What the banks’ three-year war on Dodd-Frank looks like

A fascinating account from the Sunlight Foundation of the gutting of a regulatory initiative by the kind of methodical persistence that can only be sustained by special interest groups with much to be gained from weak regulation:

In the three years since President Barack Obama signed the Dodd–Frank Wall Street Reform and Consumer Protection Act, federal regulators charged with implementing it have opened their doors to the biggest banks over and over again – 14 times as frequently as they have to representatives of consumer and pro-financial reform groups, a new Sunlight Foundation analysis finds. 

By most accounts, the banks’ besiege-the-regulators strategy has yielded rich rewards in sapping, slowing, and stymieing regulations intended to prevent another massive financial crisis. The emerging consensus is that Dodd-Frank implementation is limping, while the big banks are poised to return to being the most profitable industry in the U.S.

The website feature an interactive showing the number of meetings by sector over the three years; you can mouse over the dots to see their identities. Is it any surprise that the Giant Vampire Squid is at the top with a whopping 222 meetings, followed closely by JP Morgan with 207? Each of these giants independently dwarfs the entire "pro-reform" group, that tiny cluster of dots on the other end of the graph.

Here's a chart depicting meetings by sector over time:

From the discussion:

In the 152 weeks our data cover, we find 59 weeks in which regulators met with financial sector representatives at least once every single day (Monday through Friday), and 47 weeks in which they met with financial sector representatives at least four times. 

... By contrast, active pro-reform groups appeared in only 153 meetings logs – only about one meeting for every 14 regulators held with financial institutions and associations. Moreover, 24.2 percent of pro-reform group meetings took place on a single issue: the Consumer Financial Protection Bureau. 

...Law and lobbying firms, largely working in service of financial institutions, appeared in 707 meetings. Other, non-financial corporate interests, largely energy and agricultural companies, participated in 381 meetings. These companies are major purchasers of derivative contracts, which they use to hedge against price risk.

Imagine you're a regulator. 3,000 meetings with finance industry lobbyists, lawyers, and other corporate interests over three years, each one doing their best to explain why you should undermine the law as written in some tiny way. Would you not want to tear your hair out? Quit in despair? Or just give in to the soothing balm of lobbyist favor? What could possibly be left of the law after this barrage? Meanwhile the anti-regulation crowd has worked very diligently to kill Dodd-Frank's provisions in other ways, such as the lawsuit against the corporate tax transparency provisions sponsored by the American Petroleum Institute.

Sunlight catalogues the delays and dismantling of Dodd Frank that has been accomplished by all this lobbying and litigating and concludes:

...Collectively, the data offer a powerful testament to the oldest and still perhaps most effective technique in the lobbyist’s playbook: sheer persistence. As the Dodd-Frank law passes its third anniversary, lagging on deadlines, and increasingly defanged, the meetings log data offer a compelling reason why: the banks have overwhelmed the regulators. 

Lobbying pays, and it pays whether it is done before, during, or after legislation has been passed. This represents a major governance crisis with no redress anywhere to be found.

Who is to blame for Starbucks-style tax dodging?

The answer is "government" if you believe the Telegraph, from an opinion by "Richard Emerton, Head of Board Practice at Korn/Ferry Whitehead Mann" (an executive recruiting firm). He's enthusiastic about tax competition: the kind that will keep European companies "competitive" on a "level playing field" by lowering their taxes on purpose, and he's keen to blame government alone for any failure of tax policy to date, e.g. the kind of failure that led to the public shaming of Starbucks and friends.

I agree with Emerton when he says stop blaming the companies (alone) for failing to pay taxes when this is the system that has been deliberately set up to meet them. But let us not forget that the rules have long been written collaboratively amongst government and business interests with virtually no civil society oversight. Once again, multinationals have the best tax system money can buy. Emerton does forget to mention that part, and goes too far in shifting the blame to government alone. Excerpts:

...The UK Government has done a good job in creating a tax system that encourages businesses to set up in Britain and the Chancellor has made it clear he wants international businesses to operate here. It is therefore important he does all he can to prevent European politics from perverting his well-intentioned efforts to look at the problem from an international perspective.  

What strikes me as counter-productive about the debates that have taken place over the likes of Starbucks and Google is the anti-business rhetoric from many politicians in the search for public approval. A degree of anger from the public may be understandable, but is it directed at the right targets? Korn/Ferry’s latest “Boardroom Pulse” survey of FTSE 100 chairmen suggests that business leaders think not.

Not sure what that survey asked, but let's assume it was something on the order of, "do you enjoy being publicly pilloried for doing your best to exploit every means of tax reduction your government generously makes available to you?" And the follow up question ought to have been (but probably was not) "Do you enjoy public scrutiny of your constant attempts to influence tax policy at every level of governance in order to achieve that generosity of spirit on the part of lawmakers?" To which the answer would no doubt have likewise been a resounding "business leaders think not." Emerton goes on:

While agreeing that the public has a right to be angry, many respondents felt that dissatisfaction should be directed towards the tax legislation and those in charge of it, rather than the companies observing it.Indeed, it is governments that have failed to modernise international tax legislation in decades, despite the wholesale changes that have taken place in the way businesses operate across borders. 

Oh, but Mr. Emerton, you failed to define a key term here: "those in charge of it." I mean, it's not like the companies that help write the law are shy about it. That is, after all, what organizations like the BIAC and the ICC are for, and if you don't know what the BIAC or ICC are, well, you're not trying hard enough to understand international tax. Look also for example at any number of marketing brochures by the likes of the big four. They are not hiding their influence, they are selling it as a product. Here's one by KPMG that I just happened to come across yesterday:

Our professionals have been directly involved in writing and reviewing the applicable Treasury regulations ... which govern tax-free separations."

