Reclaim Democracy!

What We Can Learn About Corporations From the Man Who Sold Shares in Himself

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Mike Merrill

Wired.com recently published an article about Mike Merrill, a man who sold shares in himself in exchange for a cut of his future earnings and for the right to make decisions about his life — that is to say, the shares were voting shares.

The story recounts some entertaining/troubling consequences. For example, when Merrill brought the question of whether to have a vasectomy to his shareholders, his girlfriend became apoplectic. In another instance, one of the biggest shareholders, who didn’t know Merrill personally, successfully pushed him to try a regimented and inconvenient polyphasic sleep schedule. His girlfriend objected, but Merrill felt beholden to his shareholders and carried on anyway. She left him.

The piece’s point (if there is one other than amusement) apparently is to reveal what works for companies doesn’t necessarily work for individuals. But reading it, I was struck by the opposite thought: the problems of Merrill’s system are identical to the problems of real publicly traded companies.

Shareholder interests regularly differ from the interests of employees, customers, and other stakeholders (Merrill’s girlfriend, by analogy here), and shareholders often prevail. The presence of absentee owners creates another conflict of interest (on top of conflicts between management and employees), upping the chance that someone – usually the (relatively powerless) employees, customers, or the public – will get screwed.

This dynamic is so dominant that these latter groups are, in general, permanently, systemically and ubiquitously screwed across the US, which, some argue, is the core reason for our country’s dramatic inequality.

The only difference between public corporations and Mike Merrill is that we’ve come to accept the consequences of absentee ownership as “normal” in the context of publicly traded companies, so we’re blind to their pathologies. When the same thing happens in an unusual context, it’s easy to see what’s wrong with it.

Any dysfunction can seem perfectly normal if we’re sufficiently used to it. But that doesn’t mean the world wouldn’t be a much better place if we woke up to the problem and fixed it.

By Nick Bentley
Organizer, Reclaim Democracy

Too Big to Fail is Too Big to Prosecute? Increasingly, Legislators Think Not

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the death star was also too big to fail

By Matt Taibbi
Originally published in Rolling Stone, April 3, 2013

First, a quick housekeeping note: About a month ago, I got a call out of the blue from Vermont Senator Bernie Sanders, who’s one of my favorite people and something of a political hero of mine. Bernie helped me many years ago, back when he was still a congressman, by letting me tag along for weeks for a story about how the House works that ultimately was called “Four Amendments and a Funeral” – an experience that taught me an enormous amount about how our government operates, and also in a weird way left me less cynical, as it showed there were still plenty of avenues where a determined individual could work the system.

In any case, Bernie a month or so ago asked me to join him in Vermont for a pair of town meetings on Wall Street issues. It’s a tremendous honor and both events will be happening next Friday, one at the University of Vermont in the afternoon, the second in downtown Burlington in the evening. Entitled “Taking on Wall Street and the Big Banks,” Bernie and I will join in a public discussion about a lot of things, including the power of the 사설 토토사이트 financial sector and what can be done about it. It’s a very cool thing and I’m really looking forward to it – if you live in the area, please come by.

I mention this as a backdrop to some news I didn’t get a chance to post last week. Since part of the Sanders discussion is going to be about “What we can do about it,” it’s worth noting that at least as far as the Too Big to Fail issue is concerned, there’s been a bit of an interesting development of late – some momentum is building in Washington toward reforming the banks.

Start with the most recent news: last week, Sanders announced plans to introduce an interesting new bill, one that’s a direct response to comments made recently by the likes of Eric Holder about the difficulty in prosecuting big banks. Holder said some institutions have grown so large that prosecuting its executives may have a “negative impact on the national economy, perhaps even the world economy.”

This was an extraordinary statement to come out of the mouth of the Attorney General – essentially announcing in advance a disinclination to prosecute a whole class of people. It’s Minority Report in reverse – pre-noncrime. What was even more bizarre was that this wasn’t an inadvertent comment or a slip of the tongue, it was absolutely consistent with comments made by other DOJ officials late last year after the slap-on-the-wrist HSBC (money-laundering) and UBS (rate-fixing) settlements. Worse, after Holder and other prosecutorial pushovers like Lanny Breuer made these comments, there was utter silence from the White House, making it crystal clear that this is a coordinated policy.

What the Sanders bill would do is force Holder and the White House to actually spell out the policy. It would give Treasury Secretary Jack Lew 90 days to compile a list of all the financial institutions that they think are too big to prosecute. The list would include “any entity that has grown so large that its failure would have a catastrophic effect on the stability of either the financial system or the United States economy without substantial government assistance.”

But this isn’t an isolated thing. Bernie’s bill comes on the heels of a series of developments that, to me anyway, signal a shift in thinking on this issue on the Hill.

