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Think Progress

May 7, 2009

by Faiz Shakir, Amanda Terkel, Satyam Khanna, Matt Corley, Benjamin Armbruster, Ali Frick, Ryan Powers, and Pat Garofalo

ECONOMY

Tax Havens And The Business Lobby

This week, President Obama announced "a major offensive against businesses and wealthy individuals who avoid U.S. taxes by parking cash overseas." The administration plans to prevent corporations from claiming tax deductions on overseas investments until they pay U.S. taxes on their profits. It also aims to reverse a Clinton-era rule known as "check the box," which allows companies to easily shift income into tax havens. "Even as most American citizens and businesses meet [their tax] responsibilities, there are others who are shirking theirs," Obama said. "And many are aided and abetted by a broken tax system, written by well-connected lobbyists on behalf of well-heeled interests and individuals." Indeed, the business lobby immediately cried foul over the proposed changes, claiming that they will harm corporations' competitiveness and "eliminate American jobs." "It is the wrong idea, at the wrong time for the wrong reasons," said John Castellani, the Business Roundtable president. "This is going to be the largest fight that the U.S. multinational community has this year and probably into next," added Kenneth Kies, a tax lobbyist who represents firms like Caterpillar, General Electric, and Microsoft.

THE NEED FOR TAX REFORM: America's current tax system is clearly in need of reform. The corporate taxes collected by the U.S., as a percentage of GDP, falls well below the Organization for Economic Cooperation and Development (OECD) average -- despite the fact that the U.S. has a higher statutory tax rate than most countries. Due to the myriad loopholes, shelters, and deductions that are available for corporations to take advantage of, one explanation of this is the corporate practice of deferring tax payment by stowing profits in low-tax countries like the Cayman Islands. By keeping this money offshore, corporations are able to significantly lower their effective tax rate -- in some cases by more than 20 points. General Electric, for instance, paid just 5.5 percent in taxes in 2008. In 2004, "U.S. multinationals paid an effective U.S. tax rate of just 2.3 percent on $700 billion in foreign profits." And according to U.S. PIRG, a $100 billion annual tax burden is shifted onto U.S.-based companies and taxpayers due to tax avoidance. Obama's proposed changes are reasonable measures that will bring the tax code closer to responsibly and fairly calculating income to be taxed.

THE BUSINESS LOBBY GEARS UP: Even before Obama formally announced his plan to reform the tax code, the business lobby was gearing up to fight the proposals. "This is bigger than 'card check,' bigger than cap-and-trade, and people don't realize it," said Kies. Groups including the Business Roundtable, the U.S. Chamber of Commerce, the National Association of Manufacturers, and the National Foreign Trade Council, "helped form a lobbying coalition called Protect America's Competitive Edge that is devoted specifically" to defeating the President's tax proposals, and their major claim is that businesses will move jobs overseas if the changes are enacted. Catherine Schultz, senior vice president for tax policy at the National Foreign Trade Council, said that she "has spoken with companies that are already weighing major changes in their business structures that could take operations abroad." However, the premise of Obama's plan is to encourage investments in the United States, instead of keeping it more cost-effective for companies to use tax havens. As Barrett Sheridan at Wealth of Nations wrote, "of the $103.1 billion raised by cutting down on tax arbitrage, $74.5 billion will go to making a permanent tax credit for companies that invest in R&D in the U.S. That hardly sounds like a plan that will damage U.S. growth prospects."

THE CRAM-DOWN EXAMPLE: Last week, business lobbyists and special interests showcased their influence by scuttling an important housing bill. Support for a cram-down provision -- which would have allowed bankruptcy judges to readjust mortgage payments for troubled homeowners -- evaporated in the face of furious lobbying by the banking and mortgage industries. The cram-down measure failed to pass the Senate by a vote of 45-51, even though it could have "prevented 20% of foreclosures at no cost to the taxpayers." Various banks and credit unions were involved in negotiations for weeks prior to the bill coming to a vote, yet different parties felt pressure to walk away from the table at one point or another. One business lobbyist bragged about the mess, saying that "chaos is good." As FireDogLake's Jane Hamsher found, "finance, insurance and real estate (FIRE) interests paid over $42 million to lobbyists who worked to defeat mortgage write-down in bankruptcy (cramdown) in the first quarter of 2009, as well as other anti-consumer legislation such as capping credit card interest rates." The campaign to defeat cram-down led Sen. Dick Durbin (D-IL) to say that "the banks -- hard to believe in a time when we're facing a banking crisis that many of the banks created -- are still the most powerful lobby on Capitol Hill. And they frankly own the place."

