Level the Playing Field

Wall Street, K Street, Forbes 400, Fortune 500, dictate tax law in Washington DC. Main Street pays the price. To fix that.

Below, you’ll find the Reasoning & Rationale to what we call a Bill-Request. Once certain milestones are met, as defined HERE, lawyers will be called upon to draft what will then become a Bill-Demand to Congress and the President.

About those Gross Domestic Product (GDP) readings, showing the U.S. economy growing…

By some point in late 2017, it was obvious that over a matter of not so many years the U.S. government had taken on more than $15 Trillion in new debt to produce less than $9 Trillion in new GDP. Borrow & Spend had produced an inorganic growth which is bound to NOT sustain.

If the government hires a bunch of people to dig holes in the ground, and then pays them more to refill those holes, the whole exercise of achieving NOTHING still adds to GDP. If the government hires a bunch of people to spit at the moon, it too adds to GDP. Never lose sight of the nature of the mirage, a mirage that the government has mastered the art of contriving.

A prediction we’re willing to make in Dec 2017: Deficits are on their way to imminently crossing the Trillion dollar mark. Deficits will head toward the $2 Trillion mark in 2020. After the Crisis to Come, described HERE, the national debt will climb to $30 Trillion, then veer toward $40 Trillion, and ultimately past it. The Federal Reserve will lose control; Treasury bond markets will convulse; interest rates will multiply; capital will flee the public markets and seek refuge in private markets; several Dow Jones component stocks, in particular, and a number of S&P 500 equities, of the blue-chip kind, will encounter a breathtaking, and logic-defying, near-stratospheric rise.

In the ensuing carnage impacting public markets, and despite the bonanza delivered to private markets, Wall Street & K Street will feel the heat, coming face-to-face with the intense ire of Main Street. Many a banker will hightail it and run out of town. With nowhere to go, and little recourse to resource, a vast cross-section of the general public will economically bleed like it has never bled before.

National Debt & Federal Deficits to no end, is no way to run the mightiest economic engine on earth — thus, in a quest for sustainable fiscal and financial health for America, the following Bill-Request concludes in a Vote for a Tax Policy to end Debt & Deficits once and for all.

The last we bothered to check several years ago, General Electric had a 1200-person tax department with a former U.S. Treasury official, John Samuels, leading it.  It’s been reported that Samuels once kneeled before U.S. Representative Charles Rangel (D-NY), then Chairman of the House Ways & Means Committee, in charge of federal tax legislation, to plead for the extension of a tax break that had been especially kind and giving to General Electric. A month later, with the multibillion dollar tax break granted, Samuels’ boss, General Electric CEO Jeff Immelt, found himself standing shoulder-to-shoulder with Chairman Rangel, as Immelt announced that his company had donated a whopping $11 million to schools in Rangel’s Harlem district.

According to Citizens For Tax Justice in 2015, 15 of America’s biggest companies paid no federal income tax on $23 billion in profits in 2014, and paid almost no federal income tax on $107 billion in profits in the 5 years spanning 2010 to 2014.

According to the Institute on Taxation and Economic Policy in 2016, America’s richest companies, the so-called Fortune 500, could be operating as many as 55,000 tax haven subsidiaries worldwide, rather than the 10,366 found in public disclosures. The Institute labeled its study “Offshore Shell Games.”

According to a report entitled “Loopholes for Sale — Campaign Contributions by Corporate Tax Dodgers” published by the U.S. Public Interest Research Group, 280 corporations, all very big and highly profitable, contributed $216 million to Congressional campaigns over four election cycles, and found a quarter of a TRILLION dollars in tax breaks somehow coming back to them in return.

About 430 miles south of Miami, in the Caribbean Sea, are 3 tiny islands occupying 102 square miles. They are called the Caymans, the most concentrated hotbed for tax avoidance on earth. By January 2016, the Cayman Islands were home to about 100,000 companies. According to the Government Accountability Office, as far back as in July 2008, and it’s possibly worse now, a small building on Grand Cayman Island, with just 5 floors and 1 law firm, had 18,857 entities (corporations and other) registered to its address. According to the one law firm and the only entity with anybody working in any of the offices, almost 50% of those 18,857 entities maintained a U.S. billing address on record. Here’s a photo of the building, somewhat aptly named Ugland House: PHOTO

As of the original date of this writing in 2012:

Twelve of America’s largest corporations paid an effective tax rate of Negative 1.4% on $175 Billion in Profits and Reaped $63.7 Billion in Tax Subsidies.

Most of the designers and decision makers at Apple Inc. are here in the United States.  U.S. tax code requires that taxation be based on where value is created versus where product is made or sold. Yet, Apple’s found neat accounting tricks to push the bulk of its profits to outside the U.S.

