Opinion

David Cay Johnston

How corporate socialism destroys

David Cay Johnston
Jun 1, 2012 15:37 UTC

IRONDEQUOIT, N.Y. — A proposal to spend $250 million of taxpayer money on a retail project here illustrates the damage state and local subsidies do by taking from the many to benefit the already rich few.

Nationwide state and local subsidies for corporations totaled more than $70 billion in 2010, as calculated by Professor Kenneth Thomasof the University of Missouri-St. Louis

In a country of 311 million, that’s $900 taken on average from each family of four in 2010. There are no official figures, but this one is likely conservative because — as documented by Thomas, this column and Good Jobs First, a nonprofit taxpayer watchdog organization funded by Ford, Surdna and other major foundations — these upward redistributions of wealth keep increasing.

In Irondequoit, just outside Rochester, N.Y., and a few miles from where I live, developer Scott Congel wants $250 million in sales taxes to finance rebuilding the Medley Centre mall while adding condominiums and a hotel. Typically local governments issue bonds, which are paid off using sales tax receipts that are diverted from public purposes to the developer’s benefit.

Subsidies for retail businesses are the worst kind of corporate welfare because, as the end of the economic chain, retailing grows only when population and incomes increase. If population or income falls, then subsidies for new projects like Congel’s damage existing businesses, where people would otherwise be spending their money.

Social Security is not going broke

David Cay Johnston
May 4, 2012 17:14 UTC

Which federal program took in more than it spent last year, added $95 billion to its surplus and lifted 20 million Americans of all ages out of poverty?

Why, Social Security, of course, which ended 2011 with a $2.7 trillion surplus.

That surplus is almost twice the $1.4 trillion collected in personal and corporate income taxes last year. And it is projected to go on growing until 2021, the year the youngest Baby Boomers turn 67 and qualify for full old-age benefits.

So why all the talk about Social Security “going broke?” That theme filled the news after release of the latest annual report of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, as Social Security is formally called.

Abusing a tax loophole meant to aid the poor

David Cay Johnston
Apr 26, 2012 21:00 UTC

Each year the Internal Revenue Service receives tax returns that show more income than was actually earned, in some cases twice the actual earnings.

That seems bizarre at first blush. After all, why would anyone tell the tax man they made more than they did?

The answer is that Congress has created an incentive for the poorest of the working poor to report more than their actual incomes. Doing so can be worth more than $3,000 to impoverished working parents under a form of negative income tax known as the Earned Income Tax Credit that sends government money to the working poor.

Taxed by the boss

David Cay Johnston
Apr 12, 2012 11:48 UTC

Across the United States more than 2,700 companies are collecting state income taxes from hundreds of thousands of workers – and are keeping the money with the states’ approval, says an eye-opening report published on Thursday.

The report from Good Jobs First, a nonprofit taxpayer watchdog organization funded by Ford, Surdna and other major foundations, identifies 16 states that let companies divert some or all of the state income taxes deducted from workers’ paychecks. None of the states requires notifying the workers, whose withholdings are treated as taxes they paid.

General Electric, Goldman Sachs, Procter & Gamble, Chrysler, Ford, General Motors and AMC Theatres enjoy deals to keep state taxes deducted from their workers’ paychecks, the report shows. Foreign companies also enjoy such arrangements, including Electrolux, Nissan, Toyota and a host of Canadian, Japanese and European banks, Good Jobs First says.

Eliminating 100 million tax returns

David Cay Johnston
Apr 9, 2012 12:19 UTC

On March 28, the U.S. Justice Department sought to close a nationwide chain of income tax preparation shops it accuses of fraud. The action underscores the potential for abusive business practices that taxpayers face because Congress has failed to embrace technology that would eliminate most tax returns.

The Justice Department wants a federal judge to shut down Instant Tax Service, whose sole owner is Fesum Ogbazion of Dayton, Ohio, saying he is responsible for “extensive and pervasive tax fraud.” It also sued four of his 276 franchisees. The company has not responded to the lawsuit.

Congress could easily eliminate fraud by abusive tax preparers, as is alleged in the Ogbazion case, and save taxpayers billions of dollars annually, by simply ending mandatory filing of tax returns for most taxpayers.

Politicians keep placing bets

David Cay Johnston
Mar 30, 2012 21:05 UTC

Politicians in both parties are betting that allowing more gambling will make them winners at the polls by raising revenue without appearing to raise taxes.

Governors Andrew Cuomo of New York and Steve Beshear of Kentucky, both Democrats, each want seven casinos.

In Kansas, where the state owns casinos, Governor Sam Brownback, a Republican, wants more gambling money to pay down state debts.

Phone service for all, no matter what kind

David Cay Johnston
Mar 28, 2012 15:01 UTC

The guarantee of landline telephone service at almost any address, a legal right many Americans may not even know they have, is quietly being legislated away in our U.S. state capitals.

AT&T and Verizon, the dominant telephone companies, want to end their 99-year-old universal service obligation known as “provider of last resort.” They say universal landline service is a costly and unfair anachronism that is no longer justified because of a competitive market for voice services.

The new rules AT&T and Verizon drafted would enhance profits by letting them serve only the customers they want. Their focus, and that of smaller phone companies that have the same universal service obligation, is on well-populated areas where people can afford profitable packages that combine telephone, Internet and cable television.

The richest get richer

David Cay Johnston
Mar 15, 2012 16:18 UTC

The aftermaths of the Great Recession and the Great Depression produced sharply different changes in U.S. incomes that tell us a lot about tax and economic policy.

The 1934 economic rebound was widely shared, with strong income gains for the vast majority, the bottom 90 percent.

In 2010, we saw the opposite as the vast majority lost ground.

National income gained overall in 2010, but all of the gains were among the top 10 percent. Even within those 15.6 million households, the gains were extraordinarily concentrated among the super-rich, the top one percent of the top one percent.

Obama’s hamburger problem

David Cay Johnston
Mar 8, 2012 17:42 UTC

If President Barack Obama can persuade Congress to reduce the corporate income tax rate to 28 percent from 35 percent, he will move tax rates closer to what other modern countries charge.

But his plan to treat “manufacturing” as a special category, with a 25 percent tax rate, brings us to what I call Obama’s hamburger problem.

The problem is how to define manufacturing. To paraphrase Justice Potter Stewart on obscenity, I know manufacturing when I see it; I just don’t know how to define it in tax law.

Congress’ potential faulty tax logic

David Cay Johnston
Mar 2, 2012 21:13 UTC

With President Barack Obama and leaders in both parties favoring lower corporate tax rates, Washington seems poised to enact change next year. They need only resolve details like how much the rates should be cut, which tax avoidance strategies should be barred and whether to give manufactures a discounted rate.

If the corporate tax rate is cut, should the rates for dividends and long-term capital gains be increased?

That issue was inadvertently put on the table by a leading free market organization, the American Enterprise Institute. The AEI, as part of its support for cutting the corporate tax, promoted the idea last month that workers, not investors, bear the burden of that tax. In taking that line, however, the AEI has undercut its own argument for tax relief for investors. Indeed, it shifts the debate toward higher taxes on capital gains and dividends and lower taxes on wages.

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