85 Super Wealthy People Have More Money Than The Poorest 3.5 Billion Combined

On July 27. 2014, Michael Snyder writes on The Economic Collapse:

The global economy is structured to systematically funnel wealth to the very top of the pyramid, and this centralization of global wealth is accelerating with each passing year.  According tothe United Nations, 85 super wealthy people have more money than the poorest 3.5 billion people on the planet combined.  And 1.2 billion of those poor people live on less than $1.25 a day.  There is something deeply, deeply broken about a system that produces these kinds of results.  Seven out of every ten people on the planet live in countries where the gap between the wealthy and the poor has increased in the last 30 years.  Despite our technological advances, somewhere around a billion people go to bed hungry every single night.  And when our fundamentally flawed financial system finally does collapse, it will be the poor that will suffer the worst.

Now, let me make one thing clear at the outset.

Big government and more socialism are not the answer to anything.  Big government and more socialism almost always result in increased oppression and increased poverty.  If you want to see where that road ultimately leads to, just look at North Korea.

What we need is a system that empowers individuals and families to work hard, be creative, build businesses and to take care of themselves.

But instead, we have a system where all power and all wealth are increasingly controlled by giant banks and giant corporations that are in turn controlled by the global elite.  The “financialization” of the global economy has turned almost everyone on the planet into “deft serfs”, and the compound interest on all of that debt enables the global elite to constantly increase their giant piles of money.

As I have written about previously, the total amount of government debt in the world has increased by about 40 percent since the last recession.

And when you consider all forms of debt, the grand total for the planet is now up to a whopping 223 trillion dollars.

This enables the super wealthy to constantly become even wealthier.  It is like a giant vacuum cleaner that sucks wealth out of all of our pockets and transfers it to them.

It has been reported that the global elite have approximately 32 trillion dollars stashed in offshore banks around the globe.

But that is only what we know about.

What we don’t know about is probably far greater.

Just like most people don’t realize that men like Bill Gates and Carlos Slim are not the wealthiest men on the planet.

The people that are really at the top of the food chain are masters at hiding wealth and they absolutely do not want their names being thrown around in the media.

Meanwhile, those at the bottom of the pyramid continue to suffer.

For example, it was been widely reported that there are more people in slavery today than ever before in human history.

That is an absolutely amazing statistic.  It is hard to comprehend how that could be possible, and yet it is.  A new UN report says that there are 21 million slaves around the globe right now

Nearly 21 million people are working as modern day slaves, falling victim to trafficking, forced labor and sexual exploitation, a new UN report finds. The illicit market in exploited people generates billions of dollars in profit worldwide.

The report by the International Labour Organization (ILO), which draws on information gathered in a 2012 survey, also found that annual profits stemming from forced labor are three times higher than previous estimates.

“Put into perspective, the 21 million victims in forced labor and the more than US$150 billion in illegal profits generated by their work exceeds the population and GDP of many countries or territories around the world,” the ILO says.

This is an utter abomination, but this is actually happening all over the planet.  The following is one story that I recently came across out of India

Dialu Nial’s life changed forever when he was held down by his neck in a forest and one of his kidnappers raised an axe to strike.

He was asked if he wanted to lose his life, a leg or a hand.

Six days earlier, Nial had been among 12 young men being taken against their will to make bricks on the outskirts of one of India’s biggest cities, Hyderabad.

During the journey, they got a chance to escape and ran for it – but Nial and a friend were caught and this was their punishment.

And yes, he did end up losing his hand.

Fortunately, most of us are not facing that kind of oppression.

But that doesn’t mean that we aren’t slaves.  The borrower is the servant of the lender, and over the past four decades the total amount of debt in America has gone from about 2.2 trillion dollars to nearly 60 trillion dollars.  Many of us work as “debt serfs” our entire lives, and we never even know the names or the faces of those that we are making rich as we slowly pay off our debts.

And all of this debt is one of the primary factors destroying the middle class in America.  Just this past week, the New York Times reported that the wealth of “the typical household” in the United States has declined by 36 percent over the past decade…

The inflation-adjusted net worth for the typical household was $87,992 in 2003. Ten years later, it was only $56,335, or a 36 percent decline, according to a study financed by the Russell Sage Foundation. Those are the figures for a household at the median point in the wealth distribution — the level at which there are an equal number of households whose worth is higher and lower. But during the same period, the net worth of wealthy households increased substantially.

The Russell Sage study also examined net worth at the 95th percentile. (For households at that level, 94 percent of the population had less wealth and 4 percent had more.) It found that for this well-do-do slice of the population, household net worth increased14 percent over the same 10 years. Other research, by economists like Edward Wolff at New York University, has shown even greater gains in wealth for the richest 1 percent of households.

Does that upset you when you read that?

It should.

And the outlook for the next generation is even worse.  Most of our young adults are absolutely drowning in student loan debt and other forms of debt, and wages for new college graduates are terrible.

Sadly, most people don’t even realize how the global financial system works or why the gap between the super wealthy and the rest of us continues to grow so rapidly.

It has been estimated that the wealthiest one percent currently have 110 trillion dollars.

That is 65 times more wealth than the bottom half of the global population combined.

They are hoarding wealth as we approach some of the most unstable days in all of human history.

Both the cause and the solution is our technological advances.

Why are technological advances the cause? Because tectonic shifts in the technologies of production are displacing the need for human labor and at the same time devaluing the worth of labor. Yet labor is the ONLY means to an earned income that the vast majority of people have.

The role of physical productive capital is to do ever more of the work, which produces income. Full employment is not an objective of businesses. Companies strive to keep labor input and other costs at a minimum in order to maximize profits for the owners. They strive to minimize marginal cost, the cost of producing an additional unit of a good, product or service once a business has its fixed costs in place. Reducing marginal costs enables businesses to increase profits, offer goods, products and services at a lower price, or both. Increasingly, new technologies are enabling companies to achieve near-zero cost growth without having to hire people. Thus, private sector job creation in numbers that match the pool of people willing and able to work is constantly being eroded by physical productive capital’s ever increasing role.

Over the past century there has been an ever-accelerating shift to productive capital––which reflects tectonic shifts in the technologies of production. The mixture of labor worker input and capital worker input has been rapidly changing at an exponential rate of increase for over 235 years in step with the Industrial Revolution (starting in 1776) and had even been changing long before that with man’s discovery of the first tools, but at a much slower rate. Up until the close of the nineteenth century, the United States remained a working democracy, with the production of products and services dependent on labor worker input. When the American Industrial Revolution began and subsequent technological advance amplified the productive power of non-human capital, plutocratic finance channeled its ownership into fewer and fewer hands, as we continue to witness today with government by the wealthy evidenced at all levels. People invented tools to reduce toil, enable otherwise impossible production, create new highly automated industries, and significantly change the way in which products and services are produced from labor intensive to capital intensive––the core function of technological invention.

Most changes in the productive capacity of the world since the beginning of the Industrial Revolution can be attributed to technological improvements in our capital assets, and a relatively diminishing proportion to human labor. Capital does not “enhance” labor productivity (labor’s ability to produce economic goods). In fact, the opposite is true. It makes many forms of labor unnecessary.

Why are technological advances the solution? Because productive capital is increasingly the source of the world’s economic growth. Therefore, productive capital should become the source of added property ownership incomes for all. Simply put, if both labor and capital are independent factors of production, and if capital’s proportionate contributions are increasing relative to that of labor, then equality of opportunity and economic justice demands that the right to property (and access to the means of acquiring and possessing property) must in justice be extended to all.

The system of big government and socialistic programs funded by tax extraction and non-asset-based national debt  are not the answer to anything.  The socialistic system almost always results in increased oppression, increased poverty or sameness as EVERY citizen becomes dependent on the State.

As Michael Snyder states, “What we need is a system that empowers individuals and families to work hard, be creative, build businesses and to take care of themselves.” Yes, but he leaves out the MOST IMPORTANT need, which is to extend equal opportunity to EVERY child, woman, and man to  share individually in the FUTURE wealth-creating, income-producing capital assets of corprations whereby financing new capital formation and transfers of existing assets is accomplished from the bottom-up and without redistributing property rights of the rich and super-rich with regard to their existing assets

Snyder states, “But instead, we have a system where all power and all wealth are increasingly controlled by giant banks and giant corporations that are in turn controlled by the global elite.  The ‘financialization’ of the global economy has turned almost everyone on the planet into ‘deft serfs,’ and the compound interest on all of that debt enables the global elite to constantly increase their giant piles of money.”

Not only has EVERY person become a debt slave, but also a wage slave, and increasingly a welfare and charity slave.  Over the past four decades the total amount of consumer debt in America has gone from about 2.2 trillion dollars to nearly 60 trillion dollars.  As Snyder notes, “many of us work as ‘debt serfs’ our entire lives, and we never even know the names or the faces of those that we are making rich as we slowly pay off our debts.”

Most thinking people should realize that never-ending consumer is not a wise situation to put one into. Such consumer debt requires a source of income that is promised to be paid to the owners of the note, credit card, or mortgage.

But there is a good form of debt, which is constantly used by the rich and the super-rich to make themselves richer. It is capital credit, a loan specifically tailored to finance FUTURE investment, repayable out of FUTURE earnings, without the need for “past savings” or the reduction in one’s personal consumption needs and wants. In the business world, physical capital is expected to go on producing income indefinitely with proper maintenance and with restoration in the technical sense through research and development. This is how technological advances occur and develop over time.

