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Highlights—August 25, 2012

  • Washington Times: The Mean Economy: IBM workers suffer culture change as jobs go global. Technological advances demand new skill sets, lower labor costs. By Patrice Hill. Excerpts: Cort Martin followed in the footsteps of his father and grandfather and made his career at IBM.

    That is what nearly everyone did in this town, the birthplace of the century-old technology titan. IBM offered the best salaries, the best benefits, and — best of all — trained Mr. Martin in accounting, management or whatever skill the company needed at a school for IBM employees on its sprawling campus here.

    “My whole family was career IBM,” he recalled, a group that included three uncles and an aunt who thought it was simply the best and most admired U.S. company. An IBM staffer starting in the 1960s and 1970s could look forward to many years of generous treatment, from IBM-paid family recreation, child care and golf facilities at the exclusive Heritage Country Club here, to an extremely comfortable retirement with full medical benefits for both employee and spouse. Mr. Martin still cherishes the grandfather’s clock that IBM gave him on his 25th anniversary.

    But that was not the IBM from which he retired last year. The company had changed in major ways, mostly to the detriment of its longtime employees.

    To prop up its profits and match lower-cost rivals, the company has been on a drive to curb benefits and reduce its North American workforce, replacing thousands of U.S. staffers with lower-paid hires in India, Brazil and other countries. IBM’s U.S. workforce dropped about 30,000 to 105,000 in the past decade while its Indian workforce grew by 9,000 to 75,000. Fewer than one-fourth of people it employs worldwide now are in the U.S. ...

    Mr. Martin said that because of his growing difficulties at IBM, he didn’t encourage his children to make their careers at the company — and none of them did. “I don’t miss it. It just kept changing. You’ve got constant churn,” he said. “You’d have to sell yourself, have another skill set” to keep your job. “You didn’t want to be the guy who doesn’t have a chair when the music stops.”

    The change over the years at IBM was dramatic. IBM’s founders in the early 20th century went to great lengths to treat employees with dignity, like family members, giving the company a reputation as one of the nation’s most progressive employers. It was the first to offer paid vacations, life insurance benefits and salaries rather than hourly wage rates.

    Today, workers are still among the best-paid in the country, but they are treated more like “outside contractors” or “interchangeable parts in a manufacturing process,” Mr. Martin said. ...

    In fact, IBM’s latest round of reductions in force this spring set off a hornet’s nest of criticism among insiders in the tech industry. Staffers claim that the company has a road map to cut its U.S. staff by more than half to 40,000 by 2015 through early retirements and layoffs, while increasing staff overseas. ...

    “IBM is gutting smart staff for cheap staff,” said Robert Eisenhardt, owner of a computer systems consulting firm in New York. “IBM is cutting jobs not because of the lack of a skill set, but often age and the cost of an American worker. India can get by on $2 an hour. Try living in this country on $2 an hour,” ...

    IBM has made no secret of resorting to extensive cost-cutting to maintain profits in the face of falling revenues in recent years. In the past quarter, IBM reported that its earnings rose 6 percent despite a 3 percent decline in revenue. It was the 38th consecutive quarter of net income gains, making IBM a darling on Wall Street. IBM’s stock price has risen from about $75 a share in the depths of the recession to more than $200 earlier this year. ...

    The never-ending quest of American corporate management to please Wall Street also plays an important role in the layoffs and offshoring drama. John Campbell, who was let go from IBM in 2007, said he was told that “the four goals of IBM are first quarter, second quarter, third quarter and fourth quarter,” as the company became increasingly focused on placating investors and propping up its stock price.

  • The Daily Mail (United Kingdom): How IBM manages to pay just 7 per cent tax despite billion pound profits from government deals. By Peter Campbell. Excerpts: British taxpayers have been left out of pocket after global computer giant IBM used obscure accounting techniques to slash its tax bill. The IT firm makes billions of pounds a year from highly lucrative government contracts, but has arranged its accounts so it pays just 7 per cent corporation tax. After making sales of £4billion in 2010, the most recent year where a full set of UK accounts.

    But the firm employed a plethora of complicated accounting measures to whittle down the amount it owed to the Treasury. Its workings were so complicated they even baffled tax experts. And because the firm is based in Ireland, it can funnel some of its profits across the Irish Sea where they will be charged at a lower tax rate. ...

    But even on the earnings declared from its UK branch, IBM should have paid 28per cent corporation tax, the rate that applied in 2010. Instead it only paid £21.7million– an effective tax rate of just 7.2per cent.