You will come across this kind of claim all the time if you do any work at all in tax, so it is disingenuous at best to fail to mention industry influence as a major aspect of tax lawmaking at the national and international levels. But Mr. Emerton moves along quickly to make hay of the old adage that every one has a right to minimize their taxes and for company directors this has become a duty:

The chairmen we surveyed pointed out that company directors have a fiduciary duty to minimise tax bills, providing they are acting in an ethical manner and are not inviting legal risks.

That's a pretty vague provided, and a big weight to carry for fiduciary law. Emerton hammers it home:

Which raises a fundamental question stemming from the tax issue – should the primary duty of a company’s board and senior management be to its shareholders, or to the wider moral and social concerns of the public?

Notice this is assumed to be an either/or and not a both, and it's also committing the false dilemma fallacy. But having committed, we must have follow-through:

The chairmen we talked to were divided. Yes, business leaders have a duty to drive value for their shareholders. And yes, businesses also have a duty to act responsibly as members of wider society. It is the responsibility of the leaders of these businesses to strike a balance and most of them make significant efforts to do so. Inevitably, sometimes they get this balance wrong, but attacking them for trying to drive shareholder value while playing by the rules of the game will solve little. A better focus of our energies is to ensure that international tax laws are strengthened by the regulatory framework governing businesses, allowing them to focus on achieving long-term sustainable value for shareholders and for society. However, policymakers must ensure that this isn’t achieved at the expense of a level playing field for businesses across the world, not just one part of it.

The author channels every "we paid all the tax that is legally due" defense ever given in the face of public pressure against tax dodging. He also invokes the "level playing field" metaphor, which is always invoked for every destructive tax policy that was ever invented in response to every other destructive tax policy that was ever invented. So three cheers for tax industry rhetoric, bandied about in any tax policy dialogue to make sure no one thinks too hard about the systemic choices at issue here.

Score ten points to Mr. Emerton in pointing out that blame for tax dodging rests in a legal system that has been specifically designed to encourage it. But take away nine points for failing to mention the big part business plays in constantly perpetuating that kind of design. Then take away two more points for failing to mention that some things only look like dutiful tax minimization until the tax authority figures out what you are doing, and then they are clearly tax evasion. Cf Dow, Ernst & Young, and Jenkins & Gilchrist tax partners, and that's all in just one week.

That puts the column in the negative territory, which is right about where the author appears to think that the tax liabilities of fiduciary-duty-abiding corporate managers ought to keep their companies' tax burdens.

Eisinger: the madness of revolving door politics, American-style

Jesse Eisinger of ProPublica has a dealbook entry today, A Revolving Door in Washington With Spin, but Less Visibility, with insightful comments about governance. It would be a provocative and shocking article were it not for the utter familiarity of the story it tells about lobbying and lawmaking in America:

Obsess all you’d like about President Obama’s nomination of Mary Jo White to head the Securities and Exchange Commission. Who heads the agency is vital, but important fights in Washington are happening in quiet rooms, away from the media gaze. 

...For lobbyists, the real targets are regulators and staff members for lawmakers.

Eisinger correctly states that while White herself will be subject to public scrutiny, her staff will mostly work in "untroubled anonymity." Cue the revolving door: on Jan. 25, Senate majority leader Harry Reid hired Cathy Koch to be his chief adviser on tax and economic policy. Eisinger points out an oddity:

The news release lists Ms. Koch’s admirable and formidable experience in the public sector. “Prior to joining Senator Reid’s office,” the release says, “Koch served as tax chief at the Senate Finance Committee.”

...[but in fact] immediately before joining Mr. Reid’s office, Ms. Koch wasn’t in government. She was working for a large corporation.

Namely, GE--yes that one, that hugely profitable multinational that just doesn't seem pay tax anywhere, anytime. And the one that can't even get it's own story straight on the issue.  More from Eisinger:

Just as the tax reform debate is heating up, Mr. Reid has put in place a person who is extraordinarily positioned to torpedo any tax reform that might draw a dollar out of G.E. — and, by extension, any big corporation. 

...no rules prevent Ms. Koch from meeting with G.E. or working on issues that would affect the company. 

...In a statement, the senator’s spokesman said, “The impulse in some quarters to reflexively cast suspicion on private sector experience is part of what makes qualified individuals reluctant to enter public service.”

But that's a silly thing to say because of course Ms. Koch just did enter public service, so either the spokesman is saying we couldn't get anyone qualified so we had to go with her, or we must imagine that the reluctance has been overcome by some expected reward. We don't have to think too hard to come up with some ideas about what that reward must be.

Eisinger moves on to a particularly fluid relationship between the Office of the Comptroller of the Currency and the Promontory Financial Group, which Eisinger calls "a classic Washington creature that is a private sector mirror image of a regulatory body." Julie Williams, who was chief counsel for the OCC last year, is now at Promontory, while her replacement, Amy Friend, is coming to the OCC from Promontory. Eisinger suggests that maybe they can swap back next year; that would at least save the taxpayers all the moving expenses back and forth between these two offices. Hey, we've got money problems here and it's not looking like they are going to be fixed--every litte bit helps. Eisinger concludes:

Washington today resembles something like the end of “Animal Farm.” People move from one side of the table to the other and up and down the Acela corridor with ease. An outsider looking at a negotiating table would glance from lobbyist to staff member, from colleague to former colleague, from pig to man and from man to pig and find it impossible to say which is which.

