A Bite Of The Apple

David Horsey took a look at the recent news about Apple's tax avoidance scheme and came to some pretty solid conclusions.

Apple, America’s richest, most innovative consumer technology company, is also the most creative in hiding billions of dollars in profits from the taxman, according to congressional investigators. But on Tuesday in testimony before the Senate Permanent Subcommittee on Investigations, Apple CEO Tim Cook pointed out that his company’s creative tax sheltering, far from being illegal, is made possible by the loophole-ridden tax laws of the United States.

Cook told the senators that Apple paid a $6-billion tax bill to the federal government last year. Not only does Apple pay everything owed to the IRS, Cook said, the company does not employ gimmicks to avoid required tax payments. ...

...it is preposterous to think the current dyspeptic Congress will get past its dysfunction and find common ground on the best way to reform the tax code. Too much ideology and too many lobbyists stand in the way. As a result, Apple and every other American corporation will continue to slip through the gaps in the outmoded law with big bags of cash bound for foreign lands.  [Emphasis added]

In other words, what Apple did was perfectly legal.  And it will continue to be able to shelter those billions because there is no way that this Congress (and perhaps any other Congress) will do anything about it.  The money being thrown around by lobbyists and campaign contributors will see to that.

And that's the shame of it all.

Coming To A Clothing Store Near You

(Editorial cartoon by Joel Pett / Lexington Herald-Leader (April 26, 2013) and featured at McClatchy DC.  Click on image to enlarge.)

This is what unrestricted globalization leads to:

The death toll in Bangladesh rose to more than 300 people Friday following the collapse this week of a building that housed five apparel factories, officials said, as protests by workers at other garment plants intensified.

Bangladesh police fired tear gas and rubber bullets as hundreds of stick-wielding workers in the Dhaka area stopped highway traffic, smashed vehicles and vandalized garment factories that refused to close during a declared day of mourning. Traffic was clogged for hours as demonstrators, some waving black flags, called for the arrest and punishment of the owner of Rana Plaza, which collapsed Wednesday morning just outside Dhaka, the capital. ...

Human Rights Watch said the government hasn’t made factory oversight a priority. In June 2012, the labor ministry’s inspection department had 18 inspectors to police an estimated 100,000 factories in Dhaka district. The garment industry has approximately 4,500 factories, employs around 4.2 million workers and accounts for a whopping 80% of the country’s $24 billion in exports.

In Washington, U.S. State Department spokesman Patrick Ventrell said Thursday that this week's accident underscores the urgent need for the Bangladesh government, factory owners, buyers and workers to find ways [to] improve working conditions.   [Emphasis added]

300 bodies, and they haven't finished looking.  The total of dead and injured will continue to climb.  And, according to the article, no one will be prosecuted.  The owner of this factory has, you see, good connections with the government.

And the clothing they made is sold abroad.  Probably to companies like KMart, JC Penney, maybe even Nordstrom and Macy's.  We'll be buying the clothing these people died making.

Think about that when you pick up that sweater and say, "It's to die for!"

It's the capitalist way.

A Few Pennies Worth

(Editorial cartoon by Kevin Siers (11/30/12) published by the Charlotte Observer and featured by McClatchy DC.  Click on image to enlarge and then return.)


AP has published a terrific analysis of the garment industry and how it works globally to get the cheapest labor possible, regardless of the conditions under which the workers labor, all to save a few pennies and to make a few bucks.  The entire article is worth the read, but I'm still going to quote a significant portion of it.

In the charred bones of the Tazreen Fashions Ltd. factory, the labels and logos—sewn and printed in scarlet and royal blue—beckon from the ashes. Even in ruins, there's no missing that these T-shirts and jeans were intended for U.S. stores and shopping carts, designed as bargains too good to pass up, or stocking stuffers just in time for the holidays and in just the right size.

But a week after the blaze outside Bangladesh's capital killed 112 workers, a glaring question remains unanswered: How, exactly, did brands worth fortunes end up in such a place? And what does the odyssey that brings them to market across thousands of miles say about the everyday economics most consumers take for granted? ...

That complexity means there are secrets behind every label that moved through Tazreen, sewn in by workers earning the equivalent of 27 cents an hour, 6 days a week, packed between rows of sewing machines stacked on floor after floor of a building with exits locked or blocked.

Such conditions were also common in the U.S. until a fire achingly similar to the one in Bangladesh killed 149 workers at New York's infamous Triangle shirtwaist factory 101 years ago. But today, the globalized economy allows retailers and consumers in First World countries to turn to Vietnamese or Honduran or Bangladeshi workers to do those jobs, a role largely overlooked until a system that runs with formidable efficiency is upended by tragedy.