What is needed is to reform the system to simultaneously create new wealth-creating, income-producing capital asset formation and broaden its ownership so that increasingly over time more and more citizens will derive financial benefit and second incomes from their expanding diversified wealth-creating, income-producing capital asset portfolios. In this way, we can balance production with consumption––the purpose of production.
This can be achieved with insured, no-interest capital credit loans provided by local banks to EVERY child, woman and man, repayable out of FUTURE earnings generated from new capital asset projects, without the need to pledge “past savings” or equities, or reduce one’s consumption level.
The necessary insurance can either be facilitated with private capital credit insurance or a government reinsurance agency (ala the Federal Housing Administration concept).

While other forms of non-asset-based debt is inflationary, commercial capital credit relies on non-inflationary capital asset creation, unlike government expenditures which rely on tax extraction or non-asset-backed debt to redistribute or inject inflationary money into the system.

The socialism practiced today relies on tax extraction and non-asset-based national debt to firstly redistribute monies collected into social welfare programs and second to finance public infrastructure and the military, etc. To the extent that modern “capitalistic” economies redistribute they are practicing socialism. 

For those who are interested in the specifics of the solution see the Just Third Way and the Capital Homestead Act––the purpose of which is to eliminate privilege and provide EQUAL OPPORTUNITY for EVERY child, woman and man to build independent, sustainable financial security and incomes through acquiring ownership in FUTURE wealth-creating, income-producing capital assets financed without the necessity of pledging “past savings” or a reduction in consumption.

The solution eliminates the barriers to ordinary people forming capital themselves in association with others without the necessity for “past savings” or the pledging of equities which only the wealthy ownership class has.

The JUST Third Way is a radical overhaul of the economic system (i.e., the Federal tax system, Federal Reserve policy, inheritance law, welfare and entitlement system, etc.) that will achieve genuine economic democracy, based on the Platform of the Unite America Party and its links and the proposed Capital Homestead Act. Our Platform is a call for a vision of political economy that can unite the left and the right, based on binary economist Louis Kelso’s ownership-based paradigm. Now is the time to cure America’s political cancer (Crony Capitalism) and restore America to again becoming a model for global citizens in all countries.

For a new vision see http://www.foreconomicjustice.org/?p=12331 andwww.facebook.com/uniteamericaparty. Support the Unite America Party Platform, published by The Huffington Post at http://www.huffingtonpost.com/gary-reber/platform-of-the-unite-ame_b_5474077.html as well as Nation Of Change at http://www.nationofchange.org/platform-unite-america-party-1402409962 and OpEd News at http://www.opednews.com/articles/Platform-of-the-Unite-Amer-by-Gary-Reber-Party-Leadership_Party-Platforms-DNC_Party-Platforms-GOP-RNC_Party-Politics-Democratic-140630-60.html.

Support the Capital Homestead Act at http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-a-plan-for-getting-ownership-income-and-power-to-every-citizen/ and http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-summary/.

http://theeconomiccollapseblog.com/archives/85-super-wealthy-people-have-more-money-than-the-poorest-3-5-billion-combined

 

The Rise Of The Non-Working Rich

AP751391981983-benjamins-300x168

On July 27, 2014, Robert Reich writes on RobertReich.org:

In a new Pew poll, more than three quarters of self-described conservatives believe “poor people have it easy because they can get government benefits without doing anything.”

In reality, most of America’s poor work hard, often in two or more jobs.

The real non-workers are the wealthy who inherit their fortunes. And their ranks are growing.

Most of America’s poor work hard, often in two or more jobs. The real non-workers are the wealthy who inherit their fortunes. And their ranks are growing.

In fact, we’re on the cusp of the largest inter-generational wealth transfer in history.

The wealth is coming from those who over the last three decades earned huge amounts on Wall Street, in corporate boardrooms, or as high-tech entrepreneurs.

It’s going to their children, who did nothing except be born into the right family.

The “self-made” man or woman, the symbol of American meritocracy, is disappearing. Six of today’s 10 wealthiest Americans are heirs to prominent fortunes. Just six Walmart heirs have more wealth than the bottom 42 percent of Americans combined (up from 30 percent in 2007).

The US Trust bank just released a poll of Americans with more than $3 million of investable assets.

Nearly three-quarters of those over age 69 and 61 per cent of boomers (between the ages of 50 and 68), were the first in their generation to accumulate significant wealth.

But the bank found inherited wealth far more common among rich millennials under age 35.

This is the dynastic form of wealth French economist Thomas Piketty warns about. It’s been the major source of wealth in Europe for centuries. It’s about to become the major source in America – unless, that is, we do something about it.

As income from work has become more concentrated in America, the super rich have invested in businesses, real estate, art and other assets. The income from these assets is now concentrating even faster than income from work.

As income from work has become more concentrated in America, the super rich have invested in businesses, real estate, art and other assets. The income from these assets is now concentrating even faster than income from work.

In 1979, the richest one percent of households accounted for 17 percent of business income. By 2007 they were getting 43 percent. They were also taking in 75 percent of capital gains. Today, with the stock market significantly higher than where it was before the crash, the top is raking even more from their investments.

Both political parties have encouraged this great wealth transfer, as beneficiaries provide a growing share of campaign contributions.

But Republicans have been even more ardent than Democrats.

For example, family trusts used to be limited to about 90 years. Legal changes implemented under Ronald Reagan extended them in perpetuity. So-called “dynasty trusts” now allow super-rich families to pass on to their heirs money and property largely free from taxes, and to do so for generations.

George W. Bush’s biggest tax breaks helped high earners but they provided even more help to people living off accumulated wealth. While the top tax rate on income from work dropped from 39.6 percent to 35 percent, the top rate on dividends went from 39.6 percent (taxed as ordinary income) to 15 percent and the estate tax was completely eliminated. (Conservatives called it the “death tax” even though it only applied to the richest two-tenths of one percent.)

Barack Obama rolled back some of these cuts, but many remain.

Before George W. Bush, the estate tax kicked in at $2 million of assets per couple, and then applied a 55 percent rate. Now it kicks in at $10 million per couple, with a 40 percent rate.

House Republicans want to go even further than Bush did.

The specter of an entire generation who do nothing for their money other than speed-dial their wealth management advisors isn’t particularly attractive.

Rep. Paul Ryan’s “road map,” which continues to be the bible of Republican economic policy, eliminates all taxes on interest, dividends, capital gains and estates.

Yet the specter of an entire generation who do nothing for their money other than speed-dial their wealth management advisors isn’t particularly attractive.

It’s also dangerous to our democracy, as dynastic wealth inevitably accumulates political influence.

What to do? First, restore the estate tax in full.

Second, eliminate the “stepped-up-basis on death” rule. This obscure tax provision allows heirs to avoid paying capital gains taxes on the increased value of assets accumulated during the life of the deceased. Such untaxed gains account for more than half of the value of estates worth more than $100 million, according to the Center on Budget and Policy Priorities.

Paul Krugman on Gordon Gekko’s Daughter and America’s Inherited Wealth Problem

Third, institute a wealth tax. We already have an annual wealth tax on homes, the major asset of the middle class. It’s called the property tax. Why not a small annual tax on the value of stocks and bonds, the major assets of the wealthy?

We don’t have to sit by and watch our meritocracy be replaced by a permanent aristocracy, and our democracy be undermined by dynastic wealth. We can and must take action — before it’s too late.

The reason the rich do not have to work is the very reason they are rich––because they own wealth-creating, income-producing capital assets––the non-human factor that produces wealth. Therefore, we should set as a goal to universally broaden ownership of FUTURE capital assets among EVERY child, woman, and man, without taking anything away from those who already own. And have them spread out their inherited and earned monopoly-sized estates at death to all members of their family, friends, servants and workers who helped create their fortunes, teachers, health workers, police, other public servants, military veterans, artists, the poor and the disabled.

As a substitute for inheritance and gift taxes, a transfer tax would be imposed on the recipients whose holdings exceeded $1 million, thus encouraging the super-rich to do the right thing.

Support the Capital Homestead Act at http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-a-plan-for-getting-ownership-income-and-power-to-every-citizen/ and http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-summary/.

http://billmoyers.com/2014/07/27/the-rise-of-the-non-working-rich/

Corporate ‘Inversions’ Are The Latest Ploy To Upend The US Tax Code

101864699-chiquita.530x298
Esteban Felix | AP Photo
Chiquita Brands is one of the companies that did a corporate “inversion” deal this year

On July 24, 2014, John W. Schoen writes on CNBC:

A once-obscure tax dodge known as a corporate “inversion” is turning the debate over U.S. tax reform upside down.

In an inversion, a U.S. company sets up or buys another company in a country with a lower corporate tax rate and then calls the new country home—thereby dodging U.S. taxes it would otherwise have had to pay.

The trick is more than three decades old, but a wave of inversions this year has prompted the Obama administration to call on Congress to slam the loophole shut.

Read MoreObama presses to close corporate tax loophole ‘inversions’

How does it work?

When a company undertakes an inversion, it’s basically just moving its legal address outside the country for tax purposes. That lets companies move some of their profits to their new homeland and pay less in taxes to the U.S. Treasury. Nothing else moves; it’s business as usual for their American operations, employees and customers.

The White House estimates the Treasury could lose out on as much as much as $20 billion over the next decade. So the administration wants to require companies that claim they’re no longer American to be more than 50 percent owned by foreigners. That would make new inversions much more difficult to pull off.

Read MoreUS could lose $20B from corporate tax inversions

But aren’t corporate taxes higher in the U.S than most developed countries?

