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Any tax system that subjects rich people to high taxes is asking for trouble. Or so the politicians who cater to people of means incessantly argue. The higher the tax rate on high incomes, the argument goes, the greater the incentive the rich have to waste time and energy figuring out ways to evade paying taxes.

“Conservatives tend to talk about noncompliance as if it were solely a function of tax rates,” as former Reagan administration policy aide Bruce Bartlett noted last week, a perspective that makes tax evasion “yet another excuse to cut taxes.” 

In 2001 and then again in 2003, that convenient excuse helped the Bush White House chop away at the taxes the IRS expects rich people to pay. The tax rate on top tax-bracket income slipped from 39.6 to 35 percent, and the rates on capital gains and dividends both dropped to 15 percent, from 20 and 39.6 percent.

According to rich people-friendly right-wing ideology, these cuts should have boosted tax compliance, since, as Bartlett points out, “the return to evasion fell.”

What did happen? Tax evasion between 2001 and 2006, a new IRS study documents, actually increased. In 2001, $290 billion in individual and business taxes due went uncollected. In 2006, $385 billion.

Need some context for all these billions? The 2006 federal budget deficit red ink totaled $248 billion. If the IRS had been able to collect every dime cheating taxpayers cost Uncle Sam in 2006, the federal treasury would have ended the year $137 billion in the black.

Who’s doing all this tax cheating? Not average Americans. (more…)

In his State of the Union Address last week, President Obama announced a renewed commitment to manufacturing in the United States. While the commitment to rebuilding the country’s manufacturing base is welcome — manufacturing has historically been a source of good-paying jobs for workers without college degrees — he unfortunately left the most important item on the list off the agenda.

President Obama failed to commit himself to restoring the competitiveness of dollar as part of his agenda for bringing back manufacturing jobs. The value of the dollar really has to be front and central in any effort to restore U.S. competitiveness since it is by far the most important factor determining the relative cost of U.S. goods compared with goods produced elsewhere.

If the dollar is 20 percent above its proper value then it is equivalent to putting a 20 percent tariff on all of our exports. If the price of U.S. made goods are 20 percent higher for people living in other countries because of an over-valued dollar, we are not going to be able to export very much.

The opposite is true with imports. The over-valued dollar is equivalent to giving a 20 percent subsidy to people who import goods from other countries. This places U.S.-made products at an enormous disadvantage competing with imports. This explains the flood of imports coming into the country over the last 15 years.

President Obama’s plans to improve education and training and provide support for research and long-term planning are all great, but if we don’t address the fundamental problem of an over-valued dollar, then his agenda will have little impact on manufacturing in the United States. This is sort of like preparing the soil and carefully watering your garden but forgetting to plant the seeds. (more…)

More than most elections, the contest for President this fall is likely to be decided less on “wedge issues” — or even candidate positions that are symbolic of who is on whose side — and more on the character and core values of the candidates — and for that matter on the question of the core values of the society we hope to leave to our children.

Last Friday, speaking to the Democratic Caucus Policy Conference, Vice-President Joe Biden told a story that speaks volumes about the character of Barack Obama.

According to Biden, the day before he ordered the raid that finally stopped Osama Bin Laden, President Obama met with his top national security advisers in the Situation Room. At the close of the meeting, he went around the room asking each person for his or her recommendation on whether to launch the risky nighttime mission.

As it went around the table, Leon Panetta recommended that the President proceed. Most of the others expressed reservations and handicapped the odds of success as only fair. Finally, the President got to Biden who said he recommended not proceeding until two additional steps were taken to enhance the odds.

Then the President stood and told his advisers he would let them know of his decision in the morning.

The next day, as Obama stepped onto his helicopter to leave on a day trip, he turned to his National Security Adviser, Tom Donilan, and issued a simple order: “let’s go.”

Much more was at stake in the Bin Laden mission than success or failure killing or capturing the most wanted fugitive of modern times. In some respects Obama’s Presidency itself was at stake.

To quote Biden, “The President has a backbone like a ramrod.” (more…)

Saying nothing about the quality of the candidate himself, I’m increasingly struck by the economic issues the Mitt Romney brings to the table. Because of his professional background, in no small part amplified by the caustic primary debates (and OWS, and partisan dysfunction, and more), the national echo chamber is filled with debates about the bloated income share of the top 1%, the favorable tax treatment of investment income over paychecks, and whether debt-leveraged private equity firms actually add net value to the economy.

In this regard, I wanted to return to one of the points I made here yesterday: the increase in the use of “pass-through” income. One reason multi-millionaire investors like Gov. Romney face 15% tax rates is because they engage in corporate activities but avoid corporate taxes. They do so by taking advantage of policy changes that have made it easier to pass capital gains through the corporation to their personal income, where, in the case of private equity managers, they tap a double loophole. First, capital gains are taxed at less than half the rate of normal income, and second, even though these gains are really earnings for the fund managers, they get to claim them as capital gains (this is the notorious “carried interest” loophole).

