Archive for the ‘Tax avoidance/evasion’ Category

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Paying Taxes to the Boss

Thursday, April 12th, 2012

From Howard Jarvis, father of California’s notorious Proposition 13, to Grover Norquist, the superlobbyist who pressures politicians to sign a Taxpayer Protection Pledge, conservative ideologues have spent the past few decades poisoning the attitude of Americans toward the payment of taxes. Norquist in particular has been blunt about his ultimate goal: radical reduction in the size of government.

That crusade assumes that taxes are actually going to government. Yet it turns out that a growing portion of state tax revenue is being diverted to corporations, in the name of job creation or job retention. Nearly $700 million a year in withholding taxes paid by workers is being turned over to their employers.

This startling fact comes from Paying Taxes to the Boss, a report my colleagues and I at Good Jobs First have just published.  We found 22 programs in 16 states under which companies are allowed to retain payroll taxes that they deduct from worker paychecks and would normally pass along to state revenue departments. Companies can keep up to 100 percent of the state withholding for designated workers for periods as long as 25 years. The most expensive program, New Jersey’s Business Employment Incentive Program (BEIP), disbursed $178 million in FY2011.

It should come as no surprise that the biggest windfalls are going to major corporations rather than small businesses. Among the largest recipients we found are: Nissan ($160 million in Mississippi), Sears ($150 million in Illinois), General Electric ($115 million in Ohio), Procter & Gamble ($85 million in Utah), Fidelity ($72 million in North Carolina) and Goldman Sachs ($60 million in New Jersey).

Apart from being unseemly, the whole practice is a threat to the fiscal stability of state governments. Payroll and other personal income taxes (PIT) represent a much bigger pot of money than corporate income taxes, so economic development officials can offer larger giveaways to companies and thus do escalating damage to state budgets.

To make matters worse, many of the PIT-based subsidy deals go to companies that don’t really create any new jobs. States frequently offer fat packages to firms that simply relocate existing jobs from a facility in another state. In fact, the diversion of withholding taxes was first adopted in Kentucky as a way to lure companies from neighboring states; the politician credited with originated the idea called it “the atomic bomb of economic development incentives.” Ohio and Indiana responded with their own withholding tax diversions, setting off a PIT-based subsidy arms race.

In recent years, withholding tax diversions have been used, for example, by South Carolina to get Continental Tire to move its North American headquarters from North Carolina; by Georgia to lure NCR from Ohio; and by Colorado to get Arrow Electronics to move its corporate headquarters from New York. In 2011 Kansas provided a reported $47 million in withholding-tax subsidies to AMC Entertainment to get the movie theater chain to move its headquarters from downtown Kansas City, Missouri about 10 miles across the state line to Leawood, a suburb of Kansas City, Kansas.

Along with this interstate job piracy, PIT awards are being given to firms that use the threat of an interstate move to extract big payments to simply stay put. This use of jobs blackmail has been most pronounced recently in Ohio and Illinois.

In 2011 Ohio forked over a $93 million subsidy package—including PIT-based tax credits worth $75 million—in response to a threat by greeting-card giant American Greetings to move its headquarters out of state. A few weeks later, the administration of Gov. John Kasich responded to a similar threat by security services provider Diebold Inc. with a $56 million package, including $30 million in PIT-based credits.

Meanwhile in Illinois, Sears got $150 million in PIT-based credits along with $125 million in local property breaks to keep its headquarters in the distant Chicago suburb of Hoffman Estates. And Motorola Mobility, now part of Google, was given a $100 million withholding-tax deal to keep its headquarters in the Chicago suburb of Libertyville.

At Good Jobs First we normally frame our critique of subsidy programs in terms of the need for greater accountability. In the case of withholding-tax diversions, we decided that the negative impacts are so serious that the best policy recommendation is to call for their abolition.

I wonder if Grover Norquist would support the idea of getting state politicians to pledge that they will not support any increases in taxes going to employers?

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Taxing the Tax-Exempt

Thursday, March 1st, 2012

Tax Day is approaching, and we will soon hear a rising chorus of criticism of large corporations such as Verizon and General Electric that don’t pay their fair share.

That’s as it should be, but there is another group of big entities that also dodge taxes but receive a lot less scrutiny: major non-profit institutions such as universities and hospitals.

Strictly speaking, giant non-profits are not dodging taxes, since they are largely tax-exempt. But that’s precisely the problem. These rich and powerful institutions increasingly behave like for-profit corporations yet are given privileged status under the tax laws. At a time when governments at all levels are desperate for revenue, that privilege is no longer a given.

The latest battleground over non-profit tax exemption is Providence, Rhode Island, where Mayor Angel Taveras has been trying to get local institutions such as Brown University to do more to help the struggling city. The Ivy League college has been making voluntary payments to the city, but Mayor Taveras wants Brown, which has an endowment of about $2.5 billion, to play a greater role in averting the possibility that Providence could end up in bankruptcy. Brown’s facilities in Providence are reported to be worth more than $1 billion, which would mean $38 million in revenue for the city if they were taxed at the commercial rate. Brown is paying about one-tenth of that amount. The mayor’s effort has won support from students at Brown, who have recently held rallies calling on the university to pay its fair share (photo).

