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The corporate media in recent days has been busy resurrecting and re-reporting the deal negotiated weeks ago by Janet Yellen, US Treasury Secretary, to get 100+ other nations to sign on to and introduce a 15% global corporate alternative tax in their countries.

But why is the mainstream media bringing it up again now? Is it to soften the blow of Biden’s repeal of his proposal to hike corporate taxes in the US from Trump’s 21% to 26%? (It was 35% pre-Trump)? Or is there something else as well that explains why the media is running the global tax story that’s already weeks old?

The global sign on to Biden’s 15% global minimum tax, announced weeks ago, is purportedly designed to prevent big multinational corporations’ manipulating governments by seeking out, and getting, special tax deals in certain countries at the expense of others.

A notorious example is Ireland, where US and other multinational corps locate their headquarters and book their global tax payments at Ireland’s lower corporate tax rate which is, on average, only 2%-3%, for most corporations.

Ireland is also the favorite locale for what’s called the ‘Inversion’ tax loophole. Per the loophole, US multinationals sell products or services in large quantities in other countries, but book their profits in Ireland simply because they locate their company headquarters there. They make nothing in Ireland, in many cases, but get to pay the Ireland much lower corporate tax rate instead of much higher tax rates in countries where the corporation actually does make and sell goods and services.

The biggest US corporate beneficiaries of this Inversion loophole have been US pharmaceuticals, tech companies, finance companies, corporate consulting companies, and many others. Under Clinton US corporations got to activate the loophole by simply ‘checking a box’ on the US corporate tax forms.

But Ireland is not the only back door out of domestic corporate taxes. There’s a host of others. Luxembourg and Netherlands in Europe also come to mind. There are others outside Europe as well.

The inversion tax loophole has enabled US corporations in particular to play one country against another and choose the lowest in which to relocate headquarters and book global profits at lowest rates.

The inversion loophole isn’t the only tactic US multinational corporations use to move their profits around to pay lower rates outside the US’s.

Another favorite tactic of US multinational corporations is to engage in what’s called manipulation of ‘internal’ pricing. That’s where a company manipulates its prices between its global subsidiaries: for example, it makes its US operations pay artificially higher prices for parts and materials it purchases from its subsidiaries offshore. That way the US operation records higher costs, and thus lower profits; from the higher prices it charges its US operations, its subsidiary gets higher sales revenue and higher profits. But it pays a lower profit rate in the offshore operations. In short, by clever internal pricing the US multinational corp reduces its profits and tax in the US, while increasing profits and tax offshore. Its net global tax payment is reduced.

The Biden administration has hyped the benefits of a global 15% minimum corporate tax as a way to make the biggest US corporate tax avoiders what more operations offshore, employ inversion loopholes, or just engage in ‘internal pricing’ to pay their fare share. Some have been paying nothing despite billions in sales revenues. But Biden’s 15% proposal does nothing for corporations manipulating internal pricing and nothing as well for ending inversions.

The global corporate tax ‘race to the bottom’ that Biden’s 15% minimum tax is supposed to correct is similar to the ‘race to the bottom’ tax game US corporations have been playing between the 50 US states for decades. For years, US corporations have been moving their headquarters operations from one state to another to lower their taxes; or else threaten to do so in order to get states and cities give them special tax breaks just to remain. They just don’t call it ‘inversions’ when carried on within the US.  In recent years US multinational corporations have exported and adapted this tax strategy to the global stage as well. Biden’s global tax is designed to try to do something about it on the global stage, while doing nothing within the US.

The 15% minimum is supposed to stop corporations manipulating countries’ tax systems. At least that’s what Biden and US Treasury tells us. But don’t trust the much hyped global 15% corporate minimum to accomplish what they say it will. Here’s just three reasons why not:

First, Biden’s 15% tax may never see the light of day. It will take all the 100+ countries–including the USA–to also pass actual tax legislation after the recent, much hyped 15% deal. The 15% treaty only says the 100+ are committed to try. It will take years just to get half of them to pass enabling legislation.

Second, the recently announced 15% global minimum tax is a negotiated treaty. That means, per the US Constitution, it must be ratified by the US Senate first (even before any US enabling legislation is introduced in Congress). Does anyone really think the current US Senate will approve that treaty? After it’s just done everything to prevent any stimulus legislation from being funded by reversing the Trump tax cuts?

Third, even if the 15% passes legislatures in the US and the 100+ countries who signed on to the treaty, what will prevent each country also passing more tax loopholes to the 15%, with accompanying exemptions, exceptions, off-setting tax credits, and so on?

The Corporate Tax 40 Year ‘Shell Game’

The ‘shell game’–i.e. trading off corporate tax rates for loopholes and then loopholes for rates–has been going on for years, especially in the USA.

The four decade shell game occurs when the public learns of the massive loopholes that have been created and demands they be closed, Congress passes partial laws to close a few of the loopholes and exemptions, but then lowers the corporate tax rate.

Just look at the US tax system since 1980: whenever corporate tax rates got too low and it raised the public ire, Congress partially raised back the nominal corporate tax rate but in the same legislation increased the loopholes, exemptions, etc. That trend is evident in the 1981 Reagan tax cuts, followed by the 1986, thereafter by Clinton in 1997, then a series of Bush Jr. tax cuts in 2001-04, then Obama in 2012-13.

The pretense of the ‘shall game’ was ended altogether by Trump in 2017, however, when he massively cut corporate tax rates but didn’t even bother to close any loopholes.  He also ended all semblance of a corporate Alternative Minimum Tax.  Corporate America got a triple whammy windfall. With Trump the ‘shell game’ itself disappeared. The ‘pea in the shell’ was evident for all to see. Instead of ‘now you see it, now you don’t’ we got ‘now you see it, and now you see it even better’!

This ‘shell game’ of trading rates for loopholes over time results in corporations paying less and less in total net taxes. The US corporate tax rate used to provide more than 20% of US government tax revenues in the 1960s; it now provides barely 5%.

