Tax credits and corporate welfare

TAX CREDITS AND CORPORATE WELFARE
By Bob Confer

Editor’s note: This is the last in a four-part series about how large corporations evade federal taxes and abuse US taxpayers.

While brainstorming ways by which to overcome the federal debt and future deficits, the US Senate’s Gang of Six came up with the suggestion that American workers give up, either partially or entirely, certain tax exemptions that cover mortgages, health insurance, retirement investing and charitable giving.

That’s all well and good. Income tax credits, incentives and the like aren’t good government due to their inherent unfairness. Some folks even classify them as a form of welfare. They are definitely a transfer of wealth because the Treasury has to overcome the lost revenues from the class of individual afforded financial advantage by transferring the burden of revenue to another.

But, what’s good for the goose is good for the gander. And, that’s where the Gang of Six goes wrong. It’s not surprising that while tearing into these long-held rewards for the middle class, they only briefly mentioned cutting “some” tax breaks for corporations and were non-specific about what those might be. Considering how specific they were about what benefits should end for individuals, their silence speaks volumes about how the balance of inequity tips further in the favor of the large corporations.

Such unfairness is grossly apparent in the case of General Electric. It was bad enough that GE paid no corporate tax on $5.1 billion in US profits in 2010 but, they also had the gall to claim a $3.2 billion tax credit from the federal government.

So, how do the big boys do it? What sorts of credits (corporate welfare) allow them to shed their responsibility to America? Well, here are just a very few of the many that exist in today’s Tax Code:

The Production Tax Credit offers a 2.2 cents per kilowatt-hour tax credit for the first 10 years of a wind farm project. Not surprisingly, this $5 billion giveaway is the only way windmills can produce electricity that’s actually price-competitive.

The Ethanol Tax Credit costs the US Treasury $6 billion per year. This credit is extended to blenders at a rate of 45 cents per gallon. The domino effect of this incentive is astounding, as it is complicit in rising prices at the grocery store as we substitute food corn for fuel corn.

The Research and Development Tax Credit has been around since 1981 and gives US manufacturers and pharmaceutical companies a supposed edge by allowing them to write off many facets of the engineering process. It keeps from the US Treasury $7 billion annually. One cannot help but look at the credit with concern over its unfairness: Why favor R&D when it’s a normal – and required - part of doing business, just as sales and marketing are?

The Domestic Manufacturing Tax Credit, given as a gift to the oil industry by the Bush Administration, allows oil companies to deduct 9% of their income from extraction done in US land or water. That seven-year-old credit saves oil companies $1.8 billion per year. Once again this highlights the injustice of tax credits: Unlike a factory, oil fields cannot be moved overseas, so why afford only them such a benefit?

Then there’s the highly unusual Percentage Depletion Allowance that was created in the 1930s. It allows oil companies to consider oil in the ground as capital equipment (not a natural resource) and they can write off its anticipated depletion. This saves the oil industry $1 billion per year. Imagine if landowners asked to do this with their forests or farmers their soils. It just doesn’t make sense to write-off Mother Nature.

So, just like that, we have more than $20 billion in savings in only a hand full of credits. If we analyzed the thousands of them on the books the total would be staggering, it’s in the hundreds of billions per year.

The system is so broken that BP claimed a $9.9 billion tax credit on its Gulf spill; yes, the same one that cost federal and state governments billions of dollars to mitigate, put thousands of coastal people out of work, and deeply affected the wildlife of the region.

If a corporation can be rewarded for a disaster it created, it is no wonder that our nation is in a fiscal disaster…Uncle Sam allows that same destructive behavior with our finances. Large corporations are afforded undue benefit by our government, and the strain that places on small businesses and individuals is too great to support our nation for the long haul.

Bob Confer is a Gasport resident and vice president of Confer Plastics Inc. in North Tonawanda. E-mail him at bobconfer@juno.com.


