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Leo Hindery, Jr.

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The Height of Congressional Irresponsibility, and Once Again on the Backs of the Middle Class

Posted: 07/05/11 10:30 AM ET

Just over a week ago, in the same four-day period:

(1) Government figures confirmed that income inequality in the country remains at its most extreme since 1928, when we first began to track this statistic.

(2) Representative Eric Cantor of Virginia, the House Republican majority leader, walked out of the budget talks aimed at clearing the way for a federal debt limit increase because he wouldn't consider avoiding some of the most draconian spending cuts by instead ending tax loopholes for the very rich, like those that let them fly around on corporate jets, and for corporations, like those that go to oil and gas companies

(3) CBS's 60 Minutes ran an absolutely gut-wrenching piece on the nation's millions of children who, since the Recession began, every day live in either a vehicle or a motel room and go to bed hungry.

(4) The nation's largest multinational corporations continued to vigorously push their (mostly Republican) supporters in Congress to let them bring into their treasuries the roughly $1.5 trillion of taxable profits they've accumulated overseas but only after paying taxes thereon of just 5.25% instead of the 35% rate they currently owe the U.S. Treasury.

(5) And disappointing data about consumer behavior, factory sales and weak hiring in recent weeks prompted economists to ratchet down their 2011 economic forecasts to as little as half what they expected at the beginning of the year. According to Mokoto Rich of the Times , projections made just two months ago that the economy would grow at a 4% annual rate in the quarter ending in June have now been halved to anticipate no more than 2% growth when data for the second quarter is released in a few weeks.

In other words, with nearly 28 million workers mired in real unemployment and the nation once again in a declining economy, with 90% of American workers not having a real wage increase for well more than a decade, with more income inequality than ever before, and with the wealthiest of Americans (of which I am one) paying an effective tax rate that is less than half what the average middle class taxpayer pays, the Republican leadership in Congress -- Messrs. McConnell and Kyl in the Senate and Boehner and Cantor in the House -- absolutely refuse to consider closing egregious tax loopholes that benefit only the extremely wealthy while (much more on this later) giving a nearly $500 billion 'gift' to America's multinational corporations with no meaningful pass-through of any benefits to the middle class and no new jobs created.

What has clearly gotten lost in all of this partisan sturm und drang is any sensitivity by the Republican "budget cutters" to the day-to-day humane needs of the tens of millions of Americans who are everyday being devastated by the 30-year-long effects of the "trickle down" economic policies that were hatched by Reagan, nurtured or at least tolerated by every president since, and embraced -- enthusiastically embraced -- by the management class that on behalf of their own compensation and company profits now largely determine our country's domestic legislative actions.

As I wrote previously in this space, the winners of the ongoing deficit-versus-jobs debate and any resultant deal must be:

i. The unemployed, plagued as they are by a real unemployment rate of 18.2% -- which is exactly twice the "official" rate reported by the BLS of 9.1% -- and by the damage from an ever declining manufacturing sector.

ii. Middle class workers, with their plague of stagnant wages in real terms that has left them, on average, standing still earnings-wise.

iii. Retired workers and the sick and elderly, whose Medicare, Medicaid and Social Security are now under constant attack by the Republicans in Congress.

iv. The poor, including the at least 50 million people who are ill-fed; the 50% of homeowners whose home value is now below its mortgage balance; the 100 million people who are at or below "200% of the federal poverty line of $21,834 for a family of four", which is a needs-measure made lame by the fact that no family of four can actually comfortably live on such a low annual income; and those millions of children who go to bed hungry and under-nourished, while also lacking proper housing, needed clothing, and the basic education required to develop.

The problem with how the Republicans in Congress continue to react to the Great Recession of 2007-2008 -- this time through their cynical demand that the mandated budget reconciliation talks can resume only if Democrats agree to take needed tax reforms off the bargaining table -- is that they are completely closing their minds and eyes to the reality that after decades of wide-spread wage stagnation and thoroughly discredited trickle-down economic policies, the entire middle class needs help.

Now, let's talk about that so-called "earnings repatriation" program that the nation's multinational corporations are trying to sneak into the budget talks, under which they say that they would repatriate hundreds of billions in foreign profits and pump them into domestic investment and hiring, provided that Congress and the White House agree to cut the tax rate on these profits to 5.25% from 35%.

By far, the best journalistic perspective on this issue (and many related ones) comes from David Kocieniewski of the New York Times . My perspective as you will see is blunter than his and comes from having been CEO of a Fortune 500 company and seeing first-hand that an "earnings repatriation" is one of the greatest -- and most abusive -- tax-related bait-and-switches that could ever be perpetrated on the middle class.

