Let’s Cut Our Taxes

Many Americans would like to pay less in taxes. That desire is a major motivating force behind the Tea Party revolt at the right end of the political spectrum. But I’m sure many liberals would also like to have their tax burden reduced. In the interest of bringing these two sides of our partisan political debates closer together, I propose that everybody get behind the following three ways to reduce the tax burdens of most Americans.

1. Do a better job of collecting the taxes that Americans owe. Every year about $385 billion in tax revenues are not paid. During fiscal year 2013, the US government collected $2.77 trillion in tax revenues, meaning that about 12% of what should have been collected wasn’t. Those uncollected taxes would considerably reduce the budget deficit and the resulting federal debt.

Who doesn’t pay their taxes? Most Americans would be easily caught if we cheated: our income is reported by employers on W-2's. Joe Antenucci, professor of accounting and finance at Youngstown State University, offers this profile of the typical tax cheat: “male, under age 50 in a high tax bracket with a complex return.” The most common method of cheating is to overstate church donations. But the most profitable methods involve hiding big incomes illegally. This year, Swiss bank Credit Suisse pleaded guilty to helping wealthy Americans hide billions of dollars from US tax collectors in foreign bank accounts, and will pay $2.6 billion in fines. Such methods are only open to the wealthiest Americans.

How can we stop such cheating, increase legal tax collections, and reduce the burden on the rest of us? Not by decreasing the enforcement budget of the IRS. Cuts in the IRS budget demanded by Congressional Republicans have reduced its staff by about 8000 people over the past four years, and thus reduced its ability to catch cheaters. As the IRS budget has dropped, so have the number of audits. I have read many different estimates of how much new revenue each additional dollar invested in IRS enforcement brings, ranging from $4 to $10. But it’s clear that increasing the IRS enforcement budget decreases the deficit and thus could contribute to lowering our tax rates.

2. Reduce some tax loopholes. There is always discussion about “tax loopholes”, legal ways that people avoid paying taxes. Congressional Republicans have recently talked about ending the loophole that allows homeowners to deduct mortgage interest. That would significantly increase the taxes paid by most middle-class Americans. But they haven’t talked about ending some amazing loopholes that benefit only the very wealthy. For example, in 1993 Congress passed legislation designed to prevent corporations from deducting giant salaries for their executives as expenses. But a loophole in the law exempted so-called “performance pay”, including stock options. Over the past 6 years, Walmart has claimed a deduction for $298 million in “performance pay” for its eight top executives, reducing its tax burden by $104 million. Multiply that by all the giant corporations that employ this loophole, and the result is a lot of money that must be made up by the rest of us.

Here’s another loophole. The biggest American pharmacy chain, Walgreens, is considering becoming the biggest Swiss pharmacy. If Walgreens, currently located in Illinois, reincorporates in Switzerland, its tax rate would be considerably reduced. In 2012, Illinois gave Walgreens $46 million in corporate income tax credits in exchange for a pledge to stay here for 10 years. Walgreens may not make the jump, but many other big US corporations have “moved” to tax havens like Switzerland and Ireland. Profits from American consumers end up as taxes elsewhere.

3. Make all income equal. Unlike the great majority of ordinary taxpayers, people whose income consists mainly of capital gains pay a much lower tax rate. Capital gains are taxed at 15%, or 20% for those who make above $400,000, while their rate for other income is 39.6%. In 2011 it was reported that billionaire Warren Buffett paid the lowest tax rate of anyone in his office, including his receptionist. Nearly all of the capital gains tax benefit goes to people with annual incomes over $1 million. Here’s the result: in 2007, the richest 400 households by income, who each made over $340 million that year, paid the same tax rate as those earning $50,000 to $75,000. The annual cost in tax revenues is about $40 billion.

We could have the same governmental services that we have now and pay less taxes if just these three changes were implemented. Or we could have somewhat more services (like better roads), and still pay less. We might feel better, too, because all Americans would be treated more equally.

What’s in the way? Each of these changes would benefit only 90% or 95% or 99% of Americans. The extra revenue from catching tax cheaters, from closing those loopholes, and from treating all income equally would mostly come from the richest 1%. They are a tiny minority, but they have the greatest influence. Their fellow millionaires in the Senate and the House are easily persuaded by the trickle-down economic theories which defend these tax breaks. Their personal connections to Congress through big donations and their lobbying groups magnify their voices. That’s not going to change unless the rest of us speak louder.