As my Center on Budget and Policy Priorities colleagues Chuck Marr and Brian Highsmith wrote here:

Although businesses operating through C corporations [standard corporations] are subject to corporate taxes, the capital income of non-incorporated businesses is “passed through” to the business owners. These owners benefit from the same tax deductions and credits as do corporations, but are taxed only at the individual level. Over the past half century, and particularly during the 1980s and 1990s, states and the federal government significantly expanded the legal benefits of pass-through entities. These changes have made it easier for firms to operate through such legal structures as S corporations, partnerships, limited liability companies, and sole proprietorships — while also benefiting from limited liability and other provisions that formerly were available only to corporations. (more…)

President Obama put American manufacturing literally at the front and center of his State of the Union speech. American manufacturing was at the front of the speech and at the center of a “blueprint” for bringing back jobs and strengthening our economy. By placing manufacturing front and center he has taken this conversation further than any president before him.

There is good reason to cheer, but also good reason to ask for even more. He outlined steps to stop the outsourcing and start the insourcing, but there is not yet a comprehensive, overall government strategy to fix trade and capture the industries of the future.

The Speech

Right up front the president talked about building “an America that attracts a new generation of high-tech manufacturing and high-paying jobs.” Then,

“Tonight, I want to speak about how we move forward and lay out a blueprint for an economy that’s built to last, an economy built on American manufacturing, American energy, skills for American workers, and a renewal of American values.This blueprint begins with American manufacturing.”

Bob Borosage, in “The Obama State of the Union: A Progressive View,”

On the economy, the speech led with more discussion of manufacturing than anyone has heard in years. The president wanted and deserved credit for saving Detroit — a key to his campaign in the Midwest — and wanted to highlight the uptick in manufacturing jobs and “insourcing,” the movement of some jobs back to the U.S.Again, his agenda focused on mostly symbolic measures of populist appeal. In addition to the tax on multinationals, he promised a new trade enforcement effort to challenge China and others who trample global trade rules. With Romney promising to cite China for currency violation on day one if elected, the administration seems likely to finally challenge China, at least symbolically. (more…)

If Hollywood gave Oscars for shamelessness, the Republican responses to President Obama’s State of the Union speech last night, Jan 24, would have swept the field.

Take Indiana’s Gov. Mitch Daniels, who gave the official GOP response:

No feature of the Obama presidency has been sadder than its constant efforts to divide us, to curry favor with some Americans by castigating others,” he said. “As in previous moments of national danger, we Americans are all in the same boat.”

Amazing. One top GOP candidate, Newt Gingrich, is running around the country attacking Obama as the ‘Food Stamp President,’ while the other, Mitt Romney, whose newly released tax returns show he takes in more in a day than a well-paid worker does in a year, critiques Obama’s business skills using a shuttered factory as a stage prop.

Obama, of course, never shut down a single factory, yet that was precisely the business Mitt Romney and his outfit, Bain Capital, was famous for, including shutting down a factory in Florida, where his video message was being recorded.

All in the same boat” and ‘castigating others’ indeed. Governor Daniels uttered these words as the state he presides over is currently engaged in a notorious ‘right to work for less’ battle to strip Indiana’s workers on their ability to bargain collectively. (more…)

If you are concerned about the collapse of the middle class, you should be concerned about how American campaigns are financed. If you wonder why the United States is the only country in the industrialized world not to have a national health care program, if you’re asking why we pay the highest price in the world for prescription drugs, or why we spend more money on the military than the rest of the world combined, you are talking about campaign finance. You are talking about the unbelievable power that big-money interests have over every legislative decision.

An already horrendous situation was made much worse two years ago this month when the Supreme Court ruled in Citizens United v. the Federal Elections Commission that multinational corporations have a constitutional right to spend whatever they want to influence election outcomes. A bare 5-4 majority lowered the floodgates on unchecked, unlimited, unaccountable corporate cash in political campaigns. Corporations were equated with people. A century of laws regulating business spending on elections were upended. In one fell swoop, five justices fantasized for corporations a right never conceived by the founders whose preamble to our Constitution begins with the words, “We the people…”

The ruling not only poisoned our political process. It contaminated the legislative process. It cast a permanent chill over all policymaking. Will the merits or the money tip the balance when an issue comes before Congress? What do you think? If the question is on breaking up huge banks, for example, every member of the Senate and the House, in the back of their minds, will ask themselves what the personal price would be for taking on Wall Street. Am I going to be punished? Will a huge amount of money be unleashed in my state? They’re going to think twice about how to cast that vote. Not to put too fine a point on it, you will see politicians being adopted by corporations and becoming wholly owned subsidiaries of corporate entities.

