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Why Corporate Subsidies in the Fiscal Cliff Bill Matter: We Can Stop Corruption If We Understand It

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Matt Stoller is a fellow at the Roosevelt institute. You can follow him at http://www.twitter.com/matthewstoller.

Three days ago, Naked Capitalism published a story, Eight Corporate Subsidies in the Fiscal Cliff Bill, From Goldman Sachs to Disney to NASCAR. Basically, when everyone else was focused on taxes for the wealthy or spending cuts, we actually looked at the underlying bill. And loh and behold, the corporate extenders were egregious and included cash for NASCAR, Hollywood, mining companies, GE, Citigroup, and so on.

The reaction has been swift, and is useful to understand, because it points to an underlying political dynamic. And that is, change is possible, and “the system” isn’t inherently dirty. We can make a difference, if we try.

The story made it into the New York Times and into a Brad Plumer front-page piece in the Washington Post. NBC, ABCCBS, the Huffington Post, US News and World ReportsThink Progress, and the Wall Street Journal ran with it. There’s a somewhat obnoxious tendency on the part of traditional media organizations not to cite blogs (the AP was once caught saying “we do not credit blogs”), so it’s somewhat difficult to know how much of the coverage came from our work here. I suspect, a lot of it. The Washington Post cited our work, but Nelson Schwartz of the New York Times didn’t, despite calling me after seeing the blog post here. This isn’t like copying work from a long investigative project, as the bill was online and journalists would have probably found it eventually. I was happy to talk to Schwartz, since the goal is to build a political conversation. And much of the coverage helped extend the story, getting reactions from various recipients of the loopholes and exploring tax issues we missed (like rum taxes for Puerto Rico).  The story really traveled, going into local papers all over, just to pick a sampling - the Dallas Morning News, the Charleston Daily Mail, the Austin Statesman, specialty papers like the Boston Business Journal, BDN Maine Business, and right-wing papers like Reason Magazine and the Washington Examiner (where Tim Carney did some useful digging). Popular autoblog Jalopnik defended NASCAR, ESPN and Yahoo Sports even got in on the action. Whether these tax breaks should be extended, how much they cost, and what the recipients think are important aspects of the story.

The media outcry had an impact. Congressman Darryl Issa on the floor of the House argued about the egregiousness of the tax breaks, and Jared Bernstein on NPR is now talking about how we need to close tax loopholes in the debt ceiling. These tax breaks are known as “extenders”, which means they must be extended every year. They must be renewed, and next year (or even sooner, if some smart member proposes closing them for the debt ceiling fight), the renewal fight will happen under a microscope.

NASCAR was outraged, and so was Hollywood. MPAA spokesman Kate Bedingfield justified the tax break by saying that the tax credit helped finance movies such as “Up in the Air” and “Transformers: Dark of the Moon” and television shows such as “Royal Pains”. It’s a jobs issue, but also, aren’t movies cool? Bedingfield is a former Obama White House communications staffer. Marcus Jadotte of NASCAR also defended the tax break as a jobs creator, in PR speak. He said in a statement to Huffington Post Live that “by preserving the tax depreciation status for motorsports facilities, Congress has offered greater certainty for the nearly 1,000 motorsports facilities operating across the country, mostly independent businesses which generate valuable economic impact and support jobs throughout their communities.” Jadotte too is a former Obama advisor and has a long history in Democratic politics.

Steve Elmendorf, a longtime lobbyist and former Democratic staffer, made large sums of money lobbying for GE, Citigroup, and the financial services industry on these tax extenders. This nest of staffers turned corporate PR flacks and lobbyists is exactly what Jeff Connaughton talked about as “The Blob” in his book “The Payoff“.

What I only saw two papers pick up on is the larger narrative behind these breaks. Tim Carney at the Washington Examiner and the Dallas Morning News both cite Republican sources who say that the Obama White House demanded these corporate subsidies stay in the bill. I suspect there was more bipartisan support than these sources let on, since much of their ire was directed at the subsidies to wind and renewable energy. Grover Norquist opposed wind tax cuts, so he doesn’t always seem to like lower taxes.

