It’s not only jobs that are off-shored; the profits are as well

By Pete Dolack

There’s no money! Cut, cut, cut! So go the mantras of austerity. The second exclamation follows on the first, but the first is not so. Where then is the money?

Much of the money is hiding in tax havens; both corporations and the top executives and financiers who rake in fabulous wealth on the backs of the employees of the enterprises they control make full use of such havens. U.S. elites are encouraged to do this is because U.S. tax law, through mind-numbing complexity, allows profits and income to be shifted offshore, where they remain untaxed.

Such accounting legerdemain is openly acknowledged (although the details and scale are always hidden), and most often justified by another oft-repeated mantra: That U.S. tax rates are simply too high. But a simple lesson in history demonstrates that is not so, either.

The highest personal tax rate was 91 percent during the 1950s and early 1960s. The latter decades were not periods of U.S. economic hardship, nor did the wealthy by and large fail to remain wealthy. But as neoliberal ideology became dominant, those tax rates fell sharply — from 70 percent at the start of Ronald Reagan’s two presidential terms to 28 percent by the time he was done.

Today, the top tax rate in the U.S. is 35 percent in the wake of several adjustments. The top corporate tax rate is the same. Millionaires, however, don’t pay anywhere near that rate, nor do corporations, because there are so many generous loopholes, making the Right-wing argument that the U.S. corporate tax rate is among the world’s highest specious. (And most of the wealthy’s income derives from capital gains, which are taxed at only 15 percent.) Just how little many economic elites actually pay in taxes was revealed again in an interesting study released earlier this month by the Institute for Policy Studies.

The report found that:

  • In 2011, for the second year in a row, 25 of the 100 highest-paid corporate chief executive officers in the U.S. took home more in pay than their company paid in federal income taxes. On average, the 25 firms had nearly $1 billion in U.S. pre-tax income but still received net tax benefits that averaged $129 million.
  • The chief executive officers of these 25 firms received $20.6 million in average total compensation last year. Combined, the 25 firms have 533 subsidiaries in tax-haven locations such as the Cayman Islands, Bermuda and Gibraltar.
  • The four most direct tax subsidies for excessive executive pay cost taxpayers an overall estimated $14.4 billion per year. That amount could cover the annual cost of hiring about 212,000 elementary-school teachers or Head Start slots for about 1.9 million pre-school children for one year.

The Institute for Policy Studies report states that:

“Nationwide, budget cuts have axed 627,000 public service jobs since June 2009, all but 6 percent of that total at the state and local level. Schools, health clinics, fire stations, parks, and recreation facilities—virtually no public service has gone unsqueezed. … Yet tens of billions of these scarce tax dollars are getting diverted. These tax dollars are flowing from average Americans who depend on public services to the kingpins of America’s private sector. They’re subsidizing, directly and indirectly, the mega-million paychecks that go to the top executives at our nation’s biggest banks and corporations.”

One of the ways that working people subsidize stratospheric executive pay is a loophole that allows unlimited compensation to be deducted from a corporation’s tax bill — the more outlandish the executive pay, the less a corporation owes in taxes.

The massive tax cuts for the wealthiest put through by the Bush II/Cheney administration is often cited as a leading reason for the yawning deficits that opened up during the decade of the 2000s. The wealthiest certainly benefited, as the Institute for Policy Studies report demonstrates: Fifty-seven chief executive officers alone saved a composite $104 million, or $1.8 million per CEO, as a result of the Bush tax cuts.

U.S. economic elites are not unique, and there are many more than 57 people enjoying massive benefits from tax cuts, subsidies, tax havens and tax shelters. A July 2012 Tax Justice Network report found that:

“A significant fraction of global private financial wealth — by our estimates, at least $21 to $32 trillion as of 2010 — has been invested virtually tax-free through the world’s still-expanding black hole of more than 80 ‘offshore’ secrecy jurisdictions. We believe this range to be conservative.”

That is a whole lot of wealth not being taxed. And while most of that total is accumulated by the wealthiest in the advanced capitalist countries, much of it comes from elites in other countries. The Tax Justice Network studied 139 middle- and low-income countries for which it had sufficient World Bank data and found that:

“Since the 1970s, with eager (and often aggressive and illegal) assistance from the international private banking industry, it appears that private elites in this sub-group of 139 countries had accumulated $7.3 to $9.3 trillion of unrecorded offshore wealth in 2010, conservatively estimated, even while many of their public sectors were borrowing themselves into bankruptcy, enduring agonizing ‘structural adjustment’ and low growth, and holding fire sales of public assets.”

