President Calvin Coolidge once said, “” the business of the American people is business”. He was quoted out of context at the time. His remarks were aimed at newspaper reporters who were inept at covering business news, but this intentional misquotation seemed to sum up his economic policies.
Today this misquote seems prophetic. Political leaders from both parties speak as if whatever benefits business benefits the people. State governments offer tax breaks and business friendly regulations to attract companies that might bring in more jobs. This is especially true in less wealthy states where poverty rates are high. President Lyndon Johnson’s “War on Poverty” has been transformed into pro-business politics and the promise of work for the worthy.
It is true that the poor need jobs, but the causes of poverty are more complex. There is little regard for other factors such as the need for quality daycare, health care access, job training or transportation. Journalists rarely asks politicians how they plan to help the poor. When they do, candidates talk about their plans to grow the economy. This has some become an acceptable answer.
The insurgent idea that serving business interests is the best way to fight poverty arguably arose in the mid 1970s when corporate interest groups were forming and the business lobby became a powerful influence on Congress. This was the high water mark of American unions as organized business groups launched campaigns to turn Congress and public opinion against them.
At the same time, these industry lobbying groups began fermenting hysteria over the growing “welfare state.” The poor were poor, they argued, because anti-poverty programs make people dependent on government handouts while government regulations restrict the ability of companies to create jobs for those willing to work. According to their narrative, government needed to spend more resources supporting commercial interests and deregulating markets. President Reagan road these pro-business, anti-union, anti-government sentiments to the White House in 1980.
The success of the pro-business movement is evident. In this past election Mitt Romney’s entire presidential campaign centered around the idea that business prosperity was key to growing jobs and the economy. The California Republican Party explicitly incorporates this thinking in their core beliefs:
“” each person is responsible for his or her own place in society. The Republican philosophy is based on limiting the intervention of government as a catalyst of individual prosperity” Republicans believe free enterprise has brought economic growth and innovations that have made this country great. Government should help stimulate a business environment where people are free to use their talents. “[California Rep Committee Philosophy http://cagop.org/inner.asp?z=585A]
In other words, it is the role of government to facilitate the business economy but each individual’s responsibility to avail themselves of the opportunities businesses provide.
The sufficiency of robust commerce to lift all boats isn’t just a conservative or partisan idea. It is expressed and pursued often by Democrats as well. In this last election even President Obama avoided talking about the poor by referring to them as “those aspiring to be middle class.” There was almost no mention by either party of how they would accomplish this beyond trying to grow the economy.
So how well is our pro-business politics working out for the poor? This should be an empirical question that can be tested by examining the data. Are business interests and the interests of the poor perfectly aligned? Are there points of departure where the needs of some folks cannot be met without compromising some business interests? Most importantly, does the data show that when businesses are doing well there are more jobs and better wages?
Profits, Employment and Wages
Corporate profits are a measure of how well businesses are doing, so conventional wisdom would say wages and employment should rise and fall commensurate with corporate profits. The hypothesis is that when companies do well there are more good paying jobs and therefore less poverty. Is there evidence to the contrary?
In June of 2012, the St. Louis Federal Reserve released data showing a number of economic indicators over the last 71 years. Using their report, the graph below plots corporate profits (CP) as a percentage of gross domestic product (GDP) from 1940 to 2011. GDP is total value of all the goods and services sold and a good measure our economy. The shaded areas represent periods of recession. This graph shows that corporate profits rebounded since the 2007 recession and are at the highest level since 1940. The recession is clearly over for corporate America.
Corporate Profits to GDP by St. Louis Federal Reserve
Does it therefore hold true that robust corporate profits mean more jobs? The next graph plots the number of employed Americans as a percentage of our population. This graph uses an employment per population percentage because the population doesn’t stop growing during recessions. A fair comparison over time has to incorporate population growth for the same reason dollar comparisons over time have to factor in inflation.
Civilian Employment to Population Ratios by St. Louis Federal Reserve
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This above graph shows that there are actually fewer people working today as a percentage of the population than at any time in the past thirty years. Last June, in an article related to this graphs, Business Insider magazine speculated that one reason corporations are so profitable is that they aren’t employing as many Americans.