It’s true that the statutory tax rate—including state and local taxes—is close to 40 percent, the highest among the developed world. But U.S. companies apply a long list of tax credits, subsidies, loopholes and other giveaways, so most of them pay much less than the top rate. Some, according to an analysis by Citizens for Tax Justice, have figured out how to pay no tax at all.

Total corporate federal taxes fell to about 12 percent of profits from U.S.-based activity in 2011, according to a Congressional Budget Office report. In a separate study, the CBO found that the average tax rate in 2011 among developed countries was 3 percent of gross domestic product—compared with 2.3 percent of GDP in the U.S.

So how much money is Uncle Sam losing from these corporate tax dodgers?

So far this year, only nine companies have flipped their corporate tax base upside down, including banana distributor Chiquita Brands International and drug maker AbbVie. But those moves have drawn lots of attention—and prompted other U.S. multinationals with large overseas holdings to consider heading for the corporate tax exit.

Some companies have already stashed assets and accumulated earnings outside the country—hoping that Congress will eventually lower the tax rate and allow them to pay less when they bring that money home. By some estimates, as much as $2 trillion in corporate cash is sitting outside the U.S.—money that could otherwise be reinvested at home to expand domestic operations and create more jobs.

Why doesn’t Congress just clean up the corporate tax code?

Corporations have been lobbying Congress for years to lower the corporate tax rate—which would mean paring back a thicket of tax credits, subsidies and complex rules that everyone agrees needs an overhaul. But each of those loopholes has a company or industry lobbying to protect it.

A wave of inversions could make it even harder for Congress to pull off a “revenue neutral” tax reform package. To offset the money lost by lowering the top rate, Congress would have to close loopholes and subsidies. But if more companies dodge the American tax code altogether, those added revenues will be harder to find. The more companies shrink the overall pipe of corporate tax revenues, the harder it will be to make tax reform “pay for itself.”

Read MoreCEOs to Obama: Tax reform, not an inversion Band-Aid

In any case, the tax reform debate has become mired in the ongoing political dysfunction that has already pushed the country near a debt default, temporarily shut down the government and, most recently, exhausted the highway fund that’s needed to fix a national pothole epidemic.

Given that track record, it’s hard to see how Congress will ever be able to tackle an issue as complex and divisive as tax reform. So some companies aren’t waiting.

This is a “big picture” problem that our nation and other nations face. Because the system facilitates non-human capital asset wealth being constantly monopolized by the wealthy ownership class, which is often referred to as “the 1 percent,” who are the primary owners of American corporations, without a stiff corporate income tax it will be virtually impossible to incentivize corporations to pay out fully their earnings to their stockholders, who would be ALL taxed at the personal tax rate. We should want to eliminate double taxation (at the corporate and personal levels) to incentivize corporations to issue and sell new stock to raise monies to invest in new plant and machinery capital assets  to create economic growth. This is the pathway to creating new owners and broadening wealth-creating, income-producing capital ownership to EVERY child, woman and man. EVERY citizen should be empowered equally to have access to insured, interest-free capital credit loans issued by local banks backed by the Federal Reserve to acquire new stock issues in qualified corporations with the principal and insurance fee repayable out of the FUTURE earnings of the investment. This would provide American corporations with all the monies they would need to grow, which in turn would substantially accelerate the growth of the economy, create new capital owners who would benefit from a new income source, and create new job opportunities as the economy revs up to produce general affluence for EVERY citizen. These policies would create a nation of “customers with money,” who overtime can build substantial financial security and eliminate reliance on taxpayer-supported government.

If we further lower or eliminate corporate income tax rates we eliminate our ability to incentivize corporations to finance new growth by creating new owners, without taking away ownership from those who are already owners.

We need to define an American corporation with at least better than 60 percent ownership vested with American citizens. We also need to  look at tariffs on non-American corporations who would have tax advantages over American corporations.

We also need to condition awarding ALL taxpayer-supported federal contracts (corporate welfare) on the basis that EVERY company vying for a government contract demonstrate that they are broadly owned including ownership by their employees. We need to ensure  that if a corporation wants the advantages of being an American company then they should not be able run away from America to avoid paying taxes.  Either American corporations pay a stiff corporate tax and remain narrowly owned or they pay no corporate tax but are structured such that they are owned broadly and by their employees. Such policies will stimulate a new era in American technological innovation.

Support the Capital Homestead Act at http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-a-plan-for-getting-ownership-income-and-power-to-every-citizen/ and http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-summary/.

Support the Unite America Party Platform, published by The Huffington Post at http://www.huffingtonpost.com/gary-reber/platform-of-the-unite-ame_b_5474077.html as well as Nation Of Change at http://www.nationofchange.org/platform-unite-america-party-1402409962 and OpEd News at http://www.opednews.com/articles/Platform-of-the-Unite-Amer-by-Gary-Reber-Party-Leadership_Party-Platforms-DNC_Party-Platforms-GOP-RNC_Party-Politics-Democratic-140630-60.html.

The Nick Hanauer Debate: Trickledown, Trickle Dee, And Trickle Dumb

On July 23, 2014, Richard Levick writes in Forbes Magazine:

As professionals whose work includes a fair amount of crisis management, we’re often asked to articulate the best practices of what has for obvious reasons become a discipline of increased interest to the public. Inevitably, we include, as a fundamental point, the need to anticipate the future: the changing social and business forces that expose our clients to risk and exacerbate their liabilities.

Typically, such crystal-balling occurs within well-defined boundaries. What new regulations threaten new problems? How will a change in some overseas government put the company in harm’s way? Where are plaintiffs’ lawyers choosing to focus their energies?

Yet, for both private and public sector interests, there is also the abiding need for something more – for a discussion of the macro forces that will, for better or worse, transform the entire environment in which businesses and countries operate.

A very public dialogue of this type is occurring this summer, and it’s a dilly. NickHanauer, a successful entrepreneur who co-founded the Second Avenue Partnersventure capital firm in Seattle, delivered a forceful warning in Politico about the dire impact of wealth disparity in the U.S. It was the most widely shared article in that publication’s history – and Politico isn’t exactly Mother Jones. The alarm has apparently struck a chord with all sorts of people.

Hanauer – who, among other marketplace triumphs, was one of the first non-family investors in Amazon – is a confirmed capitalist and true believer in the potential power of capitalism to grow prosperity at every level. But the key word is “potential” as Hanauer’s message is all about how, with the massive disparities that divide the very rich from the rest of us, we’ve only been squandering the power of capitalism since 1980 when those disparities accelerated. According to Hanauer, such wastefulness has perilous consequences in terms of civil unrest, further political polarization, and the speedy isolation of those who are supposed to lead from those who desperately crave leadership.

Hanauer’s stern prognostications for the future are all the more vivid in light of the recent past. In 1980, the top 1% of Americans controlled about 8% of the national income. The bottom 50% shared about 18 percent. “By 2030, at current course and speed, the top 1% will share about 35% and the bottom 50% will share just 6%,” advises Hanauer. “Any capitalist who does not find this trend worrisome is either stupid or a sociopath.”

Hanauer urges the full panoply of corrective measures to reverse what he describes as a “death spiral of falling demand.” These measures include higher minimum wages, progressive taxation, aggressive antitrust enforcement, and more. Such discussions naturally resonate for crisis and risk managers as they ponder the varied alternatives ahead. How should companies and institutions respond if some combination of these policy adjustments is adapted? How, say, might a groundswell of support for skyrocketing minimum wage increases affect you as a retailer or manufacturer?

Conversely, what if no palliatives interpose? Well, in that instance, the risk strategy would likely hinge on worst-case scenarios, from anti-corporate demagogues in Washington to social media attacks randomly targeting industry leaders in diverse sectors, likely combined with on-the-street tactics.

In the context of increasingly foreseeable worst-case scenarios, Hanauer’s detractors have largely missed the point. Their rebukes were widespread and extensive, including a discourse on taxation and labor supply here in Forbes, a publication that Hanauer affectionately dubs “The Trickle-Down Gazette.” Yet these critics have yet to grapple with the intensity of public support that Hanauer has received. At the very least, such support confirms a pandemic anxiety about the future – a future that will be driven as much by perception and symbolism as by substantive argument.

There is no reason to expect that the passions informing the discussion will abate, and every reason to expect sustained media attention. Wealth disparity is not a one-day story. To the contrary, the topic will remain a fixture on the American scene for years to come: in fact, a prolonged battle, a sophisticated and Internet-based confrontation that will define who and what we are as a 21st century society.

As a new leader in this battle, Hanauer is no mere gadfly or self-designated prophet of doom. As we learned during an extended conversation, his vision is multifaceted and, at least to some extent, practicable. As he noted in Politico, Henry Ford’s proverbial imperative, to pay workers more so they can buy more cars, is a reliable if unscientific place to start.

Yet Henry Ford never had any intention to close the gap between rich and not-so-rich. (If you don’t believe me, ask Walter Reuther.) Hanauer certainly understands that and, in fact, harbors no illusion or even desire to close the gaps inherent in capitalist activity. “It’s therunaway gap that I foresee will lead to disruptions right and left, from the Tea Party to Occupy Wall Street.”

Perhaps the most important point omitted from the public debate over Hanauer’s article is his own definition of what real capitalist growth means. “The orthodox definition of capitalism as efficient is wrong,” he says. “Capitalism doesn’t increase prosperity byefficiently allocating resources. It creates prosperity by effectively creating solutions to human problems. The genius of capitalism is that it provides incentives for people to solve other people’s problems. And growth is the rate at which we solve those problems and disseminate the solutions.”

