals, it would be an expenditure of about $750 billion over a ten-year period. Imagine that. We wouldn't have to worry about Medicare cuts or deep cuts to discretionary spending if those tax preferences were rolled back.

Digging deeper into the data reveals an inherent unfairness in how those tax subsidies are distributed. Retail and health industries paid, on average, 30 percent or more in corporate taxes. Here are how the tax goodies fell for the companies who paid little or no corporate taxes:

Effective tax rates varied widely by industry. Over the 2008-10 period, effective tax rates for our 280 corporations, when grouped by industry, ranged from a low of –13.5 percent (a negative rate) to a high of 30.4 percent. In the year 2010 alone, the range of industry tax rates was even greater, ranging from a low of – 36.4 percent up to a high of 30.6 percent.

Continue reading »

I seriously think that at some point we will see some conservative's head explode from all the cognitive dissonance they hold. I'm putting my money on Sen. Lindsey Graham. Graham is such an interesting paradox, since he was the one Republican to break from his party and refuse to vote to convict Bill Clinton during the impeachment, is often part of these bipartisan gangs in Congress that actually get legislation passed and has occasionally been fairly reasonable on the issues of immigration, climate change and economic issues. But he will often also backtrack on all of these issues, especially in defense of his BFF, John McCain.

On State of the Union, Graham exhibited this cognitive dissonance perfectly. Host Candy Crowley asked him his opinion on President Obama's upcoming tax plan--quaintly referred to as "The Buffett Plan"-- and Graham just spouted off the same tried and true talking points about targeting the uber-wealthy for tax increases as class warfare that we heard every single conservative use on every other show.

But then...

Graham went off the talking points and get this...advocated for raising taxes on millionaires and billionaires and shirking corporations:

The tax code should be reformed for one purpose: to generate more revenue, to run the government and create jobs. And when you pick one area of the economy and say we’re going to tax those people, because people are not those people, that’s class warfare.

Look at what Bowles/Simpson did. They didn’t pick on Warren Buffett or any other group. They’re going to make all millionaires and billionaires pay a higher rate, by eliminating the deductions. They’re going to make corporate pay a higher rate – 25% will be the top rate – but they’re going to have to pay it because they won’t have the deductions and loopholes of getting out of paying. That’s the model. What Bowles/Simpson did with the Gang of Six, let’s take the tax code that’s so complicated – that GE pays no taxes – and flatten the rates to be economically competitive but get people to actually pay taxes.

Uh...Lindsey, how exactly is this different from what Obama and the Democratic Party has been saying about making the tax burden fair? Seriously, this logic pretzel of simultaneously advocating for and blocking what the White House is trying to do to improve the economy is gonna kill you.

[First two paragraphs updated and edited for clarity and additional detail]

At the height of the dreadful debt-ceiling debate, Pastor Rick Warren said this: tweeted this before removing it and apologizing to me for how mean-spirited it sounded:

Yes, it did sound mean-spirited, but it isn't any different than what Fox talkers say all the time. Here's a particularly illustrative clip:

Fox viewers and yes, even Pastor Warren might be forgiven for having the perception that half the country is shirking their patriotic duty, except that the entire construct is invalid to begin with.

With the tax reform debate about to heat up in Washington DC, this recent New York Times editorial struck me as particularly appropriate:

Representative Eric Cantor, the House majority leader, and several senators have made similar arguments, variations of the idea expressed earlier by Senator Dan Coats of Indiana that “everyone needs to have some skin in the game.”

This is factually wrong, economically wrong and morally wrong. First, the facts: a vast majority of Americans have skin in the tax game. Even if they earn too little to qualify for the income tax, they pay payroll taxes (which Republicans want to raise), gasoline excise taxes and state and local taxes. Only 14 percent of households pay neither income nor payroll taxes, according to the Tax Policy Center at the Brookings Institution. The poorest fifth paid an average of 16.3 percent of income in taxes in 2010.

Economically, reducing the earned income tax credit and the child tax credit — which would be required if everyone paid income taxes — makes no sense at a time of high unemployment. The credits, which only go to working people, have always been a strong incentive to work, as even some conservative economists say, and have increased the labor force while reducing the welfare rolls.

Continue reading »

So I've been following the Tea Party objections to the health care reform efforts. They're worried about the deficit, they just want to be left alone without government interference, and they're especially angry at the government singling out some privileged groups for special subsidies. They're proud, self-sufficient patriots and they don't want handouts.