What can we expect when this passes for democratic governance? Nothing but more of the same, I think.

Fix the Debt: bipartisans fooling some of the people all of the time (a primer on the solidarity of the 1%)

Gaius Publius is upset with bipartisan support for Fix the Debt, and points out the class-based solidarity of the rich (which of course aligns interests both within and beyond the nation state in ways that appear unprecedented to us today, but remind us of how things were during the last gilded age). He says:

Most left-side commenters paint "Fix the Debt" — the well-funded campaign to scare Americans into believing the debt is not only going to destroy us all, but that massive cuts to Medicare, Social Security and Medicaid are the only way to "fix" the "problem" — as a billionaire-led, CEO-led operation to kill (or at least seriously maim) the social programs by delivering one blow after another. But Fix the Debt is also a bipartisan operation.

This is about bipartisanship — real bipartisanship, bipartisanship in the bad way. 

...The real divide in this country is not Left versus Right — it's the Rich versus the Rest. It's the horizontal division between the people taking all the money they can, and those they're taking it from.
Among the rich, there's a widely-agreed center position — more for us, less for everyone else on the planet.

GP directs us to research done by watchdog group SourceWatch: a Fix the Debt portal, where they say:

The Campaign to Fix the Debt is the latest incarnation of a decades-long effort by former Nixon man turned Wall Street billionaire Pete Peterson to slash earned benefit programs such as Social Security and Medicare under the guise of fixing the nation's "debt problem." Through this special report -- and in partnership with The Nation magazine -- the Center for Media and Democracy exposes the funding, the leaders, the partner groups, and phony state "chapters" of this $60 million "astroturf supergroup," whose goal is to achieve a grand bargain on austerity by July 4, 2013.

SourceWatch lays out the various supporters and their bipartisan credentials, corporate ties and conflicts of interest; most have transitioned at least once from politician to lobbyist and/or vice versa, and big pharma, big oil, big finance, and the health insurance industry are all well-represented.  This is a delightful romp through the revolving door of democracy, American style.

GP says many (or most) of these individuals also have big-time conflicts of interest, as documented by Source Watch; they stand to benefit personally if what is now public becomes private and for-profit. They are all simple rent seekers, in other words, and the national debt is their trojan horse (or is it a rabbit).  This is not (or should not be) news, yet time and time again we see that you can fool some of the people all of the time...and, per George W. Bush,  "those are the ones you want to concentrate on.”

For an absolutely terrifying view of what that kind of concentrating looks like, GP ends with this video (which I can't even get all the way through so I can't tell you how it ends). The sheer number of rhetorical games played in the first 15 seconds alone is enough for me; when they get to the dancing I just want to weep.

Taxcast: opening the black box on who makes global tax policy and how they do it

I'm pleased to have been part of the February 2013 Taxcast from Naomi Fowler and the Tax Justice Network  In this edition of the taxcast Naomi looks at current trends in transparency and taxing the digital economy and then delves into the question of global tax reform, asking whether we should expect real progress from the OECD, a rich country thinktank/inter-governmental organization/lobbyists network.

Readers here will not be surprised that I am critical of norm-making from the OECD, given its essential character as a forum for back-room dealmaking between business interests and government. NGOs have been trying to gain greater access, but it is a slow and arduous process, as we saw recently with an informed citizen trying to gain access to something the OECD advertised as a "public" meeting. In the taxcast Richard Murphy is cautiously optimistic that the pressures being brought to bear on the OECD will bear fruit--that governments are starting to see that they have to be responsive to constituents beyond the business community, and they will have to make real changes at some point.

I am less optimistic given the institutional structure in place but I am hopeful because at least the right questions are being asked: good policy is a product of good process, and the converse is also true.  That means that who is in the room is of vital importance when it comes to developing norms. If NGOs, watchdog groups and citizens are paying attention they will pester the OECD if it tries to develop global transparency standards on tax from inside its own black box.

I do love these US Dept of State "Remarks to Global Business Conference"

I have no idea why these remarks ended up in a State Dept email distribution I got today, as they date back to a year ago, but they are fascinating anyway: a speech given by Thomas Nides, Deputy Secretary for Management and Resources, to something referred to only as "Global Business Conference." That's not very specific, but I think you'll agree the remarks tell us a lot about the audience and the speaker (and governance, and the revolving door between business and government, and the role of law and the rule of law, and the stories we tell ourselves about those things, and etc etc). Excerpts of note:

...as Deputy Secretary of State and as a recovering businessman myself, I am delighted to welcome so many of my friends from my past and present lives all in one room.  

...First, why do we, as diplomats, care about economics? The simple answer is that good diplomacy is good economics, and good economics is good for diplomacy.

A reminder: what's good for GM is good for America. 

America's global leadership and our economic strength at home are fundamentally a package deal, and we need to shore up both of them. We live in an era where the size of a country's economy is every bit as important to exercising global leadership as its size of its military.

Was that ever not the case? It takes big money to build a big army and supply it with big guns.

The reach of our corporations extend far beyond where even our most aggressive diplomats and development workers hope to go. And, closer to home, America's people are hungry for economic recovery. In a global economy, there's no such thing as a purely domestic recovery. That means the State Department, which manages our relationships around the world, is essential to exercising our economic influence, keeping America prosperous, and creating jobs here at home. 