Back on February 20th, Bloomberg published a piece called “Why Should Taxpayers Give Big Banks $83 Billion a Year?” The piece cited new research (which backed up a previous study by Dean Baker and Travis McArthur a the Center for Economic and Policy Research) showing that the Too-Big-to-Fail status of certain big banks provides a massive silent subsidy. Because lenders know the government will never let companies like Chase or Goldman fail, they charge them less to borrow money. From the Bloomberg piece:

Lately, economists have tried to pin down exactly how much the subsidy lowers big banks’ borrowing costs. In one relatively thorough effort, two researchers – Kenichi Ueda of the International Monetary Fund and Beatrice Weder di Mauro of the University of Mainz – put the number at about 0.8 percentage point. The discount applies to all their liabilities, including bonds and customer deposits.

Apply that 0.8 percent advantage to America’s ten biggest banks, and you’re talking about an annual subsidy of about $83 billion. As the Bloomberg writers noted, that’s tantamount “to the government giving the banks about 3 cents of every tax dollar collected.”

Fast forward a few weeks. The Senate is in full budget-debate fury, with members pulling all-nighters and people on the Hill generally losing their minds. In the middle of all of this, Republican Senator David Vitter and Democrat Sherrod Brown – the same Senators who have been planning legislation to cap the size of banks, a revived version of the failed Brown-Kaufman amendment from the Dodd-Frank bill – offered a non-binding amendment to the budget that would direct the government to end the subsidies and advantages banks derive from the perception that they are Too Big to Fail.

The key word in this story is “non-binding,” but here’s the cool thing: the amendment passed unanimously. By a vote of 99-0, the entire Senate agreed, at least in principle, that the banks should not be getting that extra $83 billion a year.

Right after that, Oregon’s Jeff Merkley proposed a similar amendment, calling for the creation of a deficit-neutral reserve fund that would facilitate the prosecution of “Too Big to Jail” companies. The non-binding amendment, which basically piggybacked on the sentiment of the Vitter-Brown resolution, passed in a voice vote with, I understand, no opposition.

These symbolic votes came in the wake of other significant defections on this issue. For instance, eyebrows raised all over Wall Street toward the end of last year when Bill Dudley, the chief of the New York Fed, gave a speech sharply rebuking the TBTF banks.

The New York Fed, remember, helped create the TBTF problem, through the policies of its former chief Tim Geithner. The bailouts and Fed-brokered mergers (like the Bear-Chase deal, the Wells Fargo-Wachovia deal, etc.) that Geithner quarterbacked led to the creation of many of the super-sized companies we’re talking about now as problem firms.

Yet Dudley in this speech came out, if not swinging exactly, at least not with his arms wrapped in Geithner-esque fashion all the way around those firms:

I am going to focus my remarks today on what is popularly known as the “too big to fail” (TBTF) problem. In particular, should society tolerate a financial system in which certain financial institutions are deemed to be too big to fail? And, if not, then what should we do about it?

The answer to the first question is clearly “no.”

Dudley went on to lay out more specific problems. Most notably, the Fed had asked all of the TBTF companies to draw up “living wills,” i.e. plans for how they would unwind in the event of a bankruptcy or some other disaster. It seems the Fed was shocked when those “living wills” started trickling in – reading between the lines of Dudley’s speech, one guesses that the banks basically scribbled half-assed plans on napkins and dropped them through the Fed’s mail slot.

“This initial exercise,” Dudley announced, “has confirmed that we are a long way from the desired situation in which large complex firms could be allowed to go bankrupt without major disruptions to the financial system and large costs to society.”

All of this is part of an ongoing narrative in which more and more people in positions of power are being shocked to action by the apparent incorrigibility of the major banks. The Hey, blow me, fellas attitude that guys like Jamie Dimon keep bringing to the Hill and/or to regulatory meetings is starting to lose its charm, apparently.

On the Fed side, Dudley’s speech was just the latest in a succession of forceful statements by regional Fed chiefs about the TBTF problem, with the most well-publicized and articulate arguments coming from the Dallas Fed and its outspoken president, Richard Fisher.

On the Hill, the revival of the Brown-Kaufman amendment through the Brown-Vitter efforts was just one sign of a change in the weather. A January PBS Frontline special on Wall Street and the lack of prosecutions of major banks apparently infuriated members on both sides of the aisle. Particularly infuriating, apparently, were remarks by Lanny Breuer about the government being reluctant to prosecute for fear of upsetting the economy. Days after the program aired, Sherrod Brown and Iowa Republican Chuck Grassley sent a letter to Eric Holder demanding an explanation.

That set the stage for the non-binding resolutions in March, which in turn is followed by this Sanders bill, which is floating around in the Senate atmosphere alongside the Brown-Vitter concept.

A lot of people are skeptical that any of this is meaningful, but there was similar skepticism about the effort to secure a public audit of the Federal Reserve, which ultimately did take place thanks to a bipartisan coalition built by Sanders and Ron Paul. Although many Paul supporters were disappointed with the narrowed scope of the final legislation – the audit was one-time-only and only covered a brief period – it still did happen and it was a major victory, considering that members of Congress have been trying to put a leash on the Fed for years without much success (famed Texas congressman Wright Patman spent much of a long career trying in vain to force open the Fed’s kimono).

