My “Think Again” column last week addressed how conservative politicians’ professed theories about job creation in the (endless) process of seeking tax cuts for the wealthiest Americans are in direct conflict with real evidence of the actual behavior of individuals. I demonstrated this disjunction using the observations of conservative economists, 65 years of evidence as compiled by the Congressional Research Service, and the behavior of America’s most successful investors. A few days after my column was published, The New York Times published an extraordinary set of articles on tax policy as it actually exists in the United States—beneath all of the politicians’ rhetorical posturing and the all-too-frequent unquestioning and superficial press coverage.
Totaling more than 17,000 words over a four-day period, the articles will likely be too long and dense for all but a miniscule fraction of the paper’s readers, which already comprise a tiny fraction of the voting public. But even if merely its “takeaways” were to permeate our political debate on tax policy, virtually the entire conservative case for coddling the wealthy—or the “job creators,” as conservatives like to call them—would instantly disappear.
By far the most important point of the four articles is that, when viewed as an entire ecosystem rather than simply a collection of behavior- and sector-specific interventions, the U.S. tax system is vastly more generous to the wealthy than is commonly understood. Contrary to what many people believe—no doubt based in part on the right-wing propaganda to which they have been consistently subjected—“most Americans in 2010 paid far less in total taxes—federal, state and local—than they would have paid 30 years ago,” according to an article on tax rates in the 1980s and today by Binyamin Appelbaum and Robert Gebelof. The only Americans who pay more—surprise, surprise—are the working poor.
According to Appelbaum and Gebelof:
Households earning more than $200,000 benefited from the largest percentage declines in total taxation as a share of income. Middle-income households benefited, too. More than 85 percent of households with earnings above $25,000 paid less in total taxes than comparable households in 1980.
Meanwhile, barely half of working families with annual incomes below $25,000 could claim the same.
These results are primarily the function of two trends: the fall in federal tax rates and the rise of state and local taxes that are not income-based such as sales taxes. Only in six states, however, were these increases equal to or greater than the drop in federal taxes, so most Americans got an overall tax break—“most” Americans, that is, except the ones who needed it the most, those who would also be most likely to spend it.
Another part of our tax policy problem comes from an increasing reliance on the payroll tax that helps pay for Social Security and Medicare, among other programs. Until the recent 2011 payroll tax cut, it rivaled the income tax with respect to the bite it takes out of most middle-class incomes, but it is decidedly more regressive. As Appelbaum and Gebelof note:
All workers pay the same Social Security tax on wages below a threshold, which stood at $106,800 in 2010. The Medicare tax imposes a single rate on all wages, without a threshold,” and therefore hits wage-earners and the rest of the 99 percent with a wallop that the wealthy barely even notice.
Another tax policy article in the Times, written by Louise Story, tells a maddening tale of the casual manner in which corporations pressure politicians to bilk taxpayers on their behalf. These corporations, however, are not able to provide virtually any evidence—much less a guarantee—that the jobs promised as a result of specific tax rebates and credits given to specific businesses will ever materialize or even remain in place long enough to provide sufficient revenue to offset the lost funds. Story notes, for instance, that as recently as 2007 General Motors was promising local officials that generous tax-abatement schemes would “further G.M.’s strong relationship,” vowing a “win/win situation” to one town council in Michigan, according to notes that a participant took at the meeting. Just two years later, more than 50 properties, including this one, showed up on the company’s 2009 liquidation list, meaning that billions of dollars in taxpayer funds were given away to General Motors in exchange for pretty much nothing.
In some of these cases, Story reports, the company shut down its properties despite offers of even more generous treatment, as states and localities were apparently eager to find themselves fooled yet again. Ohio, for instance, offered $56 million to try to rescue a GM plant in Moraine, while Wisconsin offered nearly three times that much in a failed attempt to save another one in Janesville. In 2011, meanwhile, states cut public services and raised taxes by a collective $156 billion, according to the Center on Budget and Policy Priorities.
Because of the myriad ways in which states, cities, or towns give corporations money, it cannot always be traced, so no accurate figure is available for how much money we taxpayers actually turn over in exchange for often-empty promises. What’s more, nobody keeps track or even tries to measure the success rate of these gifts. The best the Times investigation could come up with was about $80 billion total given to companies from “virtually every corner of the corporate world, encompassing oil and coal conglomerates, technology and entertainment companies, banks and big-box retail chains.”