It probably comes as a surprise to many that Brown is paying anything at all to the city. Providence’s arrangement with Brown is part of a limited but growing trend among cash-strapped local governments to persuade big non-profits to make voluntary payments in lieu of property taxes, or PILOTs. These are cousins of the PILOT agreements that for-profit companies often negotiate with localities when they are receiving large property tax breaks but want to be sure (often for public relations purposes) they are contributing something to vital local services such as schools and fire departments.

A 2010 report by the Lincoln Institute of Land Policy found that localities in at least 18 states have negotiated PILOT deals with non-profits. This often occurs quietly, but Providence is not the only city that has gotten into a high-profile tug-of-war with large tax-exempt institutions. Perhaps the most contentious case is Boston, home to numerous universities and hospitals with deep pockets.

Boston, where more than 50 percent of the land is tax-exempt, has made limited use of voluntary PILOTs for several decades. Although the city’s program was said to be the largest in the country, it was generating modest amounts of revenue.  In FY2008 the total was about $30 million, but half of that came from the Massachusetts Port Authority, which runs Logan Airport and the Port of Boston; the rest came from about two dozen healthcare and educational institutions.

In 2009 Boston Mayor Thomas Menino decided to shake things up by forming a PILOT Task Force. The group issued a report in December 2010 recommending that the city seek to enlist all non-profits owning property worth at least $15 million into the PILOT system with payments equal to 25 percent of what their tax bills would be if they had no exemption. The city eagerly agreed, and last year it began sending letters to several dozen major non-profits asking them to pay up.

Boston inspired other Massachusetts cities such as Worcester, home of Clark University, to join the PILOT bandwagon. (Cambridge did not need inspiration; it has been collecting voluntary payments from Harvard, whose assets now exceed $40 billion, since 1929).

The Boston approach has also generated a lot of criticism from those who argue that sending out letters pressuring non-profits for specific sums is not exactly voluntary and may be tantamount to putting those institutions back on the tax rolls, albeit at a discounted rate.

As much as non-profits may grumble about PILOTs, these payments are quite benign compared to the fate that has befallen some hospitals: the complete loss of their tax-exempt status. For years, healthcare activists have charged that many non-profit hospitals were not functioning as true charitable institutions and should thus not enjoy the privilege of tax exemption.

In 2004 officials in Illinois sent shock waves across the hospital industry by revoking the tax-exempt status of Provena Covenant Medical Center in Urbana. Six years later the state supreme court upheld that determination. In the intervening period, some other Illinois hospitals lost their exempt status and the question of whether non-profit hospitals were doing enough to deserve tax exemption became an issue at the federal level, thanks to relentless efforts by Iowa Sen. Chuck Grassley.

The issue flared up again recently in the wake of a front-page New York Times article reporting that major New York non-profit hospitals have been providing little in the way of charity care, even though on top of their tax exemption they are allowed to tack a 9 percent surcharge on their bills to pay for such care.

Whether as the result of PILOTs or loss of exempt status, increasing numbers of large non-profits will probably find themselves paying more of the cost of government. This is good news for revenue-starved public officials, but how long will it be before these non-profits decide to follow the lead of their counterparts in the for-profit world and begin seeking subsidies to offset those obligations?

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The Price of a U.S. Manufacturing Revival

Thursday, February 23rd, 2012

A few decades ago, U.S. factory jobs began moving offshore to countries that lured corporations with the prospect of weak or non-existent unions, minimal regulation, lavish tax breaks and other profit-fattening benefits. Workers in those runaway shops enjoyed little in the way of a social safety net, thus making them all the more dependent on whatever dismal employment opportunities foreign firms had to offer. Much of the U.S. manufacturing sector was left for dead.

Now, we are told, U.S. manufacturing is undergoing a resurrection. “Manufacturing is coming back,” President Obama told a group of blue-collar workers at a recent public event. “Companies are bringing jobs back.” Obama earlier used the State of the Union address to tout the recovery of the U.S. auto industry in the wake of the bailout he championed. One of the bailed-out firms, Chrysler, aired a Super Bowl commercial called “It’s Halftime in America” in which Clint Eastwood hailed the country’s industrial recovery.

It’s true that manufacturing employment has been on the rise after many years on the decline. But is this something calling for unqualified celebration?

Boosters of the industrial resurgence would have us believe it is a reflection of improved U.S. productivity, entrepreneurial zeal or, as Obama put it in the State of the Union, “American ingenuity.” In the case of Chrysler, that should be Italian ingenuity, given that the bailout put the company under the control of Fiat.

But it can just as easily be argued that domestic manufacturing is advancing because the United States has taken on more of the characteristics of the countries that hosted those runaway shops. Deunionization, deregulation, corporate tax preferences, excessive business subsidies and a shriveled safety net are more pronounced than ever before in the U.S. economy. If any of the Republican Presidential candidates get in office, those trends will only accelerate.

Even the Obama Administration is on the bandwagon to a certain extent. Its Office of Information and Regulatory Affairs has obstructed a slew of new environmental and workplace safety regulations. Now the President has legitimized years of conservative rhetoric claiming that companies are overtaxed by introducing a corporate tax reform plan that would reduce statutory rates in general and create an even lower rate for manufacturers. The plan has some good intentions—such as ending special giveaways to Big Oil and other loopholes while encouraging corporations to bring jobs back home—but it ignores years of evidence from groups such as Citizens for Tax Justice showing that big business will exploit any softening of the tax code to bring its actual payments down to the absolute lowest levels.

