2016 Feb 1^st

Here it is; is this the day the sun stood still? Not quite; it’s the day of the Iowa Caucuses and the whole western world waits for the result. Even that’s not quite true! The whole Iowa Caucus thing is mightily over hyped and overblown. It’s worse than judging the winner of a mile and a quarter horse race on the basis of who’s ahead after three yards. No matter, all of the pundits are out in force. If they can’t interview a major candidate they’ll settle for a minor one, or perhaps a “spokes-person” who will answer any question asked about their candidate, any question at all, with a selected few words from their candidate’s stump speech. Do I sound cynical? In the words of a newly resurrected, previously failed politician and noted moose hunter, “you betcha.”

George Will has ignored the election today; his column is about taxes. Its title is “Smart tax reform would ignite growth.” Not a word in it refers to any candidate and that is refreshing even if Will’s column otherwise makes little sense. Without having read his column what would you imagine he means by “Smart tax reform?” You can bet that he isn’t going to suggest an increase in anyone’s taxes and you are absolutely right. Will wants to reduce the corporate tax which he says, “…are the highest in the industrial world.”

That may be true of the tax rates (The top tax rate for very profitable corporations is 35 percent.) but Will neglects to tell us that very few corporations pay that rate. For example within the Fortune 500 companies, the largest public companies in the country, there are 26 profitable companies that have paid nothing at all in taxes over the last five years.  Here is a portion from a New York Times analysis:

“Profitable corporations are supposed to pay a 35 percent federal income tax rate on their U.S. profits. But many corporations pay far less, or nothing at all, because of the many tax loopholes and special breaks they enjoy. This report documents just how successful many Fortune 500 corporations have been at using these loopholes and special breaks over the past five years. As a group, the 288 corporations examined paid an effective federal income tax rate of just 19.4 percent over the five-year period — far less than the statutory 35 percent tax rate”.

How did American corporations manage to get these exceptions to the “normal” tax rate? This was a gift from their friends in Congress.  The gift was encouraged by lobbyists but they no longer call themselves lobbyists; they are now consultants. They have even changed the name of their professional lobbying group to something less odorous; The American League of Lobbyists is now the Association of Government Relations Professionals. Could this be what people mean by “putting lipstick on a pig?” The current estimate of money spent on such efforts is about nine billion dollars and much of it goes to former legislators. There are laws prohibiting former legislators from immediately lobbying their old congressional friends, but if they aren’t really registered lobbyists there is no problem. Chris Dodd, former Senator, said he would never become a lobbyist and he hasn’t. He has however become head of the Motion Picture Association of America with appropriately excellent relations with Congress and that job nets former Senator Dodd over 3 million a year…but of course he’s not a (registered) lobbyist.

The back to Dr. Will who has not told us just how his prescription for increasing growth by reducing corporate taxes will work. I guess we’ll just have to take his word for that.