As U.S. corporate profits soar to record highs, food stamps for the neediest were quietly cut.\u00a0The politicians who are demanding endless cuts to social programs \u2014 Democrats and Republicans alike \u2014 insist that the U.S. is broke, all the while conveniently ignoring the mountains of tax-free wealth piling up in the pockets of the super rich.\u00a0\u00a0<\/i><\/p>\n
This newest flood of cash for the nation\u2019s wealthiest 1% is a blatant government subsidy: the Federal Reserve continues to pump out an extra $75 billion a month, the vast majority of which fattens the already-bursting overseas bank accounts of the rich.\u00a0Since Obama has been president this pro-corporate policy has helped funnel 95 percent of the nation\u2019s new income to the wealth-soaked rich.\u00a0<\/a>\u00a0<\/a><\/p>\n And while it\u2019s true that the global super rich have an estimated $32 trillion<\/a> [!] stashed away abroad in off shore tax havens, an even newer way to avoid taxes has gripped the endlessly-greedy minds of U.S.-based billionaires.<\/p>\n Instead of shielding themselves behind the classic \u2018C\u2019 corporation structure \u2014 and all the burdensome taxes and regulations associated with it \u2014 two-thirds of new corporations have \u201cevolved\u201d into pseudo-legal \u201cpartnership\u201d structures, commonly referred to as \u201cpass throughs,\u201d the idea being that the corporate-partnership instantly passes the profits through to the shareholders, no corporate tax necessary.<\/p>\n The most common form of pass throughs are \u201cinnovative\u201d\u00a0variations of a Limited Liability Company, a tax structure created in 1975 for narrowly regulated purposes.\u00a0But now rich investors are performing accounting and legalistic somersaults to exploit the tax structure, practices that were illegal before the regulators were \u201ccaptured\u201d by the big banks.<\/p>\n The pro-billionaire Economist magazine recently discussed the pass through fad:<\/a><\/p>\n \u201cA mutation in the way companies are financed and managed will change the distribution of the wealth they create\u2026The corporation is becoming the distorporation\u2026More businesses are now twisting themselves into forms that allow them to qualify as pass throughs.\u201d<\/i><\/p>\n So, for example, imagine that nine rich guys get together and call themselves a pass through corporation of some variety.\u00a0They do this because they want to avoid personal liability in case things go awry.\u00a0Their partnership only buys and sells stocks and goes on to make billions, while paying\u00a0zero corporate taxes.\u00a0When their risky bets go bust and the partnership is sued by hoodwinked investors,\u00a0the company instantly declares bankruptcy, since all profits were quickly \u201cpassed through.\u201d\u00a0The partners (the nine guys) cheerfully go home to swim through their sea of cash.<\/p>\n In real life shady pass throughs make massive wealth.\u00a0Richard Kinder, who co-founded the biggest pass through, named Kinder Morgan, personally received $376 million in dividends last year alone [!], according to the Economist.<\/p>\n The pass through fad is on track to becoming the dominant way that the super rich get together to make huge amounts of money \u2014 pass throughs were 63 percent of all corporate profits in 2008, and are likely higher now, since many of the big private-equity companies making a killing by the cheap fed dollars are organized under pass through umbrella structures.<\/p>\n There is a huge society-wide risk for this type of behavior, which resembles the reckless gambling that destroyed the economy in 2008.\u00a0As an ever-larger share of wealth is poured into these risky, non-regulated vehicles, the potential grows for them to self-destruct and pull down the broader economy with them.\u00a0Pass throughs \u2014 which include most private-equity firms \u2014 function \u201cefficiently\u201d when the government is handing them cheap money; when interest rates go up, the pass throughs go bust, with predictable outcomes.<\/p>\n \u201cBut wait,\u201d the billionaire will protest, \u201cwe pay individual taxes, which help fund social services.\u201d Not necessarily. If the billionaire investor paid their legal obligation of \u201ccapital gains\u201d taxes, they\u2019d already be paying far less than the average worker.\u00a0But the pass-through billionaires excel at avoiding all taxes.\u00a0The Economist again:<\/p>\n \u201cFor a [pass through] partner a payout can be considered merely a return of capital rather than a profit, and consequently no tax is due until the sale of the underlying security. When tied to nuances of estate law, this may mean no tax at all.\u201d<\/p>\n This type of blatantly criminal behavior used to be actually illegal, but as Wall Street bought Congress, the rules were either bent or ignored.<\/p>\n The Economist explains:<\/p>\n \u201cThe limitations on becoming [a pass through] seem to be tied more to legal dexterity [!] and influence [buying politicians] than any underlying principle.\u00a0Politicians want to extend the benefits of [pass through] partnerships to industries they have come to favor either on the basis of ideology [of the corporate type], or astute lobbying [bribery], or a bit of both.\u201d<\/i><\/p>\n The rest of society is affected because public services are being starved of funds, while these new pass throughs face vastly less regulation than the standard C corporations, and push wealth inequality to new heights while threatening a deeper recession.