UNDER THE RADAR

HEALTH CARE -- GOVERNMENT ISSUES TWO REPORTS THAT HIGHLIGHT THE NEED TO ACT NOW ON HEALTH CARE REFORM: With health care reform a priority of the Obama administration and negotiations with legislators underway, two annual government studies released yesterday demonstrate further the dire state of the current health care system. One of the studies, the National Healthcare Disparities Report concluded, "We can and should do better." Indeed, the report found that there are "significant variations in quality between states and among procedures." Additionally the report found that while treatment for acute conditions such as heart attacks have improved in the last year, the rate of improvement in long-term care and preventative screenings for chronic conditions like cancer have dwindled. The second study, conducted by the Agency for Healthcare Research and Quality, found that out of the 38 patient safety measures tested, including "accidental lacerations and catheter-associated infections," only about half have been reduced this year. Additionally, "the agency concluded that one of every seven hospitalized adults on Medicare had experienced at least one adverse event" while receiving care. Discussing the reports' findings yesterday, Secretary of Health and Human Services Kathleen Sebelius announced that $50 million in federal stimulus grants will "help states combat infections associated with health care." As The Wonk Room's Igor Volsky has repeatedly written, the declining quality of health care in the U.S., and the rapidly increasing cost of that care, necessitates the urgency that the Obama administration is placing on health care reform.

ECONOMY -- REPORT: WALL STREET FIRMS DROVE SUBPRIME CRISIS: The Center for Public Integrity (CPI) released an extensive report yesterday detailing how Wall Street firms fueled the subprime lending that helped create the current economic crisis. CPI reported that "at least 21 of the top 25 subprime lenders were financed by banks that received bailout money -- through direct ownership, credit agreements, or huge purchases of loans for securitization." More importantly, CPI wrote, "increasingly, lenders were selling their loans to Wall Street, so they wouldn't be left holding the deed in the event of a foreclosure. In a financial version of hot potato, they could make bad loans and just pass them along." The Wonk Room's Pat Garofalo noted that the Wall Street firms would in turn "sell the loans to institutional investors, and use the money raised to buy more subprime loans, in a vicious cycle of buying, selling, and lending." This report paints quite a different picture than the one conservatives were trying to sell last fall, when they repeatedly claimed that the mortgage crisis was the fault of banks lending to minorities. As Fox News's Neil Cavuto said at the time, "loaning to minorities and risky folks is a disaster."

RADICAL RIGHT -- CHENEY EXPLAINS THAT HE'S SPEAKING OUT AGAINST OBAMA TO PROTECT THE 'LITTLE GUYS': Since leaving office, Vice President Cheney has launched unrelenting and baseless attacks on President Obama while vigorously defending the Bush administration. In an interview with the Weekly Standard's Stephen Hayes on Monday, Cheney explained why he has emerged as such a vocal Bush defender and Obama critic -- in contrast to President Bush, who says Obama "deserves my silence." Cheney said that when he was a member of Congress during the Iran-Contra investigations (of which he was a prominent critic), he saw firsthand senior administration officials absolving themselves while unfairly pinning blame on the "little guys." Because of this, Cheney said, he "sure as hell will" continue to speak out: "I went through the Iran-contra hearings and watched the way administration officials ran for cover and left the little guys out to dry. And I was bound and determined that wasn't going to happen this time. ... And this time around I'll do my damnedest to defend anybody out there," Cheney said. Cheney's defense of the "little guy," especially with regard to torture, is unusual. First, the Bush officials implicated in approving torture were hardly "little" -- they were the senior-most Bush administration officials, such as David Addington, Jay Bybee, and Alberto Gonzales. Second, after Abu Ghraib broke in 2004, Cheney and other top Bush officials systematically laid the blame for the abuses on low-level interrogators, the real little guys, in an attempt to exonerate senior officials. Yet as a recent Senate Armed Services Committee report observed, "The abuse of detainees in U.S. custody cannot simply be attributed to the actions of 'a few bad apples' acting on their own."


