Trump’s tax plan: The wish list of the American oligarchy

2 October 2017

On Wednesday, the Trump administration outlined a tax “reform” proposal that would be one of the largest upward redistributions of wealth in human history. The plan would essentially establish in law what is increasingly apparent in fact: The United States is an oligarchy.

The proposal would reduce the top individual income tax rate from 39.6 percent to 35 percent, cut the corporate tax rate from 35 percent to 20 percent, eliminate the estate and gift tax, and allow wealthy individuals to establish “pass through entities” in which their own personal income, including from wages, would be taxed at just 25 percent.

The release of the tax plan comes at a time of desperate need for hundreds of millions of people in the US. The US territory of Puerto Rico remains submerged without electricity, food, water, fuel or medicine. Houston is devastated in the wake of Hurricane Irma, and Florida in the wake of Hurricane Harvey. The industrial Midwest faces an opioid epidemic that takes the lives of tens of thousands each year. Everywhere millions lack adequate health care, education and infrastructure.

While the ruling class makes trillions available for war, bank bailouts, quantitative easing and tax cuts for the rich, it ignores basic social needs with criminal indifference. Just yesterday, both the House and Senate missed a deadline to fund the Children’s Health Insurance Program, meaning that nine million poor children face having no health care in the coming weeks and months.

A flurry of activity is accompanying the announcement of Trump’s tax plan, which the nonpartisan Tax Policy Center estimates will reduce federal revenue by $2.4 trillion in the next decade and another $3.2 trillion in the following decade. Corporate tax cuts will produce added corporate revenue of $6.7 trillion by 2037.

On Sunday, Trump Treasury Secretary Steven Mnuchin made the rounds of the morning talk shows declaring, with a straight face, that “the objective of the president is that rich people don’t get tax cuts.”

Mnuchin, the administration and Wall Street play the population for suckers.

The abolition of the estate tax alone will net $240 billion by 2027 to those worth over $5 million, just 0.02 percent of the population. Beyond this massive sum, the elimination of any taxation on money passed between generations of aristocrats establishes the oligarchic principle of dynastic rule. Before long, the new nobility will take the logical next step in demanding the repeal of another progressive era reform, the Sixteenth Amendment, which granted congress the right to tax income.

In the 4th century BCE, Aristotle defined the term “oligarchy” to mean a form of government where the non-rich are “absolutely excluded” from social decision-making. Under capitalism, the ruling class has taken this definition to a new level. In the US today, the government exists solely as a vehicle for enriching the wealthy and carrying out its domestic and foreign policy goals.

The government’s top personnel are themselves billionaires and millionaires. The media, universities, technology companies and trade unions function as subservient semi-official state institutions whose purpose is to suppress social opposition and stifle free speech. The Democrats and Republicans function like factions of the same party that agree on enforcing the interests of the oligarchy.

In response to Trump’s tax plan, House Democratic leader Nancy Pelosi told the New York Times Saturday, “The president wants to work together. We have a responsibility to find common ground.” Senate leader Charles Schumer told Face the Nation yesterday, “We want to work with them if they will change… You know, they have to consult us.” Last month, the Times called for corporate tax cuts in an editorial titled, “Want to Make a Deal, Mr. Trump?”

As is the norm in American politics, the Republicans are setting the reactionary framework within which the Democrats will likely propose only minor changes before securing the bill’s passage. Despite issuing official proclamations of opposition to Trump’s plan, the Democrats’ position is dictated by the demands of not only their corporate sponsors who are salivating over Trump’s proposal, but also a significant portion of their base in the affluent 10 percent who stand to gain substantially under the plan.

The policies of the American financial oligarchy have already produced unprecedented levels of social inequality, represented in data from a recently released Federal Reserve report:

From 2004 to 2016, the income of the bottom 80 percent of the US declined, with the exception of a bare $1,000 increase in the income of the poorest fifth. Meanwhile, the median annual family income of the top 10 percent increased by $25,100.

The growth in wealth inequality is even starker. Federal Reserve data shows the bottom 90 percent saw their wealth decline drastically from 2004 to 2016. The sharper fall in median family net worth compared to median family income indicates that the vast majority of the population is overwhelmed by the rising cost of living and that even modest income gains are erased by the added cost of health care, transportation, food, housing, education, etc.

The Trump administration’s tax proposal will greatly exacerbate social inequality. According to the Tax Policy Center’s report, the top 1 percent will see their after-tax annual income rise by 8.5 percent, compared to an after-tax increase of those in the bottom 95 percent of between 0.5 and 1.2 percent.

The tax cuts will increase the debt to over 50 percent of GDP by 2036 and will be used by both parties to demand massive cuts to social safety net programs as well as to Social Security and Medicare, thereby erasing the paltry tax cuts for hundreds of millions of Americans.

The massive growth in social inequality is the product of policies implemented by both parties over the last fifty years. There is every indication that another bipartisan arrangement is in the works, with Trump appearing at rallies with three Democratic Senators calling for tax reform.

The American oligarchy operates with a degree of domination over the government and official institutions that rivals that of the Bourbons and Romanovs. But the political establishment is deeply concerned over the growth of social opposition in the working class, a concern which underlies their campaign to censor and control the Internet. But through its tax plan, the Trump administration is fanning a growing social anger that will take the form of explosive social struggles in the period to come.