The shell game goes on with the Biden 15% minimum corporate tax. It will be easily negated by US multinational corporations continuing to manipulate their internal pricing between their US operations and offshore subsidiaries; it will continue so long as the inversions loophole remains. The 15% looks good on paper but for various reasons stated above, is almost certain not to take effect for many years–if even then. If it’s a treaty and doesn’t pass the Senate, for certain other countries will not implement it if the US fails to do so.

The Corporation As Capitalist Conduit to Inequality

What the mainstream media refuses to say when hyping the global minimum tax (or any of the chronic corporate tax cutting that’s been going on for decades) is the role it plays in the ever accelerating income and wealth inequality in the US today.

The corporation is the conduit for distributing massive amounts of income and wealth to capitalist shareholders. In the past decade more than $12 trillion has been distributed by corporations in the US to their shareholders in the form of stock buybacks and dividend payouts. During the Obama years these combined distributions rose from $700 billion a year to nearly $1 trillion a year. Under Trump, 2017-2019 the amount averaged $1.2 trillion a year. This year, 2021, under Biden it is projected to rise to $1.5 trillion. The massive distribution of income enriches individual capitalists, who then mostly reinvest it into stocks, bonds and other financial securities–i.e. forms of wealth–thus driving wealth inequality as well as income inequality. The assets of wealth (i.e. stocks, bonds, etc.) then throw off even more income as the buybacks and dividends keep rising further.

If the corporation is the institutional conduit for funneling more and more income and wealth to the capitalist class, then the corporate tax shell game is the liquid that flows through that conduit.

As capitalist investors accumulate more income and wealth due to corporate distributions rising made possible by the tax ‘shell game’, the individual wealthy capitalist-investors get to keep more and more of what the corporation distributes to them as well. Individual tax rates and loopholes are also expanded so that the individual capitalists get to keep more of what their corporations distribute to them in buybacks and dividends.

Corporate Tax Hikes as Political Marketing

This shell game will not end with the global 15% tax. Nor will it end with the recent proposals for an individual billionaires tax or a tax on billion dollar profit companies that the Democrats are now proposing as ‘smoke and mirrors’ funding for Biden’s Build Back Better plan (see my article of last week, ‘The Smoke & Mirrors Billionaires Tax and 15% US Corporate Minimum Tax’). The Global tax is of the same species, just a different genus. All are about creating a facade for politicians to make the public think something is being done about the tax system that ever enriches the wealthy and their corporations.

The recent proposals by Biden to raise the corporate tax in the US back a little, from Trump’s 21% to 28%, would have contributed to reversing the trend. So too would the proposal by Biden to raise the personal income tax on the wealthiest back to 39%. Before Trump the corporate tax rate was 35%. He reduced it to 21%. Biden originally proposed to raise it back in part to 28%. Then he lowered that to 26%. Now he’s dropped it altogether in his latest ‘framework’ for his Build Back Better bill.

But proposals for actual tax rate hikes on corporations and wealthy capitalists have been abandoned this past week by Biden and the Democrats as they capitulated to corporate lobbyists–and their shills in the Senate (Manchin, Sinema) and House (Cuellar).
Now in lieu of actual tax hikes on corporate America we get the smoke & mirrors of taxing billionaires and the ‘looks good on paper only’ global 15% corporate tax.  Watch for still more abandonment of proposals to make the rich and their corporations pay and in their replace tax increases that look good on paper but which the politicos know can never result in any real revenue.

What’s needed instead is a total radical overhaul of the US tax system. That system has, according to this writer’s calculations, provided US corporations and their shareholders and wealthy financial speculators no less than $15 trillion in total tax cuts since 2001!  Reforms are no longer possible. The income and wealth shift through the current tax system has reached such proportions that tinkering with it will not be enough. Something more fundamental is required. But that’s another story.

Dr. Jack Rasmus

October 30, 2021

Follow him on twitter, @drjackrasmus, on his blog, http://jackrasmus.com, and his weekly radio show podcasts, Alternative Visions, at http://alternativevisions.podbean.com

by Dr. Jack Rasmus
Copyright 2021

After a well-choreographed internal party policy debate dance this past summer, Biden and party leaders, Pelosi and Schumer, today threw in the towel and capitulated to their blue dog Democrat Senators, Kyrsten Sinema and Joe Manchin, on how to pay for Biden’s ‘Build Back Better’ bill.

The Democrats are now embracing two smoke & mirrors funding proposals for the Build Back Better bill:

1) a 15% Corporate Alternative Minimum Tax

2) a new personal Billionaires tax.

The two tax proposals apparently now replace the previous tax measures that were to pay for most of the Build Back Better bill—i.e. the increase in the corporate tax from 21% to 26% (after Trump cut it in 2017 from 35%); the former proposal to raise the top personal income tax rate back to 39% (from current 37.5%); and proposals to increase funding the IRS to go after tax cheats that cost the US Treasury $750 billion in avoidance and fraud, according to the IRS.

With the introduction of these two ‘smoke and mirrors’ tax measures, negotiations enter the ‘end game’ phase of the corporate strategy to beat back the two stimulus bills—the traditional Infrastructure Bill (now $0.55T new spending reduced from $2.3T) and the Human Infrastructure/Reconciliation Bill (now $1.75T reduced from $3.5T).

The strategy to slash the level of spending in both bills has been driven behind the scenes by the corporate wing of the Democrat party, with Senators Manchin and Sinema as their negotiating ‘point persons’. The strategy has always been to cut the magnitude of spending on both bills so deeply that it would not require actual tax hikes on corporations and wealthy individuals of any significance. What was left in terms of reduced spending levels could then be funded by means of various ‘smoke & mirrors’ measures—i.e. by moving money around from other current programs or by transferring funds from other government slush funds.

Smoke & Mirror funding has already been accomplished with regard to Biden’s traditional Infrastructure bill. Phony financing now cover that bill’s $550 billion new spending. None of Trump’s 2017 tax cuts of $4.5 trillion were reversed to provide the funding for Biden’s Infrastructure bill.

Now the same tax ‘smoke and mirrors’ funding is being proposed to fund the Build Back Better bill. Like the original Infrastructure bill, the Build Back Better too has been slashed, from $3.5T this past summer to $1.75T at latest estimate—and likely going lower now that Democrats have just made yet another concession to Manchin and withdrawn the paid leave provision from the bill.

