Should Progressives Play "All or Nothing" With the End-of-Year "Tax Extenders"? Yes.

The very very rich

by Gaius Publius

I wrote recently about the lame-duck battle-- behind the scenes and in the press-- being waged over end-of-year "tax extenders." I offered a progressive strategy (repeated below) for maximizing the number of "good" tax credits that would be extended ("renewed"), like credits for renewable energy and expiring-in 2017 expansions of the Earned Income Tax Credit.

But to fully understand what this amorphous "package" really contains, let's take a closer look; it will be useful to know exactly what's at stake. Are these "tax extenders" really "a little of this and a little of that"-- something for the Rich and something for the Rest? Or are they "a whole lot of this and not much of that at all"? Bottom line-- the package contains very few taxes that benefit the middle class, and a "bonanza" that benefits the very very wealthy.

How Slanted is the Expiring Tax Package Toward "Business" and the Wealthy?

There are about 55 expiring tax cuts in the full package, but only a few of them genuinely benefit the poor and middle class (unless you think every "business incentive" automatically benefits workers). Joshua Holland at BillMoyers.com (my emphasis throughout):

The 55 [tax] cuts, known on Capitol Hill as “extenders,” expired at the end of 2013 but in the past have been renewed retroactively on a bipartisan basis with little fanfare. Altogether, according to the Congressional Budget Office, they could cost the federal government $46 billion in revenues in 2014 and as much as $700 billion over the next 10 years. While some of the breaks would help working people, 90 percent of them would benefit the bottom lines of large, US-based multinationals.

Your first take-away-- ninety percent of these tax breaks, or roughly 10-to-1, would benefit "large, US-based multinational [corporations]"-- meaning the very very rich. Recall that just as corporations loot the economy, the rich loot those corporations via their compensation committees while workers are regularly squeezed. Thus most of the benefit of these "tax breaks" flow to CEOs and their ilk. This whole story is about sweetening the bottom line of what Bernie Sanders calls the "billionaire class."

Here's an indication of how desperate those CEOs are, how badly they want to keep those tax breaks flowing. Holland again:

A report released on Monday by Americans for Tax Fairness and Public Campaign calculates that, “1,359 individual lobbyists swarmed Capitol Hill to press members of Congress on the issue between January 2011 and September 2013.”  Lobbyists appeared “12,378 times in quarterly lobbying reports in the period studied-- each report representing from one to dozens of contacts with members of Congress and their staffs during the quarter it was filed.”

Your second take-away-- the very very rich care very very much about this deal. As I wrote earlier:

Who's getting the better end of this deal? Obviously the rich; they get the better end of every deal. So who really wants their part [of the deal] more? Interesting question and one almost never asked.  ...

The fact is-- the [rich people's] wet dream part is what this deal is all about, and that dream is critical to each of the other three groups in our four-handed game. Only progressives are opposed to the rich-people's gifts.

These tax breaks include such delights as this corporate overseas giveaway:

Arguably the most controversial of these tax breaks is known as the Active Financing Exception loophole (AFE), which allows companies to avoid paying taxes on interest and dividends earned on overseas cash. Lobbying for the AFE has been especially intense.

Dubbed the “GE loophole” by critics, the report says that General Electric “employed 48 lobbyists to work on tax extenders and… the AFE”-- more than any other corporation. The authors note that while ”it is not possible to know how much the AFE saves GE,” the loophole played a significant role in the company paying “less federal income taxes than an average American family pays in one year” on profits of $27.5 billion earned between 2008 and 2012. ...

The tax study was released on the same day that Sen. Carl Levin (D-MI) released a report detailing how Caterpillar Inc. “used complicated corporate maneuvers to avoid $2.4 billion in U.S. taxes by parking profits in a unit in Switzerland.” According to a report by ISI Research, S&P 500 companies currently have $1.9 trillion parked in offshore tax havens.

Tax-free interest on $2 trillion is not nothing. Not only do corporations pay no tax on money they've parked overseas (until the government, in its generosity, offers a "tax holiday"), they don't pay tax on the interest it earns either. Nice. And note that Caterpillar's tax avoidance alone-- again, $2.4 billion-- would keep a lot of families out of poverty, if the U.S. government cared about them sufficiently. But apparently benefits for the poor are not the highest priority.