"You have to remember that there is a problem which we face in a globalized economy, which is that if one country enacts really strict safety guidelines that raise the cost of manufacturing, buyers have the option to take their business elsewhere and, thus far, have demonstrated a tendency to do so," said Josh Green, CEO of Panjiva Inc., an online data platform used by international marketers and producers.

The supply chain's flexibility makes it particularly well suited for the clothing trade's repeating cycle of design, order, production, shipment and sale. Apparel companies begin laying plans for new lines of clothing a year before they arrive on store shelves. But creativity quickly gives way to number-crunching, as executives set sales targets and try to figure out which producers can deliver within their required profit margins, Rangarajan said. ...

But the pressures at work in Bangladesh, which has climbed to second place behind China among the world's largest exporters of apparel, continue because it is part of a global production economy with interchangeable components. Making clothes requires relatively low-skilled labor and equipment that is easily relocated or replicated, making it "uniquely susceptible to geography hopping," Green says.

That gives big buyers of clothing significant leverage. When a major retailer buys a garment, roughly 50 to 60 percent of the costs are for raw materials, 15 to 25 percent is for labor, and the rest is split between transportation, overhead and expenses like import duties, Rangajaran said. But except for the labor, the other costs are largely beyond buyers' control.

"Continually chasing low-cost labor is one of the big levers you have to pull," he said.

The result is a production system that has rapidly bypassed long-ago ways of doing business, when most clothing companies owned the factories where their goods were made and the workers were on their own payrolls. Now, a company like Wal-Mart or Sean John does not have to own a single factory, and the plants they rely on can change from year to year. The shifting creates the new challenge of keeping tabs on conditions where the work is being done.    [Emphasis added]

This is what unrestrained capitalism looks like, and it's all done on a global scale.  There is no human face to it, only bodies locked into buildings forced to work long days for pennies.  And the Wal-Marts, the Targets, even the Disneys are tied into it.  Some of them try to hide behind the shield of  "supply chain managers, independent suppliers or in-country agents" so that when one of these "embarrassing" incidents occur they can feign ignorance of the conditions and fire one shield only to hire another.  

Jobs have been exported from this country to China, Bangladesh, and other countries to increase the profit margins.  The sad part is that it is working.  People flocked to Wal-Mart and Target just a few days after this horrible fire and bought the very products those workers slaved to make because they were cheap, not realizing just what this system has done to those workers but what it has done to workers in this country.  Our own wages are now depressed (at least for those lucky enough to have a job, or two part-time jobs) and dropping with the threat of moving more jobs off-shore.

And our owners, those who control those global corporations and industries, are sitting back and enjoying every minute of it.

A Bump In The Road

(Click on image to enlarge and then be kind enough to return.)

I have to admit, I am not too terribly worked up about the looming, dooming "fiscal cliff" so many people are concerned about.  Yes, yes, I know:  if Congress doesn't act by the end of the year, there will be drastic cuts to some of the programs I would just love to see cut, but also to programs I don't want to see cut any further.  And I appreciate that some of those cuts will add to the economic problems we currently face.  It just seems to me that it's about time Congress and the President face the music for their joint refusal to take care of business, and the rest of us face the music for letting them get away with it.

David Horsey's cartoon and column makes the same point, although he is far more concerned than I am.

The reason we are where we are is because our elected leaders put us here. The fiscal cliff -- a set of automatic draconian budget cuts and tax increases that will start taking effect on Jan. 1 -- was purposely created as a way to force the squabbling Congress and president into a budget deal. It is part of the Budget Control Act of 2011 that grew out of the near-disastrous debt ceiling showdown between President Obama and House Republicans.

The idea was that Republicans and Democrats would finally put differences aside and reach a budget compromise because both sides would be motivated by dread of automatic across-the-board cuts and tax hikes that would almost certainly hit the U.S. economy like a wrecking ball. ...

Many folks who claim to be political experts say this is mere posturing and that both sides will give up something to get a deal done -- with Republicans giving up more because the president is in a commanding negotiating position having just won reelection. Perhaps they are right, but the kind of hardheaded political calculation that used to get deals done in the days of Lyndon Johnson or Tip O’Neill has given way to ideological purity.

Congress is now filled with people like tea party cheerleader Michele Bachmann who has said that maybe it would not be such a bad idea to let the country go over the fiscal cliff. Boehner will have a tough enough time cajoling Ryan into any kind of compromise; he is unlikely to ever get crusaders like Bachmann and her hyper-conservative compatriots to give him an inch or a vote.

Hard-line liberals will also be difficult to move, especially if a proposed deal threatens the status quo in Social Security or Medicare. What is needed in the House and Senate is a bipartisan effort of folks in the center. That's where all the work used to get done in the old days, but it has been a long time since anyone has pulled together a coalition of rational compromisers.

