Tuesday, November 28, 2017

Reforming Taxes

Probably the biggest news for this week is the anticipated vote on Tax Reform that the House has already passed and the Senate is currently considering.  Restructuring taxes is something that is probably supported by most Americans, assuming the outcome for every American is the same -- that our particular tax bill will be lower than it has been.

Obviously reducing everyone's tax bill is not possible.  While some people's tax bills will definitely go down, others will undoubtedly go up, but not necessarily in ways that will be obvious to everyone.  For example, eliminating the deduction for home mortgage interest while raising the "standard" deduction may look like a wash but the only way to be certain is by comparing your particular situation from last year with what the potential outcome will be with the change.  That is difficult to do since the information on the bill that has been released so far does not contain specifics that one can apply to an individual situation.  In short, we probably won't know the benefits (or harm) until the measure is passed into law.  That's not very comforting.  One has to wonder why the Senate would operate under such conditions.

The other portion of the proposed Tax Reform bill is for corporations.  The current tax rate in the United States on corporation is 35%, which is the third highest in the developed world.  And business owners have fought against this every way they can, as one would expect.  Tax incentives abound for corporations and those savvier CEOs take advantage of every one they can.  With the proposed reforms, the tax burden of these companies would go from 35% down to 20%.  While that won't make America's tax rate for corporations the lowest in the world (Ireland and Great Britain, for example, are both lower than 20%), it would make this country more favorable to doing business here, and, the argument goes, increase the ability of all companies here to offer more and higher paying jobs, expand their operations in America and increase needed research and development.

All of these are good arguments and points that most Americans can support.  The problem is, they just aren't factual.  This last August The Institute for Policy Studies released their 24th annual report on Corporations and those corporations' current role in the tax paying drama.  The study looked at 92 publicly held American companies that a) reported profits every year from 2008 through 2015, and b) paid less than 20% in federal income taxes (less than the corporate tax rate proposed by the House and Senate Tax Reform bills).  Their findings don't give weight to the argument that cutting taxes increases job growth, expansion or research.

The median job growth between 2008 and 2016 of these companies was a negative 1 percent.  Among US companies as a whole in that same period the growth was 6%.  While 6% is not a large number, at least it's a positive.  For these studied companies, there was an overall job loss.

48 of these 92 companies (52%) eliminated a total of 483,000 jobs during this time period.  That hardly suggests job growth.  If these companies are paying less than the proposed new tax rate, why did they cut jobs?  Remember these companies posted profits EVERY YEAR.  Where is the job creation?  What did they do with those profits?

The average pay for the CEO of these companies increased to $13.4 million.  That's an 18% increase.  That compares to a 13% increase for CEOs in the S&P 500 and 4% in the private sector.  And for the CEOs of those 48 companies that slashed jobs, they enjoyed a pay of $14.9 million on average.

But those increases are worth it if these companies are expanding and doing research (since we know they are not using their profits to increase their workforce).  But, that doesn't appear to be the case.  In fact, the top ten companies that cut jobs also spent $45 billion EACH buying back their own stock.  Which is money well spent if your goal is to make it appear that your stock is worth more than it actually is but does nothing to add to the job market.  

Then what can be done for tax reform?  For corporations, tax reform does not appear to be necessary.  Looking at the information above, 92 companies made profits every year for the past decade yet paid less than 20% in taxes.  They are already paying below the level that the Senate is proposing, so unless the tax incentives remain, these corporations will wind up paying more than they have in the past.  Given the current political climate in Washington, I highly doubt that this is the intended outcome.

Instead of rewriting the tax code, I would suggest passing two simple pieces of legislation.  The first is very simple; no publicly traded corporation in America is allowed to buy back its own stock.  This would eliminate the possibility of a company artificially inflating its stock price and in the example above, would have provided $450 billion for job creation, expansion and research.  

The second piece of legislation would change who can take advantage of tax cuts.  Put simply to qualify for any tax breaks a company cannot pay its highest paid employee more than eight times what it pays its lowest paid employee.  "Pay" would include all forms of compensation, including benefits, stock options, etc.  If, for example, a corporation pays a receptionist $20,000 annually, and values that employees benefits package at an additional $20,000, the total compensation for this position would be $40,000.  That would allow the corporation to pay its CEO $320,000 in total compensation.  If the benefits equal the salary, then the CEO would be paid $160,000 annually.  That's a far cry from the $13.4 million that the CEOs of the 92 companies above are paid (on average) and much less than the $14.9 of the 48 CEOs who cut nearly half a million jobs.  But look what this legislation would do for our workforce. If the CEO wants to keep earning $14.9 million (assuming this is total compensation), then the receptionist must be paid nearly $1.9 million.  This is probably not going to happen, but the lowest paid salary can certainly be increased while CEO pay is decreased to level out somewhere closer to the middle.  Offering salary and benefits totaling $80,000 to the lowest paid employee would make that position livable (and using my ratio of equal pay and value of benefits, this salary of $40,000 would essentially be an hourly salary of $19.24 (roughly)).  As an entry-level position or an unskilled occupation, that salary would certainly appeal to most job-seekers.  In this scenario the CEO would earn $640,000 annually, or $320,000 salary and $320,000 in benefits.  Most Americans would agree that this is certainly a livable wage.