Second, why did we invite you? Because we believe that building sustainable global growth and creating jobs at home is fundamentally a joint venture. The private sector innovates and allocates capital, and delivers remarkable products and services. And the government opens new markets and ensures the rules are fair. At a time when competition is fierce and jobs are still too far scarce, we in diplomacy and business have to bring our partnership to the next level. 

You innovate, we make things fair, everybody's happy, to a whole nother level indeed. So, who got invited, who is in the room? Why, it's "Business leaders from across American industry, from large companies to small ones ... as well as organizations working to promote American business and fair competition, including my old friend, Tom Donohue." Don't know who that is? Read Matt Stoller's take from several years ago, it's important. And with whom will these business leaders be networking in the halls between remarks lauding their innovation and sheer excellence in creating jobs in America? "Vice President Biden, Commerce Secretary Bryson, our Trade Ambassador Ron Kirk, and the heads of Ex-Im, TDA, and OPIC and Secretary Clinton." And yet there's more, so much more to come.

Which brings me to my third question: What do we, as the State Department, bring to the table? I would submit that the answer is: a huge amount. We are the face of the United States in over 190 countries and at 274 posts around the world. We fight for your rights.

I know you want to add "to party" and I think overall, you'd be right to add it there.

...Over the past 60 years, we have helped establish the rules and institutions to safeguard healthy economic competition and spur unprecedented global growth.

Yikes. Just, yikes. But then there is this absolute gem:

...We have over 1,000 State Department economic officers around the world who wake up each day and ask themselves how they can help American companies large and small compete, connect, and win. From bilateral trade and investment treaties to open skies agreements, we open markets for your companies. We advocate on behalf of U.S. companies exporting to just about every country in the world. We make it a priority to help American companies take part in the growth unfolding across the developing world.  

...And whenever we have seen barriers to open and free and fair and transparent competition, our embassies around the world push back. We push back against unfair barriers to investment. We push back to protect intellectual property, to protest discrimination against our companies, and to guarantee that all companies get a fair shake, whether the owners sit in corporate boardrooms or government ministries. When American businesses are not fairly treated, that's not just an economic issue; it's also a diplomatic issue. 

And let me be clear. We just don't seek a fair shake for American companies; we seek a fair shake for all companies. ... We know that when the competition is open and free and transparent and fair to all people, American companies have what it takes to compete. And we know the same values that help our companies will also help local entrepreneurs, foreign businesses, and ultimately everyone for one simple reason: They create economic growth that improves lives.

Yeah!  That's how winning is done!  Don't forget to visit your mother.  Really, I just had no idea that the State Department had a pep squad of 1,000 "economic officers" [what is that? ah, negotiators of fair competition, economics knowledge helpful but not required] all over the world who woke up every day asking themselves those questions and then answering them. That really is remarkable.

Fourth and finally, what do we hope to accomplish here together? We want to hear from you. We want to know your concerns, where you see opportunities, where you see gaps in our work. We also want you to know that you can turn to us for support. 

...We at the State Department want to help create the conditions that will empower American businesses to get out there and take the risks that will drive a recovery around the world. ... The idea that business, on the one hand, and government, on the other hand, can simply operate in parallel worlds just doesn't cut it. We have to work together. That's what this conference is all about, and that's why I'm glad you're here. Thank you very much. (Applause.)

Then he introduces Ron Kirk. I always do enjoy a speech like this, even if I am a year late to the party. Number of times he used the word fair: 11.  The word compete or competition: 8. The word help: 8. The word jobs: 6. The word business: 17. The word lobby: 0.

US and Canada do some more dancing on energy

From the FT: US approves $18bn Cnooc bid for Nexen. That headline struck me as odd--why would one non-US company acquiring another non-US company require US approval? But this is the oil & gas industry, and that impacts US security, so bring on a committee review:

Tuesday’s approval from the Committee on Foreign Investment in the US, a multi-agency body that reviews large deals that could affect US security, gives Nexen “all of the requisite approvals to proceed to close”...

Late last year it looked as if Cfius might challenge the deal. In November, Cnooc and Nexen resubmitted their agreement for approval, raising concerns that Cfius was taking a hard line.

Though less than a tenth of Nexen’s assets are in the US, those that are include a series of oil platforms in the Gulf of Mexico. Some of those are near US military assets, leading some to believe that Cfius might block the deal or require mitigation agreements.

The US (or at least two American brothers) has pretty high financial stakes in the Canadian oil & gas industry, as a recent real news interview of BBC's Greg Palast reveals: if the Koch brothers (yes, those down-home folks with their "plan to reshape America")  can get that pipeline through, they can cut out their Venezuelan competition with a cheap alternative, putting an additional $2B or so in their pockets each year. But this time the US interest is not about its energy security, at least according to Palast. Rather, the plan here is to sell the supply on to the Caribbean. From the transcript:

[The Koch brothers says to themselves] If we can use our political muscle to jam a pipeline through the guts of the United States down to Texas...we can make a killing. 

And by the way, they're making an extra killing. When the Republicans were talking about the XL Keystone pipeline making us energy-independent...We're not energy-independent if it comes from Canada. But if it comes from Canada, let's assume that this is our buddies, because they'll give us the oil cheap, and that's what makes them our buddies. 

It also undermines Hugo Chávez. They have to undermine Chávez, which they want to do for geopolitical reasons. 