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This column originally ran in the 01 August 2011 Greater Niagara Newspapers

THE GOVERNMENT: A CORPORATION’S BEST FRIEND

THE GOVERNMENT: A CORPORATION’S BEST FRIEND
By Bob Confer

Editor’s note: This is the third in a four-part series about how large corporations evade federal taxes and abuse US taxpayers.


Countless small businesses like mine devote an incredible amount of time and money to ensuring tax compliance. From internal checks and balances to the utilization of outside accounting firms, we all dot our “Is” and cross our “Ts” whilst we record and pay our annual and periodic taxes. Even then, no matter how exacting we may be in the details, it seems like the threat of a federal audit always lingers. The mere mention of the IRS sends chills up a businessperson’s spine.

The above paragraph can be equally applied to individuals. Most of the people reading this newspaper dutifully file their annual tax returns and other than some of the more obvious tax credits do little to stray from paying nearly the full amount in taxes. Truth is the basis of their returns. It’s the legal and moral thing to do and most folks fear the repercussions of being caught in a mistruth.

Large corporations, on the other hand, don’t seem to live in the same world that you, I, Confer Plastics and the local barber shop do. They stretch the very definition of tax compliance and do everything within their power to evade paying taxes, despite great profits that demand the contrary. They know the intricacies of the tax system and the myriad strange loopholes.

From this, the questions have always been: How do they know about all of these loopholes? How do they weave these webs of legal (and I use the term “legal” quite loosely) deceit? Where’s the IRS?

The answers are quite simple and singularly identified: The government is their friend.

Whereas we respect and/or fear the IRS, they look at it as its closest ally. As a matter of fact, they look at the IRS as their best source of talent. Who better to beat the system than those who made a career out of being a part of it? IRS agents and auditors – more so than any accountant ever could - best know the tricks of the trade and what worked for other corporations that were successful in abandoning their responsibilities. Tax cheat GE, for example, employs nearly 1,000 people in its tax department alone, most of them former government employees.

The strange bedfellows don’t end there. The corporations were allowed to help make – if not outright craft - the rules that seem to be made just for them. They were the ones appointed to special committees and agencies or who, thanks to huge donations, were given special audience and influence with the elected officials. In the 9 months leading up to the bailouts in 2008, 19 banks spent $32.4 million on lobbying. 2010 was even worse: The top 19 banks spent just under $49 million.

Supporters of the “free markets” will cite the secret backdoor workings of tax law or the hiring of IRS agents and the use of their intellect to help their employer beat the Taxman as good business. If they do, they’ve been drinking Wall Street’s Kool-Aid. I’m a staunch supporter of truly free markets and I know a free market when I see one, and the market that GE, the oil companies and the financial institutions operate in is certainly not free. It’s fascist, which puts the greatest power in the hands of the few, which is just as bad as the socialist economy Corporate America says Obama is driving us to.

At its macro level ours is marketplace where the government hands to the few large companies special privileges over the small ones. Among them is a tax system that accommodates those with the vastest resources and the least amount of morality. They don’t have to pay the economy’s “user’s fee” (tax) like us little guys do. That can, in part, account for the statistical absence of big companies - 500 or more employees - in the United States (less than 1% of all firms). There are barriers of entry (specifically, competitive disadvantages) to the next level of the marketplace that most cannot overcome.

Yes, Corporatism is alive and well in America. That, in conjunction with an oversized federal government, is exactly what’s stifling honest-to-goodness laissez-faire capitalism in this post-recession era and creating a cancer within our nation’s fiscal health. Obviously, if large corporations actually paid taxes the little guys would be equally competitive and we as a nation might not be obsessing about the debt ceiling right now.

Bob Confer is a Gasport resident and vice president of Confer Plastics Inc. in North Tonawanda. E-mail him at bobconfer@juno.com.

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This column originally ran in the 25 July 2011 Greater Niagara Newspapers

Department of Transportation Sets Sights on Farmers' and States' Rights

Department of Transportation Sets Sights on Farmers' and States' Rights
By Bob Confer

The federal government just can’t stay out of agriculture. From subsidy programs that decide winners and losers in the markets by favoring corporate farms over family farms to ethanol rules that sacrifice food for fuel to laws that give undue influence and power to a select few pesticide and seed producers, Washington has maintained a stranglehold over farming that has forever altered the industry’s competitive landscape and doomed consumers to pay ever-higher prices at the grocery store.

