Corporate (Ir)Responsibility: Part One.

Well, Unf*ckers. It was bound to happen at some point. We’ve got ourselves our very first two-parter on our hands. The fuckery is so thick and layered here, it was simply too much to ingest in one sitting. Even still, today’s rundown is pretty packed. We’ll start by discussing the political and economic philosophy that has guided the nation for the past 50 years and created a scenario where corporations reign supreme and workers have been villainized. We’ll talk about how wealth is accumulated and examine taxes from a few different angles, including how and why our corporations park money offshore.

We’ll also expose the false logic behind our corporate tax system as a whole and disabuse a few popular notions around innovation as it relates to taxes and regulation. We’re going to shoot for a quick turnaround to Part Two, where we’ll investigate how corporations have misused their ill-gotten gains to fuck over the American public and suggest a few ways we can right the ship.

“The natural order”

The natural order is the concept that Enlightenment philosophers were kicking around in the 18th Century. Many of the greats that we alluded to the Mass Incarceration and Capitalism essays built their ideas of efficiency and inequality around what should be considered the natural order of things in the world; concepts that included punishment in the carceral sphere, the flow of goods in the burgeoning global market, the distribution of wealth, food and welfare.

For many of these thinkers, the New World was the proving ground for new concepts that broke from the feudal political and economic systems that governed human life for centuries. The challenge was to create a pure and natural system that melded human tendencies to the natural world in a manner that would produce equity.

As you can imagine, given my obsession with the man, we have an upcoming essay dedicated entirely to the Chicago school of economics and its patron saint, Milton Friedman. I’m bringing him into the conversation now because Friedman, along with other giants of the time like George Stigler and Gary Becker, gained prominence in economic and political circles by building on these Enlightenment theories and taking the concept of natural order to an extreme that hearkened back to the physiocrats of yesteryear. We’ll talk more about them another time.

Here’s where the intersectionality of our prior essays really comes to bear and elucidates the power of today’s corporate structure, which has been building over the past 50 years.

So it was around the 1970s when a quiet revolution of sorts really began to take hold in corporate America. You’ve got the “Chicago Boys” like Stigler and Friedman committing to the idea that government really has no place in business and trade and that taxes and regulation of almost any kind were artificial impediments to the so-called natural order. Recall in our capitalism and incarceration essays how these men essentially cherry picked certain ideas from Cesare Beccaria, Jeremy Bentham and Adam Smith to formulate the concept that government can only serve purposes related to punishment. Punishing criminals and punishing other countries in the defense of its interests. A bastardization of nearly every philosophers’ ideals, except Le Mercier.

These ideas found their way into policy through the likes of Ayn Rand devotees such as Alan Greenspan. The natural order of economic policy made perfect sense to objectivists who believed that man—using man specifically, as Rand herself loathed feminism—should be free to do as he pleases and that bureaucracy and collectivism were evil.

And for the trifecta from our essay on privatization, we have the Powell Memo, which has come to represent the beginning of corporate intervention into our political system. Put it all together, and you have the birth of neoliberalism, the theory that has dominated the American political system for the better part of the past 50 years.

Right. So the economists teamed up with the politicians who teamed up with corporate American to fight back against…Well, to fight back against us.

Boom and Bust

I know what you must be thinking: “Max. Aren’t you reading a bit too much into this? These are just theories and policies. Our capitalist system produces jobs and innovation. Sure, some people are left behind, but it’s better than living in the Soviet Union, isn’t it?”

We know what the arguments sound like, and the fact that this shit is complicated and layered is precisely what they’re banking on. You got a smartphone and internet access? Then shut the fuck up. At least you’re not in Russia.

Well, there’s nothing like a pandemic to really show how fragile things are for the American people. It’s exposed so much new information about the way our political system works and how corporations are fucking us in the collective bunghole.

Actually, there’s nothing like a pandemic or a financial crisis and housing collapse, that is. Rare events that expose the flaws in our system.

Or a pandemic, financial crisis and housing collapse, terrorist act, and dot com meltdown. Just rare events that fuck us in the ass and prevent tens of millions of people from ever escaping poverty.

