The economy: The whole story

Sunday, July 25, 2010

By Jack H. Knowlan Sr.

Recently I listened to an interview by CNN with renowned Harvard economist Niall Ferguson, who stated, "Red ink flows out of control. We must reduce spending and increase taxes." I couldn't agree more.

Ferguson did not mention the $10.3 trillion trade deficit, so I will give a brief comment on it. Recently someone in Speak Out said, "Every dollar brought out would be spent seven times, thus creating more income, jobs and taxes." This may have been true at one time, but no more. For every dollar "brought out" now, about 75 percent goes through a retailer, a distributor and then straight to China or some other country, increasing the trade deficit with very little increase in jobs, income or taxes.

We need to produce most of our own needs in the United States. The only way to accomplish this would be tariffs or subsidies to bring manufacturing back to the United States. This is something for politicians to concentrate on.

Next I would like to comment on Sen. John Danforth recently quoting President Obama as saying 95 percent of the people will get a tax cut. He may have said this, but it would have been more logical if he would have said 95 percent would not get a tax increase. We do not need tax cuts.

In another comment recently someone said, "Tax cuts are neither Republican nor Democrat. In 1961 JFK cut taxes on the wealthy from 91 percent to 71 percent and Ronald Reagan used the 71 percent rate when elected in 1981." I remember those years, and I can assure you there was no huge budget deficit until the top rate was lowered to 35 percent.

The real problem now is that we are trying to run the country on taxes from the working class and small businesses. Capitalism has worked so well for the millionaires, billionaires and corporations at the top 35 percent tax rate -- and they have so many loopholes, tax incentives and subsidies -- that we are getting very little tax from the people who have all the money.

Paying no taxes

According to the Government Accountability Office, 67 percent of the corporations in the U.S. pay no taxes. They argue that all the profit goes out to the stockholders, so why should they be taxed? What a joke. How much dividend have you received lately?

For an example, I checked a few of the big ones: Bank of America, 0.3 percent. Citi Group, 0 percent. J.P. Morgan Chase, 0.5 percent. General Electric, 2.5 percent. Microsoft, 1.79 percent. Apple Inc., 0 percent. Google, 0 percent. Exxon Mobil, 2.2 percent.

If they are not paying it out in taxes or dividends, where is it going? The executive officers are paying it out to themselves and becoming very rich. This, needless to say, does not apply to all of them, but it seems to be a common practice. After their salary they pay themselves huge incentives and bonuses in stock. This not only eventually gives them control of the corporation, but allows them to hold the stock a year, sell it and pay only the 15 percent capital-gains tax.

As for corporations paying tax in the United States, I checked a few of them for 2009. Exxon Mobil had a profit of $89.8 billion and paid none in the U.S. Through the tax loopholes, it paid $45.2 billion to its subsidiaries, $15 billion to the Bahamas and the balance to Bermuda, Cayman Islands and others. General Electric had a profit of $10.3 billion, paid only 2.3 percent dividends and showed a $1.1 million tax benefit (credit). AT&T had a profit of $34.4 billion, after a 6 percent dividend, but paid only $6.1 million (about 1.7 percent) in taxes. According to a Pat Garafalo at Work Room, the big corporations' tax shelters shift a $100 billion tax burden on to the small taxpayers.

For some reason Republicans and some Democrats take care of big corporations and their rich friends while the middle and working class get gouged out of existence, and there is little money to run the country.

One of many examples was reported in the June 22 Southeast Missourian: Congressional votes for June 11-17. Senate Bill 4213 closing tax loopholes and eliminating tax credits to oil and gas production was defeated 61-35. Democratic Sen. Claire McCaskill voted yea, and GOP Sen. Kit Bond voted nay. Why?

The big difference in our two parties is that Republicans believe in capitalism -- that the big are more efficient, get bigger and eventually buy out the smaller, less efficient. Unfortunately, this has worked too well and has created monsters (mainly corporations) that have taken over the government, which is out of control and leading us down a path of destruction.

Also unfortunately, many of my Republican friends have supported the party for fear of "big government" and "tax increases." We need some government regulations (for example, housing loans and deep offshore drilling). Many who fear a tax increase are not anywhere near the millionaire/billionaire class who need to be taxed, but they still continue to support the tax evasion loopholes. We will have to have a tax increase to avoid all the red ink but it should be and will be on the rich, if the laws are changed to eliminate all of the loopholes.

Speaking of monsters, both parties have been guilty of their senators and representatives taking huge contributions, some over a million dollars, from oil companies and others, in order to give them more tax breaks and loopholes. They should be working to eliminate them. Both parties need to take a close look at the activities of their senators' and representatives' votes and contributions. I assume we will never get a law passed to reduce or eliminate contributions for special interests, but at least we should get a list of who received what amounts, and from whom.

Big spenders?

The Democrats have long been accused of being the big spenders, but I am not so sure about that. They do have a lot of ideas on spending, some good and humanitarian, some essential and some poor. In some cases, Republicans are just as bad. I was quite impressed with Sen. McCaskill's voting recently. Although she is a Democrat, she voted against four huge spending bills because of big spending increases and millions of dollars in earmarks. If more Democrats would vote like that and more Republicans would vote against subsidies and tax loopholes for the rich, we might be able to, as economist Niall Ferguson stated, "reduce spending, increase taxes on the rich and stop the out-of-control flow of red ink."

Jack H. Knowlan Sr. is a Jackson resident.

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