In other words, the corporate tax extenders were an important part of the negotiations, but largely one that the public was unaware of and one that most House and Senate members didn’t know about until the vote had happened. The constant flow of CEOs in and out of the White House in November and December- from the “liberal” Lloyd Blankfein of Goldman to the more “conservative” Douglas R Oberhelman of Caterpillar (these designations are based on their reputations in the business community) – can be explained by these extenders. These CEOs all said they were willing to support raising taxes on the wealthy, but there’s something they didn’t mention – CEOs tend not to pay taxes on much of their income. They get to put their compensation into tax-free “deferred compensation plans”, and pay taxes thirty years from now (if they pay them at all, there are more ways to hide the money even then).

So this fiscal cliff deal was actually a straight deposit into the bank accounts of CEOs, hidden through the complexity of the tax code (the big tax credits were the R&D tax credit and the major bonus depreciation one). Oberhelman got $4 million of tax deferred compensation last year via deferred compensation arrangements. If Caterpillar couldn’t depreciate its equipment, he wouldn’t get as much. In other words, this fiscal cliff bill might have hiked taxes on the wealthy, but Oberhelman saved his tax-deferred paycheck. It’s a neat trick, not having to pay taxes for thirty years.

There’s an ethic underlying this behavior, an ethic we can attack. On a Huffington Post live segment last night, Washington Asparagus Commission official Alan Schreiber and speedway official Brett Root of the International Motor Contest Association made this ethic explicit. They defended their subsidies with an argument that “this is just how the system works.” Root asked why the racing industry shouldn’t get taxpayer money, considering that baseball and football get publicly financed stadium subsidies. Schreiber said politics is dirty, but hey, it works out in the end.

I told them that it doesn’t actually work out in the end for American society, and that a two wrongs make a right argument when you’re the one engaging in one of the wrongs is fundamentally cowardly. And it is.

The public reaction to revelations of these subsidies is bitterness and resignation. People are bitter because they think they are being cheated, which is true. But they are resigned because they feel the system is inherently going to lead to outcomes like this. That is not true. We do not have to operate according to the norms of cheats. That is a choice we have. But when we resign ourselves to a dirty system, and blame Congress because it is a nameless faceless organization, we contribute to the welfare of our own pickpockets. When we actually learn the details, and take the time to expose what is going on, we can stand dignified against the PR flacks who justify their own graft by pointing to artistically compelling Michael Bay films.

If there’s one shift in perspective I would encourage, it would be to “follow the money.” For instance, on a policy level, the funding of abortion clinics, the Hyde Amendment which prohibits public funds for abortion, training funds for abortion doctors are as significant as the right to have an abortion. A publicly funded infrastructure to get these health services is reproductive rights. Public subsidies to gun makers are a form of gun control, or perhaps a “school shooting subsidy”. As Joe Biden is fond of saying, don’t tell me your priorities, show me your budget. That’s what we’re seeing in this fiscal cliff fiasco.

And beyond that, there’s the principal-agent problem to consider. Tax subsidies aren’t going to Goldman Sachs, they are going to specific individuals. Every official in the White House is going to be funded by someone after they leave. These problems aren’t unsolvable, we’ve done it before. The railroads had tighter control over government in the 19th century than our financial and business elites do now, and their hold was broken.

But we can’t solve our social problems if we’re distracted by the glitter and pomp of fake debates. David Cay Johnston’s The Fine Print goes into these problems in detail, Tom Ferguson’s The Golden Rule describes the political dynamic underlying money driven political systems, and William Hogeland shows us that fights over economic fairness and special favors defined America at its founding.  Read these books. Understand these problems.

And we will continue attacking the underlying status quo ethic of selfishness. Humans know in our hearts that fairness matters. It’s core to who we are. We can ignore it, and focus on other elements of our emotional make-up, but that nagging feeling exists in all of us. And it is powerful. Follow the money. That doesn’t stop with the bad guys, it also has to do with the good ones, too. For example, I was paid by Yves Smith to do this digging. I was paid by all of you who gave money to the Naked Capitalism fundraiser last month. This is why we can tell the truth and not pay attention to the silly norms of establishment media. Because of you. Truth costs upfront cash, but lies are in the long run far more expensive. We’re not in a fundraiser period, but I think it’s important to frame the question of money both ways. Money can matter in a good way. And you giving to Naked Capitalism is a good place to show that you care about exposing and fighting corruption.

