Here's a nice Labor Day topic: economic inequality! Listen to Joe Stiglitz:
BILL MOYERS: This week on Moyers & Company, Nobel laureate Joseph Stiglitz.
JOSEPH E. STIGLITZ: Our democracy is now probably better described as one dollar, one vote than one person, one vote. We have a tax system that reflects not the interest of the middle. We have a tax system that reflects the interest of the one percent.
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BILL MOYERS: Welcome. Here’s something to make you really, really mad. Our country’s infrastructure is crumbling. Potholes are becoming sinkholes, axle-killers, tire-busters. Our cities struggle to pay for services. The powers-that-be in bankrupt Detroit even cut off the water to some residents. Schools and libraries are closing. Public parks decay. And the war party in Washington clamors for billions of dollars more for foreign interventions – bombs, rockets, drones, even troops.
Twenty million Americans who would like a full-time job still can’t get one, yet corporations are sitting on more than $2 trillion in cash while revenue from corporate income taxes are down from 40 percent in 1943 to just below ten percent in 2012.
All this as some of the largest and richest corporations are now resorting to legal hanky-panky that allows them to “renounce their citizenship,” meaning they can pretend to be headquartered abroad and make big profits on which they pay little or no US taxes.
Here's what President Obama said recently about that practice, known as "inversion:"
PRESIDENT BARACK OBAMA: Now, here’s the, the problem is this loophole they’re using in our tax laws is actually legal. It’s so simple and so lucrative, one corporate attorney said it's almost like the Holy Grail of tax avoidance schemes. My attitude is I don’t care if it’s legal, it’s wrong.
BILL MOYERS: Now look at this recent headline in "The New York Times:" “Reluctantly, Patriot Flees Homeland for Greener Tax Pastures.” It’s about a US generic drug company incorporating in the Netherlands. Reluctantly, my eye. Skipping out on America means more profits for the company and bigger bonuses for the CEO.
Tax-dodging is big business, which has one of our world’s most noted economists plenty angry: Nobel laureate Joseph Stiglitz. He’s president of the International Economic Association and served as Chairman of the White House Council of Economic Advisers back in the 90s. His best-selling books have shaped worldwide debate. And now he’s written one of his shortest but most important works he’s done: a 27-page white paper for the Roosevelt Institute laying out a tax-reform plan to hold corporations accountable, create jobs, and boost the economy.
Joseph Stiglitz, welcome.
JOSEPH E. STIGLITZ: Nice to be here.
BILL MOYERS: You argue that elimination of corporate welfare, or at least its reduction, should be at the center of tax reform. Why?
JOSEPH E. STIGLITZ: I want to put it in a broader context. Our country needs, faces a lot of challenges. We, as you mentioned, 20 million Americans would like a full-time job and can't get one. We have growing inequality.
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. But if people don't think that their tax system is fair, they're not going to want to contribute. It's going to be difficult to get them to pay. And, unfortunately, right now, our tax system is neither fair nor efficient.
Look at the tax rate paid by that one percent. It's much lower than the tax rate paid by somebody whose income is lower who works hard for a living, as a percentage of their income.
You know, Warren Buffet put it very, you know, why should he pay a lower tax rate on his reported income than his secretary? And the interesting thing that he didn't emphasize was most of his income is in the form of unrealized capital gains.
BILL MOYERS: Unrealized capital gains are not taxed as long as the owner keeps them, right, doesn't get rid of them?
JOSEPH E. STIGLITZ: That’s right. And it's even worse if you're a corporation and you even realize the capital gains but you're abroad, you don't bring the money back home, there's still no taxes.
As long as they don't bring the money back here, it accumulates, it grows and grows and grows, and they get wealthier. But it's even worse than that. Because it means that they have an incentive to keep their money abroad.
And what does that mean? They have an incentive to create jobs abroad. And with our trade agreements, they can take the goods that are produced abroad with this tax-free money, bring it back in the United States, basically making it unfair competition with the goods produced by Americans.