All of this, plus the recent hearings on Chase and the London Whale episode led by Carl Levin and John McCain, are just hints that more and more elected officials are a) genuinely freaked out by the potential disaster these companies could cause, and b) catching on to the fact that the public increasingly favors breaking these companies up. According to a recent Rasmussen poll, for instance, 50 percent of Americans favor breaking up Too Big to Fail banks (crucially, only 23 percent oppose; 27 percent were undecided). A HuffPo/YouGov poll from a few days ago showed similar sentiment.

What does that mean? At minimum, it means politicians will see an angle in talking about breaking up the big banks. The math on how that leads to real action always involves figuring out just how much the fear of offending a major fundraising and lobbying power will push elected officials off the track of following public sentiment. It takes more than a 50-23 poll to knock the U.S. Congress off the Wall Street teat.

It’s a testament to the silent power of the 1 percent lobby that it’s taken even this long for even the faint possibility of bank breakups to pop up on the horizon. But if you squint, you can see it now – just barely, but it’s there.

Death Star image courtesy of jeffisageek

Corporate Welfare Grows to $154 Billion even in Midst of Major Government Cuts

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The Embodiment of Corporate Welfare Himself - Mr. Moneybags

Editor’s Note: Even as the federal government executes major cutbacks, it’s giving huge subsidies in the form of tax breaks to industry, a fact legislators rarely acknowledge. The Boston Globe recently published a thorough and eye-popping report detailing the nature and extent of these breaks. We think it’s a must-read. 

By Pete Marovich
First published in the Boston Globe

WASHINGTON — Lobbying for special tax treatment produced a spectacular return for Whirlpool Corp., courtesy of Congress and those who pay the bills, the American taxpayers.

By investing just $1.8 million over two years in payments for Washington lobbyists, Whirlpool secured the renewal of lucrative energy tax credits for making high-efficiency appliances that it estimates will be worth a combined $120 million for 2012 and 2013. Such breaks have helped the company keep its total tax expenses below zero in recent years.

The return on that lobbying investment: about 6,700 percent.

These are the sort of returns that have attracted growing swarms of corporate tax lobbyists to the Capitol over the last decade — the sorts of payoffs typically reserved for gamblers and gold miners. Even as Congress says it is digging for every penny of savings, lobbyists are anything but sequestered; they are ratcheting up their efforts to protect and even increase their clients’ tax breaks.

‘It’s not about tax policy, it’s about benefiting the political class and the well-connected and the well-heeled in this country,’ Said Senator Tom Coburn of Oklahoma.

The Senate approved tax benefits for Whirlpool and a host of other corporations early on New Year’s Day, a couple of hours after the ball dropped over Times Square and champagne corks began popping. A smorgasbord of 43 business and energy tax breaks, collectively worth $67 billion this year, was packed into the emergency tax legislation that avoided the so-called “fiscal cliff.’’

In the days that followed, the tax handouts for business were barely mentioned as President Obama and members of Congress hailed the broader effects of the dramatic legislation, which prevented income tax increases on the middle class and raised top marginal tax rates for the wealthy.

Yet the generous breaks awarded to narrow sectors of the American business community are just as symptomatic of Washington dysfunction as the serial budget crises that have gripped the capital since 2011. Leaders of both parties have repeatedly declared their intention to make the corporate income tax code fairer by lowering rates and ending special breaks, while intense lobbying, ideological divides, and unending political fights on Capitol Hill block most progress.

The result: sweeping bipartisan tax reform of the sort negotiated in 1986 by Republican President Ronald Reagan and Democratic House Speaker Thomas P. “Tip’’ O’Neill Jr. is rated a long shot once again this year. In fact, the most visible signs of cross-party cooperation on corporate taxes are among regional groups of lawmakers who team up, out of parochial interest, to maintain special treatment for businesses in their home states.

In the absence of meaningful change, corporations like Whirlpool continue to pursue the exponential returns available from tax lobbying. The number of companies disclosing lobbying activity on tax issues rose 56 percent to 1,868 in 2012, up from 1,200 in 1998, according to data collected by the nonpartisan Center for Responsive Politics.

According to Biti Codes, Whirlpool had plenty of company on New Year’s, including multinational corporations with offshore investment earnings, Hollywood companies that shoot films in the United States, railroads that invest in track maintenance, sellers of energy produced by windmills and solar panels, and producers of electric motorcycles.

Their special treatment is a fraction of a broader constellation of what the federal Joint Committee on Taxation estimates will be $154 billion in special corporate tax breaks in 2013, contained in 135 individual provisions of the tax code.

Watchdogs and tax analysts denounce these favors as a hidden form of spending that amounts to corporate welfare. In essence, these “tax expenditures’’ are no different than mailing subsidy checks directly to companies to pad their bottom lines.

Congress reduced the number of tax breaks in 1986 as part of the broader reform package. The breaks steadily crept back, particularly in the last decade, as lawmakers heeded requests from advocacy groups and business lobbyists to lower taxes as a way of subsidizing particular industries.

“There’s a justification and rationale for virtually every one of these. They have their intellectual advocates, and they have their political advocates, and that’s how they get in the law,’’ said Lawrence F. O’Brien III, an influential lobbyist and a top campaign fund-raiser for Senate Democrats who represents financial industry clients and other interests.

