The Fine Print: How Big Companies Use "Plain English" to Rob You Blind (45 page)

Privacy is not an issue, no matter how often Intuit and Grover Norquist repeat that canard, because the government has all the data for taxpayers who use only the standard deduction.

Action Two

As for the claim that if ReadyReturn were instituted millions of people might lose out on some tax break, the answer is simple: reduce unnecessary clutter in the tax code. For example, if we want to give a break to students, then all one need do is have his or her school certify enrollment, just as employers certify employment when they file annual wage reports.

Restoring the law that made small amounts of dividend and interest income free of tax would simplify tax filing for millions while encouraging more savings. Before 1980 a couple could collect $400—that’s more
than $1,100 in 2012 dollars—in dividends tax-free and the exemption on interest continued until 1986. Only 43 percent of taxpayers had any interest income in 2008; just 22 percent got dividends.

Exempting the first $1,000 of interest and dividends ($500 for singles) would both encourage people to save and simplify tax filing. A tax policy that encourages people to have savings that they can tap when things go wrong also reduces pressures for taxpayer-financed assistance.

Action Three

As for corporate taxes and the costly games played by most large companies, including the massive job-destroying actions of Pfizer under the American Jobs Creation Act, a simple basic reform will reduce the game playing.

As mentioned earlier, separate book and tax accounting should stop. The biggest difference between the two is accelerated depreciation, which means letting companies write off equipment faster for tax purposes. More than fifty years ago, the claim that this would increase economic growth was shown to be false, and study after study since then has verified it. Retaining the practice means you ultimately bear the cost of these loans through interest on the national debt, which robs money from your choice of lower taxes or more services. Requiring companies to pay taxes on their profits each year, with no deferrals, would plug a growing hole in your pocket.

Big business will fight this. The moguls and the business-friendly pundits will say it would be costly for business. But
you
have to pay your taxes immediately; why should big business be treated differently?

By requiring companies to pay taxes on profits as they report them, we would simplify the system, eliminate unproductive effort and reduce the need for government to borrow. That is where to focus the argument—it makes business more efficient, simplifies the tax system and treats companies the same as people by requiring taxes now, not later.

Action Four

The same solution—no more tax deferrals—should be applied to executives, movie stars, athletes and other very highly paid workers who can set aside unlimited amounts of money without paying taxes. Why should people who make more each year than you would make in ten lifetimes get to delay paying their taxes when you must pay yours on payday?

Congress should also require that existing deferrals be unwound, perhaps giving executives and others this choice: undo the deal immediately and pay your taxes in full or keep the deal on the condition that the entire contract is made public, with a plain-English explanation of the costs sent to every shareholder, every employee and every retiree on a company pension. Good deals will survive such scrutiny.

What Congress should not do is prevent executives and others from lending part or all of their paychecks to their businesses. Anyone should be free to lend money to anyone they want—provided they pay taxes on that money first.

The same antideferral principle should hold for hedge fund managers, the top twenty-five of whom collected an average of a billion dollars each in the recession year of 2009. Hedge fund managers also should have to pay taxes at the same rates as other people who get compensated for their services, not at the reduced rates for capital investments.

The only wage deferrals should be the modest sums Congress lets individuals put away for their old age in pension plans, 401(k) plans and individual retirement accounts, which are taxable when the money is withdrawn. An older self-employed worker may defer $55,000 of income annually, which is greater than the total amount most people have in their retirement accounts.

Action Five

One more reform would bring an end to rich people who live tax-free by borrowing against their assets, diminishing the amount of their fortune at death. Congress should count borrowing against untaxed assets as income. If you buy an asset—a stock, an apartment building, a painting—and sell it for a gain, you must pay taxes. By borrowing against the untaxed gain in the value of an asset, you can extract the value without paying taxes. Not fair.

Hedge fund managers with multibillion-dollar untaxed fortunes should not be allowed to borrow against untaxed assets and live on the borrowed money. Likewise people like the McCourts, the divorcing couple who owned the Los Angeles Dodgers, should not be able to borrow against assets to live on unless those assets have already been taxed. Once you have paid taxes on your assets then you can do what you want with them, but untaxed gains should not be available to dodge reporting income.

For stocks, mutual funds and bonds, this reform is easy because
Congress now requires brokerages to report the basis of these investments, a reform wrought partly after my reporting on this issue and the work of others, including Gerald Scorse, who pressed this issue with lawmakers. Like Scorse, you can affect the law if you work at it.

This reform would have the added virtue of producing data that will show just how large untaxed fortunes are in America. That is useful because it will help Americans understand the distribution of burdens and this simple fact: rich people have more wealth than they have reported income on their tax returns, while everyone else generally has more reported income than wealth.

MONEY AND POLITICS

The United States Supreme Court in 2010 reinforced its earlier decisions that giving money to politicians is a form of free speech. By way of reminder, in
Citizens United v. Federal Election Commission
, a case now generally known by the shorthand
Citizens United
, the court decided by a five to four vote that corporations could spend all the money they want to influence elections. The significance of this case—removing the relatively mild restrictions Congress and some states had placed on corporate giving in elections—can hardly be overstated.

I’ve said it before, but it bears repeating:
Citizens United
is to the expansion of corporate power what the big bang was to the singularity. It’s the whole universe.

