Tag: big business
McConnell Vows To Aid Business — But Not States -- In Next Relief Bill

McConnell Vows To Aid Business — But Not States -- In Next Relief Bill

Senate Majority Leader Mitch McConnell signaled his support this week for a Trump administration proposal to add a provision to the next round of coronavirus relief that would make it impossible for workers to sue their employers if they contract the virus on the job.

In a statement announcing the Senate will return to Washington, D.C., on May 4, the Kentucky Republican called the proposal an "urgent need" to shield businesses from lawsuits, painting it as something that benefits essential workers — even though those workers would be the ones prohibited from suing their employer if they become infected.

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Who Really Pays For Subsidies To Big Business?

Who Really Pays For Subsidies To Big Business?

The hustlers claim that job incentives are a sound investment of our tax dollars, because those new jobs create new taxpayers, meaning investments soon pay for themselves. Hmmm … not quite. In fact, not even close.

Last year, a watchdog outfit called Good Jobs First tracked the 386 incentive deals since 1976 that gave at least $50 million to a corporation, and then it tallied the number of jobs created. The average cost per job was $658,427. Each! That’s likely far more than cities and states can recover through sales, property, income and all other taxes those jobholders would pay in their lifetimes. Worse, the rise of megadeals in the past 10 years has made the job-incentive argument mega-ridiculous:

—New York gave a $258-million subsidy to Yahoo and got 125 jobs — costing taxpayers $2 million per job.

—Oregon awarded $2 billion to Nike and got 500 jobs — $4 million per job.

—North Carolina shelled out $321 million to Apple and got 50 jobs — $6.4 million per job.

—Louisiana handed $234 million to Valero Energy and got 15 jobs — $15.6 million per job.

The rosy jobs-creation claims by incentive boosters also tend to be bogus, for they don’t subtract the number of jobs lost as a result of these deals. Jeff Bezos, Amazon’s founder and CEO, for example, has leaned on officials in every major metro area to subsidize its creation of a nationwide network of warehouses, data centers, and other facilities. This web forms Amazon’s all-encompassing business structure, giving it the reach to achieve near monopoly power in industry after industry.

In its 2016 report Amazon’s Stranglehold, the Institute for Local Self-Reliance found that more than half of Amazon’s facilities had been built with government subsidies. The “Amazon Tracker,” a continuously updated web page produced by Good Jobs First, reports that since 2005, the retailer has been showered with $1.1 billion in local and state subsidies to build their private business.

Each of those taxpayer handouts (given to the world’s third-largest retailer) was made in the name of local workers. And, yes, the Amazon warehouses do employ thousands, but their subsidized network enables the giant to undercut local competitors, causing devastating job losses that greatly outnumber jobs gained. The ILSR report notes that at the end of 2015 Bezos did indeed employ 146,000 people in his U.S. operations, but — oops — they calculated that his taxpayer-supported behemoth had meanwhile eliminated some 295,000 U.S. retail jobs.

Plus, there’s an ugly blotch on Amazon’s ballyhooed job-creation numbers: Working conditions in those sprawling, windowless warehouses are grim, and 40 percent of the employees are low-wage, temporary hires with no benefits and no job security. While warehouse wages everywhere are low, an ILSR survey documented that Amazon’s average 15 percent lower than what other corporations pay.

Almost every city/state giveaway program ignores smaller and locally owned businesses (which really do create jobs), and instead tries to land brand name corporations with blockbuster deals. This emphasis — subsidizing big outfits to come from afar to compete unfairly against local, unsubsidized firms — is spreading an epidemic of vacant storefronts across America. It’s also altering the very essence of our communities. Rather than each having its own diverse, unique commercial character, our towns are being transformed into corporatized, homogenized versions of Everywhere, USA.

Beyond local business, our larger society also pays a substantial cost for these subsidies. Most of the deals woo the giants by granting 10-year, 20-year, or even longer exemptions from paying property taxes — the chief source of funding for local schools, roads, fire departments, water systems, parks and other essential public services. To cover the loss of revenue, school districts, cities and counties respond both by cutting services and by hiking the property taxes of homeowners, renters, and hometown businesses. As a result, the community gets more inequality, gentrification, homelessness, and divisiveness. The corporate favor-seekers, however, fail to see (or care about) the connection between this result and their grab for the public’s money.

