OK So Freedom Is Not Free, The Conservative Economics Movement Has Bought It

OK So Freedom Is Not Free, The Conservative Economics Movement Has Bought It

Giant bank holding companies now own airports, toll roads, and ports; control power plants; and store and hoard vast quantities of commodities of all sorts. They are systematically buying up or gaining control of the essential lifelines of the economy. How have they pulled this off, and where have they gotten the money?

In a letter to Federal Reserve Chairman Ben Bernanke dated June 27, 2013, US Representative Alan Grayson and three co-signers expressed concern about the expansion of large banks into what have traditionally been non-financial commercial spheres. Specifically:

    [W]e are concerned about how large banks have recently expanded their businesses into such fields as electric power production, oil refining and distribution, owning and operating of public assets such as ports and airports, and even uranium mining.

After listing some disturbing examples, they observed:

    According to legal scholar Saule Omarova, over the past five years, there has been a “quiet transformation of U.S. financial holding companies.” These financial services companies have become global merchants that seek to extract rent from any commercial or financial business activity within their reach.  They have used legal authority in Graham-Leach-Bliley to subvert the “foundational principle of separation of banking from commerce”. . . .

    It seems like there is a significant macro-economic risk in having a massive entity like, say JP Morgan, both issuing credit cards and mortgages, managing municipal bond offerings, selling gasoline and electric power, running large oil tankers, trading derivatives, and owning and operating airports, in multiple countries.

A “macro” risk indeed – not just to our economy but to our democracy and our individual and national sovereignty. Giant banks are buying up our country’s infrastructure – the power and supply chains that are vital to the economy. Aren’t there rules against that? And where are the banks getting the money?

How Banks Launder Money Through the Repo Market

In an illuminating series of articles on Seeking Alpha titled “Repoed!”, Colin Lokey argues that  the investment arms of large Wall Street banks are using their “excess” deposits – the excess of deposits over loans – as collateral for borrowing in the repo market. Repos, or “repurchase agreements,” are used to raise short-term capital. Securities are sold to investors overnight and repurchased the next day, usually day after day.

The deposit-to-loan gap for all US banks is now about $2 trillion, and nearly half of this gap is in Bank of America, JP Morgan Chase, and Wells Fargo alone. It seems that the largest banks are using the majority of their deposits (along with the Federal Reserve’s quantitative easing dollars) not to back loans to individuals and businesses but to borrow for their own trading. Buying assets with borrowed money is called a “leveraged buyout.” The banks are leveraging our money to buy up ports, airports, toll roads, power, and massive stores of commodities.

Using these excess deposits directly for their own speculative trading would be blatantly illegal, but the banks have been able to avoid the appearance of impropriety by borrowing from the repo market. (See my earlier article here.) The banks’ excess deposits are first used to purchase Treasury bonds, agency securities, and other highly liquid, “safe” securities. These liquid assets are then pledged as collateral in repo transactions, allowing the banks to get “clean” cash to invest as they please. They can channel this laundered money into risky assets such as derivatives, corporate bonds, and equities (stock).

That means they can buy up companies. Lokey writes, “It is common knowledge that prop [proprietary] trading desks at banks can and do invest in a variety of assets, including stocks.” Prop trading desks invest for the banks’ own accounts. This was something that depository banks were forbidden to do by the New Deal-era Glass-Steagall Act but that was allowed in 1999 by the Gramm-Leach-Bliley Act, which repealed those portions of Glass-Steagall.

The result has been a massively risky $700-plus trillion speculative derivatives bubble. Lokey quotes from an article by Bill Frezza in the January 2013 Huffington Post titled “Too-Big-To-Fail Banks Gamble With Bernanke Bucks“:

    If you think [the cash cushion from excess deposits] makes the banks less vulnerable to shock, think again. Much of this balance sheet cash has been hypothecated in the repo market, laundered through the off-the-books shadow banking system. This allows the proprietary trading desks at these “banks” to use that cash as collateral to take out loans to gamble with. In a process called hyper-hypothecation this pledged collateral gets pyramided, creating a ticking time bomb ready to go kablooey when the next panic comes around.

That Explains the Mountain of Excess Reserves

Historically, banks have attempted to maintain a loan-to-deposit ratio of close to 100%, meaning they were “fully loaned up” and making money on their deposits. Today, however, that ratio is only 72% on average; and for the big derivative banks, it is much lower. For JPMorgan, it is only 31%. The unlent portion represents the “excess deposits” available to be tapped as collateral for the repo market.

The Fed’s quantitative easing contributes to this collateral pool by converting less-liquid mortgage-backed securities into cash in the banks’ reserve accounts. This cash is not something the banks can spend for their own proprietary trading, but they can invest it in “safe” securities – Treasuries and similar securities that are also the sort of collateral acceptable in the repo market. Using this repo collateral, the banks can then acquire the laundered cash with which they can invest or speculate for their own accounts.