Whirlpool has a powerful Michigan delegation behind it, including key committee chairmen of tax-writing and energy committees in the House. In response to questions from the Globe, the company said its special tax breaks led it to save “hundreds’’ of American jobs from the effects of the recession.

“Energy tax credits required that Whirlpool Corporation make significant investments in tooling and manufacturing to build highly energy-efficient products,’’ Jeff Noel, Whirlpool’s corporate vice president of communication, said in an e-mail. “If you look at our 101-year history, we have definitely paid our fair share of US federal income taxes.’’

But its federal income taxes have been minimal in recent years, thanks in large part to tax credits and deferrals, according to public filings. Its total income taxes — including foreign, federal, and state — were negative-$436 million in 2011, negative-$64 million in 2010, and negative-$61 million in 2009. It carries forward federal credits as “deferred tax assets’’ that it can use to lower future tax bills.

The renewed tax breaks granted by Congress in January, which were retroactive to the beginning of 2012, will not be recorded until Whirlpool pays its 2013 taxes. Because of the absence of that tax credit, and because of greater earnings and changes in foreign taxes, the company estimated its total 2012 tax expenses will be $133 million.

Whirlpool did not provide a specific number of jobs retained. The benefits were not sufficient to protect Whirlpool’s employees at a refrigerator manufacturing plant in Arkansas. Last summer, the company laid off more than 800 hourly workers, closed the factory, and moved manufacturing of those refrigerators to Mexico. It was part of an overall reduction of 5,000 in its workforce announced in 2011 in North America and Europe.

Congress “made a big mistake,’’ by authorizing hundreds of millions of dollars in tax credits for Whirlpool based on arguments that the company would retain domestic jobs, said Howard Carruth, a machine maintenance worker and union official who began work at the plant in 1969 and lost his job last year when the plant closed.

“They really hurt the economy around here,’’ he said. “I blame the corporate greed.’’

The closing also transformed Carruth from loyal to embittered customer: “We bought Whirlpool for our own house, for family and friends. If one of those goes out in my house right now, it will not be replaced by Whirlpool.’’

Many companies would probably pay much higher taxes — including Whirlpool — if Congress eliminated special breaks and lowered the income tax rate to 25 percent from the current 35 percent.

An extra benefit of winning government subsidies through the tax code: Recipients remain immune from spending cuts like the automatic “sequester’’ imposed on March 1.

Called the “tax extenders,’’ 43 credits, deferrals, and exceptions for general business and energy firms were lumped into the fiscal cliff legislation. The returns on lobbying investments companies realized when the Senate passed its fiscal cliff bill helps explain why Washington tax lobbyists remain in demand:

  • Multinational companies and banks, including General Electric, Citigroup, and Ford Motor Co., with investment earnings from overseas accounts won tax breaks collectively worth $11 billion — a return on their two-year lobbying investment of at least 8,200 percent, according to a Globe analysis of lobbying reports.
  • Hollywood production companies received a $430 million tax benefit for filming within the United States. As a result, companies like Walt Disney Co., Viacom, Sony, and Time Warner — with the help of the Motion Picture Association of America, chaired by former Connecticut senator Christopher J. Dodd — realized a return on their lobbying investment of about 860 percent.
  • Railroads lobbied on a broad array of issues, a portion of which yielded $331 million for two years’ worth of track maintenance tax credits. Return on investment: at least 260 percent.
  • Even at the low end of the economic scale the returns can be large. Two West Coast companies that manufacture electric motorcycles — Brammo Inc. of Oregon, and Zero Motorcycle Inc. of California — reported combined lobbying expenditures of $200,000 in 2011 and 2012. They won tax subsidies payable to the consumers who buy their products worth an estimated $7 million. The electric motorcycle market stands to receive a return on that investment of up to 3,500 percent.

Like each of the industries that won special treatment in the Jan. 1 “extenders’’ corporate tax measure, the electric motorcycle lobby argued that tax breaks would protect or create jobs. Electric motorcycle manufacturers only employ hundreds of workers now, said Jay Friedland, Zero Motorcycles vice president, but could employ thousands in the future.

“There are definitely provisions in the extenders that people scratch their heads at, but if your goal is to build a replacement for the pure oil economy, this is the kind of industry you want to make an investment on,’’ he said.

Measuring the rewards for lobbying on individual tax provisions is by nature imprecise, especially for large corporations that weigh in on dozens of issues. Companies file blanket disclosure reports that do not break down their lobbying expenditures by individual issue.

Publicly traded companies like Whirlpool with narrower lobbying agendas, and who publish their annual tax credit benefits in shareholder disclosure reports, are easier to track.

In addition to seeking tax breaks, corporate lobbyists also seek to protect favorable elements that are already baked into US tax policy. Private equity firms, for instance, fight each year to defend the tax treatment of “carried interest’’ payments for investment managers. Those payments are treated as a capital gain by the Internal Revenue Service, and thus taxed at a much lower rate, 20 percent in 2013, than the top income-tax rate of 39.6 percent.