Does it also hold true that robust corporate profits means better wages? The next graph depicts the total amount of U.S. wages paid as a percentage of the value of all goods and services sold (GDP). It shows that wages are at an all-time low relative to the wealth being generated. If jobless recoveries are one reason for record corporate profits, the decline in wages pictured in this next graph may be the other.
US Wages as a percentage of GDP by St. Louis Federal Reserve
It turns out that the null hypothesis is true. Corporate profits are at a record high, employment and wages are at a record lows and the notion that what is good for business is good for people is false. The stock markets have recovered. Corporate profits have recovered, but the financial well-being of families have declined. Median incomes are shrinking and prospects for the poor are increasingly dismal.
Are Measures of Business Competitiveness Compatible with the Interests of Individuals?
When considering what factors make businesses more competitive it’s best to take a broad global view. A global survey of business competitiveness was recently conducted and released by the World Economic Forum. The study on global business competitiveness ranks 144 nations according to indicators grouped in 12 general categories.
Overall, the United States is very competitive, ranking 7th out of 144 countries. When you drill down in some of the 12 categories, however, you find indicators favorable for business that are clearly at odds with worker interests. For example, In the area of “Labor Efficiency” the U.S. labor “redundancy” costs are low, which means it doesn’t cost as much here to fire employees. This makes us more competitive (12th place) on this measure. This variable includes the estimated costs of providing advance layoff notices, severance payments any penalties that other countries might impose on employers for terminating “redundant” workers. The U.S. may be more competitive in this measure, but is this factor good for individual workers? Does it reduce poverty?
The U.S. also did well (8th) when it comes to the ease of hiring and firing people. All of this makes for a “flexible” work force, which is good for business, but does it stabilize the workforce or encourage employers to try and weather out minor economic storms?
Are the states with the most competitive business environments doing better at lifting people out of poverty?
Every year for the past five years CNBC has scored all 50 states on 43 measures of business competitiveness. This survey was developed with input from business groups including the National Association of Manufacturers and the Council on Competitiveness. States receive points based on their rankings in each factor and the factors are organized into broader categories. I was unable to locate a detailed list of factors within each category, but CNBC has published general descriptions of each category. In the category of “Workforce” for instance, they indicate that the prevalence of unions in a state is a negative factor for business competitiveness, while lower costs of doing business is a positive factor. Among the factors creating low costs for doing business are lower tax rates and tax incentives or tax abatement for business. The general category findings for each state are published.
The hypothesis, again, is that when companies are doing well there are more good paying jobs and less poverty. So it follows that the states with the most competitive business environments should also be the states with the lowest rates of poverty.
To test this I used the CNBC business competitive findings to compare ten states with the highest poverty rates and ten states with the lowest poverty rates. The high poverty states, starting with the highest poverty rate, are Mississippi, Arkansas, Kentucky, Louisiana, New Mexico, West Firginia, Oklahoma, Texas, Alabama, and South Carolina. The ten states with the lowest rates of poverty, starting from the top, are New Hampshire, Mariland, Alaska, New Jersey, Hawaii, Connecticut, Wyoming, Utah, Minnesota and Massachusetts. The results of this analysis are found in the table below.
State poverty levels and business competitiveness by Self
Business Competitiveness Rankings are from CNBC’s Top States for Business Special Report:
It is striking that states with the highest poverty levels are also states that are more business competitive. The average rank in “Overall Business Competitiveness” for high poverty states is 7 points higher (more business friendly) than the rank for low poverty states. In the “cost of business” category, high poverty states have an average rank of 18 versus 37 for low poverty states. In the “workforce” category, which includes the prevalence of unions in a state, the high poverty states have an average rank of 20 versus 32 in low poverty states.
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Despite being “business friendly”, the ten high poverty states have over eight million poor citizens while the ten low poverty states have just over three million poor. There may be some political asymmetry as well since 7 out of 10 states with the high poverty rates have conservative Republican governors, while 6 out of 10 low poverty states have Democratic governors.
It is clear that pro-business politics, which puts commercial interests above the individual’s interests, isn’t working for the poor or for most Americans. While a healthy economy is necessary for individual prosperity, it is clearly not sufficient. What is best for business may be good for some, but not for all of our citizens. There are certain business interests at odds with individual interests. Our political leaders need to acknowledge this when making policy.