Lokey notes that US Treasuries are now being bought by banks in record quantities. These bonds stay on the banks’ books for Fed supervision purposes, even as they are being pledged to other parties to get cash via repo. The fact that such pledging is going on can be determined from the banks’ balance sheets, but it takes some detective work. Explaining the intricacies of this process, the evidence that it is being done, and how it is hidden in plain sight takes Lokey three articles, to which the reader is referred. Suffice it to say here that he makes a compelling case.

Can They Do That?

Countering the argument that “banks can’t really do anything with their excess reserves” and that “there is no evidence that they are being rehypothecated,” Lokey points to data coming to light in conjunction with JPMorgan’s $6 billion “London Whale” fiasco. He calls it “clear-cut proof that banks trade stocks (and virtually everything else) with excess deposits.” JPM’s London-based Chief Investment Office [CIO] reported:

    JPMorgan’s businesses take in more in deposits that they make in loans and, as a result, the Firm has excess cash that must be invested to meet future liquidity needs and provide a reasonable return. The primary reponsibility of CIO, working with JPMorgan’s Treasury, is to manage this excess cash. CIO invests the bulk of JPMorgan’s excess cash in high credit quality, fixed income securities, such as municipal bonds, whole loans, and asset-backed securities, mortgage backed securities, corporate securities, sovereign securities, and collateralized loan obligations.

Lokey comments:

    That passage is unequivocal — it is as unambiguous as it could possibly be. JPMorgan invests excess deposits in a variety of assets for its own account and as the above clearly indicates, there isn’t much they won’t invest those deposits in. Sure, the first things mentioned are “high quality fixed income securities,” but by the end of the list, deposits are being invested in corporate securities [stock] and CLOs [collateralized loan obligations]. . . . [T]he idea that deposits are invested only in Treasury bonds, agencies, or derivatives related to such “risk free” securities is patently false.

He adds:

    [I]t is no coincidence that stocks have rallied as the Fed has pumped money into the coffers of the primary dealers while ICI data shows retail investors have pulled nearly a half trillion from U.S. equity funds over the same period. It is the banks that are propping stocks.

Another Argument for Public Banking

All this helps explain why the largest Wall Street banks have radically scaled back their lending to the local economy. It appears that JPMorgan’s loan-to-deposit ratio is only 31% not because the bank could find no creditworthy borrowers for the other 69% but because it can profit more from buying airports and commodities through its prop trading desk than from making loans to small local businesses.

Small and medium-sized businesses are responsible for creating most of the jobs in the economy, and they are struggling today to get the credit they need to operate. That is one of many reasons that banking needs to be a public utility. Publicly-owned banks can direct credit where it is needed in the local economy; can protect public funds from confiscation through “bail-ins” resulting from bad gambling in by big derivative banks; and can augment public coffers with banking revenues, allowing local governments to cut taxes, add services, and salvage public assets from fire-sale privatization. Publicly-owned banks have a long and successful history, and recent studies have found them to be the safest in the world.

As Representative Grayson and co-signers observed in their letter to Chairman Bernanke, the banking system is now dominated by “global merchants that seek to extract rent from any commercial or financial business activity within their reach.” They represent a return to a feudal landlord economy of unearned profits from rent-seeking. We need a banking system that focuses not on casino profiteering or feudal rent-seeking but on promoting economic and social well-being; and that is the mandate of the public banking sector globally.
This work is licensed under a Creative Commons Attribution-Share Alike 3.0 License

Ellen Brown developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest of eleven books, she turns those skills to an analysis of the Federal Reserve and “the money trust.” She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. She is president of the Public Banking Institute, http://PublicBankingInstitute.org, and has websites at http://WebofDebt.com and http://EllenBrown.com.

So conservatives and libertarians have been claiming for decades that America will only be truly free when everything is privatized. We are well on our way to their dream. Yet the more privatization and less regulation we have, the less freedom the middle-class and working poor have. Deregulation has made our economy dependent on a few large banks. It is like claiming a table is more stable with just two legs. Wall Street has more than recovered from the recession, yet where are the jobs saving Wall Street was supposed to create. They play games with exotic investments and corruption of interest rates while the middle-class is slowly becoming the barely getting by class.

Patriots Know The Deficit is Shrinking, Even Though Anti-American Conservatives Scream Otherwise

Patriots Know The Deficit is Shrinking, Even Though Anti-American Conservatives Scream Otherwise

Remember all those deficit hawks who screamed that the federal deficit is spiraling out of control and must be stopped with spending cuts that have a funny way of hurting the pocketbooks of the most vulnerable Americans? Their excuse for ripping us off has been literally disappearing, but a new Google survey shows that not only do the vast majority Americans not know it — half of the public actually believes that the deficit is growing [3].