The best-known example of a millionaire benefiting from “carried interest’’ tax treatment was Mitt Romney, the 2012 Republican presidential nominee, who reduced his individual tax rate to below 15 percent by applying the provision to his extensive Bain Capital profits.

The publicity surrounding Romney’s tax returns fueled an onslaught by critics. The private equity industry’s trade group and the nation’s largest firms spent close to $28 million on lobbying in 2011 and 2012, according to public records. So far, they have won — a benefit that the Obama administration has estimated is worth at least $1 billion over two years. The return on investment for maintaining the status quo on the carried-interest tax rate over two years was at least 3,500 percent.

The returns show how cheap it is, relatively speaking, to buy political influence.

“It’s an end run around policy, and that makes it very efficient,’’ said Raquel Meyer Alexander, a professor at Washington and Lee University in Virginia who has examined the investment returns on lobbying. “Firms that sit on the sidelines are going to lose out. Everyone else has lawyered up, lobbied up.’’

Critics lament that fiscal combat between Republicans and Democrats is preventing serious reform of the business tax code.

“What we’re doing is running a Soviet-style, five-year industrial plan for those industries that are clever enough in their lobbying to ask all of us to subsidize their business profits,’’ said Edward D. Kleinbard, a former chief of staff at the Joint Committee on Taxation and now a law professor at the University of Southern California.

“These are perfect examples of Congress putting its thumb on the scale of the free market,’’ he said. “I’ll be damned if I know why I should be subsidizing Whirlpool.’’

Congress has the opportunity every two years to stop doling out a good portion of these favors. A peculiarity of many special tax breaks is that Congress places “sunset’’ provisions on them.

Some observers say passing temporary tax breaks gives lawmakers an ongoing source of campaign funds — from companies that are constantly trying to curry favor to get their tax credits renewed. Others say it’s because making these tax rates permanent would require a 10-year accounting method — a step that would show how much each provision is truly costing taxpayers.

Whatever the reason, Congress has made many of them quasi-permanent, by simply extending them again and again.

“It’s the same cowardice that Congress has on everything. They don’t want to be truthful about what they are doing,’’ said Senator Tom Coburn, an Oklahoma Republican and persistent critic of government waste and special deals in the tax code.

Coburn voted against the raft of “extenders’’ when they were previewed and approved by the Senate Finance Committee at a hearing in August 2012. He offered amendments to strip individual tax breaks out of the package — including the high-efficiency appliance tax credit for Whirlpool and GE — but they were shot down by the majority Democrats on the committee, led by chairman Max Baucus, of Montana.

“It’s not about tax policy, it’s about benefiting the political class and the well-connected and the well-heeled in this country,’’ Coburn said in an interview. “We’re benefiting the politicians because they get credit for it. And we are benefiting those who can afford to have greater access than somebody else.’’

Whirlpool pursues its Capitol Hill agenda from an office suite it shares on the seventh floor of a building on Pennsylvania Avenue that is loaded with similar lobbying shops and sits just a few blocks from the Capitol. Across the street, lines of tourists wait to view the original Declaration of Independence and the Constitution at the National Archives.

Whirlpool and other appliance manufacturers won tax breaks for producing high-efficiency washing machines, dishwashers, and refrigerators in 2005, as part of a sweeping package of energy incentives approved by the Republican-controlled Congress.

But that victory was just the beginning of a prolonged effort. Whirlpool and other appliance manufacturers must perpetually work to win renewal of their credits every two years or so. In recent years, the company has spent around $1 million annually on lobbying, up from just $110,000 in 2005.

The fiscal cliff legislation represented the third time the appliance tax credits were included in a tax extenders bill.

Defending the credits has become easier, said a person who has participated in Whirlpool’s lobbying efforts. The extenders, this person explained, is an interlocking package of deals, each with a particular senator or representative demanding its inclusion.

“Some of it is the inherent stickiness of something that is already in the tax code,’’ said the person, who was not authorized to speak about Whirlpool’s efforts and requested anonymity. “If they open Pandora’s box and start taking things out, it’s politically very difficult.’’

The paradoxical posture of senators of both parties was on full display at the hearing last summer of the Senate Finance Committee to consider the most recent package of tax extenders. Some members lamented the system of doling out tax breaks, pledging to reform the corporate code, even as they defended individual items in the legislation and voted to approve it.

The senators said they wanted to provide stability and predictability for businesses that had come to rely on the temporary provisions to stay afloat and retain workers.

They did make an effort to trim the package: Some 20 provisions were left on the cutting room floor, according to data cited in committee. The panel ultimately approved the bill with a bipartisan, 19-to-5 majority.

Senator Debbie Stabenow, a Democrat from Michigan, went to bat for Whirlpool and other companies who she said are creating next-generation appliances that save water and electricity.

“We have one of those major world headquarters in Michigan — and it’s amazing what they are doing,’’ she said. “Right now, we are exporting product, not jobs,’’ she added, without mentioning Whirlpool’s Arkansas plant closure last year.

