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, ABC, CBS, the Huffington Post, US News and World Reports, Think 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.