The high court took a narrow issue and, in a remarkably brazen act of judicial activism by judges who assert their disdain for judges doing more than narrowly interpreting the law, the majority gave political rights to corporations. It is crucial to appreciate what this means in terms of giving a megaphone to the richest among us to drown out competing points of view. Compared to most individuals or even unions, corporations have unlimited resources (what once was called “big labor,” by the way, has shrunken to the degree that “little labor” might be a better name). The decision in
Citizens United
to allow corporations to spend unlimited sums to influence elections poses a grave threat not just to the economic well-being of Americans, but to the continuation of our democracy.

Corporations now have unlimited leeway to mislead, confuse and outright lie to win elections for those who will do their bidding or to stop ballot measures they oppose.

Today corporations are global, exist in perpetuity if they are well managed, and are given vast powers to do anything legal that makes money. Their size, power and scope would certainly shock and almost certainly offend the Framers.

The grant of “personhood” to corporations has had currency since 1886, although Congress never passed a law granting these rights, nor did Supreme Court justices ever vote on a decision (recall the discussion earlier of J. C. Bancroft Davis and the Southern Pacific Railroad; see
page 24
).

Before Davis’s bit of mischief, the word “person” was understood to mean that foreign visitors and immigrants not yet naturalized enjoyed the same legal protections as citizens. This is arguably the most egregious example of how big business has abused plain English in the fine print.

Action

Congress must act. If it does not, corporations will acquire even more power. However, since money is key to elections in our era, and corporations, thanks to their special advantages, have vast resources, fighting the expansion of corporate power will be much harder. For that we can thank the Supreme Court of Chief Justice John Roberts for giving corporations vast new rights. Keep in mind that Roberts has consistently been a good friend to corporations in his rulings, even as he says he abhors judicial activism.

Just as those who opposed official racism had to live with the 1857
Dred Scott
decision (
Dred Scott v. Sandford
) that slaves were not persons protected by the Constitution, and with the 1896
Plessey v. Ferguson
decision that legalized forced segregation, we must live with
Citizens
United
. Bad decisions eventually get overturned (
Dred Scott
by the Fourteenth Amendment in 1868 and
Plessey
by the unanimous 1954
Brown v. Board of Education
decision ending legal segregation). But to date, the 1886
Santa Clara
decision, a ruling by a court clerk rather than justices that affirmed that corporations were persons, still stands.

That ruling and
Citizens United
can be undone, perhaps by Congress, perhaps by a Supreme Court more respectful of the Founders’ intentions. Unfortunately, it will take time and, as we’ve seen with the so-called self-correcting markets of the Chicago School, the damage done in the meantime may be enormous.

SUPPLY AND DEMAND

Economies are like the human body: to get the best out of life, all the parts need to function properly. Certainly, one can survive without, say, feet or the ability to see; but so afflicted, you can’t run a foot race or maneuver through a maze. Quality of life, a full range of opportunities and the freedom to do as you wish are diminished with the loss of one or more functions.

Strong economies aren’t so different; full function requires the presence of a robust tension between supply and demand. When there is plentiful supply from many competing enterprises, and strong demand that is distributed widely enough to serve everyone, our nation can be healthy, as income and wealth flows through the economy. But bear down too long on part of the society, cutting off its flow of money, and an initial numbness will, if the pressure isn’t relieved, lead to atrophy and even death.

That is not an argument for distributing incomes and wealth equally. Your body does not require equal flows of blood to all parts. The discs in your spine that enable movement and the cornea through which you see the world require very little blood flow, while the brain requires a great deal.

Smart capitalists and the politicians their campaign contributions put into office might grasp how demand-side economics can make capital more valuable if they heeded this important observation from the middle of the nineteenth century:

Those words come not from Karl Marx, but from that most famous of Republican presidents, Abraham Lincoln. Lincoln spoke those words in his first State of the Union address in December 1861. He was talking in code about slavery, but his deeper point is that capital and labor exist in symbiosis, like the algae and fungi that make lichen, like the arterial and venous blood that sustain human life. If the veins that carry away carbon dioxide and other waste are smaller than those that bring oxygen and food, the body does not remain healthy. Indeed, pools of blood form and begin to rot, which if left untreated will kill the body.

When competitive markets are turned into monopolies and oligopolies, when lousy and slow services like our second-world Internet can command premium prices, when rules almost no one knows about vitiate consumer protections, economic growth is retarded. Right now our economic sickness is so severe that those stores of idle greenbacks piling up at the biggest businesses are rotting, just like lettuce left too long on the shelf. In 2008, the latest IRS data show, nonfinancial companies held a record $3.7 trillion of cash. That is close to $12,000 for every man, woman and child in America. It is a gross excess of money that has no place to be profitably invested and so it is not circulating.

We all pay a high price for this. Our economic competitors are gaining by following different policies. We face a future where we operate at a disadvantage. Consider the super low-cost telecommunications in France and Japan; the much lower cost of health care in every other industrialized country, which also does not burden small business with the costs and paperwork; the improving quality of infrastructure in Europe and Asia; and the growing investments in education and research being made in China and Europe.

We are being robbed blind by rules that the politically favored few have buried in the fine print. Just a penny a day per person is $1.1 billion a year; an unwarranted buck a day redistributes $113 billion upward to the politically connected few who write the contracts and get government to write the rules in their favor, all the while undoing the discipline of competitive markets.

Unless we fight back, the economic elite will continue to stuff their pockets, while weakening markets and stagnant-to-falling incomes for the vast majority damage the stability of our society. No one else will do this job. That is the whole idea of a democracy—people decide for themselves what kind of government—what kind of fine print—they want. They decide by their actions: whether to speak up, whether to organize, whether or not to vote.