Okay, so a pandemic, financial crisis and housing collapse, terrorist act, dot com meltdown, global recession, stock market crash, savings and loan crisis, oil crisis and a different global recession, but that’s it.

All so rare. So fucking rare. Except that they happen once every eight to ten years. That kind of rare.

Here’s the thing. These events aren’t natural at all. They’re the furthest thing from the so-called natural order of things.

Unf*ckers know the numbers by heart. All of the wealth gains over the past 50 years have gone to the very top. Real wages for 90% of the country haven’t moved. Moving out of poverty is a statistical anomaly in this country, but anyone that does is put on a pedestal and displayed as the example of the American dream. It’s the best public relations scheme of the past 100 years.

When these so-called “rare” events that happen like clockwork every ten years wipe out the wealth for a majority of households in America, we’re not really living the American dream. In reality, everyone is pretty much stuck in their birth situation, and much of that is determined by race and geography.

Wealth transfer

One of the ways we transfer wealth, not just in the U.S., but globally, is through inheritance.

Couple of key points here, before we talk more about the mechanisms of wealth accumulation and the effect of taxes. The last great study commission by the Bureau of Labor Statistics revealed some interesting statistics. First off, over about a 20 year period, 21% of American households at a given point of time received a wealth transfer, and these accounted for 23% of their net worth. As you might imagine, the proportion of wealth transfer is double in white households to non-white households, and of the non-white households, these wealth transfers tended to make up a much larger share of net worth. Fairly obvious stuff, though how you spin it really matters. Back to that in a second.

Let’s talk about the “1%” for a moment. Turns out, for the top tiers of wealthy people, wealth transfers as a share of their net worth fell during this same period. The report then draws this conclusion:

“It is therefore reasonable to conclude that inheritances and other wealth transfers have become less important for the rich as a source of wealth accumulation over these years.”

Unf*ckers, this is where you have to read between the lines a bit. A good chunk of the country receives a transfer of wealth. Historically, this is how people lived up to the adage of doing better than your parents. Of course, that only applied to people who actually had money to begin with. It also explains how property ownership, insurance payouts and retirement funds have kept wealth among white Americans for so long—mechanisms of privilege for generations. Proportionately, wealth transfer occurs twice as often in white households as non-white households, even today, due to the historical significance of these facts.

Now, at the top, the transfers aren’t as meaningful as they used to be. But among non-whites, wealth transfers are far more meaningful as a percent of net worth.

Here’s the translation:

When people die, they leave money behind to their heirs. In absolute and proportional figures, white people have more money than non-white people and therefore are able to leave more behind. The wealthiest among us receive inheritances, but it doesn’t mean as much as a percentage of net worth anymore. So what does that mean? If the top 1% is still getting money from their dead parents and grandparents, but it doesn’t mean as much to them as it used to, it means they’re killing it in other places, considering they’ve taken in 90% of the wealth gains since the 1970s.

Let’s find out where they’re killing it and how.

The structure of money

Now that we’ve gone through a quick primer on wealth accumulation, let’s get to the real meat of the essay, which is to talk about corporate America and its role in widening the wealth gap among Americans. Let’s start by identifying the bogeyman here, because Corporate America is a little broad.

There are four main types of corporations, and you might very well work for one of them. You’ve got C Corps, S Corps, limited liability corporations and non-profit. There are others for entities like partnerships and sole proprietors, and a growing movement toward something called benefit corporations and, in some states, low profit companies that are designed for a social benefit but don’t really qualify as a true charitable organization.

The difference between corporate structures relates primarily to two things: personal liability and tax consequences. Just putting that out there to level set on how we’re defining corporations in this essay.

For our purposes, we’re going to focus on the “C” Corporation, which is what most public companies are. We’ll drift a bit in our conscious capitalism section to talk about the growth of B Corps, low profit entities and co-ops, but the most dominant type of company in the United States deserving of our love and attention is the class C Corporation.

