For an elite group of American CEOs, sacrifice is for chumps.
As the nation struggles with budgetary constraints, Congress has exempted a group of imperial CEOs and their companies from contributing to the solution.
One special group of CEOs enjoys huge compensation packages while presiding over companies that pay little or no taxes. Twenty-five companies paid their CEOs more last year than they paid in U.S. corporate taxes, according to a new report from the Institute for Policy Studies that I co-authored.
Instead of building better products or providing superior customer service, they spend millions to lobby Congress to change the tax laws so they don't have to pay.
John Lundgren, the CEO of toolmaker Stanley Black and Decker, got a 234 percent pay hike in 2010, bringing his compensation to $32.6 million. Meanwhile the company is shedding thousands of jobs and moving more operations and profits offshore. They have 50 subsidiaries in offshore tax havens. Instead of paying taxes, they collected a $75 million refund.
Twenty of these 25 companies spent more money lobbying than they paid in taxes. When confronted by their tax dodging, their PR flaks complain, "We are just obeying the law." Last year, these 25 companies spent $150 million to influence the law, through lobbying and campaign expenditures.
These companies win gold medals in accounting gymnastics, using subsidiaries in low- or no-tax countries to avoid their tax obligations. Here's how the game works: A corporation pretends its profits are earned in offshore subsidiaries while its losses are incurred in the United States. At tax time, these corporations report to Uncle Sam that all they have are losses. Together, these 25 companies have 556 subsidiaries in tax havens like the Cayman Islands, Ireland, and Bermuda.
These U.S.-based companies use our taxpayer-funded infrastructure, including roads, bridges, broadband, and transportation. They benefit from taxpayer-funded research and spin-off products like the Internet, advanced jet engines, and drug research. Their corporate assets are protected by the U.S. military, police departments, and firefighters — and they rely on our U.S. justice system to defend their intellectual property.
Yet 20 of these companies paid no taxes in 2010. They didn't chip in one dime to pay for the services they enjoy — and that contribute enormously to the success of their businesses. Five companies paid symbolic amounts of taxes, less than the paychecks of their CEOs. But most, in fact, collected checks from Uncle Sam.
We taxpayers just hired Boeing for $35 billion to build new aircraft for the U.S. military. Honeywell also receives huge U.S. government and military contracts. But we don't require either company to pay a nickel for national defense or public services.
As wages for most Americans have remained stagnant over the last several years, these imperial CEOs saw their compensation jump 27.8 percent between 2009 and 2010. The average CEO of an S&P 500 company collected $10.8 million in compensation. But the CEOs of these notorious tax dodgers were paid an average of $16.7 million in 2010.
Shareholders should reward CEOs for building better products or delivering better services, not for accounting gymnastics that game their tax bills down. Shareholders at Stanley Black and Decker are trying to reverse their CEO's pay grab.
Congress should pass the Stop Tax Haven Abuse Act, which would generate an estimated $100 billion in revenue annually. It would save jobs at patriotic U.S. companies that are forced to unfairly compete with corporate tax dodgers on an unlevel playing field.
Our nation needs all hands on deck, with everyone pulling their weight to address our fiscal challenges. As we try to recover from the worst economic depression since the 1930s, middle-class taxpayers and domestic businesses shouldn't have to carry these slacker companies on their backs.
Shaxson, a veteran journalist, slices through the technical jargon to reveal the devastating impact of what he calls “the offshore system” on economic health, global poverty, and our state and federal budget deficits.
Tax havens, or more accurately “secrecy jurisdictions,” are the mechanisms through which wealthy individuals and multinational corporations move money around the planet to avoid taxation and regulation. These same mechanisms facilitate criminal activity, from drug money laundering to terrorist financing networks.
According to Shaxson, there are about 60 “secrecy jurisdictions” around the world, countries with loose incorporation rules, bank reporting and financial transparency requirements. Those of us in the U.S. are most familiar with some of the Caribbean tax havens such the Cayman Islands, Bermuda, and the Bahamas. But technology and pharmacy companies often create subsidiaries in countries like Ireland and the Netherlands to hold patents and intellectual property to reduce US taxes.
The offshore system has spawned a huge tax avoidance industry, with teams of lawyers and accountants who add nothing to the efficiency of markets or products. Recent stories about General Electric’s storied tax dodging dramatize the ways that modern multinationals view their tax accounting departments as profit centers.
