Debt Ceiling Deal

Below is a statement on the debt ceiling deal from Citizens for Tax Justice released 8-2-11.
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President Obama Breaks His Promise on Taxes Again

The so-called “Budget Control Act” that President Obama signed into law today to increase the federal debt ceiling and reduce the federal budget deficit marks the second time the Obama administration has capitulated on tax policy to the most extreme elements in Congress, those who are least in touch with the American people and most willing to risk economic disaster to get their way.

While our political leaders should be doing all they can to boost consumer demand and create jobs, the administration and Congress have instead agreed to slash public services without guaranteeing any increase in revenue.

To be sure, a revenue increase could result from the process established under this deal, despite Republicans’ claims to the contrary. But anti-tax lawmakers have already demonstrated that they will risk everything — including economic catastrophe — to block any and all revenue increases. As a result, we believe the only hope for a balanced approach depends on President Obama finding the courage (which he has lacked so far) to allow all of the Bush tax cuts to expire at the end of 2012.

Read the full statement.

Fair and balanced???

The FOXNews of budget agreements. That’s the best description of the debt ceiling compromise passed by the House yesterday and by the Senate today.

No matter how many times FOXNews calls itself “fair and balanced”, the hard evidence tells the real story of slanted and faux news at the Murdoch network.

The same PR charade was used by President Obama to sell the bi-partisan compromise on lifting the debt ceiling. All his talk of a balanced approach that called for shared sacrifice for all turned out to be the equivalent of the “fair and balanced” FOXNews mantra.

The $1 trillion immediate deficit reduction in the agreement is all spending cuts. We’re told that the “balanced and shared sacrifice” part of deficit reduction will come from the special joint committee to be established to shave off another $1.5 trillion from the deficit. Don’t hold your breath.

The wealthy and multinational corporations have a firm grip on both parties (especially the Republicans) in Congress and the President. The big campaign contributions and highly paid Washington lobbyists will make sure that we don’t close the abuse of offshore tax havens by multinationals that will cost us $1 trillion in lost revenue over the next 10 years. Another $700 billion over the next decade will be lost because we won’t ask the wealthiest in the country to simply pay the same level of taxes from the 90’s (the last time we had a balanced budget).

And while the wealthiest Americans and multinational corporations are required to sacrifice, the rest of us, small businesses and our whole economy will feel the pain of our sacrifice.

I spoke with Christian Dorsey of the Economic Policy Institute yesterday. His organization projects that just with the first $1 trillion in spending cuts our nation will lose up to 2 million jobs over several years. The reason—unemployment benefits won’t be extended and the payroll tax holiday will end. That will mean a lot less money flowing into the pockets of consumers who will then spend less. Less consumer spending means hard times for small businesses and fewer jobs.

Add another $1.5 trillion in spending cuts according to this deal and here comes another recession. The wealthy will survive just fine and so will the multinational corporations. The rest of us—not so much.

Don't talk about it....do it

Last night we heard from President Obama and Speaker Boehner about their ideas for addressing deficit reduction and raising the debt ceiling. The President spoke about the need to close corporate tax loopholes and end offshore tax haven abuse—issues that you have heard me talk about many times.

Unfortunately, neither deficit reduction plan on the table from Democrats or Republicans addresses the crucial problem of U.S.-based multinational companies avoiding paying taxes.

This afternoon I took part in a conference call media briefing with Texas Congressman Lloyd Doggett who is introducing his “Stop Tax Haven Abuse Act” in the House today. Two weeks ago I was in DC doing the same thing in person with Michigan Senator Carl Levin.

Below are the remarks I made today.  Click here to hear the audio from the media briefing.
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I’m Frank Knapp, president, CEO and co-founder, of the South Carolina Small Business Chamber of Commerce. I am also speaking on behalf of the national coalition, Business and Investors Against Tax Haven Abuse (www.businessagainsttaxhavens.org).

Last week I received a call from a reporter from The Hill and he wanted to know what the Administration and Congress could do to really help small businesses.

I told him that the number one thing that Washington can do is to help create more consumers. But instead of putting more money into our state and local economies that will create jobs and thus more customers for the goods and services of small businesses, today we are discussing cutting the federal budget which will take more money away from Main Street.

It is my understanding that both the Republican and Democratic deficit reduction plans call for $1.2 trillion in discretionary spending cuts over the next decade. Fortunately the Democratic plan doesn’t touch Medicare, Medicaid and Social Security—programs that pump money directly into our local economies and thus help our small businesses.

But both plans fail to pick the low hanging fruit of an estimated $1 trillion that could be used to reduce the deficit without cutting any non-defense discretionary spending which has already been cut.  I’m talking about corporate tax loopholes and overseas tax havens used by U.S.-based multinational corporations to avoid paying taxes. The President talked about the need to address this problem last night, but putting words into action at this time is not on the table.