Eric London


Trump’s taxes: Capitalist corruption and class privilege


4 October 2016

The three pages from Donald Trump’s tax returns made public in Sunday’s New York Times provide a better insight into the real nature of the capitalist system than all of the speeches, platforms and policy statements produced by the Republican and Democratic parties in the course of the 2016 elections.

The real estate and casino billionaire made use of a tax provision that favors the real estate industry to declare paper losses of $916 million in 1995, which he could then use to offset income up to that amount for tax purposes over the next 18 years. A separate provision allowed him to write off another $15 million in losses, more than offsetting his entire income in the year for which the return was filed.

The Trump campaign did not deny the veracity or accuracy of the Times report, only asserting that the Republican presidential candidate had taken legal deductions and that his tax return was in conformity with the tax laws at the time it was filed.

Exactly: The real crime is not what’s illegal, but what is legal.

Billionaires can take advantage of provisions of the tax code written to their specifications by their congressmen and senators, signed into law by their presidents, invoked for their benefit by their paid accountants and tax lawyers, and upheld, in the rare cases of a challenge, by federal courts and judges who do their bidding.

“The system is rigged,” Trump has said, using the passive voice to obscure the key question: Who rigged it? The billionaires rigged it, working through their agents in the Democratic and Republican parties.

Any worker or small businessman who has had to deal with the Internal Revenue Service (IRS) knows what happens when a tax return is audited or challenged, or deductions are disallowed. The IRS mobilizes its agents, garnishes wages, seizes property, imposes punitive fees and penalties for late payment, even drives its unfortunate targets into bankruptcy.

Members of Trump’s class have no fear of IRS audits. Like Trump, they regard such procedures as a mere cost of doing business. They have far more resources than the IRS, an agency that has been deliberately weakened—at least in relationship to the super-rich—over the past several decades.

Billionaires and big corporations routinely claim gigantic deductions or paper losses—Trump’s $916 million in a single year would not be unusual in such circles—with the IRS rubber-stamping the returns. In case of an audit, as Trump’s example shows, the process can drag on for years, with no penalties or other negative consequences.

According to a Reuters report in April 2016, one-fifth of all large, profitable corporations paid no income tax at all in 2012, the last year for which figures were then available, and the average tax rate paid by profitable corporations was 14 percent, even though the nominal corporate income tax rate is 35 percent.

A separate report by USA Today found that 27 companies in the Fortune 500 paid no federal income tax for 2015, despite reporting substantial profits, including General Motors, American Airlines, United-Continental Airlines, Loews, Citrix, Towers Watson, Xerox and Level 3 Communications. According to other published studies, thousands of millionaires, including many billionaires, pay no federal income tax because of various accounting gimmicks and maneuvers.

Trump has campaigned as a successful businessman who will use his business skills to transform the US economy and the federal government. This is a political hoax, as his colossal one-year loss of nearly a billion dollars demonstrates. His real expertise is in gaming the system.

Trump built up a huge fortune despite six bankruptcies, countless swindles of subcontractors and gullible small investors—most notoriously, those who paid fees for “education” at Trump University and Trump’s real estate institute—thanks to favorable treatment from subservient politicians and government agencies.

Trump epitomizes the social, political and moral squalor of the capitalist financial elite, which represents a criminal underworld raised to the heights in 21st century America. One of his fellow real estate billionaires, hotel magnate Leona Helmsley, became notorious for the declaration, overheard by a housekeeper: “We don’t pay taxes. Only the little people pay taxes.” Trump shares the same contempt for working people.

Tax evasion by the super-rich has become a way of life over the past 35 years, as the tax laws have been repeatedly revised by the Democrats and Republicans working together, beginning with the bipartisan Reagan tax cuts of 1981 and followed by bipartisan agreements in 1986 and 1990, culminating in the 2001 bipartisan tax cut under George W. Bush.

The creation of tax dodges like LLCs (limited liability companies) has been accompanied by the effective abolition of the estate tax on inherited wealth. Over the course of this period, corporate taxes fell from one-third of federal tax revenues to only 10 percent, while the nominal top tax rate on the wealthiest individuals was cut from 70 percent to 35 percent. The actual rate paid by the rich and the super-rich is even lower.

These changes have been a major factor in the vast concentration of wealth, as documented in the research of economists such as Emmanuel Saez.

While the New York Times and the Clinton campaign treat Trump as an exception, his manipulation of the tax code to amass great wealth is the rule. A whole system of financial parasitism has developed, in which real estate speculation, banking, the stock exchange, hedge funds and offshore tax avoidance form the standard operating procedure for an entire social layer.

A political conflict within the ruling elite has led to a limited exposure of this corruption and filth. The anonymous source who supplied the documents to theTimes was no doubt seeking to help the struggling Clinton campaign, as was the Times itself in making the material public on its front page.

But the Clintons personify this corruption just as much as Trump, even if they made use of a different mechanism and on a somewhat smaller scale. They amassed a fortune exceeding $150 million in the decade after Bill Clinton left the White House, mainly through six-figure fees for addressing corporate and Wall Street audiences. Barack Obama will shortly take a similar path, reaping his reward from the financial aristocracy whose interests he safeguarded so assiduously over the past eight years.

