Don’t think for a second that congressional Republicans sincerely believe draconian cuts in federal spending stimulate the economy.
I know. They uniformly claim that spending cuts spark growth. But consider this.
During the 15-day shutdown of the federal government one and a half years ago, the United States lost some $24 billion in economic activity, according to a 2013 Standard & Poor’s report. Only Texas senator Ted Cruz and the conservative wing wanted the shutdown, while the rest of the Republican Party bore the brunt of cratering public opinion polls.
So when House Budget Committee chair Tom Price, a Georgia Republican, introduced a plan last month to cut more than $5 trillion in spending to balance the budget in nine years, take it for what it is — a purely political ploy to arouse conservatives in preparation for 2016.
The Price plan has no chance of becoming law with a Democrat in the White House, and a slim chance even with a Republican president. In repealing the Affordable Care Act and eviscerating food stamps while allocating tens of billions in defense spending (more than requested), it’s irresponsible. But in calling for the partial privatization of Medicare, it’s politically toxic. Beyond that, a Price plan put into law would be downright destructive. Sucking that much money out of the economy could possibly trigger, at the very least, another painful recession.
Still, congressional Republicans will continue to make believe that spending cuts are good for everyone, because like all make-believe stories, the Price plan has the advantage of sounding plausible. And because it sounds plausible, it feels persuasive to many voters. After all, growth is sluggish. Wages are flat. There isn’t enough money. It’s time to get serious and cut. That’s why Price titled his plan “A Balanced Budget for a Stronger America.”
In fact, there is enough money. Always has been. The trick is looking beyond one class of taxpayer dutifully paying its fair share to another class with the power, and the privilege, of avoiding paying its share.
According to a new report by Citizens for Tax Justice (CTJ), 304 of the 500 top U.S. corporations stashed more than $2 trillion in profits in offshore accounts in 2014, avoiding as much as $600 billion in U.S. taxes.
Among these are the most popular American brands: Apple, Nike, Microsoft, Safeway, and Clorox. These are among just 28 of the top 500 companies to report the tax rate they would pay if they had repatriated profits to the U.S. The rest didn’t bother. They don’t have to report.
But even those reporting to the IRS were probably lowballing their total U.S. tax liability. If they said they earned their enormous profits in tax havens, they probably didn’t, because the countries that shelter the money, like Bermuda or the Cayman Islands, don’t have economies that can produce such enormous profits. Those profits can only be earned in countries with robust economies like the U.S.
Furthermore, the foreign tax rate they paid was far lower than the tax rate they would have paid in the U.S. Indeed, the 28 firms bothering to tell the IRS what they would have paid in U.S. taxes paid a foreign tax rate of about 10 percent on a total of $470 billion. You almost certainly paid a higher percentage on less income.
Ironically, the offshoring trend has grown since the economic collapse of 2008, the very event Republicans cite when calling for more and deeper spending cuts. The CTJ survey found 77 firms increased their caches by at least $500 million while another seven U.S. companies — Apple, General Electric, Microsoft, IBM, Google, Oracle, and Gilead Sciences — piled high their cash hoards with more than $5 billion.
The trend is poised to become permanent. CTJ researchers report an acceleration of what’s known as “corporate inversions,” meaning American firms reincorporate in foreign countries to avoid paying most or all taxes on profits earned in the U.S.
And — no surprise here — the firms with the most money overseas are the first to lobby Congress to avoid paying taxes on that money. To stop this vicious cycle, CTJ researchers recommend putting an end to something called “deferrals,” an SEC rule that incentivizes tax sheltering. Then all profits earned by U.S. corporations anywhere in the world would be subject to U.S. taxes in the year they were earned.
The CTJ report does more than offer advice on creating a more equitable tax code. It reminds us that the frame of our budget debate is much too narrow. It is typically limited to spending, not revenues, much to the benefit of Republicans, while Democrats are left complaining about the unfair treatment of the middle class.
But the CTJ report does something else, something its authors don’t come right out and say. Our very narrow budget debate is as much about patriotism and national character as it is about justice and fiscal responsibility. Or at least it should be.
Billions and billions are hidden overseas while the rest of us are forced to fight over crumbs. That’s degrading and undignified but also unpatriotic. Prosperity is not only for the very few with the power to enjoy it. This isn’t feudal England.
This is America.
[Cross-posted at The National Memo]