Confronted with a handout to the Bills and Romney’s 47 percent, paycheck democracy becomes self-aware

Thirty profitable American-based corporations that paid a negative income tax rate between 2008 and 2011 also paid less than zero federal income taxes in 2011. By employing attorneys to assist them in utilizing hard-to-read sections of the Internal Revenue Code, which has changed radically since the glorious but short-lived simplifications of the Tax Reform Act of 1986, investor-owned companies like General Electric, Boeing, Mattel, Corning, and a very big group of energy companies made billions in profits, but instead of paying federal income taxes on their earnings, actually received refund checks from Uncle Sam.

The clever economists who contribute to the Freakonomics blog, edited by the University of Chicago’s Steve Levitt and his partner Stephen Dubner, have written several amusing posts about how nuts it is to allow our tax system to do this, quietly, year after year, rather than making it so that Congress actually has to vote on specific handouts to individual companies, interest groups, and consumer classes—you know, the way we do it here in Buffalo.

Don’t doubt for a minute that that’s what we do. Ralph Wilson’s National Football League franchise is negotiating with Erie County to get an even sweeter package of handouts than Dennis Gorski and the Erie County Legislature, with help from New York State, handed them in 1997. Gorski bravely agreed to give the Buffalo Bills one full year’s Erie County property tax revenue in return for Mr. Wilson agreeing to continue to take his profits home to Detroit, win or lose, just so long as he kept that team here.

These days, Mark Poloncarz, relying on the same staff Gorski used, has a tougher challenge, in three ways. First, Poloncarz faces a state-imposed property-tax cap that was enacted by a governor and a state legislature desirous of making a gesture to suburban homeowners. Especially those in the Hudson Valley and on Long Island. That tax cap is a problem for anybody running a county government in this state: If our county executive agrees to the Gorski-sized $15 million-per-year handout, he will have to first plug other gaps in his budget, or start shedding suburban roads, sheriff road patrols, libraries, culturals, and other discretionary, non-mandated items, because he can’t do what his predecessors all had the option of doing in the days before the tax cap, which is to propose a budget with a tax increase, and let it take effect whether or not the local county legislature ratifies it. Second, Poloncarz is facing a wily negotiating opponent that has Toronto on the mind: The Buffalo Bills may well perform their football magic in “home” games played in Toronto rather than in the taxpayer-owned stadium in Orchard Park, which means that even if Poloncarz finds the funds to pay the Bills a full year’s property-tax levy, the tiny bump in sales tax that comes from 80,000 beer-swilling Bills fans eight times a year will come only seven times, or six times, in coming years, thus reducing his ability to foot the bill for the Bills handout. And third, Poloncarz faces a brand-new reality: Because of a new awareness of brain injury from the trauma that is commonplace in the game, professional football may be only a few lawsuits away from a shutdown. It’s not too crazy to imagine the day when Erie County taxpayers might be stuck with an empty public stadium that is far too expensive to operate as anything but a site for professional football.

But of course, our elected officials will write the check to the Buffalo Bills. They will vote affirmatively to do so, unlike our Congress, which makes tax law—a law that even when it was simplified back in 1986, for that brief shining moment before the loophole-writers and the bogus economists and the lobbyists re-wrote it, was still as thick as a Gutenberg bible.

Negative income taxes for profitable companies? Direct taxpayer handouts to profitable firms? These are normal features of life today. And so is the confusion of the news media, whose function it is to interpret complexities, and to make these seemingly inconsistent realities consistent with some idea of public benefit or overall lawfulness.

That’s getting more and more difficult. Earlier this week, the hosts of the market-leading morning drive-time news show, like the hosts of the market-leading nighttime television news show, all blanched at any suggestion that the taxpayer subsidy of the non-local firm known as the Buffalo Bills may be a handout rather than an investment that has a measureable net economic benefit to the region.

