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You're Off the Island

If we’re lucky, tax reform is in our future; in the meantime, it’s tax havens for the rich and austerity for you and me

The Economic Policy Institute reported last week that the heirs to Sam Walton’s Wal-Mart fortune are worth $89.5 billion, which is greater than the household wealth of more than 42 percent of Americans. In Britain, the Tax Justice Institute this past Sunday reported that it has counted up $20 trillion (with a t) of personal wealth that is stashed in offshore accounts in the Cayman Islands and in the Bahamas, among other places, where both the assets and the income they generate are beyond the reach of any taxing authorities anywhere.

Information about where the Waltons’ fortune is stashed is not available, but we do know that there are many Americans—including former Massachusetts Governor Mitt Romney—who store their money on islands far beyond the reach of the Internal Revenue Service, the British Inland Revenue authority, and many other pesky national governments.

Romney will, of course, get away with it. Romney’s version of the Richard Nixon formula for electoral success—a little racism mixed in with a generous serving of old-fashioned American aspiration to be the next rich guy—may actually work. A veteran national political consultant told me last week that Democrats will probably lose the House of Representatives and hang onto the Senate only by Joe Biden’s vice-presidential capped teeth if, that is, Obama squeaks by into a second term.

This electoral reality means that the tax-avoidance practices of very rich individuals and of very big corporations will go on and on, despite the stacks of reports about how a few get to live in the happy isles but the rest of us are marooned on the mainland.

This past Monday, the day after the Guardian and the Observer broke the story about the international tax havens that Romney, various oil sheikhs, Russian mobsters, and drug kingpins alike avail themselves of quite legally, the New York Federal Reserve bank released its own study of tax-avoiders, revealing that America’s seven largest banks have set up 4,822 subsidiaries for the express purpose of sheltering US-generated income from US taxes. And my alma mater, Citizens for Tax Justice in Washington, has a website full of reports on and analyses of today’s tax policies, which leave a distinct feeling of deja vu all over again for those of us old enough to remember the early 1980s, when Americans were so outraged over corporate tax avoidance and proliferating tax shelters that Republicans and Democrats alike found it politically expedient to overhaul the entire mess with the Tax Reform Act of 1986.

Don’t count on that outrage, because Democratic elected officials want drinks with umbrellas, too. Tax avoidance that is legal happens when legislators write laws that make it legal. Democrats and Republicans alike do this. There is some tut-tutting in the British press and on some of the news services now that the big international scam has been revealed. But the real story is that we are stuck in the same internationalized regime of doing what the bankers and the tycoons want as we were in before the 2008 crash because their money, and their mores, have overwhelmed our politics. It’s not like the 1980s all over again, when there was a residue of popular understanding of the very old notion that representative democracy works to protect the broad public interest if government, at every level, prevents excesses; provides equal protection, a level playing field, predictable rules, and equality of opportunity; and requires shared sacrifice that inconveniences every single one of us.

That’s not now. Government of every size and shape has been and will remain under siege, and populism is in very short supply. The operative word here is supply, as in tax dollars. When government is starved for revenue yet keeps spending on the programs that tax-cutting legislators tell it to spend on, two things start happening: Deficits pile up at the national level, because national governments are allowed to run deficits, and cutbacks cut deeper at the state and local level, because state and local governments aren’t.

There is a local and regional negative economic consequence to austerity that has been measured, measured, and measured again, but those numbers are trumped by the political consensus that cuts are better than collective effort fairly paid for. I am pessimistic about government’s ability to respond, at any level, to big changes like water quality, drought, public transportation, land-use planning, and other localized issues, and even more pessimistic about the national response to carbon-dioxide pollution, weather-pattern changes, the drying-up of the lower Mississippi River, rising seas, or any other physical challenge that will require long-term, concerted collective action (i.e., government). All over the US, Democrats and Republicans alike are calling for more cuts in the government you see at the auto bureau, your local park, your streets department, your local schools. The new austerity has hit affluent suburban school districts like East Aurora, Williamsville, and Amherst, as it has so many affluent suburbs elsewhere. The new austerity of the two percent property tax cap in New York State has led to staff reductions and cutbacks in sports, arts, and enrichment programs, and even to seven-period days, down from eight-period days. The posh schools that poverty-avoiding suburbanites buy themselves with their sorrowfully long commutes is getting less posh.