    The largest measure, described as ‘movement in unrecognised deferred tax’, subtracted £126.5million from the bill. It is believed this could include changes to the liabilities of its pension scheme. ...

    A company spokesman said: ‘IBM complies with all tax rules in the UK.’

    Selected reader comments follow:

    • Look at all the jobs they created though. And each grateful employee pays income tax. It adds up to less unemployment and many millions more in revenue that wouldn't have come in if IBM was taxed out of existance.
    • "Look at all the jobs they created though. And each grateful employee pays income tax....." I think you need to speak to some of this company's "greatful employees" who haven't seen a pay rise for many years, and who are being "got rid of" via various redundancy and performance-related loopholes...
    • Companies that avoid paying tax in this way should be excluded from all Public Sector bids and contracts. Their existing contracts should become null and void. IBM are a very big player in this area, providing networking, callcentre support and IT support for a number of public sector bodies.I'm told, they don't offer value for money and tend to run circles around civil servants.
    • The really annoying thing about these "legal" tax devices is that they are available only to very rich people who could easily afford to pay the proper rate of tax. Meanwhile we little people, who really could do with a bit more money, actually have to pay more in order to make up for the big boys' dodging.
  • Triangle Business Journal: Petition: IBM has off-shored 500 jobs from RTP. By Lauren K. Ohnesorge. Excerpts: A newly released petition for Trade Adjustment Assistance shows IBM has off-shored at least 500 jobs from Research Triangle Park. Through the TAA petition, representatives from the Project Manager Administrator group, report 500 job cuts in their division alone. Three workers filed the petition, which was certified last month, in May.

    The reason given for the cuts: “They have increased the size of their workforce in India and Brazil and decreased the workforce in the U.S.”

  • Yahoo! IBM Employee Issues message board: "Re: IBM has off-shored 500 jobs from RTP" by Lee Conrad. Full excerpt: To clarify (and I corrected the reporter) this TAA petition is for a specific division/BU not just RTP. The 500 are from around the country. Yes many more have been offshored. The IBM US employee population has dropped by over 6000 since last year.
  • Glassdoor IBM reviews. Selected reviews follow:
    • An absolutely terrible company to work for.” Former Senior Consultant in Washington, DC. Pros: Travel discounts for hotels and rental cars. Cons: You are truly a number—your individual accomplishments and contributions mean nothing. IBM is all talk when it comes to values. Advice to Senior Management: If you want to have a successful consulting practice, consider investing in the product you are offering - your PEOPLE.
    • I think this is a great company to work for.” Current Employee in Boulder, CO . Pros: I've had success with pay as a contractor, the experience is really good and the company name on your resume is great. Cons: Work/life balance is certainly swayed toward work. IBM's "lean" service model leaves much to be desired, we constantly run undermanned and the customers would be much happier with dedicated people as compared to a team of people who can work on any customer account. Advice to Senior Management: The company as a whole would do well to make an effort to keep its good employees.
    • Work experience at IBM” Current Software Engineer in Pune (India). Pros: Work culture, freedom, flexible work schedule. The company makes excellent products and provides good services. There is a lot of focus on innovation. Cons: The evaluation and appraisal system is not great and there's a lot of politics involved in the management. The HR processes are not very friendly and there's constant fear of getting fired.
    • Beware. Respect for the individual gone in favor of driving earnings per share at any cost.” Current Manager in Toronto, ON (Canada). Pros: Competitive salary, generally very good people to work with. Cons: Financial decisions trump business decisions. Your manager is very limited in his/her ability to assign your performance evaluation, salary increases, and annual bonus, as the processes are financially driven top-down. Also pay close attention to the defined contribution "retirement plan" (which is inferior to their prior defined benefit plan). Business-as-usual involves not replacing people when they leave, and when not enough people leave, they have permanent layoffs. Consequently, work-life balance can be downright terrible. Advice to Senior Management: Recognizing that management's hands are often tied (the company is very much driven by executive reaction to drive immediate quarter earnings, and often micromanagement), do your best to communicate to executives the impact of their decisions, and those of Finance.
    • IT Specialist” Current IT Specialist in Albany, NY. Pros: If you get into the right group, you can get good exposure. Cons: Too big for its own good, It's all about the numbers game and work ethics get lost because of that. Advice to Senior Management: Be open to your employees and be accountable for your actions.
    • High Tech, low compensation, long hours” Former Employee. Pros: High tech; Innovative; Gives exposure to HW, SW and Services deals. Cons: Poor compensation; HR does nothing for a living—no employee engagement at all; Executive focus on EPS rather than employee and client satisfaction which is the only route to achieve the EPS target. Advice to Senior Management: Focus on delivery excellence as much as sales. Reduce management bonuses and increase employee salaries.
    • Well-known company but burns out employees fast” Current Employee in Boston, MA. Pros: Well-known company Good health benefits. Flexibility in work-from-home. Cons: High stress environment. Very bureaucratic—the executives are very removed. Company is very tight with money. Advice to Senior Management: Take better care of your employees and keep the talent rather than burning out employees quickly with higher than normal hours and little compensation
    • Good people, awful executive management” Current Employee in Orlando, FL. Pros: Health benefits, home office, name recognition. Cons: Lack of advancement, salary freezes, offshoring of jobs, executive incompetence and greed, insane focus on internal processes and measurements. Advice to Senior Management: Get back to basics with the employees, grow revenue instead of cutting costs
    • Incredibly disappointing” Current Employee. Pros: Strong brand with lots of opportunity to expand your career. Your customers are always interested in what IBM is doing and it creates opportunity for old sellers. Cons: Process trumps content every time, and there is more process than you can believe. They have zero respect for employees and just a shred more for customers. It's all about expense management. Advice to Senior Management: Trust our employees and treat them with respect.
    • No leadership. Management rife with sycophants and politicians.” Current Employee in Austin, TX. Pros: Some good folks that are knowledgable in their field of engineering. Cons: No regard for customer input. We have had several large contracts canceled for poor performance. Stagnant stock. Neverending layoffs. Worst 1st and 2nd line management I've seen anywhere. Totally incompetent. Advice to Senior Management: Replace the whole lot. I've had 8 managers in my 10 years and there has been only one that I would consider average, or better, at personnel management. Most managers are simply PowerPoint monkeys.
    • Used to be an excellent company to work for. Now employees are nothing more than "resources".” Current Advisory Software Engineer in Durham, NC. Pros: Excellent work-life balance. Salaries are competitive.

