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Today’s Irrational Policies Increase the Costs of Tomorrow’s Storms

by Brent Blackwelder

BlackwelderBoth the House and Senate have passed over $50 billion in emergency supplemental appropriations bills to deal with the disaster caused by Hurricane Sandy last fall. New Jersey, New York City, and Long Island were particularly hard hit by the giant storm that measured over one thousand miles in diameter. Who is going to pay for all this and how many extreme weather events will the federal government be expected to rectify through relief and reconstruction?

The Hurricane Sandy legislation (which President Obama is expected to sign) sets a bad precedent because it mixes emergency relief measures, which most people strongly favor, with longer-term reconstruction measures that will enrich developers and exempt coastal projects from key legal requirements. This approach is a formula for maximizing the amount of damage when the next coastal storm slams ashore.

The U.S. urgently needs to develop better storm disaster plans to replace the inadequate and misguided plans of the agencies that deal with disasters. The storm record, marked by a dramatic increase in violent weather events over the last half century, offers evidence to support the need for improved planning (see a graph of the data). From 1900 until 1970 the annual number of such events was below 100, but since 1970 the number has jumped to over 300 a year, and several times it has soared above 500.

Better planning can lessen the damage caused by storms like Hurricane Sandy.

Better planning can lessen the damage caused by storms like Hurricane Sandy.

Today’s damages along the coast are similar to the flood damages throughout inland portions of the U.S. fifty years ago. The special Task Force on Federal Flood Control Policy reported in 1966 to President Lyndon Johnson that the more the country spent on flood control projects, the worse damages became. An effective policy for flood control, the Task Force said, would result in flood damages (inflation-adjusted dollars) leveling off or declining. This report sparked activists, including me, to demand fundamental changes, and we obtained important reforms. But these lessons are being overlooked in the rush to secure and spend money on shoreline projects.

To give a green light and billions of dollars to the Army Corps of Engineers for coastal engineering and beach replenishment schemes turns a blind eye to the agency’s propensity for shoreline boondoggles. It is one thing to obtain emergency relief money, but another to expect taxpayers to fund the reconstruction of everything that was damaged. Some structures should be rebuilt and some should not. A good plan would make this determination. For example, on some level, it might make sense to armor-plate Lower Manhattan to protect dense urban development, but not to do the same along the Jersey Shore or the Long Island coast.

But then again, according to Duke University professor Orrin Pilkey, when the Army Corps of Engineers tries to abate flooding by constructing sea walls, the most common outcome is beach erosion and significant shore steepening. Plus a deeper offshore zone brings larger waves and the potential for more damage. At the time Hurricane Sandy struck, the Atlantic Ocean was a foot higher than its level in 1900 (see a graph of sea level rise). The rapidly melting ice sheet on Greenland could cause a rise of another 20 feet. The coast is becoming more susceptible over time, and the responses being proposed are inadequate.

A better approach, more in step with the scale of the problem, would be to run the economy based on true costs and the principles of sustainability. But Congress seems to be asleep. In the debate about the “fiscal cliff,” instead of attempting to enact 1.6% across-the-board spending cuts (an attempt that failed anyway), Congress could have proposed a carbon tax. Such a tax would have directly targeted greenhouse gas emissions, the systemic cause of this disaster and other extreme weather events around the world.

Even if a carbon tax is too bold for lawmakers to consider, they can at least take a sensible intermediate step: assemble a panel of experts with no conflicts of interest to recommend a long-term approach for protecting America’s coastlines and preserving beaches for both recreation and wildlife habitat. Sound policy calls for damage prevention and reduction in contrast to the Congressionally approved program of storm damage enhancement.

How to Turn the Power of the Wall Street Protests into Real Reforms

by Brent Blackwelder

As the Wall Street protests have spread from New York City to the rest of the country, some media pundits have criticized the protesters for being unfocused — as if there were only one thing wrong with the financial sector of the U.S. economy. The protests have provided a welcome response to Wall Street’s massive takeover of governance, and continued opposition to the status quo could produce opportunities to enact real reforms.

