“I’m down here to figure out what I think.”
— Governor Deval Patrick at #occupyboston, 15 October 2011
The events of the last six weeks have been exhilarating to follow on the ground and on Twitter. At last the grassroots have found a voice, and in targeting Wall Street, their aim is true.
What follows might be read by some as an attack on free markets, open markets and the freedom of contract, and to some extent this is true, yet this is not entirely so. Early on, the question, “why do you occupy?” was asked and for me, the short answer is: I know too much not to sympathize and support the Occupy movement. So what follows is essentially some of that longer answer, which only touches on the myriad reasons to demand real change in American society. What follows is a mixture of personal and reported experience with a macro view of what this means to everyone.
“The logic of commerce and capital has overpowered the inertia of politics and launched an epoch of great social transformation. Settled facts of material life are being revised for rich and poor nations alike. Social understandings that were formed by the hard political struggles of the twentieth century are put in doubt. Old verities about the rank ordering of nations are revised and a new map of the world is gradually being drawn. Thesee great changes sweep over the affairs of mere governments and destabilize the established political orders in both advanced and primitive societies.”
— William Grieder, “One World, Ready or Not: The Manic Logic of Global Capitalism”
“We argue that the corporate profits tax is a relatively important policy through its negative effects on innovation and physical capital accumulation that may well undo the benefits of federal support for R&D.”
— Andrew Atkeson, Ariel T. Burstein, Aggregate Implications of Innovation Policy, NBER Working Papers
“Would you rather live in a society? Or in just an economy?
“God wants you to be a millionaire!”
— Motivational speaker at a Mary Kay sales rally.
Essentially, our national debate is on whether or not America is a society defined by its democratic features or by its free market. Throughout our entire history, beginning with Adams and Jefferson’s bitter rivalry, the tension between these two poles has defined our political life. It does so today. As I walk my sister’s dog in the rain this morning, I’m minded of the protesters 15 miles away living in tents in a public space to highlight their belief (which I share) that our democracy has been undermined by free market forces. The Tea Party on the right (the original Tea Party, not the Tea Party Express and other organizations running under the Tea Party moniker, all of which are sponsored by wealthy individuals intent on undoing existing – and poorly enforced – government regulation and lowering their tax liability) shares the feeling that Washington does not represent their views or interests, but blame the government. The Occupy protesters feel that Washington doesn’t represent their views and interests, but feel that democracy has been undermined by the wealth generated by that free market and often enough, by fraud, corruption and maintaining the ignorance of the electorate and the US consumer base. In ways large and small, our free market society regards our demos only as a commodity whose labor is demanded and possessing a small (and dwindling) resource of wealth to mine. The logic of business demands it, and the dynamics of business competition exacerbates the imbalance.
On our part, we receive in return, if we can afford it (which is not always the case), food, shelter, clothing, health care, an education – the necessities of life – and discretionary goods like the laptop I use to write this and the webserver I use to host this on—a second hand P2 which I’ve managed to scrounge parts for in order to maintain and upgrade.
13 October 2011: Today’s Example
It was announced that three separate free trade agreements, with Colombia, South Korea and Panama, have been passed by both houses of Congress and await the President’s signature. These are widely touted as being job creators and savers (without spelling out how this is supposed to happen), but a closer look reveals that US manufacturing has just taken another hit, as duties on heavy machinery made in South Korea have just been lifted. It also remains to be seen what headway US automakers will make in the South Korean market in return, but anyone with an ounce of common sense has very real questions whether Detroit has yet shed it’s notion that what works for them in the US will inevitably work for them overseas. It never has before. Meanwhile, the UAW will experience yet more pressure from management, citing the need to remain competititve in the global economy. So, the race to the bottom continues, with both US political parties complicit. After decades of failure of these free trade agreements, after a fairly linear decline in the quality of life of working people in the United States, and after plenty of warnings from union, yet all is in vain, as we learn when hearing that the AFL-CIO’s chief, Richard Trumka, in his meeting with President Obama, came away empty handed, even though being a labor advocate or organizer is tantamount to committing suicide in Colombia is, to me, a fairly convincing argument against.
Who wins? Conservative US farmers get to ship their grain to South Korea, duty-free. Were I a farmer in South Korea right now, I would be very concerned. Look at what happened to Mexico.
Perhaps automakers who can now consider relocating plants to South Korea and shift away from local suppliers to purchase components overseas.
Bankers in charge of moving payments back and forth. For a fee.
Whether US consumers will win is another question entirely, and let’s ask ourselves, while on this trajectory, who in America will be able to afford a car?
