In case you missed our recent podcast with Yves Smith of Naked Capitalism, the definition of extraction is taking money from others without adding to economic growth or improving quality of life. Our rigged tax system is just that — an system written by bought government officials that encourages extractionism in this country. Moreover, it’s hard to get off the extractionism train once you get on — and the people who brought you America’s incomprehensible tax code are having the ride of their lives!
We love to ask tough questions, so here’s one we should all start asking our elected officials: We desparately need to create 30 million jobs in America — so why do we have a tax policy that makes it more profitable to send money overseas and invest it overseas than it is to do the same here at home? How many jobs are we losing (or, not creating) every month with money that’s being invested abroad, rather than here in America?
Here’s the double whammy — we also have a banking system that incentivizes exactly the same thing: the removal of money from our nation for the personal benefit of the custodians of that money, who then use a portion of that to pay off our politicians to perpetuate the theft.
In this segment, we’re digging in on extraction of our economy via the tax system with two people who really know all the tricks Washington is playing when it comes to taxes — Reuters columnist and tax expert David Cay Johnston, and former federal banking regulator Prof. Bill Black.
So why aren’t we likely to see any meaningful tax reform anytime soon? As David explains Dylan, “no one is thinking this way… about how this is happening, because the people who have the ear of the White House are Wall Street people who make money through extractionism,” says David.
How does Wall Street even begin to justify the extractionism to the White House? “It’s the opposite of their narrative on everything else,” explains Bill. “On everything else, it’s exporting jobs from the United States – great thing! Business simply goes to where it’s most efficient. But — gasp! — we can’t lose the banking industry! It can’t go to the city of London! That would be a national catastrophe! And so it’s the race to the bottom with regulation,” says Bill.
“We have a tax policy that encourages people to put money outside the U.S. to invest it in ways that are not productive, because people are looking to get immediate, quick returns. So they’re buying financial products and speculation — and heavily using borrowed money to do that — rather than investing in things that take time to return. Ideas, factories, software development, things like that,” says David.
When it comes to the banks, Bill Black says “they’re saying invest in only those entities which are reporting the highest short-term profits. Well, the best way to report a high short-term profit is not to make a good product, it’s to cheat on taxes or use abusive tax provisions and reduce your costs massively in minutes,” says Bill.
David provided a good tax example on this. “When you and I pay our bill for electricity to a corporate-owned utility,” says John, “embedded in that is federal and state income taxes at the highest possible rate. Now, because of the way the tax law works, that money normally doesn’t get turned over to the government for years. So the company gets the value of it, and inflation erodes the value of it,” he explains.
But, here’s where it gets really bad. “You set up a holding company above that — you pay money up to the holding company, and it doesn’t pay taxes. And if you’re really smart, you’re Iberdrola in Spain or National Grid in Britain, you make use of European accounting rules that allow you to pay no taxes in the U.S. So you not only collect your excess profit as a monopoly, you get to keep the tax money on top of it!” says David.
Are there examples of other nations where you could reform tax or banking policy to incentivize long-term development? Were there any interventions in tax code history that were successful in attacking extraction?
“Let’s go to 1986, when people looked at what the 1981 tax changes had done, which were creating financial bubbles all over the place and driving investments into the least productive usage. The ’86 tax act, in a rare thing, cracked down on many of those most abusive shelters. It helped burst a bubble that was developing in Southwest real estate, at a point before it caused a great recession,” said Bill.
You can watch the entire segment here:
Want to learn more? You’re so dedicated — awesome! Check out our recent podcasts with Bill Black and David Cay Johnston here — they’re some of our favorites in recent months. Promise, you’ll learn something.
– Meg Robertson is a digital producer for DylanRatigan.com.