Steve Hochstadt

Jacksonville IL

Published in the Jacksonville Journal-Courier, July 15, 2014

Whom Does the Tea Party Like?

Tea Party politicians don’t like people who are out of work. In Congress and in campaigns they consistently oppose paying unemployment insurance to the most distressed citizens, those who have been out of work for the longest time. A poll earlier this year found that 70% of Tea Party Republicans oppose extending unemployment benefits and 65% oppose raising the minimum wage, even though most other Republicans favor these policies.

They don’t like people who have suffered from catastrophic events beyond their control. Chris McDaniel, the Tea Party favorite who challenged Republican Senator Thad Cochran in a Mississippi primary, said he didn’t know if he would have voted for federal aid to those people in his own state who were devastated by Hurricane Katrina, legislation that passed the Senate unanimously.

They don’t like poor people in general. Their arguments for reducing food stamps are that poor people are not motivated enough to find work, that poor people prefer living off welfare, that poor people are undeserving of public assistance. 84% of Tea Party Republicans believe that government aid to the poor does more harm than good.

They don’t like immigrants. Most of those who identify with the Tea Party want to deport all undocumented immigrants. But Tea Party supporters don’t like immigrants in general: over half think that “immigrants” take away jobs from “Americans”.

They certainly don’t like Muslims. A Brookings/PRRI survey of American attitudes in 2011 found that most Tea Party followers believe that American (not foreign) Muslims are trying to impose Sharia law in the US.

They don’t like people who are not like them. Pew Research has found that the most conservative Americans are the most likely to want to live where everybody shares their political views. They want to live where everybody shares their religious faith, which is overwhelmingly evangelical Christian. Only 20% of the most conservative want to live among a mixture of people from different ethnic and racial backgrounds. About one-third of the most conservative would be unhappy if a family member married a Democrat and one-quarter don’t want a family member to marry a non-white. That fits with most Tea Party supporters’ generally negative beliefs about African-Americans: a 2010 study found that among whites who approve of the Tea Party movement, “only 35% believe Blacks to be hardworking, only 45% believe Blacks are intelligent, and only 41% think that Blacks are trustworthy.” A Public Policy Poll in 2011 found that 46% of Mississippi Republicans thought interracial marriage should be illegal.

It’s obvious that Tea Party politicians don’t like Democratic voters, who have been the majority of Americans in 5 of the past 6 Presidential elections, and by far the majority in both the Presidential and Congressional elections of 2012. But this goes beyond dislike: two-thirds of the most conservative Republicans see the Democratic Party as a “threat to the nation’s well-being”.

Tea Party politicians don’t even like their fellow Republicans. They taunt other Republicans with the nickname RINO, Republicans In Name Only. They challenge established Republican politicians in primaries as insufficiently conservative. And as the Mississippi election last month demonstrates, they don’t accept losing. McDaniel, who was beaten in a narrow primary by Senator Cochran, won’t say he will vote for him in November.

Tea Party politicians don’t really believe in democracy. Not only does McDaniel argue that some people should not have been allowed to vote against him. He, like other Tea Party politicians, does not want to govern democratically. They want to impose their minority ideology on the rest of us. They believe that any compromise with the majority is evidence of evil. Dave Brat, who defeated Eric Cantor in Virginia, had a photo of Cantor speaking with President Obama prominently displayed on his website.

The most conservative are the least likely among Americans to favor politicians who make compromises. They don’t care that their core beliefs are not shared by most Americans. They are not willing to acknowledge their minority status. An early poll showed that nearly all Tea Party supporters believed their ideas reflected the views of most Americans, although every poll shows that they don’t.

The Tea Party is nothing like their namesakes. They do not believe that all men have inalienable rights. Only they have the right to say what is right. They don’t want to govern, they want to dictate. They don’t like most Americans, who don’t agree with their ideas. They probably don’t like you.

They are intolerant and dangerous. They applaud when radicals like Cliven Bundy take up arms against the state. Imagine what Tea Party politicians would do if they had power, if they could command the police, the armed forces, the FBI. Imagine their reaction to criticism, to dissent, to Americans exercising our rights say “no”.

Recognize the danger that Tea Party politicians pose to our way of life. Don’t vote for them.

Steve Hochstadt

Jacksonville IL

Published in the Jacksonville Journal-Courier, July 8, 2014

What Makes a Perfect Politician?