<\/p>\n Historically, government began regulating corporations because everyone realized the profound effects these institutions were having on the rest of society; the nation was becoming more unequal,\u00a0the labor force more exploited and the environment torn to shreds.<\/p>\n As the super wealthy organized themselves into corporations they took most of society\u2019s wealth with them; government realized that a semi-functioning country would need to tax these institutions and regulate their behavior, since the \u201cnatural\u201d behavior of the capitalist \u2014 greed \u2014 was capable of pushing the rest of society into the dregs.<\/p>\n The new pass through fad is also indicative of the current state of U.S. capitalism; instead of investing profits in a company to buy machines or hire new workers, all the cash is either sitting in overseas bank accounts, or is being instantly funneled, via pass throughs, into the hands of ever-richer billionaires, who are proving to everyone that there is no bounds to the amount of cash they can accumulate.\u00a0Where there are barriers to accumulation (regulations and taxes), they will supersede them while paying politicians of both major parties to ignore it or make it legal.<\/p>\n This dynamic occurs, in part, because the wealthy are basically refusing to invest in the real economy, as they fear the unstable economic conditions are not safe enough to make long term investments, which they believe won\u2019t yield long term higher rates of profits.\u00a0Safer to speculate on risky stocks,\u00a0pocket the money and be the first one out when things go bust, as they did in 2008.<\/p>\n Of course the big name C corporations are up to their eyes in fraud too.\u00a0Apple made big news when it only paid 2 percenttaxes on $74 billion in profits<\/a>, by \u201cdeclaring\u201d its profits in Ireland, a corporate tax haven.<\/p>\n This occurs while other giant companies simply use clever accounting tricks to pay zero taxes, including giants like WellsFargo, Boeing, Verizon and General Electric<\/a>.\u00a0In fact, General Electric even finagled a rebate.<\/p>\n When it comes to oversea tax havens, it\u2019s estimated that the U.S. national budget is annually starved of $280 billion in tax revenue.\u00a0<\/a><\/p>\n Politicians have been struggling with ways to deal with the problem, since even in their mind some amount of tax collection needs to happen, if only to fund the military, provide more subsidies to corporations, and please the public by appearing to try to reduce the billionaire\u2019s obscene\u00a0behavior.<\/p>\n One popular idea among the politicians is to declare a corporate \u201ctax holiday,\u201d where the trillions of off-shore profits can be ceremoniously brought back to the U.S. while the feds look the other way. The idea is that, once the money is actually back in the U.S., the wealthy will want to spend it on something which will eventually help the economy \u2014 trickle down economics at its finest.<\/p>\n What seems certain to happen is that lowering corporate taxes will be a central piece of any \u201cgrand bargain\u201d that eventually emerges, since there is a clear bi-partisan consensus that corporations need to pay lower taxes.<\/p>\n Some argue that if corporate taxes are low enough \u2014 and regulations removed \u2014 the corporations will reward the nation\u00a0by not stockpiling their profits abroad and not creating pass through loopholes.<\/p>\n Of course all of this implies that the wealthy have a stranglehold over the U.S. economy.\u00a0It\u2019s telling that politicians want to deal with corporate tax evasion by lowering the corporate tax rate, instead of actually sending the IRS after them and throwing them in jail, as they do with working and middle class people.<\/p>\n The above dynamics create an ever-increasing wealth inequality that claws at the thinning strings holding society together.\u00a0The bankruptcy and social disintegration of Detroit is a foreshadowing event for the rest of the country, unless this dynamic is stopped.<\/p>\n When the next crash happens the nation will have learned its lessons: the big banks and wealthy investors who destroyed the economy in 2008 are back at it, encouraged by Obama\u2019s pro-corporate behavior and the Federal Reserve\u2019s money flooding.<\/p>\n It\u2019s becoming increasingly obvious that breaking the power of the super wealthy is the first step towards balancing the budget, job growth, protecting the safety net, and creating a semblance of a rational society.\u00a0Until then the U.S. will lurch from one crisis to another, while blaming everyone but the real culprits.<\/p>\n NOTES:<\/b><\/p>\n http:\/\/blogs.wsj.com\/economics\/2013\/09\/10\/some-95-of-2009-2012-income-gains-went-to-wealthiest-1\/<\/a><\/p>\n http:\/\/www.huffingtonpost.com\/2013\/04\/29\/wealthy-stashing-offshore_n_3179139.html<\/a><\/p>\n http:\/\/www.economist.com\/news\/briefing\/21588379-mutation-way-companies-are-financed-and-managed-will-change-distribution<\/a><\/p>\n http:\/\/www.forbes.com\/sites\/timworstall\/2013\/07\/03\/us-corporations-only-paid-13-of-their-profits-in-federal-tax-apple-is-the-explanation-for-this\/<\/a><\/p>\n http:\/\/www.politifact.com\/truth-o-meter\/statements\/2013\/sep\/26\/bernie-s\/sanders-one-out-four-corporations-pay-no-taxes\/<\/a><\/p>\n http:\/\/www.examiner.com\/article\/the-u-s-loses-280-billion-a-year-taxes-from-off-shore-accounts<\/a><\/p>\n _______________________<\/p>\n Shamus Cooke is a social service worker, trade unionist, and writer for Workers Action (www.workerscompass.org<\/a>) He can be reached at shamuscooke@gmail.com<\/a><\/i><\/p>\n