The newspaper attempted to analyze more than 150,000 awards and created a searchable database of incentive spending. Journalists also interviewed more than 100 people involved in and aware of such deals on both sides of the cash transfer. In each case, mayors, governors, town managers, and city- and state-council officials engaged in the transfer of public assets to private hands amid considerable pomp and circumstance—with few, if any, enforceable provisions to regulate the deals on the private side.
In many of these cases detailed by the reporters, schools and other public goods in these same localities suffered from slashed funding. And no wonder: In Oklahoma and West Virginia, fully one-third of the state budgets are given away, and in Maine, it’s 20 percent. As one corporate executive who benefited from the practice—Donald J. Hall Jr. of Hallmark—explained to the Times, “It’s really not creating new jobs. … it’s motivated by politicians who want to claim they have brought new jobs into their state.”
Part of the reason for this unhappy phenomenon is our federalist system. In France and Germany, localities do not compete against one another to lure business away via tax policy because localities do not control it. But in the United States, state and local elected officials handle a portion of tax policy—and the taxpayer bears the burden. When Kansas enticed AMC to move its headquarters across the border from Missouri in 2011, it cost Kansas taxpayers $36 million. Coincidentally, the state also cut its education budget by $104 million. Sean O’Byrne, vice president of the Downtown Council of Kansas City, whose job it is to cut such deals, says, “It sounds like I’m talking myself out of a job, but there ought to be a law against what I’m doing.”
Federalism is only one piece of the puzzle. Another is publicity for politicians. The Times does not mention this, but cozying up to corporations gets you all kinds of kickbacks. As a Mets fan, for example, it has always infuriated me the way the Yankees manage to soak the New York City local government for millions by threatening to move to New Jersey, when the franchise obviously is not moving anywhere. But who doesn’t like the first-rate tickets and special treatment that comes with a good relationship with the team? Remember, Mayor Rudy Giuliani not only got himself tons of tickets to ball games but also scored a World Series ring—and I don’t think he played on the team.
But back to the Times. According to the conservative Manhattan Institute for Policy Research, the amount New York spends on tax credits given to movie makers every year is equal to the cost of hiring 5,000 public school teachers.
The amount states pay to appease corporations that clearly aren’t hurting for cash will turn your stomach. To give just one of any number of potential examples, Royal Dutch Shell earned $31 billion in profits in 2011—about $3.5 million every hour. The company’s CEO took home $13.1 million. And yet the Commonwealth of Pennsylvania willingly gave them $1.6 billion over 25 years to keep them out of West Virginia or Ohio—no strings attached or promises to stay loyal to the Keystone State.
The opportunities for corruption in such programs are endless. In another article for the Times by Louise Story, we learn about the cozy relationship between those in a position to give the money away and those who make a career of helping companies get it. “Texas gives out more of the incentives than any other state,” Story writes—about $19 billion a year. The state—which can boast the third-highest proportion of hourly jobs paying at or below minimum wage in the United States, as well as the 11th-highest poverty rate in America—is a haven for corporate welfare. At the same time, it cut public education spending by $5.4 billion in 2011, when it already was ranked the 11th-worst state in per-pupil spending. Yet just one consultant, G. Brint Ryan of Ryan, LLC, won tax refunds of $20 million each for ExxonMobil and Raytheon alone. Ryan and his wife also happen to be top donors to Gov. Rick Perry’s (R-TX) campaigns, among other politicians, and have been known to hire some of the officials who give out the grants to corporations after they leave public office.
In a later Times story, we learn that star-struck Michigan officials gave away millions of dollars in attempts to lure Hollywood into creating another movie-making center in their state. Local officials were even willing to bet the state workers’ pensions in order to secure backing for studio investors. And they did just that, using what the nonprofit organization Tax Foundation termed “fanciful estimates of economic activity,” as is the case with almost all film industry funding by localities. The losers, once again, are public schools and public goods, including police protection, fire protection, and first responders, among others, who inevitably go begging when Hollywood leaves town.
It is a mere coincidence that the same week these remarkable articles were published, the Times was forced to announce yet another round of internal layoffs. Articles like these are exactly why we need a vibrant, financially healthy, and brave press to challenge the self-interested homilies that powerful people and institutions want us to believe. As we have fewer and fewer of such institutions—and the ones we do have get weaker and weaker and thus dependent on the very same interests who wish to keep their actions secret—our society becomes simultaneously less informed, less fair, and less democratic.
Eric Alterman is a Senior Fellow at the Center for American Progress and a CUNY distinguished professor of English and journalism at Brooklyn College. He is also “The Liberal Media” columnist for The Nation. His most recent book is The Cause: The Fight for American Liberalism from Franklin Roosevelt to Barack Obama.