What do we want in a politician?

We want broad knowledge of the American economy and how it affects average Americans. Not partisan slogans or talking points, but real knowledge from years of thoughtful work with economic issues.

We want courage to stand up to powerful interests. The wealthy can make big political contributions; giant corporations hire armies of lobbyists. But average Americans, who put politicians into office with their votes, can only hope that these representatives actually represent them, rather than the rich people who buy them meals, take them on private jets, and fill their campaign coffers.

We want independence from all the forces which demand that politicians toe a certain line. The biggest forces are the two parties, which don’t like their members to break ranks. Lobbying groups, like the NRA or labor unions or banks, try to buy or threaten politicians who don’t do their bidding.

We want people who use politics as a means to improve American life, not their own lives. We want politicians who will leave office with a record of accomplishment, not with swollen bank accounts and cushy corporate jobs, that they have gotten by promoting their own interests.

Not many of our current politicians fit these criteria. One who does is Senator Elizabeth Warren. Lately I have been listening to her autobiography on tape, which she narrates herself. Like all political memoirs, one purpose is to advertise and proselytize, but Warren mostly tells revealing stories from her life.

Although she represents Massachusetts, she was raised in Oklahoma. Her understanding of economics comes from her own family’s financial hardships: she worked as a waitress, went to college on a scholarship, but quit after two years to get married and raise children. She completed college in Houston and taught law in Texas for nine years, before moving to the University of Pennsylvania and then Harvard.

Warren’s deep and detailed understanding of how our economy has caused so much distress for middle-class families over the past 30 years came out of her work as a lawyer specializing in bankruptcy and personal finance. As advisor to the National Bankruptcy Review Commission after 1995, she traveled the country listening to families going through bankruptcy. She learned that Americans in economic crisis were not the deadbeats or spendthrifts of ideological fantasies, but typical families who endured unexpected setbacks, like illness or loss of a job. They were caught in a financial system designed to protect banks, not citizens.

Warren has been fighting for American families for decades, lately as the most public advocate for protecting us from the clever tactics of money lenders trying to squeeze a few more dollars from average families. She created the ideas behind the Consumer Financial Protection Bureau (CFPB), as a means to give families with credit cards and mortgages a fighting chance (her book’s title) against giant corporations selling tricky credit products, raising interest rates, and hiding fees.

Elizabeth Warren meets all the criteria I set out above. Her work exemplifies both sides of the partisan debate about “big government”. Conservatives who say they oppose big government really oppose limitations on what big corporations can do to us, their customers. Republicans in Congress tried every possible tactic to prevent the CFPB from coming into existence, exactly what the big banks and credit card companies wanted. If the language of your credit card statements is now clearer, the opportunities the credit card issuers have to raise your rates are now more limited, and the fees they can charge for lateness are spelled out, thank the new rules of the CFPB.

On the liberal side, the CFPB represents what regulation really means. Nobody is prevented from making an honest dollar, but dishonest tactics are now being policed by those with power to make corporations stop. Ally Financial had to pay an $80 million court judgment for racial discrimination in auto lending. Ocwen Financial Corp., the nation’s fourth largest mortgage servicer, has to provide $2 billion in principal reduction to underwater borrowers. That latter victory represented a collaboration of the CFPB and the attorneys general from all the states. Richard Cordray, head of CFPB, estimated that Ocwen illegally foreclosed on 185,000 people; some estimate that this number should be much higher.

Although Warren is considered to be very liberal, in fact she stands outside of partisan politics more than most politicians. She was a Republican for most of her life, and remains an advocate for markets, as long as they are fair for consumers. Her book is critical of the Obama administration for funneling hundreds of billions to the biggest banks, but little to underwater homeowners. Her criticism of the power of big corporations is echoed by the most conservative voters.

Isn’t that what we want our politicians and our government to do? Who else could possibly protect us from cheats like Ally or Ocwen? Who else could protect us from serial swindlers, like Barclay’s Bank, already proven to have manipulated interest rates and gold prices, and now accused of repeatedly lying to its best investors about how they traded stocks. This is not the “nanny state” of the ideological right wing. This is a government acting as sheriff, what every community needs for protection against those who would take advantage of the weakest members.

Steve Hochstadt

Jacksonville IL

Published in the Jacksonville Journal-Courier, July 1, 2014