US Domestic Economic Deal: Payback to business interests at middle/working class expense
The 11th-hour deal to avert the so-called fiscal cliff in the United States with a sixteen trillion dollar budget deficit and a tax increase for all Americans if 2002-Bush era tax package was allowed to lapse preserved billions of dollars in corporate tax giveaways even as it slashed take-home pay for millions of American workers who are struggling to keep their ends meet.
Tucked inside the last-minute fiscal cliff package, settled jointly by the Obama administration and Democratic-republican-split Congress just before the dawn of 2013, were more than a dozen tax loopholes, many of which will benefit Wall Street financial firms and some of the nation's biggest corporations.
The deal was less kind to the middle class. Congress permitted a cut in the payroll tax to expire, meaning that the tax burden for the average worker will increase about $1,000 in 2013.
What clearly depicted in this fiscal cliff package were the government’s priorities are: low taxes on the wealthy and corporations, giveaways to business and take-aways from the American people.
This was not a liberal perspective of the 'Fiscal Cliff Package' but the consensus of both conservative and liberal analysts alike.
The ultra-right wing/conservative The Wall Street Journal which is always in the side of corporate America in its January 3 editorial under the caption 'Crony Capitalist Blowout' gave the following impeachment on Obama-Republican-democratic 'package': "There's plenty to lament about the capital and income tax hikes, but the bill's seedier underside is the $40 billion or so tax payoffs to every crony capitalist and special pleader with a lobbyist worth his million-dollar salary. Congress and White house want everyone to ignore this corporate-welfare blowout, so allow us to shine a light on the merriment."
President Obama launched his re-election campaign for the second term last year with a well known slogan 'Tax the rich and spare the middle/working classes', a slogan similar to the main Trotskyite political slogan that was quite familiar to the Sri Lankan masses in the last millennium: "Down-trodden proletariat masses now rise: Destroy all capitalists and heartless", so goes the loose translation.
But his 'compromise' with the Republican-held House and the his own party-held Senate was, as The Wall Street Journal editorialized "In praising Congress's huge new tax increase, President Obama said Tuesday that 'millionaires and billionaires' will finally 'pay their fair share.' Thai is, unless you are a Nascar track owner, a wind-energy company or the owners of StarKist Tuna, among many others who managed to get their taxes reduced in Congress's New Year celebration."
The WSJ gives a message to its political surrogates the Republicans: "Republicans who are looking for a new populist message have one waiting here, and they could start by repudiating the corporate welfare in this New year disgrace."
"This shows that the lobbyists are able to get what they want even when everyone else is starving," said Phineas Baxandall, senior analyst for tax and budget policy at the U.S. Public Interest Research Group. "It also shows they are best able to get what they want when no one else is paying attention."
The liberal-leaning New York Times said " The corporate loopholes were part of a package of so-called tax extenders tacked onto the main bill. The extenders package, first approved by the Senate in early August, mixes popular benefits, like a deduction for teachers who buy classroom supplies, with corporate-friendly carve-outs, such as the "active financing" exception that permits businesses earning interest on overseas lending to defer U.S. taxes on that income indefinitely. There is even a tax break for construction of new racetracks."
The financial services industry, whose leaders had earlier joined a group of other corporate executives pushing for a "fair" solution to the fiscal crisis, is one of the primary beneficiaries of special-interest tax breaks. The active-financing exception, for example, permits banks like Morgan Stanley to avoid the 35 percent U.S. corporate tax rate on interest income from money lent overseas. A handful of other U.S.-based multinational companies with financing arms, such as Ford Motor Co. and General Electric, also use that exemption to lower their tax bills. The two-year cost to taxpayers is an estimated $11.2 billion, according to the congressional Joint Committee on Taxation.
As part of the fiscal cliff deal, Congress also extended another little-known tax break that benefits large multinationals selling products through overseas affiliates. This "pass-through" exemption permits a U.S.-based company to set up a new corporation in a tax haven like the Cayman Islands and sell it a patent owned by the U.S. parent company. Royalties on overseas licensing of that patent would then route to the tax-sheltered firm, instead of the U.S. parent company. The Joint Committee on Taxation says the two-year cost of extending this shelter is $1.5 billion.
One of the more unusual tax benefits in the fiscal cliff legislation is a longstanding carve-out for racetracks used by NASCAR.
The NYT reveals: " Track owners and NASCAR together have spent hundreds of thousands of dollars lobbying for the tax benefit over the past five years, according to lobbying disclosure forms. The International Speedway Corp., which owns and manages NASCAR race tracks, has spent more than $1.1 million lobbying Congress since 2008. Over the same period, NASCAR spent more than $300,000 on lobbying efforts, which included a push to "make permanent the depreciation classification."