We’re talking about $1 trillion of taxes not being collected to help pay for our national defense, infrastructure, courts and education system. That means that small businesses and individual taxpayers pay more taxes to subsidize these giant corporations that depend on these government services. This unfair situation has small businesses and all Americans angry and demanding change.

In addition, multinational corporations not paying their fair share of taxes gives them an unfair competitive advantage over our small businesses because we pay our taxes.

Both political parties need to wake up and start listening to Representative Lloyd Doggett and Senator Carl Levin about what is vital in a deficit reduction plan—tax reform that makes multinational corporations pay their taxes.

It's time to close the tax loopholes and tax havens that deprive us of much needed revenue and reward big corporations for hiding profits and exporting jobs that we all know American workers and our economy need now more than ever.

"Gang of Six" tax plan--sacrifice for all but multinationals

OK. I admit that I got my hopes up upon hearing that U.S. Senate Democrats and Republicans were talking nice about the Gang of Six deficit reduction outline that included revenue increases as well as budget cuts.

But as they say—the devil is in the details. And the details in the Gang of Six proposal are sketchy to say the least.

But here is what we can garner from what has been made available to the public.

If you like U.S.-based multinational corporations using offshore tax havens and tax loopholes to avoid paying taxes, then you’ll like the Gang’s plan.

If you like these multinationals shipping U.S. jobs overseas, then you’ll like the Gang’s plan.

If you want to keep the inequity of our tax system that favors corporate giants and the wealthiest in our country, then you’ll like the Gang’s plan.

The Gang’s plan projects to increase federal government revenues by $1 trillion over 10 years. But instead of asking those not paying their fair share of taxes ($1 trillion over the next decade is the projected amount of taxes not being paid due to corporate tax havens and loopholes); the proposal suggests reducing tax deductions for employers offering health insurance, charitable giving, home mortgages and other middle class breaks.

That short term lifting of the debt ceiling combined with some budget cutting all of the sudden doesn’t look so bad. At least then we’ll still have a chance for common sense revenue enhancers that treat small businesses and hard-working Americans fairly.

Balanced deficit reduction

As the debt ceiling debate rages on, it appears that Congress and the President are looking at a plan to simply raise the debt ceiling enough to allow the federal government not to default for a short period of time and do some budget cuts along with it. What a tremendous waste of an opportunity to address the issue of multinational corporations using tax loopholes and offshore tax havens to avoid paying their fair share of taxes.

There is an estimated $1 trillion dollars of taxes over the next decade that these multinationals should be paying but won’t if we don’t change our corporate tax laws. That equals 1/4th of the debt reduction goal President Obama said he wanted. It’s low hanging fruit that these corporate giants and their advocates like the U.S. Chamber won’t let us pick because of all the campaign contributions and lobbyists at their command.

Fortunately there are other business organizations that understand the need for a balanced approach to deficit reduction that includes both budget cuts and responsible, common sense revenue increases.

Below is a letter from the American Sustainable Business Council being delivered today to House Speaker John Boehner and Majority Leader Erick Cantor. Copies are being given to the President and other Congressional leaders.
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July 19, 2011

RE: Debt Ceiling, Taxes and Deficit Reduction Approaches

Dear Speaker Boehner and Majority Leader Cantor,

The American Sustainable Business Council is a network of business associations and companies representing over 100,000 businesses across the nation. Our members are part of a growing force within the U.S. economy that understands that financial success requires balancing economic, social and environmental needs.

We see an enormous opportunity in the public debate over the budget and debt, for fundamental reforms to grow our economy and strengthen our country. However, we do not believe the conversation is heading in the right direction. We are concerned that offshore tax havens, growing income inequality, rollback of environmental and safety regulations, and divestment from infrastructure and workforce development, present serious challenges to our global competitiveness. The continued practice of discounting externalities, subsidizing highly profitable mature industries, and rewarding off-shoring of U.S. jobs has contributed substantially to the national debt and undermined the health of the U.S. economy.

As businesspeople, we also believe that the tax code needs to be significantly modified so that small and mid-sized companies and middle class families, are not asked to pay a disproportionate amount of taxes. We are quite willing to pay our fair share, but find it troubling that many of the nation’s largest companies pay an effective marginal rate far, far less than we do.

We write to ask you to re-examine your basic assumptions of what is required to stabilize the U.S. economy and address the budget deficit. Please understand that not all business leaders agree with many of the points you make daily in the name of defending the private sector. It is inaccurate to lump together large and small business—and businesses in every sector of the U.S. economy--as if all of our interests were exactly the same. Some might see this as a strategy to use the halo of small business to camouflage the excesses of big business.

