Priorities and the Federal Budget

Senator Bernie Sanders (I-Vt.), ranking member of the Senate budget committee, is adamant as to where addressing the country’s debt challenges begins. “If legislators are serious about further reducing the deficit and the national debt,… they will join in making sure that some of the largest, most profitable corporations pay their fair share in taxes.”

Consider the following summary from the Americans for Tax Fairness report, “Top Corporate Tax Dodgers.”

  • From the Citigroup had $42.6 billion in foreign profits parked offshore in 2012 on which it paid no US taxes? It reported that it would owe $11.5 billion if it brings these funds back to the US.
  • ExxonMobil had a three-year federal income tax rate of just 15 percent. This gave the company a tax subsidy worth $6.2 billion from 2010-2012. It had $43 billion in offshore profits at the end of 2012, on which it paid no US taxes.
  • FedEx made $6 billion over the last three years and didn’t pay any federal income taxes, in part because the tax code subsidized its purchase of new planes. This gave FedEx a tax subsidy worth $2.1 billion.
  • General Electric received a tax subsidy of nearly $29 billion over the last 11 years. GE received $21.8 billion in taxpayer-funded contracts from Uncle Sam between 2006 and 2012.
  • Honeywell had profits of $5 billion from 2009 to 2012, yet paid only $50 million in federal income taxes. It a tax subsidy worth $1.7 billion.
  • Merck had profits of $13.6 billion and paid $2.5 billion in federal income taxes from 2009 to 2012. It had $8.7 billion in taxpayer-funded federal contracts between 2006 and 2012.
  • Microsoft saved $4.5 billion in federal income taxes from 2009 to 2011 by transferring profits to a subsidiary in Puerto Rico. It had $60.8 billion in profits offshore in 2012 on which it paid no US taxes.
  • Pfizer paid no US income taxes from 2010 to 2012 while earning $43 billion worldwide. It did this in part by shifting its US profits offshore. It received $2.2 billion in federal tax refunds.
  • Verizon made $19.3 billion in US pretax profits from 2008 to 2012, yet didn’t pay any federal income taxes during the period. Instead, it got $535 million in tax rebates. Verizon’s effective federal income tax rate was negative 2.8 percent from 2008 to 2012.


Jobs and Infrastructure
However, tax reform and the national debt are only the beginning. In a report released by the Senator entitled; “Rebuilding the Disappearing Middle Class” he indicates there are seven additional deficits – jobs, infrastructure, income, equality, retirement security, education, and trade – that must be addressed immediately within the forthcoming budget process.

The primary emphasis in Senator Sander’s approach places the responsibility and opportunity to address the deficit, on those who would most benefit – the middle class. Through the creation of well-paying jobs to rebuild the country’s decaying infrastructure, the purchasing power of family income will increase as more money makes its way into the economy.

Paul Krugman in his book “End This Depression Now” walks us through the logic – your spending is my income and my spending is your income.

  • Government spending on infrastructure repair, public works projects, education, and healthcare generates income for all involved in those projects and services.
  • Spending by those involved in infrastructure repair, public works projects, education, and healthcare becomes income for those who provide other goods and services.
  • In turn spending from those goods and services provides income to others continuing in a domino effect … steadily increasing demand for additional goods and services.

A trickle down affect that works.


Good News for Some, Bad News for Most
A new report from the Economic Policy Institute, “The Increasingly Unequal States of America” indicates that between 1979 and 2007, the average income of the bottom 99 percent of U.S. taxpayers grew by 18.9 percent or about 1% annually. The average income of the top 1 percent grew by 200.5 percent during that same period, around 10% annually. (For a breakdown by state see “Lopsided Income Growth in the United States.”)

The same report shows that during the more recent period between 2009 and 2012, the top 1 percent captured between 95 and 105 percent of total income growth. That leaves the 99% flat or actually losing ground. As Table A7 below indicates the 1% enjoyed real income growth between 31.4 and 36.8 percent, while the 99 percent realized negligible or negative growth.

Table A7From a different perspective consider the average incomes from Table 2 above. An individual or family earning $43,713 annually and realizing a 1% gain in income would see an additional $437. When applying that same 1% gain to an income of $1,303,198 results in $13,032. That is $13,032 is nearly 30 times more than $13,032 or as shown by the top-to-bottom ratio of 29.8.


Our Crumbling Infrastructure
Every four years the American Society of Civil Engineers produces a Report Card for America’s Infrastructure. There are sixteen categories and each is assigned a grade. The most recent study was completed in 2013 with an overall grade of D+. An estimated $3.6 trillion dollars is required by 2020 to address the countries decaying infrastructure.

• Forty-two percent of America’s major urban highways remain congested, costing the economy an estimated $101 billion in wasted time and fuel annually.
• Currently, the Federal Highway Administration estimates that $170 billion in capital investment would be needed on an annual basis to significantly improve conditions and performance.

• Two hundred million trips are taken daily across deficient bridges in metropolitan regions.
• One in nine of the nation’s bridges are rated as structurally deficient.
• Average age of the nation’s 607,380 bridges is currently 42 years.
• The Federal Highway Administration (FHWA) estimates that to eliminate the nation’s bridge deficient backlog by 2028, we would need to invest $20.5 billion annually, while only $12.8 billion is being spent currently.

Drinking Water
• Drinking water infrastructure is nearing the end of its useful life as many pipes and mains are more than 100 years old.
• There are an estimated 240,000 water main breaks per year in the United States. Assuming every pipe would need to be replaced, the cost over the coming decades could reach more than $1 trillion, according to the American Water Works Association (AWWA).

Other categories include dams, waste water treatment, levees, air traffic control, ports, rail, schools, and energy.


Investment or Austerity
Joseph Stiglitz, 2001 Nobel Laureate in Economics, in his report “Reforming Taxation” clearly summarizes what must be done.

“The current economic situation in the United States is grave, …. But the barriers to a solution are political, not economic. Reforms to corporate and personal income taxes will be essential in restoring economic vitality. … All reforms must be made with the understanding that deficit reduction in and of itself is not a worthy goal. Rather, taxation must be reformed to help grow the economy, improve distribution, and encourage socially beneficial behavior on the part of firms and individuals.”

As Senator Sanders states, “The Federal Budget is a Reflection of Our National Priorities”

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