Do all politicians favor government redistribution of income? Of course! All taxes redistribute income. Sometimes for national defense or other necessities of a government. Unfortunately, for at least the last 30 years, government tax and other policies have been redistributing income from the middle and lower income groups to the very wealthy as have been show in recent books by Barlett and Steele, Hendrick Smith and Joe Stiglitz. Middle and lower class income has stagnated even though productivity has skyrocketed The only ones who benefitted were the very rich. Small businesses have struggled because multinationals against whom they compete can hide their income offshore and escape taxes. Income from investments is taxed at a much lower rate than income from labor without any real economic justification. The question for voters is who is more likely to favor continued redistribution of income to the very rich. The answer is pretty obvious.

Small Businesses Screwed by Tax Code: Small businesses have to compete against multinational corporations who avoid paying taxes by shifting their profits abroad and, thus, can sell more cheaply. Small businesses also have to compete against companies that sell over the internet and don’t collect sales taxes so they can sell more cheaply. We all know these loopholes are due to the lobbyists employed by these huge companies, but where are the associations who are supposed to represent small businesses? Controlled by the same big businesses?

Words do make a difference. Everyone seems to be for cutting taxes even though they are at the lowest level since 1929 as measured as a percentage of GDP. The "experts" and the media have fallen into the "starve the government's" trap. We need to change the dialogue. We need to start talking about cutting tax expenditures, aka, loopholes, subsidies, etc. What is the justification for taxing income from investment at a lower level than taxing income from labor? Why has the income of the middle class remained stagnant or declined while productivity has significantly increased? A large part of the reason is the plethora of tax expenditures that benefit the very wealthy.

We need to change the discussion to focus on what is really important and away from the failed tax policies of Bush/Cheney that "deficits don't matter." and that by starving government of revenue the economy will grow. We need to simplify the tax code by cutting tax expenditures, stop tax policies that encourage multinational companies from exporting jobs and profits and raise enough revenue to  fund a government that will meet our needs. That can only be done if the voters understand what is really at stake. Of course, those who advocate reform don't have the enormous sums of money for misleading advertising that permeate the airwaves now. But it must be done if we are to remain a prosperous country.

International Tax Avoidance: Bain Capital?

Everyone agrees that our tax system is broken. It is too
complex. It interferes with the free market too much, and, worst
of all, it doesn’t equitably raise the revenue we need to fund
programs enacted by Congress. Most of the proposed tax system
fixes are the equivalent of putting a Band-Aid on a spurting
artery. It is time to stop the auction system of tax legislation and
go back to basics: raising the revenue we need with as few special
interest subsidies as possible. Now is the time to do it, because
this is one of the few times that the public’s attention is focused
on the issue, which will make it much harder to hide special
interest deals behind a cloud of complexity.
Corporate tax laws are so complex that even with the best
intentions, it is almost impossible to comply with them. And the
temptations to cheat are overwhelming, particularly for the
multinational corporations that can use transfer pricing and tax
havens to avoid taxation. Every IRS commissioner who has
testified on transfer pricing has admitted that the Service cannot
police it. This gives those multinational corporations a real
competitive advantage over domestic corporations paying much
higher taxes.
Abolishing corporate income taxes would make sense if it
were possible to impute the income to shareholders and collect
taxes from them. But far too many shareholders are tax exempt or
foreign, so that’s not possible.

Is this the reason Romney won't release his tax returns? I'll continue with this issue next Thursday.

Martin Lobel
Lobel, Novins & Lamont, LLP
Washington, DC

Job Destroying Taxes Pushed by Republicans.

Republicans such as House Speaker Boehner and tea party members rail against “job destroying taxes” yet support tax provisions that encourage “American” multinational corporations to shift jobs and profits overseas, the better to “compete” against “foreign” multinational corporations. But the mutinationals all operate worldwide wherever they think they can make the most money.

There is little dispute that corporations should be profit maximizers for their shareholders and that, if they can take advantage of tax subsidies, they should do so. Indeed, GE treats its roughly 90-lawyer tax department as a profit center. Unfortunately, while many business tax subsidies cannot be justified on economic grounds, they are so complicated that the media ignore them and the  money the corporate beneficiaries spend to get and keep them.

A prime example is the section of the tax code that deals with “foreign” profits. Under it, profits are not taxed until they are repatriated to the United States. At the same time, however, foreign expenses can be written off immediately against domestic profits. And, because we use the transfer pricing method – which allows multinational corporations to allocate profits essentially wherever they say they earned them – these companies shift profits and jobs to low or no tax countries. Marty Sullivan and Lee Sheppard in Tax Notes have detailed numerous examples of this shifting, but rather than try to stop it, the Republicans, at the behest of the multinationals, want to accelerate this shifting of profits by adopting a “territorial” tax system which would essentially exempt all foreign profits from U.S. taxation to help “American” multinationals compete with “foreign” multinationals. 

Press coverage of this issue has been, to be kind about it, abysmal. It has focused on the best way to help “American” corporations compete against “foreign” corporations because of the high U.S. corporate tax rate, ignoring the fact that the effective U.S. corporate tax rate is just about the same as in most advanced countries. Moreover, the taxation of foreign profits has a significant impact on American jobs and income, and, importantly, it puts domestic corporations, which have to pay taxes, at a real competitive disadvantage when competing with multinational corporations that don’t. 

Where are the cries about these “job destroying” tax provisions? Are the media being manipulated by high priced corporate PR? It would seem so. 

For more please see my article on NiemanWatchDog.org, published by Harvard Nieman Fellows.http://niemanwatchdog.org/index.cfm?fuseaction=about.viewcontributors&bioid=100

Posts to Tax and Economic Sense will appear every Thursday after 5:00 p.m. EST.  We welcome your comments.
Martin Lobel
Attorney at Law
Partner Lobel, Novins & Lamont
Washington, D.C.