The perils of joining the manufacturing revival chorus can be seen by looking at heavy equipment producer Caterpillar. The company has been getting a lot of attention lately for expanding its domestic employment through moves such as the planned construction of a $200 million plant in Athens, Georgia that is projected to employ about 1,400.

This needs to be put in some context. According to data in Cat’s 10-K filings, the company’s workforce outside the United States soared from around 13,000 in the early 1990s to more than 71,000 last year, growing to some 57 percent of the firm’s total employment. The number of foreign workers in 2011 was greater than the company’s total head count in 2003.

Cat’s love affair with places such as China blossomed as the company was trying to escape its U.S. unions, which it had unsuccessfully tried to destroy. Cat’s hard-line approach to collective bargaining soured relations with its workers, resulting in a series of strikes and other confrontations, including a dispute in the 1990s that lasted for more than six years.

It appears that unions have no role in Cat’s limited back-to-the-USA plan. The company’s new domestic facilities tend to be located in “right to work” states. After recently trying to impose huge pay cuts at a factory in Ontario (photo), Cat first locked out the workers, then shut down the plant and is now reported to be shifting the work to a facility in Muncie, Indiana, the latest state to adopt a “right-to-work” law to hamstring unions.

By locating the Athens plant in a labor-unfriendly state such as Georgia, Cat is expected to be able to pay wages far below those in its unionized plants. It is also worth noting that Cat agreed to build the plant in Georgia only after it received $75 million in tax breaks and other financial assistance, one of the largest subsidy packages the state has ever offered.

The message of all this seems to be that the U.S. can enjoy a renewal of manufacturing if we are only willing to put up with a few minor inconveniences such as union-busting and big tax giveaways to corporations. That’s apparently what is really meant by American ingenuity.

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The Corporate Raid on State Tax Revenue

Thursday, December 8th, 2011

One of the usual canards of the corporate tax reduction crowd is that high U.S. rates force large companies to invest offshore instead of at home. The Institute on Taxation and Economic Policy and Citizens for Tax Justice have just issued the second installment of their detailed refutation of the myth of oppressive rates.

After putting out a report last month showing that many large corporations end up paying far less than the statutory federal rate (so much less that their rates often become negative), ITEP and CTJ now demonstrate that the story is the same at the state level. Their study, Corporate Tax Dodging in the Fifty States, lists 68 Fortune 500 companies that managed to pay no state income tax at all in at least one year during the period from 2008 through 2010 despite posting a total of nearly $117 billion in pre-tax U.S. profits during those no-tax years.

Sixteen of the companies—including the likes of DuPont, Tenet Healthcare, International Paper, Intel and  Peabody Energy—had more than one no-tax year. DuPont, Pepco Holdings and American Electric Power contributed nothing to state coffers in all three years. The report points out that, if the 265 companies in the sample had all paid the average 6.2 percent average corporate tax rate on their combined $1.33 trillion in U.S. profits, their state tax bill would have been about $82 billion. Instead, they paid only $40 billion, meaning that states were left without $42 billion in revenue that could have been used to help pay for education, healthcare, transportation, public safety and other key state government functions.

A system that allows many companies to sidestep millions of dollars in state tax payments can hardly be called onerous and certainly can’t be the reason for investing overseas. It is thus no surprise that the ITEP/CTJ list of firms with negative or minimal tax rates includes corporations that engage in extensive offshoring; among them are Eli Lilly, General Electric, Hewlett Packard and Merck.

At the same time, the key state tax dodgers include some manufacturing companies that have (at least in part) bucked the offshoring trend and made substantial investments in the United States. Chief among them are Intel and Boeing.

Intel, which has been spending billions on semiconductor fabrication plants in state such as Arizona, and Boeing, which focuses its aircraft assembly in Washington State and South Carolina, are major recipients of the kind of company-specific tax breaks that the ITEP/CTJ report cites as one of the reasons for the decline of state corporate income tax collections.

Intel has been playing the subsidy game in earnest since 1993, when it announced plans for what was then an unprecedented $1 billion investment in a new chip plant, to be built in a suburb of Albuquerque called Rio Rancho. The company pressured local officials to provide what would ultimately amount to about $455 million in property tax abatements and sales tax exemptions on the equipment purchased for the facility.

Soon after getting its way in New Mexico, Intel put the squeeze on officials in Arizona, where it proposed to build another plant in Chandler, a suburb of Phoenix. The company received some $82 million in property tax abatements, sales tax exemptions and corporate income tax credits. In 2005 Intel strong-armed the state to change the method by which it calculates corporate taxes to a system known as single sales factor, which allowed Intel and other companies with lots of property and a big payroll but relatively low sales in the state to enjoy enormous tax reductions.

In 1999 Intel announced plans for a large expansion of its semiconductor operations in Oregon but made it clear that the investment was contingent on receiving a property tax abatement that turned out to be worth an estimated $200 million over 15 years. In 2005 Intel got the county to extend the property tax break to 2025, locking in an estimated $579 million in additional savings. Intel also enjoys a substantial reduction in corporate income taxes thanks to Oregon’s decision to join the single sales factor bandwagon.

