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A few well-written words can convey a wealth of information, particularly when there is no lag time between when they are written and when they are read. The IPS blog gives you an opportunity to hear directly from IPS scholars and staff on ideas large and small and for us to hear back from you.

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Entries since May 2012

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Top Democrats Push Obama on Capital Controls

May 29, 2012 ·

At a point in the election season when politicians of the same party tend to sweep their differences under the rug, two senior Democrats have sent a strong letter to the Obama administration on a subject unknown to most American voters.

Barney Frank and Sander Levin had strong words on capital controls for the Obama administration.This is the issue of capital controls -- various measures governments use to control volatile flows of money across their borders. Iceland, for example, used them to prevent massive capital flight in the midst of their meltdown. Other countries have used them to prevent speculative bubbles. In fact, governments that used capital controls during the 2008 crisis were among the least hard-hit, according to International Monetary Fund research.

However, despite their proven effectiveness in many cases, these policy tools are prohibited by U.S. trade and investment policies. Particularly in the wake of the worst financial crisis in 80 years, it's an embarrassingly outmoded position that only serves the narrow short-term interests of global financiers and corporations.

Thankfully, two top Democrats are not willing to just overlook the problem. In a letter to Treasury Secretary Timothy Geithner, Representatives Barney Frank and Sander Levin stated they could not support U.S. trade agreements unless the administration produces a "binding interpretation" of U.S. policy clarifying that governments would not be subject to investor lawsuits if they use this policy tool to manage financial volatility.

Frank is the ranking Member of the Financial Services Committee, while Levin is the leading Democrat on trade policy as the ranking Member of the Ways and Means Committee. They are part of a growing chorus calling for trade reforms to allow greater flexibility on capital controls. In fact, in their letter to Geithner, they cited a statement signed by more than 250 economists calling for such changes in U.S. policy.

The Frank-Levin letter comes at a key moment. In April, the Obama administration released a new model U.S. bilateral investment treaty. Despite strong calls for reform from public interest representatives on an official advisory body, the new model maintains the old language prohibiting capital controls, with no exceptions for times of financial crisis. Governments that violate such rules face the prospect of being sued by foreign investors in international tribunals.

The administration intends to use this new model as the template for bilateral investment treaties with China, India, and several other countries. It's also a strong indication of what they're seeking in ongoing negotiations over a Trans-Pacific Partnership, a trade agreement involving at least eight other governments.

By stepping up pressure from Congress, Frank and Levin may help alter the outcome of these negotiations. By showing that the views of U.S. officials are not monolithic, they may embolden negotiators from other countries who are seeking a more reasonable approach. Two of the governments involved in the Trans-Pacific talks, Singapore and Chile, sought exemptions for the use of capital controls to prevent crises when they negotiated bilateral trade agreements with the United States about a decade ago. At that time, the Bush administration refused to concede, beyond putting some modest limits on how much investors could demand in compensation for certain types of controls.

Today, we have the opportunity to apply lessons from a financial crisis caused by poorly controlled financial activities. And it's never been clearer that financial stability at home and abroad is essential for U.S. economic health. When our trading partners fall into financial crisis, we lose export markets and jobs. When hot money makes it impossible to control currency values, it hurts long-term investors and exporters and importers from the United States.

It's in all of our interest to support a fresh, flexible approach to capital controls.

Verizon Shortchanges the Facts

May 29, 2012 ·

Verizon's corporate communications director published a guest column a few weeks ago in the Meriden, Connecticut Record-Journal that recently came to our attention.

Bob Varettoni's column responded to our Shortchanging America op-ed distributed via OtherWords, which the Record-Journal also published. In it, he invoked Sgt. Joe Friday, the Dragnet TV show character who always called for “just the facts.” But Varettoni skewed many of his own so-called facts to paint a picture that bears little resemblance to the concerns we raised.

Our op-ed raised three principal concerns about Verizon's lack of corporate responsibility. First, we argued that Verizon is so successful at avoiding federal corporate income taxes that it claimed refunds of $758 million over the last four years, despite reporting pre-tax profits of nearly $20 billion. Second, we said that Verizon has been a major job destroyer over the last four years. Finally, we asserted that Verizon has a contentious relationship with its primary labor union.

Federal Corporate Income Taxes

Varettoni met our challenge concerning Verizon’s lack of federal income tax payment with broad and largely unsubstantiated claims that last year Verizon paid $4 billion in total taxes. That number appears to include all the taxes Verizon paid in 2011. That would mean all U.S. foreign, state, property taxes, payroll taxes, even perhaps sales taxes on merchandise purchased. We don't know for sure, because he doesn't say. This is a common shift-the-focus corporate strategy, particularly among the several dozen firms like Verizon that have turned avoiding federal corporate income taxes into an art form.