The Economic Policy Institute reports that there are at least 1.1 million fewer people working in municipal and state government than there were in 2007; those numbers include public schools staffing. This is the localized, visible austerity that our middle class voted for.

Political consultants expect that they know who suburbanites will blame in 2012. The equivocal Obama, whose attempts to compromise with the tax-shelter-loving Tea Party Congress have been met with contempt, may yet convince some waverers not to side entirely with the candidate of offshoring bankers, offshoring corporations, and the management consultants who have recommended, and engineered, the offshoring. But Obama is up against the Ronald Reagan-George H. W. Bush-Bill Clinton-George W. Bush consensus, which is that the enrichment of Wal-Mart’s owners works best for all.

Enemy mine

We are instructed not to hope for a vigorous or even an adequate public sector, neither nationally nor locally, because the public sector is felt, even by Democrats, to be all bane and no gain. We are instructed close to home that healthcare for the poor is an intolerable burden—as when Erie County Executive Mark Poloncarz lamented the cost of uncompensated emergency-room care, a big expense which Obama’s Affordable Care Act will reduce or even eliminate—unless, as any Democrat should know, Congress overturns that law. Obama will win in New York State, but Poloncarz’s stance injured Congesswoman Kathy Hochul’s re-election bid, because now she has to explain to suburban white folks one by one that the president is correct and that the local guy is wrong, and that voting for the anti-government Republican Chris Collins will leave more of the growing healthcare bill to local taxpayers should Obamacare be repealed.

As tough as it is to distinguish Democrats from Republicans on taxes, it’s even tougher to sort them out on what’s next for our economy. Take the issue of America’s allegedly bright future in manufacturing. Hope springs eternal, of course, that manufacturing employment in the US will rise, but there are two stark realities in the goods-producing sector. First, as in the cases of the highly profitable equipment-maker Caterpillar Corporation and the steel company ArcelorMittal, and also in the case of bankrupt American Airlines, management is hammering workers for multiyear wage cuts and benefit concessions; in all cases, profitability is said to be at risk if worker pay is too big. (Connect the dots: Globalized capital will not tolerate lower returns due to well compensated labor.) Second, even where manufacturing jobs are being actively sought, as here in Buffalo, where the Brookings Institution came this week to announce the good prospects for 10,000 new positions, the overall fall-off in manufacturing employment here and elsewhere continues. Data from the Bureau of Economic Analysis from 1990 to 2010 show that as recently as 20 years ago, there were almost 90,000 jobs in manufacturing in the Buffalo-Niagara Falls metro. Manufacturing reached a peak in the area in the mid-1950s, when there were over 225,000 employed in making things here. The goods-producing sector here has fallen to less than 24 percent of overall metropolitan product.

There is a connection between the phenomena of the tax-sheltering wealthy, the tax-avoiding corporation, and the hammered-down median-income household. The connection is that the American middle class, here and around most of the electoral map, has been voting race, resentment, and really bizarre economics since Ronald Reagan convinced otherwise rational adults that government is bad for them. In 2013, with a divided Congress and a re-elected Obama, the best one can hope for is a replay of 1986, when a great bipartisan compromise was reached such that everybody but offshore tax-shelterers got a cleaner, loophole-free, more understandable, more predictable tax system—one that treated the income from work the same as income from investment. If our president is the offshorer-in-chief, count yourself among the chumps who will be told to foot the bill while your betters get their island on.

Bruce Fisher is director of the the Center for Economic and Policy Studies at Buffalo State College. His new book is Borderland: Essays from the US-Canada Divide, available at bookstores or at

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