The total dominance of pro-business politics has successfully crowded out meaningful debate on how to help the poor, the ranks of whom are swelling every year. The poor are more marginalized and invisible than ever. Almost no one speaks for them. There is no hope for them in the more competitive business policies being proposed. In fact, business prosperity is no longer well correlated with job growth or adequate pay, so plans to grow the economy ring hollow. The social contact that once pegged wage increases with increased productivity is broken. As a result, big business can flourish while the welfare of workers and the poor decline. This is unacceptable.
The ascendance of pro-business politics has given rise to commerce without conscience and too many ordinary citizens are being left behind. We need to change the dialogue and strike a better balance. We need to reclaim the role that government must play in meeting the needs of all our people.
Have you ever heard of the Trans-Pacific Partnership Agreement?
This posting is not so much an article on the Trans-Pacific Partnership agreement being negotiated as it is a gateway to articles on the subject. It is important to learn about this subject because, as Dave Johnson wrote in OpEdNews, “You will be hearing a lot about the upcoming Trans-Pacific Partnership (TPP) agreement. TPP’s negotiations are being held in secret with details kept secret even from our Congress. But giant corporations are in the loop.”
I would like to suggest you watch the DemocracyNow video from last June (see below) to UNDERSTAND this pending trade agreement and why it is a really big deal. Note, however, that the video of an awards cerimony was actually an anti-TPP activist’s hoax.
Here is an excerpt from Public Citizens analysis of TPP: ” TPP is a “trade” agreement between several Pacific-rim countries that is actually about much more than just trade. It will be sold as a trade agreement (because everyone knows that “trade” is good) but much of it appears to be (from what we know) a corporate end-run around things We the People want to do to reign in the giant corporations — like Wall Street regulation, environmental regulation and corporate taxation. ” [Note: Once finalized, this trade agreement will remain open ended so that any other nations may sign on to it in the future.]
In the New Jersey Star Ledgers editorial, “A Level Field,” it is argued that it is time for online sellers to collect state sales tax. The principle concern is that New Jersey is losing out on tax revenue. But the issue is not that simple. There is the little matter of the interstate commerce clause in the US Constitution. In the case of Complete Auto Transit vs. Brady, U.S. Supreme Court said that collecting taxes on out-of-state sales is constitutional when:
1. The activity taxed has a substantial nexus with the taxing state
2. The tax is fairly apportioned
3. The tax does not discriminate against interstate commerce, and
4. The tax is fairly related to services the state provides the taxpayer
With this in mind, consider the example of a couple in New Jersey who goes online to the website of a California firm to buy a product made and shipped from New York State. Where is the point of sale? Which state can claim to have the most substantial nexus? In which state are the most taxpayer supported services provided as related to this sales ransaction?
These are questions for those drafting the Market Place Fairness Act to consider. If raising state revenue was the primary consideration, each state might decide to impose their own sales tax in the above example. This situation would discriminate against interstate commerce. More importantly, if raising state revenues is the issue then the obvious places to start would be the elimination of tax loop holes and sweetheart deals for businesses, elimination of the ridiculous tax loopholes for wealthy individuals, and maybe raising taxes on those who financially benefit the most in New Jersey. Sales taxes are already far too regressive and burdensome to the poor.
Rupert Murdoch, chairman and CEO of News Corp., and one of the richest men on the planet, recently claimed that free markets are morally superior to more social based ideas of morality and fairness. “We’ve won the efficiency argument,” he claimed. Now he hopes to persuade us that free markets are morally superior and that socialism fails because of its “denial of fundamental freedoms.” In Murdoch’s world the idea that market success is based on greed is a false characterization that creates confusion. He believe that markets succeeds where governments fail, not because of greed, but because people are given “… incentives to put their own wants and needs aside to address the wants and needs of others.”
It sounds great! But before you buy into this idea you should know he goes on to say, “To succeed, you have to produce something that other people are willing to pay for.”