The “Double Irish Dutch Sandwich” is a Fortune 500 accounting department gimmick that routes corporate profits through Ireland and the Netherlands into the Caribbean. Multinationals routinely apply the “Sandwich” to assign large streams of income to some island in the Caribbean where, in general, they employ no one.

Of course, Mega-Corporations would argue they’re breaking no laws, dodging taxes the way they do. They’d insist they are operating “under the rules the US Congress established” and they’d be right about that. Still, small business owners also operate “under the rules the US Congress established” but notice the rules applied to them aren’t giving them international tax havens and delicious Dutch-Irish Sandwiches, be they singles or doubles.

Neither Republicans nor Democrats have a problem with the proliferation of tax dodges, some enabled in our backyard, just offshore in the Cayman Islands and Bermuda for example, that have resulted in effective tax rates between big and small American companies becoming the most lopsided in history. So much so, that it’s been increasingly left to small businesses to plug the nation’s debt and deficit.

With Fortune 500 giants lining the campaign coffers and retirement careers of politicians, with ever more money than before, no wonder. Why bite the hand that feeds so well?

The Republicans in particular serve up lip-service to small business owners, but actions speak louder than words.

The two biggest recipients of taxpayer bailouts, Citigroup and Bank of America, have countless subsidiaries in tax havens around the globe to play tax games with, that small businesses (who funded their bailouts) cannot even dream of, in their wildest dreams. Bank of America is alleged to have 175 tax haven subsidiaries registered in the Caymans alone. We’ve watched Republicans protect those big bank tax havens more vigorously than anyone.

The last we bothered to look in 2013, the chief executive of Bank of America, Brian Moynihan, and the chief executive of Citigroup, Michael Corbat, were both members of a Council called Fix the Debt. One of the top priorities of this “Fix the Debt” outfit, is to create a “territorial tax system” wherein corporate profits stashed offshore are forever U.S. tax free. For your information: Moynihan and Corbat are also members of the Business Roundtable, composed of CEO’s of the biggest companies. One of the top priorities of the Roundtable, is tax breaks for these biggest companies, paid for by elevating the Social Security retirement age requirement from 67 to 70. Nice!!!

Wall Street enjoys regular taxpayer bailouts — Citigroup, for example, and its predecessor Citicorp have been bailed out quite a few times in the last 20 years — but they’ve made tax dodging into both an industry and an art form. Financial Derivatives, the more complex and confusing the better, have often been bank-constructed to blur tax obligation lines.

Yes, Mega-Banks employ multiple angles and tools of opacity to routinely assist their clients at tax dodging, but some of these tax dodges are hardly angular, and certainly not opaque.

Among the most bold and brazen: Dividend Arbitrage, employed to minimize and sometimes eliminate a client’s tax obligation during dividend time on stocks owned.  (The clients, quite often, are giant hedge funds making gazillions of dollars.)  With London, apparently, home for this Div-Arb mechanism, the maneuver entails a temporary transfer of ownership of the client’s stocks to temporary owners in a favorable tax jurisdiction, outside the United States, around the time the dividend is expected to be paid on the shares the client owns, allowing for the tax on the dividend to be cut from (say) 30% to near-zero, if not zero itself.  The billions of dollars saved in tax obligation to the U.S. is then shared by the bank, the client, and the temporary owners.

Why was Congress allowing this? Actually, forget we asked.

We’ve heard Republicans equate Mega-Corporations to People. We’ve heard Democrats equate Special Interests to People. In effect, both Republicans and Democrats have equated Money to People.

In July 2008, with Citizens United v. Federal Election Commission, the U.S. Supreme Court sided with the theory, and held that the First Amendment prohibited the Federal Election Commission from restricting independent expenditures by corporations/associations/labor unions on politics. Meaning, political contributions from corporations etc got to know no bounds.

Citizens United means lobbyists for the mega-corporates will multiply like locusts, dollars in politics will multiply like hornets, all-in-all to widen the already wide chasm there is to the tax obligations between BIG and small.

By a measure made in recent years, our smallest businesses, employing anywhere from 1 to 49 people, had about 48 million Americans on payroll.

Up next, business employing between 50 and 499 people, had about 42 million Americans on payroll.

Tallying that up, U.S. small and medium enterprises (SME’s) employed around 90 million people, combined.

Meantime, Big Business employed only about 17 million people.

According to the Department of Commerce in 2011, in the new millennium U.S. multinationals reduced their domestic workforce by 2.9 million people, but grew their foreign workforce by 2.4 million people.

