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A Response To Rep. Elijah Cummings

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In the past few weeks, we've heard story after story of corporate excess, often in admonishments toward corporate executives from various congressional committees. CEOs on private planes! Gasp! Outrageous compensation packages and bonuses for executives! Who knew? Posh conferences in luxury resorts! Golly! Taxpayer dollars may pay hundreds of millions in stadium naming rights! Lions and tigers and bears, oh my!

Then, as I was preparing to write this, I read Representative Elijah Cummings' column at the Huffington Post today in which he expressed his outrage over the latest example of corporate excess to be uncovered -- Citigroup and the Mets' stadium-naming contract.

But you know what? I am not impressed by Cummings encouraging corporations to "stop the reckless spending." Because he and his fellow congressfolk can put on their faux looks of outrage and astonishment all they want, and "encourage" until they're blue in the face, but none of it adds up to more than hypocritical tut-tuttery in my book.

The reason why I feel this way is that Congress writes the tax code -- and they also write the bailout legislation, to boot. And the loopholes which allow such corporate excess were not exactly handed down to Moses on tablets -- each and every loophole was approved by Congress. Meaning they can all be thrown out by Congress, just as easily. If Representative Cummings has a problem with Citigroup's naming rights contract, then you know what? There is nobody with a gun to his head forcing him to hand out taxpayer money to Citigroup. There is absolutely no reason that he cannot get enough Democrats together to block passage of a Citigroup bailout, and hold a press conference to say: "We will vote against any rescue package for Citigroup until they get out of their Mets stadium contract. When the company has done so, then -- and only then -- we will consider approving taxpayer money for them. Until that point, it is a dead issue." You want to bet how fast they'd break that contract? I'd put my money down on about three days, personally.

So spare me the fake populist outrage, because I am waiting for some real populist backlash -- in the form of legislation to radically change the way American businesses figure their taxes.

In the last three decades, the share of the federal income (taxes) paid by businesses has shrunk dramatically. Big business has manipulated the tax code so that more and more of the burden of paying for the government services we all require has been shifted from business to you, the individual taxpayer. And there is no better time than now to point this out, and begin to reverse this trend.

A quick rundown on business taxes is in order here, to define some terms. When you, as an individual, pay income taxes, it is a pretty straight formula. Your add up your income, and then subtract allowable deductions, to get your taxable income. Deductions are things like interest you pay on your mortgage and other allowable write-offs (or, if you don't own a home, you take a lump-sum "standard deduction" instead of adding it up). So, the basic formula is:

Personal income (minus) deductions (equals) taxable income.

Businesses have a somewhat different formula, but similar enough in nature that it can be easily understood. Businesses take their gross earnings (all the money they made) and then subtract business deductions (their costs) to get their profit, which they are then taxed on. In other words:

Earnings (minus) business deductions (equals) profit.

The problem comes from the second part of that equation. Because, unlike on your personal income taxes, businesses can write off almost anything under the sun as a "business expense" -- from the salary they pay their janitors to the fuel they use in their corporate jets. As long as it is used for (extremely loosely-defined) "business purposes" then it is not counted as profit -- and hence, is untaxed by the federal government.

And Congress decides what is allowable and what isn't.

Meaning for all their "shock" and "astonishment" at finding out that corporate executives actually use their corporate jets to travel around (for instance) -- or their false outrage at a company buying naming rights to a stadium -- can be completely dismissed as "sound and fury, signifying nothing." Because (this is the key part) it is fully within their power to change those rules. And they not only haven't, but nobody is even talking about doing so. Instead, Nancy Pelosi and Harry Reid sit down and write a polite letter to the auto companies (who are begging for billions in taxpayer money) to ask them "pretty, pretty please" if they would consider not paying their executives tens of millions of dollars for running the company into the ground. Without even threatening to close the loopholes which allow such excess.

Which is pathetic. Where are the Dennis Kuciniches? Where are the Sherrod Browns? Where are the true populists in Congress, standing up and denouncing such outrages in plain language to the American public? Why isn't Elijah Cummings backing up his words with threats of congressional action?

Since I'm not going to hold my breath for that to happen (or, for that matter, for the media to report on it, even if it did happen), I would like to make a few modest proposals of my own as to how to change the way businesses are taxed in America. These are fairly easy to understand, and fairly obvious (to me, at least) things that could be done right away to force shareholders of these companies to rein in the excess. Because most of these change the rules so that certain costs are no longer deductible as "business expenses" -- meaning they would now come straight out of the business' profit. Out of the shareholders' pockets, in other words. I think this, more than anything else, would cause an overnight sea change in the way these things are viewed by the owners of the company (the stockholders themselves).

