The Seventeen Solutions
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The Seventeen Solutions

Ralph Nader

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eBook - ePub

The Seventeen Solutions

Ralph Nader

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About This Book

Consumer advocate, activist, humanitarian, and former presidential candidate Ralph Nader is arguably the most provocative and important progressive voice in America today—a fearless reformer whom The Atlantic named one of the 100 most influential figures in American history. In these troubling times of intractable fiscal and social distress, Nader offers a new program to help rescue America: The Seventeen Solutions. His powerful, paradigm-shifting proposals address some of the most pressing concerns in our country today—from corporate crime to tax reform to health care and housing—and they should find a receptive audience not only among liberals, progressives, disillusioned Democrats, Rachel Maddow fans, and Occupy Wall Street supporters, but all concerned Americans.

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1
Fundamental Tax Reform


“Taxes are what we pay for civilization,” remarked Justice Oliver Wendell Holmes.
Today, however, the taxes we pay are used not just to foster civilization but also to support the tax-free existence of countless massive corporations.
Want to brag? If you paid a dollar or more in federal income taxes in 2010, or the two years before that, you paid more in taxes than many large corporations. U.S. chartered companies like Bank of America, Verizon, General Electric (GE), Boeing, Citigroup, and Honeywell report big profits every year, but they often pay zero in federal income tax. These corporations have legions of specialized tax attorneys and accountants who view their departments as profit centers. By manipulating the tax code and playing one nation against another, they can and do bring down their tax obligations to Uncle Sam to zero and sometimes even get a tax benefit or credit from the U.S. Treasury.
The U.S. tax code—7,500 pages long, plus thousands more pages’ worth of interpretations—is the product of many years of corporate lobbying, low IRS enforcement budgets, and eager senators and representatives craving campaign contributions.
Corporations truly are different from you and me. As humans, we cannot create hundreds of subsidiaries (children) abroad to reduce our taxes. But there seems no limit to the number of offspring these artificial entities called corporations can create. The disgraced Enron alone created 881 subsidiary companies, parking 692 in the Cayman Islands, 119 in the Turks and Caicos Islands, 43 in Mauritius, and 8 in Bermuda. These corporate entities are fictitious, but they produce real facts that affect you. Even as they receive all the public services and protections due to a U.S. corporation, these companies shift their profits and royalties to these tax havens and use all the domestic loopholes they have driven through Congress for their self-serving privileges and immunities. The result? Your taxes are higher, public services are reduced, and the government goes into greater debt.
These tax escapees use many offshore havens to game the tax code, but none is more dramatic than the overpopulated Ugland House in the Cayman Islands. Nearly twenty thousand companies have the legal addresses of their many overseas corporate subsidiaries in this one building for the sole purpose of avoiding taxes.
These clever tax lawyers for these global companies must be delirious with their successes. Imagine their celebratory parties, full of jokes about how their company pays its CEO more money than the entire corporation pays into the U.S. Treasury. Imagine the lawyers for gigantic GE, looking back on their year’s work—a year in which they not only protected GE from paying any taxes but got the Treasury to send them a multibillion-dollar check. In the three years from 2008 to 2010, GE made $7.722 billion in profit in the United States, paid no federal income tax, and got $4.737 billion back from the U.S. Treasury—while paying its CEO, Jeff Immelt, a total of nearly $25.58 million in executive pay.
All these tax maneuvers are “perfectly legal,” say the corporate attorneys, who cloak them with the euphemism “tax avoidance.” That means they believe their companies are complying with the tax code, whose perforations their corporate lobbyists got through Congress. “Tax evasion,” on the other hand, is illegal. The line between the two is increasingly blurred as the tax laws become more complex and the global corporations learn how to work different nations’ tax laws to perfection. The nation’s leading tax reporter, David Cay Johnston, who won a Pulitzer Prize for his writing for the New York Times, has noted that these giant corporations can now decide how much to pay in taxes, where to pay them, and when to pay them.
The tax escapees work from a long and lucrative playbook. Their tactics include finding ways to avoid reporting income from their companies and partnerships; soliciting huge technology and natural resource gifts from the government; and devising countless ways to inflate expenses and defer income indefinitely into the future.
