This fight is about the kids?

[prole]

The only solution is to stimulate economic growth. (It's why this wasn't a problem two, three, ten, twenty years ago) The austerity proposals offered by both political parties by all accounts will depress it further.

[prole]

And Jim, raising taxes is not only feasible, it's inevitable. The only question is, how much pain are working and middle class Americans willing to inflict on themselves before they start to confront the reality staring them in the face?

 

Corporate Profits Soaring Thanks to Record Unemployment

Mark Provost

Fri, 02/25/2011

 

In a January 2009 ABC interview with George Stephanopoulos, then President-elect Barack Obama said fixing the economy required shared sacrifice, "Everybody’s going to have to give. Everybody’s going to have to have some skin in the game." (1)

For the past two years, American workers submitted to the President’s appeal—taking steep pay cuts despite hectic productivity growth. By contrast, corporate executives have extracted record profits by sabotaging the recovery on every front—eliminating employees, repressing wages, withholding investment, and shirking federal taxes.

 

The global recession increased unemployment in every country, but the American experience is unparalleled. According to a July OECD report, the U.S. accounted for half of all job losses among the 31 richest countries from 2007 to mid-2010. (2) The rise of U.S. unemployment greatly exceeded the fall in economic output. Aside from Canada, U.S. GDP actually declined less than any other rich country, from mid-2008 to mid 2010. (3)

 

Washington’s embrace of labor market flexibility ensured companies encountered little resistance when they launched their brutal recovery plans. Leading into the recession, the US had the weakest worker protections against individual and collective dismissals in the world, according to a 2008 OECD study. (4) Blackrock’s Robert Doll explains, “When the markets faltered in 2008 and revenue growth stalled, U.S. companies moved decisively to cut costs—unlike their European and Japanese counterparts.” (5) The U.S. now has the highest unemployment rate among the ten major developed countries. (6).

 

The private sector has not only been the chief source of massive dislocation in the labor market, but it is also a beneficiary. Over the past two years, productivity has soared while unit labor costs have plummeted. By imposing layoffs and wage concessions, U.S. companies are supplying their own demand for a tractable labor market. Private sector union membership is the lowest on record. (7) Deutsche Bank Chief Economist Joseph LaVorgna notes that profits-per-employee are the highest on record, adding, “I think what investors are missing - and even the Federal Reserve - is the phenomenal health of the corporate sector.” (8)

 

Due to falling tax revenues, state and local government layoffs are accelerating. By contrast, U.S. companies increased their headcount in November at the fastest pace in three years, marking the tenth consecutive month of private sector job creation. The headline numbers conceal a dismal reality; after a lost decade of employment growth, the private sector cannot keep pace with new entrants into the workforce.

 

The few new jobs are unlikely to satisfy Americans who lost careers. In November, temporary labor represented an astonishing 80% of private sector job growth. Companies are transforming temporary labor into a permanent feature of the American workforce. UPI reports, “This year, 26.2 percent of new private sector jobs are temporary, compared to 10.9 percent in the recovery after the 1990s recession and 7.1 percent in previous recoveries.” (9) The remainder of 2010 private sector job growth has consisted mainly of low-wage, scant-benefit service sector jobs, especially bars and restaurants, which added 143,000 jobs, growing at four times the rate of the rest of the economy. (10)

 

Aside from job fairs, large corporations have been conspicuously absent from the tepid jobs recovery. But they are leading the profit recovery. Part of the reason is the expansion of overseas sales, but the profit recovery is primarily coming off the backs of American workers. After decades of globalization, U.S. multinationals still employ two-thirds of their global workforce from the U.S. (21.1 million out of 31.2 million). (11) Corporate executives are hammering American workers precisely because they are so dependent on them.