It wants even more power. Now, another assault comes from the Capitol and the unlikeliest of agencies: the Federal Motor Carrier Safety Administration, an arm of the Department of Transportation. The DOT/FMCSA has new standards currently in the public comment period that, were they to become law, would override states’ rights — and the rights of the individual farmer — and have a detrimental impact on how business is done.

First and foremost, the DOT wants to reclassify farm vehicles and implements — everything from tractors to cattle haulers — as Commercial Motorized Vehicles (CMVs), which would then mandate all farm workers to meet the same set of requirements that over-the-road truck drivers do. Farmers would have to acquire a Commercial Drivers License (CDL), display DOT numbers, track mileage, limit hours worked, and maintain health cards while farms would have to monitor all of the above and pay highway use taxes (and probably higher insurance rates).

The regulatory burden is daunting. According to the Bureau of Labor Statistics, there are more than 800,000 farm workers in the United States; 24,000 of them are considered Agricultural Equipment Operators, whose primary responsibilities are to drive and control farm equipment to till soil and to plant, cultivate, and harvest crops. But if you’ve ever been around a farm, you know that number is under-reported, for it ignores those who dabble in the use of equipment as required by their job and the task at hand. Many agricultural employees, at one time or another, operate tractors and other heavy equipment. Even in a labor-intensive environment (such as fruit-picking or dairy), motorized equipment is utilized every minute of every day to get people, product, and resources from Point A to Point B or tend the health of the plants or animals. It wouldn’t be stretch to say one-fifth of all farm workers at one time or another drive farm machinery. That’s 160,000 people — and their countless employers — nationwide who would suddenly fall under the bureaucratic umbrella of the federal government and the state governments charged with enforcing the new regulations.

As a necessary cost of doing business, farms would probably pay for their workers to earn their CDLs because there is a shortage (in both the short-term and long-term) of licensed drivers across the country, as government-run schools and popular culture have driven youth away from skilled and vocational trades. The national average for such a course is $3,000. So applied to the 160,000 estimated affected workers, that’s a bill of $480 million. This would probably not be one-time cost, either. A farm owner has no guarantee that his employee will work for him long-term after making that sizable investment in him. Even the Bureau of Labor Statistics admits the following about farm employment on its website, “Job openings should be plentiful because of relatively large numbers of workers who leave these jobs for other occupations. This is especially true for jobs as agricultural equipment operators, and crop, greenhouse, and nursery farmworkers.”

The CDL cost would be wealth-transfer, taking money from agriculture (actually, the consumers who would be paying for the higher overhead) and giving it to others. Other similar expenses would be incurred as well. Insurance, health exams, recordkeeping, licenses, and taxes are not free.

Legally and constitutionally, this regulatory activity should be off-limits to the DOT and left in the hands of the states since all farming activities occur within a state’s borders and nothing of it comprises interstate trade — most goods are sold in roadside stands and local markets or to large processors (national direct-to-consumer sales are incredibly rare).

So, just how does the DOT plan to stake its claims over tractors and haulers and get around the unconstitutionality of these new standards? By reclassifying the farming trade.

Basically, the DOT plans to identify all agricultural commodities delivered to a processor as “interstate commerce” because there exists the chance that the crop might eventually leave the state. That’s an incredibly dangerous undertaking, for it will affect far more than drivers’ licenses: This one, simple change would allow all federal agencies to override local, state, and personal oversight of farms. The federal government would have full jurisdiction and the ability to micromanage farms’ day-to-day activities and practices. Certain to be instituted would be long-simmering federal bills that would mandate the use of farmland based on a supposed importance of the environment or require the tracking of all farming inputs and activities to supposedly prevent outbreaks of E. coli and the like.

