robert reich, former sec of labor, talks taxes…
Posts tagged Robert Reich
President Obama is slamming Mitt Romney for heading companies that were “pioneers in outsourcing U.S. jobs,” while Romney is accusing Obama of being “the real outsourcer-in-chief.”
These are the dog days of summer and the silly season of presidential campaigns. But can we get real, please?
The American economy has moved way beyond outsourcing abroad or even “in-sourcing.” Most big companies headquartered in America don’t send jobs overseas and don’t bring jobs here from abroad.
That’s because most are no longer really “American” companies. They’ve become global networks that design, make, buy, and sell things wherever around the world it’s most profitable for them to do so.
As an Apple executive told the New York Times, “we don’t have an obligation to solve America’s problems. Our only obligation is making the best product possible.” He might have added “and showing profits big enough to continually increase our share price.”
Forget the debate over outsourcing. The real question is how to make Americans so competitive that all global companies — whether or not headquartered in the United States — will create good jobs in America.
Apple employs 43,000 people in the United States but contracts with over 700,000 workers overseas. It assembles iPhones in China both because wages are low there and because Apple’s Chinese contractors can quickly mobilize workers from company dorms at almost any hour of the day or night.
But low wages aren’t the major force driving Apple or any other American-based corporate network abroad. The components Apple’s Chinese contractors assemble come from many places around the world with wages as high if not higher than in the United States.
More than a third of what you pay for an iPhone ends up in Japan, because that’s where some of its most advanced components are made. Seventeen percent goes to Germany, whose precision manufacturers pay wages higher than those paid to American manufacturing workers, on average, because German workers are more highly skilled. Thirteen percent comes from South Korea, whose median wage isn’t far from our own.
Workers in the United States get only about 6 percent of what you pay for an iPhone. It goes to American designers, lawyers, and financiers, as well as Apple’s top executives.
American-based companies are also doing more of their research and development abroad. The share of R&D spending going to the foreign subsidiaries of American-based companies rose from 9 percent in 1989 to almost 16 percent in 2009, according to the National Science Foundation.
What’s going on? Put simply, America isn’t educating enough of our people well enough to get American-based companies to do more of their high-value added work here.
Our K-12 school system isn’t nearly up to what it should be. American students continue to do poorly in math and science relative to students in other advanced countries. Japan, Germany, South Korea, Canada, Australia, Ireland, Sweden, and France all top us.
American universities continue to rank high but many are being starved of government funds and are having trouble keeping up. More and more young Americans and their families can’t afford a college education. China, by contrast, is investing like mad in world-class universities and research centers.
Transportation and communication systems abroad are also becoming better and more reliable. In case you hadn’t noticed, American roads are congested, our bridges are in disrepair, and our ports are becoming outmoded.
So forget the debate over outsourcing. The way we get good jobs back is with a national strategy to make Americans more competitive — retooling our schools, getting more of our young people through college or giving them a first-class technical education, remaking our infrastructure, and thereby guaranteeing a large share of Americans add significant value to the global economy.
But big American-based companies aren’t pushing this agenda, despite their huge clout in Washington. They don’t care about making Americans more competitive. They say they have no obligation to solve America’s problems.
They want lower corporate taxes, lower taxes for their executives, fewer regulations, and less public spending. And to achieve these goals they maintain legions of lobbyists and are pouring boatloads of money into political campaigns. The Supreme Court even says they’re “people” under the First Amendment, and can contribute as much as they want to political campaigns – even in secret.
The core problem isn’t outsourcing. It’s that the prosperity of America’s big businesses – which are really global networks that happen to be headquartered here – has become disconnected from the well-being of most Americans.
Mitt Romney’s Bain Capital is no different from any other global corporation — which is exactly why Romney’s so-called “business experience” is irrelevant to the real problems facing most Americans.
Without a government that’s focused on more and better jobs, we’re left with global corporations that don’t give a damn.
Just when you thought Wall Street couldn’t sink any lower – when its myriad abuses of public trust have already spread a miasma of cynicism over the entire economic system, giving birth to Tea Partiers and Occupiers and all manner of conspiracy theories; when its excesses have already wrought havoc with the lives of millions of Americans, causing taxpayers to shell out billions (of which only a portion has been repaid) even as its top executives are back to making more money than ever; when its vast political power (via campaign contributions) has already eviscerated much of the Dodd-Frank law that was supposed to rein it in, including the so-called “Volker” Rule that was sold as a milder version of the old Glass-Steagall Act that used to separate investment from commercial banking – yes, just when you thought the Street had hit bottom, an even deeper level of public-be-damned greed and corruption is revealed.
Sit down and hold on to your chair.
What’s the most basic service banks provide? Borrow money and lend it out. You put your savings in a bank to hold in trust, and the bank agrees to pay you interest on it. Or you borrow money from the bank and you agree to pay the bank interest.
How is this interest rate determined? We trust that the banking system is setting today’s rate based on its best guess about the future worth of the money. And we assume that guess is based, in turn, on the cumulative market predictions of countless lenders and borrowers all over the world about the future supply and demand for the dough.