C Corps truly control what we would define as wealth in this country. For our purposes today, consider every public company traded on the major exchanges: C Corps, as that’s where we’ll focus our attention. One quick note related to the decline of alternative weeklies and local journalism, even though we’re examining the larger class of corporations; the fact is that small companies employ the vast majority of Americans and there is precious little oversight on them now that local newsrooms have shuttered and consolidated. That, too, for another day.

So we’re talking about the big guys. And there’s a tendency to focus on the billionaire class, and it’s fair to say that many of them have developed from controlling interests in these types of corporations, but billionaires are really a class of their own. We like to keep track of people like Jeff Bezos, Elon Musk and Bill Gates because of their preposterous net worth, but it’s not like they actually have a trillion dollars in gold coins sitting in a vault like Scrooge McDuck.

Recall in the privatization essay how Milton Friedman popularized the false concept that corporations exist solely to maximize profits. In truth, corporations exist to sell a good or service within the legal framework of trade, and the corporate structure exists to shield shareholders from liabilities and provide taxes to the governing entities that help facilitate the movement of said goods and services. That’s it. Corporations aren’t mythical creatures that exist for a higher purpose, but we treat them as such.

When we talk about taxing the rich, I think we need to start shifting the conversation toward a more holistic approach.

It’s not about taxing the rich as individuals. It’s about controlling the ecosystem of wealth creation more tightly to prevent the massive leakage that occurs to places that circumvent the socioeconomic system that the nation is built upon. Individual rates, capital gains, carried interest tax loopholes, offshore tax havens, estate taxes are all part of the equation, but it’s the individual rate that gets all of the shine from politicians and the media. This is partly because it’s the easiest and most relatable thing to focus on.

But it’s really the superstructure that matters most. Think about the wealth that exists in the financial world. Remember when candidate Trump talked about closing the carried interest tax loophole? Then remember when President Trump didn’t? This provision allows money managers to have their investment gains taxed as capital gains and not income, which is more than 15% less than it should be.

This is fucking insanity, and should be one of the easiest fixes possible, because it will force investors to steer clear of short-term schemes to pump up stock values and be more deliberate in their investment decisions.

Money on the sidelines

If you watch corporate business media, you’ll hear euphemisms like “money on the sidelines,” or “dry powder” to describe the amount of cash that companies are hoarding on their balance sheets. Let’s dig into this a bit to understand the rationale behind this.

First off, it’s rare to hear any of these same pundits talk about how this money is often parked offshore. Once again, candidate Trump made a big deal about this, though he blamed the corporate tax structure in America and promised that he would take care of corporations by offering them a “tax holiday” to repatriate these funds back into the United States. And he actually delivered on this promise, which I suppose is one way to go about this.

Indeed, Trump’s tax cut and repatriation holiday brought home just north of a billion dollars, which is like pissing in the ocean to warm it up.

What I find fucking ludicrous is that we would have to offer an incentive of any kind to repatriate money that was held offshore through loopholes—albeit legal ones—that stole from the American people. Everything always has to be in the favor of corporate America. Can you imagine Teddy Roosevelt pleading with corporations to bring back stolen money by offering them incentives? He would have marched into their boardrooms and beaten the CEO to death.

It begs the question as to why a corporation would hold money offshore anyway. Can’t spend it. There’s only so many fucking helicopters and jets you can buy with it when we’re talking trillions, right? What’s the fucking point? Like, if you’re a wealthy individual, you can just buy shit in other countries like wine, homes, diamonds, cars, boats, whatever. So that makes sense. But why would a public company work so hard to keep cash in a place they can’t really put it to use?

(Drum roll) The answer is share price.

Cash on a balance sheet, no matter where you hold it, shows strength and contributes to the value of your company. That’s where the real money is. Building up shareholder value. Executives in the modern era have made an art of enriching themselves personally through value, not actual productivity.

Since the 2000s, there has been a huge trend toward paying executives through stock options for a couple of reasons. One is optics. Since the financial crisis in particular, it’s considered poor form to literally pay people tens or hundreds of millions of dollars. Just looks bad. It’s so much easier and trickier to pay them a rational salary then give them enough options to buy a fucking island. Plus...when they exercise those options, as we talked about before, selling them is considered a capital gain and not income, so they’re taxed less.