Don’t expect Wall Street to undertake such reforms voluntarily — some of the shady practices are too profitable. It’s going to take new laws, and key legislation is pending in Congress that could provide important remedies. But new legislation won’t pass without the strongest pressure. That’s where the protesters could make a difference, especially with some forceful activity in the districts where the obstructionists, like House Majority Leader Eric Cantor from Virginia, reside. Cantor said to the conservative Values Voter conference: “I, for one, am increasingly concerned about the growing mobs occupying Wall Street” but he backtracked a week later when cautioned by his political finger-in-the-wind testers about the growing popularity of the protests.

Among all the morally bankrupt practices on Wall Street, there’s one in particular that would be easy to abolish. Easy, that is, if we can translate some the energy of the protests into pressure on lawmakers. Pending in Congress are powerful bills such as Senator Levin’s S. 1346 (Stop Tax Haven Abuse Act of 2011) that would strike hard at tax dodgers. But a bill like that has no prayer of passage unless representatives like Cantor feel the pressure.

Instead of reform, Congress is in fact poised to give another “one-time only” tax holiday to companies that stashed profits in tax havens. Huge and wealthy U.S. corporations are actively seeking what is known as a “repatriation holiday” because they say it would create jobs. Such a holiday would allow them to bring home offshore profits at a reduced rate — a nice holiday for the well-to-do CEOs and shareholders, while the rest of us taxpayers suffer the consequences of losing $80 billion of revenue.

The Tax Justice Network and a number of small business associations are trying to right this wrong. They have sent a letter to Congress to dispute this repatriation holiday, noting: “Too many corporations have turned their tax departments into profit centers, using aggressive accounting manipulation to disguise U.S. profits as foreign profits.”

Bloomberg Business Week has pointed out prime examples: Google reduced its income taxes by about $3.1 billion over three years — first by shifting income to Ireland, then to the Netherlands, and finally to Bermuda. Another example is Forest Laboratories, a company that sells over 99% of its drugs in the U.S. but attributes the bulk of its profits to a law office in Bermuda.

Corporate abuses are all the more frustrating in light of how the Congressional “Supercommittee” is discussing the deficit. The Supercommittee is poised to recommend draconian cuts in important programs, but its Republican members are unwilling to address tax havens and tax dodgers that cost the U.S. Treasury an estimated $100 billion per year. The two biggest banks benefiting from taxpayer bailouts are Citigroup with 427 subsidiaries in tax havens and Bank of America with 115.

A recent report  by the Institute for Policy Studies (IPS) adds more grist to the protesters’ mill. The report notes that the salary of chief executives (CEOs) of the S&P 500 soared 27.8% in 2010 to $10.8 million, making the ratio between average CEO pay and average U.S. worker pay now 325 to 1. Back in the good old days of 2009, the ratio was much more equitable at “only” 263 to 1. The IPS study found that 25 of the top 100 CEOs received more pay than their companies paid in federal income tax. Furthermore, 20 of these 25 companies spent more on lobbying than they paid in federal income tax.

One more recent analysis,  published in the journal of the Association for Psychological Science, provides new support for those advocating major reforms in the tax code. The analysis found that those countries with the most progressive tax codes (those that are the exact opposite of a flat tax where everyone regardless of income pays the same rate) had the highest happiness ratings.

Americans want a sustainable and fair economy. But we won’t get one without fundamental financial reforms and a clamp-down on tax dodgers.  And we won’t get that without applying pressure to lawmakers and corporations.  Now that’s a good focus for a protest.

The New Congressional Debt Panel: An Opportunity for an Essential Economic Debate

by Brent Blackwelder

The debt ceiling debacle was temporarily resolved in early August with a deal that included the creation of a 12-member Congressional debt panel (officially labeled the Joint Select Committee on Deficit Reduction).  This panel is charged with producing recommendations by this November to reduce federal budget deficits by at least $1.5 trillion over 10 years.

The Congressional debt panel will be under huge pressure from the corporate-driven Tea Party to limit its consideration only to cuts in federal government spending to achieve deficit reduction. This means average Americans, the poor, and minorities are the ones who will lose important programs designed for their benefit, while the tax giveaways for transnational corporations will continue. This is a recipe for social upheaval.