Also like the Infrastructure bill, the Build Back Better bill no longer requires major reversals of the Trump tax cuts. Democrats have withdrawn the original Biden proposal to raise the corporate tax back up to 26% rate from Trump’s 21%. Ditto for the proposal to raise the personal income tax rate on the wealthiest back to 39%. And gone as well is giving the IRS more money to claw back the $750 billion.

Replacing these provisions are the two new tax proposals announced yesterday—i.e. a 15% Minimum Corporate Tax and a new tax on some of the US 745 billionaires.

But the billionaires tax and the 15% minimum corporate tax are both ‘smoke and mirror’ tax hikes that won’t generate revenue even remotely equivalent to the tax hikes previously proposed but now withdrawn to satisfy Manchin and Sinema in the Senate.

The Phony Billionaires Tax

All the details are yet to be reported, but it is clear that the billionaires tax is a sham. From what is known, it will tax only a small subset of the US 700-800 billionaires. Only those whose assets are worth more than $1 billion and which generate $100 million in annual income for three consecutive years!

So Billionaires like Elon Musk, Jeff Bezos and Zuckerberg only have to figure out how to hide, divert offshore to some tax shelter, or legally lie in just one of the three consecutive years to ensure his income is less than $100 million that one year.

Other questions remain such as: what assets will be countered toward the $1 billion? Will assets residing offshore in financial markets, in real property, and real investments there be included in determining the $1 billion? If so, how will Congress or the IRS obtain data on offshore assets when governments there typically refuse to share it with the IRS? And how about assets parked in tax havens like the Cayman Islands—or Vanuatu, Isle of Man, Bermuda or any of the score of useful hideouts by billionaires and their corporations?

And what forms of income will qualify toward the $100 million? Are we talking about pre-tax income or after-tax? Gross income or net income? Interest, rent or capital gains income? How about assets and income from opaque derivatives transactions? Or unreported cryptocurrencies’ appreciation?

And what assets or income will be exempted from the calculations once the thousands of corporate lobbyists now running around Washington DC get their hands in the political till? One can bet the billionaires tax will include a mountain of exclusions, exemptions, and delayed effects.

Three additional big issues apply as well:

1. The tax applies to $100 million income realized in any one of three consecutive years. What years are we talking about? Does the three year period begin with 2021? Or take effect in 2022 which is more likely since US 745 billionaires realized $2.1 trillion gains in their assets in 2021 alone! If the three year period starts in 2022, which is more likely, it means no tax revenue from it will even appear until 2025! By then Republicans will have repealed it all.

2. The tax is apparently a ‘one time levy’. That means once the billionaire pays it once, he’s off the hook forever after.

3. There’s the likelihood the billionaires tax will be tied up in courts for years to come.

The tie up in the courts will occur because the billionaires tax is based in part on asset wealth determination, not just on billionaires’ income. In 1913 the US adopted the Income tax after decades of capitalist opposition. It took a Constitutional Amendment, the 16th, in order to pass the income tax. Democrats will say the billionaire’s tax is an income tax. But it clearly is based on wealth asset levels to qualify. Billionaires will therefore argue to the courts the billionaires tax is a wealth tax and that’s not permitted by the 16th amendment since that only refers to in come taxation.

So forget about ever seeing the billionaires tax actually producing any revenue. It’s just a marketing tool, peddled by Democrats to the media to make it appear they’re taxing the super-rich in order to pay for what’s left of Biden’s human infrastructure/Build Back Better bill.

The 15% Corporate Minimum Tax Shell-Game

The second proposal—a 15% Minimum Corporate Tax—is just as phony as the billionaires tax.

First of all, even Senate Democrat Finance Committee chairman, Ron Wyden, admits it will generate only around $30 billion a year in tax revenue. The estimated $30 billion/year revenue will be just enough to cover the annual increase in the Pentagon’s budget this year and years to come.

The 15% minimum tax applies, moreover, only to corporations that earn annual profits of more than $1 billion over three years.
The same criticisms made of the billionaires tax apply again here as well: what three year period are we talking about? Starting when? Is it $1 billion profits every year or just $1 billion averaged over three years? If the latter, it will have to wait until 2025 to realize any tax revenue.

Basing the qualification on annual profits levels raises the same issues of corporations—like individual billionaires—diverting profits to their offshore subsidiaries, or hiding them in offshore tax shelters, or allocating them to various internal slush funds (as corporations do) to reduce the bottom line ‘profits’ reported to the IRS.

And how are profits defined? Is it pre or after tax profits? Profits from interest, rent or sales? And what about financial portfolio profits from investing in stocks, bonds, derivatives, and other financial markets? It’s a well known fact that at least one third of big corporations’ profits come from financial portfolio investments. How does the IRS get accurate global data from other countries that gladly shelter US multinational corporations’ profits made in their financial markets?

Corporations in the US also enjoy today—as they have for decades—what’s called ‘loss carry forward’ in calculating their taxes due to the IRS. They can reduce current and future taxable profits by losses incurred in the past. So does that provision mean corporations that might otherwise qualify under the $1 billion in profits requirement will be able to reduce those future profits, to avoid the 15% tax, by ‘carrying forward’ losses for the 2020 pandemic year?

The 15% Alternative Minimum Tax proposed is but a shadow of the 15% corporate alternative minimum tax that existed before Trump passed his $4.5 trillion tax cut for corporations and investors. In decades past corporations had to pay at least 15%. Bush Jr., then Obama, both let that slide until Trump ended the charade by deleting the corporate Alternative Minimum 15% tax altogether in 2017. So now the Democrats are proposing bringing it back—but as a joke, applied to only 200 corporations at most, according to their Senate finance committee chairman, Ron Wyden.

It should be noted that both Manchin and Sinema have voiced support for both these phony tax proposals—the billionaires tax and the 15% minimum corporate tax on just 200 of the millions of US corporations.

Both tax measures are just smoke and mirrors, intended for public consumption in order to make it appear the Biden administration is going after the super-rich to fund its Build Back Better bill—or what’s left of it as it shrinks daily.