But then the oil will not be used in the United States. It will be refined mostly for gasoline that will be sold at a premium in the Caribbean. Remember, these refineries are in the Gulf coast. Selling it, then running that stuff back into New Jersey is not a moneymaker. The way you make the money is you sell gasoline in places that don't have the refining capacity and will pay a premium, like, you know, Jamaica, Santa Domingo. That's where your money's going to be made. So this is oil from Canada which will then go into the Koch refineries and sold into the Caribbean.

I admit I am puzzled. How is it in the interest of either Canada or the US to build a mechanism for the Koch brothers to insert themselves as intermediaries in an energy supply chain to the Caribbean? From Canada's perspective, why not cut out the middleman, or to out it another way, why be such good buddies?  Is this a question of risk, cost, technological capacity, logistics, something else? And for the US, if the environmental hazards to communities across the nation are as Palast describes, why subsidize that risk for the greater personal profit of billionaires when the political costs of support for the pipeline seem so high? 

I also don't know the financing of the pipeline, haven't studied it. I am scared to go and look, if I am going to find out that the entire infrastructure is to be underwritten by government.

OECD "public briefing" --update

***updated**

A development on the public briefing. After being turned away, Victoria Ferauge has now been given the green light to attend tomorrow's FATCA/TRACE briefing on behalf of American Citizens Abroad. I am very glad to see this resolution. It worries me when international bodies ostensibly working on behalf of society try to manage which sectors of society count when it comes to policymaking.  Access to meetings is the barest form of participation in such matters.  I look forward to hearing from Ms. Ferauge regarding what she hears and sees at the meeting, and am glad that she will be able to attend with only one day's notice.  (be sure to note if you are asked for your passport to gain entry).

----

Last Thursday I mentioned that the OECD had advertised a "public meeting" on their website about TRACE and FATCA, and I said:

...you can also attend in person for 100EUR if you are a financial institution, a practioner, or a journalist, according to the information.  Though it is not stated, I will simply assume that non-interested observers, such as academics, NGO reps, etc., are also warmly invited.  

I am sorry to have to report that this is apparently incorrect, at least, when one NGO (American Citizens Abroad) tried to send a rep, she was rebuffed because space is running out and "government and business have priority."

Frankly, this is outrageous.  The OECD has been a club for the revolving door crowd for far too long.  When I have criticized the absence of NGOs and other disinterested observers at the OECD I am told  they are represented by government. If that ever was the case, I think we can safely say it is not the case now. The OECD cannot simply isolate anyone who doesn't stand to benefit from government-big business collusion forever. Eventually it must lose its ability to state with a straight face that it works on behalf of the peoples of its member states.

Message to OECD therefore: do not call it a public meeting if it is not a public meeting, if it is only another forum for government bureaucrats and business leaders, call that what it is: an international lobbying session.

Now, if I am wrong and there is an NGO or any other disinterested, non-business person who is going to be allowed to go to this "public meeting" at which what is going to be discussed by bureaucrats and busienss leaders is how governments will be monitoring and taxing human taxpayers who constitute the peoples represented by the member states, then please, please someone let me know.

Larded by Lobbyists: More from the Fiscal Cliff

From the NYT today, Fiscal Footnote: Big Senate Gift to Drug Maker:

A provision buried in the fiscal bill passed earlier this month gives Amgen, the world's largest biotechnology firm, more time to sell a lucrative kidney dialysis drug without price restraints.

No big surprise, we already knew the bill was larded with giveaways, but the NYT provides a nice look into the flawed process, which all starts with a small army of lobbyists. Read the whole thing.

Lobbying pays: the skewed impact of the fiscal cliff deal, in one striking chart

From Citizens for Tax Justice:

In 2013, the richest one percent of Americans will receive 18 percent of the tax cuts while ...[t]he bottom three-fifths ... will receive 18 percent of the tax cuts. In other words, the richest one percent of Americans will receive the same share of the tax cuts as the poorest 60 percent of Americans:

 

Note that it is hard to give tax breaks to the poorest, since they aren't much in the tax net to begin with. But what explains the middle? CTJ notes that the deal made permanent 85% of the Bush income tax cuts and 95% of the estate tax cuts, which we already know were skewed toward the wealthy and have presided over the largest widening of the income gap in US history since the gilded age. That is destroying the middle--there aren't so many people in that category any more.  And the ones still in the category have much less to work with:

Why did the fiscal cliff turn into welfare for the 1%? We know the answer, it's always the same. Incidentally Matt Stoller wrote a follow up piece arguing that if we understand how lobbying corrupts policymaking in the US, we can work against it.  But I am not optimistic.

Lobbying is policy in the US. That is how governance works. There are good aspects and bad aspects to the ability of the public to influence lawmakers in a democracy; the issue is what happens to democracy when you have to pay enormous sums to play. It seems that one thing that happens for sure is that elected officials become "utterly unresponsive to the policy preferences of millions of low-income citizens.” Major social imbalance is the result when, as Nancy Folbre says:

Our most affluent citizens now have less to gain from cooperation with the rest of us than they once had. They can effectively threaten to opt out and invest elsewhere. They can also invest vast resources in lobbying and electioneering.

I am still puzzled as to how on earth the NY Times managed to get their headline so wrong. Yves Smith calls it a big lie, and I would have to concur.

AIG PR Blitz “Thanks” Taxpayers For Bailouts

Something went horribly wrong in AIG's public relations department:

what is the message here from AIG?
“I needed money so I stole your car, robbed a liquor store, and now I am giving you your car back and I left a portion of the liquor store loot…”

And I'm proud of that. Thank you, America!