Here are the facts: The U.S. budget deficit has been shrinking at a rapid rate over the last few months. The deficit peaked at 10.2 percent of GDP in 2009, but over the past four quarters, it has shrunk to a mere 4.2 percent of GDP. What’s more, the Congressional Budget Office predicts [4] that the deficit will fall to 2.1 percent of GDP in 2015.

Why such a disconnect? Unfortunately, disgraceful propaganda has left the public misinformed and confused.

Over in Economic Wonderland, the deficit hawk duo of Alan Simpson and Erksine Bowles have made a second career over the last several years wildly exaggerating the deficit issue and scaring Americans into thinking that deep cuts in the federal budget were necessary for the economy. The reality was just the opposite. If these two had ever sat down to read John Maynard Keynes, whose work is vital to understanding how to respond to economic crises, they would have known that cutting the federal budget when the economy is weak actually slows it down even more.  Yet to this day, Simpson and Bowles continue waging battle for a “grand bargain” that would shred the social safety net and cost many Americans their jobs by requiring trillions of dollars to be cut from the federal budget over ten years. All in the name of a “problem” that doesn’t even exist.

Deficit hawks like Simpson and Bowles, and their grand funder, hedge fund billionaire Pete Peterson, go on promoting the nonsense that the deficit is the major economic problem of 2013 despite the obvious facts and a growing consensus from economists that such a claim is utterly absurd. Incredibly, they do it even after the faulty work they relied on to make their case – a paper produced by two Harvard economists, Carmen Reinhart and Kenneth Rogoff – was discredited by a mere grad student [5] in one of the great academic revelations of our time. Even conservative economists are bowing to reality. The folks over at the conservative American Enterprise Institute, for example, have come to the conclusion [6] that austerity is a terrible idea and that without proper stimulus, the U.S. economy would look a lot more like Europe’s, where individual countries without sovereign currency have been forced to go the austerity route. It’s getting increasingly hard to deny that things have gotten pretty ugly over there because of deficit hawks and their ilk.

But deficit hawks are paid well to misinform the public. They write reports. They get corporate honchos to help them run campaigns with innocent-sounding names like “Fix the Debt.” They build websites. They write articles. They hold conferences. They pay off think tanks – even progressive ones – to play ball with them.  And the corporate dominated major media frequently are happy to play along. On it goes, until the lies repeated to the public take on the ring of truth.

So it’s no surprise that the public is not aware of the important news that the deficit is shrinking. Or that it is shrinking precisely for the reason progressive economists have been saying all along. When you have a recession, you have to juice the economy through government investment. That, in turn, reaps you the benefit of more money in people’s pockets, which leads to more jobs, more tax revenue for the government, and less reliance on social safety net programs like unemployment insurance or food stamps. If the original stimulus package had been bigger, the deficit would have shrunk even faster.

The deficit hawks have been more than spectacularly wrong. They have impacted policy in a way that turned the attention of Washington away from what it should have been focused on all along – jobs. Instead of a deficit commission, Obama should have called for a jobs commission to address the fact that hard-working people have not been able to find jobs to feed their families because of a Wall Street-driven financial crisis.

One might hope that the reality emerging will help squelch the calls to recklessly cut government investment in the economy. But there’s a big problem: Deficit lies benefit the 1 percent in the short-run. Rather than shrinking the deficit, what the short-sighted, greedy rich in America really want to shrink is their tax liabilities, which is why they don’t want to pay for things like education, infrastructure, and social safety net programs that benefit the population and ultimately help keep the economy humming.  The financiers among them would also dearly like to privatize things like Social Security so that they can collect fees on American retirement accounts. The corporate honchos like the way austerity drives up unemployment and drives down wages because they hold the mistaken view that keeping workers stressed and vulnerable is good for their bottom line. They want people like Larry Summers to head the Federal Reserve, who, while in the White House as the president’s chief economic adviser , famously presided over a stimulus program many economists warned was way too small.

In the fall, will deficit hawks in Congress manage once again to hold the American economy hostage? Or will reality finally rear its head? Facts have a tough time competing with well-funded mythology.

They're making up numbers and being shamelessly greedy because they believe, in the same way that cultist believe crap, that safety net programs like Social Security and Medicare are too expensive*. Conservative cultists dogma says that the people cannot join together to have the government run safety net programs for them - because we all know the history of economic recessions. We will have them and American workers always suffer the most. Conservatives and most libertarians just don't care. They always blame their screw-ups on workers and the poor. If workers and the poor had that much power we would have strong regulations in place that would prevent corporate America from acting like drunker casino dealers. The plutocrats will always come out on top, they don''t take risks with their money, they take risks with the assets of the American people.



* even though Social Security is run from its own fund and most of Medicare is funded by the working class Americans that need it most.)