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45 comments

  1. JGordon

    This is all very interesting, but all our petty political games and scrambling for our “fair” share of the loot ignores the fact that we as Americans plunder the rest of the world of its labor and irreplacable natural resources to support our lavish lifestyle–a life style that is admittedly going to become available to fewer and fewer of us–no matter how sickeningly corrupt our political and corporate class is.

    Rather than smoothing off a few minor warts on an inherently unsustainable and degenerative system like you all are trying to do, wouldn’t be a much better idea to rearchetect the whole damned thing into something sustainable that can last indefinitely? Anyway, if it was ever going to work, the time for slow, evolutionary reform was about 10 years ago at the latest. By now the fundamental mathematics of our situation dictate that collapse of this dirty system is inevitable no matter how honestly the loot is distributed. All we have left is to acknowleding that and get into the life boat–not worry over petty political intrigues and corruptions of petty government officials and their corporate owners.

    1. from Mexico

      The tensions that inhere to capitalism are not unrelated to those that inhere to liberal internationalism. For instance, here’s what Michael Hudson had to say on the two in a recent post:

      The top 1% have nearly succeeded in siphoning off the entire surplus for themselves, receiving 93% of U.S. income growth since September 2008. Their control over the political process has enabled them to use each new financial crisis to strengthen their position by forcing companies, states and localities to relinquish property to creditors and financial investors. So after monopolizing the economic surplus, they now are seeking to transfer to themselves the economic infrastructure, land and natural resources, and any other asset on which a rent-extracting tollbooth can be placed.

      The situation is akin to that of medieval Europe in the wake of the Nordic invasions. The supra-national force of Rome in feudal times is now situated in Washington, with Christianity replaced by the Washington Consensus wielded via the IMF, World Bank, WTO and its satellite institutions such as the European Central Bank, backed by the moral and ideological role academic economists rather than the Church. And on the new financial battlefield, Wall Street underwriters have used the crisis as an opportunity to press for privatization. Chicago’s strong Democratic political machine sold rights to install parking meters on its sidewalks, and has tried to turn its public roads into privatized toll roads. And the city’s Mayor Rahm Emanuel has used privatization of its airport services to break labor unionization, Thatcher-style. The class war is back in business, with financial tactics playing a leading role barely anticipated a century ago.

      This monopolization of property is what Europe’s medieval military conquests sought to achieve, and what its colonization of foreign continents replicated. But whereas it achieved this originally by military conquest of the land, today’s 1% do it l by financializing the economy (although the military arm of force is not absent, to be sure, as the world saw in Chile after 1973).

      http://www.nakedcapitalism.com/2013/01/michael-hudson-americas-deceptive-2012-fiscal-cliff-part-iv-why-financial-and-tax-reform-should-go-together.html

      1. Nathanael

        The transition from Roman “capitalism” to medieval feudalism is instructive to watch, since we’re living through a repeat.

        The financier CEOs have to make the transition in order to maintain their position. Most of them will fail to make the transition, and more *militaristic* CEOs with *more loyal employees* will knock off the current elite.

        1. hermanas

          Uncle Billy said,
          “The past is never dead. It’s not even past.”
          So fuedalism comes around again,
          been there before.
          We know how it ends.
          Around we go.

    2. tir643

      You good sir, have just described our biggest problem. I am so very glad to hear someone with the same opinion i have. If only the majority of americans had the same thought then maybe we could change into a sustainable system. The only system i have seen that would work other than making changes to our current system would be the Venus Project but that would take global partnership and the absence of religion which we are far away from. Plus it brings it’s own set of problems with it.

  2. Bryan Sean McKown

    Thank you for your work on the extenders. A January 3 post by Bob Lawless at Credit Slips on the “NASCAR” extension asserts that one racetrack in Austin, Texas (CoTa) will benefit to promote Formula 1 racing. Bob’s update comments on the NYT article.