So, the more cash you have on a balance sheet by storing it offshore and keeping it from being taxed, the more you can inflate the value of a company and increase the share price. The greater the share price, the greater the value of executive stock options. The more your income consists of exercising these options, the less likely you are to be taxed at a normal rate. Win, win, win.

David Carden, a lawyer who served under Obama, recently wrote a piece in Foreign Policy about the great tragedy of this phenomenon, particularly during the pandemic. He estimates there is somewhere in the neighborhood of around, “$36 trillion in cash, gold and securities, not including tangible assets such as real estate, art and jewels.” (For comparison, U.S. federal tax revenues are a little over $3 trillion a year.) He goes on to quote the Tax Justice Network, which ranks “the United States as the second-most complicit country after the Cayman Islands in helping individuals to hide their assets.”

But $36 trillion is a global figure. When trying to determine the amount being sheltered by U.S. corporations, the network estimates it’s around 10% of our wealth, which could be in the neighborhood of $10 trillion.

Harvard Business Review estimates that, “U.S. non-financial corporations are sitting on just over $4 trillion dollars in cash, according to the latest Flow of Funds estimates, up from $2.7 trillion a decade ago and just $1.6 trillion in 2000.”

So, if we put it together, and we’re to believe their methodology for non-financial firms, then the $10 trillion estimate in total might be pretty accurate.

Ten trillion.

The article points out the absurdity behind lowering corporate taxes in the U.S. to 21% because most of the countries where our corporations are parking money are way below that threshold. So Trump’s tax repatriation plan and theory that companies will be tripping over themselves to bring money back to the U.S. from offshore was never the case. It was all window dressing and explains why only $1 billion of an estimated $10 trillion was repatriated.

Unf*ckers, we’ve been had again.

What a con. It’s really a thing of beauty. Especially because corporate America has been so effective at blaming the working class. Think about it. Who’s destroying American wealth according to what you hear, see and read? Unions. The fight for minimum wage. Taxing the rich, which burdens the so-called job creators. $10 trillion in cash parked offshore versus the fight for a living wage, and we’re actually losing the messaging battle.

The fact that so many of us have fallen for this line of bullshit is a testament to the massive coordination of messaging by corporate America to shift the blame from their thievery.

Can we get it back?

Of course, it’s not as easy as just raising taxes on corporations here in the United States. Corporations who, by the way, also received a windfall under Trump when he cut the effective corporate tax rate to 21%, just a hair above capital gains. It’s a global world, right? That’s why giants like Apple and Google are located here and traded on American exchanges, but domiciled in other countries. They’ll do anything to avoid paying taxes to the country that founded them. And it’s perfectly legal.

It’s one of the reasons Treasury Secretary Janet Yellen recently argued for a global minimum tax to prevent companies from sheltering cash in offshore havens. She wants to level the playing field across the world to take away the incentive to hide and prevent what she calls the “race to the bottom.” Apart from this being a good and fair idea, the real reason behind it is because uncle Joe has made a host of promises that he can’t pay for, and Republicans, as we have covered before, will once again make deficits an issue even though they really don’t give a flying fuck about them.

Of course, I’m not all that optimistic about Yellen’s ability to get this done. I imagine her call for a global corporate tax rate will be met with snickers from other countries that make a living on being havens for American money. And it’s easier today to move the domicile of a company without sacrificing the exchange that it’s traded on. It is more difficult for companies on the lower end of the public spectrum to pull off this kind of financial engineering, but the big guys can afford to just keep fucking moving around the world. Plus Yellen’s proposal will also likely be met with a hearty “go fuck yourself” by other countries who are used to the U.S. inventing its own advantages.

But what if they leave?

Let’s dispense with the arguments you hear from pundits on the right about keeping taxes low.