America is Being Robbed by the Conservative Nanny State

America is Being Robbed by the Conservative Nanny State

CEOs are legendary for defending their tax paying records, and eager to imply that government is responsible for any of their tax delinquencies. Apple CEO Tim Cook announced, "We pay all the taxes we owe - every single dollar." Whole Foods co-founder John Mackey supported the iPhone maker, saying "It's not Apple's fault that they're seeking to avoid paying taxes. They're not lying, cheating or stealing. They're following the rules that were created by governments. If the government doesn't like the rules, they can change them."

Mackey didn't mention that changing the tax rules is a specialty of big business. As is flouting the tax rules. The following four tales of corporate malfeasance are particularly disturbing.

1. Just 32 companies avoided enough in 2012 taxes to pay the ENTIRE 2013 federal education budget.

In 2012 an Apple executive protested, "We shouldn't be criticized for using Chinese workers. The U.S. has stopped producing people with the skills we need." His comment was somewhat accurate. Half of the companies surveyed by The Chronicle said they couldn't find qualified graduates for positions within their organizations.

Yet one of the major reasons for job-unpreparedness is quietly ignored by the big companies, just as their taxes are. A Pay Up Now analysis of SEC tax filings found that the total 2012 income taxes (federal and foreign) of thirty-two large companies amounted to just 17% of pre-tax worldwide income. The result was the same in 2011. The figures are consistent with a recent analysis of 2010 data by the Government Accountability Office.

The shortfall from the required 35% statutory rate comes to about $72 billion, about the same as the federal education budget for 2013. Apple Corp., the biggest offender by far, avoided more than the combined National Science Foundation and Small Business Administration budgets.

This helps to explain why "the U.S. has stopped producing people with the skills we need."

2. Bank of America: 82% of Revenue in U.S., $7 billion loss. (But big foreign profits.)

Bank of America CEO Brian Moynihan once complained that nobody understood "how much good" his employees do. But his company, with a whopping 82% of its 2011-12 revenue in the U.S., declared $7 billion in U.S. losses and $10 billion in foreign profits.

Citigroup is close behind. With 42% of its 2011-12 revenue in North America (almost all U.S.), it declared a $5 billion U.S. loss and a $27 billion foreign profit.

Also scornworthy is Pfizer, which had 40% of its 2011-12 revenues in the U.S., but declared almost $7 billion in U.S. losses to go along with $31 billion in foreign profits. After the SEC questioned Pfizer in 2012 about four straight years of U.S. losses despite large worldwide incomes, the company responded by declaring a fifth straight U.S. loss.

3. Relative to workers' payroll tax, corporate taxes have dropped from $1.00 to 7 cents.

In 1953, as the most productive era in U.S. history was beginning, corporations contributed over a dollar for every 33 cents paid by workers. In 2011, the corporate contribution was about 7 cents for every 33 cents paid by workers.

For those who believe that entitlements are the problem, Urban Institute figures should help them reconsider. The typical two-earner couple making average wages throughout their lifetimes will receive less in Social Security benefits than they paid in. Same for single males. Almost the same for single females.

4. Sales tax on school supplies: 10%. Sales tax on $1,000,000,000,000,000 of financial securities: ZERO.

Estimates of the financial derivatives market vary, from $708 trillion to $1.2 quadrillion to $3 quadrillion to a gazillion. This money is a largely speculative and unproductive figment of the financial fantasy world. But speculative financial activity is so inflationary that the world's total wealth, according to the authors of the Global Wealth Report, has doubled in ten years, from $113 trillion to $223 trillion, and is expected to reach $330 trillion by 2017.

The sales tax on the U.S. portion of a quadrillion dollars of trades? Zero. Only a tiny fee is charged to cover SEC expenses.

"If the government doesn't like the rules, they can change them." Except that the people with the money and the power like the rules just the way they are.
  

Paul Buchheit is a college teacher, an active member of US Uncut Chicago, founder and developer of social justice and educational websites (UsAgainstGreed.org, PayUpNow.org, RappingHistory.org)

All wealth, as president Lincoln once said, is created by labor. That has not stooped the conservative movement and corporate American from stealing that wealth.

Anti-Freedom Wall Street Journal Recommends That Egypt Gets Itself a Pro Free Market Murderer

Anti-Freedom Wall Street Journal Recommends That Egypt Gets Itself a Pro Free Market Murderer

Wall Street Journal says Egypt needs a Pinochet
The Chilean dictator presided over the torture and murder of thousands, yet still the free-market right revers his name

On Friday, the Wall Street Journal published an editorial entitled “After the Coup in Cairo”. Its final paragraph contained these words:

Egyptians would be lucky if their new ruling generals turn out to be in the mold of Chile’s Augusto Pinochet, who took over power amid chaos but hired free-market reformers and midwifed a transition to democracy.