While I agree that it is lamentable that our elected officials cannot seem to get any kind of deal done, I disagree with Horsey that it's because both far ends of the spectrum are to blame.  I mean, c'mon, David:  the "hard-line liberals" haven't had any kind of voice for over 20 years at least.  Our two parties keep moving further and further to the right thanks to the DLC, Blue Dog, and Third-Way Democrats who are perfectly happy keeping our owners perfectly happy.  The rest of us, all 99%, have been hung out to dry for a long time because we can't write the big checks come election time.

And it's not like THE DEFICIT is such a big deal.  Really.  It wasn't a big deal in 2000 when the GOP took power with the SURPLUS Bill Clinton handed it.  It didn't take long for the Bushies to run through that surplus in various ways, including fighting two wars off budget.  Deficits surely didn't matter then, and, truth be told, it really doesn't matter now.  Adjust a few things and we can offset a lot of the damage.

First of all, we should damned well take Social Security and Medicare off the table.  Social Security has absolutely NOTHING, zero, zip, nada, to do with the deficit.  It is a user-funded program which for too long has been used as an ATM by Congress.  If folks are so concerned that 35 years from now Social Security will go into red-ink, then raise the payroll tax from its current level.  Cap it at $130,00 or remove the cap entirely.  Medicare has the potential for being a drag on government spending, but there are ways to short-circuit that, including adding funds to the DOJ for slamming the fraudsters who are ripping the program off.

Next, end the Bush-era tax cuts for the wealthy.  It finally looks like President Obama and the Dems got the message from the election that the rest of us are tired of that 1% getting more breaks than they are entitled to.  Michele Bachmann and Paul Ryan may throw a snit-fit, but both had a harder time than expected in returning to Congress.  And the rest of the GOP, smarting from the last election, is hardly in any position to object too vigorously if it wants to continue as a viable party.

I'd also end the "middle class" payroll tax break.  All that did was undercut Social Security and Medicare funding.  Instead, provide real tax breaks for those of us with incomes below, say $250,00.  Avedon Carol has an excellent idea, one that hadn't occurred to me: raise the standard deduction from the laughable $3,800.  Go read what she has to say about that.  And then put real money into people's pockets by lowering rates.

Then tax all income, regardless of the source and regardless of the recipient.  Make corporations actually pay taxes.  To those who say that would affect job creation I would reply "Bovine Excrement!"  I didn't see any jobs being created by those tax breaks.  All I saw was outsourcing and offshoring.  The only "trickle down" we've seen has been of the decidedly urine-based  fluids raining down on all of us.  Those corporations who object and threaten to move out of the country can pay for their own damned security.  I'm sure Eric Prince and whatever his mercenaries are called these days will be happy to oblige.  We, then, can apply tariffs to the imports.

And that's just for openers.  I don't have any hard and fast rules for cutting "the fat" out of government programs, but, then, neither does the GOP beyond killing Big Bird and FEMA.  I do think cutting the junk contracts of the Pentagon is long over-due, as are outsourced programs in Homeland Security and the State Department.  Let government do the job the Constitution gave to it.

But I'm not sure we have enough stiff-necks and strong spines to accomplish this.  If not, there's always 2014.

Say What?

(Editorial cartoon by Mike Luckovich and published 7/10/12 in the Atlanta Journal-Constitution. Click on image to enlarge and then please return.)

I really must be getting old. Try as I might, I could not quite grasp the argument Mitt Romney was making in response to President Obama's push for the limitation of tax cuts to middle class couples making less than $250,000 per year.

Previewing the message that he will bring Tuesday to the swing state of Colorado, Mitt Romney told a conservative talk-radio host that President Obama’s tax cut extension proposal would “kill jobs” and harm the middle class.

“What the president is proposing is therefore a massive tax increase on job creators and on small business,” the unofficial Republican presidential nominee told Virginia-based conservative radio host John Fredericks in a taped interview that will air Tuesday. “Small businesses are overwhelmingly being taxed not at a corporate rate but at the individual tax rate. So successful small businesses will see their taxes go up dramatically, and that will kill jobs.

Huh?

My understanding is that the tax cut being proposed was on personal income taxes, not on business taxes. That's just for starters. And I'm not so certain that small businesses which are not incorporated are taxed at the individual rate, but even if they are, those businesses also are entitled to deductions for the cost of doing business: the tax is on the net profits. It's hard to follow Mr. Romney's logic on this (assuming, of course, that there is some logic involved). Finally, this is not actually a new tax, but merely a partial extension of a tax cut imposed by George Bush as a temporary measure when the economy started to head south. The tax cuts were supposed to stimulate the economy and give businesses an incentive to stop laying off employees and to hire new ones. We've seen how well that worked.

What I find ironic is that the man who ran Bain Capital, a company which bought other companies, stripped them of their assets, and then laid off the employees or which shipped the jobs overseas, is making this argument. He didn't seem to have much concern for US job expansion back then, did he.