Boeing has also sought special tax breaks and other subsidies in multiple states. When the company was ready to begin production of its much-anticipated Dreamliner, it forced Washington to compete with around 20 other states for the work and agreed to stay there only after the legislature in 2003 approved a package of research & development tax credits and cuts in Business & Occupation taxes (the state’s substitute for a corporate income tax), sales taxes and property taxes that together were estimated to be worth $3.2 billion over 20 years.

Rather than showing its appreciation to Washington, the company went shopping for a better deal for the second Dreamliner production line. It chose South Carolina, where it was awarded a subsidy package that has been valued at more than $900 million and is able to take advantage of a “right to work” law that discourages unionization. The Machinists union accused the company of retaliating against union activism in Washington, but the complaint has just been withdrawn as part of a deal in which Boeing will build its new 737 in the Seattle area.

While it was once taken for granted that large U.S. corporations would do most of their investing at home, companies such as Boeing and Intel now act as if they are doing the country a favor with their domestic projects and expect to be rewarded handsomely in the form of special state tax breaks on top of those business-friendly provisions available to all firms.

Far from being held back by tax rates, large U.S. corporations invest offshore or onshore as they please while contributing as little as possible to the cost of public services.

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Tax Dodging Inc.

Thursday, November 3rd, 2011

Given that big business provides the bulk of the money pouring into the political system, it is no surprise that members of Congress and presidential contenders alike tend to espouse the idea that large corporations are overtaxed. This myth gets repeated despite all the evidence that blue chip companies find endless ways to pay much less than the statutory rate.

It is now more difficult for the tax avoidance deniers to spread their snake oil. Citizens for Tax Justice and the Institute on Taxation and Economic Policy have just come out with a compelling study called Corporate Taxpayers & Corporate Tax Dodgers that examines the fine print of the financial statements of the country’s largest corporations and identifies scores of firms that fail to pay their fair share of the cost of government.

Looking at a universe of 280 companies, CTJ and ITEP find that over the past three years, 40 percent of them paid less than half of the statutory rate of 35 percent. Most of those paid what the study calls “ultra-low” rates of less than 10 percent. Thirty of the firms actually had negative tax rates, meaning that Uncle Sam was paying them for doing business. In dollar terms, the biggest recipients of tax subsidies over the three-year period were Wells Fargo ($18 billion), AT&T ($14.5 billion), Verizon Communications ($12.3 billion) and General Electric ($8.4 billion). The freeloaders had rates as low as minus 57.6 percent. You should read the study for yourself to get all the juicy details.

CTJ and ITEP have been putting out these bombshell reports periodically over the past three decades. The ones from the early 1980s drove the Reagan Administration crazy and paved the way for the Tax Reform Act of 1986, which reversed many of the corporate giveaways of the initial Reagan years.

It is tempting to think that this new report will subvert the current corporate tax relief movement, but that is a tall order. Part of the reason is that corporations, having bought much of the policymaking apparatus, have become much more brazen in their self-serving behavior.

Let’s take the case of Nabors Industries, the world’s largest oil and gas land drilling contractor.  Nabors was not eligible to be considered for the CTJ/ITEP study because it is headquartered in Bermuda. The company is not really Bermudan. Its principal offices are in Houston, but it re-incorporated itself in the island nation a decade ago for one simple reason: to escape paying U.S. federal income taxes (Bermuda imposes no such levies on corporations). It was part of a wave of companies that in the early 2000s underwent what were euphemistically called corporate inversions.

Critics called the moves “unpatriotic” or even “akin to treason,” but Nabors went ahead with its plan. There was an effort later in Congress to collect retroactive taxes from Nabors and a handful of other firms that had carried out inversions, but the move was blocked by New York Rep. Charles Rangel after Nabors CEO Eugene Isenberg made a $1 million contribution to a help build the Charles B. Rangel School of Public Service at the City College of New York. Rangel was subsequently charged with an ethics violation in connection with the contribution.

Nabors and Isenberg have been in the news again recently in connection with another scandal. Nabors announced that it was paying Isenberg, now 81 years old, $100 million to give up his post as chief executive. Although the payment is linked to a severance agreement, Isenberg is remaining with the company as chairman of the board. The situation was remarkable enough to merit a front-page story in the Wall Street Journal, which is normally blasé about bloated executive pay.

Isenberg’s bonanza is the culmination of a series of outsized pay packages. In 2005, for instance, he received total compensation of more than $200 million. In 2008 his bonus alone was more than $58 million. In a non-binding vote earlier this year, a majority of Nabors shareholders disapproved the company’s executive pay policies.

It used to be that executive compensation was high in relation to worker pay rates put still a relatively small amount compared to revenue and profits in large companies.  That has been changing. The payouts to Isenberg have a significant impact on the firm’s bottom line. The $100 million being collected by Isenberg to give up his CEO job more than wipes out the $74 million in profits Nabors posted for the most recent quarter. Nabors, by the way, has disclosed that it has been investigated by the Justice Department for making foreign bribes.