At a time when federal and state lawmakers are grappling with huge budget deficits, the impact of corporate tax dodging is getting new attention. The cost of tax havens is estimated to be over $100 billion of lost revenue each year. And a coalition of over 20 U.S. companies have launched their “WinAmerica” campaign to lobby a “tax holiday” on $1.2 trillion in overseas profits they want to bring back to the U.S. Opposing these measures is a whole grassroots movement, US UNCUT, that has emerged to argue: “No Budget Cuts Until Tax Dodgers Pay Up.”
Shaxson argues that almost every major economic story and crisis can trace its roots back to the offshore system. The financial practices of the “shadow banking system” that triggered the 2008 global economic meltdown were facilitated through an opaque and unaccountable finance sector built around layers of off shore tax havens. The two biggest recipients of taxpayer bailout funds are, by no coincidence, huge users of the offshore system. Citigroup has 427 subsidies in tax havens and Bank of America has 115.
At the heart of the global system of off shore tax havens is the transfer of wealth –away from communities and the global south and into the bank accounts of the planet’s wealthiest and most powerful citizens and corporations. For those who care about global poverty and trade, the offshore system is how wealthy elites move their money out of the nations of the global south –and why resource rich nations are unable to effectively tax the corporations that extract their natural wealth. Shaxson cites reports that estimate trillions of dollars of illicit financial flows out of African countries over the last two decades.
Shaxson, who lives in Switzerland, is in the U.S. this week to promote the book and did a press conference with U.S. Senator Carl Levin, champion of legislation to stop tax haven abuses. Congress has been slow to tackle the off shore problem, but the tide is turning.
Treasure Islands was released in the UK in January and quickly became a best selling non-fiction book. It has become the bible of the UK Uncut movement, a grassroots effort to stop budget cuts and make corporate tax dodgers pay. The U.S. Uncut movement, inspired by efforts from across the Atlantic, has over 80 protests planned for the coming tax day weekend. On Friday 4/15, author Shaxson be joining US UNCUT to do a creative “book signing” at the offices of a prominent tax dodger in Washington DC.
Or so claim governors and lawmakers all over the country. Our states and our nation can no longer afford, their plaint goes, the programs and services that Americans expect government to provide. We must do with less. We need "austerity."
But we're not broke. Not even close. The United States of America is awash in wealth. Our corporations are holding record trillions in cash. And overall individual wealth in the United States, the Credit Suisse Research Institute reported this past fall, has risen 23 percent since the year 2000, to $236,213 per American adult.
We have, these indicators of overall wealth suggest, survived the Great Recession quite nicely. So how can average families — and the national, state, and local governments that exist to serve them — be doing so poorly? Why do "deficits" dominate our political discourse? What explains the red-ink hurricane now pounding government budgets at every level?
This Tax Day report (pdf) identifies two prime drivers behind our current budget "squeeze."
One, we have indeed become wealthier than ever. But our wealth has become incredibly more concentrated at our economic summit. U.S. income is cascading disproportionately to the top.
Two, we are taxing the dollars that go to our ever-richer rich — and the corporations they own — at levels far below the tax rates that America levied just a few decades ago. We have, in effect, shifted our tax burden off the shoulders of those most able to bear it and away from those who disproportionately benefit from government investments the most.
These two factors — more dollars at the top, significantly lower taxes on these dollars — have unleashed a fiscal nightmare. Can we wake up in time to avoid the crippling austerity that so many of our political leaders insist we must accept?
This report offers both an analysis of our current predicament and a series of proposals that can help open our eyes to a far more equitable — and brighter — future.
Key Tax Facts
15,753: The number of households in 1961 with $1 million in taxable income (adjusted for inflation).
361,000: The number of households in 2011 estimated to have $1 million in taxable income.
43.1: Percent of total reported income that Americans earning $1 million paid in taxes in 1961 (adjusted for 2011 dollars)
23.1: Percent of total reported income that Americans earning $1 million are likely to pay in taxes in 2011, estimated from latest IRS data.
47.4: Percent of profits corporations paid in taxes in 1961.
11.1: Percent of profits corporations paid in taxes in 2011.
Congress is actively debating whether to retain President Bush's 2001 and 2003 tax cuts for the wealthy that are due to expire at the end of this year. President Obama supports extending tax cuts for households with incomes under $250,000, but ending the tax breaks for higher income households.