For the working class, the political lesson is clear: the only way to defend its economic interests—for jobs, decent living standards and needed social services—and to put an end to imperialist wars and attacks on democratic rights, is to build a political movement against capitalism. The working class must take the road of political struggle against the profit system, fighting for a socialist program based on the confiscation of the ill-gotten gains of the financial elite and the deployment of the vast resources created by labor to meet social needs, rather than feed private greed.

Patrick Martin

Bernie Sanders: Democrats Need to Wake Up

CreditAdam McCauley

Surprise, surprise. Workers in Britain, many of whom have seen a decline in their standard of living while the very rich in their country have become much richer, have turned their backs on the European Union and a globalized economy that is failing them and their children.

And it’s not just the British who are suffering. That increasingly globalized economy, established and maintained by the world’s economic elite, is failing people everywhere. Incredibly, the wealthiest 62 people on this planet own as much wealth as the bottom half of the world’s population — around 3.6 billion people. The top 1 percent now owns more wealth than the whole of the bottom 99 percent. The very, very rich enjoy unimaginable luxury while billions of people endure abject poverty, unemployment, and inadequate health care, education, housing and drinking water.

Could this rejection of the current form of the global economy happen in the United States? You bet it could.

During my campaign for the Democratic presidential nomination, I’ve visited 46 states. What I saw and heard on too many occasions were painful realities that the political and media establishment fail even to recognize.

In the last 15 years, nearly 60,000 factories in this country have closed, and more than 4.8 million well-paid manufacturing jobs have disappeared. Much of this is related to disastrous trade agreements that encourage corporations to move to low-wage countries.

Despite major increases in productivity, the median male worker in America today is making $726 dollars less than he did in 1973, while the median female worker is making $1,154 less than she did in 2007, after adjusting for inflation.

Nearly 47 million Americans live in poverty. An estimated 28 million have no health insurance, while many others are underinsured. Millions of people are struggling with outrageous levels of student debt. For perhaps the first time in modern history, our younger generation will probably have a lower standard of living than their parents. Frighteningly, millions of poorly educated Americans will have a shorter life span than the previous generation as they succumb to despair, drugs and alcohol.

Meanwhile, in our country the top one-tenth of 1 percent now owns almost as much wealth as the bottom 90 percent. Fifty-eight percent of all new income is going to the top 1 percent. Wall Street and billionaires, through their “super PACs,” are able to buy elections.

On my campaign, I’ve talked to workers unable to make it on $8 or $9 an hour; retirees struggling to purchase the medicine they need on $9,000 a year of Social Security; young people unable to afford college. I also visited the American citizens of Puerto Rico, where some 58 percent of the children live in poverty and only a little more than 40 percent of the adult population has a job or is seeking one.

Let’s be clear. The global economy is not working for the majority of people in our country and the world. This is an economic model developed by the economic elite to benefit the economic elite. We need real change.

But we do not need change based on the demagogy, bigotry and anti-immigrant sentiment that punctuated so much of the Leave campaign’s rhetoric — and is central to Donald J. Trump’s message.

We need a president who will vigorously support international cooperation that brings the people of the world closer together, reduces hypernationalism and decreases the possibility of war. We also need a president who respects the democratic rights of the people, and who will fight for an economy that protects the interests of working people, not just Wall Street, the drug companies and other powerful special interests.

We need to fundamentally reject our “free trade” policies and move to fair trade. Americans should not have to compete against workers in low-wage countries who earn pennies an hour. We must defeat the Trans-Pacific Partnership. We must help poor countries develop sustainable economic models.

We need to end the international scandal in which large corporations and the wealthy avoid paying trillions of dollars in taxes to their national governments.

We need to create tens of millions of jobs worldwide by combating global climate change and by transforming the world’s energy system away from fossil fuels.

We need international efforts to cut military spending around the globe and address the causes of war: poverty, hatred, hopelessness and ignorance.

The notion that Donald Trump could benefit from the same forces that gave the Leave proponents a majority in Britain should sound an alarm for the Democratic Party in the United States. Millions of American voters, like the Leave supporters, are understandably angry and frustrated by the economic forces that are destroying the middle class.

In this pivotal moment, the Democratic Party and a new Democratic president need to make clear that we stand with those who are struggling and who have been left behind. We must create national and global economies that work for all, not just a handful of billionaires.

Bad Apple: 5 Ways the Computer Giant is Plundering America


No amount of clever branding can hide these harsh truths.

An emotional response to any criticism of the Apple Corporation might be anticipated from the users of the company’s powerful, practical, popular, and entertaining devices. Accolades to the company and a healthy profit are certainly well-deserved. But much-despised should be the theft from taxpayers and the exploitation of workers and customers, all cloaked within the image of an organization that seems to work magic on our behalf.

1. Apple Took Years of Public Research, Integrated the Results, and Packaged it As Their Own

Apple’s stock market value of over $700 billion is about twice the value of any other company. It is generally regarded as innovative, trendy, and sensitive to the needs of phone and computer users all around the world. Many of us have become addicted to the beautifully designed iPhone. But the design goes back to the time before Apple existed.

Steve Jobs once admitted: “We have always been shameless about stealing great ideas.” And reaping most of the benefits. As economist William Lazonick put it, “The iPhone didn’t just magically appear out of the Apple campus in Cupertino. Whenever a company produces a technology product, it benefits from an accumulation of knowledge created by huge numbers of people outside the company, many of whom have worked in government-funded projects over the previous decades.”