The real purpose of the two phony, smoke & mirror tax measures is to cover up the capitulation by Biden, Pelosi, and Schumer to Manchin-Sinema—that is, the corporate wing of the Democrat Party standing in the shadows behind them. The two measures are but empty place-holders to the now withdrawn real tax hikes that were formerly on the negotiating table.

Dr. Jack Rasmus
Copyright, October 28, 2021

Listen to my 2 radio show interviews of 10-27 and 10-26 on the Democrats’ latest proposals for a billionaires tax and an alternative minimum corporate tax

TO Listen GO TO:

https://drive.google.com/file/d/1ZR_AfBUREkKI36m9bssz9exnTthjv_Ld/view

https://drive.google.com/file/d/1GSzzewQHk2SBSUc2wHaeGwijDxlNie4I/view

 

As Senator Sinema gets Biden to drop his proposed tax increases on corporations and wealthy investors earning more than $400K income a year, no consideration is being given at all within Democrat party circles about introducing a financial transactions tax to pay for the Infrastructure bill ($.55T) or the Build Back Better Bill ($1.9T).  5 years ago I wrote and proposed a minimal financial transaction tax that would generate $2.4T in revenue. That would pay for both the new spending proposals in the Infrastructure bill ($.55T) as well as the Build Back Better bill proposal still on the negotiating table ($1.9T)–the latter which, by the way, is about to be reduced further by Democrat Senator Krysten Sinema’s ‘no taxes on corporations or the rich’.

Senators Warren & Sanders have also been talking for months about a ‘wealth tax’. That idea has been rejected outright by nearly all Democrats in Congress and Biden. The latest effort to come up with some wealth tax to pay for the Build Back Better bill is in current discussion in the tax committees in Congress. It proposes to tax just the 745 US billionaires whose wealth increased by $2.1T and 70% just since the Covid crisis began 18 months ago. The problem with this proposal is it taxes the level of wealth attained in stocks and bonds by the billionaires when the prices of those stocks and bonds rise. However, it leaves open the prospect of massive tax cuts on billionaires wealth when prices of stocks and bonds decline. Better is to tax the transactions that lead to that wealth accumulation instead of the level of the wealth. A financial transactions tax does just that. And prevents a subsequent massive tax cut later that a wealth tax on levels of wealth makes possible.

All the phony positioning in Congress (Biden’s proposals, Warren’s, billionaire tax discussions, etc.) over the attempt to ‘claw back’ just some of Trump’s $4.5T 2017 tax cuts totally ignores the real solution to all of the financing of the fiscal stimulus bills: A Financial Transactions Tax.  The total cost of the $.55t new spending in the Infrastructure bill and the current $1.9T in the Build Back Better (human infrastructure) bill could be completely PAID FOR WITH A FINANCIAL TRANSACTION TAX!

Here’s what this writer proposed five years ago as a workable Financial Transaction Tax that would raise $2.41 Trillion by a 2.5% tax on stock and bond trades plus a 0.25% on derivatives trades plus another mere 1% tax on $ currency trading–i.e. a simple single tax that’s more than enough to pay for both bills in Congress (in order to outflank Sinema’s ‘no tax cuts’ on income for the rich and their corporations):

THE FINANCIAL TRANSACTION TAX
by Dr. Jack Rasmus, 2016

Let’s take four major financial securities: stocks, bonds, derivatives, and foreign currency purchases (forex).

A European study a few years ago involving just 11 countries, whose collective economies are about two-thirds the size of the US economy, concluded that a miniscule financial tax of 0.1% on stocks and bonds plus a virtually negligible 0.01% tax on derivatives results in an annual tax revenue of $47 billion. In an equivalent size US economy one third larger that would be abouit $70 billion in revenue a year.

Wealthy investors’ buying of stocks and bonds is essentially no different than average folks buying food, clothing or other real ‘goods and services’. Why shouldn’t investors pay a sales tax on financial securities purchases? In the US, average households pay a sales tax of 5% to 10% for retail purchases of goods and many services. So why shouldn’t wealthy investors pay a similar sales tax rate for their retail financial securities’ purchases?

A 10% ‘sales tax’ on stock and bond buying and a 1% tax on derivatives amounts to a 100x larger tax revenue take than estimated by the European study. The $70 billion estimated based on the European study’s 0.1% stock-bond tax and 0.01% derivatives tax yields $7 trillion in tax revenue with a 10% and 1% tax on stocks and bonds and derivatives.

Too high, Krugman and the Gang of Four would no doubt argue. Wealthy stock and bond buyers should not have to pay that much. It would stifle raising capital for companies. OK. So let’s lower it to half, to 5% tax on stocks and bonds and 0.5% on derivatives. That reduces the $7 trillion tax revenue to a still huge $3.5 trillion annually.

Still too high? Ok, half it again, to a 2.5% tax on stocks and bonds and a 0.25% on derivative trades. That certainly won’t discourage stock and bond trading by the rich (not that that is an all bad idea either). That 2.5% and 1% tax still produces $1.75 trillion a year in revenue.

But what about an additional financial tax on currency trading, like China is about to propose? Currency, or forex, trades amount to an astounding $400 billion each day! Not all that is US currency trading, of course. However, the US dollar is involved in 87% of the trading. A 1% tax on US currency trades conservatively yields approximately $3 billion a day. Assuming a conservative 220 trading days in a year, $3 billion a day produces $660 billion in financial tax revenue from US currency financial transactions in a year.

$1.75 trillion in revenue from stock, bonds, and derivatives trades, plus another $660 billion in forex trade tax revenue, amounts to $2.41 trillion in total revenue raised from a financial transaction tax of 2.5% on stocks and bonds, 0.25% on derivatives, and 1% on US dollar to other currency conversions.

Listen to my recent 20 min. radio interview discussing the latest jobs numbers and political developments behind the scenes in the unraveling of Biden’s $3.5T Human Infrastructure bill, now down to $1.8T (my prediction months ago), and likely to be cut further–as Senator Sinema vows no support so long as taxes raises on corporations and the rich. How Sinema, Joe Manchin, and the corporate wing of the Democrat party have successfully whittled down the bill, as negotiations now enter their final stage this coming week, October 25-30.