 

"Maximum wage" salary deduction cap

Any corporate officer or boardmember's compensation (including salary and bonuses) is only tax-deductible for the business up to the level of the current minimum wage ($6.55 an hour, or $13,624 per year). Everything over that comes out of profit. You want to pay your executives tens of millions of dollars per year? Fine, no problem. But you'll be paying federal business taxes on that money now, because it counts as profit. You'll be, in effect, stealing it from your shareholders. Which we're going to tell them, in no uncertain terms. Good luck justifying your salaries at your next shareholders' meeting.

Furthermore, any salary the company pays above $250,000 (since Obama made this promise...) will now also be taxable as corporate profits, as well. Anybody over this "maximum wage" will now be compensated out of the profits, not as a non-taxable expense.

 

Travel restrictions

New rules for corporate travel will be in effect, as well. Any business travel from now on will only be deductible up to the price of the cheapest coach airplane ticket to that destination. If Southwest flies from Detroit to Washington for $500, then that's all you are allowed to write off. If you fly there on a corporate jet instead and it costs $50,000 for the flight, then $49,500 of that will no longer be deductible as a business expense. It will be considered profit, and will be fully taxable. For automobile travel, businesses will be restricted to the current per-mile deduction, and nothing more. If you take a limo, you pay taxes on that money.

 

Luxury restrictions

Likewise, such things as corporate retreats will also be limited to the cheapest price it would have cost you to rent a conference room in your local Holiday Inn. If you want to hold a corporate meeting at a million-dollar spa resort, be my guest... but you'll be fully taxed on that money as corporate profit. Call it a luxury tax. Similar rules can be instituted for such extravagances as corporate suites at the Super Bowl, corporate cruises, and all other corporate vacations disguised as "business meetings." Be as lavish with your employees as you please, but you'll have to answer later to your shareholders for spending their profit in such a fashion.

 

Stock options

To hit the executives where they live, all employees' stock options will now be taxable as their personal income. Stock options are free money given out (mostly) to executives as a fancy way of avoiding personal income taxes. Because these options are "capital gains" they are taxed at about half the tax rate you and I pay for our income. So make a new rule -- for anyone who gets options from their company and profits off them, they have to pay the normal income tax rate, and not the capital gains rate, because this is nothing more than an extension of their salaries.

 

Stadium tax

And finally, there will be a brand-new federal tax on stadium naming rights. It will be at the rate of 100%. So if you pay $400 million to name the Mets' stadium after yourselves, then you now owe a further $400 million to the federal government. We'll even be reasonable about it, OK? The first four hundred million dollars you can write off as "advertising," just like in the past. But the $400 billion "naming tax" will come out of your profits, and is not deductible -- and is over and above what taxes you will pay on that profit. It's a separate tax, in other words. If this causes naming rights to become too expensive, then you know what? I bet nobody would mind if we went back to naming stadiums after soldiers, dead heroes, or veterans. They, it seems to me, have already "paid" for their naming rights.

 

See, this stuff isn't that hard to figure out. It's a pretty easy equation. "Obscene greed and wastefulness will now be taxable as profits." And since nothing in the law bans the corporations from continuing these practices, it's not like we're eliminating any company's right to have a good time on their shareholders' money. But from now on, it'll be taxable. And the executives and boardmembers will have to justify spending such money to the shareholders themselves, meaning it will be a self-correcting problem after a few board elections happen.

And the fact that I can sit down in an hour or so and come up with ways to rein this stuff in also proves that it's not too hard to do. I'm sure there are dozens of other such loopholes just begging to be closed. Perhaps Representative Cummings could introduce such legislation, to actually change things instead of just complaining about them. All it takes is congressional willpower and backbone to do so.

Cummings writes "We cannot continue to pour taxpayer dollars into buckets with holes," without ever admitting the fact that Congress itself created that bucket -- holes and all. If they had done a better job writing the law, then we wouldn't be where we're at now, would we?

And, with the current public feeling towards companies (especially those begging for free taxpayer money), there will never be a better time to try and plug up those holes.

So where are all the fire-breathing populists in Congress? Where is the strong voice calling such greed for what it is, and calling for a fundamental change to stop such greed in the future? Putting on an "I'm shocked -- shocked!! -- to find out CEOs have private jets!" look on your face is fine for the television cameras, but Congress can change this any time it wants to. So spare me the bluster, and either change the laws or else just shut up about it. Because the hypocrisy of the current faux outrage is simply not enough, guys.

 

[Note: I have to apologize for singling out Representative Cummings in this fashion, since there are hundreds of other Democrats in Congress who didn't even bother to put out the effort that Cummings did, to raise the issue and attempt to at least put a spotlight on it. All congressional Democrats are also fully complicit in their refusal to act. But, right when I wrote this, I saw the Cummings article, and I have to admit I got a little outraged myself.]

 

Chris Weigant blogs at: ChrisWeigant.com