We already have seen what kind of damage Citizens United can cause. In the first election after the decision was handed down, corporations in 2010 poured hundreds of millions of dollars into independent organizations not formally affiliated with parties or candidates. About half of the $300 million spent by independent organizations came from undisclosed sources. In 60 of the 75 congressional races in which power changed hands, the unaccountable outside groups backed the winners. They spent freely and overwhelmingly on negative ads. The early phases of this year’s elections bear witness to projections that the Citizens United effect will be much worse. Karl Rove has announced plans to raise $240 million. The Koch brothers promise to spend $200 million. It’s fair to assume the Chamber of Commerce will spend at least as much. The Super PAC supporting President Obama, Priorities USA Action, aims to play in the same league. Hundreds of millions more will be in play. (more…)

House Republicans took the government to the brink of shutdown last spring by demanding across-the-board budget cuts to many vital programs. Instead of focusing on job creation, as Americans wanted them to, the GOP turned its attention to slashing funds for programs that funded assistance for women and children, local law enforcement, the social safety net, environmental protections, and many other programs they deemed as either too expensive or unnecessary. Worse, when challenged on why they hadn’t made the effort to tackle high unemployment, Republicans insisted that their slash-and-burn budget cuts were meant to create jobs.

Not all of those cuts made it through, but the GOP succeeded in passing massive spending reductions as part of a continuing resolution that kept the government operating. According to a new report from the Center for American Progress’ Scott Lilly, those cuts didn’t result in the job creating boon Republicans insisted would follow. Instead, it has done just the opposite, as those cuts will result in the destruction of roughly 370,000 jobs.

Lilly’s report focuses on three major areas where Republicans insisted on spending cuts: funding for local law enforcement, environmental cleanup of sites where nuclear weapons were disabled and destroyed, and investments into construction, repair, and maintenance of government buildings. Cuts to just those three areas will result in the loss of 90,000 jobs, the report found — 60,000 from direct cuts, and 30,000 additional jobs lost from the secondary impacts of job losses in each community. (more…)

It’s time for a true celebration of Martin Luther King Day. This week, Americans everywhere will remember the selfless and historic contributions made by one of the most important figures of the 21st century. Rebuild the Dream members are hosting MLK Day Movement Meet-ups to celebrate Dr. King and link the Civil Rights Movement with today’s struggle for an economy that works for all. We will come together to reflect on the struggles of our past, and unite to secure our future.

This is a chance to touch base with people who are passionate about fighting for Dr. King’s dream. Neighbors and friends will gather in schools, libraries, community centers, and living rooms to watch a short video and open up a discussion on how we can strengthen our movement in 2012.

If you would like to attend an MLK Day Meet-up, you can find one here.

MLK day is a chance to look back and look ahead — let’s reflect on one of the most important movements of our past as a springboard for the ongoing fight for justice. There is a lot left to fight for, and every day people are continuing Dr. King’s struggle. With a powerful movement sweeping the country, we must gather together and ask: What would Dr. King and other civil rights leaders do today? How can we continue their legacy in 2012 and beyond? (more…)

I work for a labor union in the aerospace industry. We are 100% in favor of trade. We make products the rest of the world wants to buy.

With increased trade we expect more prosperity. Instead, we see the American economy de-industrializing and job security at historic lows. So, what’s going wrong?

Figure 1. US Trade in goods since 1992.Figure 1 tells the story. Since NAFTA and WTO took effect around 1995, our trade deficit has widened steadily, except for the 2008 crash, which cut imports more than exports.

The language for trade is deceptive. We speak of “free trade agreements,” which sounds like freedom, and evokes the image of prosperity. Maybe we should call them “trade deficit agreements,” since that’s what they do.

We have alternatives. Today, many countries take a different approach to trade, and they run trade surpluses. Japan, Korea, Singapore, and Germany run trade surpluses and they have high living standards. China’s very effective industrial policies are the opposite of free trade. Their growth is phenomenal. It could be even more impressive if workers and communities in China had more say in how their gains were allocated. (Please finish this post, then get a cup of coffee, sit down and listen to this sensational radio piece.)

When America industrialized, we rejected free trade (trade deficit agreements), and our living standard rose dramatically.

Since NAFTA and WTO took effect, factories in America closed, entire industries declined, and millions of good jobs moved offshore. China’s industrial policies are a credible threat to our aerospace industry – one of the last bright spots in our trade profile. Technology and capital for new industrial capacity goes to China, India, and Russia, rather than Michigan, California or Pennsylvania. (more…)