Economic Crisis, The Audit — May 4, 2011 07:23 PM
Audit Notes: Globalization and Corporate Crime, Capital Gains, Auto Correct
By Ryan Chittum
TAGS: Ahed, Capital Gains, Jeffrey Sachs, The Wall Street Journal, White Collar Crime
Why Corporate Crime So Hard to Wipe Out
Columbia’s Jeffrey Sachs is riled up these days. He has an interesting piece http://www.cjr.org/the_audit/audit_notes_globalization_and.php on how and why corporate crime has gotten so hard to stamp out. His answer: Globalization and campaign finance:
Hardly a day passes without a new story of malfeasance. Every Wall Street firm has paid significant fines during the past decade for phony accounting, insider trading, securities fraud, Ponzi schemes, or outright embezzlement by CEOs. A massive insider-trading ring is currently on trial in New York, and has implicated some leading financial-industry figures. And it follows a series of fines paid by America’s biggest investment banks to settle charges of various securities violations.
There is, however, scant accountability. Two years after the biggest financial crisis in history, which was fueled by unscrupulous behavior by the biggest banks on Wall Street, not a single financial leader has faced jail. When companies are fined for malfeasance, their shareholders, not their CEOs and managers, pay the price. The fines are always a tiny fraction of the ill-gotten gains, implying to Wall Street that corrupt practices have a solid rate of return. Even today, the banking lobby runs roughshod over regulators and politicians.
Why Corporate Corruption is Out of Control: Two Main Reasons
Corporate corruption is out of control for two main reasons. First, big companies are now multinational, while governments remain national. Big companies are so financially powerful that governments are afraid to take them on.
Second, companies are the major funders of political campaigns in places like the US, while politicians themselves are often part owners, or at least the silent beneficiaries of corporate profits. Roughly one-half of US Congressmen are millionaires, and many have close ties to companies even before they arrive in Congress.
As a result, politicians often look the other way when corporate behavior crosses the line. Even if governments try to enforce the law, companies have armies of lawyers to run circles around them. The result is a culture of impunity, based on the well-proven expectation that corporate crime pays.
Super Rich Pay Low Taxes Due to Low Capital Gains and Dividend Taxes
Gary Rivlin of Newsweek is good to focus on why the super-rich pay far lower tax rates than most people think they do. It’s the capital-gains taxes.
We tax investment income for the richest at less than half the rate we tax work income.
Many of the super-rich see virtually all their income as capital gains, and capital gains are taxed at a much lower rate—15 percent—than ordinary income. When Warren Buffett talks about paying a lower tax rate than his secretary, that’s because she sees most of her pay through a paycheck, while the bulk of his compensation comes in the form of capital gains and dividends. In 2006, for instance, Buffett paid 17.7 percent in taxes on the $46 million he booked that year, while his secretary lost 30 percent of her $60,000 salary to the government…
It wasn’t always this way. Until the 1990s, the capital-gains tax was 28 percent. The rate was lowered to 20 percent during Bill Clinton’s tenure—and, lo and behold, says Johnston, the tax rate paid by the country’s 400 wealthiest souls fell by the same 8 percentage points. When the second President Bush lowered the capital-gains tax another 5 points along with his other tax cuts, the country’s richest citizens saw their tax rate fall another 5.5 percent, Johnston says.
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