 

An annual study by USA Today found that private sector paychecks as a share of Americans’ total income fell to 41.9 percent earlier this year, a record low. (12) Conservative analysts seized on the report as proof of President Obama’s agenda to redistribute wealth from, in their words, those ‘pulling the cart’ to those ‘simply riding in it’. Their accusation withstands the evidence—only it’s corporate executives and wealthy investors enjoying the free ride. Corporate executives have found a simple formula: the less they contribute to the economy, the more they keep for themselves and shareholders. The Fed’s Flow of Funds reveals corporate profits represented a near record 11.2% of national income in the second quarter. (13)

Non-financial companies have amassed nearly two-trillion in cash, representing 11% of total assets, a sixty year high. Companies have not deployed the cash on hiring as weak demand and excess capacity plague most industries. Companies have found better use for the cash, as Robert Doll explains, “high cash levels are already generating dividend increases, share buybacks, capital investments and M&A activity—all extremely shareholder friendly.” (5)

 

Companies invested roughly $262 billion in equipment and software investment in the third quarter. (14) That compares with nearly $80 billion in share buybacks. (15) The paradox of substantial liquid assets accompanying a shortfall in investment validates Keynes’ idea that slumps are caused by excess savings. Three decades of lopsided expansions has hampered demand by clotting the circulation of national income in corporate balance sheets. An article in the July issue of The Economist observes: “business investment is as low as it has ever been as a share of GDP.” (16)

 

The decades-long shift in the tax burden from corporations to working Americans has accelerated under President Obama. For the past two years, executives have reported record profits to their shareholders partially because they are paying a pittance in federal taxes. Corporate taxes as a percentage of GDP in 2009 and 2010 are the lowest on record, just above 1%. (17)

 

Corporate executives complain that the U.S. has the highest corporate tax rate in the world, but there’s a considerable difference between the statutory 35% rate and what companies actually pay (the effective rate). Here again, large corporations lead the charge in tax arbitrage. U.S. tax law allows multinationals to indefinitely defer their tax obligations on foreign earned profits until they ‘repatriate’ (send back) the profits to the U.S. U.S. corporations have increased their overseas stash by 70% in four years, now over $1 trillion—largely by dodging U.S taxes through a practice known as “transfer pricing”. (18)Transfer pricing allows companies to allocate costs in countries with high tax rates and book profits in low-tax jurisdictions and tax havens—regardless of the origin of sale. U.S. companies are using transfer pricing to avoid U.S. tax obligations to the tune of $60 billion dollars annually, according to a study by Kimberly A. Clausing, an economics professor at Reed College in Portland, Oregon. (18)

 

The corporate cash glut has become a point of recurrent contention between the Obama administration and corporate executives. In mid December, a group of 20 corporate executives met with the Obama administration and pleaded for a tax holiday on the $1 trillion stashed overseas, claiming the money will spur jobs and investment. In 2004, corporate executives convinced President Bush and Congress to include a similar amnesty provision in the American Jobs Creation Act; 842 companies participated in the program, repatriating $312 billion back to the U.S. at 5.25% rather than 35%. (19) In 2009, the Congressional Research Service concluded that most of the money went to stock buybacks and dividends—in direct violation of the Act. (20)

 

The Obama administration and corporate executives saved American capitalism. The U.S. economy may never recover.

 

Sources:

1. ‘This Week’ ABC News with George Stephanopoulos, January 2009. http://abcnews.go.com/ThisWeek/Economy/story?id=6618199&page=2

2. OECD report, U.S. lost most jobs among rich countries. EMMA VANDORE AP Business Writer http://abcnews.go.com/Business/wireStory?id=11104432

3. Carnegie Endowment for International Peace. Policy Brief 89. November, 2010. Uri Dadush & Vera Eidelman. Five Surprises of the Great Recession. http://carnegieendowment.org/files/five_surprises.pdf

4. OECD Indicators of Employment Protection. http://www.oecd.org/document/11/0,3343,en_2649_37457_42695243_1_1_1_3745...

5. The Wall St. Journal. June 8, 2010. Robert Doll. Opinion. The Bullish Case for U.S. Equities. http://online.wsj.com/article/SB1000142405274870356160457528289379646147...

6. Bureau of Labor Statistics. International Labor Comparisons. Updated Dec. 2, 2010. http://www.bls.gov/ilc/intl_unemployment_rates_monthly.htm

7. Bloomberg Businessweek. January 22, 2010. Holly Rosenkrantz.Union membership in the private sector declines to record low: http://www.businessweek.com/news/2010-01-22/union-membership-in-the-priv...