In a 2004 study of the proposal to have Washington, DC’s taxpayers build a brand-new baseball stadium for the team formerly known as the Montreal Expos but now called the Washington Nationals, two economists were pretty blunt about it. Dennis Coates and Brad Humphreys called their study “Caught Stealing.” People in the Buffalo metro area may be forgiven for believing that we live in a uniquely perverse economy characterized by the business symbiosis of professional football and the major media: What TV, radio, and print have to sell to advertisers is the football demographic, which is why the Buffalo Bills are news every single day, in-season or out. But elected officials here and in other medium-sized football cities, and in baseball cities, and to a lesser extent in cities where there are NHL and NBA franchises, all act alike: They promise lower taxes to “help” business, even as they hand out massive direct subsidies to individual firms that command media access.

The tax experience

Everybody in the USA pays sales and property taxes. Everybody. These local and state-level taxes are the sources of the boodle that get handed out to professional sports teams, and the dollars come mainly from moderate-income households that have a curious tax characteristic almost everywhere in America—namely, that these households pay far larger shares of their small incomes in overall taxes than do the very richest, highest-income households.

Mitt Romney’s recently-revealed rant about the 47 percent to his nodding, applauding donors did not address local and state sales and property taxes. Nor did his remarks include any consideration of federal gasoline taxes, which are also regressive, near-universal taxes that take a larger share of lower incomes than of higher incomes. Nor did Romney acknowledge that every employed person, every last one of them, pays the flat-rate taxes on their incomes known as the Social Security and Medicare taxes.

There is a highly useful publication called Who Pays, published by the Institute on Taxation and Economic Policy. It’s a 50-state breakout, by income group and by the type of tax, of how much income folks have and who pays what in taxes. Rotten realities abound: In states like Washington, where there is no income tax, the poorest 20 percent, people who make incomes of under $11,000 a year, pay an insane 17 percent of their incomes in taxes, while the richest one percent pay under three percent. In states with income taxes, like New York and California, low-income people still pay higher shares of their income than do very high-income individuals, but the progressivity of the income tax evens things out; poor folks pay eight percent of their incomes in state and local taxes in New York and California, and their incomes are higher, and very rich folks pay between six percent and seven percent of their incomes in taxes, and they are a whole lot richer, curiously, than their counterparts in places without income taxes.

Taxes buy public goods. Taxes are the price for stuff that’s supposed to serve the public interest as defined broadly by the Constitution and narrowly, and frequently, by legislators. When Ronald Reagan agreed with Democrats to simplify the federal tax code back in 1986, their fundamental agreement was this: that all types of income should be taxed at the same rates, without a prejudice against income derived from work or a preference for income derived from capital gains or stock dividends.

The Tax Reform Act of 1986 did not wipe out local practices like giving handouts to professional sports firms. And shortly after it was enacted, Congress began to dismantle the key reforms, creating measures—like the capital gains preference, and the “carried interest” rule that allowed Mitt Romney and others in his line of business to have their incomes taxed a half the rate imposed on a doctor’s or lawyer’s or football player’s work earnings. Loopholes galore proliferated for various lines of business that profitable, US-based but largely internationalized corporations, such that it became commonplace for such firms, and their directors, and their investors, to seek off-shore tax havens.

What Romney failed to appreciate is that most employed persons in this country, as distinguished from persons who bring their income in from investing, have the experience of paying local, state, and federal taxes. It is a part of behavior, even for those low-income wage-earners who enjoy a refund of some federal taxes they pay, giving them—just like those big corporations—a negative income tax rate.

Romney’s error is that he has no personal experience in doing what most of the rest of us do. It’s not an ideological divide per se. It is behavioral. And it’s unlikely that anybody whose pay today, this week, or this month comes from work has missed the point that Romney inadvertently made—namely, that when he says he’s not thinking about the 47 percent of folks who he thinks of, in code language, as “handout” seekers, he is really not thinking about most of the rest of us, either, because in this one critical experiential dimension, we are not like him, and he is most definitely not like us.

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 www.sunypress.edu.