BILL MOYERS: Yeah. There are several startling statements in your report. This is one of them: “our current tax system encourages multinationals to invest abroad,” and create jobs abroad, as you just said. And yet, these are people who defend their practices by saying, we are the job creators, we're the job producers. And yet, you say they have an incentive to send jobs abroad.
JOSEPH E. STIGLITZ: The whole discussion of who are the job creators, I think, has been misplaced. You know, what really creates jobs is demand.
BILL MOYERS: I spend my money to buy things.
JOSEPH E. STIGLITZ: Exactly. Americans of all income groups are entrepreneurial. You got people across our income distribution who, when there's a demand, respond to that demand. But if there's no demand, there won't be jobs. Now, the problem is that the people in the one percent have so much money that they can't spend it all.
The people at the bottom are spending all of their income and hardly getting by. In fact, a very large fraction of those in the bottom 80 percent are spending more than their income. And it's part of the instability of our economy. So, the point is this inequality contribute-- to which our tax system contributes, actually weakens our demand.
And that's one of the main messages of my report, which is if we had a more progressive tax system, we could get a more efficient economy. Because there would be more jobs being created.
BILL MOYERS: So, these 20 million people I referred to, and you referred to in your report, who are looking for full-time work but can't find it, if they had that work, they'd be spending their money. They're not going to send it to the Cayman Islands, right.
JOSEPH E. STIGLITZ: Exactly. And they're going to be paying taxes. Because they don't have the opportunities for tax avoidance that the people who have the Cayman Islands and can use these unlimited IRAs and other ways of tax avoidance. You know, they don't keep the money in the Cayman Islands because the sunshine makes the money grow better.
BILL MOYERS: Dark money, money in the shadows, money now going into our political process, as you know so well, to reinforce this tax code.
JOSEPH E. STIGLITZ: That's right. Reinforce the tax code, which has led America to be the country with the highest level of inequality of any of the advanced countries.
BILL MOYERS: Give us a working definition for the laity of corporate welfare.
JOSEPH E. STIGLITZ: Well, this was an idea that I began talking about when I was serving as chairman of the Council of Economic Advisers.
BILL MOYERS: Twenty years ago.
JOSEPH E. STIGLITZ: Twenty years ago. And everybody was talking about how much money you were giving to the poor people. It wasn't, if you actually looked at the amount of money, it wasn't that much. But we said, well, you're also giving away a lot of money to rich corporations, directly and indirectly. Most of the indirect way is through the tax system. So, for instance, if you give special tax provisions for oil companies, so they don't pay the full share of taxes that they ought to be paying, that's a welfare benefit.
Lots of other provisions in our, hidden in our tax code basically help one industry or another, that can't be justified in any economic terms. And, so, that's where we coined the term "corporate welfare." It's caught on. And because it says it's a subsidy, but not a subsidy, help going to a poor person, which is where welfare ought to be going, but going to the richest Americans, going to our rich corporations.
BILL MOYERS: So, we have a tax code that encourages companies to send their profits abroad, to send jobs abroad, and to reward owners of their company whose money may not come back to the United States?
JOSEPH E. STIGLITZ: It doesn't make any sense, you might say. And the fact it doesn't, you know, one of the reasons I wrote the paper was, you know, there's a lot discussion going on about we have a budget 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.
BILL MOYERS: The figures make sense to me. But the politics doesn't. Because these are the people, once again, who dominate our system with their contributions to the politicians who then have no interest in changing a system that rewards their donors.
JOSEPH E. STIGLITZ: We have this vicious cycle where economic inequality gets translated into political inequality. It gets translated into rules of the game that lead to more economic inequality, and which allow that economic inequality to get translated into evermore political inequality. So, my view, you know, the only way we're going to break into this viscous cycle is if people come to understand that there is an alternative system out here.
That there is an alternative way of raising taxes, that we are not really faced with a budget crisis. It's a manmade crisis. You know, when we had the government shutdown, we realized that that was a political crisis. That wasn't an economic crisis. And the same thing about our budget crisis, you know. It's not that we couldn't raise the revenues in a way which actually could make our economy stronger. We can.