8. Joseph Lavorgna quote: CNBC. When will profits translate into jobs? http://www.cnbc.com/id/40350345/When_Will_Record_Corporate_Profits_Trans...

9. UPI. Temp work becomes a fixture. Dec. 20th, 2010. http://www.upi.com/Business_News/2010/12/20/Temp-work-becomes-a-fixture/...

10. Restaurant industry’s hiring helping to revive economy. DAYTON, Nov 28, 2010 (Dayton Daily News - McClatchy-Tribune Information Services via COMTEX): http://www.techzone360.com//news/2010/11/28/5161348.htm

11. Tax Notes, Martin A. Sullivan. U.S. Multinationals Cut U.S. Jobs While Expanding Abroad. http://taxprof.typepad.com/files/128tn1102.pdf

12. USA Today. May 26, 2010. Private pay shrinks to historic lows as gov't payouts rise. http://www.usatoday.com/money/economy/income/2010-05-24-income-shifts-fr...

13. New York Times. Economix blog. Catherine Rampell. Nov. 23, 2010. Visualizing Booming Profits. http://economix.blogs.nytimes.com/2010/11/23/visualizing-booming-profits/

14. $262 billion in equipment and software investment, calculated from EconStats. http://www.econstats.com/nipa/nipa_5__3___5q.htm

15. ABC News. Dec. 20, 2010. Mark Jewell. S&P 500 Companies More Than Double Buybacks in 3Q. http://abcnews.go.com/Business/wireStory?id=12440445

16. The Economist. Companies’ cash piles: Show us the Money.http://www.economist.com/node/16485673

17. Corporate Income Tax as a share of GDP, 1946-2009. http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=263

18. Bloomberg. May 13, 2010. U.S. Companies Dodge $60 Billion in Taxes with Global Odyssey. http://www.bloomberg.com/news/2010-05-13/american-companies-dodge-60-bil...

19. Bloomberg. Jesse Drucker. Dec 29, 2010. Dodging Repatriation Tax Lets U.S. Companies Bring Home Cash http://www.bloomberg.com/news/2010-12-29/dodging-repatriation-tax-lets-u...

20. Center for Budget priorities. Robert Greenstein and Chye-Ching Huang. Feb. 2009. Proposed Tax Break For Multinationals Would Be Poor Stimulus

“Dividend Repatriation Tax Holiday” Failed in 2004, Unlikely to Work Now. http://www.cbpp.org/cms/index.cfm?fa=view&id=2270

[tvashtarkatena]

And your point? The states have let liabilities build up. NJ has some of the highest if not THE highest taxes in the US. The larger problem has been promising what cannot be delivered. I noticed you failed to mention the chart on pg 3 that indicates the liabilities of each state. WA, with one of the smallest, has ONLY a pension liability of $3,200 per household. The only two solutions I hear from the left is 1) it's not a problem, or 2) raise taxes. The former is more of the same, the latter not feasible. You cannot tax your way out of these huge liabilities. No way. No how. Taxing the rich 50% will not do it.

 

Then you're not listening. I believe what the Left would prefer to see is breaks for the rich rolled back before middle class cutbacks are levied. Blaming the problem entirely on the Middle Class (unions) is a ploy to move the spotlight off of the fantastic deal the Rich have gotten over the past 15 years.

 

 

[Jim]

I agree with the notion of getting the marginal rates back up to more historic levels - but that will not solve the unsustainability of the pension issue. Seriously - raising taxes substantially on say, those that make $250k plus will certainly help state coffers deal with some underlying structural issues and will lend some stability but they will not scratch the surface of pension liabilities.

 

The problem lies with the amount of retirement funds promised employees, the amount of capital that would need to be set aside for each employee to be able to generate those promised funds until death, the pittance that has to be put up by employees, and the astonishing estimates of return by legislatures. In NJ the legislature assumes and 8.5% return annually. Anyone with an common sense would know to lower that to a more reasonable 4-5% return. NJ's return on pension investments over the past 10 yrs? A whopping 2.5%.