(Watch for Dr. Rasmus’s forthcoming series of articles this week on Biden’s recent Town Hall interview by CNN, the background to the collapse of the $3.5T Human Infrastructure bill, and the centrality of Corporate-Investor tax cuts in the rollback of fiscal stimulus)

To Listen GO TO:

https://drive.google.com/file/d/1DLHVjIoY5B5Utkg-UUFlW-QD3H-dRWqJ/view

Pundits left and right are calling the current situation in the US labor markets a ‘general strike’. They are wrong and reveal their misunderstanding of labor history. But it is a Great Strike Wave, the most significant since 1970-71.

Listen to my Alternative Visions radio show of October 15 where I follow up commentary of my recent print publication on ‘The Great Strike of 2021’–and also begin an analysis of the emerging inflation wave and why it’s not ‘temporary’ as the Fed and others have been saying.

The Covid induced Great Recession of 2020-21 has fundamentally restructured the US (and global) economies in ways mainstream economists and politicians do not yet understand. The current recession has entered a new phase of weak recovery of the real economy (a ‘rebound’ not sustained recovery as I call it) that will be followed by a ‘relapse’ of the real economy again fourth quarter 2021, i.e. a repeat of last year’s 2020 trajectory of the economy in which a summer rebound due to reopening the economy was followed by a relapse and near stagnation of growth in the second half of the year (as is now occurring again). Forget using GDP as an indicator of recession. It is flawed and only defines a phase of a recession. The current US and global condition is a Great Recession 2.0, which is defined–like all Great Recessions–by a major initial crash (early 2020) followed by short, shallow and partial recoveries which are then punctuated by further periods of anemic real growth, growth stagnation, or even double digit contractions in the weakest global economies. Great Recessions are also associated with severe financial side instability. But that financial instability may occur either ‘before’ the real economy’s crash (as in 2008) or may occur after it (2022-23?)

To Listen to the Radio Show GO TO:

https://alternativevisions.podbean.com/e/alternative-visions-the-great-strike-of-2021-inflation-wave/

SHOW ANNOUNCEMENT

Dr. Rasmus discusses his article, published last Monday, ‘The Great Strike of 2021’. Why are 5 million US workers not returning to work? Rasmus explains why and how they’re coping ‘withholding their labor’ as the economy reopens. It’s a strike wave of the lowest paid and most abused US workers. Signs their strike example may be spilling over to union workers now striking as well. Rasmus compares the 2021 strike wave with the last strike waves of 1970-71 and 1945-46. (Check out his blog, http://jackrasmus.com for recent articles on the subject).  In the second half of the show the current escalation of inflation is discussed. Why Biden’s recent measures to put LA ports on 24/7 work schedule will not have much affect. Why the capitalist global supply chain is in chaos and why supply-driven inflation will not be temporary but continue well into 2022. Rasmus explains ‘stagflation’ likely coming, as US GDP and economic recovery is faltering 3rd quarter 2021 while inflation continues to escalate.

A reader of my recent post, ‘The Great Strike of 2021’, asked the important question, if so many workers are withholding their labor (i.e. on strike) how then are they financially surviving? Here’s my brief reply of some of the possible ways they’re doing it:

“In answer, probably a combination of ways: perhaps a second family member is still working; or worker refusing to return is still getting unemployment benefits (note: extra pandemic benefits were cut but not traditional state benefits); or maybe his costs associated with returning to work are greater than not–i.e. if he’s low paid and has no health coverage at work or has to commute long hours, then it makes more sense to stay home and continue getting Medicaid or COBRA subsidy and save on transport costs; or makes more sense to collect the new child care benefits, stay home, and pocket the govt payments (can’t find child care anyway so why not); or maybe he saved a little from past stimulus checks, from rent assistance, and from extra pandemic unemployment benefits (now ended of course). Or maybe he sold a second car he doesn’t need any longer; Or refinanced the house if he has one; Or he’s working off the books somewhere in the underground economy, as you note. (lots of restaurants paying bartenders under the table for now since they’re unsure if demand will be permanent & Covid really over. Etc. etc. Workers are pretty resilient and figure ways to financial make ends meet even in a crisis. Just talk to anyone who’s been on strike for more than a month. They’ll let you know the ‘tricks’.

October 11, 2021
By Dr. Jack Rasmus

The best definition of a strike is when ‘workers withhold their labor’ for better wages and working conditions. The conventional wisdom is that unions go on strike. But that is incorrect. Workers go on strike and they don’t necessarily need to be members of unions. That fact is evident today as millions of US workers are refusing to return to their jobs. They are ‘withholding their labor’ searching for better pay and a future.

We are witnessing the ‘Great Strike of 2021’ and it’s composed mostly of millions low paid non-unionized workers!

Workers returned to jobs at a rate of 889,000 a month during the 2nd quarter 2021 (April-June) as the economy reopened. That average fell to only 280,000 per month in the just completed 3rd quarter 2021 (July-Sept), according to the Economic Policy Institute.

The most recent September month figure was only 194,000 jobs were refilled, according to the US Labor Department’s monthly ‘Employment Situation Report. That missed mainstream economists’ prediction of 500,000.

According to various Tables in the US Labor Department’s monthly ‘Employment Situation Reports’ (A-1, A-13, B-1), only half of the workers who were jobless at the start of 2021 have returned to work. Officially, per the Labor Dept. more than 5 million still have not. But that 5 million is a gross under-estimation. It doesn’t count the 3 millions more who have dropped out of the labor force altogether and are no less jobless than those officially recorded as unemployed. Nor does the 5 million include a several million or so workers who were mis-classified by the Labor Dept. as employed in March 2020 when the pandemic began simply because they indicated when surveyed by the government that they expected to return to work even though they weren’t working at the time of survey. The Labor Dept. soon thereafter acknowledged it was an error to count them as employed, but to date it has still refused to correct the numbers. That number of mis-classified as employed today remains around 1 million or so.

So there are somewhere around 8 to 10 million workers in the US still without any work at all, (which doesn’t account for the millions more who are underemployed working part time or a few hours a week here and there).

Many of the 9 million or so are not returning to work out of choice—i.e. they are ‘withholding their labor’. They are in effect on strike for something better.