If we just had a fair tax system, to tax capital at the same rate that we tax ordinary individuals, if we just made those people in that upper one percent pay their fair share of the taxes. They got 22.5 percent of the income, well, let's make sure that they pay a commensurate part of our income tax, if we had taxes that would be designed to improve our environment. If we--
BILL MOYERS: You mean by taxing pollution?
JOSEPH E. STIGLITZ: Taxing pollution.
BILL MOYERS: Carbon emissions.
JOSEPH E. STIGLITZ: A general principle that we've known for a long time, a lot better to tax bad things than good things. Rather than tax people who work, let's shift some of that burden into things that are bad, like pollution.
BILL MOYERS: You make it sound so easy. And I'm still hung up on your saying, you know, it would be easy to do these things. And yet, if they were easy, why haven't we done them?
JOSEPH E. STIGLITZ: Well, that’s the politics. The fact is that we have a political process that I won't say is broken, but is certainly not functioning the way we think a democracy is supposed to function, you know. In democracy, supposed to be one person, one vote. And there's a well-developed theory about what does that imply for the outcome of a political process?
We talk about it, called the median voter. It should reflect the middle, you know. Some people want more spending. Some people want less spending. Some people, you know, so the nature of democracy is compromise. And it's supposed to be compromise sort of in the middle. But that's not we have today in the United States. We have a tax system that reflects not the interest of the middle. We have a tax system that reflects the interest of the one percent.
BILL MOYERS: Let me cite some examples of the biggest tax dodgers. These come from the organization, Americans for Tax Fairness.
Citigroup had $42.6 billion in profits offshore in 2012 on which it paid no US taxes. Exxon Mobil had $43 billion in profits offshore in 2012 on which it paid no US taxes. General Electric made $88 billion from 2002 to 2012 and paid just 2.4 percent in taxes for a tax subsidy of $29 billion, I could go on. Pfizer, Honeywell, Verizon, FedEx, Apple. What goes through your mind when you hear these figures?
JOSEPH E. STIGLITZ: Well, so, many things go through my mind. But, you know, one of the things is how unfair this is, and how angry Americans ought to be about this.
I also think of the ethics of the question. If I were a CEO, take of a company like Apple, use the ingenuity of America, based on the internet. Internet was created, in large measure, by government--
BILL MOYERS: Right.
JOSEPH E. STIGLITZ: --by government spending. They're willing to take but not to give back. So, there's really a whole set of problems that concern it, ethics, equity, fairness, resource allocations. What they don't seem to understand is our society can't function if these large corporations don't make their fair share of contributions.
BILL MOYERS: Aren't they likely to say, though, in response, well we do this because the law permits it. This is what the system incentivizes.
JOSEPH E. STIGLITZ: Well the law does permit it. 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 they created, their lobbyists, their lobbying helped create this law that allows them to escape taxes, pushing the burden of taxation on ordinary Americans.
BILL MOYERS: So, that's the big impact on people, right. They, somebody has to make up the difference between--
JOSEPH E. STIGLITZ: 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.
BILL MOYERS: Summarizing what you say in here about your proposal, raise the corporate tax rate, but provide generous tax credits for corporations that invest in the US and create jobs here. Eliminate the loopholes that distort the economy, increase taxes on corporations, the profits of which are associated with externalities such as pollution, reduce the bias toward leverage by making dividend payments tax deductible, but imposing a withholding tax.
I mean, these seem so common-sensical that a journalist can understand them. But they don't get into the debate.
JOSEPH E. STIGLITZ: Yeah, well, I hope this paper will help move that along. You notice when you were listing them that these are very much based on incentives. As I said--
BILL MOYERS: Your plan is based on incentives?
JOSEPH E. STIGLITZ: On incentives that we've created a tax system that has an incentive to move jobs abroad. And what I want to do is create a tax system that has incentives to create jobs. And if you tell a corporation, look it, if you don't create jobs, you're taking out of our system, you're not putting anything back, you're going to pay a high tax.
But if you put back into our system by investing, then you can get your tax rate down. That seems to me, common sense, particularly in a time like today, when 20 million Americans need a job. When we have so much inequality and this unemployment is contributing to that inequality.