Within the United States, Citizens for Tax Justice reports that:

“Tax evasion by individual taxpayers is estimated to deprive the U.S. Treasury of as much as $70 billion per year (corporate offshore tax avoidance is estimated to cost the Treasury an additional $90 billion per year).”

The U.S. government budget deficit is much larger than $160 billion per year, but the total in the above paragraph is only an estimate of shell games performed with off-shore tax havens. Add in tax loopholes, accounting gimmicks and assorted other ways to avoid paying tax on income and profits, and the numbers begin to add up.

The wealthy would much rather loan money than pay taxes. They would like more money to flow to them. But extreme inequality leads to hard times and a vicious circle — more austerity is imposed, reducing the amount of money in the hands of working people, causing them to spend less due to fear of the future, which leads to more weakness in the economy. (No small factor when consumer spending constitutes 60 to 70 percent of the gross domestic product of advanced capitalist countries.)

As more money and capital is concentrated into fewer hands, and the ability to move jobs and production is more unfettered, more power is concentrated in the hands of economic elites, giving them a greater ability to have their preferred policies adopted by governments.

The cycle of austerity can be summarized in two paragraphs: Governments borrow money from the rich and from corporations instead of taxing them, then have to pay higher interest rates on those borrowings because the rich and the corporations complain that too much is being borrowed. To ameliorate the demand for higher interest rates, the governments’ central banks are lending money nearly interest-free to financial institutions so that they will continue to buy the governments’ loans at the higher interest rates. In exchange for continuing to buy government debt (which will earn them a nice profit because they are using the cheap money to buy the debt), the financial institutions demand that the governments cut social services, lay off workers, sell assets and impose other austerity measures.

As a result of the austerity, governments take in less revenue, so they have to borrow more from the rich and corporations, who have hoarded the country’s wealth, at the same time the governments’ central banks are giving financial institutions more cheap money and giving them the green light to hand out more money to insiders, leaving them more vulnerable to the next economic downturn, when, because they are “too big to fail,” they are confident they will receive another bailout.

The standard ideological obfuscation used to justify ever lower tax rates on the wealthy is a variation of “you can decide what to do with your money better than government”; a subset of this is that higher taxes on the wealthy are meant to “punish” them. But social services — schools, transportation infrastructure, court systems, police, fire departments, unemployment insurance and much else — cost money, and a civilized society has to pay for them.

Moreover, the successful businessperson, whether he or she inherited the business or led the building of it, benefits enormously from the society that enables them to amass their wealth. The line of “you can decide what to do with your money better than government” is seductive: Of course you should make your own choices. But that’s not what taxes are — they are not a “taking away” of an individual’s autonomy, they are the price we all pay to live in a civilized country.

The plutocrat making that argument is not concerned about his or her employees’ autonomy; only about his or her ability to slake his or her greed. But the problem with greed is that it can never satisfied; more is never enough.

Nor do plutocrats “create” jobs —  they are created by a need to fulfill demand. More jobs mean more employees to profit from because profits are derived from the work of employees.

“Freedom” is equated with individualism — but as a specific form of individualism that is shorn of responsibility. More wealth for the rich is advertised as good for everybody despite the shredding of social safety nets that accompanies the concentration of wealth. Those who have the most — obtained at the expense of those with far less — have no responsibility to the society that enabled them to amass such wealth. Imposing harsher working conditions is another aspect of this individualistic “freedom,” but freedom for who?

“Freedom” for industrialists and financiers is freedom to rule over, control and exploit others; “justice” is the unfettered ability to enjoy this freedom, a justice reflected in legal structures. Working people are “free” to compete in a race to the bottom set up by capitalists — this is the freedom loftily extolled by the corporate media and the institutions of the wealthy.

As I have previously noted, the economist Richard Wolff, in his Economic Update radio show, points out that if only U.S. residents with at least $1 million at their disposal for investment were taxed 10 percent on this portion of their wealth — their fixed assets such as mansions, yachts and collectibles such as works of art would remain untouched — the entire yearly U.S. government budget deficit would be eliminated.

There is enough to go around — if there is enough collective will and organization to make it happen.