The public comment period for these pending transportation rules changes is set to expire at the end of this month. It is hoped that the farming industry and constitutionalists everywhere come out in numbers, voicing their displeasure over such measures. If they don’t, and the DOT is allowed to run roughshod over state’s rights, the very definition of federal power will change when it comes to how, why, and by whom our food is produced.

Once the federal government has total control over agriculture, the cost to farm will likely be utterly astronomical and, likewise, so will be the cost to feed and clothe a family. What can and will happen will make the CDL requirement look like a walk in the park. If that one measure can affect the markets to the tune of just under a half billion dollars, imagine what else Uncle Sam could do with an array of regulations similarly — if not far more — damaging.

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Originally appeared in the 18 July 2011 The New American at:

http://www.thenewamerican.com/opinion/950-bob-confer/8255-department-of-transportation-sets-sights-on-farmers-and-states-rights

Overseas tax havens

OVERSEAS TAX HAVENS
By Bob Confer

Editor’s note: This is the second in a four-part series about how large corporations evade federal taxes and abuse US taxpayers.

US corporations evade paying taxes by setting up shop in the Cayman Islands.

That has been said so often by so many people that it almost seems to be an urban legend.
It’s not.

The Cayman Islands is home to countless American corporations. As a matter of fact, the true number is unknown because Cayman laws ensure complete secrecy for financial transactions and it is virtually impossible for any foreign government to investigate the goings-on of any company, even those that undoubtedly have the greatest percentage of their operations within the inquiring home country.

The numbers that are known are pretty staggering. The nation of 47,000 people has 2 corporations for every resident and a mutual fund for every 5. Merrill Lynch alone has 158 subsidiaries in the Cayman Islands. One address – the Ugland House in Georgetown – is home to 19,000 corporations, 9,000 of which are American. It is no larger than a resort hotel so, obviously, those 19,000 companies don’t do business there. Instead, they simply use it as a legal address and mailing address as a sort of claim for Cayman residency.

The Cayman Islands aren’t the only tax haven on Earth. Other commonly-used nations are Bermuda, Liechtenstein, Monaco, and the Bahamas. All of them have one thing in common: They have low or no corporate taxes. US firms set-up shop (or at least say they do) in these places via subsidiaries through which are funneled impressive amounts of financial activity, mostly through the nebulous ether of accounting records. Since that corporation is supposedly headquartered in the haven (although business is actually done elsewhere), the US government cannot collect a tax on it as the subsidiary is not a “citizen” of our country. It’s a simple shuffling of papers that prevents Corporate America from paying an untold amount (at least $70 billion) into federal coffers every year.

Among the biggest abusers of the tax haven loophole are the Wall Street financial institutions. 83 of the 100 largest banks in the United States support subsidiaries in tax havens around the world. In 2008, Bank of America, Citigroup and Morgan Stanley each sported more than 100 such operations.

Ironically, these banks are among the Wall Street corporations that were awarded $700 billion in taxpayer money from the first bailout of the recession. Think about the hypocrisy of that: Banking execs made lucrative careers out of not fulfilling their tax obligations to the American people, yet, when things got tough they were the first in line to beg for US tax dollars. They were determined to take from a system that they did not give to. Unfortunately, Washington officials were more than happy to oblige, adding merit to the ongoing evasion of taxes.

It should be noted that another corporation that savored government salvation (and somehow avoided public disdain) - General Motors - was a tax cheat, too. Prior to its collapse and the government buy-out, GM had 11 offshore subsidiaries while its financing operations had two offshore units. The government bent over backwards to save General Motors with our money on the basis that the company was 100% American. It’s obvious it wasn’t living up that mystique (or slick advertising).

Similarly, most large corporations aren’t living up to their responsibility to the American people. By seeking out tax havens and getting away with not actually doing business there, they are forcing the American working class and small businesses to pay for, among other things, the roads that corporations’ goods ship on or the public schools and colleges that create the workers used by those companies.

It’s a travesty. You and I can’t set-up a post office box in the Cayman Islands, renounce our American citizenship and at the same time maintain it so we don’t have to pay an income tax while living and working in the US. Yet, that’s what thousands of corporations are doing. It’s high time we demanded the closure of this loophole and forced those companies into choosing what nation they have their strongest – and actual - allegiance to by identifying where their actual work is being done.