Institute for Local Self Reliance is an excellent resource on how to support all things local.

Populist author, public speaker, and radio commentator Jim Hightower writes The Hightower Lowdown, a monthly newsletter chronicling the ongoing fights by America’s ordinary people against rule by plutocratic elites. Sign up at HightowerLowdown.org.

Why Are We Taxpayers Subsidizing Corporate Crime?

Why Are We Taxpayers Subsidizing Corporate Crime?

“Do the crime, do the time,” the old saying goes. Unless, of course, the criminals are corporate executives. In those cases, the culprits are practically always given a “Get out of jail free” card.

Even the corporate crimes that produce horrible injuries, illnesses, death, massive pollution, consumer ripoffs, etc. are routinely settled by fines and payoffs from the corporate treasury, with no punishment of the honchos who oversee what amount to crime-for-profit syndicates. The only bit of justice in these money settlements is that some of them have become quite large, with multibillion-dollar “punitive damages” meant to deter the perpetrators from doing it again. Yet the same bad corporate actors seem to keep at it.

What’s going on here is a game of winkin’ ‘n’ noddin’, in which corporate criminals know that those headline-grabbing assessments for damages they’ve caused have a secret escape hatch built into them. Congress has generously written the law so corporations can deduct much of their punitive payments from their income taxes! As Senator Pat Leahy points out, “This tax loophole allows corporations to wreak havoc and then write it off as a cost of doing business.”

For example, oil giant BP certainly wreaked havoc with its careless oil rig explosion in 2010, killing 11 workers, deeply contaminating the Gulf of Mexico and devastating the livelihoods of millions of people along the Gulf coast. So, BP was socked with a punishing payout topping $42 billion. But — shhhh — 80 percent of that was eligible for a tax deduction, a little fact that’s been effectively covered up by the bosses and politicians.

This crazy quirk in America’s laws to deter corporate crime forces victims to help subsidize criminals. Follow the bouncing ball here: First, a court orders a corporation to pay punitive damages to a victim of its criminal acts; second, the corporate offender pays up, and then merrily subtracts a big chunk of that payment from its income tax, effectively taking money out of our public treasury; third, while the criminal is counting its tax break, the victim is notified that the punitive damage money he or she received from the corporation will be taxed as “regular income;” fourth, that means a big chunk of the victim’s payment goes into the treasury to replenish the public money the corporate villain subtracted.

This is nothing but shameful pandering by government officials to rich and powerful criminals. It’s bad enough that corporate-financed lawmakers legalize such encouragement of criminality, but corporate-coddling judges are playing the same disgraceful game — drastically reducing the amounts that juries order corporations to pay. In a Montana case, for example, a jury awarded $240 million in punitive damages to the families of three people, including two teenagers, killed in a car crash. The deaths were blamed on a steering defect that South Korean automaker Hyundai was found to have known about and “recklessly” ignored for more than a decade. But a district judge has since supplanted the jury’s ruling with her own. While declaring that Hyundai’s “reprehensibility” certainly warrants a sizeable punishment, she cut the corporation’s punitive payment down to $73 million.

Hello — that’s not punishment to a $79-billion-a-year car giant, it’s pocket change. Why would Hyundai executives quit putting corporate profits over people’s lives if that’s their “punishment”?

Plus, we taxpayers and the victims’ families are still lined up to subsidize whatever “punishment” Hyundai ultimately pays. With subsidies and wrist-slaps, the corporate criminal whirligig will continue to spin, making a mockery of justice. Fortunately, Senator Leahy has had the good sense to introduce legislation to lock down this escape hatch for thieves, killers and other executive-suite villains. For more information on the moral outrage of ordinary taxpayers being forced to subsidize corporate criminals, contact U.S. PIRG at www.uspirg.org.

To find out more about Jim Hightower, and read features by other Creators Syndicate writers and cartoonists, visit the Creators Web page at www.creators.com.

