By David Cay Johnston
(Reuters) - Across the United States more than 2,700 companies are collecting state income taxes from hundreds of thousands of workers - and are keeping the money with the states’ approval, says an eye-opening report published on Thursday.
The report from Good Jobs First, a nonprofit taxpayer watchdog organization funded by Ford, Surdna and other major foundations, identifies 16 states that let companies divert some or all of the state income taxes deducted from workers’ paychecks. None of the states requires notifying the workers, whose withholdings are treated as taxes they paid.
Deals cut with the states over the past two decades diverted $5.5 billion from public purposes to private gain, the report says. Close to $700 million more was diverted last year, Good Jobs First estimates.
New Jersey approved $73.2 million in new deals in 2011 on top of $178 million diverted that year alone under previous deals. I calculate that at nearly $80 per household in corporate welfare based on New Jersey’s 3.1 million households.
These deals typify corporate socialism, in which business gains are privatized and costs socialized. They also mean government picks winners and losers, interfering with competitive markets. Leaders in both parties embrace these giveaways because they draw campaign donations from corporate interests and votes from people who do not understand that they are subsidizing huge companies.
Like a street façade on a movie set, Romney’s economic plans are designed to project an outward appearance of functionality. But when you look behind their cleverly made-up fronts, there’s nothing to see. Romney’s policy offerings on taxes, spending, and entitlements consistently lack crucial structural details; his campaign seems intent on emulating the outward appearance of policy proposals without providing anything that’s actually workable.
Take Romney’s proposed overhaul of the tax code. Vague on details and short on substance, it’s more like a press release than anything resembling an actual plan to rewrite the country’s massive, complex tax code. The few details it does reveal tend to focus on the goodies Romney would like to offer and less on their price. Romney proposes an across the board tax cut along with cuts to the corporate rate and various other reductions, including a repeal of the alternative minimum tax. Combined, the Manhattan Institute’s Josh Barro estimates that Romney’s proposals would reduce federal tax revenues by up to $5 trillion over the next decade.
In keeping with his vow to balance the federal budget, Romney also promises to make these cuts in a way that’s revenue neutral. How? He’s yet to say. The plan indicates that Romney would rely on dynamic tax effects while closing tax loopholes and reducing spending in order to offset the lost revenue. Which loopholes would he snip? Which spending would he cut? Anyone wondering about these questions might as well ask a magic eight ball, which would at least provide an answer.
The government safety net was created to keep Americans from abject poverty, but the poorest households no longer receive a majority of government benefits. A secondary mission has gradually become primary: maintaining the middle class from childhood through retirement. The share of benefits flowing to the least affluent households, the bottom fifth, has declined from 54 percent in 1979 to 36 percent in 2007, according to a Congressional Budget Office analysis published last year.
And as more middle-class families like the Gulbransons land in the safety net in Chisago and similar communities, anger at the government has increased alongside. Many people say they are angry because the government is wasting money and giving money to people who do not deserve it. But more than that, they say they want to reduce the role of government in their own lives. They are frustrated that they need help, feel guilty for taking it and resent the government for providing it. They say they want less help for themselves; less help in caring for relatives; less assistance when they reach old age.
The recent recession increased dependence on government, and stronger economic growth would reduce demand for programs like unemployment benefits. But the long-term trend is clear. Over the next 25 years, as the population ages and medical costs climb, the budget office projects that benefits programs will grow faster than any other part of government, driving the federal debt to dangerous heights.
Americans are divided about the way forward. Seventy percent of respondents to a recent New York Times poll said the government should raise taxes. Fifty-six percent supported cuts in Medicare and Social Security. Forty-four percent favored both.
One of the oldest criticisms of democracy is that the people will inevitably drain the treasury by demanding more spending than taxes. The theory is that citizens who get more than they pay for will vote for politicians who promise to increase spending.
But Dean P. Lacy, a professor of political science at Dartmouth College, has identified a twist on that theme in American politics over the last generation. Support for Republican candidates, who generally promise to cut government spending, has increased since 1980 in states where the federal government spends more than it collects. The greater the dependence, the greater the support for Republican candidates.
Conversely, states that pay more in taxes than they receive in benefits tend to support Democratic candidates. And Professor Lacy found that the pattern could not be explained by demographics or social issues.
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