In her revealing book, The Entrepreneurial StateMariana Mazzucato explains that “Apple concentrates its ingenuity not on developing new technologies and components, but on integrating them into an innovative architecture.” She goes on to describe 12 major technologies that have their roots in government research, including memory and hard disks, displays, cellular technology, GPS, and all the Internet protocols. Much of it came from the Department of Defense, the Department of Energy, NASA, the Air Force, and other U.S. agencies. The biggest expense in the iPhone is the touchscreen, which was developed at the CERN laboratories in Europe.

The “stealing of ideas” has not been accompanied by a reciprocal contribution to research. Apple spends much less than Microsoft and Google on R&D as a percentage of revenue.

It gets worse. Apple effectively takes all the credit for much of our public R&D by invoking the 1980 Bayh-Dole Act, which allowed publicly-funded work to be patented by companies. In 2011, for the first time, Apple spent more on patent purchases and lawsuits than on R&D. And worst of all, patents can make it extremely difficult for other researchers to continue work on the ideas behind newly developed products.

2. Even After Taking Our Research, Apple Does Everything in its Power to Avoid Taxes

In 2013 Apple CEO Tim Cook proclaimed, “We pay all the taxes we owe – every single dollar.” Delusion teams with denial. When questioned about the “Double Irish” scheme that allowed Apple’s Irish subsidiary to pay ZERO taxes from 2009 to 2012, Apple executive Tony King said he had “no idea” what the questioner was talking about.

Apple recently announced that its overseas, untaxed cash hoard, currently about $157 billion, is expected to reach $200 billion by 2017. But rather than pay taxes, Apple, along with other tech companies, has been part of a “fierce attack” on plans to crack down on tax avoidance, lobbying instead for a repatriation tax holiday to allow the billions of overseas dollars to come home at a greatly reduced tax rate.

3. Overcharging Customers 

The manufacturing cost of a 16 GB iPhone 6 is about $200, and with marketing it comes to about $288. But without an expensive phone contract with Verizon, AT&T, or one of the other wireless carriers, the cost to the customer is at least $650.

4. Underpaying and Mistreating Employees 

In response to criticisms of Apple, Rand Paul advised us to “apologize to Apple and compliment them for the job creation they’re doing.” The company claims to have “created or supported” over a million jobs in the United States. But in reality it has 66,000 employees in the U.S., about half of them retail store workers.

Apple has an efficient way of undermining workers, earning nearly $600,000 profit per employee while paying their full-time retail “specialists” less than $30,000 per year. Thus each store worker gets about $1 for every $20 in profits that he or she helps to generate. As for higher-level employees, Apple is alleged to have conspired with Google and other Silicon Valley each firms to hold down the salaries of engineers and analysts.

Regarding laborers at notorious Chinese factories like Foxconn, Apple CEO Tim Cook said in 2012: “We care about every worker in our worldwide supply chain.” The sentiment went deeper three years later in 2015, when Apple VP Jeff Williams assured us that “We care deeply about every worker in Apple’s global supply chain.” But investigations have revealed little change, with a continuation of low wages, forced overtime, safety hazards, employee abuse, increased production quotas, and manipulation of student interns. Before the launch of the iPhone 6 in late 2014, workers put in 15 hours a day for 10 weeks without a day off.

5. Apple Has Figured Out How to Spend Most of its Untaxed Money on Itself 

Much of Apple’s ‘offshore’ money is reportedly held in the U.S., in the form of U.S government securities, earning interest from U.S. taxpayers. When the company needs cash, it simply borrows the money at a near-zero interest rate, often using that cash to pay off shareholders with stock buybacks, which use potential research and development money to pump up the stock prices for shareholders.

After spending $90 billion on stock buybacks last year, Apple has now proudly announced a 2015 “share repurchase authorization” of $140 billion, almost the entire amount of its currently hoarded cash. Buybacks benefit company executives and investors. Beyond that, Apple’s ever-growing $.7 trillion stock market value is spread among relatively few Americans. The richest 10% own 91 percentof U.S. stocks.

Apple’s View 

The tax-avoiding, research-appropriating, cost-escalating, wage-minimizing, self-enriching Apple Corporation has, according to CEO Tim Cook, a very strong moral compass.

Paul Buchheit teaches economic inequality at DePaul University. He is the founder and developer of the Web sites, and, and the editor and main author of “American Wars: Illusions and Realities” (Clarity Press). He can be reached

Obama’s “pro-middle class” budget: Cut corporate taxes, raise military spending, slash Medicare


By Andre Damon
3 February 2015

On Monday, President Barack Obama presented his budget proposal for fiscal 2016, described by the New York Times as an “unfettered case for spreading the wealth.”

In reality, the budget proposal, cynically packaged and promoted as a populist boon to the middle class at the expense of the rich, is dominated by corporate tax cuts, expanded military spending, and cuts to Medicare.

These are accompanied by a grab bag of social and infrastructure spending proposals, trivial in and of themselves, which are proposed solely to make the budget appear to favor the “middle class.” As Obama and the Democrats know perfectly well, the supposedly “progressive” elements of his budget will be rejected by the Republican Congress, while the pro-corporate and militarist meat of the proposal will be enacted.