"Supporters in Congress and industry groups have argued that the tax break is necessary to "maintain the current standard expected by our competitors and fans." According to estimates by the Joint Committee on Taxation, the so-called NASCAR loophole will cost taxpayers $46 million this year and an additional $95 million through 2017."
All these when the ordinary workers' and middle class employees' who are struggling under the current economic stagnation faced a 'Payroll Taxes' increased from 4.2% to 6.2% in 2013. The payroll tax increase will affect as many as 160 million people.
"It actually gets worse. While the bill locks in a small rise from 35% to 40% for the estate tax-- for people receiving over $5 million-- thereby rescuing them from the jump to 50% on anything over $1 million that would have automatically kicked in, the middle class gets hit with a 2% payroll tax increase that amounts to close to $1000 on an income of $50,000. Obama and friends didn't manage to extend that break in the bill. And that estate tax $5 million limit-- that's now indexed to inflation. Why couldn't they have done it for the minimum wage while they were at it", asks Rob Kall executive editor, publisher and website architect of OpEdNews.com, an extremely well read and popular site that gives news, views and analyses.
Actually, the payroll tax does have a cut-- at around $113,000. So, people who earn $450,000 are paying a lot lower payroll tax. Since payroll tax goes towards social security, if they'd eliminated the top-out at $113,000, so people paid it on ALL their income, it would probably put social security into the black permanently. Was that ever even put on the table by Obama or the Democrats? When you negotiate, especially from as strong a position as Obama and the Democrats have, you ask for a lot more than you expect to get? Oh. That's right, we're talking about a president who doesn't negotiate, who has trained his opponents to know that he'll crack under pressure.
Here are eight corporate subsidies in the fiscal cliff bill
1) Help out NASCAR - Sec 312 extends the “seven year recovery period for motor-sports entertainment complex property”, which is to say it allows anyone who builds a racetrack and associated facilities to get tax breaks on it. This one was projected to cost $43 million over two years.
2) A hundred million or so for Railroads - Sec. 306 provides tax credits to certain railroads for maintaining their tracks. It’s unclear why private businesses should be compensated for their costs of doing business. This is worth roughly $165 million a year.
3) Disney’s Gotta Eat - Sec. 317 is “Extension of special expending rules for certain film and television productions”. It’s a relatively straightforward subsidy to Hollywood studios, and according to the Joint Tax Committee, was projected to cost $150m for 2010 and 2011.
4) Help a brother mining company out – Sec. 307 and Sec. 316 offer tax incentives for miners to buy safety equipment and train their employees on mine safety. Taxpayers shouldn't have to bribe mining companies to not kill their workers.
5) Subsidies for Goldman Sachs Headquarters – Sec. 328 extends “tax exempt financing for York Liberty Zone,” which was a program to provide post-9/11 recovery funds. Rather than going to small businesses affected, however, this was, according to Bloomberg, “little more than a subsidy for fancy Manhattan apartments and office towers for Goldman Sachs and Bank of America Corp.” Michael Bloomberg himself actually thought the program was excessive, so that’s saying something. According to David Cay Johnston’s The Fine Print, Goldman got $1.6 billion in tax free financing for its new massive headquarters through Liberty Bonds.
6) $9B Off-shore financing loophole for banks – Sec. 322 is an “Extension of the Active Financing Exception to Subpart F.” Very few tax loopholes have a trade association, but this one does. This strangely worded provision basically allows American corporations such as banks and manufactures to engage in certain lending practices and not pay taxes on income earned from it. According to Washington Post piece, supporters of the bill include GE, Caterpillar, and JP Morgan. Steve Elmendorf, super-lobbyist, has been paid $80,000 in 2012 alone to lobby on the “Active Financing Working Group.”
7) Tax credits for foreign subsidiaries– Sec. 323 is an extension of the “Look-through treatment of payments between related CFCs under foreign personal holding company income rules.” This gibberish sounding provision cost $1.5 billion from 2010 and 2011, and the US Chamber loves it. It’s a provision that allows US multinationals to not pay taxes on income earned by companies they own abroad.
8) Bonus Depreciation, R&D Tax Credit – These are well-known corporate boondoggles. The research tax credit was projected to cost $8B for 2010 and 2011, and the depreciation provisions were projected to cost about $110B for those two years, with some of that made up in later years.
- Asian Tribune -