From a strictly financial perspective, any corrective measure, including those espoused by “progressives” like Hanauer, cannot just be sops to an increasingly alienated populace. They must be based on some force of sound business judgment. Hanauer, for instance, is widely associated with the unprecedented $15 per hour minimum wage now in force in Seattle.

“But that’s $15, not $30,” advises Hanauer. “Just because you believe that increasing the minimum wage will be good for the economy, doesn’t mean you think the higher it goes, the better. $15 is half way between where the minimum wage would be if it had tracked inflation and where it would be if it had tracked productivity gains. When you also take into account the overall affluence of our city, $15 is defensible and, in fact, conservative.”

Meanwhile, current Department of Labor numbers directly link minimum wage increases to strong overall growth.

History provides cautionary lessons with respect to other oft-cited solutions. Remember the 1950s? It was a period of unprecedented growth girded by a progressive tax regime that significantly levelled the playing field. People got rich, but not so rich as to tear the very fabric of national unity. And their businesses just kept growing.

The culture of the 1950s encouraged the belief that money was indeed being adequately reinvested in business and growth. By contrast, in this age of disparity, the executive compensation issue has equal but inverse symbolic importance as an ominous sign (whether true or not in terms of actual numbers) that money is being taken out of business and, instead of reinvested for growth, wasted on those who really don’t need it.

The fly in the progressives’ ointment is that no amount of well-intentioned policy can close the wealth gap; that, no matter what combination of “solutions” are implemented, $100 million will always grow exponentially faster than $1 million. It’s the Iron Law of Affluence.

Yet that law does not necessarily compel our retreat from democracy to feudalism. Shared wealth does not mandate equal wealth, and competition can never be a zero sum game. If history teaches anything, it’s that the more of us who succeed, the more we all succeed.

I reckon that’s what Henry Ford was really talking about.

Entrepreneur and venture capitalist Nick Hanauer has written and talked about income inequality and warned rich Americans that “pitchforks are coming” if inequality continued to rise. Yet Hanauer never uses the term “OWNERSHIP,” that is wealth-creating, income-producing capital asset ownership, to explain why the rich are rich.

Here is my comment on the piece that appeared in Politico:

Norman Kurland and  my colleagues and I at the Center for Economic and Social Justice (www.cesj.org) as well as the Unite America Party see Nick Hanauer’s solution (raising the minimum wage) to closing the income gap would necessarily add to the costs of food and other necessities for poor and middle income Americans and would increase the outsourcing of jobs when higher labor cost are added to U.S.-produced goods and services.  The Capital Homestead Act ( http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-a-plan-for-getting-ownership-income-and-power-to-every-citizen/ and http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-summary/ ) would grow the U.S. economy faster in a non-inflationary way, create new private sector jobs, finance new productive capital and provide capital incomes for all Americans from the bottom-up by enabling them to own trillions annually in new capital formation and transfers in current assets . . . without taking private property rights away from billionaires such as Nick Hanauer over their existing assets.  Remember the wage system is the cancer.  The ownership system is the answer to address the problem Hanauer wants to solve.

If you want to change this gross economic inequality support the Platform of the Unite America Party.

What Hanauer, other billioinaries, the Democrats and Republicans and all third party leaders need to advocate is their ability to lead America on a path based on a paradigm shift to an equal opportunity economic democracy.

The JUST Third Way is a radical overhaul of the economic system (i.e., the Federal tax system, Federal Reserve policy, inheritance law, welfare and entitlement system, etc.) that will achieve genuine economic democracy, based on the Platform of the Unite America Party and its links and the proposed Capital Homestead Act. Our Platform is a call for a vision of political economy that can unite the left and the right, based on Louis Kelso’s ownership-based paradigm. Now is the time to cure America’s political cancer (Crony Capitalism) and restore America to again becoming a model for global citizens in all countries.

For a new vision see http://www.foreconomicjustice.org/?p=12331 andwww.facebook.com/uniteamericaparty. Support the Unite America Party Platform, published by The Huffington Post at http://www.huffingtonpost.com/gary-reber/platform-of-the-unite-ame_b_5474077.html as well as Nation Of Change at http://www.nationofchange.org/platform-unite-america-party-1402409962 and OpEd News at http://www.opednews.com/articles/Platform-of-the-Unite-Amer-by-Gary-Reber-Party-Leadership_Party-Platforms-DNC_Party-Platforms-GOP-RNC_Party-Politics-Democratic-140630-60.html.

Congress Must Put The Interest Of The American People First

On July 24, 2014, Philip G. Cohen writes on The Hill Congress Blog:

There have been in the last few months a plethora of U.S. companies that have announced plans to engage in an inversion transaction. Probably the most famous one involved Pfizer Inc.’s attempt to acquire AstraZeneca PLC with the merged parent company to be incorporated outside the U.S. While AstraZeneca rebuffed Pfizer, other transactions are being undertaken or being actively considered.

On July 18, AbbVie Inc. announced it had agreed to buy Irish pharmaceutical company Shire PLC in a $54 billion deal that would result in the parent company incorporated in the U.K. dependency of Jersey, a small island and tax haven in the English Channel. The combined company would be one of the 50 largest companies in the world. Medtronic Inc., a $60 billion medical device company, announced last month its plan to relocate its place of incorporation outside the United States in conjunction with its acquisition of Coviden PLC. Walgreen Co., the giant U.S. drug retailer, is also reported to be considering an inversion in conjunction with exercising its option to acquire the 55 percent of a Swiss entity Alliance Boots GmbH that it doesn’t currently own.

An inversion transaction involves a U.S. incorporated company becoming a foreign incorporated company that is generally continued to be managed in the United States. It’s undertaken to address a provision in the Internal Revenue Code that determines whether a company will be considered to be domestic by virtue of the entity’s place of incorporation.

U.S. incorporated companies are subject to tax on income earned anywhere in the world although active non-U.S. earnings of foreign subsidiaries are generally not taxed until repatriated back to the U.S. parent company. If the parent company is considered foreign for U.S. income tax purposes, it will still pay U.S. income tax on earnings from its U.S. activities but will be able to avoid tax on foreign earnings. Furthermore, the inverted companies will also have available techniques to reduce tax on its U.S. operations by, e.g., paying interest and royalties to its new foreign parent company or other low taxed foreign group members. These techniques are presently available to traditional foreign companies with U.S. operations.

Internal Revenue Code section 7874 currently provides that in general if at least 80 percent of the stock of a former U.S. company is owned by the former shareholders of the inverted company, the company is treated as a U.S. corporation for U.S. income tax purposes. To avoid this provision, inversion transactions are currently being structured so that shareholders of the foreign target company hold more than 20 percent of the merged company.

Inversion transactions are legal, and CEOs have a primary responsibility to act in the best interest of their shareholders. Since inversion transactions can be structured legally under current law and may substantially increase after-tax earnings, they need to be considered by corporate management.

Some members of Congress, especially Republicans, have argued that the answer to inversion transactions is to undertake as part of fundamental tax reform, territorial taxation pursuant to which active foreign earnings become exempt from U.S. taxation. Some refer to inversions as self-help territorial taxation. While adopting territorial taxation would do away with the need to undertake the transaction, it could also lead to further increased migration of good jobs, facilities and taxable income from the U.S.

In a July 15, 2014 letter to House Ways and Means Committee Chairman David Camp (R.-Mich.), Secretary of Treasury Jacob Lew urged Congress to immediately enact anti-inversion legislation. Senator Ron Wyden (D-Ore.), chairman of the Senate Finance Committee responded to Secretary Lew’s request by stating that “[t]his inversion loophole must be plugged.”  Democratic members in both houses of Congress have proposed legislation to halt inversion activity with a retroactive effective date.

Under the proposals, the 80 percent threshold under current law would drop to 50 percent and regardless of the degree of legacy shareholder continuity, the company would be treated as domestic if both management and control of the group remains in the U.S. and the company has significant business activities in the U.S. The legislation is a sensible response to a real problem that can exacerbate the nation’s budget deficit unless addressed.

There are legitimate problems with the current U.S. corporate tax system. The statutory corporate tax rate is the highest in the world. Foreign earnings are trapped overseas, known as the lockout effect, because U.S. companies don’t want to pay tax on these earnings. Our corporate tax base needs to be broadened. These should be addressed in the near term, but they shouldn’t serve as an excuse for members of Congress doing nothing about inversions.

While the CEO’s chief responsibility is to his shareholders, Congress’ obligation is to the best interests of the American people. Inaction or flawed legislation may be welcome by many U.S. multinational companies, but it is the duty of Congress to balance the legitimate needs of U.S. multinationals to compete with foreign rivals headquartered in countries utilizing territorial taxation, with other objectives of our tax system including expanding businesses in the U.S. and meeting the need for tax revenue. While the goals for our tax system by U.S. multinationals and those that are in the best interest of the American people may in many instances overlap, they are not concurrent.

