‘I pay more federal income taxes than General Electric’
The latest study from Citizens for Tax Justice and the Institute on Taxation and Economic Policy should lend credence to the larger "Occupy" movement.
Many of this country's biggest companies paid no federal taxes -- or even made money through credits and refunds from the government -- over the past three years by using an array of loopholes and tax breaks, according to a report released Thursday.
The authors examined the finances of 280 corporations from 2008 through 2010 and found that 30 paid zero taxes or used loopholes to wind up with negative tax rates. Local utility Pepco Holdings paid the lowest rate of all the firms investigated, clocking in at nearly minus 58 percent.
Under the federal tax code, corporations are supposed to pay 35 percent of their profits in taxes. But the study found many of the companies used legal tax breaks that allowed them to pay lower rates than ordinary Americans.
Plenty of politicians complain about the larger 35% corporate tax rate, which is high by international standards. But that assumes corporations are actually paying it -- and they're not.
As President Obama put it in his State of the Union address, "[O]ver the years, a parade of lobbyists has rigged the tax code to benefit particular companies and industries. Those with accountants or lawyers to work the system can end up paying no taxes at all. But all the rest are hit with one of the highest corporate tax rates in the world. It makes no sense, and it has to change."
It's why the notion of "corporate tax reform" has merit. For the right, the goal is to bring down the 35% rate, but for the left, the goal is to start getting these large, prosperous companies to start paying something.
The Citizens for Tax Justice's report added, "[J]ust as workers pay their fair share of taxes on their earnings, so should successful businesses pay their fair share on their success. But today corporate tax loopholes are so out of control that most Americans can rightfully complain, 'I pay more federal income taxes than General Electric, Boeing, DuPont, Wells Fargo, Verizon, etc., etc., all put together.' That's an unacceptable situation."
‘Imagine if today’s Fed governors were appointed by China and Saudi Arabia.’
Imagine a world in which Europe had proceeded with economic unification, but did not create the euro.
In such a world, as in our world, goods and workers would move freely from Warsaw to Lisbon. Europe's internal investment barriers would have largely vanished.
What then?
In such a world, Germany as the most productive economy would have begun to rack up large trade surpluses. As those surpluses accumulated, the value of the Deutsche Mark would have appreciated against Europe's other currencies. The cost of doing business in Germany would rise relative to, say, the Czech Republic or Slovenia. Investors would shift their operations out of Germany. Jobs would be created outside Germany and destroyed inside Germany.
The poorer European countries would face a very different environment in our non-euro world.
Investors worried about currency risk would charge significantly higher interest rates to countries like Greece. More expensive credit would have constrained their ability to run budget deficits.
Now back to the real world.
By folding all of Europe's currencies into the euro, Germany prevented its neighbors from reducing their costs — thus enhancing German exports and preserving German jobs.
In the decade from 2000 to 2010, Germany's share of world trade rose by almost 9 percent (most of that being exports to other European countries).
The same currency that made German exports more competitive also made the exports of other European countries less competitive. Their shares of world trade declined over that same decade — in France's case, by a spectacular 23 percent.
But the less competitive countries did get something out of the euro: Lower interest rates. The currency arrangement that enabled Germany to sell more enabled Greece, Italy, Spain, and France to borrow more.
Germany got the jobs. Greece and the others got the debts.
American ears may prick up with recognition here, because the deal explicitly struck between Germany and the rest of Europe in the 2000s looks a lot like the arrangement tacitly accepted by the United States and China over the same period.
An artificially cheap Chinese currency stimulated Chinese exports and jobs. An artificially expensive American currency stimulated American borrowing and consumption.
Americans don't take it very patiently when the Chinese present themselves as the virtuous victim of American extravagance. Nor should Americans do so. It was Chinese currency manipulation that called forth the American credit bubble.
Southern Europe faces an even starker predicament. Not only did the euro inhibit their job creation and enable their borrowing — but it also adds greatly to the difficulties of repaying their debts. Unlike the U.S., which can at least repay in a currency it controls, southern Europe must repay in a currency it does not control — and that is not managed in southern Europe's interest.
Imagine if today's Federal Reserve governors were jointly appointed by the governments of China and Saudi Arabia, and you get some idea of why Greeks riot in the streets.
So my friend's joke needs to be amended.
What the German is being asked to pay for is not the drinks. He (and the other surplus countries adjoining Germany) are being asked to help pay for the cleanup after a party at which they had most of the fun.
Don't worry. The Greeks and the other indebted southern Europeans will suffer — and are suffering — plenty. But to ask the Greeks and the other southern Europeans to suffer exclusively is to forget how this crisis was created in the first place.
‘They think 9.1 percent unemployment is fine’
We’re starting from a steep labor market recession. My view is that means we need to be aiming for a period of rapid catch-up growth to reduce unemployment and restore the economy to full capacity. But the FOMC meekly “anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate.” If the unemployment rate is not currently at a level consistent with the mandate and is also not converging rapidly toward a level consistent with the mandate, then in my view the FOMC ought to do something new and dramatic in order to fulfill its mandate. Instead, the FOMC is standing pat. They think 9.1 percent unemployment and moderate growth is fine and they don’t intend to do anything about it.