Presumably, this means that those who speak for the Wall Street Journal – the editorial was unsigned – think Egypt should think itself lucky if its ruling generals now preside over a 17-year reign of terror. I also take it the WSJ means us to associate two governments removed by generals – the one led by Salvador Allende in Chile and the one led by Mohamed Morsi in Egypt. Islamist, socialist … elected, legitimate … who cares?

Presumably, the WSJ thinks the Egyptians now have 17 years in which to think themselves lucky when any who dissent are tortured with electricity, raped, thrown from planes or – if they’re really lucky – just shot. That’s what happened in Chile after 1973, causing the deaths of between 1,000 and 3,000 people. Around 30,000 were tortured.

This attitude is one of the most dangerous and anti-American ideologies of the conservative movement, that being able to do business and make a profit is a more basic right than democratic republicanism. 

How Conservatism and Plutocrats Shaped The Economy and Stole The American Dream

How Conservatism and Plutocrats Shaped The Economy and Stole The American Dream

Who Stole the American Dream? (Random House, 2012), by Hedrick Smith, is essential reading for anyone who want to understand America today, or why average Americans are struggling to stay afloat. Smith reveals how pivotal laws and policies were altered while the public wasn’t looking, how Congress often ignores public opinion, why moderate politicians got shoved to the sidelines and how Wall Street often wins politically by hiring over 1,400 former government officials as lobbyists. The following excerpt comes from the prologue, “The Challenge From Within.”

History often has hidden beginnings. There is no blinding flash of light in the sky to mark a turning point, no distinctive mushroom cloud signifying an atomic explosion that will forever alter human destiny. Often a watershed is crossed in some gradual and obscure way so that most people do not realize that an unseen shift has moved them into a new era, reshaping their lives, the lives of their generation, and the lives of their children, too. Only decades later do historians, like detectives, sift through the confusing strands of the past and discover a hitherto unknown pregnant beginning.

One such hidden beginning, with powerful impact on our lives today, occurred in 1971 with “the Powell Memorandum.” The memo, first unearthed by others many years ago, was written by Lewis Powell, then one of America’s most respected and influential corporate attorneys, two months before he was named to the Supreme Court. But it remains a discovery for many people today to learn that the Powell memo sparked a business and corporate rebellion that would forever change the landscape of power in Washington and would influence our policies and economy even now.

The Powell memo was a business manifesto, a call to arms to Corporate America, and it triggered a powerful response. The seismic shift of power that it set in motion marked a fault line in our history. Political revolt had been brewing on the right since the presidential candidacy in 1964 of Senator Barry Goldwater, the anti-union, free market conservative from Arizona, but it was the Powell memo that lit the spark of change. It ignited a long period of sweeping transformations both in Washington’s policies and in the mind-set and practices of American business leaders—transformations that reversed the politics and policies of the postwar era and the “virtuous circle” philosophy that had created the broad prosperity of America’s middle class.

The newly awakened power of business helped propel America into a New Economy and a New Power Game in politics, which largely determine how we live today. Both were strongly tilted in favor of the business, financial, and corporate elites. Trillions were added to the wealth of America’s super-rich at the expense of the middle class, and the country was left with an unhealthy concentration of political and economic power.

This book will take you inside that decades-long story of change and show how we have unwittingly dismantled the political and economic infrastructures that underpinned the great era of middle-class prosperity in the 1950s, ’60s, and ’70s.
The Economic Divide - The 1 Percent and the 99 Percent

Today, the gravest challenge and the most corrosive fault line in our society is the gross inequality of income and wealth in America. Not only political liberals but conservative thinkers as well emphasize the danger to American democracy of this great divide. “America is coming apart at the seams—not seams of race or ethnicity, but of class,” writes conservative sociologist Charles Murray of the American Enterprise Institute. Murray voices alarm at what he describes as “the formation of classes that are different in kind and in their degree of separation from anything that the nation has ever known. . . . The divergence into these separate classes, if it continues, will end what has made America America.”

Since the era of middle-class prosperity from the mid-1940s to the mid-1970s, the past three decades have produced the third wave of great private wealth in American history, a new Gilded Age comparable to the era of the robber barons in the 1890s, which led to the financial Panic of 1893 and the trust-busting presidency of Theodore Roosevelt; and to the era of great fortunes in the Roaring Twenties, which ended in the stock market crash of 1929 and the Great Depression.

In our New Economy, America’s super-rich have accumulated trillions in new wealth, far beyond anything in other nations, while the American middle class has stagnated. What separates the Two Americas is far more than a wealth gap. It is a wealth chasm—“mind-boggling” in its magnitude, says Princeton economist Alan Krueger. Wealth has flowed so massively to the top that during the nation’s growth spurt from 2002 to 2007, America’s super-rich, the top 1 percent (3 million people), reaped two-thirds of the nation’s entire economic gains. The other 99 percent were left with only one-third of the gains to divide among 310 million people. In 2010, the first full year of the economic recovery, the top 1 percent captured 93 percent of the nation’s gains.