While most are low paid, their ranks aren’t limited to just those industries that first come to mind—like hospitality or retail work. The ranks of the low paid are common across nearly all industries in the US today, not just hospitality or retail.

Comparing the US Labor Dept.’s level of employment as of September 2021 to the pre-pandemic months of January-February 2020, number show workers withholding their labor is widespread across industries and occupations: Leisure & Hospitality shows 1.6 million fewer working today, in September 2021, compared with pre-pandemic months of January-February 2020. But the Health Care industry, with hundreds of thousands low paid workers in home health care and clinics, shows 524,000 fewer employed today compared to January 2020. Professional & Personal business services shortfall is 385,000; Education services—with its hundreds of thousands of adjuncts in higher education and millions of K-12 teachers paid low wages in small non-union school districts—is down by no fewer than 676,000. One would think manufacturing was a case to the contrary. But no. Millions of manufacturing workers are employed as ‘temps’ with low pay and no benefits—even in union contracts. Manufacturing has 353,000 fewer jobs today than it had in early January 2020. Ditto for Construction, with 201,000 fewer. And so on.

That’s more than 5 million fewer—not counting those having dropped out of the labor force altogether or those still mis-classified as working.

It’s safe to assume that at least half of the 9 million with no work whatsoever are refusing to return to work out of choice. That’s 4 to 5 million who are de facto ‘on strike’. The USA is in the midst of the ‘Great Strike of 2021’, involving millions of the low paid and super-exploited US workers across virtually all US industries!

Signs are beginning to appear that their example may now be spreading to the unionized workforce as well. Union contract renewals are being rejected—and strikes imminent or in progress—in industries from food processing (Kellog workers) to agricultural equipment (John Deere) to hospitals and healthcare on the west coast. These are large union bargaining units involving thousands, and tens of thousands of union workers.

Capitalist Ideology: Reversing Cause & Effect

Employers, business media, politicians and most mainstream economists won’t acknowledge they’re in a strike wave of both the unorganized and organized. They are united, however, in trying to blame the workers for what is a de facto walk out by millions. They are all lamenting, and scratching their heads, with no answers as to why so many workers are not returning to their jobs or willing to leave them—especially now that vaccines are available and employers are advertising job openings.

Their explanation earlier this past summer was unemployment benefits were too generous and were thus responsible for keeping millions of workers not returning to work. This theme was especially popular among politicians in the Red states. Starting last June 2021 many Red state governors and legislatures unilaterally and pre-emptively cut unemployment benefits, even though the benefits were to continue until September. The then went silent as data over the summer showed that the few ‘blue’ states that did not cut benefits early—like California, New Jersey, etc.—actually showed a greater rate of return of workers to their jobs over the summer than did Red states that cut unemployment benefits early. So much for that argument.

Now the drumbeat by employers, politicians, and Red states is that child care benefits and improvement in food stamps are keeping workers from returning. It’s the old employer strike strategy: starve them out and they’ll come back to work.

In other words, workers’ refusing to return to work has nothing to do with unlivable low wages, with lack of alternative health care for themselves and their families since returning to work means loss of government COBRA payments or Medicaid, with unavailable or unaffordable child care. It has nothing to do with employers offering many workers to return to work but at fewer hours and no guarantee of hours needed to ensure sufficient weekly earnings to cover their bills. It has nothing to do with employers insisting on unstable family-destroying work schedules, no civilized paid leave, and in general no hope for the future ever getting out of what is in effect a system of modern work indenture afflicting tens of millions of US workers today.

According to many employers, their media, and their politicians, it’s the fault of the workers themselves. They’ve been given too much during the pandemic and now they don’t want to work! That’s the Capitalist mantra and explanation for the millions refusing to return.

With that explanation, employers, media, politicians and mainstream economists turn reality on its head! As is typical of the language games played by capitalist ideology, they have reversed cause and effect. The victims—the workers—are the cause of the problem and not the result or effect. Workers are the cause of the rate of job returns falling by two-thirds the past three months compared to the previous April-June period. Left unmentioned is the decades-long practices of paying unlivable low wages, few or no benefits, and working conditions so inadequate that virtually all other advanced capitalist economy have abandoned them years ago (i.e. no paid leave, child care, national health care, etc.).
The more accurate way to look at what’s going on is that perhaps as many as half of the 9 to 10 million still without any work today are withholding their labor and looking for better wages, benefits, conditions, and new jobs that provide some hope for the future. 4 to 5 million US workers are in effect ‘On Strike’.

The Great Strike Wave of 1970-71

The last great strike wave in America was 50 years ago, in 1970-71. At that time it was union workers who walked out en masse in construction, trucking, auto, on the docks and in dozens of other big manufacturing, construction and transport companies.

This working class history has largely been ignored by academics and the capitalist media. Probably because the strikes were so successful, in nearly all instances the striking workers and their unions winning big victories! On average, that strike wave resulted in 25% immediate increases in wages and benefits in no more than three year term agreements. The workers and unions could not be stopped by employers. They were so successful the companies had to turn to the US government to halt the successful strikes and contract settlements. They turned to Nixon, president at the time, in the summer of 1971 who quickly issued emergency executive orders to freeze wages won by the strikes and then roll back the 25% wage and benefit gains to no more than 5.5%.

The wage freeze and rollbacks were central elements to Nixon’s so-called New Economic Program (NEP) issued that same August 1971 along with the wage freeze. In the NEP Nixon also attacked US Capitalist competitors in Europe and elsewhere with various trade measures and by ended the guarantee of exchanging the US dollar, 32 US dollars per ounce of gold. That blew up what was called the ‘Bretton Woods’ international capitalist system that the US itself had set up in 1944.

In the former great strike wave of 1970-71 there were 10,800 strikes during the two years, with more than 6.6 million workers participating and 114 million work days lost due to the strikes. The 1970-71 strike wave was in some ways as great as the preceding big wave of 1945-46. In that period there were approximately 9,750 strikes involving 8.1 million workers resulting in an even larger 154 million work days lost due to the strikes. (Source: Analysis of Work Stoppages, US Department of Labor, Bulletin 1777, 1973)

Fast forward another half century, to the present day. There are almost as many workers ‘withholding their labor’ at around 4 to 5 million—with the number possibly rising as union workers join their ranks as their contracts expire. Number of work days lost is still to be estimated. But there is no doubt that there’s a new militancy rising, as workers take their fate into their own hands—or should one say ‘with their feet’ as they walk away from their jobs and withhold their labor!

