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Do U.S. Election Financing Laws Force Politicians to Ignore Limits to Growth?

by Brent Blackwelder

BlackwelderThis fall, huge election campaign spending to influence the outcome of U.S. Congressional races, gubernatorial races, and state legislative races exceeded $3 billion.

Money in politics has stopped progress toward real economic reform and slowed efforts to move to a true-cost, sustainable, steady state economy. It will continue to do so unless people seeking to end today’s cheater economics, with its global casino-style economy, join in the ongoing efforts to change the election financing laws.

Recent decisions by the Supreme Court have made a bad situation much worse. In Citizens United v. FEC, (2010) the Court ruled that it was unconstitutional (a violation of First Amendment-protected free speech) for the government to restrict political spending by corporations. While there are limits on what individuals and corporations may give directly to candidates, there is no limit on corporate contributions to independent political spending to benefit or to smear candidates. The massive floodgates of electoral spending have been opened wide for industries, and today’s electoral spending in the United States amounts to a system of legalized bribery.

Billionaire brothers David and Charles Koch assembled a secretive network of wealthy political donors set to spend about $300 million in the Congressional races in 2014, which is approximately the total spent by Bush and Kerry in the 2004 presidential race. By early September, a full two months before Election Day, Koch-funded groups already had paid for about 44,000 ads in U.S. Senate battleground races. That means approximately one out of every ten TV ads aired in those states had Koch fingerprints.

But fortunately, several dozen organizations are fighting back. For example, Common Cause, United Steelworkers, Sierra Club, United Autoworkers, and other national groups have already had success with a big effort to reverse the Supreme Court’s decisions in Citizens United v. FEC, (2010) and McCutcheon v. FEC (2014). These efforts involve supporting a constitutional amendment permitting Congress and the states to set reasonable limits on political spending. Leadership of these groups has been instrumental in the passage of ballot measures and legislative resolutions in 16 states and about 500 localities, calling on Congress to pass a Constitutional amendment and send it to the states for ratification. These jurisdictions are home to more than 120 million Americans, which is more than one-third of the U.S. population.

Why would cleaner elections matter for achieving a true-cost, steady state economy? The large volume of money that Wall Street puts into elections effectively stymies efforts to reform the U.S. Tax Code. Tax codes around the world tend to subsidize pollution, tolerate externalization of costs, and penalize recycling while rewarding extraction of natural resources and exempting poisons from sales taxes. The United States is not alone among nations providing generous subsidies to polluters: globally, $1.5 billion is provided by governments to fossil fuel industries.

There are many other ways in which corporate money in elections can subvert democracy and block paths to a true-cost economy. Having lobbied Congress for over 40 years, I have seen how the huge amounts of fossil fuel money for politicians have made a lot of Members “climate deniers.”

Chevron & Ecuador, Caroline Bennett-Rainforest Action Network

Hundreds of Chevron’s abandoned open toxic pits remain in Ecuador. Photo Credit: Caroline Bennett-Rainforest Action Network

But it happens in category after category. For instance, as early as the 1990s, I saw the huge influence of corporate money enabling the passage of so-called free trade agreements. Many trade agreements contain a dispute settlement mechanism that allows corporations to sue a government. Such a challenge is not heard in the normal court system of a nation but rather in a secret, three-person tribunal. Currently, a Canadian mining company is suing the government of Costa Rica for $1 billion for denying a permit to mine copper and gold in a tropical rainforest. Costa Rica wants to conserve its rainforests because eco-tourism is a key part of their economy. Chevron has used the secret tribunal process to avoid payment of damages for persistent, serious oil spills in Ecuador.

Another example can be seen in ballot measures such as Proposition 92 in Oregon, which would require labeling of genetically engineered foods. This measure was opposed by major transnational corporations such as DuPont, Coke, and Monsanto, and their war chest was estimated at $25 million. When people use ballot measures to deal with legislatures that refuse to act on issues of public health and environmental protection, industries pour out millions in propaganda to defeat such measures.

In poll after poll, voters say that they care about clean air, clean water, and the environment, but the reality is that it is harder today than at any time in the last 40 years to pass significant legislation to safeguard air, land, and water. The problem has grown much worse since the 1970s, when 30 major environmental laws were passed, and a big part of the problem is the cost of elections.

Twenty-five years ago, I was one of about a dozen environmental leaders called to a U.S. Senator’s office to hear a sobering message about what the staggering costs of elections were doing to Members who were not independently wealthy. He said to us:

To be reelected, this means my having to raise $10,000 every day on average until election day. For you it means two things: 1) I have little time to study issues and legislation and 2) while I may vote with you from time to time, I cannot champion any legislation that would prevent me from getting campaign contributions from major industrial interests.