This is also the man who stashes a lot of his money in tax havens outside of the US so he doesn't have to pay any taxes on that money. He doesn't seem to have much concern about the federal deficit at all.

Like I said, I must be getting old.

Well, Waddya Know!

Michael Hiltzig's latest column provides an interesting way to view corporations' outsourcing: it's not just immoral, it's expensive.

Sure, it's immoral to abandon your loyal American workers in search of cheap labor overseas. But the real problem with outsourcing, if you don't think it through, is that it can wreck your business and cost you a bundle.

Case in point: Boeing Co. and its 787 Dreamliner.

The next-generation airliner is billions of dollars over budget and about three years late; the first paying passengers won't be boarding until this fall, if then. Some of the delay stems from the plane's advances in design, engineering and material, which made it harder to build. A two-month machinists strike in 2008 didn't help.

But much of the blame belongs to the company's quantum leap in farming out the design and manufacture of crucial components to suppliers around the nation and in foreign countries such as Italy, Sweden, China, and South Korea. Boeing's dream was to save money. The reality is that it would have been cheaper to keep a lot of this work in-house. [Emphasis added]

Obviously the upper management brains were otherwise occupied when Boeing shipped out key engineering and technically advanced manufacturing assignments to contractors with the lowest bids, some of whom didn't even have an engineering department at the time the contracts were awarded. Boeing also didn't set up any kind of oversight with these contractors. The results were disastrous. Parts shipped into the Seattle area assembly point didn't arrive at the right time for the assembly train, and when they did, they didn't fit the specifications and as a result didn't fit the parts to which they were to be joined.

Middle management employees, those who had been down this road before with such former aerospace companies as McDonnell Douglas, tried to warn the suits, but here too those brains were otherwise engaged.

Boeing executives now admit that the company's aggressive outsourcing put it in partnership with suppliers that weren't up to the job. They say Boeing didn't recognize that sending so much work abroad would demand more intensive management from the home plant, not less.

"We gave work to people that had never really done this kind of technology before, and then we didn't provide the oversight that was necessary," Jim Albaugh, the company's commercial aviation chief, told business students at Seattle University last month. "In hindsight, we spent a lot more money in trying to recover than we ever would have spent if we tried to keep many of the key technologies closer to Boeing. The pendulum swung too far."

You think, Mr. Albaugh?

Maybe paying decent wages and providing benefits to the skilled workers you have at home just might have been the right thing to do, even the most prudent. What's the old saying?

Ah, yes: "Penny wise, pound foolish."

Morons.

This They Got Right

There'll be no carping today. The Democrats in Congress, the White House, and, yes, even the "center-left" editorial board of the Los Angeles Times got it right with respect to the new laws on federally funded student loans.

The federal government has spent extraordinary sums each year for student loans that helped put more Americans through college. But much of that money, it turns out, has been wasted. Unbelievably enough, the government has spent billions on interest payments to private banks instead of on needy students. This wasteful and at times scandal-plagued expenditure of taxpayer money finally ended with the approval this week of the federal budget reconciliation act. The new law will eliminate the private-lender subsidy and have the government make loans directly to students.

The change is expected to save more than $60 billion over 11 years, money that will be plowed into more student aid.

Up to now, the federal money was used to subsidize interest payments to the private lenders who actually made the loans. The government also guaranteed the loans. This has been a lucrative, risk-free profit center for private lenders, so desirable a business that they at times provided kickbacks to universities that would list them as preferred lenders. In some cases, financial aid officers at certain colleges held stock options in lending companies. After accusations by the attorney general of New York, several lenders and universities paid fines and agreed to a new code of conduct. [Emphasis added]

Once again, we've had to learn the hard way that outsourcing government functions to the private sector doesn't save money or increase efficiency. In fact, it winds up costing us taxpayers a whole lot more money. In this case, it also cost students a whole lot of angst when it came to paying that money back after graduation at interest rates that are just a tad higher than the new law will allow.

The banksters fought hard against the bill, lobbying Congress intensely right up to the last minute. This time it didn't work. The record of shoddy and downright illegal practices finally caught up with them. Republicans tried to stop the bill, but even their efforts were half-hearted at best, probably because the health care bill provided them with better ammunition.

And this time the L.A. Times didn't equivocate or engage in any false equivalencies.

Any smart business leader knows that to cut costs, you cut out the middleman, yet this system persisted for years after the public became aware that billions of dollars were being spent to create banking profits rather than a better-educated nation. The profits in the student loan business were good enough for lenders to invest in lobbyists and campaign contributions, largely to GOP congressmen who now complain that the new law is a killer of private-sector jobs. In fact, the jobs were private sector only in name; they were paid for by taxpayers.

That's more like it. In fact, I'd say we need more like it from Congress and from the Times.