What’s different today is today’s Great Strike of 2021 is not led by the unions. Private sector unions in the US have been decimated and almost destroyed since 1980 as a consequence of Neoliberal policies of decades of offshoring of jobs, free trade agreements, and massive government tax subsidies to corporations to replace workers with automation, machinery, and new capital equipment.
Replacing this job destruction the past four decades were tens of millions of low paid minimum wage and substandard service, temp, part-time, gig and similar indentured ‘precariate’ jobs as they are called. The recent Covid crisis exacerbated and deepened the economic contraction of 2020-21. And now the low paid, precarious, and de facto indentured work force are in revolt.
Many industries and companies are now having to raise their wages and pay recall or hiring bonuses to try to get workers to return, as they continue to withhold their labor and create a labor supply shortage. Shortages of labor supply usually mean wages must rise. But the practice is uneven across industries and still largely anecdotal.

Historical Significance of the Great Strike of 2021

The US is in the midst of an historical event. Sections of the US working class may be awakening—on their own—and not led by unions that have either been destroyed or are being led by senior union leaders who don’t want to strike out of concern it might ‘embarrass’ their Democrat Party senior friends.

The great strike of 2021 is composed, in contrast, of mostly the non-unionized workforce—lower paid service workers, independent long haul truckers, delivery drivers in the cities, hospitality workers in hotel and restaurant service, workers in retail, on local construction projects, teachers and school bus drivers, nurses ‘burned out’ by chronic overtime, warehouse and food processing workers pushed to the limit for the past 18 months, home care aide workers exploited by US middleman ‘coyotes’, and so on. The list is long.

Mainstream economists and politicians have very little understanding of the fundamental, structural changes to production processes and to product-service markets that the Covid period and deep contraction has wrought. Those changes are still be revealed. And many will prove profound. The restructuring of US labor markets now appearing is just the beginning The Great Strike of 2021 is but the symptom. Product markets and global distribution of goods and services are under similar great stress and change as well. Not least, the full effect of financial asset markets—i.e. stocks, bonds, derivatives, forex, digital currency, etc.—is yet to be felt as well. That one is yet to come and when it does may prove the most de-stabilizing of all.

Jack Rasmus blogs at http://jackrasmus.com and hosts the weekly radio show, Alternative Visions, on the Progressive Radio Network every Friday at 2pm eastern time. Join him at twitter for daily updates at @drjackrasmus.

This past week 3 important announcements were made: Friday’s monthly jobs numbers from the US Labor Dept; Debt Ceiling Vote in Congress; and 15% minimum global corporate tax agreement. Friday’s jobs shows US jobs recovery slowing rapidly. Debt Ceiling deal kicks can down the road for just 2 months and shows how it’s used to check social spending bills and ensure no tax cuts on rich and corporations. 15% minimum global tax on corporations no big deal; has to pass US Senate which is won’t unless further US domestic tax relief for US corporations also passes.

TO LISTEN GO TO:

https://alternativevisions.podbean.com/e/alternative-visions-what-s-behind-3-announcements-debt-ceiling-september-jobs-global-15-minimum-corporate-tax/

SHOW ANNOUNCEMENT:

Dr. Rasmus takes on three important economic announcements in past 2 days to explain what’s behind the hype. Is the Debt Ceiling really an issue? Why not. So why is hyped in the media and in Congress that it is? What is history of US deficits & debt run up from 2000 to 2020. What does debt & debt ceiling have to do with ensuring US economic empire? Next: the just released jobs report for Sept and why recall of pandemic jobs has now ‘hit a wall’. Real reasons why US workers not returning to work. Is this the ‘great strike of 2021’? Next: What’s happening to Biden’s Build Back Better bill and why is it going to be cut from $3.5T to less than $2T? Next: Announcement of global minimum 15% corporate tax agreement. Why US Senate will use it to cut domestic US corporate taxes next year from Biden’s proposed 26%.

Listen to my commentary on the fiscal debate in Congress–Infrastructure bill, Build Back Better bill, & Debt Ceiling–from my last friday, October 1, 2021 Alternative Visions radio show, and then read below it my twitter commentary this past week, Oct. 1-7 as well, on the same topics:

To Listen GO TO:

https://alternativevisions.podbean.com/e/alternative-visions-fiscal-faction-fights-in-democratic-party/

Alternative Visions RADIO SHOW of October 1, 2021

SHOW ANNOUNCEMENT – Fiscal Faction Fights in Democratic Party

Dr. Rasmus describes this past week’s latest maneuvers within the Democratic party with regard to the Infrastructure, Reconciliation & Debt Ceiling bills. Pelosi’s reneging on agreements with the party’s progressives this past week and what it means. Rasmus explains the evolution of Progressives’ positions since last March, agreements made this past July, and why Pelosi has decided on separate votes for Infrastructure and Reconciliation bills. Why the debt ceiling, passed yesterday, was never an issue and why the US can never default on its bonds. The party’s corporate wing strategy to pass Infrastructure and slash Reconciliation. Manchin’s ‘secret memo’ of July and positions. Likely scenarios ahead by Pelosi-Schumer to pass the Infrastructure bill and reconstitute the Reconciliation bill. Why progressives will get outmaneuvered again. The lack of additional economic stimulus amid the slowing of the US economy. The show concludes with comments about the continuing problem of Evergrande to the global capitalist financial economy.