The real character of Obama’s budget was signaled by the location he chose to unveil it. The president gave the press conference announcing the budget at the Department of Homeland Security in Washington, where he emphasized that he would significantly expand spending on the military and domestic security.

Obama declared, “We need to fund the department [of Homeland Security], pure and simple. We’ve got to put politics aside, pass a budget that funds our national security priorities at home and abroad.” The budget, he added, “gives us the resources to confront global challenges, from ISIL to Russian aggression.”

This was a reference to his proposal to lift caps on military, intelligence and domestic security spending imposed as part of across-the-board cuts mandated by the so-called “sequester” law that came into effect in early 2013.

Obama’s budget proposal would increase Pentagon spending by seven percent, adding an additional $38 billion to bring the total defense budget to $534 billion. Obama is separately proposing $51 billion in additional funding for the wars in Iraq and Syria, including money to back the so-called “moderate” opposition in Syria, as well for as the ongoing US troop presence in Afghanistan.

The budget calls for the corporate tax rate to be cut to 25 percent for manufacturers and 28 percent for other corporations, down from the current rate of 35 percent.

The proposal would also allow US corporations to repatriate past profits generated overseas at a tax rate of only 14 percent. Foreign profits would be taxed at 19 percent in the future. Currently, US corporations pay a rate of 35 percent on foreign profits, which many corporations avoid by keeping their foreign earnings abroad.

These tax cuts are accompanied by $400 billion in cuts to Medicare, Medicaid and the Department of Health and Human Services. The budget proposes to raise $66 billion over ten years by charging higher Medicare premiums to upper-income patients, a move that would undermine Medicare’s status as a universal entitlement and open the door to means testing and the transformation of the government health insurance program for seniors into a poverty program.

The plan would cut another “$116 billion in Medicare payments to drug companies for medicines prescribed for low-income patients,” according to theNew York Times. It would also slash $100 billion for the treatment of Medicare patients following their discharge from the hospital, affecting primarily the elderly.

The increases in military and security spending, corporate tax reductions and entitlement cuts, which form the core of the budget proposal, are coupled with a series of social spending increases and tax hikes on the wealthy which are certain to be stripped away by the Republican-controlled Congress.

The proposed tax increases include a 0.07 percent fee on some 100 large financial corporations and an increase in the capital gains tax from 24.2 percent to 28 percent for couples making more than $500,000 per year.

These would ostensibly be used to finance a plan to pay tuition—but not increase per-pupil funding—at community colleges, which would cost $60 billion, as well as an $80 billion proposal for increasing child care tax credits. The budget also proposes $478 billion in infrastructure spending over six years. These projects would be contracted out to private for-profit companies and would not take the form of government-run public works programs.

In announcing his budget, Obama claimed that his proposal would undo the effects of the sequester budget cuts. Since their implementation, Obama and Congress have taken measures to shift the burden of the cuts to social programs and away from the military.

Obama made clear that he would not allow sequester cuts to defense spending, declaring that “if Congress does nothing to stop sequestration, there could be serious consequences for our national security, at a time when our military is stretched on a whole range of issues.” He added, “I’m not going to accept a budget that locks in sequestration going forward.”

The token social spending measures in the budget are aimed at perpetuating the fraud that the Democrats are the party of the “middle class”—as opposed to the pro-business Republicans—in preparation for the 2016 presidential election.

Despite the constant talk in the media about “partisan gridlock,” the two parties represent different factions of the same ruling oligarchy and pursue a common agenda of austerity, militarism and the build-up of the repressive powers of the state.

How iPad and Google Glass makers are secretly scamming America

More evil than genius? 


We already knew Google and Facebook were resourceful. But their new scheme to rip off the U.S. Treasury is chilling



More evil than genius? How iPad and Google Glass makers are secretly scamming America
Sergey Brin, Mark Zuckerberg (Credit: AP/Seth Wenig/Reuters/Stephen Lam/Salon)


To really understand the extent of Google and Apple’s innovative zeal, you may want to look past their groundbreaking products – and more at their tax avoidance strategies. In a new scheme that defies belief, some of the nation’s top tech giants are managing to evade taxation on money by parking it overseas – and then somehow taking government payments on it.

Though the rest of the business sector had a head start, tech firms have begun to lobby Washington with more persistence over the past few years; the top 10 spent more than $61 million in 2013. The more hopeful among us might believe this shift could possibly produce more beneficial results for the public. (After all, Google’s motto is “don’t be evil,” right?)

But while it’s true that, in certain discrete areas, tech lobbying has yielded positive results — like when companies aided grass-roots efforts to stop Internet censorship legislation sought by Hollywood — in the vast majority of cases, Silicon Valley wants what the rest of our multinational conglomerates want: low taxes and cheap labor. And they’ve been at the forefront of efforts to ensure that.

Take a look at the recent Bloomberg report on companies stockpiling cash in offshore tax havens to avoid higher U.S. rates, for example. (Though the new downplayed the significance of this buildup, in actuality it has increased at a fairly steady 10-15 percent rate since the start of the Great Recession.) The tech sector has led the way on this, moving their patents and other intellectual property to low-tax countries to give the appearance that their profits have been earned offshore.