This is a “big picture” problem that our nation and other nations face. Because the system facilitates non-human capital asset wealth being constantly monopolized by the wealthy ownership class, which is often referred to as “the 1 percent,” who are the primary owners of American corporations, without a stiff corporate income tax it will be virtually impossible to incentivize corporations to pay out fully their earnings to their stockholders, who would be ALL taxed at the personal tax rate. We should want to eliminate double taxation (at the corporate and personal levels) to incentivize corporations to issue and sell new stock to raise monies to invest in new plant and machinery capital assets  to create economic growth. This is the pathway to creating new owners and broadening wealth-creating, income-producing capital ownership to EVERY child, woman and man. EVERY citizen should be empowered equally to have access to insured, interest-free capital credit loans issued by local banks backed by the Federal Reserve to acquire new stock issues in qualified corporations with the principal and insurance fee repayable out of the FUTURE earnings of the investment. This would provide American corporations with all the monies they would need to grow, which in turn would substantially accelerate the growth of the economy, create new capital owners who would benefit from a new income source, and create new job opportunities as the economy revs up to produce general affluence for EVERY citizen. These policies would create a nation of “customers with money,” who overtime can build substantial financial security and eliminate reliance on taxpayer-supported government.

If we further lower or eliminate corporate income tax rates we eliminate our ability to incentivize corporations to finance new growth by creating new owners, without taking away ownership from those who are already owners.

We need to define an American corporation with at least better than 60 percent ownership vested with American citizens. We also need to  look at tariffs on non-American corporations who would have tax advantages over American corporations.

We also need to condition awarding ALL taxpayer-supported federal contracts (corporate welfare) on the basis that EVERY company vying for a government contract demonstrate that they are broadly owned including ownership by their employees. We need to ensure  that if a corporation wants the advantages of being an American company then they should not be able run away from America to avoid paying taxes.  Either American corporations pay a stiff corporate tax and remain narrowly owned or they pay no corporate tax but are structured such that they are owned broadly and by their employees. Such policies will stimulate a new era in American technological innovation.

Support the Capital Homestead Act at http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-a-plan-for-getting-ownership-income-and-power-to-every-citizen/ and http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-summary/.

Support the Unite America Party Platform, published by The Huffington Post at http://www.huffingtonpost.com/gary-reber/platform-of-the-unite-ame_b_5474077.html as well as Nation Of Change at http://www.nationofchange.org/platform-unite-america-party-1402409962 and OpEd News at http://www.opednews.com/articles/Platform-of-the-Unite-Amer-by-Gary-Reber-Party-Leadership_Party-Platforms-DNC_Party-Platforms-GOP-RNC_Party-Politics-Democratic-140630-60.html.

http://thehill.com/blogs/congress-blog/economy-budget/213152-congress-must-put-the-interest-of-the-american-people

What Does the Minimum Wage Do? An Interview With Author/Economist Paul Wolfson

n-DOLLARS-large570

On July 24, 2014, Jared Bernstein writes on The Huffington Post:

To celebrate the fifth anniversary of the last increase in the federal minimum wage and to call attention to the fact that the federal wage floor has not risen in five years, the US Department of Labor has declared July 24th to be a “Day of Action.”

Coincidentally, a new book surveying the scholarly literature on the effects of the minimum wage, What Does the Minimum Wage Do? came out earlier this month, written by Dale Belman and Paul Wolfson. Below, I interview Mr. Wolfson (who’s an old friend, btw).

JB: What does your work suggest about the Fair Minimum Wage Act (FMWA): the proposal to raise the federal minimum wage from its current value of $7.25 to $10.10 in three annual steps and then index it to inflation?

PW: First, our work: in our book, we surveyed more than 70 analyses of the effect of the minimum wage on employment. By and large, the strongest studies in terms of statistical rigor reported an effect on employment that ranged between negligible and none. In addition, we performed our own meta-analysis, a procedure that combines the results of different studies in a statistically rigorous way, and this confirmed the result of “negligible to none.”

How does this relate to the FMWA? The proposal would increase the federal minimum in three $0.95 steps of 13%, 12% and 10% each. In the last 35 years, increases in the Federal Minimum Wage have ranged between 7% and 14%, with an average increase of 11%-12%. Thus, the proposed increases are quite typical of historical experience, and this suggests that if there is any effect on employment it will be too small to be detectible.

JB: At least as interesting as the question of the minimum wage and employment is “What is the effect of the minimum wage on low income families?” What can you say about this?

PW: We discovered in the course of writing the book that there’s actually little useful work that addresses this issue. Nearly all of the studies in this area instead ask whether the minimum wage has reduced the percentage of families whose income places them below the poverty line. For several reasons, this turns out not to be an interesting question. First, the poverty line was developed about a half century ago and is widely regarded as an out-of-date measure of economic well-being. Second, it leaves out a variety of government programs that effectively increase family income.

A more interesting question asks whether the minimum wage has a noticeable effect on the incomes of low income families, some of whom are officially poor, some of whom are not.

Economist Arin Dube of the University of Massachussetts-Amherst recently completed a statistically sophisticated analysis of the effect of the minimum wage on different parts of the income distribution, from the incomes of very poor families all the way up to those we might call the lower middle class or solidly middle class. He reports that “the evidence clearly points to moderate income gains for low income families as a result of minimum wage increases.”

JB: Your book is titled: What Does the Minimum Wage Do? How about giving us the elevator ride answer to that question.

PW: Limiting my answer to the historical experience, it does not have much or any effect on either the level of employment or on the unemployment rate. It appears to reduce churn in the labor market, both the amount of hiring and the amount of quits and firings. In fact, this may be one way in which the wage increase is absorbed: by lowering costs to low-wage employers of turnovers, vacancies, and training new workers.

The minimum wage increases wages for the lowest paid 10% of all employees and perhaps as much as the lowest paid 30% of women. This is pretty much all that we can be fairly confident about, and it is these effects that led my co-author to say that the American experience of the minimum wage is largely one of intended consequences. Despite the hundreds of studies in just the last 25 years, much remains unknown or known with insufficient certainty: the effect of the minimum wage on low incomes, on prices and output, on the different employment and unemployment experience of men and women, on the people’s choices to remain in or leave school, to name just a few. Work has been done in each of these areas, but either too little to be yet confident of the results or too much of what exists turns out to be plagued by statistical problems of one sort or another.

JB: So, if it’s not through cutting jobs, how do low-wage firms absorb the increase in labor costs?

PW: Again, we don’t know for sure, but one possibility mentioned above is the reduction in turnover. This has two effects. One is a more experienced labor force (since employees hang around longer). The second is lower hiring costs, perhaps low enough to encourage firms to expand slightly since they expect to have a longer period for amortizing these expenses. In addition to the reduction in turnover, there is mixed evidence that restaurants (and other firms) respond by increasing prices, somewhat more evidence in favor than against. Similarly, studies that look for the response in lower levels of firm profits also report mixed evidence, generally considerably weaker than that for prices. Finally, there are hints that the higher minimum wage draws people into the labor force who had been sitting it out, leading to an increase in the average quality of prospective employees and thus more efficient firms. All of these things may be in play, each individually too small to be easy to detect in the available data with current techniques.

This post originally appeared at Jared Bernstein’s On The Economy blog.

 

Whether or not raising the minimum wage is harmful and will cause less employment should be discussed within the larger scope of economic inequality. The proposed measures are at best a sedative to ease the pain of deteriorating livelihoods, but not the solution that is necessary to significantly address income disparities between the wealthy ownership class and the propertyless, non- and under-capitalized American majority.

A National Right To Capital Ownership Bill that restores the American dream should be advocated by the progressive movement, which addresses the reality of Americans facing job opportunity deterioration and devaluation due to tectonic shifts in the technologies of production and global competitive pressures.

There is a solution, which will result in double-digit economic growth and significant job opportunities, and simultaneously broaden private, individual ownership so that EVERY American’s income significantly grows over time, providing the means to support themselves and their families with an affluent lifestyle. The JUST Third Way Master Plan for America’s future is published at http://foreconomicjustice.org/?p=5797.

See two references to the proposed Capital Homestead Act, the centerpiece of legislation of The JUST Third Way at http://www.cesj.org/homestead/index.htm and http://www.cesj.org/homestead/summary-cha.htm.

See two references to the proposed Capital Homestead Act, the center piece of legislation of The JUST Third Way at http://www.cesj.org/homestead/index.htm and http://www.cesj.org/homestead/summary-cha.htm.

For more on how to accomplish necessary structural reform, see “Financing Economic Growth With ‘FUTURE SAVINGS’: Solutions To Protect America From Economic Decline” at http://www.nationofchange.org/financing-future-economic-growth-future-savings-solutions-protect-america-economic-decline-137450624 and “The Income Solution To Slow Private Sector Job Growth” at http://www.nationofchange.org/income-solution-slow-private-sector-job-growth-1378041490.

See the article “Ownership––The Minimum Wage Replacement” at http://www.nationofchange.org/ownership-minimum-wage-replacement-1392301004.

http://www.huffingtonpost.com/jared-bernstein/what-does-the-minimum-wag_b_5617352.html

Why Voters Aren’t Angrier About Economic Inequality

25UP-inequality-articleLarge-v2

A demonstration in Washington in January 2012 connected to the Occupy Wall Street protest.CreditDoug Mills/The New York Times

On July 24, 2014, Edurado Porter writes in The New York Times:

Why don’t governments in democratic societies do more to combat income inequality?

Scholars have grappled with this question for years. The median voter theory, a longstanding workhorse of political science, predicts that politicians hoping to get elected will seek to close a growing income gap to woo the big bulk of voters in the middle who feel left behind by the fortunate few.

Yet elegant as it is, this idea doesn’t quite mesh with reality. Researchreveals little connection between the income gaps in any given country and its government’s effort to close it by taxing the rich to spend on the poor.

There are good reasons why not. The poor vote less than the rich, reducing their electoral clout. And they don’t vote exclusively on the basis of their economic self-interest, but are often swayed by noneconomic issues, like abortion, the environment or gun control.