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11 comments on “It’s not only jobs that are off-shored; the profits are as well

  1. john hardin says:

    Hang the rich, don’t tax them. Sustainable cultures don’t tolerate greed, and neither should we.

    • I’m not a believer in the death penalty, so my idea would be for a different system in which there would not be inequality and greed could not be rewarded. Let’s build an economy on co-operatives in which everybody makes the same or there are only very small differentials in wages, and everybody who physically can will have to work instead of a minuscule strata getting rich off others’ work. The (ex-)rich can join a co-operative and work the same as we do.

  2. Ray Korona says:

    One after another, these blog articles present a very clear and disturbingly horrific perspective on where the world is at, essentially due to the runaway accumulation of wealth by an already rich and powerful few. Together these pieces form an Encyclopedia Britannica or Wikipedia of economic and political data, resource material and analysis that is difficult to find in any one place.

    While the individual players may change from time to time, the big picture will inevitably remain the same–that is until the “99 percent” attain a real grasp of this information and act upon it. Ultimately, I believe that no matter how great the wealth of a minuscule group of elites may be, the overwhelming number of those left with little or nothing constitutes an irrepressible force–a tsunami of people power! So here’s a big shout out to Pete for putting this blog together! Hope to see its content available in many, many formats and many, many venues.

    • Thank you, Ray, for such kind words. As you said, the problem is structural and not a matter of specific personalities. Get rid of one financier, and there will be someone else to step into that financier’s position and do the same thing. But we working people are the overwhelming majority — if we work together, we can and will effect change.

      Ray mostly works the cultural side of struggle these days, and readers can find his musical works at http://www.raykorona.com/.

  3. Alcuin says:

    It isn’t news that the distorted view of reality that you address is the result of effective propaganda. Have you ever read chapter 6 of Mein Kampf? Here is the quote from the chapter most often seen on the Internet:

    “The receptive powers of the masses are very restricted, and their understanding is feeble. On the other hand, they quickly forget. Such being the case, all effective propaganda must be confined to a few bare essentials and those must be expressed as far as possible in stereotyped formulas. These slogans should be persistently repeated until the very last individual has come to grasp the idea that has been put forward. If this principle be forgotten and if an attempt be made to be abstract and general, the propaganda will turn out ineffective; for the public will not be able to digest or retain what is offered to them in this way. Therefore, the greater the scope of the message that has to be presented, the more necessary it is for the propaganda to discover that plan of action which is psychologically the most efficient.”

    As good an explanation as any of why the voices of progressives do not have an audience.

    I’ve been reading The Spell of the Sensuous, by David Abram. Perhaps there is something to be said for illiteracy.

    • Another propaganda technique is tell the biggest lie possible, and to repeat it again and again, in an effort to stun those who know better. Corporate interests and religious fundamentalists around the world use these techniques quite effectively.

      I would like to add two caveats, however. One, such propaganda has to bare some resemblance to reality, no matter how distorted. Two, popular consciousness can, and does, undergo dramatic and extraordinary shifts. I might also add that if Hitler’s ultra-cynical view of humanity really were true, then the task of bringing into being a better world would be hopeless and we could fold our tents. But the ultra-cynical view of Mein Kampf is false.

      Slavery was once accepted nearly universally as natural. Monarchy was regarded as the natural organization of humanity, with the monarchs chosen by God. Only the most backward reactionary could possibly believe such things today. Popular consciousness underwent dramatic changes. Even a thinker as original as Hegel believed that constitutional monarchy was the highest form of political development.

      The “ideas” that are constantly pounded into capitalist societies, that Right-wing and corporate interests unendingly barrage us with on all 500 channels, have no more substance than the “idea” that slavery is inevitable and impossible to abolish with economic collapse or that there is no alternative to monarchy. The very fact that the present-day propaganda barrage is so intense and so relentless is that our corporate masters are not as secure as they would like us to perceive them. As the capitalist crisis goes on — stagnation punctuated by further downward lurches — reality will overtake the propaganda. Far more people are questioning capitalism than have done so in many decades.

      The task of progressives is to explain why what is happening to people is happening to them and what a better world might look like. We do not have to be simple in our language, but merely speak to people in everyday language they understand, without jargon and without fetishizing this or that particular revolution or historic event. A big part of the problem is that there is precious little in the way of alternatives. But they do exist (co-operative enterprises) and progressives should discuss them as part of building a realistic picture of an alternative economic system. That is much more difficult than claiming that what we have today is all there can ever be or painting a nostalgic picture of a past stripped of its harsher realities. But we have no choice but to accept the challenge.