But suppose our assumption is wrong. Suppose the bankers are manipulating the interest rate so they can place bets with the money you lend or repay them – bets that will pay off big for them because they have inside information on what the market is really predicting, which they’re not sharing with you.
That would be a mammoth violation of public trust. And it would amount to a rip-off of almost cosmic proportion – trillions of dollars that you and I and other average people would otherwise have received or saved on our lending and borrowing that have been going instead to the bankers. It would make the other abuses of trust we’ve witnessed look like child’s play by comparison.
Sad to say, there’s reason to believe this has been going on, or something very much like it. This is what the emerging scandal over “Libor” (short for “London interbank offered rate”) is all about.
Libor is the benchmark for trillions of dollars of loans worldwide – mortgage loans, small-business loans, personal loans. It’s compiled by averaging the rates at which the major banks say they borrow.
So far, the scandal has been limited to Barclay’s, a big London-based bank that just paid $453 million to U.S. and British bank regulators, whose top executives have been forced to resign, and whose traders’ emails give a chilling picture of how easily they got their colleagues to rig interest rates in order to make big bucks. (Robert Diamond, Jr., the former Barclay CEO who was forced to resign, said the emails made him “physically ill” – perhaps because they so patently reveal the corruption.)
But Wall Street has almost surely been involved in the same practice, including the usual suspects — JPMorgan Chase, Citigroup, and Bank of America – because every major bank participates in setting the Libor rate, and Barclay’s couldn’t have rigged it without their witting involvement.
In fact, Barclay’s defense has been that every major bank was fixing Libor in the same way, and for the same reason. And Barclays is “cooperating” (i.e., giving damning evidence about other big banks) with the Justice Department and other regulators in order to avoid steeper penalties or criminal prosecutions, so the fireworks have just begun.
There are really two different Libor scandals. One has to do with a period just before the financial crisis, around 2007, when Barclays and other banks submitted fake Libor rates lower than the banks’ actual borrowing costs in order to disguise how much trouble they were in. This was bad enough. Had the world known then, action might have been taken earlier to diminish the impact of the near financial meltdown of 2008.
But the other scandal is even worse. It involves a more general practice, starting around 2005 and continuing until – who knows? it might still be going on — to rig the Libor in whatever way necessary to assure the banks’ bets on derivatives would be profitable.
This is insider trading on a gigantic scale. It makes the bankers winners and the rest of us – whose money they’ve used for to make their bets – losers and chumps.
What to do about it, other than hope the Justice Department and other regulators impose stiff fines and even criminal penalties, and hold executives responsible?
When it comes to Wall Street and the financial sector in general, most of us suffer outrage fatigue combined with an overwhelming cynicism that nothing will ever be done to stop these abuses because the Street is too powerful. But that fatigue and cynicism are self-fulfilling; nothing will be done if we succumb to them.
The alternative is to be unflagging and unflinching in our demand that Glass-Steagall be reinstituted and the biggest banks be broken up. The question is whether the unfolding Libor scandal will provide enough ammunition and energy to finally get the job done.
public vs private morality, well said…
robert reich’s interview with jon stewart, great stuff, def worth watching…
part 2/3 of robert reich’s daily show interview…
you could def say im a robert reich fanboy considering how much of his stuff i’ve been posting…here’s part 3 of his daily show interview…
One of the most pernicious falsehoods you’ll hear during the next seven months of political campaigning is there’s a necessary tradeoff between fairness and economic growth. By this view, if we raise taxes on the wealthy the economy can’t grow as fast.
Wrong. Taxes were far higher on top incomes in the three decades after World War II than they’ve been since. And the distribution of income was far more equal. Yet the American economy grew faster in those years than it’s grown since tax rates on the top were slashed in 1981.
This wasn’t a post-war aberration. Bill Clinton raised taxes on the wealthy in the 1990s, and the economy produced faster job growth and higher wages than it did after George W. Bush slashed taxes on the rich in his first term.
If you need more evidence, consider modern Germany, where taxes on the wealthy are much higher than they are here and the distribution of income is far more equal. But Germany’s average annual growth has been faster than that in the United States.
You see, higher taxes on the wealthy can finance more investments in infrastructure, education, and health care – which are vital to a productive workforce and to the economic prospects of the middle class.
Higher taxes on the wealthy also allow for lower taxes on the middle – potentially restoring enough middle-class purchasing power to keep the economy growing. As we’ve seen in recent years, when disposable income is concentrated at the top, the middle class doesn’t have enough money to boost the economy.
Finally, concentrated wealth can lead to speculative bubbles as the rich in the same limited class of assets – whether gold, dotcoms, or real estate. And when these bubbles pop the entire economy suffers.
What we should have learned over the last half century is that growth doesn’t trickle down from the top. It percolates upward from working people who are adequately educated, healthy, sufficiently rewarded, and who feel they have a fair chance to make it in America.