The PR dept didn't completely fail though: they were smart enough to disable the comments section:

Eight Corporate Subsidies in the Fiscal Cliff Bill

Matt Stoller at NC points out the ubiquitous presence of corporate lobbying when it comes to tax policy:

Throughout the months of November and December, a steady stream of corporate CEOs flowed in and out of the White House to discuss the impending fiscal cliff. Many of them, such as Lloyd Blankfein of Goldman Sachs, would then publicly come out and talk about how modest increases of tax rates on the wealthy were reasonable in order to deal with the deficit problem. What wasn't mentioned is what these leaders wanted, which is what's known as "tax extenders", or roughly $205B of tax breaks for corporations.  ... few political operatives have bothered to pay attention to this part of the bill. But it is critical to understanding what is going on.

...Most tax credits drop straight to the bottom line – it's why companies like Enron considered its tax compliance section a "profit center". A few hundred billion dollars of tax expenditures is a major carrot to offer. Surely, a modest hike in income taxes for people who make more than $400k in income and stupid enough not to take that money in capital gain would be worth trading off for the few hundred billion dollars in corporate pork. This is what the fiscal cliff is about – who gets the money. And by leaving out the corporate sector, nearly anyone who talks about this debate is leaving out a key negotiating partner.

Stoller points out "eight corporate subsidies in the fiscal cliff bill that you haven't heard of":

• NASCAR - welfare for racetrack builders, about $43M per year

• Railroads - welfare for track maintenance, 165M/yr.   Stoller says "It's unclear why private businesses should be compensated for their costs of doing business." 

• Film producers - we're used to that brand of welfare here, aren't we.  Stoller calls this provision "a relatively straightforward subsidy to Hollywood studios."

• mining companies – mine safety welfare.  Stoller:  "Taxpayers shouldn't have to bribe mining companies to not kill their workers."  

• Goldman Sachs –  welfare for HQ building, via tax exempt financing in the New York Liberty Zone, which amounted to "little more than a subsidy for fancy Manhattan apartments and office towers for Goldman Sachs and Bank of America Corp." The whole free zone thing is ludicrous in general but it seems particularly preposterous in Manhattan.

• Offshore financing – a subpart F giveaway, Stoller says it "basically allows American corporations such as banks and manufactures to engage in certain lending practices and not pay taxes on income earned from it." No wonder then it gets support from the likes of GE, my favorite tax dodger.  I like how Stoller points out that this particular form of welfare has its own trade association, ad reminds us yet again that lobbying pays: "Steve Elmendorf, super-lobbyist, has been paid $80,000 in 2012 alone to lobby on the "Active Financing Working Group.""

• Foreign subsidiaries -another subpart F rule, this time essentially ignoring payments between related CFCs, which Stoller explains "allows US multinationals to not pay taxes on income earned by companies they own abroad." 

• R&D & capital expenditures – both are well subsidised in the US, Stoller calls them "well-known corporate boondoggles." There are of course arguments for both, but it does seem rather silly to pretend that businesses must capitalize things and then keep giving them accelerated dereciation schedules that basically allow them to expense everything.

Stoller links to a number of his sources including a JCT repot that scored these expenditures.  There are no doubt many more expenditures in the bill.  Most, and perhaps all, could have been safely disposed of without bringing on the austerity bomb that we are meant to fear had we gone over the cliff. But that is tax politics in a system driven and dominated by lobbying.

Lobbying pays: rewards for legislative favors edition

Sungmun Choi asks, “Do Interest Groups Reward Politicians for their Votes in the Legislature?” And answers: of course they do.  Choi examined monetary contributions paid by interest groups to members of the U.S. House of Representatives and found evidence that the politicians who voted for the 2008 bank bailout were rewarded in the form of "more monetary contributions from the interest groups in the financial sector after passage of the EESA."  Conclsion; "interest groups reward politicians for their favorable votes in the legislature, at least in the case of the EESA. Of the two hypotheses that I develop in the theoretical part of the paper, I find evidence for the hypothesis of the long-term relationship between interest groups and politicians." Paper at the link.

So let's recap.

• Politicans need money to get (re-)elected: lobbying pays for that.
• Politicians need jobs when they retire from public office: lobbying pays for that.
• Lobbyists need clients who benefit from legal reform: lobbying pays for that.
• And now we see that politicians need to be rewarded for their legislative votes: lobbying clearly pays for that, too.

Billionaires Warn Higher Taxes Could Prevent Them From Buying Politicians

Satire.  but is it, really?

WASHINGTON (The Borowitz Report)—Introducing a new wrinkle into the already fraught fiscal cliff showdown, a consortium of billionaires today warned that if their taxes are raised they will no longer have enough money to buy politicians.

The group, led by casino billionaire Sheldon Adelson, commissioned a new study showing that the cost of an average politician has soared exponentially over the past decade. 

...The Vegas magnate complains that the media has ignored billionaires’ essential role in giving jobs to politicians who would otherwise have difficulty finding “honest work of any kind.” 

“Billionaires are providing employment for a group of seriously incompetent and marginal people,” Mr. Adelson says. “You raise taxes on us, and who’s going to create those jobs? I really don’t think people have thought this through.” 

Well done.

Is the Hobbit a Public Good? If no, why am I paying for it with taxpayer $$?