According to Securities and Exchange Commission filings, Apple, Microsoft and IBM accelerated their overseas profit hoarding in 2013 more than their counterparts, adding $37.5 billion to the pile. Over the past three years, Microsoft’s cash stash has more than doubled, and Apple’s has quadrupled. In all, seven tech companies – the three mentioned above, along with Cisco Systems, Oracle, Google and Hewlett-Packard – have $341.3 billion sitting in offshore accounts. At current tax rates, the companies would have to pay $119.45 billion of that to the IRS if they repatriated it. Much of this money is held in segregated U.S. bank accounts, solely for the purpose of avoiding taxes by nominally keeping it offshore.

Sure enough, tech firms are among the companies lobbying for a repatriation tax holiday, which would allow them to return that money home at ultra-low rates. The LIFT Coalition (short for Let’s Invest for Tomorrow), run by former Obama administration communications director Anita Dunn, advocates for the repatriation holiday, and includes Intel, Cisco, Hewlett-Packard, the Semiconductor Industry Association, and “TechNet,” a separate lobbying coalition that counts as its members Google and Facebook.

These lobbying coalitions claim that repatriating the money will allow companies to invest and spur economic recovery, although the last repatriation tax holiday, in 2004, did nothing of the sort. The top 15 companies that made use of that holiday to move money home actually cut 20,000 jobs in the aftermath, while increasing their executive compensation and stock buybacks, according to a report from the Senate Permanent Subcommittee on Investigations (Hewlett-Packard and IBM were among the 15 companies benefiting the most). Sadly, both the recent Republican tax reform proposal and the Obama administration’s budget call for a repatriation tax holiday along the lines of the lobbying coalition’s wishes, so their efforts could bear fruit.

But it’s actually worse than all this. A report from the Bureau on Investigative Journalism shows that these tech firms are actually taking government payments on the money they have parked overseas to avoid taxation. That’s because that money isn’t sitting under a mattress somewhere in Bermuda or the Cayman Islands; it’s invested, and the No. 1 investment these firms use is the ultra-safe, ultra-liquid instrument of U.S. government debt.

SEC filings show that Apple, Microsoft, Google and Cisco have $163 billion invested in various forms of interest-bearing U.S. debt. If they were a country (Silicon Valleyistan), that would be the 14th-largest holding of our debt in the world, more than the sovereign wealth funds of Singapore and Norway. Despite the investments in things like Treasury notes and agency debt, the money is still considered offshore, avoiding taxation even as it collects interest from the U.S. government. The annual interest payout to just these four firms is $326 million.

Silicon Valley has mobilized to ensure this gravy train continues into perpetuity. Though the G-20 group of countries has discussed a unified effort to close international tax loopholes, a lobbying coalition made up of tech firms called the Digital Economy Group has fought them almost single-handedly. In a letter to the Organization for Economic Co-operation and Development, the DEG argued that any tax avoidance is “purely coincidental,” adding that “enterprises that employ digital communications models do not organize their business operations differently as a legal or tax matter.” This is completely absurd, given the facts, and represents a hidden effort to subvert tax reform while publicly endorsing the concept.

The fight for low taxes almost looks good compared to Silicon Valley’s securing of cheap labor, the nasty details of which have spilled out in a federal lawsuit. Google, Apple, Intel, Adobe and several other tech firms were charged with colluding to artificially keep down labor costs among engineers and other workers. Basically, companies made illicit agreements not to poach each other’s employees, which eliminates labor competition and suppresses wages. This violates federal anti-trust laws, the workers alleged. Emails between the likes of Google’s Eric Schmidt and the late Apple CEO Steve Jobs provided the evidence for the allegations. The companies even shared salary data for their employees to ensure that nobody overpaid. Recruiters who called into other Silicon Valley firms searching for talent were summarily fired.

Some tech giants, like Intuit, settled with workers for an undisclosed sum, but Google and Apple tried to get the class action suit thrown out of court. A district court judge and the 9th Circuit Court of Appeals dismissed that attempt, however, letting 60,000 workers continue to pursue the case. The trial is slated for this May.

None of this is particularly surprising. Tech firms are in the business of making money, regardless of the shiny products and Web apps and social media diversions that supply their revenue stream. They cut all the corners that the rest of corporate America cuts to maximize their profits, skirting the edges of the law and sometimes going over it. You may not want to believe that the companies that give you the iPad and help you in your search for cat videos operate like a two-bit hustler, stealing the wages of employees and setting up dummy tax shelters. But that’s the sad reality.


David Dayen is a contributing writer for Salon. Follow him on Twitter at @ddayen.

How America chose inequality

The message the nation needs to hear tonight

Inequality was no accident, and the president’s new focus on “opportunity” is a mistake, a leading economist says

How America <em>chose</em> inequality: The message the nation needs to hear tonight
Donald Trump, Mitt Romney, Lloyd Blankfein (Credit: lev radin via Shutterstock/Reuters/Steve Marcus/Jim Young/Salon)

Following prior pieces suggesting “income inequality” would be the centerpiece of tonight’s State of the Union, multiple outlets are reporting that’s not quite the case.  “Income inequality is out,” wrote the Associated Press, “‘ladders of opportunity’ is in.”

That’s a shame, contends economist John Schmitt, and it’s bad for policymaking as well as politics. Schmitt, a senior economist at the progressive Center for Economic and Policy Research, spoke with Salon about the problem with emphasizing economic mobility, the limits of attacking inequality through education, and what Obama should say – but won’t – tonight. A condensed version of our conversation follows.