Former senator John F. Kerry, another member of the committee, said certain industry sectors need temporary tax subsidies. Oil and gas companies, Kerry explained, benefit from permanent tax breaks in the law, while the wind, solar, and other alternative energy interests are forced to come to Congress “hat in hand’’ every two years.

Coming “hat in hand’’ in this context means deploying teams of lobbyists, mostly former Capitol Hill aides. They left their government jobs with an understanding of the tax code and, working in the private sector, are able to leverage their political connections to gain access to congressional leaders and staff.

Among the busiest and most influential of these tax-lobbying teams is Capitol Tax Partners, a firm headed by Lindsay Hooper, and his partner, Jonathan Talisman. Hooper served as a tax counsel to a senior Republican on the Senate Finance Committee in the 1980s. Talisman held the post of assistant treasury secretary for tax policy during the Clinton administration. They did not respond to requests for comment.

Capitol Tax Partners lobbied on behalf of 48 companies in 2012, according to its mandatory disclosure reports. That client roster includes a bunch of companies that won tax breaks in the fiscal cliff bill: Whirlpool (energy-efficiency tax credits), State Street Bank (tax treatment of offshore investment income), and the Motion Picture Association of America (tax breaks for domestic film production), to name a few.

In Whirlpool’s case, Capitol Tax Partners and other boutique tax lobbyists helped the company win access to key lawmakers, said the person who has participated in the company’s lobbying efforts.

“There is a certain amount of door-opening and phone-call-answering quality of some of these firms that can be useful to make sure that you are getting your message to the right person at the right point in time,’’ the person said. “But on the substantive issues, these were done by the energy-efficiency advocacy groups and the companies themselves.’’

After the Senate Finance Committee approved the tax extenders package last summer, it remained uncertain when it would materialize on the Senate floor for a final vote. Insiders kept their eyes peeled as the rancorous debate over the fiscal cliff — whether taxes would rise on the middle class wealthy — drowned out any voices discussing corporate tax reform.

Nothing was certain, until majority Democrats rolled out their bill on New Year’s Eve. With tax increases for the rich included, it would raise $27 billion in new revenue in 2013. The Obama administration trumped that figure as helping to reduce the deficit.

But in reality, any gain from taxing the rich was easily eclipsed by waves of tax cuts in the bill — including the $67 billion in the corporate tax breaks that had been resurrected at the last minute and voted on early on Jan. 1.

“They finally do it, and the extenders were bigger than the tax increases on the rich,’’ said Robert McIntyre, director of the advocacy group Citizens for Tax Justice. “Wow. What was this fight about?’’

See also:

Book Review: Owning Our Future

by

Marjorie Kelly, Being Amazing
Author Marjorie Kelly

Background — The Divine Right of Capital

The biggest problems often seem less like problems and more like unavoidable features of reality – their permanence and ubiquity make them sort of blend into the background. For example, Europeans once took for granted that Kings ruled by Divine Right. It was such a longstanding tradition, few people questioned it.

Marjorie Kelly, founder of Business Ethics magazine and a fellow at the Tellus Institute, has argued for more than a decade that we face another problem of this kind: ownership of corporations – specifically, the cultural norms and laws determining who owns what and what responsibilities and privileges come with that ownership.

In her 2003 book, The Divine Right of Capital, Kelly argued that modern ownership structures are expressions of old feudal ideas about the rights and privileges of ownership. She argues these old ideas are not only long-outmoded but also directly contradict some of our most central cultural values.

Consider the most basic calculation in corporate accounting: profit. Profit equals revenue minus costs. Thanks both to longstanding corporate cultural norms and court decisions like the Supreme Court’s Dodge v. Ford Motor Company, corporations feel obligated to maximize profit for their shareholders, which means maximizing revenue and minimizing costs. It sounds benign until we consider that costs include the salaries of every person doing the actual work of the company. Meanwhile, most shareholders are “absentee owners” who don’t interact with the company except to collect dividends (and raise hackles when they believe a company is too generous with workers).

The example above illustrates that “profit” isn’t just a value-neutral accounting tool. It expresses a judgement about who should receive the fruits of labor.

So companies generally shift as much of the reward of work from workers (top executives a notable exception) and shareholders as possible. What have shareholders done for this privilege? They’ve taken a risk, by handing over money without knowing if they’ll get it back.

The net effect is we’ve systemically promoted gambling at the expense of work.

I read The Divine Right of Capital months ago and had that rare and precious experience of having my brain spun around inside my skull. Despite initial skepticism, Kelly won me over.

Owning Our Future

If the Divine Right of Capital has a shortcoming, it’s that it provided diagnosis only; no cure was offered.

Nonetheless, a decade later, Kelly wrote Owning Our Future, and while it doesn’t provide anything like a comprehensive corrective (Kelly admits this in the book’s prologue) it’s an exploration of possible ways forward and a great conversation starter.

In recent years, an alternative ownership culture has blossomed around the edges of mainstream capitalism. We see it in the proliferation of coops, social businesses of various kinds, and employee-owned businesses.

The recent upward trend in job postings containing the phrase "social business" reflects the growing popularity of such enterprises.
The recent upward trend in job postings containing the phrase “social business” reflects the growing popularity of such enterprises.

