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The Rot Within, Part III: Our Political Order Is Defined By Favoritism And Extortion

Tyler Durden's picture




 

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

What's the difference between the U.S. Congress and corrupt petty officials taking bribes at a Third-World border crossing? Only one of scale.

Corruption ceases to be corruption when it becomes the Status Quo; what was once recognized as corruption is seen as just another cost of doing business. Our political order is structurally corrupt: the key dynamic in every level of governance is favoritism and extortion.

Favors must be bought: those foolish enough not to spend freely on lobbyists and campaign contributions find their competitors have gained the upper hand by buying favors such as tax breaks, federal subsidies, no-bid contracts, cost-plus contracts, backroom deals, regulations that exclude competition and so on.

Politicos must extort campaign contributions from the maximum number of supplicants seeking favors to maintain their perquisites and power.

Here's how the system works.

There was much mainstream media hand-wringing and outrage in response to corporations moving their place of business offshore to lower their taxes. This outrage is completely misplaced--and indeed, seems designed to misdirect attention away from the systemic corruption that is the beating heart of the American political order.

Let me explain how favoritism becomes the Status Quo. There are two key dynamics at work.
1. Onerous, uncompetitive taxes and/or regulations. The U.S. corporate tax rate is 35%, the highest in the world, and various observers estimate the average state corporate tax tacks on another 4.1% for a total corporate tax rate of 39.1%.

This is roughly three or four times the nominal and effective corporate tax rates in competing nations.
The heavier and more asymmetrical the burden, the greater the incentive to find a way to lighten the load. This is why nations with asymmetrical tax rates and collection practices are inevitably hotbeds of black market activity, as those few chumps who actually pay the official tax rate go out of business or struggle to make ends meet while their black market competitors are living high on the hog.

The injustice of such a system fuels the need and desire to buy favors to escape the burden that virtually nobody actually pays.

2. Once a significant percentage of participants have eased their burden by buying political favors, everyone else is forced to wonder why they should continue paying the high taxes when others are avoiding them.

This system is not accidental. The asymmetry feeds the need to buy political favors, and is thus a form of systemic extortion. If you refuse to pay the bribe at a Third-World border crossing, the Powers That Be will make sure your life becomes increasingly miserable; while those who ponied up the bribe breeze through the paperwork, you wait and wait and wait, and are told to fill out more paperwork.

In precisely the same fashion, those who refuse to bribe legislators and key political players find their tax rates are crushing and life is miserable indeed. This is known as pay to play, and it defines the U.S. political order.

Those who don't pay the extortion to congresspeople and lobbyists are punished by a system designed to force every participant to pony up the bribe or suffer the consequences.

In other words, U.S. corporate taxes are extortionist and unfairly applied by design, to guarantee every corporation has to buy favors from politicos intent on stripmining billions of dollars in pay to play "contributions."

I know many people feel corporations should pay high taxes because they did so in the 1950s, but this historical precedent is blind to the realities of a global economy. Given global sales and workforces, why should a company headquartered in the U.S. pay punishing U.S. tax rates on its global operations?

Is it good policy to burden our corporations with absurdly complex tax codes and rates so far above global norms that every U.S.-based company is forced to seek tax avoidance schemes just to remain competitive and meet shareholder demands to be as profitable as others in the same global space?

It's easy for pundits protected by academic tenure to criticize corporate management, but put yourself in the shoes of a pension fund that owns stock in a company that actually paid the full 35% while competitors used strategies bought by political favors to eliminate that burden: your dividends and capital gains would be significantly lower as a result of the corporation's refusal to use pay to play tax avoidance strategies.

The reality is the pension fund manager and the corporate managers would both be fired for underperformance if they were stupid enough to pay the full corporate tax rate or insist on the company doing so.

We have a double standard: as individuals, we seek every possible avenue to escape high Federal taxes, and the wealthier you are, the more avenues are open due to favors bought from an always willing to wheel-and-deal Congress.

Yet we publicly demand corporations pay absurdly asymmetric tax rates to qualify as "good corporate citizens."

Corporations don't exist to be good citizens. As noted above, anyone clueless enough to pay the 35% federal tax rate on all net earnings will have failed the shareholders, who naturally demand the same payout in dividends and capital gains as those earned by competitors who paid to play and avoided most or all U.S. taxes.

Systems of good governance make exceptions and favors difficult to gain and the process transparent.

Corrupt governance makes exceptions and favoritism the unspoken rule and the process of buying them hidden from public view. That defines the U.S. political order perfectly.
Soaring corporate profits make juicy targets for taxes:

Soaring profits are the engine of a rising stock market:

Wages have stagnated while profits have soared:

It's easy to see why people want to tax corporations heavily, but in thinking this they are playing right into the extortionist/pay to play political order.

