Friday, December 14, 2012

Deficit Reduction

Deficit Reduction
The current negotiations about tax reform and reducing the deficit by increasing the income tax for the super rich have the air of high drama. Many observers have the feeling that we are witnessing a carefully managed theater piece. They are right.
The United States has been spending a lot more money than it earns. Spending more than you take in sooner or later leads to bankruptcy because you owe so much money that you will never be able to pay your debts. When your creditors see that , they stop lending you money and you go broke.
The United States needs to tighten its belt; we need to reduce our deficit. Current targets are to reduce the deficit by about 2 trillion over the next 10 years.
The high drama about increasing government taxes on the superrich is intended to address increasing government income. But it now appears that this whole theatrical performance has a second purpose, namely to distract attention from some very obvious ways of increasing government income.
All this comes to light in this recent news item: "Google Inc. (GOOG) avoided about $2 billion in worldwide income taxes in 2011 by shifting $9.8 billion in revenues into a Bermuda shell company.” (
At its post-WWI peak in 1952, the corporate tax generated 32.1% of all federal tax revenue. . . . Today, the corporate tax accounts for 8.9% of federal tax revenue . . . The list of corporations keeping profits offshore is a Who's Who of multinational giants. Cisco, G.E., Apple, Google, Pfizer, Qualcomm, Walmart, Ebay, Dell, even Coca-Cola. Apple, for example, has $74 billion in profits parked offshore.” (
Under US tax law, foreign profits are subject to 35% U.S. tax when they are "repatriated," or brought into the United States, usually in the form of a dividend.
One internal document released by the [Congressional Investigative] panel suggested that HP [Hewlett-Packkard] routinely brought money into the U.S. without paying U.S. tax. An HP presentation noted that 'without planning, repatriation of foreign earnings could lead to tax payments.'
Loans by the foreign units to a related U.S. entity are considered a dividend for tax purposes but there is an exception for loans that are repaid within 30 days, according to the committee's tax experts.
HP set up a complicated series of short-term loans starting in 2008 to these businesses that were continuous without gaps, to get around that provision, the panel found.” (
“Tax losses to the United States amount to $1 trillion over a decade, according to the Congressional Research Service. “ (
I spent ten minutes on the Internet and found half of the 2 trillion the US government needs to say over the next 10 years without touching the income of the super-rich.
The tax manipulations by the large corporations are, on the whole, legal. In order to find half the amount of money needed to reduce the federal deficit, the US tax code would have to be changed to make it impossible for large corporations to save $1 trillion over 10 years in income taxes. Congress would have to take on all the large US corporations to make them pay their fair share of the cost of the US government.
Congress clearly does not have the stomach for that fight because they know they would lose and it would become clear to everyone that ours is a government "for, by, and of the large corporations".
Hence all the fighting about taxing the super-rich-- a theater piece carefully produced to confuse the citizens about what is really going on.