Therein lies the rub. To succeed you must “produce.” For Murdoch, distributive justice is the natural outcome of these purely commercial transactions. He quotes Arthur Brooks at the American Enterprise Institute who defines fairness as, “… the universal opportunity to enjoy earned success”. The key words here being “earned success.” Accordingly, producers are entitled to all they earn because if their product wasn’t successful, consumers are free to not buy their product. This is a cruel argument to make in the face of an elderly person having to choose between buying food or medicine, of course. Nevertheless, in this view every sale in a free market system automatically results in a fair distribution of wealth. No other social factors should apply. In fact, to take from producers what they’ve earned to support the lives of less successful or non-producing human beings is immoral, in Murdoch’s view.
“What’s fair about taking money from people who’ve earned it and giving it to people who didn’t,” Murdoch asks.
But Murdoch’s whole notion, which closely mirrors that of Ayn Rand, ignores the whole complex social economy in which commerce and every other human activity actually takes place. It rejects the wisdom that markets only exist to serve societies needs. Markets are manmade entities and not a natural phenomenon, but Murdoch’s narrow view treats markets as natural entities that are morally superior to society. It limits the meaning of production to that which has a monetary exchange value. It assigns social value to the creators of products according to their market success, measured in material gain. It does not account for the material contributions of the public domain in making commerce and stable markets possible. Even though the monetary value of a product is co-dependent on a consumers’ willingness to pay, it does not assign any social value to the consumer. Only the source of a buyers money gives them any social status.
This leaves open the question of how, or even whether, to assign social value to those not immediately involved in commercial production. These folks include children, the disabled, the elderly, the unemployed, those who care for children, woman on maternity leave, all government employees, military personal, clergy, law enforcement, etc. Murdoch’s view begs the question; What is a person worth when their value to society cannot be directly measured by their market place success?
Murdoch’s views are shared by many of today’s corporate elite. It is the makers vs. takers mentality. It is a view that can only be described as anti-social at best, sociopathic at its extreme. It opposes all government interventions in the market place and opposes most government regulations. It is a philosophy designed to restricts the ability of ordinary citizens (i.e. government) to assure that our markets and commerce works for the good of society and not just for the benefit of the economically powerful. It implicitly confers ownership and control of the markets to the most powerful market makers while failing to acknowledge the corrupting effects of power on financially successful human beings. By denying the humanity of markets it denies the vulnerability of markets to human weaknesses. This puts society at risk and cripples humanity from solving some of the really big challenges we face as a species. How we chose to define distributive justice is arguably the most important economic question of our time. How we ultimately marshal our economic resources to solve our really big problems depends on how we ultimately organize our economy.
[Ruppert Murdoch's views as expressed can be found at the following URL: http://nation.foxnews.com/rupert-murdoch/2013/04/22/rupert-murdoch-op-ed-case-market-s-morality?utm_source=feedly&utm_medium=feed&utm_campaign=Feed%3A+FoxNation+(Fox+Nation)]
Beware America! The push is on for yet another round of self-serving corporate tax reform. A press release from the Business Roundtable announced the release of a new report touting the economic benefits of “revenue neutral” corporate and individual tax reforms. Below is a summary of the findings from the press release and a link to the report. But before you read it, consider what the real trend is in corporate tax revenues compared with what individuals contribute.
HERE IS THE TRUTH! Corporate tax rates do not reflect what corporations actually pay in income taxes, and the effective corporate tax rates, as well as the percentage of tax revenues they contribute have been in decline for decades.
Decline in Corporate Tax Burden Over 40 Years
The shift in the percentage of total taxes paid by individuals has grown substantially over the years. Individual income taxes raised 41% of the total income tax revenue in 1943 compared to 79% of total revenues today. And the shift in tax receipts from corporations to individuals cannot be explained by a shift away from C corporations (who pay the corporate income tax) to S corporations (who don’t). An analysis of that shift in corporation type is an insignificant contributor to the overall shift in the tax burden. [http://rdwolff.com/content/massive-shift-tax-burden-corporations-individuals-statistical-mirage ]
Shifting the tax burden from corporations to individuals over the past 40 years is yet another factor contributing to the current decline in domestic consumer spending. Wage suppression, the shifting of the tax burden from the rich to the middle class, coupled with the decline in the tax burden on corporations are all that is needed to explain the decline of America’s middle class, the rise in poverty and the growth of government spending in social support programs. The people are going broke, the government is going broke trying to prop us up and the rich are becoming richer and more powerful each year.