TWITTER COMMENTARY, Oct. 1-7, 2021

Oct 7
#USFiscalFollies When was the last time debt ceiling threatened to shut down the US govt? 2011 & 2013. In 2011 when Republicans forced Obama to cave and cut social programs by $1.5 trillion; in 2013, when Obama caved & agreed to extend the Bush tax cuts another 10 yrs, at cost of $5T
#DebtCeilinglimit: So McConnell now agrees to delay debt ceiling vote 2 months. Surprise. Surprise. Why only 2? He’ll wait until Infrastructure & BBB bills pass then claim Biden’s raising debt to cover them too (though not true). Even Yellen agrees with me: abolish debt ceiling fiction

Oct 6
#DebtCeilinglimit: is a political farce perpetrated by both parties. Its purpose is to thwart social spending or raising taxes on rich & corps. Only becomes an issue when either spending or tax hikes are on the agenda. Debt limit is irrelevant. Always passes in end. Default never occurs

Oct 6
#DebtCeilinglimit: For every debt there’s a corresponding asset. (You buy a home, incur loan-debt, but the value of your house is the asset backing the debt). So why does the debt debate never mention assets created by the debt? Or decline in debt servicing costs from 3% to 1.8% of GDP.

Oct 6
#DebitCeilinglimit: Dems voted in past to raise debt ceiling to enable Trump’s $5T tax cuts in 2017. Now they want Republicans to do same to share responsibility for 2020 spending/tax cuts. But McConnell giving them the ‘finger’. So who are the fools here, Dems or Repubs? Both?

Oct 6
#US Government debt: has risen from $4T in 2000 to $9T in 2008 to $17T in 2017 to $21T start of 2020. Why? $15T in tax cuts since 2001 & slow econ growth after 2008 (both reducing tax revenues) + $7T in war spending by 2001-20. There’s your $22T US debt, now going to $28.5T due to Covid 2020

Oct 5
#DebtCeilinglimit: would be $ trillions lower today if Trump’s 2017 tax cuts did not happen. Heather Boushey of Council of Economic Advisors finally admits today Trump cuts cost $5 trillion, just as I’ve been saying since 2018. Not the phony $1.5T estimate peddled by the US press

Oct 5
As an addendum to this post, Trump promised in March 2016 during election if elected he’d cut corp-investor taxes by $5T. He did as promised Dec. 2017. McConnell passed bill via budget reconciliation within a week, after no Senate debate. No complaints about deficit & debt then

Oct 5
#DebtCeilinglimit: debate is a farce. Govt controls currency & can print money if necessary to pay bills. Not so for households, businesses, local govts, and countries whose currency is not the global reserve & trading currency–i.e. US dollar. Fiction federal govt must balance budget

Oct 5
#DebtCeilingLimit: Debt level alone is never the problem–whether govt, households or business. It’s servicing that debt (i.e. meeting payments due). Especially when asset prices & bubbles collapse, wages stagnate, revenues fall, tax collection decline. Liquidity & solvency crises follow

Oct 5
#BuildBackBetterBill: Manchin today says he’s open to a package of $1.9T-$2.2T. Biden yesterday said need to cut from $3.5T to $2.1T. Whaddya think? They cut a deal when the two last met, or what? It’s all a nicely coordinated policy dance by the corporate wing of the Dem Party.

Oct 4
#BuildBackBetterBill: Biden today says final package likely about $2T (down from $1.5T and up $.5T from Manchin’s $1.5T)-i.e. three ($1.5T cut in tax hikes) for them; one ($.5T) for the rest of us. Dems getting closer to my predicted no more than $1.8T (if they can even get that!)

Oct 4
#BuildBackBetterBill: Make no mistake. Big US capitalists like Manchin’s stand. Ken Griffin, CEO of private equity, Citadel, interviewed today on Bloomberg TV says “thank god for Joe Manchin”. Gets extended ovation from business attendees audience. Most of his class united behind Joe.

Oct 3
#BuildBackBetterBill: it’s comical to watch progressives try to repackage their $3.5T. AOC says they could cut it to 5 yrs instead of 10 & spend half $3.5T that way. Really! Corp shills in party will accept tax hikes for half the time? Hey AOC: “It’s the Trump tax cuts, stupid!”

Oct 3
#BuildBackBetterBill: Pundits & progressives lump Manchin & Sinema in same shit bag; assume Sinema is Manchin’s echo. Manchin wants deal for coal companies & will agree to some tax hikes. Sinema wants no tax hikes, no spending, no deal. She’s already cut one–with her corp donors

Oct 3
#BuildBackBetterBill: formerly Reconciliation bill. Pelosi-Schumer think Manchin-Sinema will now ‘bargain up’ from Manchin’s $1.5T. Don’t bet on it. Joe will ‘move the goal posts’ backward to make the $1.5T more unattractive to progressives (ex: spend more on oil corp credits)

Oct 2
#BuildBackBetterBill: Manchin can be ‘bought off’ to support final bill with a couple hundred billion for tax credits & subsidies for his coal companies. Sinema not so pragmatic & unknown. Want to know what it’ll take? Ask the big corp donors she’s been meeting with regularly.

Oct 2
#BuildBackBetterBill: Biden plants new ‘stake in the ground’ of $2.3T–i.e. cuts out $1.2T unilaterally. Same move and amount he cut during start of debate on Infrastructure bill last March to get $1.1T. Watch opponents negotiate down from there again. Likely $1.8T endgame, no more

Oct 2
#BuildBackBetterBill: Why is mainstream media focusing just on Manchin-Sinema and not on the corp lobbyists meeting with them weekly and almost daily via phone, email, etc.? Or those leaders of Dem Party supporting them? (“It’s the (Trump) tax cuts, stupid!”, to borrow a phrase)

Oct 2
#BuildBackBetterBill: Pelosi-Schumer retreat & regroup on Infrastructure vote. New vote deadline 10-31. Corporate wing of Dems (Manchin-Sinema) digging in. Meanwhile, no new stimulus as old fades. Deja Vu fall 2020? As supply, inflation, consumer spending, slowing GDP issues grow.

Oct 1
#USeconomy: After consumer spending rose 2nd quarter by 12%, projections are for real spending to grow 3rd quarter by only 1% annual rate (0.25% for quarter). Consumer spending = 68% of US GDP. Other negative economic effects on GDP from ‘net exports’, ending of govt stimulus, and chronic supply side inflation

Oct 1
#BuildBackBetterBill: Pelosi delays vote. Progressives signal they’re interested in framework not a $3.5T number–i.e. they’ll go lower just not publicly for now. How low? $2.5T? So yesterday’s vote deadline was just a test to see if progressives blinked. They did, but not publicly