The Tax Scam We Know and the Tax Scam We Don't Know

Dean Baker

Dean Baker Co-Director, Author, Center for Economic and Policy Research

There has been much attention to the plan put forward by Republicans in Congress to cut individual and corporate income taxes. According to analysis done by independent sources, close to 80 percent of these cuts will go to the richest 1 percent of the population.

While this may seem unfair and unwarranted in an economy where the rich have seen the overwhelming majority of the gains from growth in the last four decades, we have been told not to worry because the boost to growth will make everyone winners. The average family has been promised an income gain of $4,000 a year and possibly as much as $9,000.

It is possible to construct economic theories where corporate tax cuts do produce large gains, but these theories clearly do not describe the world we live in. For example back in the mid-1980s, the US lowered the corporate tax rate from 46 percent to 35 percent. Rather than producing an investment boom, the late 1980s were the weakest non-recession period for investment in the post-World War II era.

The idea that investment is highly responsive to the after-tax rate of profit stands history on its head. The strongest period of investment in the last seven decades was the late 1970s when the profit rate was at its post-war low. By contrast, the near record profit rates seen in this recovery have coincided with mediocre levels of investment. It's difficult to believe that if we raised the rate of profit even further by cutting taxes, investment would somehow boom.

But this is the scam everyone knows. There is another potentially far more pernicious scam currently in process. Any tax cut will have to go through Congress with representatives and senators having to cast a vote that in principle they can be held accountable for. The other scam requires no vote; it is about Donald Trump appointing a crony tax avoider as temporary head of the Internal Revenue Service.

Last week, the Trump administration announced that it intends to make David Kautter as acting commissioner of the IRS on November 12, when the current director's term ends. The IRS's job is enforcing the tax code. Traditionally, IRS directors picked by presidents of both parties have had experience at the IRS, which would give them the necessary expertise to lead the agency.

Kauter has zero experience at the IRS and in tax enforcement. Instead, his experience is as the director of "National Tax" at E&Y, the huge accounting firm formerly known as Ernest & Young. Kauter's work there was in developing tax avoidance schemes, minimizing clients' tax liability. This division of EY was so vigilant at its efforts in avoiding taxes that it eventually had to pay $123 million to the government in order to avoid criminal prosecution.

This selection should concern people for a number of reasons. First, President Trump has claimed that his tax returns are being audited. If this is true, he is in effect being allowed to pick his own auditor, with no congressional oversight. Trump has virtually made a sport of flaunting the conflict of interest laws and norms that have governed the behavior of past presidents, but this is getting sufficiently extreme that it should even bother some Republicans.

Apart from Trump personally there is also the question of how prominent Republican donors will be treated by the acting IRS commissioner. One donor in particular stands out in this respect. The ultra-conservative billionaire, Robert Mercer, is in a dispute with the IRS potentially involving more than $7 billion in back taxes and penalties, stemming from the tax treatment of his hedge fund Renaissance Technologies LLC. Favorable treatment from Kauter can mean a huge windfall for Mr. Mercer, much of which is likely to come back to the Republican party in future contributions.

Mercer's case might be an extreme one, but there is a real risk that many other politically connected rich people will be allowed to avoid much or all of their tax liability. For the rich, paying taxes could become a voluntary contribution to the government rather than something they are required to do under threat of punishment.

That is a really huge deal. We can apply any tax rate we want to the rich, but it doesn't matter if no one is enforcing it. And that it is a real risk we face with allowing the Kauter appointment to go through.

There is no reason that Trump can't do what other presidents have done, nominate a commissioner and have them go through the Senate approval process. The alternative is to make a joke of the tax code at the expense of the people who can't afford expensive tax lawyers. This is a case of really swamping the drain, big-time. 

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Copyright, Truthout. Printed with permission from Truthout.

Dean Baker is author of the new book, “Plunder and Blunder: The Rise and Fall of the Bubble Economy,” PoliPoint Press, LLC. This piece was first published on the Center for Economic and Policy Research’s Jobs Byte. CEPR’s Jobs Byte is published each month upon release of the Bureau of Labor Statistics’ employment report. For more information or to subscribe by fax or email contact CEPR at 202-293-5380 ext. 102 or chinku@CEPR.net.

Posted In: Allied Approaches

Union Matters

Get to Know AFL-CIO's Affiliates: National Association of Letter Carriers

From the AFL-CIO

Next up in our series that takes a deeper look at each of our affiliates is the National Association of Letter Carriers.

Name of Union: National Association of Letter Carriers (NALC)

Mission: To unite fraternally all city letter carriers employed by the U.S. Postal Service for their mutual benefit; to obtain and secure rights as employees of the USPS and to strive at all times to promote the safety and the welfare of every member; to strive for the constant improvement of the Postal Service; and for other purposes. NALC is a single-craft union and is the sole collective-bargaining agent for city letter carriers.

Current Leadership of Union: Fredric V. Rolando serves as president of NALC, after being sworn in as the union's 18th president in 2009. Rolando began his career as a letter carrier in 1978 in South Miami before moving to Sarasota in 1984. He was elected president of Branch 2148 in 1988 and served in that role until 1999. In the ensuing years, he worked in various roles for NALC before winning his election as a national officer in 2002, when he was elected director of city delivery. In 2006, he won election as executive vice president. Rolando was re-elected as NALC president in 2010, 2014 and 2018.

Brian Renfroe serves as executive vice president, Lew Drass as vice president, Nicole Rhine as secretary-treasurer, Paul Barner as assistant secretary-treasurer, Christopher Jackson as director of city delivery, Manuel L. Peralta Jr. as director of safety and health, Dan Toth as director of retired members, Stephanie Stewart as director of the Health Benefit Plan and James W. “Jim” Yates as director of life insurance.

Number of Members: 291,000 active and retired letter carriers.

Members Work As: City letter carriers.

Industries Represented: The United States Postal Service.

History: In 1794, the first letter carriers were appointed by Congress as the implementation of the new U.S. Constitution was being put into effect. By the time of the Civil War, free delivery of city mail was established and letter carriers successfully concluded a campaign for the eight-hour workday in 1888. The next year, letter carriers came together in Milwaukee and the National Association of Letter Carriers was formed.

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