 

Most other states are dealing with the same issues. WA is better and can likely deal with it by doing several things - 1) raise taxes (but good luck with that one) 2) eliminating COL raises to existing retirees, 3) either convert all present workers over to 401ks or have them contribute much more to their own retirement rather than ride on the taxpayers. I would vote for converting all incoming employees to 401ks and raising the contribution level of all existing employees substantially.

 

Gregoire, to date, has ignored the issue just as past governors have.

[tvashtarkatena]

Tax break roll backs won't solve the problem entirely, but they would lend some much needed moral legitimacy for cutting compensation for middle class state workers.

 

Let's not forget that NJ is, by a good margin, the worst case situation.

[Jim]

I'd go ballistic too if I were asked to give up part of my compensation while Republican cronies keep getting subsidized with my tax dollars. As a self-proclaimed liberal, it's really disturbing that you keep missing that little fact (beside the inconvenient truth that public employee compensation being smaller on average than private sector employees).

 

But, you keep confusing everything: "cyclical deficits are distinct from the longer term issues related to bond indebtedness, pension obligations, and retiree health insurance. These latter issues — size of which often has been exaggerated in recent months — can be addressed over the next several decades. It is not appropriate to add these longer-term costs to projected operating deficits for the purpose of declaring that states are in a crisis too deep for them to handle."

http://www.cbpp.org/cms/?fa=view&id=711

 

 

 

The unsustainability of pension benefits has nothing to do with cyclical tax revenue cycles. These issues were there for the past 10 years and have only gotten worse. The recent economic strain has only stripped bare the facade. Your argument seems to be "the fat cats are getting tax breaks so there's no reason why public employees should walk away from the public trough - even though these pension programs are unsustainable."

 

The day of reckoning is coming and the unions can help how to decide to change these programs or get taken along on the ride. Business as usual might go on for a year or two more at best.

[Jim]

Tax break roll backs won't solve the problem entirely, but they would lend some much needed moral legitimacy for cutting compensation for middle class state workers.

 

Let's not forget that NJ is, by a good margin, the worst case situation.

 

Agreed. But even in WA, just to get up to date on the pension liabilities, about $2B is needed right now. And that will repeat about every 5-7 yrs. What is the solution? Taxes? Given the results of the last election I'd say it's not improbable but impossible. Maybe you could pitch taxes if you showed serious structural changes to the pension plan. Maybe.

[tvashtarkatena]

New poll:

 

Majority backs union on retaining collective bargaining rights

 

Not exactly in line with Walker's bluster, but what is?

[Jim]

That guy is a bit of a wacko. But - the unions are now willing to negotiate items they said were off limits a week ago. Better to be at the table than on the menu.

[Mal_Con]

The Us is descending into 3rd world status. Soon we will be like Somalia where everyone who wants a gun has one and nobody has enough to eat, hope you all enjoy it.

[j_b]

And your point? The states have let liabilities build up. NJ has some of the highest if not THE highest taxes in the US.

 

whose taxes? certainly not that of the upper 1% of the tax bracket or corporations. I don't know what liberal believes this kind of crapola

 

The larger problem has been promising what cannot be delivered.

 

funny how you are the one spouting about 401ks yet you don't believe in the market for pension funds. Something smells funny ...

 

I noticed you failed to mention the chart on pg 3 that indicates the liabilities of each state.

 

is the data from 2009? because the stock market has recovered in the last 2 years, just to point out the ephemeral value of your data points.

 

WA, with one of the smallest, has ONLY a pension liability of $3,200 per household. The only two solutions I hear from the left is 1) it's not a problem, or 2) raise taxes.The former is more of the same, the latter not feasible. You cannot tax your way out of these huge liabilities. No way. No how. Taxing the rich 50% will not do it.

 

You apparently couldn't read 'cut the war budget, the subsidies to republican cronies, stop tax evasion, etc..' which points to something about you. Your attempt to paint me as only a tax the rich type is worth a thousand words ... so is your responding to Dean Baker's 'we need stimulus' with a 'public pensions and unions will ruin us'

 

 

[tvashtarkatena]

That guy is a bit of a wacko. But - the unions are now willing to negotiate items they said were off limits a week ago. Better to be at the table than on the menu.