Americans, more than people in other countries, accept some inequality as part of our way of life, as inevitable and even desirable—a reward for talent and hard work, an incentive to produce and excel. But wealth begets wealth, especially when reinforced through the influence of money in politics. Then the hyperconcentration of wealth aggravates the political cleavages in our society.

The danger is that if the extremes become too great, the wealth dichotomy tears the social fabric of the country, undermines our ideal of equal opportunity, and puts the whole economy at risk—and more than the economy, our nation itself. A solid majority of Americans say openly that we have reached that point—that our economy is unfairly tilted in favor of the wealthy, that government should take action to make the economy fairer, and that they’re frustrated that Congress continually blocks such action.

What’s more, contrary to political arguments put forward for not taxing the rich, an economy of large personal fortunes does not deliver the best economic performance for the country. In fact, concentrated wealth works against economic growth. Several recent studies have shown that America’s wealth gap is a drag on today’s economy.

This basic truth is why conservatives - Fox News, The Wall Street Journal, Glenn Beck, the Koch brothers, Pete Petersen and every other conservative crank spends their wheels so often, so loudly and with such hatred. They have to keep the illusion going that they are the free market capitalists and those who oppose them are anti-Christ Marxists. The radical Right and their corporate collectivism is the real threat to capitalism and freedom, not normal moderate Americans.

If We Cut Corporate Taxes Does Is That Good For the State and Jobs? NO! How States Lose $600 Million On A Worthless Corporate Tax Break

If We Cut Corporate Taxes Does Is That Good For the State and Jobs? NO! How States Lose $600 Million On A Worthless Corporate Tax Break

There’s no shortage of corporate tax giveaways at both the federal and state levels. Lawmakers of all stripes love to use the tax code to subsidize companies, either directly or indirectly.

But in some instances, federal tax breaks for corporations undermine state budgets. As the Center for Budget and Policy Priorities detailed today, one particular tax break will cost states $600 million next year:

    The federal government created this tax break, known as the “domestic production deduction,” in 2004. Since most states base their own tax codes on the federal tax code, the tax break was carried over into many states without specific legislative scrutiny or a vote. Now it is costing not only the federal government but also 25 states a large amount of money. By 2014, it will cost these states over $600 million per year.

    The deduction — enacted as Section 199 of the federal Internal Revenue Code — allows companies to claim a tax deduction based on profits from “qualified production activities,” a sweeping category that goes well beyond manufacturing to include such diverse activities as food production, filmmaking, and utilities — a substantial share of states’ corporate income tax base.

These deductions are largely worthless, and many states have tossed them overboard. But 25 states still leave it intact:

As CBPP noted, “Firms can claim the domestic production deduction for profits from all qualifying domestic activities — meaning activities that occur anywhere within the United States. As a result, a multi-state firm can claim the deduction in a conforming state for production activities in any state, not just the state where the firm is filing.” They also benefit large firms at the expense of small.

State efforts to encourage corporate growth and job creation through the tax code usually encourage a race to the bottom, as corporations play states off each other in order to secure the most preferential treatment, and then feel no hesitation about up and leaving later. Of course, paying corporations to create jobs is only one of the bone-headed ways states try to generate economic activity.

Another conservative myth bites the dust, again. 

MSNBC's Scarborough, Known For His UnAmerican Conservative Bias, Ignores The Facts In Front Of Him To Attack Government Spending

MSNBC's Scarborough, Known For His UnAmerican Conservative Bias, Ignores The Facts In Front Of Him To Attack Government Spending

MSNBC host Joe Scarborough blamed "a Keynesian spending spree" for the contraction in GDP at the end of 2012, while holding evidence that the opposite is true in his hands. Scarborough's claims fit into his ongoing effort to deny and marginalize demand-side economic policies which continue to enjoy broad support from trained economists.

During a discussion of the 2012 fourth quarter GDP report on MSNBC's Morning Joe, Scarborough implied that the 0.1 percent drop in output was due to government spending since the recession. From Morning Joe:

Scarborough's claim is contradicted by the Wall Street Journal article he held up during the segment, which states that "government spending, which has been a drag on growth for more than two years, declined for the ninth time in 10 quarters." The article's subhead - "GDP Shrinks 0.1% on Government Cuts, but Consumer, Business Spending Offer Hope" - also splashed across the screen moments before Scarborough made his argument.

The Wall Street Journal's reporting is in line with the latest Bureau of Economic Analysis report. The BEA calculates the component parts of the GDP figure for each quarter. This most recent report is notable not because the government spending component of GDP continues to be negative due to shrinking direct spending into the economy, but because, for the first time in the recovery, the government component of GDP was so negative that it overwhelmed the positivity in other components.

Poor Joe Scarborough lives in the lala-land of conservative myths. The report showed two inconvenient truths, Obama has not gone on a wild spending spree and, gosh darn-it, government spending can stimulate the economy.

