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Friday, Sep. 14, 2012

Ruinous GOP tax fantasies

Special to The Japan Times

HONG KONG — Governor Mitt Romney wowed the party faithful in his acceptance speech as the Republican Party candidate to challenge President Barack Obama, but his speech contained a lot of disconnects, half-truths and dangerous fantasies, all of which could hasten the decline of the United States as the greatest superpower the world has ever known if Romney gets in to the White House and actually pursues his ambitions.

He promised that he would make America great again by getting government out of ordinary people's hair, reducing their taxes so that they could prosper and creating new jobs.

The most dangerous lie the Republicans are perpetrating is that the U.S. is overtaxed and that the only way for it to prosper is to reduce taxes. In fact, the evidence is that America is under-taxed and that the benefits of the lower taxes go to the rich and privileged, whose job creation efforts have been less than stellar.

Among the club of rich industrial nations, only Chile and Mexico have lower total tax revenues as a percentage of gross domestic product. Mexico's tax take was 17.4 percent of GDP, Chile's 18.4 percent, and the U.S.'s 24.1 percent in 2009, the last year for comparative figures for all 34 industrialized countries.

In GDP terms, U.S. tax revenues were half those of Denmark and Sweden, and much less than France, with 42.4 percent, Germany 37.3 percent or the United Kingdom, 34.3 percent. Before the recession, U.S. tax revenues were close to 28 percent, but still below other Group of Seven countries.

In a careful study of the comparative tax rates of the economically advanced countries in the current edition of Foreign Affairs, Andrea Louise Campbell notes three special features of the U.S. tax system: "very low taxes, little redistribution of income, and an extraordinarily complex tax code."

The biggest single difference between the U.S. and the rest of the industrialized world is that the U.S. does not have a value-added tax. U.S. tax receipts have remained little changed for the past 60 years, with federal tax revenues accounting for 18 percent of GDP and state and local taxes bringing in 8 to 10 percent.

Campbell notes: "As Republicans are quick to point out, the United States does have one of the highest statutory corporate tax rates in the developed world. Combining the federal and state levels, the top rate of these taxes is 39 percent, compared with an average of 36 percent across the G7 and 31 percent across the OECD (Organization for Economic Cooperation and Development)."

Republicans conveniently forget that appearances can be deceptive. Thanks to generous tax credits and breaks, the effective U.S. corporate tax rate is much lower. The U.S. Treasury Department calculated that between 2000 and 2005, the effective tax rate paid by businesses was just 13 percent, almost 3 percent below the rate in industrialized countries and the lowest among the G7.

Corporate tax as a source of federal revenues, says Campbell, "has plunged from 30 percent in the 1950s to 10 percent today." Confirmation of this came from recent earnings and tax payments of the 10 most profitable companies in the U.S. as compiled by NerdWallet Financial Markets, a blog site to "empower investors by providing unbiased and transparent access to financial markets information."

NerdWallets found that the top 10 corporate earners in the U.S. paid just 9 percent in U.S. federal taxes. Exxon Mobil, the biggest of them all, paid just 2 percent or $1.5 billion of its $73.3 billion pretax earnings, though it did shell out another $28.8 billion to foreign governments in countries where it operates.

The third and fourth biggest earners, Apple and Microsoft, paid 11 percent of their respective earnings of $34.2 billion and $28.1 billion to the U.S. government. Apple paid another $1.5 billion to other governments in the U.S. and to foreign governments, and Microsoft paid an additional $1.8 billion — all but $209 million to foreign governments.

The American tax burden has shifted from the corporation to the ordinary person as payroll taxes have risen for programs including social security and Medicare, and a majority of Americans today pay more in payroll taxes than in federal income taxes.

Individual income taxes still account for 42 percent of U.S. revenues, but thanks to recent tax reductions, really high-income households are paying "some of the lowest effective rates in the country's history," says Campbell, citing official figures that the top 1 percent of taxpayers paid just 23 percent of their income to Uncle Sam, a third less than they paid in 1980 on smaller incomes.

The super-rich, such as candidate Romney, who can shield much of their income as capital gains, pay closer to 13 percent. America's top 1 percent have done rather well, even in the recent recession: They account for about 20 percent of all income and 30 percent of all wealth. In Germany, the top 1 percent of earners account for 11 percent of total income, and in Japan, 9 percent of total income.

Inequality is growing and rampant. The left-leaning Institute for Policy Studies pointed out last month that "of last year's 100 highest-paid U.S. corporate chief executives, 25 took home more in CEO pay than their companies paid in income taxes. Step forward: Motorola Mobility (CEO pay, $47.2 million; federal income tax, zero); Ford Motor (CEO, $29.5 million; tax, $4 million refund); AT&T (CEO, $18.7 million; tax, $420 million refund); Boeing (CEO, $18.4 million; tax, $605 million refund); Citigroup (CEO, $14.9 million; tax, $144 million refund).

The yawning gap between what ordinary workers earn and the pay and perks of their chief executive officer has grown to a multiple of 350, and is rising. At retailer Abercrombie & Fitch, the boss earns 9,897 times more than his lowest paid; at Yum! Brands, owners of Pizza Hut, Taco Bell and other fast-food outlets, the CEO-to-worker pay ratio is 4,313.

It does not have to be this way. At Zions Bancorp, the highest-to lowest pay ratio is 27, and at Berkshire Hathaway, it is just 30.

American tax schedules are fraught with details and loopholes, and individuals and corporations spend close to $100 billion a year employing accountants to help sort out their returns and wriggle through the loopholes. Closing loopholes and making taxes more redistributive, as well as seeing that money is well spent on America's ailing infrastructure, education, health and welfare would be the best that a job-promoting president should seek.

But Romney's supposed budget policy wonk and running mate Paul Ryan is hellbent on grinding the noses of the poor, and offering those earning $1 million a fresh tax cut of $265,000. That is on top of the cuts offered under President George W. Bush. He wants to cut federal government spending to 16 percent of GDP by 2050, though how that will be possible with enhanced spending on defense is a mystery whose math he has not explained.

Conservative New York Times columnist David Brooks correctly criticized the attitude of the Republican ascendancy as "rampant hyperindividualism" by leaders who forget that individuals are part of webs of customs, traditions and institutions.

"Today's Republican," Brooks said, "see every government program as a step on the road to serfdom ... They celebrate the race to success but don't know how to give everyone access to that race."

Romney's Republican way is the road to America's ruin.

Kevin Rafferty is editor in chief of PlainWords Media.

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