    On another fiscal cliff subsidy, I unserstand but have been unable to verify that the fiscal cliff deal included tax benefits to subsidize compressed natural gas (CNG) and liquid natural gas (LNG) for use in transportation. The stock of certain natural gas MLP’s (partnerships) were up sharply as the deal is allegedly retroactive for 2012. Is this LNG for export or what? Anyone seen an analysis?

  3. from Mexico

    Matt Stoller said:

    The public reaction to revelations of these subsidies is bitterness and resignation. People are bitter because they think they are being cheated, which is true. But they are resigned because they feel the system is inherently going to lead to outcomes like this. That is not true. We do not have to operate according to the norms of cheats. That is a choice we have….

    And we will continue attacking the underlying status quo ethic of selfishness. Humans know in our hearts that fairness matters. It’s core to who we are. We can ignore it, and focus on other elements of our emotional make-up, but that nagging feeling exists in all of us. And it is powerful.

    Both Christianity and secularism suffer from bouts of pessimism and defeatism. And of course there are elements in both the Christian and secular community — what Reinhold Niebuhr called “the children of darkness” — who worship greed and self-interst and see ways to profit from spreading the gospel of pessimism and defeatism across the land.

    For Christians, a great antidote can be found in two essays by Niebuhr:

    “Optimism, Pessimism and Relgious Faith”

    and

    “The Children of Light and the Children of Darkness”

    http://books.google.com/books/yup?id=eB6MyJk2fvQC&pg=PR5&source=gbs_selected_pages&cad=1#v=onepage&q&f=false

    For secularists, a great antidiote to the orgy of selfishness and defeatism can be found in David Sloan Wilson’s book, Evolution for Everyone: How Darwin’s Theory Can Change the Way We Think About Our Lives:

    http://books.google.com/books/about/Evolution_for_Everyone.html?id=bZqmYC_YM5sC

  4. Eric Patton

    Follow the money. That doesn’t stop with the bad guys, it also has to do with the good ones, too. For example, I was paid by Yves Smith to do this digging. I was paid by all of you who gave money to the Naked Capitalism fundraiser last month.

    I respect that you said this. You’re being honest, and I appreciate it.

  5. Casteelk

    That is great that this information made it into our otherwise blind and lazy mainstream media. But the reality of it is, most people don’t care. 99% of people I talk about have no clue this was part of the “fiscal cliff” bill. Even after it went mainstream. They tune it out. They don’t want to know, because that would mean things are bad and wrong and they would rather zone out watching bad TV instead. In two weeks this story will be forgotten and never spoke of again.

    1. LucyLulu

      Perhaps the public would be less apathetic if they realized these tax subsidies were being funded out of their own pockets. Over the last 50 years, the share of federal revenues paid by corporations has fallen dramatically. While corporations pay a marginal tax rate of 35%, the average effective tax rate paid is only 13%. Fifty years ago, in 1960, corporate income taxes comprised 21.54% of all federal revenues. By 2010, corporate income taxes made up only 8.85% of federal revenues. During the same time period, FICA taxes climbed from 12.21% to 40% (39.99)….. yet Congress is clamoring to cut entitlements!

      Here is my source. It allows you to plug in different inputs into charts and play with them: http://www.usgovernmentrevenue.com/revenue_chart_1940_2017USf_13s1li111mcn_30f12f10fF0f

      1. Casteelk

        Problem is most people are lazy, they don’t want to do their own research and they don’t want to hear what they think are conspiracies. Its much easier to bury their heads in the sand. Payroll tax went up, small amounts of bitching and then dismissed, healthcare costs go up 38% this year where I work, loads of complaining, then complancency sets it. This is the mindset of the middle to upper middle class. Getting bashed, getting robbed, but eyes wide shut. In the end, they know there is corruption, but they believe that it will all work out, since it always did through their lifetime. Its easier to believe the media and that all is getting better and will better soon. The poor, well they are just hungry and disgusted, but they have no clue as to why. They are just looking for someone to tell them who the bad guy is, mostly they think its republicans.

        Its a sad state of affairs for the sheeple.

  6. Conscience of a Conservative

    The give-a-ways and pork project matter for no better reason than we are going to people’s pockets and taxing them or raising their taxes. Consider how these people feel having their pay-check taken and learning they are funding NASCAR, ALGAE research or Pelosi’s mouse.