Photo: lincolnblues via Flickr

How To Tell If The Next Financial Crisis Is Upon Us

How To Tell If The Next Financial Crisis Is Upon Us

In my last article, it was suggested that the rapid collapse in oil prices might have set up a repeat of the 2008 financial crisis. Before we all run for the bunkers and the freeze-dried food, we should know the conditions needed for a crisis to happen, and the signposts we’ll see if the crisis gets going.

For a sector correction to become a meltdown, and for that to turn into a global crisis, there need to be several preconditions in place.

The first condition is a serious market sector correction. Such a correction is already underway and heading toward a meltdown (the second condition), according to some participants in the market for energy company bonds and loans. Others are more sanguine.

That smaller energy companies have issued more junk-rated debt than their relative size in the economy isn’t under debate. Of a total junk bond market estimated around $1.2 trillion, about 18 percent ($216 billion, according to a Bloomberg estimate) has been issued by energy-related companies. Yet those companies represent a far smaller share of the economy or stock market capitalization among the universe of junk-rated companies.

If the beaten-down prices for junk energy bonds don’t stabilize or recover a bit, we might see the second condition: a spiral of distressed sales of bonds and loans. This could happen if junk bond mutual funds or other large holders sell into an unfriendly market at low prices, and then other holders of those bonds succumb to the pressure of fund redemptions or margin calls and sell at even lower prices.

The third condition, which we can’t determine directly, would be pressure on Credit Default Swap dealers or hedge funds to make deposits as the prices of the CDS move against them. AIG was taken down when collateral demands were made to support existing CDS agreements, and nobody knew it until they were going under. There simply isn’t a way to know whether banks or dealers are struggling until the effect is already metastasizing.

The unknown is how much of the $2.77 trillion of junk CDS on bank balance sheets on June 30 this year was energy-related. If history is any indicator, the CDS in the distressed energy sector will far outweigh its 15 percent share of the junk bond market.

But if we watch for the following three signposts, we’ll know that the crisis play is happening again:

  • Non-energy junk bonds dropping in price. That would mean large holders are exiting from all junk bonds, not just those companies affected by low oil prices.
  • Sudden drops in share prices for banks or insurance companies that hold small amounts of energy-related bonds or bank loans — a clue that some market participants think they have derivative exposure.
  • Rumors or news that the big, investment-grade energy companies (the Exxon-Mobils and Shells of the world) are having trouble renewing their commercial paper, bank loans or maturing bonds.

If we see all these signs in a matter of days or weeks, then our global financial system is being tested once again by the small community of speculators that profit from betting against industries, countries, or markets. They made a fortune betting against mortgages. Most of them didn’t retire to enjoy that wealth. They moved on to the next trade, and every day they try to repeat their investing success.

The next time their presence was really visible was the European debt crisis of 2011-2012. That didn’t take down the global financial system, but it was close. If Spain, Portugal, Italy and Ireland had followed Greece into debt restructuring, we would have had another global crisis, most likely even larger than the 2008-2009 episode. Only a major commitment from Germany kept the rest of Europe’s weaker countries from failing on their debt, too.

In March of 2012, the Greek “credit event” that triggered payment on CDS was estimated to apply to CDS that equaled 30 percent of the 300 billion Euro Greek sovereign debt market, or roughly 90 billion, (about $118 billion in U.S. dollars at the time). The “settlement price” for that CDS event was 21.5 percent. So the winners in the CDS bet took home 78.5 percent of $118 billion, or approximately $93 billion. That was nearly twice the size of the CDS payoff when Fannie Mae and Freddie Mac went into receivership. Nice trade for those who made it.

Do we need to remind ourselves that Fannie and Freddie were the Exxon-Mobil and Shell of the mortgage business? Or that no target is too big if trillions of dollars can be used to make the bets?

So where will the “next trade” be? Anywhere there might be weakness.

This month, it’s in energy companies that borrowed more than $200 billion while planning on oil prices staying over $100 a barrel, and gasoline staying over $3 a gallon.

Only time will tell whether there have been enough bets against those optimistic energy companies to make it a problem for everyone, and not just them.

Howard Hill is a former investment banker who created a number of groundbreaking deal structures and analytic techniques on Wall Street, and later helped manage a $100 billion portfolio. His book Finance Monsters was recently published.

Photo: Mathew Knott via Flickr