You know, in this, the first three years of the so-called recovery, between 2009 and 2012, 95 percent of all the gains went to the upper 1 percent. So, the American workers are not participating. And the reason they're not participating is there's just not enough job creation here at home. And, so, this is a way of trying to incentivize all these corporations who are sitting on all this money abroad to start using some of their huge resources, some of all those benefits that we've given them, for the benefit of the American people.
BILL MOYERS: You move in circles where you come into contact with the CEOs of these companies, many of whom are deficit hawks, you know. They keep, they’re on committees. They keep testifying in Washington. They call for deficit reduction. What do they say when you make this argument to them face to face, as you're making it to me?
JOSEPH E. STIGLITZ: Most of them are not economists. And most of them are concerned with their corporation's own bottom line and with their own salary. So, we've created a corporate system in the United States where the CEOs' pay is related to the shareholder value. The shareholder value is related to how little taxes they pay. Because if they can get the taxes down, profits look high and people will pay more for their shares.
So, when they're making an argument for, let's lower the corporate income tax, let's lower taxes that I have to pay, let's expand corporate loopholes, they don't use those words. But what they're really saying is, pay me more, because if I succeed in getting Congress to do that, my pay goes up, not because I've worked harder.
You might say, lobbying is hard work and taking congressmen out to dinner is hard work, and, you know, doing all those other things you have to do to get Congress to do what you want them to do, that's hard work. But it's not because I've really made the company more profitable in a fundamental sense.
I haven't invented something new. I haven't made my customers happier. I’ve made my company more valuable by succeeding in getting provisions that allow my company to avoid taxes. And then, my shareholder value goes up, my salary goes up.
BILL MOYERS: And you argue that the proposals you make in here for ending these loopholes, for ending tax avoidance, would actually create a more efficient economy than we are getting because of the tax avoidance that sends the money and the jobs abroad. How would ending corporate welfare benefit the economy here?
JOSEPH E. STIGLITZ: Well, let me just give you example that we were talking about before. Right now, we have a special tax provisions for capital gains. If we had had less encouragement to so much financial transactions, you know, the high-frequency trade, all those kind of things that don't create any value for our society.
But we subsidize them implicitly by the advantages that the tax system gives. So, if we had a tax system that discouraged some of this kind of excessive financial activity, if we actually taxed not only environmental pollution but the kinds of other activities that don't contribute to our society. We would divert more of our resources, scarce resources, more of our talents, to the kind of entrepreneurial activities, innovative activities, that Americans have, and into activities that would create jobs. And that would make our economy more competitive, globally. And that would create a stronger economy here at home.
BILL MOYERS: My conversation with Joseph Stiglitz will continue next week.
Corporations and their CEOs aren’t the only ones raking in profits by wiggling through a tax loophole and faking an overseas address. Here’s a column by Andrew Ross Sorkin in “The New York Times” headlined “Banks Cash In on Inversion Deals Intended to Elude Taxes.” Inversion, remember, is the word for the technique corporations use to “renounce their citizenship.”
And Sorkin reports that Wall Street banks, the very financial institutions saved by taxpayer bailout billions when the markets crashed in 2008, are making a mint, nearly a billion dollars, advising corporate clients to take advantage of the inversion rules and dodge their tax responsibilities here in America. At the head of the pack, JPMorgan Chase and Goldman Sachs. Here’s Jamie Dimon, chief executive of JPMorgan Chase, quote, “You want the choice to be able to go to Walmart to get the lowest prices,” he told reporters. “Companies should be able to make that choice as well.”
And then he said this, “I’m just as patriotic as anyone.”
Sorry, Mr. Dimon, it’s not patriotism, it’s a travesty – the corporate equivalent of moral treason. And all the rest of us have to pay for it.
There’s more from Joseph Stiglitz on our next edition of Moyers & Company:
JOSEPH E. STIGLITZ: We already have a tax system that has contributed to making America the most unequal society of the advanced countries. That doesn’t have to be. We can have a tax system that can help create a fairer society— only ask the people at the top to pay their fair share.
BILL MOYERS: And take a look at our website, BillMoyers.com. I’ll see you there and I’ll see you here, next time.