      • Alcuin says:

        Two reactions: first, I don’t for a minute believe that “propaganda has to bare [sic] some resemblance to reality, no matter how distorted”. Todd Akin and Michelle Bachman should disabuse you of that notion. Second, on a more positive note, I fully agree that “progressives should discuss them [co-operatives] as part of building a realistic picture of an alternative economic system”. As times get tougher, no doubt more attention will be paid to the solutions instead of railing against the injustices of the current order. I have unsubscribed from countless feeds (TruthOut, TruthDig, Alternet, Democracy Now!, ZNet, etc., etc., etc.) that point out the injustices. I know the injustices – what I want now are connections to networks of people doing something besides wringing their hands in despair. Permaculturalists, resiliency and transition people, those involved in the gift economy movement – these are the kinds of people I want to associate with. I’ve had enough negativity to last me three lifetimes!

        • Ignoramuses like Akin and Bachmann throw red meat to the already converted and ignorant. Nobody not already in lockstep with them is going to spend a second listening to them. Propaganda in the formal sense — agitation designed to convince people to believe something they do not already believe or are ordinarily inclined to believe — does need sufficient plausibility, and therefore can not be fully divorced from reality. You can’t convince people the sky is green when they can look up and see it’s blue.

          Ahistorical bilge such as Margaret Thatcher’s “There is no alternative” obtains footings because the primary alternative to capitalism, the system of the Soviet bloc, did fail. There are very complicated reasons for that failure, and the Soviet system was not socialism, it was a system attempting to go beyond capitalism that became tragically detoured and, for its own internal reasons, was unable to effect the democratic changes it needed to make. But the Thatchers of the world need only point a finger and say: Look at how awful socialism was! Hooray for us!

          That is simply one example. When capitalism ceases to work for more people, and they see viable alternatives, the propaganda will become much less effective. When plausible alternatives to monarchy worked, and these political alternatives were better, monarchies were doomed. We are in agreement that doing work to create alternatives is far better than wringing our hands in despair. I long ago dropped my subscription to The Progressive because every other article was a column that said, “Boy, isn’t George W. Bush dumb!” Well, yes he is, but I’d prefer to read something I didn’t already know.

          I wrote about one set of ideas for transcending capitalism on May 30 (a review of the book America Beyond Capitalism), and starting with my Sept. 5 post, I’ll be offering some more ideas on co-operative economic ideas. I look forward to a healthy debate.

      • Alcuin says:

        Eric Hoffer on propaganda:
        “The truth seems to be that propaganda on its own cannot force its way into unwilling minds; neither can it inculcate something wholly new; nor can it keep people persuaded once they have ceased to believe. It penetrates only into minds already open, and rather than instill opinion it articulates and justifies opinions already present in the minds of its recipients. The gifted propagandist brings to a boil ideas and passions already simmering in the minds of his hearers. He echoes their innermost feelings. Where opinion is not coerced, people can be made to believe only in what they already ‘know.’

        “Propaganda by itself succeeds mainly with the frustrated. Their throbbing fears, hopes and passions crowd at the portals of their senses and get between them and the outside world. They cannot see but what they have already imagined, and it is the music of their own souls they hear in the impassioned words of the propagandist. Indeed, it is easier for the frustrated to detect their own imaginings and hear the echo of their own musings in impassioned double-talk and sonorous refrains than in precise words joined together with faultless logic.”

        The True Believer, pp. 105-106

  4. JAH says:

    Every Roman Emperor, upon his elevation to the purple, made sure that
    the legions got a “donation”. With out a doubt, the Romney principate will
    increase the budget for hardware. Look to see, however, if they cut the food stamps that so many of the troops depend on to feed their families.
    Armed hungry men with destitute families end up taking what they need.

    Stand by for our very own “Crisis of the Third Century”-

    Nah, can’t happen here …………………………….

    • People can only take so much before they fight back. People on the receiving end of imperialism have been forced to take much more and are more ready to fight back. Eventually, people in the capitalist cores will have too as well. If enough of the world rebels, there won’t be enough hardware for the capitalist world’s emperors and Romneys to save themselves.

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