      Cons: This is NOT an engineering-led company. Nearly all executives come out of marketing and sales. Nothing is more important than meeting short-term sales numbers.

      Cost-cutting has gotten completely out-of-hand. Have to pay for coffee. Buildings are dingy (half of the lightbulbs are burnt out). Often have to purchase your own hardware out-of-pocket.

      IBM is committed to being as profitable as possible. This means replacing their US work force with workers in BRIC countries making 80% less. They've already reduced their US workers by about half, and have no plans on stopping. If I were a software developer 35 years or older, I would fully expect to be laid off in the next 2-3 years. The atmosphere is that the executives view employees (and low-level managers) as nothing more than faceless "resources" that can be replaced with cheaper alternatives. Many important senior level software developers have already left, leaving knowledge gaps all over the place.

      IBM feels like a company on the decline. They're pulling no stops to appear as profitable as possible, but mortgaging the company's reputation to do so. They're staying alive by cannibalizing other companies.

      Employee morale is down-right awful. Management knows this, since I haven't seen an employee satisfaction survey in many years. I get the impression that executives are trying to make the atmosphere as unpleasant as possible to make their U.S. workers leave on their own so that they don't have to pay them severance packages.

      Advice to Senior Management: In general, low and mid level management at IBM is good. However, they're pretty much powerless against the whims of the executives who seem to be only interested in short-term profits, and care nothing about employee morale or customer satisfaction.

      Advice to executives: Employees are people too. Try treating us with respect. Be honest with us. Don't try to fool us with your fancy marketing-speak, like trying to convince us that replacing pensions with 401k was better for us, or that they're "resource actions" instead of "layoffs". That's just insulting our intelligence. Also, the IBM brand is being seriously tarnished right now, and IBM is getting a bad reputation in the eyes of our customers. IBM is not the unsinkable ship that you think it is.