What’s more, the rich might simply buy political power and use it to maintain their privilege. The political scientist Larry Bartels hasdocumented that the rich have about three times as much influence as the poor on votes in the United States Senate.

Researchers at the University of Hannover in Germany propose a simpler reason: Voters don’t demand more redistribution because they don’t grasp how deep inequality is.

Using data from the International Social Survey Programme, in which respondents were asked to locate their relative income status on a scale of 1 to 10, Carina Engelhardt and Andreas Wagener built a measure of perceived inequality, defined as the gap between the median income, smack in the middle of the distribution, and the average income of the population.

Evidently, nobody has a clue: In every one of the 26 nations, most of them in the developed world, for which they collected data, people believe that the income gap is smaller than it really is. And using perceived rather than actual inequality, the median voter theory works much better: Where people believe inequality is worse, governments tend to redistribute more.

“If citizen-voters see an issue, politics has to respond – even if there is no issue,” they concluded. “Conversely, if a real problem is not salient with voters, it will probably not be pursued forcefully.”

This could go some distance toward explaining the American experience. People in the United States not only tolerate one of the widest income gapsin the developed world, but its government also ranks among the stingiestin terms of efforts at redressing the imbalance.

Unsurprisingly, Americans suffer from a pretty big perception gap. They think an American in the middle of the income distribution makes only 4 percent less than the national average, according to Ms. Engelhardt and Mr. Wagener’s research. In truth, the American in the middle makes 16 percent less.

Misjudgments in Inequality

Inequality of income is underestimated everywhere.

1
1.1
1.2
1.3
1.4
1.5
1.4
1.2
1
Actual Income Gap
Perceived Income Gap
Denmark
Mexico
Slovenia
South Korea
Turkey
Britain
United States
Actual gap equals perceived gap
The income gap in Mexico is much higher than Mexicans perceive it to be.

Source: O.E.C.D.; Carina Engelhardt and Andreas Wagener
Inequality is measured by the gap between the income of a citizen in the middle of the income distribution and the average income of the population.

Much is made of Americans’ particular ideological bent. Many, rich and poor, distrust government. They support free-market capitalism and tend to view the distribution of the nation’s economic fruits as roughly fair.

Would Americans demand more Robin Hood policies if they understood the depth of inequity? Research by economists at Harvard and the Universidad Nacional de Las Plata in Argentina found that Argentines who had overestimated their rank on the national income scale demanded more redistribution when they were confronted with the truth.

When Dan Ariely of Duke and Michael Norton of Harvard Business School asked an online panel to build a “Better America,” respondents proposed ideal distributions of wealth that were much more equitable than what they thought was reality.

And, of course, reality is much more unequal than they thought.

Unfortunately, the author and the referenced researchers are stuck in the unworkable paradigm that the solution to economic inequality is redistribution––the taking from those who are productive and spreading money or welfare services out to those who are not productive.
The REAL solution is not redistribution, except in the most dire emergency situations, but FUTURE distribution via broadened individual ownership of new, wealth-creating, income-producting capital assets. This can be accomplished using insured, interest-free capital credit loans repayable out of the FUTURE earnings of the investments in the economy’s FUTURE growth.
For specifics of this solution read the proposed Capital Homestead Act beginning with the overviews at athttp://www.cesj.org/…/capital-homestead-act-a-plan-for…/ andhttp://www.cesj.org/…/capital-homestead-act-summary/.

A 401(k) For All

On July 22, 2014, Gene B. Sperling writes in The New York Times:

ONE compelling way to turn the ongoing national discussion on wealth inequality into a tangible policy to help Americans increase their wealth and savings would be to fix what I have long called our “upside-down” tax incentive system for retirement savings. In its current form, it makes higher-income Americans triple winners and people earning less money triple losers.

How so? First, the federal government’s use of tax deductibility to encourage savings turns our progressive structure for taxing income into a regressive one: While earners in the highest income bracket get a 39.6 percent deduction for savings, the hardest-pressed workers, those in the lowest tax bracket, get only a 10 percent deduction for every dollar they manage to put away.

Second, while less than 1 percent of lower- and moderate-income Americans can put aside enough to fully “max out” their benefits on I.R.A. contributions, higher-income Americans can maximize their return on savings by sampling from a menu of tax-preferred savings options. A business owner could theoretically benefit from a 401(k), a SEP I.R.A. of up to $52,000 and a state-based 529 program that allows tax-free savings for college education.

Finally, a far larger share of upper-income Americans get matching incentives for savings from their employers. Members of Congress and the White House staff, for example, get an 80 percent match for saving 5 percent of their income. But while half of Americans earning more than $100,000 get an employer match, only 4 percent of those earning under $30,000 and less than 2 percent of those making under $20,000 get any employer match for saving.

The results are stunning. Last year, of the $137 billion in tax benefits that went to encourage retirement savings, three times more went to the top 10 percent of taxpayers than to the bottom 60 percent. The top 5 percent of taxpayers get more tax relief for savings than the bottom 80 percent. If the main justification for savings incentives is to help workers overcome shortsightedness about the benefits of long-term accumulated savings, how is it defensible to focus so many of our resources on those best poised to save anyway?

One intermediate step would be to replace our regressive system of relying on tax deductibility with a flat tax credit that would give every American a 28 percent tax credit for savings, regardless of income. But why should we stop there? If we know that 401(k)’s with automatic payroll deductions and matching incentives work beautifully for those with access to them, why would we not institute a 401(k) for everyone?

A government-funded universal 401(k) would give lower- and moderate-income Americans a dollar-for-dollar matching credit for up to $4,000 saved annually per household. Upper-middle-class Americans could get at least a 60 percent match — doubling the incentive they get today. The match would be open to workers even if their employers were already matching, which would encourage employers to keep contributing to savings. The match would also be available through I.R.A. contributions for those who were self-employed or who wanted to keep saving even while they were temporarily not working.

Employers would have to provide automatic payroll deductions for their employees (while allowing those who still wanted to opt out to do so). Setting the default at “opting in” would ensure that workers did not miss out on the match provided by a universal 401(k). The government could set requirements for low fees, transparency and safety to allow for vigorous competition in the private sector while allowing individual savers access to a version of the plan that members of Congress use for their own retirement savings.

Costs need not be a roadblock. Among many ways to do it, moderate reforms to the estate tax could allow married couples to leave up to $7 million to their heirs tax-free (instead of the current $10.7 million) while generating over $200 billion in resources over the next decade, which could be used to help tens of millions of savers build their own estates. Even if a universal 401(k) ended up costing the government more than expected, it would still increase national savings overall if the public incentives led to additional private savings.

While President Clinton put forward a similar USA Account proposal in 1999 and President Obama has promoted automatic savings proposals since 2009, these ideas have gotten lost in partisan debates on fiscal and Social Security reform.

But with the economy recovering and many Americans beginning to focus on rebuilding lost nest eggs, politicians on all sides should see something they like in a policy that would both reduce wealth inequality and encourage individual wealth creation.

Instead of a focus on “past savings” and depletion of monthly wage earnings through contributions to 401(k)s, we should create equal opportunities for EVERY child, woman and man to build a wealth-creating, income-producing Capital Homestead Account (CHA) using the financial mechanism of insured, interest-free capital credit local bank loans backed by the Federal Reserve that would be repayable out of the FUTURE (“future savings”) earnings of the capital asset investments, without requiring a reduction in their consumption income, and without taking anything from those who are already in the wealthy ownership class.

What Gene Sperling, the Democrats and Republicans and all third party leaders need to advocate is their ability to lead America on a path based on a paradigm shift to an equal opportunity economic democracy not requiring “past savings” to build financial security.

The JUST Third Way is a radical overhaul of the economic system (i.e., the Federal tax system, Federal Reserve policy, inheritance law, welfare and entitlement system, etc.) that will achieve genuine economic democracy, based on the Platform of the Unite America Party and its links and the proposed Capital Homestead Act. Our Platform is a call for a vision of political economy that can unite the left and the right, based on Louis Kelso’s ownership-based paradigm. Now is the time to cure America’s political cancer (Crony Capitalism) and restore America to again becoming a model for global citizens in all countries.

For a new vision see http://www.foreconomicjustice.org/?p=12331 andwww.facebook.com/uniteamericaparty. Support the Unite America Party Platform, published by The Huffington Post at http://www.huffingtonpost.com/gary-reber/platform-of-the-unite-ame_b_5474077.html as well as Nation Of Change at http://www.nationofchange.org/platform-unite-america-party-1402409962 and OpEd News at http://www.opednews.com/articles/Platform-of-the-Unite-Amer-by-Gary-Reber-Party-Leadership_Party-Platforms-DNC_Party-Platforms-GOP-RNC_Party-Politics-Democratic-140630-60.html.

http://www.nytimes.com/2014/07/23/opinion/a-401-k-for-all.html?smid=fb-share&_r=0

Positively Un-American Tax Dodges

untitled-1

Bigtime companies are moving their “headquarters” overseas to dodge billions in taxes … that means the rest of us pay their share.

On July 7, 2014, Alan Sloan writes in Fortune Magazine:

Ah, July! What a great month for those of us who celebrate American exceptionalism. There’s the lead-up to the Fourth, countrywide Independence Day celebrations including my town’s local Revolutionary War reenactment and fireworks, the enjoyable days of high summer, and, for the fortunate, the prospect of some time at the beach.

Sorry, but this year, July isn’t going to work for me. That’s because of a new kind of American corporate exceptionalism: companies that have decided to desert our country to avoid paying taxes but expect to keep receiving the full array of benefits that being American confers, and that everyone else is paying for.