Here are five good reasons for Congress to let them go.
1. Borrowing to Give the Rich Tax Breaks is a Really Bad Idea. We've already borrowed $700 billion since 2001 to pay for these tax cuts. Maintaining them for another decade would cost an estimated $700 billion, plus interest on the national debt estimated at $126 billion. Does it really make sense to send interest payments to China and millionaire bond-holders in the U.S. -so that we can cut taxes for U.S. millionaires and billionaires?
2. There are 700 Billion Better Ways to Use the Money. Consider the superior ways to spend $700 billion. We could use a portion to reduce budget deficits. We could make long overdue investments in infrastructure such as bridges, roadways, railroads, water treatment facilities, retrofitting buildings -things that make our economy strong and competitive. We could direct funds to make the transition to the new economy that is less dependent on foreign oil. In the short-term, all these investments would create millions of jobs. In the long term, it would put the economy on better footing for the future. There are a billion better ways to use the money.
3. Restores Balance to Tax Code. Over the last half century, Congress has steadily reduced tax obligations for the very rich and global corporations. Between 1960 and 2004, the top 0.1 percent of U.S. taxpayers -the wealthiest one in one thousand -have seen the share of their income paid in total federal taxes drop from 60 to 33.6 percent. Restoring the tax rates to pre-2001 levels would be a very slight increase, yet begin the process of rebalancing the tax code.
4. It Won't Hurt the Economy. You've heard the blather about how taxing the rich is going to hurt the economy. But cutting the taxes for the wealthy are an ineffective way to help the economy. A recent analysis by the Congressional Budget Service ranked 11 strategies to spur the economy and create jobs. Cutting taxes for the rich was the worst ranked strategy. Here' the reality: Taxing the rich is different than taxing the middle class. According to Moody's, the rich save more of their tax cuts while working people and middle class spend it in the economy. Over the last decade, the top wealth holders have shifted trillions of dollars into speculative investments that have hurt the economy.
5. Reduces the Dangerous Concentration of Wealth and Power. We're living in a period of unprecedented economic inequality. A recent series by Tim Noah in the online journal Slate examined the "Growing Divergence" of wealth and income. Taxes is one of the ways we reduce these inequalities.
A final reason is that the U.S. public supports letting these tax cuts for the rich expire. A recent Gallup Poll reveals that 59 percent of the population support letting the tax cuts for the rich expire -while 37 percent support extending them. Polls rarely reveal support for any form of taxation -which indicates that a majority of Americans -including those who will pay the higher taxes - recognize the imprudence of extending them. Alan Greenspan, who supported the tax cuts in 2001, has now reversed his position and believes the time has come to raise taxes.
While many see July as a time for extra vacation days, our authors are hard at work promoting their books both across the country and here in Boston. With topics ranging from controversy over pornography to violence in our prison systems, here is a look at our authors' achievements this week:
In her new book, Pornland, Gail Dines analyzes how the lucrative pornography industry has-- through violence, racism, and sexism—destroyed how the public views sexuality. (The twoexcerpts available on Scribd have been very popular.) At the Huffington Post, Dines discusses the research process for such a controversial subject. The blog at Ms. Magazine has posted the firsttwo parts of a three part interview. At the Guardian, Dines's work sparked debate in the comments stream. Her interview at Pulse was picked up by Andrew Sullivan and moredebate ensued.
In Wealth and Our Commonwealth, Chuck Collins warns about the possibility of a permanent aristocracy in America. In an article for The Nation, Collins makes a connection to Teddy Roosevelt's "New Nationalism" speech and the dangers that accompany giving too much money and power to a select few.
California Lawyer praises Carlos Ball's From the Closet to the Courtroom, saying "[Ball] offers lawyers an enlightening shift of focus, enabling us to understand who 'makes law' in this country, and what motivates them to do so." The book examines five of the most groundbreaking cases that have shaped LGBT rights in the United States; in the Huffington Post, Ball looks at a recent victory.
In response to youth violence in the city of Boston, officials have created 400 jobs for at-risk teenagers according to Boston.com. Ninth graders in the program will receive a copy of Michael Patrick MacDonald's memoir All Souls, which recounts his childhood growing up Irish Catholic in the violence of South Boston.