As recording setting amounts have just been set in the 2014 elections, the need for election financing reform is paramount if we are to prevent these major industrial interests from keeping us on the path of cheater economics.

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).

Two “Robin Hood” Taxes for the Price of One

Linking Climate Justice to Tax Justice

Co-authored by James S. Henry, economist, lawyer, and author of The Blood Bankers (Basic Books, 2005) and Dr. Brent Blackwelder, president emeritus of Friends of the Earth

The subject of taxes certainly isn’t the most riveting topic for cocktail party conversations. Most people don’t like thinking about the labyrinthine tax code or filling out convoluted forms. They certainly don’t enjoy paying taxes. But we believe that the time has come to reframe the debate on taxes and build up some popular passion and energy for a few basic adjustments to the tax code. With these simple, easy-to-implement changes, it turns out that we could move the economy in a direction that works much better for people and the planet, including a more stable climate.

We badly need to recapture the public discussion and debate on tax codes from the technical specialists and special interests, as well as the diehard anti-government reactionaries. The tax system is so critical to the functioning of any nation that as concerned citizens, it is essential for us to insist on making values like justice, fairness, and shared responsibility central to any political debate on this issue.

By framing all discussions of taxation with the jaundiced view that “politicians just want to raise your taxes,” critics have actually ended up promoting a tax system that rewards pollution and disproportionately exempts the wealthy from paying their fair share. Since more careful discussions of tax policy have become taboo, governments have ended up being deprived of revenues that are essential to provide services. Thus, the anti-government forces have created a vicious, self-perpetuating cycle: their programs to curtail revenues have often crippled government programs, helping, in turn, to reinforce the notion that government can’t get anything done.

The issue of government revenues has come to the fore as developing nations have tried to grapple with climate destabilization. Quite reasonably, they’ve been asking for assistance from the wealthy nations that, over the long haul, have undeniably been the biggest contributors to the problem, to help them pay the costs of adaptation.

The huge Copenhagen climate summit in December failed to achieve breakthrough results to reduce greenhouse gas emissions, but it did result in a pledge by the U.S. Secretary of State, Hillary Clinton, for $100 billion per year in climate adjustment assistance to poor countries by 2020. The actual amount required may turn out to be even larger, but if we start early and build up a reserve fund, we can be prepared – much like insurance. And the good news is, there is a way to obtain such large sums even in today’s difficult economic climate, while simultaneously helping to clean up and stabilize the global financial system.

The tragic earthquake in Haiti, although not caused by climate destabilization, graphically illustrates the sheer magnitude of physical and monetary magnitude of relief and adaptation measures that scientists predict may well be needed by poor nations as the earth’s climate is disrupted.

Our revenue plan involves two very modest, complementary transnational “climate change 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.

The first component is a variation on the well-known “Tobin tax” on foreign currency transactions, originally suggested by Keynes in the 1930s. The version of the Tobin tax that we are proposing would be even less intrusive. It would only apply to wholesale foreign exchange transactions, not to retail customers. Nor would it really be an international tax, imposed on countries by some faceless OECD bureaucracy. Each country signatory would agree to introduce legislation to adopt its own national version of a “model” tax. Each country’s own tax authorities would be responsible for collection and enforcement. 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 that we propose is an “anonymous wealth” tax. This involves levying a modest 0.5% annual “climate aid” 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 — that we and other analysts have estimated now sit offshore, almost entirely untaxed, in anonymous accounts, trusts, and foundations. This tax could raise at least $25 billion to $50 billion per year.

Furthermore, the administration of all these “private banking” assets is heavily concentrated in the hands of a comparative handful of leading First World banks, including all of the key players in the wholesale currency market, as well as the leading players in the recent financial crisis, and the largest recipients of “too big to fail” assistance.

This means that the anonymous wealth tax and the transactions tax complement each other neatly. The first one addresses the huge stock of undisclosed offshore wealth and income that has fallen through the cracks, while the other addresses the ongoing speculative activity that has been fueled by the accumulation of all this restless, internationally mobile private capital. From an administrative standpoint, major international banks, the “systems operators” for this highly problematic global financial industry, are perfectly positioned to help clean up its “bads.” In that sense, we can view these two modest taxes as “financial pollution” taxes, which will help to compensate the rest of us for bearing the costs and the risks of easy tax avoidance and excessive speculation.

In sum, we believe that these two modest tax proposals constitute a bold new potential solution to the problem of paying for climate adaptation, and a way of linking “climate justice” to “tax justice.” They not only are administratively and politically feasible, but most important, they also happen to be the right things to do on ethical grounds.