Yes, leaving the country–a process that tax techies call inversion–is perfectly legal. A company does this by reincorporating in a place like Ireland, where the corporate tax rate is 12.5%, compared with 35% in the U.S. Inversion also makes it easier to divert what would normally be U.S. earnings to foreign, lower-tax locales. But being legal isn’t the same as being right. If a few companies invert, it’s irritating but no big deal for our society. But mass inversion is a whole other thing, and that’s where we’re heading.

We’ve also got a second, related problem, which I call the “never-heres.” They include formerly private companies like Accenture  ACN 0.37% , a consulting firm that was spun off from Arthur Andersen, and disc-drive maker Seagate  STX , which began as a U.S. company, went private in a 2000 buyout and was moved to the Cayman Islands, went public in 2002, then moved to Ireland from the Caymans in 2010. Firms like these can duck lots of U.S. taxes without being accused of having deserted our country because technically they were never here. So far, by Fortune’s count, some 60 U.S. companies have chosen the never-here or the inversion route, and others are lining up to leave.

All of this threatens to undermine our tax base, with projected losses in the billions. It also threatens to undermine the American public’s already shrinking respect for big corporations.

Inverters, of course, have a different view of things. It goes something like this: The U.S. tax rate is too high, and uncompetitive. Unlike many other countries, the U.S. taxes all profits worldwide, not just those earned here. A domicile abroad can offer a more competitive corporate tax rate. Fiduciary duty to shareholders requires that companies maximize returns.

My answer: Fight to fix the tax code, but don’t desert the country. And I define “fiduciary duty” as the obligation to produce the best long-term results for shareholders, not “get the stock price up today.” Undermining the finances of the federal government by inverting helps undermine our economy. And that’s a bad thing, in the long run, for companies that do business in America.

Finally, there’s reputational risk. I wouldn’t be surprised to see someone in Washington call public hearings and ask CEOs of inverters and would-be inverters why they think it’s okay for them to remain U.S. citizens while their companies renounce citizenship. Imagine the reaction! And the punitive legislation it could spark.

WATCH: Inversion: How some major U.S. companies are dodging taxes

Fortune contacted every company on our list of tax avoidersand asked why they incorporated overseas. Four of them–Carnival  CCL , Garmin  GRMN 0.49% , Invesco  IVZ -0.31% , and XL  XL 0.63% –said they were never U.S. companies. In other words, they are never-heres. Five more–Actavis  ACT 1.51% , Allegion  ALLE -0.82% , Eaton  ETN -0.37% , Ingersoll Rand  IR -0.42% , and Perrigo  PRGO 1.26% –said they inverted mainly for strategic purposes. The tenth, Nabors  NBR 1.21% , refused to respond to our multiple requests.

Companies that have gone the inversion or never-here route but that act American include household names like Garmin, Michael Kors  KORS -0.62% , Carnival, and Nielsen  NLSN 0.56% . Pfizer  PFE -0.33% , the giant pharmaceutical company, tried to invert this spring, but the deal fell through. Medtronic  MDT 1.05% , the big medical-device company, is trying to invert, of which more later. Walgreen  WAG 0.05%  is talking about inverting too–it’s easier to boost earnings by playing tax games than by fixing the way you run your stores.

TAX.07.21.14.rev

Then there’s the “Can you believe this?” factor. Carnival, a Panama-based company with headquarters in Miami, was happy to have the U.S. Coast Guard, for which it doesn’t pay its fair share, help rescue its burning Carnival Triumph. (It later reimbursed Uncle Sam.) Alexander Cutler, chief executive of Eaton, a Cleveland company that he inverted to Ireland, told the City Club of Cleveland, without a trace of irony, that to fix our nation’s budget problems, we need to close “those loopholes in the tax system.” Inversions, I guess, aren’t loopholes.

Before we proceed, a brief confessional rant: The spectacle of American corporations deserting our country to dodge taxes while expecting to get the same benefits that good corporate citizens get makes me deeply angry. It’s the same way that I felt when idiots and incompetents in Washington brought us to the brink of defaulting on our national debt in the summer of 2011, the last time that I wrote anything angry at remotely this length. (See “American Idiots.”) Except that this is worse.

Inverters don’t hesitate to take advantage of the great things that make America America: our deep financial markets, our democracy and rule of law, our military might, our intellectual and physical infrastructure, our national research programs, all the terrific places our country offers for employees and their families to live. But inverters do hesitate–totally–when it’s time to ante up their fair share of financial support of our system.

Inverting a company, which is done in the name of “shareholder value”–a euphemism for a higher stock price–is way more offensive to me than even the most disgusting (albeit not illegal) tax games that companies like Apple  AAPL 2.61%  and GE  GE -0.42%  play to siphon earnings out of the U.S. At least those companies remain American. It may be for technical reasons that I won’t bore you with–but I don’t care. What matters is the result. Apple and GE remain American. Inverters are deserters.

Even though I understand inversion intellectually, I have trouble dealing with it emotionally. Maybe it’s because of my background: I’m the grandson of immigrants, and I’m profoundly grateful that this country took my family in. Watching companies walk out just to cut their taxes turns my stomach.

Okay, rant over.

The current poster child for inversion outrage is Medtronic Inc., the multinational Minnesota medical-device company that once exuded a cleaner-than-clean image but now proposes to move its nominal headquarters to Ireland by paying a fat premium price to purchase Covidien  COV 0.45% , itself a faux-Irish firm that is run from Massachusetts except for income-taxpaying purposes. For that, it’s based in Dublin. That’s where the new Medtronic PLC would be based, while its real headquarters would remain on Medtronic Parkway in Minneapolis. Of course, the company is unlikely to return any of the $484 million worth of contracts the federal government says it has awarded Medtronic over the past five years.

If the Medtronic deal goes through, which seems likely, it will open the floodgates. Congress could close them, as we’ll see–but that would require our representatives and senators to get their act together. Good luck with that.

Now let’s have a look at some of the more interesting aspects of the proposed Medtronic-Covidien marriage. I’m not trying to pick on Medtronic–but its decision to become the biggest company to invert makes it fair journalistic game.

Medtronic is one of those U.S. companies with a ton of cash offshore: something like $14 billion. That’s money on which U.S. income tax hasn’t been paid. Medtronic told me it would have to pay $3.5 billion to $4.2 billion to the IRS if it brought that money into the U.S.: That’s the difference between the 35% U.S. tax rate and the 5% to 10% it has paid to other countries. Among other things, inverting would let Medtronic PLC use offshore cash to pay dividends without subjecting the money to U.S. corporate tax.

I especially love a little-noticed multimillion-dollar goody that Medtronic is giving its board members and top executives. Years ago, in order to discourage inversions, Congress imposed a 15% excise tax on the value of options and restricted stock owned by top officers and board members of inverting companies. Guess what? Medtronic says it’s going to give the affected people enough money to pay the tax.

We’re talking major money–major money that I’m glad to say isn’t tax-deductible to Medtronic. The company wouldn’t tell me how much this would cost its stockholders. So I did my own back-of-the-envelope math, starting with chief executive Omar Ishrak. Using numbers from Medtronic’s 2014 proxy statement and adjusting for its stock price when I was writing this, I figure that his options and restricted shares are worth at least $40 million, and the “equity incentive plan awards” that he might get are worth another $23 million. Allow for the fact that Medtronic will “gross up” Ishrak et al. by giving them enough money to cover both the excise tax and the tax due on their excise tax subsidy, and you end up with $7.1 million to $11.2 million just for Ishrak. And something more than $60 million for Medtronic as a whole.

Why does Medtronic feel the need to shell out this money? The company’s answer: “Medtronic has agreed to indemnify directors and executive officers for such excise tax because they should not be discouraged from taking actions that they believe are in the best interests of Medtronic and its shareholders.”

But you know what, folks? These people are fiduciaries, who are legally required to put shareholders’ interests ahead of their own. If they believe that inverting is the right thing to do (which, it should be obvious by now, I don’t) they ought to pay any expenses they incur out of their own pockets, not the shareholders’. It’s not as if these people lack the means to pay–the directors get $220,000 a year (and up) in cash and stock for a part-time job, and Ishrak gets a typical hefty CEO package.

One more thing: Normally, a company’s shareholders don’t have to pay capital gains tax if their firm makes an acquisition. But because this is an inversion, Medtronic shareholders will be treated as if they’ve sold their shares and will owe taxes on their gains. However, the deal won’t give them any cash with which to pay the tab.

The company asked me to mention that its executives and directors, like other holders, will be subject to gains tax on shares that they own outright, and Medtronic won’t compensate them for it. Okay. Consider it mentioned.

Second, the company contends that this deal will be so good for shareholders that it will more than offset their tax cost triggered by the board’s decision to invert. Well, we’ll see.

A major barrier to inversion used to be that companies moving offshore were kicked out of the Standard & Poor’s 500 index. Given that more than 10% (by my estimate) of the S&P 500 stocks are owned by indexers, getting tossed out of the index–or being added to it–makes a big, short-term difference in share price. In 2008 and 2009, S&P, which has a few never-heres, tossed nine companies off the 500 for inverting. But four years ago, S&P changed course, for business reasons. Companies were angry at being excluded, and index investors wanted to own some of the excluded companies. Moreover, S&P feared that a competitor would set up a more inclusive, rival index.

So in June 2010, S&P changed its definition of American. Now all it takes to be in the S&P 500 is to trade on a U.S. market, be considered a U.S. filer by the Securities and Exchange Commission, and have a plurality of business and/or assets in the U.S.

