Nickolai

Joseph Stiglitz;

The proven ability of the nation's wealthiest individuals and corporations to collude with the federal government in order to avoid paying massive amounts in federal taxes, says economist and Nobel laureate Joseph Stiglitz, is not simply unfair and unprecedented but is actually destroying the broader economy and the nation's once-heralded prosperity.

"Twenty million Americans would like a full-time job and can't get one. We have growing ine******y. We have environmental problems that threaten the future of our planet. I think we can use our tax system to create a better society, to be an expression of our true values." —economist Joseph Stiglitz

In an interview with journalist Bill Moyers that airs Friday in which they discuss his new white paper (pdf) on the same topic written for the Roosevelt Institute, Stiglitz describes how the current tax code actually encourages large multinational corporations to invest abroad, hire people abroad, and keep their earnings abroad.

And because these multinationals use their outsized political influence to literally write the tax code and bend financial regulations to fit their interests, says Stiglitz, it has created a nearly complete distortion of the nation's real economic possibilities. As he explains to Moyers:

You know, there's a lot discussion going on about we have a budget of deficit. And we have to slash this, and slash that, and cut back education, and cut back research, things that will make our economy stronger, cut back infrastructure.

And I think that's counterproductive. It's weakening our economy. But the point I make in this paper is it would be easy for us to raise the requisite revenue. This is not a problem. This is not as if it's going to oppress our economy. We could actually raise the money and make our economy stronger. For instance, we're talking about the taxation of capital. If we just tax capital in the same way we tax ordinary Americans, people who work for a job, who pay taxes we pay on wages.

If we eliminate the special provisions of capital gains, if we eliminated the special provisions for dividends we could get, over the next ten years, over, you know, approximately $2 trillion. And those are numbers according to the CBO. And so, we're talking about lots of money.
And it's not like there's nothing to be done with that $2 trillion or more in revenue that Stiglitz says could be generated if the top one percent simply paid what the average American pays in terms of income tax and if corporations were stripped of their preferential "subsidies" and "incentives" which he has long argued should be called what they really are: corporate welfare.

"Our country needs, faces a lot of challenges," argues Stiglizt. "Twenty million Americans would like a full-time job and can't get one. We have growing ine******y. We have environmental problems that threaten the future of our planet. I think we can use our tax system to create a better society, to be an expression of our true values."

In the white paper, titled Reforming Taxation to Promote Growth and Equity (pdf), Stiglitz's argument is that even before the financial crisis that took hold in 2008, it's not as though the average American or the economy overall was being particularly well-served by the increasing slant of the tax code to favor large corporations and the wealthy.

Though not a new idea, Stiglitz says that it's imperative people realize the economy has long been run by perverse incentives and that the rules fueling these incentives are not natural laws of the economy or that thing called "the free market" but the direct result of corporate control of the political and legislative process.

What many tax-dodging corporations do might well be "legal," admits Stiglitz, but the reality is that they "use their lobbyists to make sure that the law gives them the scope to avoid taxes. So, this argument, 'Oh, we're only doing what the law allows,' is disingenuous. The fact is ... their lobbying helped create this law that allows them to escape taxes, pushing the burden of taxation on ordinary Americans."

And the result, of course, the reason that the rest of the economy is burdened by this behavior and these systems of perverse incentives, he continued, is because "somebody has to make up the difference. I mean, we can't survive as a society without roads, infrastructure, education, police, firemen. Somebody's going to have to pay these costs."

And that "somebody," as is known all too well by low-income and working-class America, is the rest of the population--sometimes now referred to as the 99%.

In his newly published paper that addresses these issues and calls for a new progressive tax code and end to preferential 'corporate welfare,' Stiglitz concludes:

We can reform our tax system in ways that will strengthen the economy today, address current economic and social problems, and strengthen our economy for the future. The economic agenda is clear. The question is, will the vested interests which have played such a large role in creating the current distorted system continue to prevail? Do we have the political will to create a tax system that is fair and serves the interests of all Americans?

Tyster

What a load of crap. Stiglitz avoids any details in favor of characterizing in generalities. What "loopholes" is he suggesting are unfair, and what ones does he think should they be replaced with? He complains about the current tax system but is not advocating replacing the system - only what qualifies to get the benefits.

This doesn't mean that I think the current system is perfect. It is just galling when the criticisms are restricted to: "It isn't fair because he benefits and I don't". Tax policy should be either to 1) collect needed revenues OR 2) manipulate the economy, but not both. Once it is decided what the goal is, then it is easier to design a system that works.

That was one of the weaknesses of the 1986 Tax Reform Act. It lowered rates, but closed off a lot of write-offs. Since then, we have only put band aids on it right and left without a comprehensive tweeking to define the goal. As such, the current system is out of balance.

And I have yet to see a Corporation (or wealthy individual) get certain breaks for just existing or because they have reached a level of success. The "loophole" requires that they invest monies into a defined area under certain circumstances and parameters. In order to qualify, they are forced to spend money to get the tax deduction or credit. There is no "free lunch" so to speak. When one identifies the lower tax rate available to the investor, it neglects to dial in the amounts that the corporation or individual invested to achieve the tax result and the benefits obtained by the community.

Tax evasion is wrong and illegal. Tax avoidance is just good business planning. Having prepared taxes for over 35 years, I am always amazed at people that come in to get returns done and want a super positive result even though they gave it no thought during the tax year. They wonder how I keep my personal tax rates low. Basically, I do my tax planning starting on January 1 of the tax year... not 400 days later when it is too late to properly structure my t***sactions.