 

Walker refuses to come to the table. Now he's got 100,000 people milling around the Capitol.

[j_b]

The unsustainability of pension benefits has nothing to do with cyclical tax revenue cycles. These issues were there for the past 10 years and have only gotten worse. The recent economic strain has only stripped bare the facade. Your argument seems to be "the fat cats are getting tax breaks so there's no reason why public employees should walk away from the public trough - even though these pension programs are unsustainable."

 

you first! your pension is no more sustainable than that of any public employee.

 

The day of reckoning is coming and the unions can help how to decide to change these programs or get taken along on the ride. Business as usual might go on for a year or two more at best.

 

your day of reckoning was 2 years ago when the stock market and your 401k weren't worth squat until the taxpayer bailed out the big casino.

[prole]

Public sector services, the people they serve, and the jobs, benefits, pensions they provide: Too big to fail. Just not as politically powerful as banksters, despite what you may have heard.

[j_b]

The Truth About Pensions

by Paul Krugman

 

Dean Baker has a deeply enlightening analysis of state pension shortfalls (pdf), containing a lot of stuff I didn’t know. The basic moral is that the official story these days — of years and years of huge giveaways to unions, resulting in gigantic, unpayable debts — is just wrong: to a very large extent, the pension shortfall has emerged just since 2007, thanks to the financial crisis, and even then it’s not nearly as big relative to future state incomes as widely imagined.

 

http://krugman.blogs.nytimes.com/2011/02/27/the-truth-about-pensions/

[j_b]

Meanwhile, in the real world:

 

"The 401(k) generation is beginning to retire, and it isn't a pretty sight.

 

The retirement savings plans that many baby boomers thought would see them through old age are falling short in many cases.

 

The median household headed by a person aged 60 to 62 with a 401(k) account has less than one-quarter of what is needed in that account to maintain its standard of living in retirement, according to data compiled by the Federal Reserve and analyzed by the Center for Retirement Research at Boston College for The Wall Street Journal. Even counting Social Security and any pensions or other savings, most 401(k) participants appear to have insufficient savings. Data from other sources also show big gaps between savings and what people need, and the financial crisis has made things worse. "

[prole]

The unexamined, conventional wisdom 401(k) mythology is nearly as powerful as the "private sector is always better" hokum.

[j_b]

How not to 'pass on the debt to the children', the regressive way ... a primer

 

"Texas likes to portray itself as a model of small government, and indeed it is. Taxes are low, at least if you’re in the upper part of the income distribution (taxes on the bottom 40 percent of the population are actually above the national average). Government spending is also low. And to be fair, low taxes may be one reason for the state’s rapid population growth, although low housing prices are surely much more important.

 

But here’s the thing: While low spending may sound good in the abstract, what it amounts to in practice is low spending on children, who account directly or indirectly for a large part of government outlays at the state and local level.

 

And in low-tax, low-spending Texas, the kids are not all right. The high school graduation rate, at just 61.3 percent, puts Texas 43rd out of 50 in state rankings. Nationally, the state ranks fifth in child poverty; it leads in the percentage of children without health insurance. And only 78 percent of Texas children are in excellent or very good health, significantly below the national average.

 

But wait — how can graduation rates be so low when Texas had that education miracle back when former President Bush was governor? Well, a couple of years into his presidency the truth about that miracle came out: Texas school administrators achieved low reported dropout rates the old-fashioned way — they, ahem, got the numbers wrong. "

http://www.nytimes.com/2011/02/28/opinion/28krugman.html?_r=1

[prole]

 

And if the strategy of pitting private workers against public seems to be stumbling a bit, how about young workers vs. old? The proposal from David "Grannyburgers" Brooks...

 

Trim from the old to invest in the young. We should adjust pension promises and reduce the amount of money spent on health care during the last months of life so we can preserve programs for those who are growing and learning the most.

 

So far, this principle is being trampled. Seniors vote. Taxpayers revolt. Public employees occupy capitol buildings to protect their bargaining power for future benefits negotiations. As a result, seniors are being protected while children are getting pummeled. If you look across the country, you see education financing getting sliced — often in the most thoughtless and destructive ways. The future has no union. -- here.