As the Institute for Policy Studies showed in a report a couple of months ago, it is not unusual for major companies to pay their chief executives more than they send to the Treasury in taxes. Add to that the CTJ/ITEP findings and the behavior of firms like Nabors, and it is difficult to avoid the conclusion that in many large corporations the dominant motivation is to enrich their principals, even if that means sidestepping obligations to shareholders, government and workers. In other words, big business is increasingly acting as little more than a vehicle for expanding the wealth of the 1%.

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Clawing Back from the 1%

Thursday, October 27th, 2011

Rick Perry has admitted that his recent attempt to revive controversy over President Obama’s birth certificate was done for “fun.” This came after Herman Cain said that his call for an electrified fence to protect the U.S. border with Mexico was meant as a joke.

The question, then, is whether their economic plans should also been seen as pranks. It is indeed difficult to take the proposals of the two men and the other presidential contenders seriously. Do they really believe that the solution to the country’s job crisis lies in massive tax reductions for the wealthy and large corporations along with a rollback of federal regulations on banks, health insurance companies and polluters? These ideas sound as if they were cooked up as part of a Yes Men parody to make the 1% look ridiculous in the face of the growing Occupy movement.

One sign that the candidates are not putting forth legitimate policy prescriptions is that their plans contain no accountability provisions. Perry’s just released “Cut, Balance and Grow” scheme, for instance, has repeated references to the wave of job creation that will supposedly be generated by overhauling the tax and regulatory systems, but nowhere does it say what will happen to those companies that, in spite of being freed from federal shackles, still fail to hire significant numbers of new workers.

When it comes to foreign policy, conservatives love Ronald Reagan’s dictum of “trust, but verify.” But in the realm of domestic economic policy their approach is “take it on faith” – giving the 1% everything they want and doing nothing to make sure that the purported benefits to the economy ever materialize. Actually, it is not only conservatives who adopt this posture. Many pro-corporate Democrats are also willing to give away the store to big business without imposing any real safeguards. This can be seen, for instance, in the bi-partisan campaign to slash taxes on repatriated foreign profits without ensuring that those savings actually result in job creation.

Presidential candidates and federal policymakers have something to learn in this regard from the states, including Perry’s Texas.  Together, the states spend tens of billions of dollars each year on tax credits, grants, low-cost loans and other forms of financial assistance to corporations in an attempt to stimulate job creation and economic development.

More and more of these subsidy programs attach strings to the government largesse. Corporate recipients must commit to creating a specific number of jobs, which are often subject to wage and benefit requirements. When companies fail to live up to those obligations, the state may recoup all or some of the subsidies (or restrict future benefits) through devices known as clawbacks. These provisions vary widely in stringency from state to state and sometimes within states.

My colleagues and I at Good Jobs First are currently studying the job creation, job quality and clawback practices of the major state subsidy programs around the country. Our report will not be issued until later this year, but I can say now that among the programs that contain clawback provisions are two that are closely controlled by Perry: the Texas Enterprise Fund and the state’s Emerging Technology Fund. These funds have been criticized for cronyism and other abuses, but at least there are some mechanisms for holding recipients accountable on their commitments.

The same cannot be said at the federal level. If Perry and others proposing national solutions to the jobs crisis were serious, they would be recommending that any tax reductions or regulatory relief be contingent on the creation of significant numbers of jobs—and quality ones at that.

I don’t expect this to happen any time soon. Both branches of the national political elite have bought into the idea that large corporations and the wealthy have to be, in effect, bribed to make job-creating investments in the U.S. economy and that there is no recourse when they fail to carry out what they were paid off to do.

Even before the current crop of pro-corporate economic plans, large companies and the wealthy have, of course, benefitted from a skewed tax system, special subsidies for selected industries, lucrative federal contracts, weak regulation, one-sided labor laws, and a justice system that is soft on business crime. And we have little to show for it in the way of decent jobs and economic security.

Rather than showering even more advantages on the 1 percenters, we should be demanding that they give something back. The Occupy movement can be seen as a big clawback effort whose goal is to recoup not just a tax break here or there but control over the future of the entire U.S. economy.

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A Rogues Gallery of the One Percent

Thursday, October 13th, 2011

For the past 30 years, Forbes magazine has used its annual list of the 400 richest Americans as a platform for celebrating the wealthy. This year, amid the persistent jobs crisis and the growing challenge posed by the Occupy movement, the Forbes list has to be viewed in a different light. Rather than a scorecard of success, it comes across as a rogues gallery of the 1 Percent who have hijacked the U.S. economy.

Start with the overall numbers. Combined, the 400 are worth an estimated $1.5 trillion, up 12 percent from the year before. This at a time when both the net worth and annual income of the typical American household have been sinking. When the first Forbes list was published in 1982 there were only about a dozen billionaires. Today, every single member of the 400 has a ten-figure fortune. Their average net worth is $3.8 billion.

And where did this wealth come from? Forbes tries to justify the skyrocketing assets of the 400 by saying that “an alltime-high 70% are self-made…This is the working elite.” New riches may indeed be better than inherited wealth, but how did this “elite” climb the ladder of success?

The question is all the more pertinent, given the current inclination of conservatives to refer to the wealthy as “job-creators” as a way of rebuffing efforts to get the plutocrats to pay their fair share of taxes.