BUSINESS ROUNDTABLE RELEASES ECONOMIC CASE FOR CORPORATE TAX REFORM
Comprehensive Data Analysis Shows Tax Reform Would Ensure U.S. Competitiveness and Lead to U.S. Economic Growth
Key components of the Roundtable’s analysis include: [also known as "talking points"]
- U.S. Companies’ Fiercest Competitors Enjoy Lower Home-Country Tax Rates: It is well known that the U.S. combined (federal and state) statutory tax rate is the highest of any developed nation, averaging 39.1 percent. As the analysis points out in detail, American companies now find that their closest foreign competitors are based in countries with lower corporate tax rates and international tax systems more favorable to their global operations than the U.S. rules. Since 2000, 30 of the 34 Organisation for Economic Co-operation and Development (OECD) countries have reduced their corporate tax rate.
- High Rates are a Drag on the U.S. Economy: Researchers at Cornell and the University of London report that a one-percentage-point decrease in the average corporate tax rate would result in an increase in real U.S. GDP of between 0.4 to 0.6 percent within one year of the tax cut.
- Double Tax on Foreign Earned Income Hurts American Companies and U.S. Competitiveness: Within the OECD, of companies headquartered outside the United States, 93 percent of the world’s top 500 companies (based on Fortune’s 2012 list) are headquartered in countries that use “territorial” tax systems, where income earned abroad is not taxed again when earnings are repatriated, unlike under the current U.S. system. This is up from only 27 percent of the same countries utilizing territorial systems in 1995 – signaling a significant trend towards the more competitive method of taxation.
- Under current law, foreign earnings are effectively “locked out” of the United States: An estimated $1.7 trillion in accumulated foreign earnings was held by the foreign subsidiaries of American companies in 2011. If only half of that amount came back to the United States in response to enactment of a market-based territorial tax system, the funds freed up for use at home would exceed the increased government spending and tax relief provided under the 2009 American Recovery and Reinvestment Act.
- Effective U.S. Corporate Tax Rate 12+ Percentage Points Higher than OECD Countries: Data in the new document disproves claims of low “effective” rates (amount of tax paid after deductions) paid by U.S. corporations, citing a new World Bank study of corporate income taxes in 185 countries for 2013 that finds that tax payments are higher for companies operating in the United States as a percentage of income than the average of other OECD and non-OECD countries. In fact, the U.S. effective tax rate (ETR) of 27.6 percent is more than 12 percentage points higher than the average of other OECD countries and 11 percentage points higher than the average of non-OECD countries. The analysis also explains why using the ratio of corporate income tax to GDP is an improper measure of effective rates.
- U.S. Workers Bear the Burden of the Outdated U.S. Corporate Tax System: Corporate Tax Reform – The Time Is Now also analyzes a number of recent studies that find that workers bear between half and three-quarters of the burden of the corporate income tax. These findings suggest reducing the corporate income tax rate would provide benefits to workers through higher wages.
Since Reagan in 1980′s Tax Rates for the wealth were cut in half and capital gains tax (where most make their money) was cut in half again. http://j.mp/ZFFQHB
Wages and GDP rose together until wages were suppressed in the 70′s, otherwise median income today would be greater than $100K instead of $51K http://j.mp/14MoT67
A majority of American’s don’t make enough money to support a robust economy because a handful of us have more money than they can spend. http://j.mp/16E3zOT
Current US policy is creating permanent income inequality. Income mobility is shrinking as income caste system forms. http://t.co/nK5uFGyCaG
We know what victory looks like in Class Warfare. It’s the formation of an income caste system where birth determines your level of success. http://j.mp/Y1HwQP
Obama’s proposed raise in min. wage from $7.20 to $9/hr would mean a person working 40hr/week at min. wage would still be below poverty line. http://j.mp/10DwY7V
If the minimum wage was raised to $18/hour the Federal Government could eliminate almost all aid to the working poor, saving tons of money. http://j.mp/10DVrLn
Every tax dollar paid to assist the working poor is a tax subsidy providing their employer a federally funded labor discount. http://j.mp/16Bml7r
God! When are we going to wake up?