Stop 'financial strip-mining'

Financialization.

It’s a big word that’s causing big problems for working families.

Financialization is the strategy that corporate and wealthy interests are using to get and keep an even bigger share of the economic pie. It’s the “financial strip-mining of America,” writes Les Leopold, director of the Labor Institute of New York City, in “Runaway Inequality.” And it’s destroying the American Dream for millions of working families.

Since the early 1980s, corporations and the wealthiest have been lobbying to:

• Cut taxes on the rich and big corporations.
• Cut government regulations, especially on the financial sector.
• Cut government social spending to pay for the tax breaks for the wealthy.
• Damage the power of unions and collective bargaining.

Unfortunately, they’ve succeeded.

The corporate share of federal taxes has dropped from 32 percent in 1952 to just 9 percent in 2013, thanks to outrageous tax loopholes and the ability of corporations to invest their profits in foreign subsidiaries and foreign countries where they pay no U.S. taxes. The percentage of the U.S. economy subject to regulation dropped from 11.5 percent in 1975 to under 3 percent in 2006. The social safety net to support people in need has been shredded. Bargaining is tougher than ever, with less than 7 percent of private sector workers represented by a union. 

Today, Wall Street calls the shots, thanks to deregulation and tax loopholes that allow corporate raiders and hedge fund managers to take over companies and sell off their parts, throwing away workers’ jobs in the process.

Corporate tax loopholes, like “inversions” and the “Reverse Morris Trust” make it all too easy. In 2007, Verizon used the “Reverse Morris Trust” loophole to structure the sale of its telephone operations in northern New England to financially strapped FairPoint Communications, in order to avoid paying any federal taxes on the profits of the sale and to gain a $600 million tax windfall.  

The “inversion” loophole is what pharmaceutical giant Pfizer is using to dodge U.S. taxes. By merging with Allergan, which is headquartered in Ireland, Pfizer will dissolve its U.S. ties but still remain in charge of the new company. Analysis by Americans for Tax Fairness shows what’s wrong with this move. ATF estimated that Pfizer’s effective tax rate on its worldwide income was just 7.5% in 2014, not the 25.5% rate the company reported in its Securities and Exchange Commission (SEC) filings. And Pfizer had as much as $148 billion in profits parked offshore at the end of 2014, on which it has paid no U.S. income taxes, ATF found. 

This issue of the CWA News takes a closer look at “financialization” and how CWA members and allies are fighting back to end this economic handout to the 1 percent. Key to this fight is building our power with our allies, and this issue also explores the progress we have been making to restore our democracy and regain our political voice.

One way to put the brakes on this Wall Street excess is a financial speculation tax. It’s a small tax, maybe 10 or 30 or 50 cents on the sale of every $100 worth of stock, bonds, derivatives or other investment vehicle.

It’s not a tax on workers’ 401 (k) plans, despite the hype by financial interests. It is designed to raise revenue from the Wall Street churn of financial trades – many conducted in less than half of one-millionth of a second – and to require these “high frequency traders” to consider before entering into highly speculative trades with little profit.

Taking on Wall Street is the only way we will restore the American Dream to the 99 percent living on Main Street.