This is reform that would actually make a difference.  While the current proposed legislation will make the rich richer, my scenario would lower the wealthy to a still wealthy position, just not as high while raising the lower paid positions to something that would benefit the people who truly need it the most; the rank and file who do the work that makes companies profitable.  And by cutting the executive salaries to something reasonable, there will be more money available for creating more jobs, expanding businesses and conducting research.  Under this proposal, there are more winners.

For anyone interested in reading the full report referenced above, a copy of it can be found here: http://www.ips-dc.org/wp-content/uploads/2017/08/EE17-final-embargoed-for-August-30.pdf


Wednesday, September 6, 2017

We Don't Need A Wall

The issue of immigration has always been contentious in this country but particularly now that President Trump is in office.  He ran on a platform of building a wall and keeping out illegal immigrants, but a wall does more than keep out illegals; it sends a signal to the world that "outsiders" are not welcome here.  That is probably not the message that most Americans want the world to receive.

So, rather than building a wall, why not just reform our immigration laws?  Right now we have a quota system, and it has never been a fair system.  From the very beginning it was designed to keep certain people out, not to be inclusive of those in need.  Jews, Irish, Chinese, Germans, Italians, Puerto Ricans, Haitians, Cubans, Mexicans and many others have been singled out over the years as being groups who were undesirable and unwelcome in this country.  Yes, these people are now part of the fabric of this country and have added to the greatness of this nation.

Limiting immigrants to only "those we want" (wealthy, well-educated and from first-world nations) and not allowing "those we don't want" (poor, Latino/dark-skinned from third-world countries) is not the way we need to handle this problem.  But we also have to address the very real issue of Americans who feel that their jobs are in jeopardy from immigrants taking lower pay to do the same job.  Particularly in areas where unemployment is very high, seeing immigrants moving ahead is hard to swallow.  Those feelings are valid and must be addressed.

To that end, I propose an overhaul of the system that would be more fair to everyone; both immigrants and Americans.  For the immigrants, we have a more open system, but one that requires a paper trail.  Illegal immigrants will only be those who refuse to follow the administrative course that will be required for entry into this country.  For anyone who goes through the proper channels, they will be allowed in (with few exceptions) and will be allowed to stay so long as they obey the rules.

The process is fairly simple; anyone who wishes to emigrate to the United States would visit the nearest US Embassy (or its website) and complete and application.  That application would include a small fee that would be used to process the application.  Most importantly, a background check would be done on the applicant, looking for evidence of violent crimes.  Note that stealing food to feed the family is not a "violent" crime.  People with records of rape, attempted murder, assault, battery and the like are not the people we need in this country.  Those applicants would be denied.  Anyone without a record would be allowed in.

The next step is a medical checkup.  Immunizations must be up to date.  Those would be arranged through the embassy for a small fee.  We don't need sick people bringing disease into our country.  Lastly, the applicant must have a sponsor in America.  A person, family, church or organization that is willing to accept them.

Once the paperwork is done and accepted and the immunizations are completed, the person will be allowed to enter the country.  In their first week they must report to the local police station and register as a legal immigrant.  They will need an address and phone number where they can be reached, and if they move, they must report their new information within one week.  This registration will allow them to apply for a social security number and a driver's license.

From the date they enter the country, they will have six months to either begin working full-time or be accepted to school full-time.  No one will be allowed to stay in the country if they are not working to better themselves.  Every six months they must report to the police department and check in to ensure that we always know where they are and what they are doing.  They must file their income tax return on time every year, and that must be shown to the police.  Once they have filed fifteen federal income tax returns, they would be eligible for citizenship.

The major change in this system is what they cannot do.  No immigrant will be allowed to collect any public benefit until they have filed fifteen federal income tax returns.  This means ALL welfare programs are off limits.  Even if a woman comes into this country and gets pregnant from an American, unless he has custody of the child, she and the child are not allowed any public benefits.  No immigrant would be eligible for government grants for school, they could not apply for any Obama Care programs, they cannot collect any welfare.  If they have worked and they are laid off, they would be allowed to collect unemployment, but only to the amount that they have paid into the system.

This change in our system is more fair to the Americans while allowing immigrants to enter our country without the fear of being illegal.  It would allow them a path to citizenship while not taking benefits from hard-working Americans.  It would show us as a country that is welcoming to those in need, not a nation that builds walls to keep them out.