A “senior administration official” told the Wall Street Journal that, in the Journal’s words, “income inequality would be addressed” in the speech, “but would be just one piece of the broader challenge to increase opportunities.” What is at stake in this question of whether the challenge is economic mobility, or the question is inequality?

Obviously, both are very important and they’re highly interrelated …

An important issue whenever people talk about opportunity and mobility is to keep in mind that if we’re talking about … starting to change it today, we’re talking about having an impact on mobility or opportunity, and ultimately on inequality, that is for most purposes possibly decades away. So you know, I think the time frame that we see results is going to be a lot different depending on whether we focus on trying to address inequality in the present or trying to address economic opportunity and economic mobility for basically young people today when they’re 40 and 60, not 20 …

If your strategy is to get people to go to college, finish college and get college-educated jobs, you’re basically leaving that group of workers that are, say, 25 and older, that are unlikely to go back to college and finish – I mean, some will and some do, but not in large numbers – you know, you’re leaving them out to dry. And you’re basically saying we’re going to solve inequality by slowly increasing the share of the workforce that has a college degree … It’s a very, very slow way to address the economic inequality question. It will work to a certain degree, but it takes a very long time. And … the thing that economists don’t say is: … How is it that making more people have a college degree is going to reduce inequality? Well, one important reason is that it’s going to lower the wages of recent college graduates, and bring them back down, because there’s going to be an increase in supply …

We have a pressing economic inequality problem right now. And we know how to address that. It’s just that making the politics happen is what the obstacle is. It’s a shame that there’s a shift away from directly the issue of inequality, to … questions like mobility and opportunity. Because I think those are much harder to pin down, they’re a much longer time frame, and they take us away from the direct kinds of issues that have an immediate impact.

In the State of the Union last year, the president said, “to grow our middle class, our citizens have to have access to the education and training that today’s jobs require.” This is something you hear a lot, from Democrats and from Republicans. How much of an answer is that to the mobility problem, or the inequality problem?

The focus on training, on education, on skills — those are things that are extremely helpful, and they’re very useful in the medium- and long-term … But that’s not the problem that we have right now.

The problem that we have right now is not that there are tons [of jobs] out there going vacant because we don’t have the workforce that can fill those jobs. We have the exact opposite problem. We have something on the order of three unemployed people for every vacancy that’s available. And we have a situation where even highly skilled workers are having trouble finding work … We have recent college graduates working for free as interns, and struggling to find a job that’s not something that they could’ve done with just a high school degree …

The [supposed] skills shortage problem … If there’s not enough workers who have particular skills, then employers start to bid, to get the workers that do have those skills. They steal them away from their competitors, and they bid the wages up. That’s not happening anywhere in the economy right now. So it makes me deeply skeptical that the problems that we face are related to skills. And it makes me deeply skeptical that we’re going to solve those problems in the short-term by increasing training and education – as much as I might favor doing those things.

Your “Where Have All the Good Jobs Gone” research – what does that suggest about the limits of education and productivity as ways for workers broadly to make it into the “middle class,” so to speak, or as solutions to these problems?

Workers today are a lot older than they were in the 1960s or the 1970s, and they are enormously better-educated than they were in the 1960s or 1970s. The fact that most workers are doing barely better, and some workers are doing worse than their counterparts from 40 or 50 years ago … suggest that the problem is that the way the economy converts people’s skills, people’s experience, people’s education and their training, into good jobs is what has deteriorated over this period. Not people’s underlying skills, or work experience, or education.

And I think it points to something completely different — and I think it’s absent from a lot of the discussion as [to] the reasons why we have economic inequality, and the reasons why we have these continuous problems with mobility and opportunity. And that has to do with bargaining power of workers. And you know, that I think is a piece that’s unfortunately missing from the president’s discussion of economic inequality, and it’s absent from his discussion of mobility and opportunity.

The way the economy has been restructured over the last three or four decades has removed the bargaining power of workers at the middle and the bottom. And it’s done that in a very systematic way.

The president’s rightly focused on the question of the minimum wage because I think it’s kind of a core example of where we’ve used public policy in a way to reduce the bargaining power of workers at the bottom. Because we’ve just allowed the minimum wage to fall far below its historic value, no matter how you measure it. … It’s definitely below where it was four or five decades ago, even though we’re much richer than we used to be. That’s a conscious or semi-conscious decision that we’ve made …

That’s just one example. Another is this big decline in unionization in the private sector that we’ve seen over the last four or five decades … We have a labor law that is completely unresponsive to workers’ desires to form a union in the private sector … That undermines the power very much of workers, in particular in the middle of the wage distribution …

We pretty regularly keep the unemployment rate too high, much higher than even economists, who are pretty conservative about these things, think is the level of full employment. And that goes directly to workers’ bargaining power … If you have a job and the unemployment rate is 10 percent, you are much less likely to go to your employer and ask for a pay increase, or improvement in benefits, or a better schedule, than if the unemployment rate is 4 percent …

We have this kind of systematic setup where the minimum wage is down, unions are down, the unemployment rate is too high.