How much job creation can be attributed to the Forbes 400? In a chart on Sources of Wealth, the magazine notes that the largest single “industry” is investments, accounting for the fortunes of 96 of the 400. By contrast, manufacturing, which is more labor intensive, is listed as the source for only 17 of the tycoons.

Within the investments category, about one-sixth of the people in the top 100 made their fortunes from hedge funds, private equity and leveraged buyouts—activities that are more likely to result in the destruction than the creation of jobs. For example, Sam Zell (net worth: $4.7 billion) was ruthless in laying off workers after his takeover of the Tribune newspaper company.

Forbes no doubt would respond by pointing to the 48 people on the list who got fabulously wealthy from the technology sector. Yet many of these companies create very few jobs: Facebook, which made Mark Zuckerberg worth $17.5 billion, has only about 2,000 employees. Or, like Apple, which gave the late Steve Jobs a $7 billion fortune, they create most of their jobs abroad in low-wage countries such as China rather than manufacturing their gadgets in the United States. The same is now true for Dell—source of Michael Dell’s $15 billion fortune—which has closed most of its U.S. assembly operations.

The few people on the list who are associated with large-scale job creation in the United States got rich from a company known for paying lousy wages and fighting unions. Christy Walton and her immediate family enjoy a net worth of more than $24 billion deriving from the notorious Wal-Mart retail empire (other Waltons are worth billions more). The Koch Brothers ($25 billion) are bankrolling the effort to weaken collective bargaining rights and thereby depress wage levels, while satellite TV pioneer Stanley Hubbard ($1.9 billion) has been an outspoken critic of labor unions and was an aggressive campaigner against the Employee Free Choice Act.

Poor job creation performance and anti-union animus are not the only sins of the 400 and their companies. Some of them have a checkered record when it comes to other aspects of accountability and good corporate behavior.

Start at the top of the list. Bill Gates, whose $59 billion net worth makes him the richest individual in the United States, is known today mainly for his philanthropic activities. Yet it was not long ago that Gates was viewed as a modern-day robber baron and Microsoft was being prosecuted by the European Commission, the U.S. Justice Department and some 20 states for anti-competitive practices. In the 1990s there were widespread calls for the company to be broken up, but Microsoft reached a controversial settlement with the Bush Administration that kept it largely intact.

Today it is Google, whose founders Sergey Brin and Larry Page are estimated by Forbes to be worth $16.7 billion, that is at the center of accusations of monopolistic practices.

Amazon.com, headed by Jeff Bezos ($19.1 billion), has fought against the efforts of a variety of state governments to get the online retailer to collect sales taxes from its customers. By failing to collect taxes on most transactions, Amazon gains an advantage over its brick-and-mortar competitors but deprives states of billions of dollars in badly needed revenue.

Cleaning products giant S.C. Johnson & Son, the source of the combined $11.5 billion fortune of the Johnson family, recently admitted that it has used aggressive tax avoidance practices to the extent that it pays no corporate income taxes at all in its home state of Wisconsin. Forbes ignores this issue, but instead describes in detail the criminal sexual molestation charges that have been filed against one member of the family.

And then there are the environmental offenders, such as Ira Rennert ($5.9 billion.) His Renco Group was for years one of the country’s biggest polluters, and the Peruvian lead smelter of his Doe Run operation is one of the most hazardous sites in the world.

This is only a small sampling of the transgressions of the 400 and their companies. Rather than being hailed as job creators, they should be made to answer for their job destruction, their tax avoidance, their anti-competitive practices, their environmental violations and much more.  Rather than celebration, the Forbes 400 and the rest of the 1 Percent are in need of investigation.

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Posted in 1%, Antitrust, Corporate Accountability, Corporate Crime, Corporate Power, Corporate Profits, Employment, Environment, Layoffs, Tax avoidance/evasion, Unions | No Comments »

Green Accountability

Thursday, September 15th, 2011

Obamacare, abortion, gay marriage and taxes are apparently not enough to complain about. Conservative politicians have a new whipping boy: green jobs. Republican members of Congress and GOP Presidential hopefuls seem to think these days that the greatest sin of the Obama Administration is its effort to encourage employment growth in the renewable energy sector.

Mitt Romney’s recently released economic plan accuses Obama of having “an unhealthy ‘green’ jobs obsession.” In her response to the President’s jobs speech, Michele Bachmann charged that the Administration is imitating the green-jobs policies of Spain, which she bizarrely suggested were responsible for that country’s astronomical rates of unemployment. Rick Perry’s attacks on the reality of climate change imply that green jobs are unnecessary.

At the same time, Republicans in Congress are trying to turn the bankruptcy of solar company Solyndra, which leaves the federal government on the hook for $535 million in loan guarantees, into a morality tale not only about supposed cronyism but also about the folly of government support for green jobs.

As usual, there is a high dose of hypocrisy among those making the criticisms. As USA Today points out, while he was governor of Massachusetts, Romney supported the use of public funds to support renewable energy businesses. What the paper did not mention was that one of the recipients of those funds was Evergreen Solar, which got a $2.5 million state grant in 2003 and went on to receive $44 million more from Romney’s successor Deval Patrick. Earlier this year, Evergreen announced plans to shift its production to China and later filed for bankruptcy.

