There will be more Detroits: Your town could be next<\/a> by Robert Hennelly in Salon.<\/p>\nThe Text:<\/strong> President Obama comes to Galesburg, Illinois (population: 32,000) today, where he is expected to once again hit the reset button on his domestic economic agenda for the rest of his second term. His advance folks know the appealing Norman Rockwell-like backdrop of this rural farming community. It is also the birthplace of Carl Sandburg, who as America\u2019s poet, understood the power of pride in a particular place.<\/p>\nBut these days, in a global economy where U.S. multi-nationals can stash hundreds of billions of dollars in profits in off-shore tax havens, the smart play to win all the marbles is to really be from no place in particular. There\u2019s nothing to protect other than your data.<\/p>\n
Take the sad case of the City of Detroit, whose name is now synonymous with a global brand \u201cDetroit,\u201d as in the auto industry. Detroit, the municipality, filed for bankruptcy. America\u2019s 18th largest city, overwhelmingly African-American, just 400 miles northeast of Galesburg, was once a thriving industrial powerhouse of almost two million people. Now it has dwindled down to 700,000 residents who live in one of the nation\u2019s most violent cities where it can take an hour for a 911 response.<\/p>\n
<\/p>\n
In a parallel universe, there is another gleaming \u201cDetroit\u201d that\u2019s thriving. It is made up of Ford, General Motors and Chrysler, three multi-national car making behemoths. That\u2019s the one that President Obama bailed out and \u201crefused to let go bankrupt.\u201d<\/p>\n
But bail out the actual Detroit where people live? Not so much. It turns out after bailing out Wall Street, the banks and the car companies, Washington has bailout fatigue. Detroit\u2019s a poor city and it takes deep pockets to get action in the beltway and Republican Governor Rick Snyder says he sees no reason to ask for federal help anyway.<\/p>\n
The city has $18 billion dollars in long term liabilities that includes $5.7 billion owed municipal work force retirees for their health care costs and $4.5 billion for their pensions. Snyder has expressed concerns for the fate of Detroit\u2019s 21,000 municipal retirees despite the fact that the state\u2019s constitution guarantees their pensions. The city\u2019s union are fighting the bankruptcy petition in court.<\/p>\n
How many other local governments are at risk of following Detroit into insolvency? The National League of Cities insists Detroit\u2019s past governance issues and dramatic loss of population make it a unique circumstance.<\/p>\n
\u201cNLC research has shown that cities nationally are better off financially than they were just several years ago. Detroit should not be seen as emblematic of cities or as a harbinger of what\u2019s to come,\u201d the League posted on its website. The NLC says that from 1970 until 2009 just a handful of the nation\u2019s thousands of cities, towns and villages had to seek bankruptcy protection.<\/p>\n
Detroit\u2019s crisis comes at a precarious time for local, county and state governments. This year the Government Accounting Standards Board, a non-profit that sets the rules for public finance, is requiring that for the first time governments add up and disclose the actual cost of meeting their long term post-employment commitment to their workers.<\/p>\n
Andrew Rettenmaier with the National Center for Policy Analysis calculates state and local unfunded pension liabilities are actually $2.5 trillion dollars compared to the half-trillion currently disclosed. Adding in the retiree health care numbers Rettenmaier says pushes that liability number to $3.1 trillion dollars, \u201cthree times higher than the plans report.\u201d<\/p>\n
Public finance expert Dr. Mark Johnson predicts there will be major sticker shock. \u201cMunicipalities that previously appeared in sound financial condition may find that the inclusion of significant pension liabilities on the balance sheet will rattle taxpayers, investors and plan participants,\u201d Johnson recently wrote.<\/p>\n
No doubt the potential public finance crunch from meeting these huge liabilities will inspire calls for greater austerity, the rollback of collective bargaining, and the reduction of public employee benefits. It already has in places like Wisconsin.<\/p>\n
At the same time local governments are feeling federal cuts via sequester and the end of the Obama Administration\u2019s Recovery Act\u2019s aid to local and state governments.<\/p>\n
But is all this scarcity talk actually driven by a globally integrated economy where multi-nationals can play governments off each other seeking the best rate of return by shopping for the lowest tax burden? Are governments all in a kind of a race to the bottom, in a zero sum game just to get some of the action?<\/p>\n
A few months back Senator Carl Levin (D-Mich.) and Senator John McCain accused Apple, one of the nation\u2019s biggest corporations, of doing just that. \u201cApple wasn\u2019t satisfied with shifting profits to a low tax off-shore tax haven,\u201d said Senator Levin. \u201cApple sought the Holy Grail of tax avoidance. It created off-shore entities holding tens of billions of dollars, while claiming to be tax resident nowhere.\u201d<\/p>\n
There it is again, that theme of the special powers and privileges of residing nowhere in particular.<\/p>\n
\u201cApple claims to be the largest U.S. corporate taxpayer but by sheer size and scale it is America\u2019s largest tax avoider,\u201d said Senator John McCain ( R-Ariz.)<\/p>\n
Apple\u2019s CEO Tim Cook made no apology for the company\u2019s tax strategy which he said was entirely legal, generated tens of thousands of jobs and stockholder value.<\/p>\n
According to the Tax Policy Center, however the big corporations are doing it, they have over the last 50 years greatly reduced the percentage of what they pay in federal taxes as measured as a percentage of the Gross National Product. In 1960 it was 4 percent but by 2013 it had gotten as low as.1.8 percent. For perspective consider that in 2013 the revenue collected from the individual income tax was equivalent to 7.6 percent of the GNP.<\/p>\n
U.S. multi-nationals are able to do their business around the world in large part because of U.S. military force projection yet increasingly they dodge that huge bill for that protection and leave it to be shouldered by individual taxpayers.<\/p>\n
Back in 2008 when I interviewed Senator Obama after his Cooper Union Address on market reforms needed to prevent another financial meltdown, Obama was all for global cooperation between governments to avoid the situation where one country is played off of each other and there is a destructive race to the bottom.<\/p>\n
\u201cIt is important that we get some kind of coordination and a global system in place that assures that capital is not just fleeing from one country to another to avoid oversight and avoid regulation but on the other hand endangering the economies of all,\u201d Obama said.<\/p>\n
Just last month Citizens for Tax Justice blasted Obama\u2019s Treasury Department for not making public the information Treasury has on what multi-nationals claim to earn and what taxes they pay in each country.<\/p>\n
Last week the G-20, grappling with Europe\u2019s on going public finance crisis, resolved to better coordinate their efforts to end corporate tax avoidance through cross border profit shifting which causes tax base erosion. .<\/p>\n
It is hard for this story to get out there. Common business law practice now includes embracing legal fictions and shopping for the friendliest state even within our nation\u2019s fifty. Check out the ownership structure of major news outlets and you\u2019ll learn just what a \u201cmedia\u201d mecca Delaware is.<\/p>\n","protected":false},"excerpt":{"rendered":"
The Article: There will be more Detroits: Your town could be next by Robert Hennelly in Salon. The Text: President Obama comes to Galesburg, Illinois (population: 32,000) today, where he is expected to once again hit the reset button on his domestic economic agenda for the rest of his second term. His advance folks know […]<\/p>\n","protected":false},"author":49,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[259],"tags":[],"yoast_head":"\n
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