What is the difference between Mitt Romney's Friend Murray Energy and Fascists? Not Much

What is the difference between Mitt Romney's Friend Murray Energy and Fascists? Not Much

IT IS BOTH a pundit’s truism and a mathematical reality that Mitt Romney’s path to the White House runs through Ohio. And that path, in turn, runs through a firm called Murray Energy.

Over the years, CEO Robert Murray has brought in GOP pols from as far away as Alaska, California, and Massachusetts for fund-raisers. In 2010, the year John Boehner became House speaker, the firm’s 3,000 employees and their families were his second-biggest source of funds. (AT&T was in first place, but it has nearly 200,000 employees.) This year, Murray is one of the most important GOP players in one of the most important battleground states in the country. In May, he hosted a $1.7 million fund-raiser for Romney. Employees have given the nominee more than $120,000. In August, Romney used Murray’s Century Mine in the town of Beallsville for a speech attacking Barack Obama as anti-coal. This fall, scenes from that event—several dozen coal-smudged Murray miners standing behind the candidate in a tableau framed by a giant American flag and a COAL COUNTRY STANDS WITH MITT placard—have shown up in a Romney ad.

The ads aired even after Ohio papers reported what I was told by several miners at the event, a bit of news that an internal memo confirms: The crowd was not there of its own accord. Murray had suspended Century’s operations and made clear to workers that they were expected to attend, without pay. “I tell ya, you’ve got a great boss,” Romney said in acknowledging Robert Murray from the stage. “He runs a great operation here.”

The accounts of two sources who have worked in managerial positions at the firm, and a review of letters and memos to Murray employees, suggest that coercion may also explain Murray staffers’ financial support for Romney. Murray, it turns out, has for years pressured salaried employees to give to the Murray Energy political action committee (PAC) and to Republican candidates chosen by the company. Internal documents show that company officials track who is and is not giving. The sources say that those who do not give are at risk of being demoted or missing out on bonuses, claims Murray denies.

The Murray sources, who requested anonymity for fear of retribution, came forward separately. But they painted similar pictures of the fund-raising operation. “There’s a lot of coercion,” says one of them. “I just wanted to work, but you feel this constant pressure that, if you don’t contribute, your job’s at stake. You’re compelled to do this whether you want to or not.” Says the second: “They will give you a call if you’re not giving. .?.?. It’s expected you give Mr. Murray what he asks for.”

And what he asks for offers a lesson for 2012: Even in a year of hyperventilation about super PACs, dubious older ways of raising political dollars still matter.



BOB MURRAY, WHO is 72, is a legendary figure in Appalachian coal country. He hails from three generations of miners in southeastern Ohio; his father was paralyzed in a mining accident when Bob was nine. Murray himself has been injured while working below ground. Unlike his forefathers, though, Murray became a suit. He won a scholarship to study mine engineering and eventually rose to chief executive of North American Coal. In the late 1980s, he took out personal loans to start Murray Energy, which has grown to own eight mines in six states. It is the largest privately held coal-mining concern in the country.

Like a lot of mining executives, Murray’s a ferocious critic of federal mining regulations—even after the 2007 collapse at his Crandall Canyon mine in Utah, where nine people died. He also knows how to throw his weight around. In 2001, he sued the Akron Beacon Journal for $1 billion after a critical profile; that same year, he was acquitted of assault charges after allegedly throwing an environmental activist against a wall. In 2002, local media reported that he warned off mine safety inspectors with this line: “Mitch McConnell calls me one of the five finest men in America, and the last I checked, he was sleeping with your boss,” referring to Labor Secretary Elaine Chao, the senator’s wife. (Murray denied the account.) Murray’s fiery streak was on full display after the Crandall Canyon collapse. Wearing his trademark sweater-vest, he angrily insisted to reporters that the collapse had been caused by an earthquake—scientists disagreed—and railed against efforts to curb carbon emissions. At one point, he pulled back his collar to show the scar from his mining accident.

In southeastern Ohio, Murray’s dominance evokes an earlier era. Miners at the Century event told me he treats them well and aspires to know all their names. But the paternalism also features some unmistakable messaging. A huge sign draped outside Murray’s Powhatan No. 6 Mine—the only unionized facility among Murray’s properties—reads: SAVE EASTERN OHIO: FIRE OBAMA. At Century, a lobby notice tells employees where to call to order yard signs with the slogan STOP THE WAR ON COAL: FIRE OBAMA.

The message apparently gets through. Since 2007, employees of Murray Energy and its subsidiaries, along with their families and the Murray PAC, have contributed over $1.4 million to Republican candidates for federal office. Murray’s fund-raisers have feted the likes of Scott Brown, Rand Paul, David Vitter, Carly Fiorina, and Jim DeMint. Home-state pols get love, too. Murray’s PAC and staffers are the sixth-largest source for Ohio senatorial hopeful Josh Mandel. They’ve given $720,000 to candidates for state office in the past decade.