Hard on the heels of the story about why states are broke comes another example in the ongoing parade of horribles that is the global film tax incentive race to the bottom. Is the Hobbit a public good? If not, it's hard to understand why New Zealand gave its producers $120 million and changed its labor laws to prevent collective-bargaining, among other moves designed to keep production in New Zealand. This is a film that is expected to generate $3 billion in proceeds: they obviously don't require subsidies or labor suppression efforts in order to turn a profit. 

How many steps lie between the denial of labor rights in New Zealand to the appalling conditions and loss of life in Bangladesh? Not many. And why should a state ever be involved in driving its people down that road to serfdom?

Joe Karagnis has an account of the subsidies and legal reforms: To save regular earth, kill Hobbit subsidies. He says:

Film money is the hottest of hot investment money, fast in and fast out. Production is very mobile, and studios have become adept at extracting subsidies from governments for a few trinkets and promises of jobs.

Translation: film production acts just like capital. Countries (and states) compete for it, and it flows to the most welcome jurisdiction. That probably means tax incentives though there are lots of reasons to believe tax incentives aren't enough--investors need rule of law, good physical and financial infrastructure, competent workforce, etc. Really, what companies want is:

• a highly educated workforce
• that can't organize or demand high wages
• a well organized legal system that protects contracts and property rights
• but only (or mainly) of multinationals
• a well-organized financial system that protects the investment from currency/inflationary etc pressures
• but only if multinationals don't have to support it with taxes

Karagnis demonstrates the global spread of the problem: 

in the US ... state and local subsidies rocketed from US$2m in 2003 to about US$1.5b in 2012. Film subsidies are epidemic in Europe, where countries compete to attract and retain productions. And it has been a major part of New Zealand's cultural and industrial policy, where more than US$400m has been invested in The Lord of the Rings, Avatar and a handful of other productions over the past decade. 

But competitive subsidies are the quintessential sucker's game, in which winning is losing.

And a part of the story I just don't get at all:

For keeping Warner Bros happy, Prime Minister John Key - a former Merrill Lynch currency trader - got a replica magic Hobbit sword from President Obama...

This is puzzling and ridiculous (not to mention kind of embarrassing on both sides). The race to the bottom in film incentives is just another form of offshoring. Of course, it spreads US culture which is apparently viewed by someone that matters as the more important objective. My view: it is well past time for a little austerity for the film industry.

Why Are States Broke? Lobbying Hollows out the Tax Core

Over at Naked Capitalism, a lengthy discussion about that $80 billion in state-level corporate welfare from David Segal:

Our states and localities are cannibalizing one another as they concoct targeted tax breaks which they use to lure corporations from their neighbors. Meanwhile, a bevy of middlemen wet their beaks by helping corporations pit sucker states off of one another and brokering deals to sell the tax credits that comprise much of the ensuing largess. 

...It's the most basic of game theory dilemmas, and in a less corrupt political dynamic, one that could be solved by the intervention of sensible federal government actors, or perhaps even through the initiation of an interstate compact that had states agree to stop poaching from one another. 

Segal offers up Boeing as an example of the more successful manipulators ("Washington State residents bested a couple dozen other states, offering to pay the hometown company $3 billion not to forsake them" but South Carolina eventually won when it "offered Boeing around $1 billion to open a Dreamliner plant there.") Segal says only the WTO has "threatened to provide any sort of meaningful check" on these subsidies.

He also singles out one of my favorite targets, the infamous and ludicrous state film tax incentive war:

Perhaps the most transparently absurd manifestation of war-between-the-states phenomenon is the case of the film tax credit ... [which] spurred the most precipitous race to the bottom I've witnessed in my time in politics. It came to a head in 2009, when Wisconsin had just spent $100,000 dollars to support Johnny Depp's personal grooming expenses and Connecticut was fixing to subsidize episodes of Jerry Springer's talk show — lots of broken chairs to pay for.  ... California's recent budget includes a half-billion in tax credits of its own ... to keep Hollywood from off-shoring to Manhattan, Indianapolis, and Santa Fe, which are offering bribes of their own. ... At least 42 states now provide incentives, with some exceeding 40% of production costs.

That battle is lost, I think, and state-to-state is only compounded internationally. Hello Quebec, I'm looking at you, boasting about your "most advantageous cash rebates available in North America"--with your 25 % cash-back on all expenses, your 20 % bonus on all CGI and Green screen shots and no minimum spend, no caps; you don't even have to release the film in Quebec. Paradise.

Segal's got the analysis right:

all that we're doing is paying people to move jobs to-and-fro, creating no new social value, and reducing net public benefit.

WHen you do that among the several states it seems merely silly; when you do it among countries, however, that's a bit of a different matter now isn't it.

He also explains the mechanisms of the film tax credit and concludes that

tax credits of this form are always a raw deal for the public, unless a substantial percentage of the credits go unclaimed: A full 25% or so of the subsidy is misfiring, going to middlemen and corporations with significant tax burdens. If you want to fund something efficiently, just fork over cash. (This, of course, could never be made to happen, since then the public would understand that all we're really doing is forking over cash to millionaires.)

Well said. More at the link.

CEOs: welfare is good, but only if it's corporate

From Naked Capitalism, 9 Greedy CEOs Trying to Shred the Safety Net While Pigging Out on Corporate Welfare:

A gang of brazen CEOs has joined forces to promote economically disastrous and socially irresponsible austerity policies. Many of those same CEOs were bailed out by the American taxpayer after a Wall Street-driven financial crash. Instead of a thank-you, they are showing their appreciation in the form of a coordinated effort to rob Americans of hard-earned retirements, decent medical care and relief for the poorest.