A fairer, good-governance system would lower corporate tax rates to the equivalent of an excise tax and exclude favors and exemptions. A corporate tax rate of 5% that was applied to all corporate sales and earnings in the U.S. regardless of where the company was nominally based would raise more money than the current corrupt system in which many corporations pay almost nothing and chumps who failed to pay the required bribes pay a globally asymmetric rate as punishment for their failure to 'contribute" to the campaigns of incumbents.

A low, evenly applied corporate tax rate would destroy the pay to play system of extortion/bribery, and as a result it will never be adopted. The U.S. political order is systemically corrupt and is incapable of self-reform. The rot has seeped into every nook and cranny of the political order, to the point that it's now accepted as "the way we do business here."

What's the difference between the U.S. Congress and corrupt petty officials taking bribes at a Third-World border crossing? Only one of scale. The corrupt petty officials can only look with envy on the Congressional extortion machine.

 

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Thu, 07/24/2014 - 13:44 | 4999259 Bear
Bear's picture

Summary: greedy executives + greedy welfare receipents + greedy .gov workers + greedy politicians = We Pay

Thu, 07/24/2014 - 14:06 | 4999380 centerline
centerline's picture

Vicious cycle.

Thu, 07/24/2014 - 14:56 | 4999718 pelican
pelican's picture

I don't pay... they took it all already.  

Thu, 07/24/2014 - 13:46 | 4999274 Ying-Yang
Ying-Yang's picture

Don't be racist......

Corporations are people too! (sarc)

Thu, 07/24/2014 - 13:58 | 4999330 ImpotentRage
ImpotentRage's picture

No need for the sarcasm tag, because you are absolutely right! That corporations are considered separate entities is the reason the executives are able to get away with destroying the long term viability of the company in order to get some massive short term gains, along with ordering blatantly illegal actions at times. Then when it comes time to pay the piper, they deploy their golden parachutes and the innocent workers who were only doing their jobs and had no say in any of the destructive decisions (and/or were vocally against them) are left holding the shitsack.

Thu, 07/24/2014 - 14:00 | 4999340 centerline
centerline's picture

+ an extra 1 for the GTA character name!

Thu, 07/24/2014 - 15:10 | 4999669 pakled
pakled's picture

(crying out) ... I'M NOT A CORPORATION!...

 

I'm a huuuuman beeeeeing......

 

/Elephant Man

Thu, 07/24/2014 - 17:49 | 5000768 Milestones
Milestones's picture

Yessir, corporations have been granted status as a person by the Supremes. There seems to be a little coflict with the 13th Amentment which fundamentally prohibits owning slaves (now people) undern that ruling.

If you OWN stock in General Electric, you now OWN part of a person according to our supremes--but that is ILLEGAL; and remember, the U.S.Constitution is the supreme law of the land;  And the 1803 ruling MARBURY V MADISON (CRANCH 2) states "Any law repugnant to the U.S. Constitution is VOID, and this court and all other Dwepartments ARE BOUND BY THAT INSTRUMENT."

The law has never been overturned.

Fine kettle of fish you have got us into Ollie.

If Marbury was applied to all of our laws, my guess is that bat least 33% of laws now on the books are void.            Milestones

Thu, 07/24/2014 - 13:47 | 4999280 Seasmoke
Seasmoke's picture

The cronyism in NJ pisses me off way more.....and the difference is, we here can get to them (but it ain't going to be easy)

Thu, 07/24/2014 - 13:50 | 4999287 More_sellers_th...
More_sellers_than_buyers's picture

So much for fiduciary responsibility

Thu, 07/24/2014 - 13:53 | 4999304 TheABaum
TheABaum's picture

"In other words, U.S. corporate taxes are extortionist and unfairly applied by design, to guarantee every corporation has to buy favors from politicos intent on stripmining billions of dollars in pay to play "contributions."

 

Which is why tax departments are considered "profit centers".

Thu, 07/24/2014 - 13:54 | 4999312 Cognitive Dissonance
Cognitive Dissonance's picture

So this is what it's like to live in a banana republic. When does the King for life appear?

Thu, 07/24/2014 - 13:58 | 4999320 Dr. Engali
Dr. Engali's picture

I'm not convinced that we don't have one already.

Thu, 07/24/2014 - 13:59 | 4999334 NOTaREALmerican
NOTaREALmerican's picture

Naaa,  that would be too obvious.  The fantasy of democracy is a huge part of the bullshit used to manipulate the dumbasses.