The more complex the laws are, the more shenanigans the corporations are likely to attempt. True, we have a complex economy, but so does Canada, whose tax code is much simpler. Our modern tax code is designed to benefit the rich and influential, with only a tiny number of outside people knowing how they are getting away with it. Its complexity, enacted without public hearings, camouflages their endless and varied tax escapades. And the IRS is hopelessly understaffed, in need of auditors skilled enough to monitor these giant companies.
Notwithstanding the economic meltdown of 2008, these corporations continue to earn massive profits: $1.678 trillion in 2010 alone. Yet the share of federal tax revenue contributed by effective corporate income taxes has shrunken from close to 30 percent in the 1950s to roughly 10 percent today.1
This graph depicts fifty-eight years of taxes levied by the government. As Brian Beutler pointed out in Talking Points Memo: “Since 1950, regressive payroll taxes have grown to comprise over one-third of federal revenues—they used to comprise about one-tenth. For corporate income taxes, it’s just the opposite—what used to provide the Treasury over a quarter of its revenue now provides just over 10 percent.” Source: Talking Points Memo.com, Brian Beutler.2
Chuck Collins, a leading tax reformer who teamed with William Gates, Sr., years ago to organize roughly one thousand wealthy Americans to oppose the proposed congressional repeal of the estate tax, has expressed exactly how these corporations affect the American landscape:
See that FedEx delivery van go by on the roads you paid for? Pay up FedEx! Don’t pretend you’re not making billions in the U.S. Don’t lie and tell us you made all those profits on some island with more palm trees than people. We know the demand for coconut delivery isn’t that big. . . .
So, ExxonMobil: the next time your gas station erupts in flames, why don’t you call the fire department on the Cayman Islands? Or when someone holds up the joint, how about calling the Luxembourg police, since that’s where you claim your profits so you don’t have to pay the taxes you owe Uncle Sam.
Hey, Pfizer: without our remarkable taxpayer-funded system of patents and intellectual property rights protections, everyone and his brother would be making Viagra and undercutting your sales of little blue pills. Pay up!
Boeing, you want another contract for a taxpayer-funded military jet? Well, pay up! Pay up General Electric, Mattel, Dow Chemical, Hewlett-Packard, and Cisco. Yes, we know you pay some taxes. But look these children who are losing their health insurance and teaching aides in the eye. Tell them you’re paying your fair share.3
Collins could have said much of the same for the wealthy, whose returns on capital—capital gains and dividends—are taxed at a maximum of 15 percent, a lower rate than the taxes on labor. This has been true for years: the return on capital has been outpacing the return on labor. For the past few decades, tax cuts for the rich have been followed by more demands from many members of Congress for still more tax cuts on corporate firms and wealthy individuals. The tax laws have become more regressive, especially when payroll and sales taxes are included as a percentage of individual income paid in taxes.
Collins also noted: “Those of us who pay sales taxes and have income taxes withheld from our paychecks will bear the brunt of state and federal budget cuts in schools, public transportation, and recreational facilities. Our most vulnerable family members and neighbors will suffer thanks to cuts in mental health services, elder care, and Medicaid. . . .”4
When it comes to tax policy, Congress is an endemic mess. Avaricious lobbyists swarm its members daily, campaign checks in hand, demanding special provisions for corporate jets, drilling equipment, consumables like alcoholic beverages used for business entertainment—even credits to the corporations for doing what they should be doing anyway, such as investing in research and development (R&D). Sometimes surreptitiously inserting just a small paragraph can mean a reduction of hundreds of millions or even billions of dollars for the companies or industries quietly behind them. In years gone by, our tax reform group launched a campaign to expose the sudden moves corporations use to get a tax loophole included in a bill late in a congressional session. Nicknamed “Christmas tree insertions,” these provisions are inserted into gigantic tax bills so deftly that few know who is behind them and almost no one truly understands them. The New York Times often reported our findings, and under the embarrassing glare of publicity the provisions would be dropped by the House Ways and Means Committee or the Senate Finance Committee. Yet the media (with some exceptions) have eventually stopped this kind of watchdog service, and the tidal wave keeps getting larger.