Administrative feasibility. This year the G20 and the IMF have already had very serious discussions of several variations on the Tobin tax, and just this week the European Parliament passed a resolution supporting it. Nevertheless, for reasons that are unclear, the U.S. Treasury Department and White House economists have been resisting. Apparently the economists are concerned about “market efficiency,” while the Treasury is still concerned about Wall Street.

These concerns are overblown. Of course all taxes interfere with perfect markets to some extent, but no one except radical anarchists are proposing that we all return to the mythological Eden of a tax-free world. This is especially true in a world with highly imperfect markets, where facts of life like imperfect information, excess financial speculation, financial crimes, ineffective law enforcement, and pollution often justify tax policies that offset these market imperfections.

The question in any real world situation is always whether the revenue generated is worth the price of any extra inefficiencies. We believe that in the case of our two specific proposals, the revenue gains dwarfs the inefficiency, if any. For example, in the case of the .005% levy on all wholesale and interbank foreign currency transactions among major currencies and cross-currency derivatives, such a tax could be implemented at very low cost, with limited opportunities for evasion. The wholesale foreign exchange market is already completely electronic, and highly concentrated. Indeed, in 2009, for example, more than 60 percent of all trading was handled by just five global banks — Deutsche Bank, UBS, Citigroup, RBS, and Barclays. This growing market generated over $4 trillion of transactions per day, more than twice the volume in 2004.

Similarly, in the case of the withholding tax on anonymous offshore wealth, the top 50 private banks in the world have more than $8 trillion in private financial assets under management, and another $4 to $5 trillion in assets under custody. Indeed, the top 10 alone account for nearly half of this amount. So long as the taxes were implemented uniformly across anonymous customers, it would be simple for these institutions to levy .5% annual withholding taxes on these assets.

Political feasibility. In principle, the revenue plan proposed here should be by far the most politically pain-free way of fulfilling Secretary Clinton’s Copenhagen climate aid pledge. It concentrates the costs on a very tiny, privileged group that is supremely able to afford them — the world’s wealthiest 10 million people on a planet with 6.8 billion humans.

From this angle, this proposal should attract widespread support from religious congregations and other nongovernmental organizations that are concerned about equity and global development. It should also attract support from national tax authorities, law enforcement agencies, and homeland security agencies that continue to see a large share of proceeds from international tax evasion and the underground economy slip through the cracks, despite their best efforts. Of course it should also attract support from environmental groups, and from public officials who are concerned about finding ways to pay for essential government activities without going deeper into debt.

Finally, this proposal could gain traction from the public outrage over the lingering effects of the financial crisis and the taxpayer bailouts that have been received by wealthy financial institutions that were “too big to fail.”

Moral justification. The moral foundation of this proposal is the idea of combining “global climate justice” with “global tax justice.” Global climate justice reflects the polluter pays principle — the judgment that it is fundamentally fair for rich countries to pay for most of the costs of adapting to climate change, since they have been overwhelmingly responsible for greenhouse gas emissions in the first place.

The concept of “global tax justice” reflects the judgment that it is fundamentally fair for the financially wealthiest citizens and corporations in both poor and rich countries alike to pay at least some taxes on their worldwide incomes and/or wealth to support their home countries.

One key source of the trillions in private funds that we propose to tax is underreported capital flight — money that is secreted offshore and invested abroad beyond the reach of domestic tax authorities. A second major source is under-taxed corporate profits and royalties that have been parked offshore in tax havens by way of rigged transfer pricing schemes. A recent report by the charity Christian Aid estimated the annual cost of these transfer pricing schemes to developing countries, in terms of lost tax revenues, at $160 billion per year. A third source is the myriad illicit activities that constitute the global underground economy — corruption, fraud, insider trading, drug trafficking, “blood diamonds,” and innumerable other big-ticket, for-profit crimes.

The ownership of the trillions in untaxed financial wealth is incredibly concentrated. At least 30 percent of all private financial wealth, and nearly half of all offshore wealth, is owned by world’s richest 91,000 people — just 0.001% of the world’s population. The next 51 percent is owned by at most 10 million people, comprising only 0.15% of the world’s population. About a third of all this offshore wealth has been accumulated from developing countries, including many of the largest “debtors.” And almost all of it has managed to avoid any income or estate taxes, both in the countries where it has been invested and the countries where it originated.

Tax policies are at their best when they provide the right incentives, secure funding for needed public goods and services, place the burden of payment on the right parties, and make progress toward a more equitable society. The proposed “Robin Hood” taxes on anonymous wealth and foreign exchange transactions meet all these criteria, and they are easy to administer. They are precisely the kind of progressive tax changes that we should all be happy to discuss, even at a cocktail party.