Successful businesses have professionals who help them chart their t***sactions during the year so that taxes can be controlled. The government dictates where one is penalized vs. where one is rewarded for particular actions. If the government is bowing to financial influence or lobbying, then the problem is not the tax code, but those in government kowtowing to them.

rickdri

We need to dump this entire tax system and replace it with a flat tax. One sheet of paper with what you made for the year and the taxes you owe. Everyone should pay at least a little towards running the government. That includes even the lower class and those receiving benefits from the government. Everyone can afford a few dollars to help. The tax a person pays depends upon how much they have earned. Including corporations. No deductions for anything.
An example would be the lowest class paying perhaps .005% up to the wealthy and corporations paying perhaps 20%. Everyone would be paying at least something to help out. The percentage would go up as income goes up. This would be a fair tax system and the government could possibly reduce the debt.
For those of you that think this would not be fair to the lower class, think again. A person making $10,000 per year would only pay $50.00. They would only have to give up a couple of meals out or a carton of cigarettes to pay their taxes.

Tyster

No deductions? So, if my small business grosses $200,000 then I have to pay a determined flat amount on that number? Even though I had to spend $120,000 on supplies, wages and other business costs before I saw a dime of the proceeds? That hardly seems fair when compared to the executive who received $200,000 as a wage and therefore did not have to invest any money towards grossing that amount.

If you say that you were misunderstood and you would consider that reasonable business expenses are okay... who determines which are reasonable? Once you start making exceptions, you are on the path to where we are now.

If it were a flat tax, then everyone would pay the same percentage - otherwise it isn't a flat tax... it is a graduated one similar to what we have now.

And why shouldn't welfare recipients, food stamp receivers and such have to pay tax on the income they benefit from? Or are they just s***es to the US "master"?

JetJock Loc: Texas

I disagree, replace it with the fair tax. That more than anything will make the 1% pay more taxes and will get the entire underground economy involved in paying taxes.

The major lie by the left is that the corporations are not paying taxes,
The t***h is that corporations never have and never will pay taxes. All the corporations do is COLLECT taxes which are always paid by the consumer.
Basic economics 101 but all the liberal arts majors didn't take that class when they were learning how to h**e America in college.

rickdri

You're right it is not a flat tax. it is a graduating tax. My mistake. No deductions is what I meant. Not for anyone. What did businesses do before we had these deductions? They had to make do! As for welfare recipients. I did say those receiving government benefits did I not? That includes them too!

rickdri

Corporations may pay taxes they collect from the consumers, but some large corporations did not pay taxes on their earnings. GE, remember they made $14 billion and paid no taxes in 2012? They employ a countless number of accountants to find loop holes!

rickdri

Businesses would pay a graduating rate too depending on there earnings. $200,000 is not much for a business to make so it would be taxed at a very low rate just as the lower class is. Taxes would be very low in a graduating scale. If figured at the lower class rate, it would only be $1000.00.

rickdri

I don't understand how a fair tax would get the entire underground economy to pay taxes? Could you please explain this? Thanks!

Tyster

If my business earns a GROSS of $200,000 but I have no deductions for paying employees - Maybe I will do without them. This is the reality of the economy and until you realize there are many considerations that govern the basis of taxation you can never prevail in your arguments.

Loopholes are designed to entice those with the funds to invest in parts of the economy that the government wants to boost. If you take deductions away, you take away a corporation/individuals motivation for putting money into such areas. One of the most common used "loopholes" is for investment of new equipment. There are economic benefits to having businesses purchase additional equipment. Take that away and you will see a large drop in manufacturing sales... businesses will hold onto and maintain their old equipment rather than purchase new equipment when there is no deduction.

But here is where the discussion of loopholes is so misunderstood. If I purchase a $10,000 piece of equipment, during the first year I can realize about $6,000 in deductions from that. However, in order to drop my income $6,000, I first had to spend $10,000. All of that money went into the economy to (a) be earnings for another company and (b) spent forward.

Take that $10,000 that I can't deduct and assume my tax rate is 5%. That means that I pay $500 on it. But after spending it on needed items, the recipients pay 5% on the same $10,000... and so on and so on. Eventually, the government could conceivably collect $10,000 in taxes on the same $10,000. All of which robs the economy.

Taxes are a nasty subject and no one likes them. I have yet to see anyone comfortable with their "fair share".

rickdri

Nice argument, however these are my thoughts only and will never be implemented so I don't think you have anything to worry about! Besides as I asked before, what did businesses do before we had all of these loopholes?

Tyster

There weren't any taxes.

rickdri

When businesses started to be taxed, these loopholes did not exist. They have all been and are still being phased in today!

JetJock Loc: Texas

No problem, a drug dealer who makes a million bucks a year pays no income tax. You with me so far? He goes and buys a $100,000,00 Mercedes and with the fair tax will pay a 23% "fair tax" and for the first time has contributed to the running of the gov.

You really need to purchase the book on line for around 9 bucks and learn how we really can take back control of the country.

JetJock Loc: Texas

GE may have 'made" 14 billion but any taxes that they are required to pay are ALWAYS PASSED ALONG TO THE CONSUMER. That is why I say companies never pay taxes.

If you didn't take Economics 101 in college you may have missed the most important class in your education.