Some progressives argue that this panel of six Republicans and six Democrats, along with a President who cannot drive a hard bargain, guarantees gridlock and mounting frustration; however, now is a teachable moment for steady staters and other reformers to get on the offensive and present a larger economic vision. Those concerned with a sustainable economy should seize this opportunity to demand meaningful changes, such as basic reforms of the Tax Code.  But make no mistake — it will be a big fight.  The corporate-run Tea Party is intent on forcing the Republican Party to resist increases in anyone’s taxes, especially those of the well-to-do.

Three revenue changes are urgently needed: (1) cutting government handouts to polluters; (2) instituting revenue-raising measures that move us toward sustainability, such as a carbon tax and a transactions tax on international currency trading, and (3) cracking down on tax dodgers and offshore tax havens, which cost the Treasury an estimated $100 billion a year and which undermine the ability of governments to function.

Cutting Polluter Subsidies

Both state and federal tax codes provide enormous subsidies to polluters, thereby sending the wrong ecological price signal to the consumer. After reviewing more than $100 billion in subsidies to old energy technologies, Michelle Chan, director of international programs at Friends of the Earth, notes: “We are not going to get past reliance on yesterday’s technologies if we continue to subsidize them as if they were brand new.” But a bill in the Senate this spring to cut $20 billion in oil and gas subsidies was vigorously opposed by oil companies like Conoco Phillips who labeled the legislation “un-American.” Since when did subsidies to bloated corporations become the definition of “American?”

Fossil fuel barons, like the Koch brothers who underwrite the Tea Party, understand the enormous potential of solar, wind, geothermal, and conservation efforts to undermine their polluting industries. Thus, they seek to portray the removal of these special fossil fuel subsidies as a “tax increase.” Such flim-flam must be exposed.

Raising Money through Carbon Prices and Fees on Currency Transactions

Putting a price on carbon through a carbon tax or a fuel tax, could provide major revenue. The Carbon Tax Center provides details on such taxes. In addition to fundraising potential, a strong carbon price signal would decrease pollution from fossil fuel usage.

Two huge new revenue raisers could come from the financial sector and involve modest surcharges on groups that not only could readily pay them, but also richly deserve to pay them: major banks and their superrich, often tax-dodging global corporate and individual clients (James Henry and I have suggested these measures before).

The first is a version of the Tobin tax that would apply to wholesale foreign exchange transactions (not to retail customers). Given the astonishing $4 trillion per day of such transactions, a tax of less than a dime per $1,000 of transactions would yield at least $50 billion per year. A similar low marginal tax rate on all international financial transactions, including stocks, bonds, options, and derivatives, could readily collect at least twice that amount.

The second new revenue stream is an “anonymous wealth” tax: a modest 0.5% annual withholding tax on the estimated $15 to $22 trillion of liquid private financial assets — bank deposits, money-market funds, mutual funds, public securities, and precious metals — now sitting, almost entirely untaxed, in anonymous offshore accounts, trusts, and foundations.

This tax could raise between $25 billion to $50 billion per year. Such a tax is easy administratively because these “private banking” assets are heavily concentrated in the hands of a small number of leading banks and the largest recipients of “too big to fail” assistance.

Cracking Down on Tax Dodgers and Closing Loopholes

The unwillingness of Republicans to look at revenues lost as a result of tax dodging is astonishing since the $100 billion they sought to cut is the figure estimated to be lost as a result of offshore tax havens. Fortunately Senator Levin has introduced legislation (endorsed by the Tax Justice Network) to close tax loopholes.

Many objectionable loopholes could be closed and thereby yield revenue. For example, obscenely wealthy hedge fund managers pay a lower rate on their income than regular wage earners.

Rallying for a Just Cause

Now is the time to put grassroots pressure on the media, especially in the states and districts of the 12 Senators and Representatives on the debt panel. Let’s seize the offensive and move the discussion of tax code changes under the framework of responsibility.  Below are the members of the panel, in case you’re feeling motivated to start a conversation.

Democratic Senators: Patty Murray (Washington), Max Baucus (Montana), and John Kerry (Massachusetts).
Republican Senators: Jon Kyl (Arizona), Rob Portman (Ohio), and Patrick Toomey (Pennsylvania).

Democratic Representatives: James Clyburn (South Carolina), Xavier Becerra (California), and Chris Van Hollen (Maryland).
Republican Representatives: Jeb Hensarling (Texas), Dave Camp (Michigan), and Fred Upton (Michigan).