The history of NAFTA is clear. The history of US trade with Caribbean and Central American nations is very well documented. None of these free trade deals has performed as promised, while all of them have created significant economic and social dislocation.
So we are left with a society which is highly out of balance socially, economically, legally and politically. The #Occupy movement or its equivalent was inevitable, but we are now presented with the problem of going forward. In these situations, I find that defining the problem often suggests the solution, which is why I feel that taking the time to write this is important. To me, anyways, and hopefully to others who read this.
Expect a lot of history in what follows. As I tweeted to one person today, I’m no Reinhold Niebuhr, but I find the gap between who we say we are and what our actions say we are quite striking. We should begin by recognizing some facts: Income inequality in the US has been steadily growing in the US. From the Bureau of the Census we have a rather stark picture of just how bad this has become:
Taken together, these illustrate that ordinary working people are working longer hours in order to maintain their incomes. Nobody argues this. Of course, it’s hard to argue with the best data available. But there it is for all to see, and we need to acknowledge the basic facts shown here defining American society as the 21st century opens. But many cling to the rubric, which I often see repeated in the #occupyboston twitter stream and heard shouted by passersby at the Dewey Square protesters, that they should “get a job.” Well, good luck with that, as the following chart illustrates:
It’s not my goal here to speculate about what’s going on inside the heads of those who oppose the Occupy Movement, but clearly, they are ignoring some basic, well known truths about our current situation. Which brings us to the problems as I see them, or to put it another way: “Why I Occupy.”
The Tax Situation
”There is nobody in this country who got rich on his own. Nobody. You built a factory out there — good for you. But I want to be clear. You moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn’t have to worry that maurauding bands would come and seize everything at your factory… Now look. You built a factory and it turned into something terrific or a great idea — God bless! Keep a big hunk of it. But part of the underlying social contract is you take a hunk of that and pay it forward for the next kid who comes along.”
– Elizabeth Warren
In the US, individuals carry the far greater share of the federal tax burden. Indeed, corporate tax liability has slowly decreased in the last 76 years:
Source: OMB historical tables.
Though it remains true that the greater share of federal income taxes are paid by wealthy individuals, this is more than offset by the fact that the payroll tax, used to fund Social Security and Medicare disproportionately falls on the poor and middle class, and always has. The individual contributions charted above is the aggregate of individual income tax plus the payroll tax. As we can clearly see, corporations do not fund the federal government in anything like an equal basis with individuals.
In fact, as we look closer, the picture gets even worse. Carl Levin and Byron Dorgan commissioned a pair of reports from the General Accountability Office in 2004 and 2008 regarding corporate taxation. Though the official corporate tax rate is 35%, which is indeed fairly high compared to other nations, the first report found that as much of 60% of all corporations paid no income tax at all:
Source: GAO Report: 1996 to 2000
This is amazing: 61.3% of all US controlled corporations reported no tax liability at all. Evidently, business operations managed to absorb all profits. It is as if these companies are just barely managing to stay afloat. The second study took a broader look:
Source: GAO Report: 1998 to 2005
Again, we see an similar pattern. Are sizable numbers of corporations in the US were remarkably failing to make any money at all? Recall that these were not lean years, marked by recession, but years of economic growth. Or so it was reported. Also reported was the Wall Street darling of corporations, General Electric, managed somehow to take in billions of dollars in profits, yet managed to pay no income taxes in 2010. It is, in fact, the second year in a row GE has not owed any federal income taxes. The reasons for this are complex, but include among them the fact that General Electric operates in many countries and uses this to “manage” both it’s tax liability and its reported earnings very carefully. None of which is news to anyone, but was a topic of a great deal of controversy, and still is. GE, in fact, restated its tax liability statement to indicate that a “small” tax liability was actually due. After the story broke, please note.
I’m using a broad brush here, but some facts need to be agreed upon or further discussion is a waste of time. Are there other facts? Indeed there are. In 2006, for the first time, the top 5% of taxpayers managed to pay more income tax than the bottom 95%:
This excludes the payroll tax of course. In 2009, federal income taxes made up 44% of all tax revenues. Payroll taxes made up 42%, however. For the past three years, all income above $106,800 is exempt from any payroll tax liability at all, and when it is claimed that this is a regressive tax, this is why. Social Security and Medicare have always been supported entirely by working people and their employers(!) alone.
Everyone knows this already – America’s Primal Scream:
“Inequality also leads to early deaths and more divorces — a reminder that we’re talking not about data sets here, but about human beings.”
Like I say, today is about setting some ground rules and looking at broader measures of how corporations participate in American society. From here on, I’ll delve into greater detail on several negative externalities of Business In America.
Part Two, The Race to the Bottom