Much better to keep the current system of nominating members of nobility to lead.  Why break a system that's working perfectly.

Thu, 07/24/2014 - 14:15 | 4999422 Otto Zitte
Otto Zitte's picture

His name is Chuck and he doesn't deign to appear before his sheep. After all they are just sheep.

Thu, 07/24/2014 - 13:54 | 4999313 Dr. Engali
Dr. Engali's picture

Charles you are missing one key point, corporations never did pay taxes..... we do. Regardless of whether or not the corporation pays "their fair share" we as the consumer are who ultimately pays the taxes. Corporations simply collect them.  

Thu, 07/24/2014 - 13:57 | 4999318 NOTaREALmerican
NOTaREALmerican's picture

If only those with economic morality OCD had thought about the cause-n-effect of the economic system they wanted 50+ years ago maybe we wouldn't be here now. 

But, you can't have socialism for some and not expect everybody to want it.   You can't have big corporations and expect there to be small government.   You can't have a winner-take-all society and not expect a future time when a few have it ALL.  You can't have a survival-of-the-fittest society and expect the losers to simply disappear.  

The system everybody wants NOW is a fantasy.   But, we've got the result of the system everybody supported over the last 50+ years.

Survival of the fittest, BITCHZZZZ.   And don't complain now if you happen to be food!  

Thu, 07/24/2014 - 14:11 | 4999404 Seer
Seer's picture

It's the logical outcome of the base failed premise we established a LONG time ago: the pursuit of perpetual growth on a finite planet; when you start with this premise then there ought not be any surprise that it leads to wide-scale social deceit.

Thu, 07/24/2014 - 13:56 | 4999321 barre-de-rire
barre-de-rire's picture

in brief, nothing new.

Thu, 07/24/2014 - 13:55 | 4999322 gdiamond22
gdiamond22's picture

Pay your fair share (to a CONgressman near you)

Thu, 07/24/2014 - 14:04 | 4999353 kchrisc
kchrisc's picture

If the DC US is operating outside the bounds of the Constitution it is a criminal organization and it must be eliminated along with those actually committing the crimes on behalf of the criminal organization.

The DC US is operating outside the bounds of the Constitution.

"Is it time for the guillotines yet?!"

Thu, 07/24/2014 - 14:06 | 4999374 NOTaREALmerican
NOTaREALmerican's picture

If roughly 50% of the population is living directly or indirectly off of a government that is breaking the constitution that means roughly 50% are complicit in the criminality. Good luck with those guillotines. 

Thu, 07/24/2014 - 16:12 | 5000188 Salsipuedes
Salsipuedes's picture

I 100% agree if you revise that number up to 71% full blown pigs at the slop trough and 87.5% complicit by their willful absence from their children's futures.

Thu, 07/24/2014 - 16:54 | 5000393 Tall Tom
Tall Tom's picture

AS the Taxpayer tends to give Fianacial Support to the system and the other 50% take from the system it is about 95% complicity.

 

Of course there are degrees of complicity.

 

NotARealAmerican...Did you pay the Government taxes? Did you pay your Government to INFECT ME WITH LYME DISEASE?

 

I think that I might find that I will have a guillotine...with your name on it.

 

Or perhaps there are degrees of complicity and not everyone deserves the guillotine...

Thu, 07/24/2014 - 14:10 | 4999403 The Chief
The Chief's picture

I think it will be much more likely to sappers than hangmen. They are, however, interchangeable in some circles.

Thu, 07/24/2014 - 15:28 | 4999907 boodles
boodles's picture

Lets not go french. 

The Constitution is a dead-letter, at this point.  We need to acknowledge that the government runs by its own set of rules which we cannot change or influence. 

As long as most people are "okay" with the government, nothing will happen and the government will continue growing, slowly, in power and reach. 

When the tipping point arrives, however, and a majority of people are critical of the government, nothing will happen and the government will continue growing, slowly, in power and reach.  I don't believe we can change the government using the electoral system.  I also don't think can change the government from within, as elected or employed bureaucrats. 

Emigrate or succumb. 

The gov is just to invasive, meddling and snoopy to revolt. 

Thu, 07/24/2014 - 15:28 | 4999908 boodles
boodles's picture

Lets not go french. 

The Constitution is a dead-letter, at this point.  We need to acknowledge that the government runs by its own set of rules which we cannot change or influence. 

As long as most people are "okay" with the government, nothing will happen and the government will continue growing, slowly, in power and reach. 