Internal Murray documents show just how upset Murray becomes when employees fail to join the giving. In missives, he cajoles employees to attend fund-raisers and scolds them when they or their subordinates do not. In cases of low participation, reminders from his lieutenants have included tables or spreadsheets showing how each of the eleven Murray subsidiaries was performing. And at least one note came with a list of names of employees who had not yet given. “What is so difficult about asking a well-paid, salaried employee to give us three hours of his/her time every two months?” Murray writes in a March 2012 letter. “We have been insulted by every salaried employee who does not support our efforts.” He concludes: “I do not recall ever seeing the attached list of employees .?.?. at one of our fund-raisers.”

Here’s what stubborn employees missed: The events are typically at Undo’s, an Italian restaurant and banquet hall in St. Clairsville. Dinner is pasta and salad. There’s a cash bar. There’s a receiving line. There are speeches by the visiting beneficiary who generally extols coal. (Employees in Ohio also get invitations to fund-raisers near Murray’s southern Illinois mine; they’re not expected to attend, but are encouraged to send checks.)

The ritual becomes expensive for Murray’s engineers, surveyors, and accountants. “People are very upset about being constantly asked for the checks, because people have lives and families and expenses,” says the first source, a political independent. “They say, ‘This isn’t right. .?.?. I don’t think they’re allowed to do this.’ Most people do it grudgingly.”

Those who decline, the source says, prepare to be questioned. “When they’re pressuring people to write checks, if they haven’t by the deadline, you hear people making excuses—I just had to repair my car, I had an unexpected bill, I just had to pay tuition.”

And yet the tin-cupping continues. “I am asking you to rally all of your salaried employees and have them make their contribution to our event as soon as possible,” Murray writes in a letter to managers ahead of a 2011 fund-raiser for Mississippi Senator Roger Wicker and Tennessee Senator Bob Corker. “Please see that our salaried employees ‘step up,’ for their own sakes and those of their employees.”

A September 2010 letter lamenting insufficient contributions to the company PAC is more pointed. “The response to this letter of appeal has been poor,” Murray writes. “We have only a little over a month left to go in this election fight. If we do not win it, the coal industry will be eliminated and so will your job, if you want to remain in this industry.”

The pressure to give begins as soon as employees enter the company, the Murray sources say. At the time of hiring, supervisors tell employees that they are expected to contribute to the company PAC by automatic payroll deduction—typically 1 percent of their salary, a level confirmed by a 2008 letter to employees from the PAC’s treasurer. (That letter also assures employees that they would not be “disadvantaged” by not giving.) Employees are given a form to sign, explaining that the giving is voluntary. “In the interview .?.?. I was told that I would be expected to make political contributions—that [Murray] just expected that,” says the first source. “But I was told not to worry about it, because my bonuses would more than make up what I would be asked to contribute.”

Later, the sources say, Murray sends letters to employees’ homes asking them to give to specific candidates. The letters feature suggested amounts depending on their salary level—one middle manager was encouraged to give $200 to then–Oregon Senator Gordon Smith—and include forms to fill out and return, with checks, to Murray headquarters. The letters come with great frequency. Before the 2008 election, there were nine fund-raisers in less than three months. Guests included then–New Hampshire Senator John E. Sununu, then–Alaska Senator Ted Stevens, and Oklahoma Senator James Inhofe.

Murray’s exhortations demonstrate more attention to ideology than to Strunk & White. In August 2011, Murray urged employees to attend a $2,500 fundraiser for Rick Perry, “likely to be the Republican Nominee to defeat the destructive Barack Obama.” And for the unconvinced, he attached a “brief, partial listing of the destruction that Barack Obama has reeked.” Murray employees and their households came through, becoming Perry’s second-largest source for funds in the entire country.

After Perry dropped out, Murray switched to Romney. In his April letter for the fund-raiser the next month, he told employees, “America needs business and job creation, not the ruthless destruction that we are seeing from Barack Obama and his Democrats supporters, whom are Hollywood characters, liberal elitists, radical environmentalists, unionists, and Americans who do not want to work.”

CEO Robert Murray has the same twisted view of "freedom" as mid century European fascists. because being a multimillionaire is not enough - he cut corners on safety that got nine miners killed. Murray is in no way, shape or form a patriot. he is a looter, a taker, that lives off the work of labor. Without labor he would just be a greedy bitter old man. The miners could go on without him - maybe open up the first community owned mine - give themselves better wages and working conditions and not treat ordinary working Americans like trash, as Murray surely does. he can do all the phony back slapping pretend to be your friend act he wants, that is just part of the charade of conservatives who think America should be run like a plantation - with the wage slaves down on their knees in gratitude.  Sure Romney loves Murray because they share the same world view.

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