More Fog

by on October 3, 2017 in Economics, Politics

We still don’t have much clue what the Republicans want to do with their tax plan. It isn’t that we can’t understand the details, it is that there are no details to understand.

Take the corporate tax rate.

The big argument being put forward for a change in the corporate tax rate is that, at 35%, the US has one of the highest rates in the industrial world. But if you look at multinational corporations the facts tell a slightly different story. US multinationals pay about 28% of their worldwide profits in tax, whereas their competitors in the G-7 nations pay about 29%. In other words American businesses are not being hurt at all by the notionally higher rate.

Why not?

Because the US tax code is riddled with loopholes that any self-respecting tax lawyer or accountant can exploit. Many of those loopholes are highly specific to a particular industry. One or two are so specific that a single company benefits.

How did it get this way?

Money. Lots of it. Big corporations are the biggest source of corruption in the American political system. Only it’s not called corruption, its called lobbying. Lobbyists are very often the only people who really know what the tax code contains, especially for their clients. Politicians rarely, if ever, read the details of what they legislate, so there is plenty of opportunity for a well-connected lobbyist to sneak a paragraph or two in during the legislative process to pad the coffers of a client corporation.

As long as the American political system remains as corrupt as it is, the tax code will be a bear to reform. We are already witnessing how difficult: even though Congress has not released any detail about its big upcoming tax reform, the lobbyists along K Street in Washington are gearing up for a battle royal.

This implies, naturally, that getting anything meaningful done will be tough. Probably tougher than healthcare reform because in healthcare there are few lobbyists working on behalf of the public. So the business lobby gets to dominate it and the ideologues are more immune to money fueled attacks next election time.

This is not true of tax reform. The stakes are huge. And since the beneficiaries of the loopholes tend to be the wealthy and big corporations, these are same people who fund the corruption of our money sickened elections, the battle has big players on all sides. Someone is going to lose. That makes for a frenzied legislative process.

It is precisely because all this is known to Congress that we have no details. The minute, no, the second that any details emerge, the lobbyists will go to work. The more detail is available, the more intense the fighting becomes. Members of Congress who might want to produce a genuinely simpler tax code will be swamped by threats and/or inducements. It will take a level of political courage that hasn’t recently existed in Washington to get anything significant done.

So, much of our contorted tax code will likely survive.

Which gets us back to the easy stuff: tax cuts.

Despite all the smoke being blown by the lying cadre in charge of the White House, if the little we know is correct, then the rich will be getting a major tax cut whilst the rest of us will be getting what crumbs fall from the table.

And that, as we all know, is how America is run nowadays. That is the way a plutocracy is run: two Americas, one for the rich and one for the rest.

But plutocracies don’t last forever. They decay. Infighting enfeebles them. Contradictions emerge. And collapse ensues.

America is becoming weakened by its own system of government and the ease with which is can be controlled by a determined minority. This will worsen as the old system, designed to preserve the power of the rural heartland [and slavery along with it back in the day] is undermined by the great demographic shift into our cities. We already saw the future in the last election. Clinton won more votes than Trump by dint of her victory in the highly populous coastal states and biggest cities. She lost according to the ancient rules. How many more losses like that will it take to upend the bias in the system?

Meanwhile at the tax reform coal front a different schism also points to the future. The battle within the plutocracy to protect the rents, cheats, dodges, and sleights of hand that enable the spigot of cash to flow ever upwards will rend the wealthy into factions. How long can such greed driven and egregious plunder last? How many more Trumps do we have to endure before the system crashes to the ground?

Time will tell. But watch then tax reform fight, it will give us insight into how long the plutocracy has left.

Then again they couch it all in the name of markets and freedom. So the economists must be happy. That’s their gig.

Though quite what freedom they are talking about, I have no idea.

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