    1. Nathanael

      Mostly, we’re funding wars which kill innocent people in the Middle East, kill American soldiers, and make people hate us. Complete lose-lose situation.

  7. Jennifer

    Excellent posts today Matt nice to see you following up on your New Years Resolution to be more positive. Completely agree with you that it would be terrific to see some Congresspeople team up and demand these be ended for good as part of the upcoming negotiations. It seems to me this could be an easy issue for the tea party types and the progressives in the house–there are a few right? -to get together and make a name for themselves.

  8. Same_Ol_Guy

    Forex Kong has suggested that further weeaking of the Yen will throw a real wrench into the Fed’s plans to tank the dollar.

    He also goes on to say that getting long USD/JPY could be one of the best trade ideas of 2013.

  9. petridish

    WE NEED TO NAME NAMES–I read somewhere that Debbie Stabenow of Michigan was responsible for the NASCAR extension. How tremendously progressive and admirably bipartisan of her. I have no doubt she will also see the sad wisdom of collaboration when it comes to “reforming” social security “entitlements.”

    On a lighter note, the fact that “the corporate tax extenders were an important part of the negotiations, but largely one that the public was unaware of and one that most House and Senate members didn’t know about until the vote had happened” would seem to present a bit of a problem.

  10. middle seaman

    Excellent work on the corrupt extenders. Obama`s corruption, what this post describes is only the tip of the iceberg of, is left almost untouched. Public outcry followed by organized counter action while encouraged are not dealt with beyond basics. We don’t have a left in the US. After all, the latter supported and elected a right-wing Obama twice.

  11. Hugh

    The reformer’s fallacy is that a corrupt and rotten system is susceptible to reform. But we live in a kleptocracy. Rumblings about reform are nothing more than political theater for the rubes. Matt Stoller says follow the money. OK. Were these extenders eliminated? Of course not. Their recipients can feign all the hurt feelings they want but they still are laughing all the way to the bank.

    How is reform working out where the real money is in Social Security and Medicare? Everyone in Washington knows the public does not want these programs weakened in any way, shape, or form. So why exactly do our political classes of all parties continue to scheme to gut them? How many times are we supposed to save Social Security and Medicare from precisely the people we elected to defend them?

    Reformers have no answer to this because the problem lies with the system and not individual players in it, or tweaks to it. If you are reduced to placing your hopes in a POS like Daryl Issa, you’ve already lost. You just don’t know it.

    Our political classes, the elites, the rich, and the system they own and run are the problem. The promise of reform is not just mistaken but plays into their hands, because it helps keep any real opposition to them from forming.

    1. LillithMc

      The problem is the secrecy. Usually the “extenders” would never see the light of day. Thanks to NC and the internet, they did to the upset of those outed. “Entitlements” are not the biggest problem. The lack of honesty about them is more important. They allow the health care industry to continue to be a profit center for Wall Street. They generate a pot of money for Congress to pretend they can spend with a simple IOU. They make seniors think the FICA tax will produce a return for them while the GOP insists the money belongs to them in one way or another. Lack of trust is what will destroy us.

    2. Nathanael

      Most people like a quiet life and like incremental change.

      To convince people that reform is impossible and revolution is necessary, you have to first make a *heroic* and *publically visible* attempt at reform, involving huge popular mobilization and huge effort.

      Only then, when that is met only with gunfire and mocking from the elite, can you convince the majority that it is time for revolution.

    3. charles sereno

      @ Hugh
      So, you’re in favor of forming “real opposition.” Tell me why your “talking about it” is not also just political theater? Should NC have invested the money in pitchforks?
      BTW, I’ve never seen POS before, but I didn’t even have to look it up with the connection to Issa. You got that right.

  12. JEHR

    This is the first article in a long, long time that has left me with a faint hope that maybe things will change. If any budget could be presented as a whole with the possibility of each item being discussed separately by the politicians (and the public), then that would help the public to see where the special interests reside. So much is either secret or hidden. When a whole lot of the budget is presented in a big batch, hardly anyone can claim to even have read all the items.