From science to sports, from nature to population studies, our authors cover a wide range of subject matter. But at the root of their discussions are the interweaving strands of human rights, racial and gender equality, and a shared interest in the betterment of society. Our authors have been receiving a great deal of attention this week. Here are a few highlights:
Fred Pearce has become a strong voice in the counteracting of overpopulation theories. In his book The Coming Population Crash, Pearce describes a "reproductive revolution," one in which women have been celebrating their rights and ultimately changing the face of the planet. An excerpt from the book can be found on Scientific American. This excerpt also includes two video links (found in the highlighted words "liberation" and "baby bust") on the impact of women's rights on birthrates. Pearce was also quoted in Seed Magazine for his more positive outlook on "defusing the population bomb."
In her book The Match, Pulitzer Prize-winning reporter, Beth Whitehouse, documents a family as they struggles to keep their child alive through the help of a newborn sibling. In an hour-long interview for Minnesota Public Radio's Midmorning program, Whitehouse discusses the ethics behind "savior siblings" with Jeffrey Kahn, the Director of the Center for Bioethics and professor in the department of medicine at the University of Minnesota.
For fans of soccer and the World Cup, The Boys from Little Mexico, by Steve Wilson, documents the struggles and successes of an all-boys' Hispanic soccer team as they lead the way to victory at the Oregon state championship. Wilson's book received a nice write-up from a pretty move, a popular soccer blog that is scheduled to post an interview with Wilson post-cup. Enter to win one of the twenty-five copies of Wilson's book through the Good Reads Giveaway.
With Red Sox season in full-swing, Howard Bryant chronicles the history of racial integration of this historic baseball team in his book, Shut Out. Bryant will be joining a panel discussion on June 22 at the Loeb Drama Center (64 Brattle Street, Cambridge) following the performance of Johnny Baseball, a new musical about the iconic Boston Red Sox. For tickets to the event, visit the American Repertory Theatre. Bryant's new book, The Last Hero, documents the life of African-American baseball legend, Henry Aaron. Having just been released, it is a must read for all baseball fans.
In Write These Laws on Your Children, author Robert Kunzman looks into the economic, social, religious, and personal reasons behind the growing trend of homeschooling. In a recent essay for Religion Dispatches, Kunzman further examines Generation Joshua, the civic education program for homeschoolers that combines social interaction with political engagement.
Looking at a different spectrum of children's interactions with the law, I Don't Wish Nobody to Have a Life Like Mine documents how juveniles are actively being placed into adult prisons. Author David Chura has devoted his life to the education of at-risk teenagers, particularly during his time teaching at a New York county penitentiary. Chura's book was spotlighted on the blog Juvenile Prison Watch this week. Democrat Unity recently posted an article by Chura on the harsh reality behind solitary confinement. In his second radio interview for WHMP's Bill Dwight Show, Chura discusses this article along with the recent decision by the Supreme Court to ban life sentences for juveniles who have not committed murder.
Since the advent of the Internet, the world of pornography drastically changed for the worse. Gail Dines, author of Pornland, describes this evolution as one that actively accepts violence, racism, and sexism. Dines was recently quoted in the Daily Beast for her views on the mainstreaming of violence against women in these videos. Dines was also quoted inThe Boston Herald for her interpretation of porn, an opposing voice as pro-pornography feminists protested at a conference at Wheelock College here in Boston.
Chuck Collins, economic inequality expert and coauthor ofWealth and Our Commonwealth, describes how society's investment into healthcare, education, and economic development promotes individual success. In a recent article on the estate tax, Collins is quoted in The New York Timesfor his opinions on the changing face of the middle class and the creation of a "generation of dilettantes."
In a special announcement, a reading of Flashback, by Penny Coleman, will take place on Friday, June 25, at 7 p.m. and Saturday, June 26, at 2 p.m. and 7 p.m. at The Clockwork Theatre in New York City. A part of their 2010 Reading Series, Flashback is a look into the history of posttraumatic stress disorder in soldiers returning home from war proving that their battles are hardly over. To reserve your seat, please email email@example.com.
From economic inequality to economic giants, Stacy Mitchell's book, Big-Box Swindle, examines the negative contributions that large retailers inflict upon the American economy and environment; she also addresses the positive future in store for us all should the economy lean in favor of smaller, independent businesses. In a recent article for The New York Times, Mitchell was quoted for her concerns for independent companies and their direct competition with these corporate giants.