    • It's a revolving door...” Current Employee in Dubuque, IA. Pros Looks good on a resume while you are looking for a job. Cute downtown location - shops, small restaurants, salons/spas. Daily huddles. Cons: Don't expect to make any better wage than anywhere else in Dubuque or small surrounding communities. Unclear path to moving up. People go years with not a penny raise. Highest turnover rate any GDF Center in North America. Advice to Senior Management: Remember you are also managing real people and not just there to please your management. Focus on building trust and morale - IBM may not allow a dime for overall team building of any kind, but you make much more than 90% of the employees there - so stop being so tight and buy your team a donut and coffee - a gift certificate - your ROI would be huge!!!! Have compassion - ask those you manage how they are doing - and mean it.
    • Not the old IBM anymore, unfortunately” Current Employee in Rome (Italy). Pros: Still the #1 company in IT, incredible offering portfolio, possibility to engage customer on ANY initiative, exposure to an international environment, possibility to go abroad quite easily. Cons: Wages are lower (far lower) than the industry average, frozen careers forever, deteriorated climate, depressed colleagues, cuts cuts cuts! Slow, very slow. Little industry knowledge. Advice to Senior Management: Value people, they are your real asset.
    • Managed the release of software through the worldwide distribution channels” Former Employee in Austin, TX. Pros: Great benefits. Interesting work. Good employees. Cons: Constant streamlining of the US work force. Very little movement of employees between divisions. Advice to Senior Management: Your employees can do more than the box you put them in. You should talk to them and find out how they can make IBM a better company.
    • Going downhill fast” Former Employee in Austin, TX. Pros: Travel, if you like to. Many intelligent coworkers. Cons: Too focused on short-term results. There are always fears of layoffs. No longer customer-centric. Advice to Senior Management: Develop a long-term strategy for growing revenue instead of shedding expense.
    • Good experience with IBM” Current Employee. Pros: If you are working as a software developer you have the flexibility of working from home. Cons: Because you can work from home in some cases you become a workaholic. Advice to Senior Management: Become more involved with the technical aspect of each employee's job
    • Application Developer/Testing” Current Employee. Pros: Decent name recognition for resume. A good entry level position company then you should be looking to move on. Cons: Long Term Supplemental is the new wave that IBM has embraced. Below 40,000 starting pay and that is where you stay for three or more years. No raises and you are considered temporary. Insurance for dental and health coverage is extremely high! This is not a place you should consider for long term employment. Get a few years in and hit the door running! There are better opportunities and money to be made many other places. Very profitable company but the employees do not receive a decent pay package!
    • Good company...no money” Former Sales Representative in San Francisco, CA. Pros: Good benefits, "safe" place to get started on a new career path. Good lifestyle type place if you are OK with OK money. Cons: Compensation significantly under market rates. Lots of territory changes and new managers that can be less than competent. Advice to Senior Management: If you want to retain top talent (not clear to me that you do), especially in competitive geographies like the Bay Area, you should start working on competitive compensation packages.
    • will always be attractive to newcomers and will stink to experienced IBMers” Current Manager in Moscow (Russia). Pros: varied portfolio and first of a kind knowledge in many areas. this is a blessing and a curse at the same time. Cons: it is an incredible overengineering of processes and instant cost cut that does not all out of the box thinking. Frozen chicken style is omnipresent at all level of the company. Advice to Senior Management: stop cost cutting policy before the best talent is gone. No need to invent overengineered programs for retention that do not work. Empower people managers in places to keep the right talent in place. Rotate senior manager every 3 years mandatory
    • Widespread insufficient staffing results in overworked employees” Current Advisory Software Engineer in Littleton, MA. Pros: - Brand recognition; - Work with bright and talented engineers; - Flexible work hours. Cons: - Despite flexible hours expect to work long hours including nights and weekends; - Performance reviews is totally broken, miniscule bonus and raise if any; - Inept mgmt who are more people pushers than technically savy; - Difficult to move around. Advice to Senior Management: Performance review needs a major overhaul.
    • It wasn't best as I expected especially with the rules and policy they have in place.” Former Employee in Quezon City, Quezon (Philippines). Pros: They provide quality training...that's it. Cons: Low salary and discrepancies with payroll. The Human Resources are not accommodating. Advice to Senior Management: The policies should not only be base on the benefit of the company needs but of course take the side of your employees.
    • The pay is good but at a price” Current Employee. Pros: Good salary with decent benefits. Currently on a good software project with great developers, but have been on other projects with mediocre developers. The projects I have been on were well run - we don't try to take advantage of our customers. Cons: IBM GBS expects more and more hours from its employees that bill for services. The expectations for billing are so high that I haven't been able to take all my allocated vacation every year. There are few young people in the U.S. in services now so the workplace is missing some vitality - many co-workers I know under 40 years of age have left. Advice to Senior Management: First-line management has been good throughout my career. Upper management doesn't seem to value the employees past the hours we can bill, despite the fact that we are their services business.
    • No career growth” Current Employee. Pros: Flexible hours; health benefits is good if you can afford it; good place to start a career but don't stay too long; Cons: More focus on cost cutting than anything else; management does not recognize and reward top performers. Advice to Senior Management: Invest in your people in the US.
  • Alliance for Retired Americans: Friday Alert. This week's articles include:
    • Alliance Responds to Argument That Obama Raided $716 Billion from Medicare
    • Singer Pat Boone Hits a Sour Note with “60 Plus” Ads
    • Results of Swing State Polls, Taken After Ryan Was Chosen as VP Nominee, Are In
    • Report from the West: Alliance Activity in Washington, Montana, Oregon
    • Alliance Organizer Bentley Davis Speaks Alongside Nancy Pelosi in Ohio
  • Kansas City Star: For many boomers, ‘retirement age’ is a moving target. More people in their 50s and 60s are staying on their jobs longer or finding post-retirement work. By Diane Stafford. Excerpts: Boomers cruising toward a traditional retirement suffered a financial comeuppance in the prolonged economic slump that began in late 2007. The downturn sapped jobs, stock and housing values, and interest on savings.