 

 

[Phil K]

when is fairyweather gonna chime in??? Where is that guy? Out on a hot date with a pig or sumpin'?

 

I heard he was down in South America recently attending a bike-in.

[Choada_Boy]

Golly, I wish Nitrox would chime in with his worthless opinion. Nitrox?

[Crux]

The Truth About Pensions

by Paul Krugman

 

Dean Baker has a deeply enlightening analysis of state pension shortfalls (pdf), containing a lot of stuff I didn’t know. The basic moral is that the official story these days — of years and years of huge giveaways to unions, resulting in gigantic, unpayable debts — is just wrong: to a very large extent, the pension shortfall has emerged just since 2007, thanks to the financial crisis, and even then it’s not nearly as big relative to future state incomes as widely imagined.

 

http://krugman.blogs.nytimes.com/2011/02/27/the-truth-about-pensions/

 

Whaddya know, we’re being sold a bill of goods.

[KaskadskyjKozak]

The median household headed by a person aged 60 to 62 with a 401(k) account has less than one-quarter of what is needed in that account to maintain its standard of living in retirement, according to data compiled by the Federal Reserve

 

Guess they should have saved more.

[prole]

 

Thanks Obama!

 

A Tax Cut May Carve Into the Budgets of 19 States

NYT 3/1/11

 

Struggling states could lose as much as $5.3 billion in tax collections during the next few years in an unintended consequence of one of the lower-profile federal tax cuts that President Obama signed in December, according to a report released Tuesday.

 

The tax-cut package the president signed in December is best known for extending the Bush-era tax rates for two years and giving a one-year payroll tax cut to most Americans. But it included a business tax cut that could blow a hole in state budgets: a provision allowing businesses to deduct the full value of new equipment purchases from their taxes through 2011.

 

That cut, intended to spur the economy by encouraging businesses to spend more money on equipment, could end up costing 19 states as much as $5.3 billion in lost revenue over the next few years, according to the report, by the Center on Budget and Policy Priorities, a research organization based in Washington.

 

The 19 states stand to lose money because they link their state tax laws to federal tax law. So the newly allowed federal tax deductions that businesses in those states take will lower their taxable incomes, which would in turn have the effect of driving down state corporate and income tax collections.

 

The change could cost Illinois, North Carolina, Pennsylvania and other states hundreds of millions of dollars of lost revenue unless they decide to enact laws decoupling their state tax laws from the federal ones, the report said. When similar cuts have been passed before, it noted, many states have chosen to break with federal laws.

 

But some states do not intend to do so this time. In Pennsylvania, which the report estimated could lose $833 million in revenues over the next few years, the state’s Department of Revenue announced last month that it had settled on a “business-friendly” interpretation of the law that could benefit as many as 117,000 corporate taxpayers.

 

The department said the new policy would not affect Pennsylvania’s revenues in the long run because companies would simply be taking full deductions now, rather than spreading them out over several years. But this is a hard time for Pennsylvania to give large tax breaks up front: the state faces an estimated $4 billion deficit in the coming fiscal year.

 

The unexpected tax change is just one example of how difficult it can be for states to perform one of their most important tasks: guessing how much money they will collect in the coming year, so they will know how much will be available to spend.

 

Those educated guesses, known as revenue estimates, were the subject of another report released Tuesday by the Pew Center on the States and the Nelson A. Rockefeller Institute of Government. It found that errors in those revenue estimates have grown progressively worse during the last three fiscal crises, and that during the first year of the Great Recession states overestimated the amount of money they expected to collect by $49 billion, leading to difficult midyear budget cuts. Some states were off by more than 25 percent, it found.

 

During periods of economic growth, the report found, states tend to underestimate tax collections, resulting in surpluses at the end of the year. But states tend to underestimate the severity of economic downturns: then, they usually come up with overly optimistic estimates of how much they expect to collect. The report warned that “as forecasting revenue accurately becomes more difficult, states have a tougher time balancing their budgets to provide taxpayers the services they expect and ensuring the long-term fiscal health of the state.”

[j_b]

[video:youtube]vLido6G4c2E