It doesn’t stop there … Immigrant workers have almost no rights under our labor law … Because their position is so weak, it undermines the power of low-wage workers who were born here and have — barely — more rights … It creates a perfect set of circumstances for low-wage employers, because they can play immigrant workers against U.S.-born workers, in an environment where neither of them has very many rights. So businesses don’t have a big incentive to try and fix that situation …

We’ve had trade deals such as [the proposed Trans-Pacific Partnership], which we’re discussing right now, which are basically organized to increase the power, economic power of corporations, and to undermine the power of their workers and consumers.

You know, we privatized state and local government functions at quite an alarming rate … The main advantage that the private sector has over the public sector is not that they’re more efficient at organizing school buses. It’s that they pay their workers less and they don’t give them benefits …

That discussion of bargaining power, and the politics and the policies around it, is firstly what’s going to be missing from the State of the Union address. And broadly from the discussion of economic inequality. From, you know, even the Democratic Party, for the most part.

Alan Kreuger’s Gatsby curve [tying inequality to mobility] – what do you make of that contention, and how should that inform these debates about income inequality and mobility?

To me, the most important single conclusion to draw from the Gatsby curve is just that the United States has both very high levels of economic inequality, and very low levels of mobility. The rest of the debate and discussion around the curve is whether or not one causes the other — and then there’s a separate question of whether or not the level of mobility has been falling relative to the past …

One of the arguments I think that you sometimes hear is that … it doesn’t matter if economic inequality increases, because we have lots of economic mobility in the United States. And I think that what the data that Alan Krueger and many others have shown is that the United States actually has low levels of economic mobility relative to almost every other country that looks like us in terms of standard of living.

And so you can’t take a lot of comfort from the prospects of economic mobility … even if it’s the case that economic mobility is exactly the same as it was 20 or 30 years ago, that’s small comfort for somebody born into the economy today. Because the penalty for not moving up is, we know, substantially higher than it used to be … the 20th and the 50th percentile have, you know, basically both fallen relative to the top … If we had a big increase in economic inequality, at least to stay where we were, we would need to have a big increase in mobility — which we certainly have not had.

But my own view is, you know, the mobility question is important, and opportunity is important — but it’s also the case that we want to make sure that workers at the 10th percentile … or a low-income family at the 20th percentile, that those folks move with the growth in the overall economy. And that is something that simply has not happened over the last four decades or so …

People’s resources, particularly when kids are young, are going to make a big difference to where their kids end up. And if we focus on inequality in the short term, we are going to have an impact on mobility in the medium and the long term. And that’s what we see in the examples of other countries: The other countries that tend to have more mobility than we do have … a lot more equality, and more resources available to children in particular.

In England, the attitude of “New Labor” was once characterized [in 1998] by [Blair cabinet member] Peter Mendelson saying he was “intensely relaxed about people getting filthy rich, as long as they pay their taxes.” What do you make of that worldview … that it doesn’t hurt people at the bottom to have extremes at the top, as long as you then tax the money?

Even since he made those comments … I think there’s been a much better consciousness of the broader social costs of inequality. It’s very divisive. It creates a lot of political problems. It’s not just, you know, some sideshow. I mean, it’s a real core issue about fairness, and how people understand and identify with their society …

The other truth is that we don’t actually tax the money away. One of the big problems that we have is that we don’t have tax rates that actually … take back a significant chunk of what people at the very top make … Hedge fund managers pay a tax rate of 15 percent … No low-wage worker in the United States probably pays less than that, when you add in all the different taxes they have to pay …

There’s a big cost to the way we have things organized, because there’s a lot of oneupmanship in the CEO world, and there’s a lot of competition to get paid a little bit more … If we had taxes that made it less important to make the extra million dollars, because you knew you were going to get 90 percent of it taxed away, people might focus on other things, and do other stuff …

A lot of very, very highly paid people get “[economic] rents” — they get [paid] money they don’t need to [be paid] in order to [be willing to] do their jobs. So from a societal point of view, we’re paying the top 1 percent enormously more money than we need to in order to get them to do whatever job it is that they do, whatever socially valuable function that they think that they have …

I’m pretty sure that Bill Gates would have probably done everything that he did for, I’m just going to say, $50 million … Maybe I’m terribly, terribly wrong, and he would have only done what he did for $5 billion. But the point is that as a society, we’ve given him $50 billion, essentially. We’ve arranged a market system that has awarded him with $50 billion or more …

From a societal point of view, that’s an enormous waste. Because we could have gotten all the good products and services from all of the work that consumers value from Microsoft, by giving Bill Gates $45 billion less than we did. We would have all sorts of resources to invest in all sorts of other things, and we didn’t do that. So it’s a real case of inefficiency.

What would be the dream State of the Union speech on these issues?

One that recognizes the political constraints that are operating on the president and on progressive forces … but would spell out an alternative story to why we’re in the mess we’re in, and an alternative set of solutions …

Instead of focusing on how kind of abstract forces of technology, and you know, abstract forces of globalization are dragging down the American workforce, and creating all sorts of inequality, it would focus instead on how, you know, very clear politics, and very clear policy decisions are undermining the bargaining power of workers at the middle and the bottom.

And that is the cause of economic inequality. And that the solutions involve restructuring the economy in ways that give power to workers at the middle and the bottom …

It tells us a different story about why we’re in the circumstances we’re in, and gives us a set of recipes that are focused on the present, and on dealing with economic inequality in the present, as a way toward improving economic mobility and economic opportunity. Rather than offering us, you know, the opportunity to change things 15 or 20 years down the line if all goes well.