Bob Confer is a Gasport resident and vice president of Confer Plastics Inc. in North Tonawanda. E-mail him at bobconfer@juno.com.

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This column originally ran in the 18 July 2011 Greater Niagara Newspapers

Entitlements: a declaration of dependence

ENTITLEMENTS: A DECLARATION OF DEPENDENCE
By Bob Confer

Last week saw the observance of the quintessential American holiday — our Independence Day. From coast to coast Americans celebrated with their usual vigor the greatness that is the United States. Sadly, much of that patriotism was not based on true Americanism. Instead, for a majority of our citizens, the vision of what America has been, is, and will be is but a mutation of what our nation is supposed to be about.

In its simplest terms — terms most believed by those who were intellectually raised on a diet of mainstream media and government schools — July 4 celebrates the independence that our Founding Fathers achieved from the British in 1776. But it’s much deeper than that. When they cut ties with the motherland, John Adams, Benjamin Franklin, Thomas Jefferson, and the other signers of the Declaration of Independence were also cutting ties — then and for the future — from onerous forms of government. They were founding a nation, perchance heaven on Earth, based on the basic yet so magnificent premise that "all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness."

The Founding Fathers believed that we as individuals were just as independent as our embryonic nation was from Great Britain. Our singular destinies — and thus collectively, the destiny of America — were based in self-determination. We — not the government — were to decide how we lived our lives. The new form of self-rule that they were devising at the time (which was so eloquently defined by the Constitution 11 years later) ensured that government was an object of and by the people (the states formed the federal government, not vice versa), and was there only to provide for an environment that guaranteed our natural rights and ensured that no one, not even the government itself, infringed upon those rights and prevented anyone from pursuing his life’s dreams.

The times have changed, however. Many of the same Americans who last week celebrated our formative document and its philosophies have willingly decided to abandon those tenets. They clamor for a form of government that our nation won its freedom from. Slowly but surely, even subconsciously, they have declared their dependence. They want a ruling body that will do more than create and execute the rule of law. They want and need a ruling body that will provide for their everyday comforts — one that, in defiance of the Declaration of Independence, will not allow the pursuit of Happiness but rather will issue Happiness, or at least a sickeningly limited version of it.

Look no further than two entitlement programs, which, thanks to the advances of modern science and its impact on the length of our lifespan, have the potential to be the bedrock and subsistence for one-third of our lives. Since these programs were introduced in 1935 (Social Security) and 1965 (Medicare), Americans have grown to believe they absolutely cannot live without them in their golden years. They want government, and essentially the people and businesses it robs from, to give them the income and healthcare they need to survive as they age — things they should have been planning for in their early working years.

This dependence has been made grossly apparent by public sentiment in recent months. As Congress and the White House have duked it out over short-term deficits and the long-term solvency of our nation, some of the more conservative Republicans have called for cuts in or complete overhauls of these programs. In a perfect world (at least that dreamed of by those of us who actually believe in our founding principles), these unconstitutional monstrosities would be ended. But such thoughts are considered “fringe” or “dangerous” by the masses, because most Americans, despite the well-known financial flaws of Social Security and Medicare, want them left as is. Even ardent Republicans view any modification, no matter how slight, as an atrocity. An AP poll conducted in May verified this: 54 percent of Americans thought Social Security should be left alone while nearly 60 percent felt the same about Medicare.

Such surveys are not a frightening mirage. Proof of their basis could be found in the May special election for New York’s 26th Congressional District where Democrat Kathy Hochul handily won the historically Republican seat because she emphasized that Medicare was vitally important and her opponent’s plans to modify it were an affront to the people of her district.

It’s obvious that the majority don’t value independence. Last week they should have locked their doors and stayed away from any and all of the July 4 festivities. Celebrating as they did was a display of total hypocrisy.

