Deficit Widened by Decline in Corporate Tax Revenue

Deficit Widened by Decline in Corporate Tax Revenue

April 7, 2011

The Lookout - What does the news that G.E. made clever use of loopholes to avoid paying any taxes last year have to do with the current budget showdown in Washington? Quite a lot, actually.

G.E.'s enviable situation is just the most recent reminder of a worrying trend: the decline in corporate tax revenues. As this chart shows, they've plummeted from more than 6 percent of GDP in the early 1950s to around 1.5 percent today.

That's thanks in part to the increasingly sophisticated methods that companies like G.E. have come up with to minimize their tax burden--including shifting their headquarters to low-tax havens like the Caribbean and Switzerland. Indeed, University of Massachusetts economist Nancy Folbre points to a 2008 report by Congress's Government Accountability Office which found that 83 out of the 100 largest publicly traded companies in the United States had subsidiaries in jurisdictions listed as tax havens.

You can see where this is going. The budget fight was triggered by disagreement between the parties over the size of spending cuts aimed at addressing the deficit. But if corporate tax revenues were higher, our deficit problem would be a lot less severe.

How much less? Suppose that instead of roughly 1.5 percent of GDP, corporate tax revenue made up 6 percent, as it did 50 years ago. So instead of totaling around $221 billion this year (2010 GDP was estimated at around $14.7 trillion), corporate tax revenue would total around $884 billion--making the deficit $663 billion less than it is. The $30 billion or so that Democrats and Republicans are currently fighting over would seem like pocket change. And we could keep programs that help prevent terrorists from getting nuclear weapons and that offer housing to homeless vets, to name just a few.

It's also worth noting that tax breaks for corporations are among the least effective ways to produce growth. On average, they generate only 20 cents of economic activity per dollar they cost, according to numbers from the Congressional Budget Office. Compare that to direct spending on infrastructure, which generates $1.75 per dollar spent.

Does that necessarily mean our corporate tax rates should be as high as they were in the 195os? Of course not. In today's environment, that level of taxation would likely lead many more companies to move overseas. But it's a pretty good reminder that gutting programs Americans depend on isn't the only way to address the deficit.

Is Alan Greenspan Telling the Truth?

April 5, 2011

The Lookout - Wall Street reform: In a recent op-ed in the Financial Times, Alan Greenspan went after Dodd-Frank, the legislation passed by Congress last year to rein in the financial sector. The former Fed chair argued the global financial system is so complicated that almost any regulation is doomed to fail, and that, "with rare exceptions" like the 2008 financial crisis, unregulated markets have a pretty good track record anyway.

Now this case is a little different, because Greenspan was expressing an opinion. And everyone's entitled to an opinion. But the barrage of withering criticism directed at the man who used to be known as "the maestro" made clear this was an opinion largely unsupported by facts. Numerous commentators poked gaping holes in the former Fed chair's argument: For one thing, the 2008 crisis, which nearly toppled the world financial system, shouldn't be glossed over in a parenthesis; for another, it's far from the only exception to global economic stability since the industry was deregulated beginning in the late 1970s; and finally, there's reason to believe that smart regulations can indeed help make sure the financial system functions smoothly.

So we're going to rank Greenspan's claims one level higher on our gauge-- not as completely bogus as the idea that BP spilled less oil in 2010 than previous years, or that no one knew Obama growing up. But not much more accurate.

Facebook Beginning to Feel Wrath of Conservatives

April 6, 2011

The Lookout - It's a fairly typical day when Facebook has managed to spark the ire of man--including members of Congress, left and right--over its ever-evolving user privacy policies. Still, the company has managed to avoid pushing user patience to the point where people can't maintain at least a base level of friendship. No significant block of the population has been moved to walk away from the site, much less take to the streets in protest.

But now, fueled by yesterday's news that Facebook will host an online townhall meeting for the President, the company may be courting such a revolt by agitating a segment renowned for mobilizing and voicing their collective anger: modern conservative activists.

It's the latest in a growing far right versus Facebook battle that began when the New York Times' Andrew Ross Sorkin recently reported that the social media giant was in talks to offer millions to former Obama White House press secretary Robert Gibbs to run its communications operation. The prospect of the move immediately raised eyebrows on the right, exemplified in comments to a post by Mike Riggs on the conservative website the Daily Caller--which also pointed out that Facebook had already hired a number of Obama administration alumni.

"Crackbook would become much less addictive for conservative patriots" if the company hired Gibbs, opined one commenter. Another wrote, "More and more I might end up yanking my profile from facebook as each day goes by."

Add to that animosity yesterday's townhall announcement, which certainly sparked the ire of popular conservative link blogger Matt Drudge. He sent out the snarky tweet above and presented links to the story on his site in a loaded way (shown at right) while pointing out that the company has been rumored to be courting Gibbs.

The thing to keep in mind about Drudge--who recently announced that the Drudge Report set a traffic record in March (over 933,000,000 pageviews) for its 16-year history--is that he possesses considerable influence in driving the effective right-wing message machine powered by blogs, talk radio shows, etc. And, like clockwork, conservative talking heads latched onto the Drudge narrative shortly after he pushed the links live on his site Tuesday evening.

"Reading about Gibbs' possible new gig, I figured Team Obama must be foaming at the mouth at the prospect of having a highly placed and dedicated Hope & Change agent working at a company with direct access to millions of people online, as well as their friends, family, high school acquaintances and Texas Hold'em pals," Doug Powers wrote on Michelle Malkin's blog last night. "As far as I know, Gibbs doesn't even officially have the gig yet, but it's possible (the Obama Facebook townhall) is an indicator that he does--or it could just be a coincidence."

A side-thought: If the idea that Facebook is a secret wing of the Obama political operation takes further hold on the right, will Sarah Palin continue to use the site as a platform for her musings and proclamations? Or will she shun it as just another cog in the "lamestream media" machine?