    Many were also caught in the shift from defined-benefit pension plans to 401(k) plans that required workers to contribute toward their own retirement savings. Some didn’t, a choice that will leave them short financially.

    Small wonder that, according to the Pew Research Center, boomers are the gloomiest of all age groups about the health and future of their finances. Boomers were more likely than other age groups to tell Pew researchers that they lost money on investments since the recession hit. Nearly six in 10 said their household finances worsened.

    Finally, employment-based health insurance for many retirees has been withering away, which is causing older workers to cling to paychecks. Overall, the stage is set for a new normal: Working in retirement.

  • New York Times: Big Income Losses for Those Near Retirement. By Catherine Rampell. Excerpts: Americans nearing retirement age have suffered disproportionately after the financial crisis: along with the declining value of their homes, which were intended to cushion their final years, their incomes have fallen sharply.

    The typical household income for people age 55 to 64 years old is almost 10 percent less in today’s dollars than it was when the recovery officially began three years ago, according to a new report from Sentier Research, a data analysis company that specializes in demographic and income data. ...

    Income drops vary significantly by age, though. Households led by people between the ages of 55 and 64 have taken the biggest hit; their household incomes have fallen to $55,748 from $61,716 over the last three years, a decline of 9.7 percent. ...

    Incomes for the oldest Americans, on the other hand, have risen steadily since the recovery began. Among those 65 to 74, the inflation-adjusted median household income rose 6.5 percent (to $42,113 from $39,548), and among those age 75 and older, the increase was 2.8 percent (to $26,991 from $26,244). ...

    This may be because older Americans are working longer, taking in more income at more advanced ages. Perhaps they are working longer partly to compensate for the decline in the value of their homes. Rising employment rates among older people predate the housing bust, however.

New on the Alliance@IBM Site
  • Job Cut Reports
    • Comment 08/13/12: PBC raing in IBM is a joke. There are already amounts of how many 123and 4s are given for each department by upper manager at the begin of each PBC review session and h/r corporate controls the amount and the number for each department. PBC ratings in IBM are all political, they have nothing to do with work performance. IBM NEEDS A UNION TO STOP THIS CORRUPTION. -EX IBM Manager-
    • Comment 08/13/12: -Once Again - In the UK when a company wants to lay off more than 20 staff at a single location they have to go through a consultation process. It can be a period where they try to get people to volunteer, but it can also be a time when they specify the criteria for who will be fired. Salary sacrifice is a scheme where you give up some salary to buy a benefit. If your health insurance costs £100 a month, you reduce your salary by £100 and get the benefit for 'free'. It saves you some and the company money in taxes. I left IBM before "skip rates". I bet they save IBM more money and cost the employee! -Ex-Slave-
    • Comment 08/14/12: The current exchange rate of Dollars to Rupees is $1.00 USD = 55.6578 Rupees. Based on that, a job in IBM India paying 250,000 Rupees would equal $4491.73 USD. If that same Indian IBM employee received a 25% increase of $1122.93 USD per year, that would be $5614.66 total year's salary. That's still peanuts for IBM to pay for a job that was paying $70,000 USD or more to a US IBM employee, no? To me, this is not much of a scratch in IBM's bottom line, AND it also rubs salt into the wounds of US IBMers that are still working for IBM.