SME’s are, thus, America’s lifeblood for American jobs. Sadly, that lifeblood is increasingly drained by debt and deficits.

The fact of the matter is, federal balanced budgets alone won’t do — there is a need for federal budget surpluses to first contain, and then nip away at our national debt.

With that in mind:

Beginning 2021, we have a diagram to generate budget surpluses, right out the gate. (Don’t hold your breath for a belligerent Trump and his top-tier cadre of Goldman alumni to pull that one off — by the time Gary Cohn, Steve Mnuchin, Jim Donovan, and Dina Powell are done milking all they can, on behalf of 200 West Street, you’ll be looking at a deficit in the Trillion dollar range by Fiscal Year 2020.)

In conjunction with its flowchart to produce surpluses, we will offer extraordinary and highly consequential tax relief to all SME’s, be they C or S corp, by tapping multiple sources of new income to the Treasury, starting with the inter-bank and intra-bank transactional universe that is almost entirely untapped. Ninety-some percent of the overall transactional universe, both sunlit and in the shadows, is untapped by the Treasury. Ask those who know firsthand — forex transactors, for example — for a non-admission or non-denial of that.

For the benefit of only SME’s, and solely SME’s, we are processing options for extraordinary and highly consequential tax relief on the capital gains, estate and gift tax fronts.

We are exploring the prospect of SME’s issuing bonds to raise capital in a manner, and of a quality, that convinces the U.S. Federal Reserve to buy that corporate paper, allowing every qualifying SME to borrow at not just attractive but terrific interest rates. To buy corporate paper in order to enhance domestic employment, was in the original intent of the Fed at its inception in 1913, after all.

We are also prepared to present and provide SME’s with a host of federal favorsnot just tax and regulatory favors, skills training favors, and access to deep pockets of credit — but also a cornucopia of support services, such as advertising and marketing, accounting and “back-office” at the local/community level, in a manner that is federally funded and federally backed.

Ladies and Gentlemen, fellow Americans, a moment of reflection is required at this juncture.  As you digest what appears after this intermission, never lose sight of the fact that we are NOT tax-and-spend limousine-liberals.  We’re simply trying to save the country and her people from the harrowing debt that’ll be bequeathed upon them in the aftermath of the Crisis to Come in 2019, a crisis raised and unleashed by those the electorate had trustingly but mistakenly elected before.  Our Crisis to Come — again, documented HERE — will tell you of a calamity to come in 2019 that will set the nation on an orbit toward $55 Trillion in debt.  The implications of such an orbit are not hard to fathom.  The impact on OUR taxes, OUR interest rates … OUR economic existence itself … will be agonizing, unless something original and drastic is done to confront what’s irreversibly heading our way.

No, neither America’s super-rich, nor America’s mega-corporations, will flee the United States under what we’ve got planned fiscally, for the year 2021 and beyond.  Because, neither will have anywhere to go… for any nation, or landmass for that matter, anywhere on the globe, found offering refuge to America’s ultra-wealthy or America’s mega-corp’s, fleeing U.S. jurisdiction as tax refugees, will find their national exports to the U.S. taxed punishingly at the border — objections raised by the World Trade Organization will not deter us in the least.  Want America to buy your product AND PROTECT YOU from hostile state actors? — then beware the repercussions of any ‘wealth refugee program’ being concocted on your end.

With that said, let’s get on with it…

To level the playing field, we are inspecting all tax havens and all tax dodges for corrective action.  We are assessing the repatriation of income earned abroad, for corrective action.  Yes, capital investment into plant and factory, production and expansion, might not always be warranted, but we are still not happy that funds repatriated under a tax holiday can be directed, in large part, toward (for example) stock buybacks, to hoist earnings per share and lift executive compensation.  Ratios of CEO pay to median worker pay, found too often at 100 and 200 and sometimes 300, are atrocious enough already.

With our eye on the large-cap S&P 500 and the mid-cap S&P 400, and a subset of the small-cap S&P 600, we are looking at the tax deductibility of the interest on that portion of the corporate debt that’s being devoted to share buybacks — this we are doing, also for corrective action.

Corporate tax “inversions” by multinationals are firmly on our radar, for corrective action. As is the deferment of taxes on income earned abroad, by multinationals.

We are monitoring presentations of alternatives to the carried interest tax loophole, again for corrective action.

All in all, we are delving deep into the entirety of the corporate tax code written up by top-dollar K Street lobbyists. Because there’s stuff in there that’s rarely good, often bad, and sometimes downright ugly.