Kelly argues these new models provide clues regarding how ownership structures might evolve for the healthier. Owning Our Future is a kind of survey of the different ownership structures emerging from this movement, including discussions of their strengths and weaknesses, and speculation about their potential impact on our world

To convey the fundamental difference between mainstream ownership models and the alternatives she discusses, Kelly draws a distinction between What she calls “Extractive” ownership models, and “Generative” models.

The goal of extractive models are to “maximize financial gain and minimize financial risks.” Kelly argues there are several problems with the extractive model. As just one example, if a company is obligated to maximize profit, it’s incentivized to leave some things off of balance sheets and contracts.

For example, let’s say a new coal plant raises the incidence of lung cancer in nearby residents. But the contracts to build the plant don’t acknowledge the existence of such costs, to say nothing of specifying who is to bear them, and the residents themselves aren’t acknowledged as stakeholders in the transaction.

As a result, residents and the local health system bear a brutal cost resulting from a transaction in which they had no say. Current corporate structures provide no adequate institutional mechanisms for sorting out the resulting messes, or better, preventing them in the first place. To the extent they get sorted out at all, they tend to involve dogfights in which burned citizens go to war with the companies involved. It’s antagonistic, trust-destroying, and often fails to solve anything.

This happens not because company managers are evil, but because our cultural and legal institutions tell those of us who work in corporations that our obligation is to the absentee owners (shareholders), even if it conflicts with our own interests or those of others.

Generative Models, on the other hand, take as their mission some notion of service to community. This is an old, time-honored idea, as Kelly acknowledges: “It’s what the butcher, the baker and the candlestick maker have always done – serve the community as a way to make a living.” In these models, profit is a part of the mission but only as a means to the more central end of community service. Interestingly, experts from various UK betting sites have noted that this approach can also be seen in businesses aiming to create a more sustainable and ethical betting environment, where user satisfaction and community well-being are prioritized alongside profit.

Although the idea is old, Kelly argues it can be and is being implemented not just by the one-employee shop down the street, but by big companies in complex, modern economies. She cites the John Lewis Partnership, owner of one of the largest retail chains in Great Britain. The company is profitable, owned entirely by employees, more democratic than any public U.S. corporation I know of, and its central mission is employee happiness, not profit. It has thrived through decades of disruptive economic change.

Kelly’s conception of generative design goes considerably beyond what I’ve mentioned here – she describes at length five core design principles behind the idea.

Although she argues forcefully for the virtues of generative models, she’s silent on the matter of how we might promote their proliferation. I wish she weren’t, because it’s not clear how her alternatives will displace the entrenched economic forces with sufficient speed and scale.

Another quibble is her discussion of stakeholders. One core principle of generative models is that companies must take account of stakeholder-interest. What she doesn’t much discuss is the exceptional difficulty in defining who is and isn’t a stakeholder. Certain global problems, like climate change, illustrate that, to some extent, every person on Earth is a stakeholder in every company on Earth. How do you take that into account in building a company?

Nonetheless, I loved Owning Our Future. Its umbrella message is that the concept of ownership is not, never has been, and should never be static. Ownership has conferred different rights and responsibilities in different times and places, and our notions of ownership can and will change in the future. Whether they will change for the better or worse depends on how attentive the American electorate is to the issue. Kelly’s book can go a long way toward focusing that attention.

For those interested, I recommend reading Kelly’s earlier book The Divine Right of Capital. It’s aged little and helps bring to light background assumptions most of us aren’t aware we hold. Recognizing those assumptions provides a sound foundation for fully appreciating Owning Our Future.

By Nick Bentley
Organizer, Reclaim Democracy

NY Times Rails Against Fake Drugs, but Ignores the Role of Corporate Power in Creating the Demand

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by Reclaim Democracy staff
December 3, 2012

a victim of fake drugs? Among the many awful consequences of  many essential pharmaceuticals being priced beyond the reach of those who need them is the proliferation of fake drugs. While some counterfeit drugs are  manufactured by unauthorized producers and simply flout patent law, less scrupulous people are making pills or serums with no active ingredients or even toxic substances.

It’s a deadly problem in need of solutions, so it’s unsurprising the New York Times devoted a recent editorial to “The Problem of Fake and Useless Drugs.”But while the Times editors called for several sensible measures, they did readers a huge disservice by neglecting to mention the primary reason why fake drugs are so prevalent: federal actions that ban market competition, creating artificially high prices that are unaffordable to many who need them.

First, our patent laws grant pharmaceutical corporations long monopolies on essential drugs — even though a majority of the most medically-significant drugs derive from taxpayer-funded research (a situation we described a decade ago, but continues today). These exclusive patents enable companies to charge prices unrelated to costs of research and development or production. *

Further, pharmaceutical corporations routinely employ legal manipulations, illicit non-compete agreements and other tactics to further extend patent monopolies and block production of generic competitors that lower prices.