To this point, even the most vigorous tax reform efforts have barely put a dent in the corporations’ massive abuse of the system. Narrow, topical reforms have quickly disappeared into the trees, and the reformers and media alike have proven unable to see the forest. If we are to have any hope of eradicating corporate abuse of the tax system, we must start by looking at the principles that are supposed to characterize the entire forest of tax policy in order to arrive at a consensus opinion about how a fair, productive, and comprehensible tax system should work.
The basic purpose of taxation is to raise revenue needed for public services. A second, ancillary purpose is to encourage or discourage various social and economic behaviors—by producers, vendors, or consumers—such as through “sin taxes” on things like cigarettes and gambling.
In my lectures around the country, I often open up the conversation about taxes by proposing that, before we tax gainful labor, we should tax first that which society likes the least or dislikes the most. For instance, we should tax Wall Street speculation, which currently is subject to zero sales tax on its trillions of dollars of annual transactions—while daily, consumers have to pay sales taxes even on necessities. Wall Street speculation has long since become a house of cards, a game of computer-driven bets on bets on bets, far removed from real-world investments in real economic activity. Now-Infamous Wall Street gambits such as credit default swaps and collateralized debt obligations, which attracted billions of investment dollars, have directly or eventually put entire national economies at risk. Shouldn’t we want to dampen this kind of rampant speculation with other people’s money—often called “casino capitalism”—that is clearly unproductive for the real economy?
We should tax pollution—through, for instance, a carbon tax—both to collect revenue and to reduce pollution by making polluters pay for their damage. Even ExxonMobil favors this kind of tax over cap-and-trade alternatives, which would result in mandatory limits on emissions, albeit with the option for companies to buy or trade for more “credits” if it cannot reduce its pollution below the cap. The Carbon Tax Center (CTC) has called for a tax that would grow at an annual rate equivalent to 5 to 10 percent of the baseline cost of fossil fuels. This amounts to a “starter tax” of approximately $37 per ton of carbon or roughly 10 cents per gallon of gasoline. The CTC estimates that a federal starter tax applied to U.S. fossil fuel burning, equaling about 10 cents per gallon of gasoline (but paid by corporations, not individuals), would initially generate about $55 billion per year.5
We should tax the addictive industries—not just alcohol, tobacco, and gambling, but also junk food and drinks, which account for so many illnesses, including our epidemic of childhood obesity. Don’t we want to diminish these painful or harmful human conditions?
And we should tax corporate crime—far more than the trivial penalties levied today when corporate criminals are convicted (or settle out of court). Don’t we want to reduce corporate crime by changing the cost-benefit calculation of those who commit them?
The Canadians came up with a phrase describing this kind of policy: “Tax what you burn, not what you earn.” I would add, “Tax first what you bet, not what you net.”
Obviously this strategy alone would not produce all the revenue our nation needs. But it would greatly lighten the burden on what we like the most—such as remunerative work—and in ways that are much harder to game or evade than occurs presently with the income tax. Moreover, diminishing harmful or reckless activities provide tangible and intangible savings in their own right that do not have to be paid by society.
For almost thirty years, one of our former public interest lawyers, Robert McIntyre, has been running Citizens for Tax Justice, a respected nonprofit group that documents exactly how, when, and why taxpayers fill—or avoid filling—the coffers of the U.S. Treasury. Even McIntyre’s opponents recognize the accuracy of his team’s work.
A few years ago, the Institute on Taxation and Economic Policy (ITEP) published a concise two-page brief offering an overview of five commonly cited principles of sound tax policy: equity, adequacy, simplicity, exportability, and efficiency. ITEP recognizes that these are not the only criteria policymakers can use in enacting tax changes but argues that tax reform advocates should remain mindful of each of these principles in proposing new reforms.
Here are some reforms that undergird these principles:
Equity comes in two varieties: vertical and horizontal. Vertical equity is violated by regressive tax systems—such as consumer sales taxes, excise taxes, and property taxes—which take a bigger chunk out of lower incomes than wealthy incomes. Progressive taxes, on the other hand, apply horizontal higher tax rates to the wealthiest taxpayers. Tax experts usually justify this on the simple grounds that the wealthiest Americans are able to pay a higher percentage on their millions of dollars in income without feeling any pinch. But there are two other less frequently mentioned reasons for taxing ...

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