THINK FAST

The White House will announce a plan to cut 121 government programs amounting to a savings of $17 billion from the federal budget. Budget analysts predicted the cuts will be a tough sell. "Even if you got all of those things, it would be saving pennies, not dollars. And you're not going to begin to get all of them," said Brookings Institution economist Isabel Sawhill.

After Maine became the fifth state to legalize marriage equality yesterday, RNC chairman Michael Steele released this statement: "I believe that marriage should be between one man and one woman and strongly disagree with Maine's decision to legalize gay marriage." His comments put him at odds with Maine's two Republican senators, who believe the issue should be left up to the states.

Following a series of gay rights victories in the states, President Obama "is under pressure to engage on a variety of gay issues that are coming to the fore amid a dizzying pace of social, political, legal and legislative change." On Monday, some gay rights leaders met with top White House officials "to plot legislative strategy on the hate crimes bill as well as 'don't ask, don't tell.'"

A new poll from Hays Research in Anchorage, AK says Gov. Sarah Palin (R) now has 54 percent positive rating in her state. That's down from 86 percent a year ago and 59.8 percent on March 24.

"[T]he big bailouts for the banks may be over," as the results from the government's stress tests "so far seem to suggest that the 19 institutions that underwent these exams will need less than $100 billion in additional equity to cope with a deep recession, far less than some investors had feared."

Though Sen. Max Baucus (D-MT) has suggested limiting the tax break for employee health benefits -- which tend to skew to people with the highest incomes -- Rep. Charlie Rangel (D-NY) said there was "no way" he would agree with such a move. But as the New York Times notes, Rangel "did not suggest any specific way to finance coverage for more than 45 million people now uninsured."

Speaking to Marines in Afghanistan yesterday, Defense Secretary Robert Gates said that there are "no plans to deploy U.S. ground troops to Pakistan." As Gates put it, the troops don't have to "worry about going to Pakistan."

In an interview with the Washington Times, Senate Appropriations Committee Chair Daniel Inouye (D-HI) "vowed to restore funding President Obama requested to close the Guantanamo Bay prison camp." "It's going to be in the bill," Inouye said, adding, "Something like this should be resolved in the conference."

Rep. Jan Schakowsky (D-IL) sent a letter this week to Attorney General Eric Holder to "name a special prosecutor or an independent commission to investigate torture." Schakowsky wrote, "There is mounting evidence that the Bush Administration systematically implemented, from the top down, detainee interrogation policies that constitute torture or otherwise violate the law."

And finally: Yesterday, "America's Next Top Model" judge and photographer Nigel Barker interviewed Rep. Nita Lowey (D-NY) for a "documentary he's filming with the Elizabeth Glaser Pediatric AIDS Foundation." Before the interview, Lowey reportedly asked the crew "not to film her tennis shoes, which she feared weren't especially fashion-forward. But Barker disagreed, telling Lowey that 'they look like Prada.'" Barker later told Roll Call that the all-black shoes were "all the rage in Europe," and she could "bring the look to Congress."



GOOD NEWS

House Speaker Nancy Pelosi (D-CA) said yesterday that "she is charging forward on cap-and-trade legislation, despite the potential defections of Democrats."

BLOG WATCH

THINK PROGRESS: Karl Rove says President Obama can't "have a vetting mistake" with his Supreme Court nominee...even though President Bush had one with Harriet Miers.

WONK ROOM: The media buys what the health insurance industry is selling.

YGLESIAS: The cost of delay in addressing climate change.

SF STREETS BLOG: Fear is growing that Sen. Barbara Boxer (D-CA) won't deliver a progressive transportation act.

STATE WATCH

NEW HAMPSHIRE: The state House yesterday sent a marriage equality bill to Gov. John Lynch (R), who is undecided on a veto.

CALIFORNIA: The University of California is expected to raise undergraduate fees by 9.3 percent by next year.

MISSOURI: Some students are upset over former Attorney General John Ashcroft receiving an honorary degree from Truman State University on Saturday.

DAILY GRILL

"What we're trying to do here today is kick off a series of town hall forums so that we can get back to listening to the people. ...[It's] about listening to how we tap into the real challenges."
-- Rep. Eric Cantor (R-VA), 5/03/09, discussing the GOP's National Council for a New America

VERSUS

Q: So, let's start with Rush Limbaugh, who seems to be mocking the idea of a listening tour. What do you say to Rush?
CANTOR: You know...really, this -- this is not a listening tour.
-- Cantor, 5/06/09


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