Mr. Kocieniewski writes that Congress and the Bush administration offered companies a similar tax incentive program in 2005 as part of the "American Jobs Creation Act," in hopes of spurring domestic hiring and investment. Eight hundred companies took immediate advantage of this 'opportunity' and though the tax break lured them into bringing $312 billion back to the U.S., fully 92% of that money was not used for investment or hiring, but instead was returned to shareholders in the form of dividends and stock buybacks, according to a study by the nonpartisan National Bureau of Economic Research. In return for this measly "reinvestment" in America, the federal government reduced the combined tax bill from $109 billion to a mere $16 billion. But, most disturbing, according to Kristin J. Forbes who was a member of President Bush's Council of Economic Advisers and who led the study for NBER, "For every dollar that was brought back, there were zero cents used for additional capital expenditures, research and development, or hiring and employees wages."

More specifically, back in 2005 60% of the benefits went to just 15 of the largest U.S. multinational companies, many of which, as the authors noted, actually laid off domestic workers, closed plants and shifted even more of their profits and resources abroad in hopes of cashing in on yet another repatriation holiday. In 2005, however, the earnings stashed overseas aggregated $312 billion - now just six years later, in 2011, the figure which they would like to repatriate almost free of taxes is $1.5 trillion or five-times more. That's some recession you had, guys!

I would note, more bluntly as I said than would Mr. Kocieniewski, that overseas 'earnings', which are substantially the result of slick accounting maneuvers that have shifted proper domestic U.S. profits to low-tax countries, will, once repatriated, almost never be used to create jobs back home. This is so especially in a post-recession environment of the sort we have now when big corporations have already materially 'battened down their hatches' and, according to Federal Reserve data as reported by Mr. Kocieniewski, already accumulated domestic cash reserves of $2 trillion which they are pretty obviously not spending creating jobs.

These big corporations and their lobbyists say that this tax break would 'resuscitate the gasping recovery by inducing multinational corporations to inject $1 trillion or more into the economy', as sort of the "the next stimulus". Quite simply, they're lying.

While there may be mechanisms that could be attached to an earnings repatriation program to demand that earnings so brought home be used to create U.S. jobs and for productive domestic investment in new plant and equipment, they would be largely unenforceable given the byzantine nuances of major-corporation hiring and investing. But there is no sense in even trying to design them, since the multinational corporations and their Republican spear carriers will never accept such conditions. (As an aside, what in the world are the organization Third Way and my dear friend (and former SEIU President) Andy Stern thinking in endorsing this initiative? Sorry friends, you're very, very wrong on this.)

Let me use one example of the perfidy of this initiative. The company Apple right now has $12 billion of U.S.-taxable earnings waiting offshore, which of course it would love to 'bring home' and pay just $630 million of taxes on, rather than $4.2 billion it now owes.

Despite its enormous sales here in the U.S., Apple has only 25,000 employees in America, plus another 25,000 direct employees globally and 250,000 indirect employees in China (at a company called Foxconn). I totally hate Apple's irresponsibility toward American workers -- virtually all of those 250,000 jobs in China could be in northern California or northwest Oregon with only pennies of impact on the price of an iPad or iPhone -- but this said, Apple is a brilliantly and tightly run company. I assure you that not one cent of the $3.6 billion in taxes Apple would save from the 2011 version of the repatriation program would go toward job creation in America -- maybe toward another G5 executive airplane for Steve Jobs, but not toward new manufacturing jobs.

So there you have it. The most insensitive proposed solution to a real budget crisis in memory, coupled, if the Republicans also have their way, with the biggest non-productive corporate giveaway ever. The right answer of course is for the Congress -- the whole of the Congress -- to acknowledge that we can't straighten out our economy on the backs of the poor and middle class, and that the only way we will ever get a handle on our deficit in the longer term is to put people back to work in productive jobs so that consumer demand and tax revenues go up broadly.

Let's, along with your colleagues, have this conversation, Congressman Cantor and Senator Kyl.

Leo Hindery, Jr. is Chairman of the US Economy/Smart Globalization Initiative at the New America Foundation and a member of the Council on Foreign Relations. Currently an investor in media companies, he is the former CEO of Tele-Communications, Inc. (TCI), Liberty Media and their successor AT&T Broadband. He also serves on the Board of the Huffington Post Investigative Fund.

 

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