When the tipping point arrives, however, and a majority of people are critical of the government, nothing will happen and the government will continue growing, slowly, in power and reach.  I don't believe we can change the government using the electoral system.  I also don't think can change the government from within, as elected or employed bureaucrats. 

Emigrate or succumb. 

The gov is just to invasive, meddling and snoopy to revolt. 

Thu, 07/24/2014 - 14:06 | 4999379 Seer
Seer's picture

This is BIG news!  I mean, the recognition that POWER CORRUPTS!

Thu, 07/24/2014 - 16:06 | 5000168 Salsipuedes
Salsipuedes's picture

Absolutely!

Thu, 07/24/2014 - 14:53 | 4999461 bitterwolf
bitterwolf's picture

The thousand year empire of Rome MOSTLY fell by rot within. Our 239 year old experiment is surely rotting from within. SOME fixes would clearly be addressing the fallacy of "Laissez Faire Capitalism" functioning for the good of soceity overall with out the strong central state governance. Capitalism has no peer for wealth creation, however it spawns natural competition for a central governing authority, and needs to be properly restrained, regulated and guided for the benefit of the society in which the mercantile system functions.

 

excerpts from link on unrestraind corporations in hypothetical future state:

Mad Max Incorporated World:        http://fas.org/spp/military/docops/usaf/2020/alt-futr.htm

The Mad Max Incorporated world is characterized by many actors with a strong desire to be in space, but actors who are limited by very low technomic vitality. The dominant space actors are corporate rather than political entities. This world is very competitive and potentially conflictual.

 

The history leading to the Mad Max Incorporated world is bleak. One catastrophe followed another. Most dramatic was a small nuclear exchange which did not involve the United States, but which resulted in an environmental nightmare occurring in South Asia. Shortly thereafter, a devastating earthquake in California decimated the US economy and led to mass internal migrations. Postindustrial states increasingly responded to these and similar crises with a complete redirection toward social programs, environmental cleanup, and disaster relief. The result of individual and multistate reaction was the creation of a complex Internal and international regulatory environment. The domestic regulatory environment was stifling; the external attempts at regulation were misdirected and permeable. Multinational corporations, which were quicker to recover than states, filled the void created by nation states who diverted resources to internal social support. These corporations took over many former public sector tasks. Corporate and individual economic concerns led to decreased clout for states and a further rise of multinational corporations. Many military forces, including space assets, were increasingly made available to the highest bidder to sustain corporate activities.

 

Cheers

Thu, 07/24/2014 - 17:27 | 5000591 Seer
Seer's picture

This writing (short) pretty much maps out how empires collapse.  Author basis it on 3,000 years of history (priimarily of the western variety).  Highly recommend this (origfinally brought ot my attention by another poster here on ZH).  One will find, as did Glubb, that ideologies and governing styles had really no difference on the eventual collapses.  Glubb failed to trace the source to that of the pursuit of perpetual growth on a finite planet; however, still some good reading- shows the patterns.

THE FATE OF EMPIRES and SEARCH FOR SURVIVAL Sir John Glubb http://www.rexresearch.com/glubb/glubb-empire.pdf
Thu, 07/24/2014 - 14:21 | 4999471 MASTER OF UNIVERSE
MASTER OF UNIVERSE's picture

The most important thing to do in terms of taxation is to make it equitable

for all American business and residents. Balance the needs, wants, expectations, and reality to essentially calibrate the measure. American

Economists have a problem with metrology. As one that is very well versed in terms of metrology and empiricism I cannot understand why

you people don't scream bloody murder for a whole new class of measures

that would help define reality based economics as opposed to money-pump orthodoxy and 'Equilibrium Economics' propaganda de jour? We don't 'buy' the propaganda of contemporary economics or their pontifications on what the problems might be. Mainstream Economics is completely _defunct_ which explains the rise in readership of alternative media and alternative theorizing. Taxation is much more necessary today than it has ever been in the history of taxation and that could explain why there is an argument to retain a generalized

central planning model of governance until independence can be achieved economically. That sort of future of taxation cannot be achieved with BIG Law, TBTF, and the K-Street lobby making sure that things can never be fair, measured, balanced, equitable, or sound in terms of representation at whatever table you care to imagine. Moreover, media is corrupt and biased to a point of being unfair, unbalanced, unequitable for the needs of our collective society. The enemy of the people is obvious to all that care to notice.

Thu, 07/24/2014 - 14:42 | 4999617 BanjoDoug
BanjoDoug's picture

things are corrupt because the zio-janksters have been in control too long - of the fed reserve, the bought politicians, major corp leaders, etc.......