...they are gearing up to pull the wool over the public's eyes by cutting Social Security, Medicare and Medicaid. The CEOs are part of the Fix the Debt campaign ... which plans to unleash tens of millions pushing for a deficit reduction deal that favors the rich.

...these Scrooges are so bold as to publicly announce their desire to pick the pockets of fellow Americans while simultaneously pigging out at the corporate welfare trough. Multitasking!

NC provides a sample of what it calls the Fix the Debt CEO Council Hall of Shame (complete list at the Fix the Debt website here):

1. Lloyd Blankfein, chairman and CEO, Goldman, Sachs & Co. Blankfein, infamous for describing his financial activities as "God's work," shared his attitude toward society with CBS news recently. He explained his keen desire to see Americans lowering their sights for the future. ...he gives a pithy summary of what life is going to be like for the 99 percent:

You're going to have to do something, undoubtedly, to lower people's expectations of what they're going to get, the entitlements, and what people think they're going to get, because you're not going to get it.

...Since the financial crash, Blankfein's company, Goldman Sachs, has received tens of billions of dollars in ..."direct and indirect succor from the Fed."...

2. Jeffrey Immelt, chairman and CEO, General Electric Company. ...supporting disastrous financial deregulation, dodging taxes and helping to destroy American manufacturing has not satisfied Immelt. He'd like to add insult to injury by making sure that people who have been screwed by the reckless activities of short-sighted corporate titans like himself are left to starve in their golden years and go without medical care. And as for the poor, well, couldn't they be just a little bit poorer? Immelt thinks that would be swell.

After the 2008 crash, the government gave a giant boost to hard-pressed GE Capital, the company's financing arm, through the Temporary Liquidity Guarantee Program. GE has also helped itself to enormous taxpayer-funded subsidies, especially in green energy. And guess how much GE paid in taxes in 2010? Nothing. ...

3. Jamie Dimon, chairman and CEO, JPMorgan Chase & Co. ... Dimon is deploying a familiar scare tactic on the topic of the so-called fiscal cliff. He's claiming that his company will be forced to cut down on hiring and so on if a budget plan is not tailored to enrich the wealthy. ...Maybe Dimon's company would be better served figuring out what happened to the $6 billion that recently went up in smoke in the "London Whale" derivatives fiasco.

NC covers several more including the CEO of Honeywell (of powerpoint "union busting for dummies" fame), all at the link.

Corporate Tax Transparency: U.S. Update

A step forward in the global tax transparency effort: the U.S. SEC has finally approved rules for implementing the extractive industries transparency provisions of Dodd Frank s. 1504.  The rules were due, by statute, more than a year ago.  Industry lobbying against their issuance was fierce but, perhaps spurred by Oxfam's lawsuit compelling the SEC to stop its foot-dragging, the agency has finally produced.  Here is the announcement from the SEC.  A number of stories call this a big day for transparency and a big step by the US, from the New York Times, Global Witness, the Financial Integrity Task Force, the Brookings Institute.

Of course, as Brookings notes, the devil will be in the details, a.k.a., the implementation.  From their report:

Tomorrow those details will be in the hands of the SEC and will determine whether ‘effective transparency’ is attained or continues to remain elusive. Namely the SEC will determine whether the information that needs to be disclosed by companies is sufficiently detailed, relevant and accessible, enabling effective monitoring and analysis by civil society, investors and government reformists.

Given the content of the 2-year-old Dodd-Frank legislation, the SEC has no choice but to mandate disclosure. However, effective disclosure is by no means guaranteed as the SEC could issue weak rules, rendering disclosure ineffective. Thanks to Dodd-Frank legislation mandating transparency, the main danger is no longer wholesale ‘transparency evasion’ by many companies, but the more nuanced risk of enabling ‘transparency elusion’ (or ‘transparency avoidance’) by companies that wish to skirt detailed disclosure, thereby masking possible misdeeds.

Similarly, from the NYT:

Oil experts said it was difficult to know how onerous the payment disclosure rule would be since it was not yet known how the S.E.C. would define some of the requirements. Kevin Book, an analyst at ClearView Energy Partners, said in a research note that the ruling could “impose very real competitive challenges for U.S. companies,” particularly if “compliance leads to disclosure of previously secret terms of concessions, leases and production-sharing agreements.”

More on this to come.

US continues campaign against EU airline tax

The US will host a meeting in order to "pil[e] further pressure on the EU to back down and the international community to find a global solution..." to greenhouse gas emissions.  From Reuters.  "Finding a global solution" is of course a euphemism for "doing nothing."  That's because of course the EU tax is a step toward a global solution, and it would be effectively global if the US adopted it.  Instead, the plan here is to gather officials from similarly opposing countries including India and China--a "coalition of the unwilling"--to agree to retaliatory measures against the EU.  Behind every diplomatic effort is a lobbyist:

Airlines will not have to pay for the permits until next year, and are pressing their governments to agree on a global deal before then.   

Russ Bailey, a senior attorney for the Air Line Pilots Association, a U.S. lobby group, said time is running out for EU ETS opponents to come up with a viable alternative. 

"There is a sense of urgency because airlines have to start paying next April. We hope there will be a resolution that becomes clear enough before then," he told Reuters Point Carbon."  

I doubt that Bailey has in mind a resolution that every country will adopt the EU system, even though that would be crystal clear as far as resolutions go.  The global deal sought here is reversion to the status quo, of that there can be little doubt.  

Why do we subsidize oil & gas?

Easy: because politicians can't get re-elected when fuel prices seem high.