Moreover, we are evaluating and quantifying Central Bank contribution to the goosing of wealth at the extreme top where the centi-millionaires and uni-billionaires and deci-billionaires reside. Like we wrote under Rigged Markets: A few getting richer, many getting poorer, isn’t capitalism at work — it’s manipulators, frontrunners and the Fed.

In addition, we are zeroing-in on all hyper-luxury purchases, be they hyper-priced real estate or hyper-expensive jewelry, gems, clothing, accessories, road vehicles, water vessels, air liners, artwork, collectibles, you name it.  If you’ve got the money to buy a $15 million home, furnish it for $5 million, buy your woman a diamond-laced white-gold necklace by Chopard, buy yourself a diamond-encrusted yellow-gold Daytona by Rolex, buy your mom a sequin-embellished gown by Oscar de la Renta, and buy your dad a Phantom Serenity by Rolls-Royce, and top all that off with the purchase of a 100-foot yacht loaded up with 1982 Château Pétrus Bordeaux at $5000 a pop, then there will be federal tax implications for you, on each of those hyper-luxury acquisitions.

We are also zeroing-in on immoderations and extravagances such as, but not restricted to, $1000+ per night hotel rooms, $5000+ per flight private jet rides, and even indulgences like Hillary Clinton’s $600 haircut + $600 hair dye — i.e. $1,200 not including tip — at Manhattan’s Bergdorf Goodman. (In 2016, Hillary swore she was “Fighting For Us“, so we expect she won’t mind being taxed extra for looking so posh.)

In short, by 2021 there will be a gaping hole in the hull of the mighty oceanic cruise liner that America once was, but there’ll be no money to fix it. Given that predicament, do you let the ship sink and take everyone down with it, or do you ask the passengers in the grandiose Regent Suite (going for $10,000 a night) to pitch in with just a few of their jewels, to repair the damage? Do you let their pearls matter more than all the lives? We think not.

As we near a conclusion to this discussion, let’s set two things straight:

One — We’re NOT anti Big Business. What we seek is a new regimen of tax favoritism that favors small to medium businesses, so that they find fuel to grow and hire here at home. For that, Big Businesses will have to step up to the plate.  America’s smaller businesses have little or no access to international tax-dodging techniques and tax-avoidance maneuvers. They have little or no access to tax havens and tax shelters. Meanwhile, the most politically connected corporations get to have their their tax-skipping schemes not just protected, but expanded if needed, the result of top-dollar lobbyists writing the corporate tax code.  What might the US Constitution say about that – if not in letter, then in spirit – about taxation being discriminatory on the basis of political influence purchasing power of the taxed?

Two — We’re NOT anti Super Rich either.  The centimilionaire and billionaire classes have (by far) been the biggest beneficiaries of federal tax policy and Federal Reserve open-market policy. The über-wealthy’s numbers have been growing like crazy since 2009 — all it takes is a look at the Forbes mega-monied lists, year after year, to know that. Thus, the idea of instituting a non-regressive National Sales Tax — that exempts consumer staples and basic amenities, but not uncommon luxuries, needs to be looked into, seriously. A bed, a sofa, a high-definition TV, affordable to the common man and woman, the median income worker and laborer, are not uncommon luxuries. But a 2500 square foot surround-sound home movie theater, seating dozens of guests, of the kind that Hollywood glitterati have in their abodes for their shindigs, would instantly qualify as an uncommon luxury. Feasibly done, a non-regressive National Sales Tax would allow for the elimination of ALL income taxes demanded of low income brackets, and the elimination of as much as a third of the taxes demanded of higher income brackets of the middle class.

Furthermore, the Federal Reserve has done Trillions of dollars of Quantitative Easing for the sole benefit of bankers and moneyed investors. This ebullient handout to the well-heeled, i.e. politically-connected, has NOT flowed down to the non-moneyed masses in any measurable way, which goes to explain why Deutsche Bank economist Torsten Slok wrote to clients on Jan 5 2018 that Americans are poorer now than at any point in nearly a quarter-century despite stock markets breaking record high after record high, year after year .

For those fake ‘deficit hawks’ who would decry and denounce the damage inflicted on “fiscal discipline” by by such non-regressive action, we say: until such time as we do away with the bipartisan practice (and hypocrisy) of borrow-and-spend-to-no-end, find some way to somehow monetize at least a portion of the budget deficit, in a new regimen that permits the Federal Reserve to Buy Treasury Bonds direct from the Treasury, bypassing the old regimen of open market purchases from Primary Dealers, and every other frontrunner, that’s been historically and currently underway.

You’ve just read the short description to the Reasoning & Rationale for this Bill-Request. If that’s enough for you to vote in support of it, please do. If there’s more you’d like to have to make up your mind, then you’ll find more HERE.

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