First, there’s the argument that high corporate taxes will drive companies out of the United States. Well, according to the Tax Foundation, currently corporations in the U.S. pay federal income tax of 21%, plus a range of state taxes that result in a combined average top tax rate of 25.8%. Know where that puts us? Smack dab in the middle. If you take the Caribbean and corrupt Eastern European countries out of the equation, we’re on the lower end of the average.

So it’s not like we’re going to lose to another industrialized country. We’re only talking about corrupt countries or islands that exist as tax havens specifically to hide money. There’s nothing “competitive” about this argument.

And to quote Robert Reich, “the U.S. collects less corporate taxes as a percentage of economic output than any other industrialized country” on the planet.

One of most overplayed tropes is the idea that taxes kill job creation. So let’s get that bullshit out of the way too. It’s one of those fucking concepts that lingers and feels too hard to explain why it’s bullshit. So here you go. Over a 30 year period between 1950 and 1980, the average corporate tax rate was about 50%. Over this same period, unemployment ranged from a low of 2.5% in the ’50s, to a brief spike of 9% during the oil and inflation crisis, but the trend line hovered around an average of about 5%. In other words, zero statistical correlation between corporate tax rates and employment. Let’s close the fucking door on this already.

We also consistently hear the argument that corporations should barely be taxed because it frees them to reinvest into themselves, and a low tax environment has led to American ingenuity and innovation. Sounds good. But it’s actually the opposite. If you tax corporations at a higher rate and cut off their ability to park money offshore, it forces them to pay people more and to put more money into research and development. That’s a fucking fact. Otherwise, what’s the point of accumulating cash just to hand it over to the government?

In fact, I would argue that we should leave personal income taxes much lower and increase them on corporations exactly because it would encourage larger salaries. Not only does this make income more trackable, but it puts more money back into programs like Medicare and Social Security.

I’ll go a step further and say that the way to sell this to the American people is to reduce the Social Security deduction but lift the cap on it—meaning that you pay into it no matter how much you earn. Revisit our essay on essay on Reagan to review how Greenspan really fucked us over on that one. If you package this with a reversal on the carried interest loophole and punitive measures for hiding money offshore, you can strangle corporations into keeping their money here and paying their fair share. Make executives go back to overpaying themselves with monster salaries and let them wrestle with the optics of that, all the while we’ll actually collect our fair share on the funds the working class generates.

But how will we continue to innovate?

We need to force corporations to stop thinking in terms of building wealth through the markets and think about building it through people. With respect to innovation, I’ll go even further out on a limb and tell you there isn’t a single fucking innovation corporate America can point to that was created since the late 1970s.

Yet another bold Unf*cking statement!

Let’s examine the post-World War Two era for a moment. The greatest innovations were birthed during a time when the top marginal tax rates were 70%. How can I make this case? Because of Moore’s Law of exponential growth. Moore's law is the observation that the number of transistors in a dense integrated circuit doubles about every two years, but you can apply it to nearly every so-called innovation corporate America takes credit for these days. Almost every innovation since the 1950s has doubled in efficiency and output every year, tracking exactly on point with Moore’s Law.

We’re living through a period of extraordinary innovation today because of the seeds that were planted in the ’50s, ’60s and ’70s. There are no new innovations that didn’t take root during this time. We’ve improved upon them, but didn’t create anything new.

“Max, how can you say that? Look at all of the amazing technology we have today. Artificial intelligence. The internet of things. Electric vehicles. You name it.“

I’ll tell you.

You know when the first journal of artificial intelligence was published? 1980. Because it was already a maturing discipline. Facebook, Google, Amazon. They all rely on the internet. They didn’t invent the internet. The government did. In the ’60s. And the first supercomputers were invented then as well, financed by the government and higher education.

“How about the green revolution?”

Photovoltaic technology was invented in 1954.

“Electric vehicles?”

Go watch Who Killed the Electric Car.

You name an innovation, and I’ll point you right back to the period when the government subsidized it, corporate taxes were higher than 50% and nobody had a fucking problem with it.

Corporations don’t innovate. People do.

Fuck Milton Friedman. Offshoring is unpatriotic. Unf*ckers rule.

Here endeth the (first part) of the lesson.