Background on Corporations
- The federal government “bailed out” the Big Three automakers early in the 2008 Great Recession. The bailout consisted of direct loans to General Motors and Chrysler, and a line of credit for Ford Motors. President Bush’s loan to GM and Chrysler (originally $17 billion and ultimately $64 billion) was contingent upon the two automakers following federal government restructuring of their companies, and later improving fuel efficiency standards. The purpose of the bailout was to avoid bankruptcy and a large surge in unemployment of auto workers. It was criticized (mostly by Republicans) as “government intervention.”
- The U.S. Treasury sold its last GM stock from the bailout loan in December 2013, repaying taxpayers $39 billion out of the total $50 billion invested (a 20% loss). When Chrysler stock was sold in 2011, taxpayers were repaid $11.1 billion out of a $12.4 billion (a 10% loss). Ford received a $5.9 billion loan in 2009, which is still being repaid. In theory, six million jobs were saved.
- “TARP” refers to the Troubled Asset Relief Program, Pres. Bush’s 2008 program to purchase assets from financial institutions to alleviate the subprime mortgage crisis. Congress initially approved $700 billion; the Dodd-Frank Act reduced that to $475 billion. The purpose of the bank bailout was to avoid “collapse of the financial system” because some banks were “too big to fail.” It was criticized (mostly by Democrats) as “rewarding the bankers who caused the recession.” TARP money went to mortgage banks and mortgage insurance companies, not to individual mortgage holders.
- As of December 31, 2012, the Treasury had received over $405 billion in total cash back on TARP investments.
The Treasury has been earning a return on most of the money invested or loaned. So far, it has earned $271 billion.
When those revenues are taken into account, the government has realized a $46.3 billion profit as of Dec. 1, 2014.
- A key issue in the 2012 race was corporate taxation, a major topic in the GOP presidential primary debates.
- Democrats and liberals, in general (and Obama in particular), want to increase corporate taxation by closing loopholes and removing tax breaks (not by increasing the corporate tax rate)
- Republicans and conservatives, in general, want to reduce the corporate tax rate, in some cases reducing it to zero.
- The case for reducing the rate is that the US rate is among the highest in the world: at 35%, compared to 16% for Germany and Canada, and 2nd only to Japan's corporate rate.
- The case for removing loopholes is that the effective US rate is only about 25%, comparable to the average rate for the industrialized world, due to the numerous available deductions and tax breaks.
- Of the 500 major companies in the S&P 500, 115 paid a tax rate under 20% over the past five years, and 40 paid a tax rate under 10%.
- General Electric paid zero corporate tax in 2010, despite $14 billion in profit; this topic came up in the Sept. 2011 GOP debates.
- Pres. Obama's deficit-reduction committee recommends reducing the corporate tax rate to 23% while closing most loopholes.
- GOP candidates recommend reducing the corporate tax rate, in conjunction with a "tax holiday" for corporate repatriation...
- "Sarbanes-Oxley" refers to the Corporate and Auditing Accountability and Responsibility Act, named after its sponsors, Sen. Paul Sarbanes (D, MD) and Rep. Michael Oxley (R, OH). Sarbanes-Oxley standardized accounting practices to avoid false reporting of corporate profits. In response to corporate accounting scandals, the law passed Congress with an overwhelming bipartisan majority, and was signed into law by Pres. Bush in 2002.
- "IPO" means "Initial Public Offering," describing when a company first offers stock to the public on a stock exchange.
- "Six Sigma" refers to a business management strategy, politically popularized by Newt Gingrich, and originally developed by Edwards Deming in the 1980s, based on a cycle of "Plan-Do-Check-Act." The complementary "lean manufacturing" methods focus on process and waste (making work faster), where Six Sigma focuses on design (making work better). In recent years, the combined strategy has become known as "Lean Six Sigma."
“Occupy Wall Street”
- “Occupy Wall Street” is an ongoing protest movement that began on September 17, 2011 when protestors occupied a city park near the New York Stock Exchange, where they remained for months. The “Occupy Movement” spread to dozens of other cities. Their slogan, “We are the 99%,” addresses income inequality between the wealthiest 1% and the rest of the population, especially with regards to how the government has distributed relief for the 2008-2012 Great Recession.
- One popular strategy for reducing corporate income tax is to shift jobs, operations, and profits overseas--totaling about $1.5 trillion offshore as of 2010.
- Many candidates suggest a "repatriation holiday" -- a temporary period during which profits from overseas could be "repatriated" to the US at a reduced tax rate, say 5% instead of 35%.
- Opponents of repatriation point out that in the previous "repatriation holiday", in 2004, $300 billion was repatriated, but 92% of that went to stock buybacks and shareholder dividends.
- The argument in favor of a "repatriation holiday" would be to create jobs during the current recession, which would require additional rules for another round of repatriation.
- Total union membership stands at about 16 million workers, or 14% of the workforce.
- Union membership has been falling steadily since 1958, when it stood at 35% of the workforce.
- The minimum wage is currently $7.25, increased from $5.15 in 2009, by an act of Congress.
- The last increase took place in three stages over a period of years; another increase will require another act of Congress.
- Some candidates want to increase it again now, and automatically increase it to keep up with inflation (known as "indexing").
More labor issues, plus farming issues, are covered on the Jobs page.
Foreign trade and import regulations are covered on the Free Trade page.
Corporate welfare issues are covered on the Government Reform page.
Earned-income Tax Credits are covered on the Tax Reform page.