Kids, have I got a proposal for you.

I've discovered a regressive tax break that favors the wealthy and has no good rationalization for its continued use. (According to historians, it was an accident, anyway.) And oddly enough, it costs us about $100 billion annually, or $1 trillion over ten years - exactly the estimated cost of healthcare reform. Really, there's no other word for it but "pork."

It's the mortgage interest deduction.

No, it doesn't seem like a huge deal. (A lot of the people eligible for it don't even bother, because you have to itemize your tax return.) But man, it sure adds up:

But cumulatively, the deduction is a big deal. This year [Ed. note - in 2006, when this was written], it is expected to cost the Treasury $76 billion. And the rewards are greatly skewed in favor of the moderately to the conspicuously rich. On a million-dollar mortgage (the people with those really need help, right?), the tax benefit is worth approximately $21,000 a year. And according to the Joint Committee on Taxation, a little over half of the benefit is taken by just 12 percent of taxpayers, or those with incomes of $100,000 or more.

So clearly, this hits the sweet spot. Why insult people who are already doing well in the free market with this unnecessary and expensive handout?

And what better time to cut it, anyway? While housing prices are already dropping through the floor, this is when phasing out this deduction will have the least negative impact on housing prices. It will lower housing costs down to pre-speculation levels, and that means your paycheck will go farther. And it's something policy wonks on both sides can agree on.

President Obama's already on board with the concept. In his first budget, he proposed lowering the deduction in 2011 for those in the top tax brackets.(Special interest groups successfully opposed it.)

Edward L. Glaeser, an economics professor at Harvard, put it this way:

Problem #1: Subsidizing interest payments encourages people to leverage themselves to the hilt to bet on housing markets. The size of the tax benefit is proportional to your debt. The deduction essentially encourages us to make leveraged bets on the swings of the housing market. That leverage means that housing price swings can easily wipe people out. We are currently experiencing the consequences of subsidizing gambles on housing.

Problem #2: The deduction pushes up prices in places where the supply of new homes is constrained, as it is in many coastal markets. Economics 101 teaches us that if we subsidize demand where supply is inelastic then the only effect is to make prices go up. Housing supply is pretty constrained in places like New York City because of land-use restrictions and lack of land. In these places, the deduction doesn’t make housing more affordable. It just transfers money from buyers to sellers, and that makes little sense.

Problem #3: The deduction is wildly regressive. The tax savings for households earning more than $250,000 is 10 times the tax savings for households earning between $40,000 and $75,000 a year, according to recent research by James Poterba and Todd Sinai.

If there ever was a case for small-government egalitarianism, then this is it. Eliminating the home mortgage deduction and replacing it with an across-the-board tax cut would equalize after-tax incomes without a single new government program.

Problem #4: The deduction encourages people to buy larger, single-family detached homes, and that increases carbon emissions and pushes people out of cities. The deduction encourages people to buy more expensive homes, which are generally bigger homes.

Bigger homes use more energy. The deduction is therefore implicitly urging Americans to run higher electricity bills and spend more on home heating. If global warming is a serious problem, then the government should be encouraging us to live in smaller, not bigger, dwellings.

Problem #5: The home mortgage interest deduction is poorly designed to encourage homeownership, which is, after all, the alleged desideratum. Much of the interest deduction’s benefits go to richer Americans who are likely to own homes in any case.

In fact, just about the only special-interest group still championing the deduction: Realtors. Obviously, the bigger the house, the bigger the commission. But is that good for our economy? This was written in 2007 but it's even more applicable now:

Nationally, half of renters and more than one third of mortgage holders — 37 percent, up from 35 percent in 2005, or a rise of more than 1.5 million households — spent at least 30 percent of their gross income on housing costs, the level many government agencies consider the limit of affordability.

“Maybe it all means that housing is not as smart an investment for as many people as we thought,” said Matt Fellowes, a scholar in metropolitan policy at the Brookings Institution. “Stocks perform better than houses over time. Maybe the American dream should be building wealth in general, not building a certain type of wealth, which we see is narrow and dangerous.”

Fourteen percent of mortgage-holders spent at least half their income on housing in 2006, up from 13 percent last year, while among renters there was little change. In both years, 25 percent of renters spent half their income on housing.

The rising housing burden cuts into the money people have available for other expenses and anticipated the rise in foreclosures.