In 2008 the Texas Enterprise Fund, a subsidy program overseen by Gov. Perry, gave $1 million to the solar company HelioVolt. The company has also struggled and earlier this year put itself up for sale. A report by Texans for Public Justice noted that the fund had relaxed HelioVolt’s job-creation requirement. Perry’s fund also gave $2.5 million to SunPower Corp.

Romney and Perry are far from the only Republic governors who have overseen the use of taxpayer funds to invest in renewable energy companies. Under the leadership of Gov. Jan Brewer, Arizona has been offering a Renewable Energy Tax Incentive. In her State of the State speech last year, Brewer said she was “proud to announce the arrival of Suntech Power Holdings. It’s the first solar company to come to Arizona because of the renewable energy tax incentive program I signed into law in June.”

Recently, Mississippi Gov. Haley Barbour, who flirted with a run for the Republican Presidential nomination earlier this year, supported and then signed legislation that will provide a whopping $75 million subsidy for Calisolar, a California company that plans to produce solar cells in the Magnolia State. The law also includes $100 million in financial assistance for biomass energy company HCL CleanTech.

The fact that Republicans are disingenuous in their criticism of the Obama Administration’s renewable energy efforts does not mean that green subsidies at the federal or state level are necessarily a good thing. While the need to develop alternative energy systems is an urgent task for the nation, it does not make sense to repeat the mistakes of conventional economic development policy in helping the green sector.

That means, for one thing, not simply throwing money (including tax breaks and loan guarantees) at companies simply because they are making green promises. In many cases it may make more sense to let the private sector finance new renewable energy ventures and save public funds for energy infrastructure investments and for worker training in green occupations. Adopting aggressive renewable portfolio standards is also a key role for government to play.

In cases where some direct government assistance makes sense, public officials need to perform due diligence on the recipient company and impose strong safeguards, including job quality standards and clawbacks if the firm does not live up to its job-creation obligations.

As the Solyndra and Evergreen episodes show, the fact that corporations are focused on renewable energy does not make them angels. They may still be incompetent or engage in the same types of corporate misconduct seen among their conventional counterparts. Green business must also be accountable business.

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Posted in Corporate Subsidies, Environment, Green Jobs, Tax avoidance/evasion | No Comments »

Green Jobs Blues

Thursday, September 1st, 2011

President Obama’s grand plan for job creation has not yet been released but it is already struggling. The capitulation to Speaker John Boehner on the scheduling of Obama’s speech to Congress about the plan is a sign of things to come.

Yet perhaps even more troubling is the announcement by a company that served as a showcase for the administration’s campaign to promote jobs in renewable energy that it is shutting down, sticking taxpayers with the bill for $535 million in federal loan guarantees. Solar panel maker Solyndra’s decision to close its manufacturing plant in California and file for bankruptcy will put more than 1,100 people out of work.

Conservatives are having a field day arguing that Solyndra’s demise illustrates the folly of government involvement in the market. It is hilarious to hear many of the same lawmakers who refuse to end subsidies to the ethanol industry and tax breaks for Big Oil get indignant about assistance to wind and solar companies.

It is also amusing to see Republicans try to turn the Solyndra debacle into a story about Obama Administration stimulus cronyism. Solyndra was approved for loan guarantees in 2007 by the Bush Energy Department based on the Energy Policy Act passed by Congress in 2005, though funding for the program was not appropriated until the 2009 Recovery Act.

The real issue is why Solyndra, even with the loan guarantees, was not able to succeed in a market that is supposed to be the wave of the future. And it’s not just an issue of this one company. Evergreen Solar, which received more than $40 million in state government subsidies in Massachusetts, filed for bankruptcy recently. Other U.S. renewable energy firms are also facing difficulties.

Rather than simply debating this country’s half-hearted industrial policy, more attention should be paid to the failures of the companies themselves. U.S. solar panel producers, for instance, were slow to get started and allowed foreign competitors to gain a strong foothold in the international market.

It is customary for firms such as Solyndra and Evergreen to cite low-cost producers in China as a key reason for their plight. What the U.S. renewable energy manufacturers fail to mention is that some of them helped develop the Chinese solar industry by locating some of their own facilities in that country. At the same time, companies like First Solar and SunPower Corporation have intensified global cost competition by building plants in other cheap-labor havens such as Malaysia and the Philippines.

Some European companies have shown it is possible to compete without depending on low wages offshore. Germany’s SolarWorld, which is in the top tier of global producers, does most of its manufacturing in its home country and in the United States (including a plant in Oregon that has received state subsidies). In June it sold off its share in a joint venture in South Korea, saying that it had “decided in favor of production at locations with the highest quality, environmental and social standards.” Imagine a major U.S. corporation saying that.

The fact that many U.S. companies—green or otherwise—cannot or will not compete by adopting a high-road approach does not bode well for the country’s future. As long as wages remain low or stagnant, the buying power of American workers will remain weak, and this in turn will keep the economy in a funk.