To make matters worse, federal laws ban importation of drugs or even re-importation of genuine drugs manufactured here. Under the guise of protecting consumers from counterfeit drugs, such laws enable gouging that forces us to regularly pay double or triple the price people pay for identical drugs in other nations, driving the demand for cheap counterfeits.

Of course, when privately-funded research yields an important new drug, the creators should be able to reap significant rewards in order to create strong incentives for real research and development. The trouble is, our present patent system rewards political power above innovation.

And when drugs are developed with publicly-funded research, we should contract private companies to produce them at a fair profit, not give away rights to valuable public property.

We’ve been thrilled to see the Times editors call for amending the Constitution twice in recent months to revoke the runaway political power of corporations, in recent months. This excessive power over agencies that purportedly serve the public underlies the tragedy of fraudulent drugs and the lives they claim.

The  arguments by the NY Times editors, and those made by all who call to revoke corporate personhood, will possess more power if they make such real-life impacts clear.

* See, for example, the current controversy over the AIDS drug Norvir.

Sources for further reading on this topic:

image courtesy bayat

Win for environmental law, loss for Walmart

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By Will Evans
First Published Nov. 16, 2012, in California Watch

A California appellate court has dealt a blow to Walmart’s strategy of using petition drives to push through approval of new superstores while avoiding California’s environmental law.

In a cookie-cutter pattern documented by California Watch, the mega-retailer bankrolled local signature-gathering efforts to build superstores or repeal restrictions on big-box stores in five California cities last year. Once 15 percent of local voters signed the petitions, city councils had to either approve the projects or hold a special election, which can be costly. Wal-Mart then urged cities to approve the petition rather than send it to voters, angering some officials who felt bullied.

Wal-Mart has said the strategy is necessary to avoid politically motivated lawsuits under the California Environmental Quality Act.

Voter-approved ballot measures that stem from petitions are exempt from environmental review and protected from CEQA lawsuits. Wal-Mart argued that when a city approves one of its petitions without an election, the project would be protected, too.

But in a strongly worded opinion, a three-judge appellate panel ruled late last month that the landmark environmental law still applies.

“The legal issue is important and calls for speedy resolution,” the opinion stated. “Developers’ strategy of obtaining project approvals without environmental review and without elections threatens both to defeat CEQA’s important statutory objectives and to subvert the constitutional goals of the initiative process.”

The Fresno-based 5th District Court of Appeal disagreed with a 2004 ruling by a different appellate court, setting up the possibility that the issue will ultimately be resolved by the California Supreme Court. Since the company carbon offsetting is being regularly tracked by the professionals from carbon click, this issue  will resolved in no time

The Fresno court held that a petition signed by 15 percent of a city’s voters doesn’t carry the same power as a majority-approved ballot initiative. “To hold otherwise would authorize rule by a few – the antithesis of democracy,” it said.

The case centers on a Wal-Mart expansion project in the small Gold Country city of Sonora. Attorneys who often target Wal-Mart with environmental lawsuits have sued over its use of the initiative process there, as well as in the San Bernardino County town of Apple Valley and the Silicon Valley suburb of Milpitas.

The city of Sonora argued in court filings that its citizens supported the proposed superstore so there was no point in holding an election. Wal-Mart argued that it would be unfair to “force city councils to incur unnecessary and unwanted expenses to hold elections.”

The city’s and company’s positions reveal “their failure to appreciate the importance of elections in the initiative process,” the court stated. “The results of an election represent the will of the people. A petition signed by 15 percent of the voters does not.”

The legal battle slowing down Wal-Mart’s expansion frustrates Sonora Mayor Hank Russell.

“These people just want to delay a process that should be part of a free market economy,” he said. “I don’t think it’s the city’s role to decide who can compete.”

Wal-Mart spokeswoman Delia Garcia said the existing Sonora store “has served customers faithfully and made a positive impact on the local economy.”

“We are committed to providing customers the broadest selection of products to meet their family’s needs and will evaluate all options for moving forward,” Garcia wrote in an email.

The court’s ruling goes beyond Wal-Mart, said Brett Jolley, the attorney who brought the suit.

“The opinion closes what could have been a major loophole in the CEQA process which would have allowed the wealthiest developers … to avoid CEQA and public elections by utilizing the initiative process,” he wrote by email.

Jolley quoted California Watch’s story in his opening brief, but Wal-Mart objected, moving to strike that part of the petition. The judges decided that the reference to the article did not alter their conclusions and denied Wal-Mart’s motion.

San Diego-based lawyer Cory Briggs, a longtime thorn in the side of Wal-Mart, said he would use the ruling to revive a similar lawsuit he is pursuing in Apple Valley. Briggs, who filed a friend-of-the-court brief in the Sonora case, heralded the decision as “a victory for the rule of law and for true majority rule.”

“Any developer who thinks that they’re going to buy their way to the ballot box is now going to have to do the work of actually persuading a majority of the voters,” said Briggs.

Wal-Mart has had mixed success at the ballot box. Voters in Inglewood shot down the company’s proposed superstore in 2004. But the residents of Menifee, in Riverside County, approved a Wal-Mart ballot initiative last year.

For more on this topic, see:

photo courtesy Brave New Films