    In Canada, our Prime Minister has taken to creating huge omnibus bills that always pass because he presently has a majority government. This year, we are seeing the results of the second omnibus bill. The items are passed as a whole so that there is no discussion on individual items that could be amended or changed for the good of the public.

    Consequently, the Aboriginal people have begun a movement to have items in the bill that affect them be reconsidered in light of the promises made to them under treaties they signed. Most of these items have to do with environmental concerns on native lands. The chief of the Attawapiskat people is on a hunger strike in order to meet with the Prime Minister to talk about the Bill’s affect on their lives.

    Yes, you are so correct to say “follow the money” and I would add “follow the budget money especially.”

  13. Lobbyist

    Stop calling them “loopholes”. That’s a slur.

    I worked very hard during numerous $500 lunches to put all this together. Calling them “loopholes” is disparaging to the all the job creators who paid 3-4 cents on the dollar for these perks.

    That’s right, massive discounts now at the capitol. We’re moving to the walmart JIT system. Need a tax break? We can get it into the next spending bill within the hour.

    We may lose money on each bill, but we make it up in volume.

  14. abelenkpe

    “There’s a somewhat obnoxious tendency on the part of traditional media organizations not to cite blogs… ”
    Funny cause they quote random twitter accounts everyday.

    Hollywood got subsidies? Yet they continue to gouge VFX studios forcing good paying US jobs overseas while they chase subsidies offered by other countries. VFX movies, you know the ones that make the most money for hollywood…

  15. Kokuanani

    Yes, thank you, Matt.

    On a slightly related matter: I live on Maui, where the feeble “Maui News” and equally feeble radio stations not only never cover anything other than AP stories and smiling people at the beach but also [at least the radio] are starved for ads. Thus we get a LOT of “public service ads” paid for by “the Ad Council” and the “Foundation for a Better Life.”

    The latest, and most laughable of these, is one by Eric Holder, cautioning us that we can “fight crime” by not buying “illegal downloads” or “knock-off” products, because gee, that money just goes to street gangs and/or organized crime.

    Each time I hear this, I scream at Holder to put some energy @ DOJ into bank & hedge fund fraud, illegal foreclosures, money laundering by banks, environmental rape, etc. instead of into the “illegal downloads” crime wave.

    I guess his thought is that if he can stop the illegal bucks from flowing to gangs and organized crime by blocking downloads & knock-offs, he won’t ever have to develop an anti-money laundering plan.

  16. cwaltz

    I said it on FDL and I’ll say it again, if the GOP really wants spending cuts then THIS is where you start. Fine we’ll cut spending but it’ll be from the “people”(after all corporations are people too) who can afford it most like NASCAR and Disney, not on the seniors who are already choosing which pill to cut back on or the young children who rely on food stamps.

  17. demented chimp

    Bravo Naked Capitalism!
    Need to dig out my NC contribution for this year. Its getting harder to stay ahead with the continual price gouging and squeezing. It will be a choice between low quality poisonous bread and NC eventually.

  18. JohnB

    Heh, nice; the idea that donating helped fund investigate work, that helped spark off a bit of uproar like this, with the potential of directly damaging some industries corrupt income, is gratifying indeed. Good stuff :)

  19. DANNYBOY

    Dianna,

    Welcome. There’s plenty more from Matt, and others, making it worth my while to rise a bit earlier and begin the day well informed (and ready for some action).

  20. Yves Smith

    I deleted the link, which was the spammy part. Normally I’d designate the comment as spam (which is easier) but the later comments mean if I did that it would screw up the thread. If you see a spam comment in the future, leave it alone, rest assured I’ll get rid of it at some point.

  21. DANNYBOY

    Hold it. Does this mean that Diane isn’t who I thought she was, maybe not even a woman named Diane? This is a relationship killer for me; so “Diane”, I take back my loving words to you. And you are not “Welcome”.

    Or am I incorrect? Is Diane trying to “rel follow” me, in which case, I’m flattered. And a bit encouraged.

    Please provide your advice to this lovelorn. Is Diane a robot. Is human/robot love possible? Can it be consummated?

    Signed,
    Confused, but still hopeful

Comments are closed.