By William Rice, Policy Consultant, Americans for Tax Fairness
This time of year, it’s tempting to call anyone in a bad mood Scrooge. But if you cut off what may be the only source of income to over a million families three days after Christmas, you might well be expected to mutter “bah, humbug.” And if you do it while continuing to hand out huge tax breaks to multinational corporations and Wall Street money mavens—well, you’ve Scrooged up, big time.
That’s just what Congress did this week by failing to extend emergency benefits to 1.3 million long-term unemployed Americans, claiming it was too expensive, even as tax dodging by corporations and the wealthy proliferates like snowflakes. Moreover, unless Congress reconsiders, another 3.6 million will lose benefits in 2014.
The Great Recession—which started in 2007 and was the nation’s worst economic downturn since the 1930s—lost us a lot of jobs. Those jobs have largely stayed lost. The number of long-term unemployed (defined as being out of work for over six months) hit a post-Depression high.
Facing this long-term employment crisis, Congress quite properly tacked on extra, federally-paid weeks to the standard six months of state-sponsored unemployment insurance. Congress has provided such emergency relief in every other recent recession, and hasn’t ever cut it off until unemployment reached more “normal” levels.
Until this year. The Emergency Unemployment Compensation program is set to expire December 28.
As the name states, these extended benefits have traditionally been viewed as an emergency—like flood relief—and thus not held up while Congress figured out how to pay for them. Plus, they partially pay for themselves, since the money is quickly spent on necessities by hard-pressed families, giving the economy a boost.
But even if Congress wanted to change the rules for this one time only and demand a tradeoff for the estimated $25 billion cost of a one-year extension, it only had to look as far as our loophole-riddled tax code for ideas.
How about raising $60 billion (p. 808), while at the same time preserving jobs, by ending one of the ways taxpayers subsidize corporate offshoring? Companies can now write off the expenses of shipping operations to other countries, even if they never pay a dime in U.S. taxes on the profits those foreign operations generate. If you think snapping shut that loophole is a good idea, you’re not alone: A recent poll found Americans favor it 62 to 36 percent (p. 13).
Another popular idea is to make Wall Street money managers admit that their salaries are just that, and not tax-advantaged investment gains. That clever bit of misidentification (called the “carried interest” loophole) means paying a 23.8 percent tax rate, as opposed to a 39.6 percent tax rate. That loophole costs the rest of us $17.4 billion (p. 128).
Or Congress could raise the exact $25 billion needed to extend benefits for the long-term unemployed next year by outlawing the games corporations play with stock options (the right to buy shares, often at a steep discount). Corporations lower their tax bill by claiming the costs of option grants are higher than their own books say they are worth. Firms also use stock options to get around a $1 million limit on how much they can deduct for executive salaries.
Ol’ Ebeneezer (who probably benefited from a few tax loopholes himself) got a bad rap for cutting off one guy’s income around Christmastime. Congress is aiming to cut emergency assistance for over a million people.
Maybe the comparison is unfair to Scrooge.