We are addressing the fact that Verizon has successfully dodged its federal corporate income taxes. In the tax footnotes of its annual reports, Verizon reports it "current federal income taxes" as follows:

  • 2011:  $193 million
  • 2010: —$705 million
  • 2009:  —$611 million
  • 2008:  $365 million

Current income taxes represents the company’s best estimate of taxes due and payable in a given year. Companies also report "deferred taxes." These are taxes which may or may not be payable in future years, due to various loopholes in the corporate tax code. We, and most other observers, use current taxes as the best representation of taxes actually paid. Like most companies, Verizon prepares its annual reports in the spring, but doesn't file its federal tax forms until September. It's therefore possible that there are slight differences between the estimates in the annual report and the actual numbers reported to the IRS, but these differences are generally small and not material.

In our op-ed, we cite more detailed analysis performed by the non-partisan, widely respected research organization, Citizens for Tax Justice. It's frequently called to testify before Congress and is widely cited as a tax authority in mainstream media publications. This organization takes the current tax number presented by companies and performs additional adjustments to correct for the federal tax effect of state taxes paid and stock-based executive compensation. In its most recent analysis, Citizens for Tax Justice found that Verizon’s four-year federal effective tax rate was minus 3.8 percent.

Varettoni asserts that our calculation of $19.8 billion in profits is wildly overstated. Our $19.8 billion number is U.S. pre-tax profits as reported in the tax footnotes of Verizon’s Forms 10-K. Taxes are calculated off of this pre-tax number. Varettoni cites Verizon’s lower after-tax profits.

If Verizon had paid the full 35 percent federal tax rate on its $19.8 billion in reported U.S. pre-tax profits between 2008 and 2011, the Federal Treasury would have received a $6.93 billion check from Verizon, instead of returning $758 million to the company. This is a difference of nearly $7.7 billion. In his rebuttal, Varettoni points to Verizon's 2011 charitable contribution of $66 million to local communities. Does he really believe that Sgt. Friday, having caught a pickpocket who had lifted wallets containing thousands of dollars, would release said suspect upon learning that he had dropped five bucks in the church collection plate?

Those interested in learning more about Verizon's aggressive pursuit of taxpayer subsidies and avoidance of taxes at all level of government should read Unpaid Bills: How Verizon Shortchanges Government Through Tax Dodges and Subsidies. This report from Citizens for Tax Justice and Good Jobs First shows that Verizon is one of the country's most aggressive tax dodgers and documents Verizon’s behavior, which goes so far as to challenge local property taxes imposed on telephone poles.

Job Destruction

Varettoni argued that our claim of 40,000 jobs destroyed since 2004 is overstated. He points out that 9,000 of those jobs were shed when Verizon sold a piece of its business to Frontier Communication in 2010. We'll have to take his word for this, because the company makes no such disclosure in its 2010 annual report filed with the Securities and Exchange Commission (the very source that Mr. Varettoni suggests readers consult). Unlike many companies that include information about material transfers of employees involved in acquisitions or disposals in the "employee" section of their Form 10-K, Verizon makes no such mention. The company does include a five-paragraph description of its disposal of assets to Frontier (Note 3 of 2010 Form 10-K), which includes a sentence that mentions in passing some employees that were shifted from Verizon to Frontier, it doesn't however quantify the number of employees affected, nor provide the reader any sense that a large number of employees were involved.

Varettoni also tried to defend Verizon by pointing out that 12,000 jobs were cut as a result of voluntary buyouts of union workers. A job lost whether through involuntary layoff or voluntary buyout, is nonetheless a job not available to an American worker. If we accept Varettoni’s assertion that 9,000 employees were transferred as a part of the Frontier deal, Verizon still destroyed 31,000 jobs globally between 2004 and 2011.

Union Relations

The U.S. Bureau of Labor Statistics reports that the largest labor strike of 2011 involved 45,000 unionized Verizon employees. That work stoppage entailed 450,000 days of lost work.

The contentious relations between Verizon and its union can be seen at this Communications Workers of America union website which nicknames the corporation “Verigreedy.” This paints a very different picture than the one of two sides seeking to work things out Varettoni painted.

Varettoni asserts that 150 people were inside Verizon's annual meeting, but makes no mention of the hundreds more who assembled outside and marched through the streets of  Huntville, AL. Local media reports reveal the anger expressed within the meeting itself, noting that workers who protested their treatment by the company were escorted by police from the meeting hall. Photos of the outdoor protests can be viewed here.