What's the Package in Dollars? Close to One Trillion

This report (pdf; be careful when reading the business-friendly prose) gives a pretty good picture of the whole tax extender pie. Total dollars not received as taxes by the federal government over a ten-year span, if the whole package is extended, would be $938.3 billion according to the CBO. For convenience, call that $1 trillion. Here's one breakdown (pdf page 9, numbered page 5; my emphasis):

The Cost of Extending Expiring Provisions

The Congressional Budget Office (CBO) provides estimated costs of extending all tax provisions scheduled to expire between 2013 and 2023 (see Table 1).24 According to these estimates, over the 2014 to 2023 budget window,

• extending all expiring tax provisions would cost $938.3 billion;
• extending temporary investment incentives (the partial expensing for investment property and Section 179 expensing allowances) would cost $346.1 billion;
• extending expansions to the child tax credit, the earned income tax credit, and the American Opportunity Tax Credit [tuition aid] currently scheduled to expire at the end of 2017 would cost $140.4 billion; and
• extending all other expiring tax provisions would cost $451.8 billion.

Notice the second bullet, incentives to business for "investment property" and "Section 179" (depreciation) allowances-- $346.1 billion over a 10-year-span, or more than one third of the entire package. By contrast, the human-helping credits in the third bullet, combined, are less than half that, about 15% of total dollars. (And in the fourth bullet, do you trust their classification of "other"? I don't.)

Set-to-expire energy-related tax credits (Table 3) total just $21 billion over the same span, unless my math is off-- a small 2% of the package. Of that, more than half is credits to owners of power generation plants that use “qualified energy resources” at “qualified facilities” (info here; pdf)-- i.e., creators of wind farms and other renewable power-generating facilities.

Finally, that "GE loophole" mentioned above is put at $11.2 billion, or nearly as much as the entire "renewable power generating credit" all by itself.

To summarize, almost $1 trillion in tax credits (totaled over 10 years) are set to expire, of which only $21 billion is renewable-energy-related and only $140 billion is relief to the poor and those burdened by education costs. The latter are what we'd like to preserve, and they total just 17% of all dollars in the package (again, unless my math is wrong). Yet most of these credits are exactly the ones the reported Reid-negotiated, White House–opposed deal would end ...

Under the terms of the $444 billion agreement, lawmakers would phase out all tax breaks for clean energy and wind energy but would maintain fossil fuel subsidies. Expanded eligibility for the Earned Income Tax Credit and the Child Tax Credit would also end in 2017 [when they were set to expire by existing law].

... all while making many "business" credits permanent. We don't have full details of the unconsummated Senate "deal." But if the total dollars in the deal is $444 billion over a 10-year span, and "business" gets to preserve its CBO-identified $350 billion (nearly 80% of the total) while the rest of us lose most of the $140 billion in relief to the poor and all incentives to convert to renewable energy-- I can't think of a single reason to preserve it. So why not blow it up entirely unless all our priorities are preserved?

Should Progressives Threaten This Rich People's "Bonanza"? Yes.

Should progressives threaten this bonanza, as Dave Johnson calls it? What do you think? It's a pretty obvious call for progressives who are playing to win. So I'll make two "bold" statements.

First, "bold" progressives should threaten their pile in a heartbeat, threaten all of it. Remember, only 10% percent of the tax breaks by number and 17% of the dollars meet progressive goals. The reported Senate deal wants to take most of that away. If you had just $50 at stake in a game of Chicken, and the other side had $300, which would make a stronger negotiation position? (a) Offer "whole deal or no deal" and stick to it till the other side folds? Or (b) say Yes when they try to make your part smaller, and ask to hang on to a little of it?

If you chose (b) you'd end up with something like the reported Senate deal. Given how much is at stake on their side and how badly they want it, (a) is an obvious stronger bargaining position:

Instead of surrendering almost everything you care about to get the least bit of something, progressives should threaten everything the other side wants and frankly, call their money-loving bluff. The White House wants the rich to have these gifts in their stocking; all Senate Republicans agree; and so does every corporate-loving Democrat (like "sorry for playing hard" Michael Bennet). Make the other side fight for the money, and look like it.