Thu, 07/24/2014 - 14:53 | 4999693 Captain Willard
Captain Willard's picture

Tax code "expenditures", that is, tax breaks in the tax code, were $1.2 Trillion last year. Some of this is mortgage interest deductions, earned income tax credits, dependent deductions etc.

A lot of it was tax breaks sold by Congress to corporations. I get it that corporations just "pass through" taxes to their customers. But this "pass through" occurs after the Congresswhores and corrupt Senators take their rake.

The key insight is that lower, flatter tax rates reduce the opportunity for this extortion/bribery vicious circle we're in now. We have 35% corporate rates precisely so Senators can sell deductions back to their cronies in exchange for campaign contribution, graft, lobbying jobs after retirement etc.

Thu, 07/24/2014 - 15:08 | 4999790 RaceToTheBottom
RaceToTheBottom's picture

Correct, no corp pays 39% (GE pays less than FSA), but the costs associated with hunting for the deductions and buying deductions pretty much put corporate bribery as a more profitable expenditure than R&D.  

No business can survive too long in that world, if their competitors don't have to...  Plus customers get a shoddy product when R&D money is competing against bribes/misinvestments.

Thu, 07/24/2014 - 15:05 | 4999785 gcjohns1971
gcjohns1971's picture

The most important thing to do for taxation is to make it TRANSPARENT.

You should know what you pay.

You should know what you get for your payment.

It is the only way to know if you are paying too much.

And I have never seen anyone in any media forum, print, internet, or television acknowledge how much Americans DO PAY.

My household makes less than $200K/yr.  My Federal Income tax SAYS I pay about 13% after deductions.  HOWEVER, when you add all taxation, state, local, property, FICA, excise, subsidies, licenses, mandatory insurances - the tax rate is about 70%. And my net paycheck is about half of gross - before paying any licenses, insurances, excises, property taxes, etc...

I am sorry.  If it costs money and the government demands it when the actual nature of the business does not - IT IS A TAX.

ALSO, most people believe the 'General Welfare' clause grants Congress a Power.  Certainly the subhuman scum in Washington does. 

But the language is clear.  The 'General Welfare' Clause is a restriction - albeit one that was 'vanished' by means of judicial activism.  Congress , per the General Welfare clause, was originally restricted from spending money on items of interest only to some citizens. 

If the benefits didn't accrue to all, they were supposedly off-limits as objects of spending.

 

Thu, 07/24/2014 - 17:30 | 5000617 Seer
Seer's picture

NOTHING that we do is sustainable anyway.  We're either growing or we're declining: never do we really stay static (even though the "status quo" is so heavily pushed).  View things in an energy equation and it becomes readily apparent: the ruling hierarchy doesn't want us to think that way lest their "free rides" end.

Thu, 07/24/2014 - 20:07 | 5001364 Mr. Ed
Mr. Ed's picture

Good post, but:

"A fairer, good-governance system would lower corporate tax rates to the equivalent of an excise tax and exclude favors and exemptions..." ?? 

No. I disagree.  Any corporate tax is unfair to low income individuals and doesn't make economic sense.  First, corp taxes just get passed through to the consumer, and hit those who spend most of their income on subsistence the hardest.  Is that fair?  Second, the compliance costs are enormous (raising end user prices) and only benefit the career bureaucrat and pencil-pushing class who win eternal employment from the system.

On a broader scale, cronyism, bribes and buying of favors derive from the incredibly convoluted tax code that burdens our nation.  Get rid of it, and all the power players go away, corruption disappears and the political class starts getting paid what it's worth: about the same as the rest of us!!

This is why most of Washington fears the FairTax.  The FairTax ends corporate taxes and slams the door on ALL favoritism and bribery.

Read about.  Talk about it.  Don't elect anyone who doesn't support it (HR25 and assoc legislation).   ANY senator or congressional rep who won't sponsor this legislation is a POS trying to find money under table!!!

PS:  for anyone who liked Charles' post, Peter Schweizer's book "Extortion" is a must read!

Thu, 07/24/2014 - 19:53 | 5001458 ramacers
ramacers's picture

ready the blade with intrepitude.

Thu, 07/24/2014 - 19:58 | 5001481 Malachi Constant
Malachi Constant's picture
Our Political Order Is Defined By Favoritism And Extortion

It's not "our" political order. Every pyramid-shaped political order is like this.

All governments are socialist. This is why all governments invariably die on having accomplished the following:

  1. Promoted and rewarded the lowliest scum,
  2. Expelled or exterminated the competent,
  3. Squeezed the last drop of energy out of those in the middle

Read Plutarch, Livy, Appianus, Herodotus, Tacitus.

Nothing.

Changes.

For thousands of years.

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