We do agree with the U.S. Chamber of Commerce and the Business Roundtable that we must raise the debt ceiling, and soon. However, we find that a diversity of business voices is not being heard on the specifics of the current budget debate. Many business leaders believe that raising revenues through tax code modifications, and supporting federal government services, is critical for economic health. Cuts to programs for the young, old, disabled and unemployed will hurt not only our customer base, limiting their capacity to buy our products, but our nation as a whole.

Further, we disagree with the perspective that any tax increase destroys jobs. We believe that there are important distinctions to be made between good taxes and bad taxes, between incentives that create jobs and real value for the economy and those that don’t. There are expenditures that are critical to improving productivity and the nation’s infrastructure and those that are a waste of money. Removal of certain subsidies for mature industries, in our view, does not constitute a tax increase but rather a smart business decision. This is how we run our companies – moving resources towards areas of greatest need in a constantly changing marketplace.

We would point out that during the 1980’s, President Reagan raised taxes many times and unemployment continued to fall. And, when President Clinton raised taxes in 1993, unemployment fell and investment expanded. We would like to see the discussion of job creation using proven methods re-elevated in the national debate, including government investment in areas of significant national interest, such as renewable energy development, manufacturing, education, high speed rail and basic R&D. The private sector and federal government must work together to ensure that America not only remains an economic powerhouse, but also a nation built on principles of fairness.

We have two other important concerns: (a) the largest companies rarely pay the statutory rate, instead often paying half that in practice while small businesses, who account for most of the net job growth, consistently pay higher tax rates; (b) job creation in America is our top priority. To that end, we need to ensure that reduced tax rates actually result in jobs being created here at home, rather than being shipped overseas.

As this crisis is turning on fixing the Federal budget, we would highlight that the tax burden is being described as if the prosperous—whether individuals or corporations—are paying taxes at the highest marginal rate. A few of the nation’s wealthiest citizens claim that they are paying 50% of their income in federal or federal and state taxes. They are not.

In fact, the effective rates of taxation—the real rates that wealthy individuals and corporations pay—are half the highest marginal rate or less. Corporate taxes as a share of federal government receipts are at their lowest level since the 1950’s. Fixing these distortions and closing huge tax loopholes and subsidies in our Federal budget to generate revenue should be at the heart of resolving the current crisis.

With this as background, we offer a set of principles and solutions that our members see as essential to getting our country back on track:

Principles

• Taxes have a critical role to play in funding research to generate innovation and growth, providing for our national defense, and creating an equitable economy.

• Raising revenue to fulfill essential obligations, such as maintaining/improving infrastructure is smart policy, as are taxes that fund workforce investments.

• The national burden for debt reduction should not fall on small companies.

• Small and mid-sized businesses use their assets to reinvest in their communities and workforce. They are the backbone of the U.S. economy, creating most of the net new jobs over the past decade.

• Regulations are needed, as the marketplace isn’t perfect. We find that carefully crafted regulations can save more money than they cost, as evidenced by the inadequacy of banking regulations that cost our nation over one trillion dollars in lost assets.

Solutions

• Reducing the budget deficit should not be achieved exclusively by reducing public expenditures, many of which improve the nation’s competitiveness. Drastically cutting expenditures will also likely increase the unemployment rate. Revenue enhancements should be a key part of proposals for deficit reduction.

• Taxes that assure a stable middle class and maintain consumer demand—key to our economic future—are welcome.

• An effective and graduated Corporate Alternative Minimum Tax could assure that companies pay their fair share of taxes. Small businesses pay on average far higher effective rates than most Fortune 100 multinationals because of widespread use of tax havens. The Stop Tax Havens Abuse Act of 2011 would go far to close these loopholes. We must stop subsidizing the largest and wealthiest corporations at the expense of our domestic businesses and the national economy.

• Corporate subsidies should be limited to spurring innovation, preserving the environment and public health, hiring veterans and minorities, and other job creating initiatives. Initiatives such as the Small Business Jobs Act are relatively inexpensive ways to continue to spur growth.

• America’s wars should either be paid for by surtax or by adjusting the defense budget. The defense budget should not be immune from cuts. Due to deficiencies in the federal contracting process, which appear to favor a few large corporations, we believe there is room for substantial savings.

We have not endorsed any comprehensive deficit reduction package, however select policy solutions in line with these principles have been proposed by groups as diverse as the Congressional Progressive Caucus, the Cato Institute, and the Bowles-Simpson Commission. Estimates suggest that enacting policies in line with these principles could easily save upwards of $2.75 trillion dollars over a decade, without cutting into essential federal programs on which this nation was built.

A ‘sustainable’ economy focuses on building long-term value and assets. It invests in next generation ideas and technologies while contributing to the well-being of our communities. We believe these ideas and policies to be consistent with a fair marketplace, represent the views of thousands of small businesses across the country, and will foster long-term economic prosperity.

Thank you for your consideration and interest.

Sincerely,

David Levine, Executive Director
American Sustainable Business Council