The result: S&P now has 28 non-American companies in the 500.

How much money are we talking about inverters sucking out of the U.S. Treasury? There’s no number available for the tax revenue losses caused by inverters and never-heres so far. But it’s clearly in the billions. Congress’s Joint Committee on Taxation projects that failing to limit inversions will cost the Treasury an additional $19.5 billion over 10 years–a number that seems way low, given the looming stampede. But even $19.5 billion–$ 2billion a year–is a lot, if you look at it the right way. It’s enough to cover what Uncle Sam spends on programs to help homeless veterans and to conduct research to create better prosthetic arms and legs for our wounded warriors.

Rep. Sandy Levin (D-Mich.) and his brother, Sen. Carl Levin (D-Mich.), have introduced legislation that would stop Medtronic in its tracks by making inversions harder. Under current law, adopted in 2004 as an inversion stopper, a U.S. company can invert only if it is doing significant business in its new domicile and shareholders of the foreign company it buys to do the inversion own at least 20% of the combined firm.

The Levins propose to require that foreign-firm shareholders own at least 50% of the combined company for it to be able to invert and also that the company’s management change. This would really slow down inversions–but the chances of Congress passing the Levin legislation are somewhere between slim and none.

Conventional wisdom holds that companies are inverting now because they’ve despaired of getting clean-cut reform that would widen the tax base and lower rates. But John Buckley, former chief Democratic tax counsel for the House Ways and Means Committee, has a different view. Buckley thinks that we’re seeing an inversion wave not because there’s no prospect of tax reform but because there is a prospect of reform. If reform comes, he says, there will be winners and losers–and it’s the likely losers-to-be that are inverting. “Even minimal tax reform would hurt a lot of these companies badly,” he says.

For example, Buckley says, a company that inverts before reform takes effect will be able to suck income out of the U.S. to lower-tax locales much more easily than if it were still a U.S. company. “A revenue-neutral tax reform requires there to be winners and losers,” Buckley says. “But by inverting, the companies that would be losers are taking themselves out of the equation … They’re taking advantage of both U.S. individual taxpayers and other corporations.”

If you’re a typical CEO who has read this far, about now you’re shaking your head and thinking, “What a jerk! Just cut my tax rate and I’ll stay.” To which I say, “I wouldn’t bet on it.” In the widely hailed 1986 tax reform act, Congress cut the corporate rate to 34% (now 35%) from 46%, and closed some loopholes. Corporate America was happy–for awhile. Now, with Ireland at 12.5% and Britain at 20% (or less, if you make a deal), 35% is intolerable. Let’s say we cut the rate to 25%, the wished-for number I hear bandied about. Other countries are lower, and could go lower still in order to lure our companies. Is Corporate America willing to pay any corporate rate above zero? I wonder.

So what do we need? I’ll offer you a bipartisan solution–no, I’m not kidding. For starters, we need to tighten inversion rules as proposed by Sandy and Carl Levin, who are both bigtime Democrats. That would buy time to erect a more rational corporate tax structure than we have now–bolstered, I hope, by input from tough-minded tax techies.

We also need loophole tighteners along the lines of proposals in the Republican-sponsored, dead-on-arrival Tax Reform Act of 2014. One part would have imposed a tax of 8.75% a year on cash and cash equivalents held offshore, and 3.5% a year on other retained offshore earnings.

Another thing we need to do–which the SEC or the Financial Accounting Standards Board could do in a heartbeat, but won’t–is require publicly traded U.S. companies and U.S. subsidiaries of publicly traded foreign companies to disclose two numbers from the tax returns they file with the IRS: their U.S. taxable income for a given year, and how much income tax they owed. This would take perhaps one person-hour a year per company.

That way we would know what firms actually pay instead of having to guess at it. Then we could compare and contrast companies’ income tax payments.

What we don’t need is another one-time “tax holiday,” like the one being proposed by Sen. Harry Reid (D-Nev.), to let companies pay 9.5% rather than 35% to bring earnings held offshore into the U.S. It would be the second time in a decade we’ve done that, and would signal tax avoiders that they should keep sending tons of money offshore, then wait for a tax holiday–presumably not on the Fourth of July–to bring it back.

Until–and unless–we somehow get our act together on corporate tax reform, companies will keep leaving our country. Those that try to do the right thing and act like good American corporate citizens will come under increasing pressure to invert, if only to fend off possible attacks by corporate pirates–I’m sorry, “activist investors”–who see inversion as a way to get a quick uptick in their targets’ stock price.

Now, two brief rays of sunshine: one in England, one here.

Starbucks  SBUX 0.51% , embarrassed by a 2012 Reuters exposé showing that it paid little or no taxes in England despite telling shareholders it made big profits there, has recently apologized and now makes substantial British tax payments. And eBay  EBAY 1.17% , God bless it, decided to bring $9 billion of offshore cash into the U.S. and pay taxes on it.

So I’m feeling a bit better about July than when I started writing this. In any event, a happy summer to you and yours.

Additional reporting: Marty Jones Mehboob Jeelani, Phil Wahba, and Michael Casey

This story is from the July 21, 2014 issue of  Fortune.

 

This is a “big picture” problem that our nation and other nations face. Because the system facilitates non-human capital asset wealth being constantly monopolized by the wealthy ownership class, which is often referred to as “the 1 percent,” who are the primary owners of American corporations, without a stiff corporate income tax it will be virtually impossible to incentivize corporations to pay out fully their earnings to their stockholders, who would be ALL taxed at the personal tax rate. We should want to eliminate double taxation (at the corporate and personal levels) to incentivize corporations to issue and sell new stock to raise monies to invest in new plant and machinery capital assets  to create economic growth. This is the pathway to creating new owners and broadening wealth-creating, income-producing capital ownership to EVERY child, woman and man. EVERY citizen should be empowered equally to have access to insured, interest-free capital credit loans issued by local banks backed by the Federal Reserve to acquire new stock issues in qualified corporations with the principal and insurance fee repayable out of the FUTURE earnings of the investment. This would provide American corporations with all the monies they would need to grow, which in turn would substantially accelerate the growth of the economy, create new capital owners who would benefit from a new income source, and create new job opportunities as the economy revs up to produce general affluence for EVERY citizen. These policies would create a nation of “customers with money,” who overtime can build substantial financial security and eliminate reliance on taxpayer-supported government.

If we further lower or eliminate corporate income tax rates we eliminate our ability to incentivize corporations to finance new growth by creating new owners, without taking away ownership from those who are already owners.

We need to define an American corporation with at least better than 60 percent ownership vested with American citizens. We also need to  look at tariffs on non-American corporations who would have tax advantages over American corporations.

We also need to condition awarding ALL taxpayer-supported federal contracts (corporate welfare) on the basis that EVERY company vying for a government contract demonstrate that they are broadly owned including ownership by their employees. We need to ensure  that if a corporation wants the advantages of being an American company then they should not be able run away from America to avoid paying taxes.  Either American corporations pay a stiff corporate tax and remain narrowly owned or they pay no corporate tax but are structured such that they are owned broadly and by their employees. Such policies will stimulate a new era in American technological innovation.

Support the Capital Homestead Act at http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-a-plan-for-getting-ownership-income-and-power-to-every-citizen/ and http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-summary/.

Support the Unite America Party Platform, published by The Huffington Post at http://www.huffingtonpost.com/gary-reber/platform-of-the-unite-ame_b_5474077.html as well as Nation Of Change at http://www.nationofchange.org/platform-unite-america-party-1402409962 and OpEd News at http://www.opednews.com/articles/Platform-of-the-Unite-Amer-by-Gary-Reber-Party-Leadership_Party-Platforms-DNC_Party-Platforms-GOP-RNC_Party-Politics-Democratic-140630-60.html.

http://fortune.com/2014/07/07/taxes-offshore-dodge/

http://fortune.com/2014/07/22/corporate-tax-dodge-inversions-congress/

http://fortune.com/2014/07/18/are-u-s-corporate-tax-inversions-a-necessary-crisis/

http://fortune.com/2014/07/22/allan-sloans-congressional-testimony-on-tax-inversions/

Jacob Lew Calls For ‘Economic Patriotism,’ Seeks To Limit Offshore Tax Moves

lat-lew-wre0018602628-20140701

Treasury Secretary Jacob Lew says a trend of U.S. companies reorganizing as foreign firms serves “to hollow out the U.S. corporate income tax base.” Above, Lew at a forum this month in Washington. (Saul Loeb / AFP/Getty Images)

On July 17, 2014, Jim Puzzanghera writes in the Los Angeles Times:

Calling for “a new sense of economic patriotism,” a top Obama administration official urged Congress to take immediate action to stop U.S. companies from reorganizing as foreign firms to avoid paying taxes.

The maneuver, known as tax inversion, serves “to hollow out the U.S. corporate income tax base,” Treasury Secretary Jacob J. Lew wrote in a letter Tuesday to congressional leaders that was obtained by the Times.

“What we need as a nation is a new sense of economic patriotism, where we all rise or fall together,” Lew wrote to the top Democrats and Republicans on the congressional tax-writing committees.

“We should not be providing support for corporations that seek to shift their profits overseas to avoid paying their fair share of taxes,” he said.

Some lawmakers have pushed to restrict the practice, in which a U.S.-based multinational company restructures so the parent company is a foreign corporation.

The maneuver allows firms to avoid paying corporate taxes in the U.S., which has the highest rate among major developed nations.