Compounding the problem is that, apart from a few tech sectors, innovation in American business seems to be limited to finding new ways to lower tax bills and increase executive compensation. A new report by the Institute for Policy Studies does a good job of linking the two, showing that numerous large corporations are now remunerating their CEOs more each year than the firms are paying in federal income taxes. Many of these same companies are not hiring in the U.S., preferring to rely instead on those offshore labor havens and extracting more work out of their existing domestic employees.

This is the dilemma facing the job proposals of the Obama Administration and state governments: they all ultimately rely on action by corporations whose outlook these days is dominated by executive self-enrichment, tax dodging and labor exploitation—not the creation of quality jobs.  Happy Labor Day.

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Posted in Globalization, Green Jobs, Offshoring, Tax avoidance/evasion | No Comments »

Striking Back at Verizon

Thursday, August 11th, 2011

As the U.S. economy teeters, most politicians and mainstream analysts have nothing to offer but the usual counter-productive agenda of reduced public spending, corporate tax cuts and weakening of government regulation of business.

Some of the only helpful initiatives are coming from an institution that much of the American public has been taught to despise: labor unions, especially aggressive ones like the Communications Workers of America.

The strike recently launched by CWA and the International Brotherhood of Electrical Workers against telecom giant Verizon Communications has significance that goes far beyond the terms of their contract negotiations. It is one of the only arenas in which an effort is being made to shore up rather than erode the living standards of American workers—living standards that are supposed to be the backbone of an economy that we are constantly told is based on consumer spending. Also adding to the importance of the walkout is that it is targeting an employer that is emblematic of much that is wrong with corporate America today.

That starts with the evolution of the company. Verizon started out as Bell Atlantic, one of the regional operating companies, or Baby Bells, that resulted from the 1984 dismantling of the old AT&T monopoly. Taking apart Ma Bell was supposed to beget a new era of competition in the telephone business, but instead, some of the stronger Baby Bells focused on acquiring their rivals. Bell Atlantic took over NYNEX in 1997, and a few years later it bought the large non-Bell local phone company GTE. Seeking to downplay its origins, the combined corporation adopted the portmanteau name Verizon, a combination of “veritas,” the Latin word for truth, and “horizon.”

Verizon is now one of two firms that dominate traditional phone service in the United States. The other is the new AT&T, the name taken by the other voracious former Baby Bell, SBC Communications, in 2005. In the end, the dismantling of Ma Bell simply replaced a monopoly with a duopoly.

This concentration of ownership has carried over into the wireless realm, which in the U.S. is now largely controlled by subsidiaries of Verizon and AT&T (Verizon Wireless is a joint venture with Britain’s Vodafone, which owns 45 percent).

Verizon has compounded the negative effects of its bloated market share by fighting the extension of union rights to its wireless operation. From the end of the Second World War to its break-up, the Bell System was strongly unionized, and phone company jobs were among the most secure and best-paying blue-collar positions in the private sector. Things became more contentious after the creation of the Baby Bells—there were widespread strikes in 1989 over company attempts to curtail healthcare benefits—but workers in the core wireline business retained their union protections.

Workers at Verizon Wireless, on the other hand, have been struggling for the past decade to achieve such protections. The company has employed all the usual dirty tricks of union-busting, including surveillance, misinformation and intimidation of activists. As American Rights at Work noted in a 2007 report, Verizon also shut down call centers where organizing was taking place and moved the operations to states with anti-union “right-to-work” laws. The National Labor Relations Board found the company guilty of violating federal labor law for disciplining a worker for union organizing.

Rather than improving working conditions at Verizon Wireless, Verizon seems intent on lowering those in its wireline business. The current strike was prompted by management demands for a long list of major contract concessions concerning pensions, sick leave, healthcare and job security. Verizon also wants to tie wages more closely to individual job performance, an arrangement that is typical of non-union workplaces. CWA and IBEW are accurately charging the company with trying to undo half a century of advances in worker rights.

Verizon’s position should be seen as an assault not only on its 45,000 unionized employees but on the entire economy. If management gets its way, some people will find themselves transferring from Verizon’s payroll to the unemployment rolls, and those who remain would have less disposable income.

Its labor practices are not the only way Verizon harms the economy. As Citizens for Tax Justice points out, Verizon is among those large companies that find ways to avoid paying their fair share of taxes. For the past two years, its federal tax rate has been negative, meaning that it is getting rebates from the Treasury—totaling more than $1 billion—despite enjoying profits of more than $10 billion in each of those years.

Verizon also plays the tax avoidance game at the state and local level. For example, it has received tens of millions in subsidies in New Jersey, and last year it pressured authorities in New York to award it more than $500 million in property tax abatements and other tax breaks for a data center it was planning to build near Niagara Falls. This was on top of $96 million in electricity subsidies. The company cancelled the plan after a lawsuit was filed by a local resident.

In addition to mistreating workers and taxpayers, Verizon has apparently found time to cheat its customers. Last year, Verizon Wireless had to pay a record $25 million to settle Federal Communications Commission charges that it charged 15 million cell phone customers unauthorized fees. The company also agreed to provide $52 million in refunds.

A sign seen on a picket line reads: VERIZON IS KILLING MIDDLE CLASS AMERICA. If this strike is successful, it will send a strong message to all corporate assassins that U.S. workers will not roll over and die.

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Posted in Tax avoidance/evasion, Telecommunications industry, Unions | No Comments »

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