Clarifications

Varettoni asserts that our report of Verizon's $106 billion in sales last year was incorrect. On this point he's correct. We used the Fortune 500 2011 listing which itself reported 2010 data. Verizon’s 2010 sales were $106 billion; its 2011 revenues were $111 billion, as he correctly states. Verizon currently ranks No. 15 on the Fortune 500 list.

The Lineup: Week of May 28-June 3, 2012

May 28, 2012 ·

In this week's OtherWords editorial package, Salvatore Babones calls for a flat tax on Social Security that would enable the government to make the payroll tax cut permanent. Get all this and more in your inbox by subscribing to our weekly newsletter. If you haven't signed up yet, please do.

  1. Social Security's Dual-Income Trap / Salvatore Babones
    Families with two breadwinners can end up paying more than twice as much in Social Security taxes as families with just one income.
  2. Pentagon Spending Spree / Elizabeth Rose
    Throwing money at the military doesn't buy us safety.
  3. The Changing Face of America / Marc Morial
    While the African-American and Latino communities are growing, our fight for civil rights and equality is far from over.
  4. Diplomacy Is the Only Way Forward with Iran / Laicie Olson
    The parties must come to a compromise through negotiations.
  5. Walmart's Unsurprising Bribes / Donald Kaul
    Bribery is as American as apple pie.
  6. Lobby Responsibly / Jim Hightower
    Anheuser-Busch and other big brewers blocked a Nebraska bill that would have curbed sales targeted at the Pine Ridge Indian Reservation.
  7. What Medical Mistakes? / William A. Collins
    Privilege rules at U.S. hospitals and patients are at the mercy of powerful players who operate with impunity.
  8. United States of Walmart / Khalil Bendib

The United States of Walmart, an OtherWords cartoon by Khalil Bendib

Democracy Now! Debate: Should NATO Exist?

May 23, 2012 ·

"When you’re a hammer, everything looks like a nail. When you’re a military alliance, every problem looks like it requires a military solution," argued Phyllis Bennis, an author and fellow at the Institute for Policy Studies on Tuesday's edition of Democracy Now!. She debated Stan Sloan, a former CIA Europe security expert. Here's the video: 

Phyllis Bennis on Democracy Now! screenshot

While the big news coming out of Chicago's NATO summit was the agreement to hand over control to Afghan forces in 2013, Phyllis made sure to point out opposition to NATO is expressed in larger numbers around the word.

The Nonsense Zone

May 22, 2012 ·

The Institute for Policy Studies is honored to join the long list of respected individuals and organizations that Bill O’Reilly has attacked on his Fox News show. During the opening segment of his May 22 tirade, O’Reilly attacked us for serving as the Occupy movement's "headquarters." He even implied that some central figure is making decisions about what color Occupy "agitators" should wear. These are hilarious claims about a movement that defiantly makes decisions through the direct participation of all of its members, rather than in a top-down process. And that would include fashion choices.

We don't know how O'Reilly and his colleagues cooked up their theories. They didn't bother to contact us before staging this attack. But IPS is nevertheless grateful for this opportunity to showcase our proud history of public scholarship on inequality, peace, justice, and the environment.

We have worked on the issue of inequality for two decades. We host one of the leading web sites for facts, figures and analysis, www.inequality.org. Our annual Executive Excess report, now in its 18th year, garners major mainstream media coverage on the growing gap between CEO and worker pay. Recently, IPS was invited to give testimony on this research to the Senate Budget Committee. IPS is also doing a great deal of research on the transition away from a speculative Wall Street economy to a green and demilitarized Main Street economy.

IPS researchers were very pleased when the Occupy encampments raised awareness of the growing problems with extreme inequality and how war spending fuels the economic crisis. During his broadcast, O’Reilly claimed that the Occupy movement is no longer about inequality. He's wrong. This movement continues to highlight the great divide between the 1 percent and the 99 percent, and it continues to draw attention to how a casino Wall Street has crashed our economy and corrupted our politics. The Occupy movement has brought these vital issues into dinner conversations across this country.

Starting last fall, IPS conducted workshops on inequality, environmental justice, and ending wars, with Occupy DC. We offered to let them use our space for meetings when the weather was bad or on weekends. Two weeks ago, IPS offered them space in our offices where they are producing an online newspaper called DC Mic Check. SEIU, the dynamic union of janitors and other service workers, has made a contribution to help us cover the costs.

IPS is an independent, nonpartisan, and non-profit organization. For nearly half a century, we have worked with and provided research and analysis to a diverse set of social movements, unions, and others for peace, justice, and the environment. Thank you, Bill O’Reilly, for putting us in the spotlight.

John Cavanagh is the director of the Institute for Policy Studies. www.ips-dc.org

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