Fairness isn’t incompatible with growth. It’s necessary for it.
How Did Mitt Make So Much Money And Pay So Little in Taxes?
Now that Mitt Romney is the presumed Republican candidate, it’s fair to ask how he made so much money ($21 million in 2010 alone) and paid such a low rate of taxes (only 13.9 percent).
Not only fair to ask, but instructive to know. Because the magic of private equity reveals a lot about how and why our economic system has become so distorted and lopsided – why all the gains are going to the very top while the rest of us aren’t going anywhere.
The magic of private equity isn’t really magic at all. It’s a magic trick – and it’s played on you and me.
By the way, the “other people’s money” that private equity fund managers (as well as other so-called “hedge” fund managers) play with often comes from pension funds that contain the savings of millions of average Americans.
The pension fund managers who dole out our savings to private equity and hedge-fund guys also take a hefty slice in bonuses. And like the others, they bear no risk if their bets later turn bad. They get their bonuses regardless.
Nor are any of them — private-equity, hedge-fund, or pension-fund managers — personally liable for doing adequate due diligence. They can bet our money on the basis of no more information than what they had for breakfast.
But if these funds lose, you lose. That’s what happened in 2008 and 2009. Some of the losses are also shifted to the government’s Pension Benefit Guaranty Corporation – which means taxpayers lose.
It’s a giant con game, and it continues to this day.
Here’s what has to be done to stop it:
1. End the “carried interest” loophole that allows private-equity managers like Mitt Romney to treat their income as capital gains, taxed at 15 percent, even though they don’t risk a dime of their own income. Their earnings should be treated as ordinary income.
2. Hold the managers of private-equity funds, hedge funds, and pension funds to a “due diligence” standard. So if the funds lose money and these managers didn’t exercise due diligence, the Pension Guaranty Corporation can claw back their bonuses.
3. Raise the capital-gains rate to match the tax rate on ordinary income – especially for short-term investments. Give a tax preference only to “patient capital” – that is, for investments held for, say, five years or more.
4. Resurrect Glass-Steagall.
Mitt and others like him won’t like any of these reforms. They’d eliminate the humongous profits they’ve enjoyed at the expense of the rest of us…
Next Monday most Americans will be filing their income taxes for tax year 2011. This year, though, tax day has special significance. If there’s one clear policy contrast between Democrats and Republicans in the 2012 election, it’s whether America’s richest citizens should be paying more.
Senate Democrats have scheduled a vote Monday on a minimum 30 percent overall federal tax rate for everyone earning more than $1 million a year. It’s nicknamed the “Buffett Rule” in honor of billionaire Warren Buffett who has publicly complained that he pays a lower tax rate than his secretary.
No one in Washington believes the Buffett Rule has any hope of passage this year. It’s largely symbolic. The vote will mark a sharp contrast with Republican Paul Ryan’s plan (enthusiastically endorsed by Mitt Romney) to cut the tax rate on the super rich from 35 percent to 25 percent – rewarding millionaires with a tax cut of at least $150,000 a year. The vote will also serve to highlight that Romney himself paid less than 14 percent on a 2010 income of $21.7 million because so much of his income was in capital gains, taxed at 15 percent.
Hopefully in the weeks and months ahead the White House and the Democrats will emphasize three key realities:
1. The richest 1 percent of Americans are now taking in over 20 percent of total national income, and so far have raked in almost all the gains from this recovery. Thirty years ago, the richest 1 percent got 9 percent of total income. Income and wealth are now more concentrated at the top than they’ve been since the 1920s.
2. The richest 1 percent are paying a lower tax rate than they’ve paid since 1980. For three decades after World War II, their tax rate never dropped below 70 percent. Even considering all deductions and tax credits, they paid close to 55 percent. Under Eisenhower, the top rate was 91 percent and the effective rate was 58 percent.
3. Right now the nation faces two yawning deficits – an investment deficit and a federal budget deficit. The investment deficit includes deferred maintenance on America’s infrastructure – roads, bridges, public transit, water and sewer systems that are all crumbling – and an educational system that’s being starved for resources (the federal government pays for 8 percent of K-12 education and about 5 percent of public higher education, but could do much more). The federal budget deficit is projected to mushroom to $6.4 trillion over the next ten years, mostly because of aging boomers and soaring healthcare costs.
Any serious person looking at these three realities would conclude that the rich should be paying far more. It’s not just a matter of fairness; it’s also a matter of patriotism.
In fact, given these realities, the Buffett Rule sets the bar too low. For most Americans, wages and benefits are declining (adjusted for inflation), net worth has been plummeting (their only asset is their homes), and the public services they rely on have been disappearing. For the top, it’s just the opposite: Their incomes are rising, their stock-market portfolios have been growing, and a growing portion of their earnings has been subject to a capital-gains tax of just 15 percent.
The Buffett Rule would generate only about $47 billion in extra revenues over the next decade, according to congressional estimates. Why not restore top rates to what they were before 1980, and match the capital-gains rate to the income-tax rate?