If they truly believed in what the day stands for, they should be demanding that the government get out of the retirement business and put an end to the taxes it extracts from productive sectors of the economy in an effort to make entitlement programs work. This would allow every one of us to pursue Happiness as we see fit.

Isn’t that what America — and independence — is all about?

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Originally appeared in the 11 July 2011 The New American at:

http://thenewamerican.com/opinion/950-bob-confer/8165-entitlements-a-declaration-of-dependence

The taxation obligation

THE TAXATION OBLIGATION
By Bob Confer

Editor’s note: This is the first in a four-part series about how large corporations evade federal taxes and abuse US taxpayers.

Long time readers of this column know that I personally despise federal income taxes. But for as much as I complain about them I also understand that I have a legal and moral responsibility to pay them. I know that we could not do without constitutionally-authorized expenditures such as national defense.

Professionally, I feel the same way. My business has an obligation to pay Uncle Sam hundreds of thousands of dollars every year because that investment ensures that we have, among other things, the roads upon which our products are transported and the courts which protect our intellectual property. Taxes are at once a necessary evil and an immeasurable benefit. It’s our duty to pay them.

Most businesspeople feel the same way. I say “most” because, according to the Small Business Administration, 99.7% of all employers are small businesses, enterprises owned by regular folks like you and me, people who operate local markets, cafes, and machine shops and understand the American Dream and the give-and-take required to fulfill that dream. Small businesses couldn’t do it without government and vice-versa.

It’s some of that other 0.3% (the large corporations) which, by association, give all corporations a bad name. It’s many of those behemoth entities that see an American marketplace ripe for the picking yet - through countless loopholes that cater to them specifically - don’t provide the necessary nourishment for that garden of plenty.

Take General Electric for example, well known as a tax evader without peer. In 2010 the company had $5.1 billion in US profits but didn’t pay a single cent in federal taxes. As a matter of fact, they had the audacity to claim a $3.2 billion tax credit.

They weren’t alone in this abuse. Some other businesses pulled off tax avoidance in recent profitable years, among them ExxonMobil and Chevron. It should be noted, interestingly enough, that one large corporation routinely derided as being “un-American” has done a fine job of living up to its end of the bargain to the American people. In 2009, for example, Wal-Mart paid $5.3 billion in federal taxes.

More giants should follow Wal-Mart’s lead. After all, it’s only fair. Confer Plastics has to pay a federal tax, as do all those businesses on Main Street in your hometown. And, so do you and me. So, why shouldn’t – and why don’t - the Big Boys? Where is the justice in our tax system?

It is questions like those that need answering and correction immediately. Unless you’ve been living under a rock, you know America is in some dire straits. Not only is our government still reeling from a lifestyle of overspending made painfully obvious by the Great Recession, but also, Social Security and Medicare are on their deathbeds. With the Washington political class still as lacking in backbone as ever to make necessary cuts to federal spending and a majority of Americans so grossly addicted to entitlement programs, the talk has been in the Capitol that taxes should be raised, whether through corporate taxes, the income tax or those nefarious payroll taxes that somehow slip under everyone’s radar.

The sights need to be trained elsewhere; why attack the people and small businesses? For all that talk about raising taxes, no one in the halls of Congress has really been serious about closing loopholes and instead fixing our tax laws to collect the hundreds of billions from the giant corporations who don’t see corporate citizenship as actual citizenship. Oh, they may talk a good game, but it’s all bark and no bite. President Obama is especially guilty of that, blasting tax avoidance while appointing GE’s Jeffery Immelt as the head of his Council on Jobs and Competitiveness (heck, I’d be an expert on job creation, too, if somehow we didn’t have to pay a corporate tax).

Over the next three columns I will be analyzing some of the ways that the “evil corporations” (not us good ones) evade their tax obligations, hopefully giving you the reader the insight necessary to contact your Senator and Congressperson about what needs to be done to ensure everyone pays their fair share.



Bob Confer is a Gasport resident and vice president of Confer Plastics Inc. in North Tonawanda. E-mail him at bobconfer@juno.com.


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This column originally ran in the 11 July 2011 Greater Niagara Newspapers