Since the White House has already threatened a veto-- in other words, played the "let them all expire" card for you-- real progressives should counter-offer like this, and say:

"Progressives in the Senate stand for working people and those struggling with poverty. The deal on the table is unacceptable in every way. We would rather have no deal than the one on offer. If you want our vote, put the deal on the table in 2014 that we voted for in 2013. That way everyone wins. That or nothing from us."

And hold to it. Give away nothing you want. A full extension of this "bonanza" with no losses for our side is a better deal than anything you'll get by trading away bits and pieces. After all, the full package was extended last year (January 2013) with no fuss whatever. Play "all or nothing" with confidence.

Second, any Democrat who won't play this hand with a strong move, given the billions the other side is desperate to hang onto, is either way too easily blackmailed or ... how to put this politely ... very possibly compromised by the same lobbyists that Josh Holland identified above. Let's say that again. Progressives who fold when a strong move is available are either easily blackmailed or compromised themselves by campaign financing.

A true progressive puts principle into deeds, and not just campaign-financed words. This is a perfect chance to show it. Sorry to put things on the line like it, but it's simply the truth.

What If They Counter-Offer?

I see three counter-moves by Money and the money-controlled:

▪ They could "surrender"-- offer to kill only half of what you want, instead of 90%? Say No to that. "All or nothing" and show them the ticking clock.

▪ They could (and likely will) offer to extend the end-of-year deadline while negotiations continue. Say No to that too. Repeat "all or nothing" and show them the ticking clock. After all, it's their side that screams about end-of-year "tax uncertainty." You can say that too. 

▪ The White House could cave and cut a less onerous deal than the one Reid and McConnell reportedly discussed. Let them, and point out that they surrendered. Promise to vote No on the compromise deal and keep that promise.

It seems pretty obvious that if you dangle $350 billion in front of rich people and say "take it or don't," they take it twelve times out of ten. If the White House stays true to their word-- and you can ask them publicly to do that-- you'll win. If the White House caves, you can make sure they look bad doing it, while you look good holding out through the final vote. In any of these cases, you get the best deal possible.

Three Test for Senate Progressives, and Three Opportunities

I'll close with this. As I noted earlier, there are three coming tests for Senate progressives, and three opportunities to show some anti-billionaire spine:

1. The Antonio Weiss nomination for Treasury under-secretary
2. The Loretta Lynch nomination for Attorney General
3. This end-of-year "tax extenders" deal

Elizabeth Warren is playing a strong hand on the first, but the other two are still in the air. All are opportunities for Senate progressives to assert themselves against Big Money, the "billionaire class" that controls most of the leadership in both parties. Progressives might lose on the first two, but if so, they go down fighting and stand for something doing it. The tax-extenders deal is winnable, especially if the White House can be finessed by your strong move, painted into a populist corner.

If you care about strength among progressive office-holders, watch these fights carefully. Especially watch the players. We're about to find out who in the Senate qualifies as a bold progressive. Cross-roads time as I see it. If the 2014 election results have any meaning at all, the future of the Democratic party hangs in the balance.

GP


UPDATE: Just In-- No Deal

Just as we were about to post, Greg Sargent reported that the tax extenders deal with the Republicans is off: "Senate Democratic leaders appear to have abandoned the push for a deal with Republicans that would have permanently extended a bunch of tax breaks, after a revolt from Senate liberals and a veto threat from President Obama. Liberals and the White House had argued that the slate of tax breaks Senate Dem leaders had been negotiating were skewed towards business and left out provisions that would have helped working Americans-- permanent extensions of the Earned Income Tax Credit and the Child Tax Credit... A spokesman for Harry Reid confirms that he will insist that extensions of the EITC and CTC -- a top priority of liberals-- must be part of any future negotiations over tax reform."

Senator Sherrod Brown, who was instrumental in rallying Senate liberals against any permanent deal that didn’t include extensions of the EITC and CTC, says that Democrats drew a line that was necessary in advance of the coming fights with the GOP-controlled Congress.

“If Republicans are going to go back to more tax breaks for corporations and tax cuts for the richest Americans, we’ve got to stand strong and emphasize working families getting more of a break than they’re getting,” Brown told me. “Republicans need to find out that Democrats will draw a line and say No. We’ve showed that, and I think come January, we’ll show it again.”