      Whether IBM brings those jobs back or not; US IBMers need to seriously look at the option of joining this union and fighting to win a contract with IBM. IBM is in trouble because of their quality of work and responsibility issues with their customers. US skilled IBMers could make those issues go away if they would unite and demand that IBM provide their customers with the kind of service and dependability that ALL their customers deserve. Offhoring for cost of labor is becoming a tired and worn out strategy for IBM. They will continue to have failures to meet their customers demands and contract obligations. Now is the time to unionize IBM US. Get busy fighting for your job, or get busy losing it. -raisetheroof-

    • Comment 08/14/12: -raisetheroof-: I found some threads on a message board that IBM was offering Band 7 at 15L ($27,000), Band 8 at 25L ($45,000) and Band 9 at 30L ($54,000). Don't know if that's cash or total package (Indian pay is structured differently than in the US). Look up "r2iclub forums". The world is getting flat. -Sauron-
    • Comment 08/15/12: To -PBC'ed_off-: Now you got it! Don't waste your time filling out the pbc with gobs of information you think pertinent to your work. I usually take the info that I wrote in last year's pbc, copy it over word for word then change anything in there was was specific to a certain task completed during the current year. NEVER...has any manager mentioned or questioned why I wrote the same thing year after year. It never influenced my appraisal or rating.

      I knew that the whole thing was bogus. It's meant to give the employee a false sense of security. The employee thinks they have a sense of input into their rating, and IBM continues to do exactly what they want.

      Your PBC ranking was done months before you even filled out that pbc. How do you think it has anything to do with how you are rated. My mgr even told me that the rating is all about how many managers know who you are. You could be diligently servicing an account saving the company $millions$ a year, or convincing the customer to sign on for more work. If the other mgrs don't know who you are, your rating suffers.

      It's all who you know, and not how well you perform in this company that matters. If you can blow more smoke against the mirror than your other co-workers you win! Sad but true. -dun-4-

    • Comment 08/16/12: 2 stories regarding PBCs...A manager in Almaden Research Center told me that he could have 10 Nobel Physics Prise winners reporting to him...and 5 would be rated 3's. Another manager I know who did't want to rate any of his employees a 3, SWAPPED a 1 rating and a 3 rating to another manager for two 2 ratings. Go figure.. -BAWILK-
    • Comment 08/17/12: To -Concerned- Don't you worry, those layoffs will be coming back around to an office near you. You may not even get a severance, because they don't have to give it to you. If you are really "concerned" join Alliance and do something about it. -Gone_in_07-
    • Comment 08/24/12: RA'd; however, I had a transfer opportunity. My RA date was extended 2x. The new IBM organization appeared before the board 2x to request removal from list and transfer into their organization. Both times denied. What happened to the "find a new position within 30 days.. ?" I had a new position and was told that "...though you have a new position and they want to transfer you to their organization, the board doesn't support that so...'good luck.'" When asked for a basis for the decision, "...um we do not have that information." Really? Didn't sign anything. Going to the battle field. -Anonymous-
News and Opinion Concerning Health Savings Accounts, Medical Costs and Health Care Reform
  • The Fiscal Times: GOP Govs Fight with Hospitals over Medicaid Opt-In. By Brinna Ehley. Excerpts: In a battle to see who will pick up the cost of expanding Medicaid, hospitals are playing tug of war with financially distressed states that have chosen to opt out of the program.

    When the Supreme Court decided states could not be penalized for not expanding Medicaid under Obamacare, Republican Governors Bobby Jindal of Louisiana, Rick Perry of Texas, and Rick Scott of Florida quickly announced that their states would not participate. ...

    “If we don’t do this, Florida taxpayers will be paying to expand coverage to children and families in other states,” Dr. Peter Gorski, the chief health and child development officer of The Children’s Trust in Florida, told The Fiscal Times. “There is no rational reason not to do this.” ...

    Bruce Rueben, president of the Florida Hospital Association, says choosing to pass on Medicaid expansion is “like doubling down on a bad deal. Opting into Medicaid expansion is the best thing for Florida hospitals and the best thing for people we serve.” ...

    “Medicaid is a system of inflexible mandates, one-size-fits-all requirements, and wasteful, bureaucratic inefficiencies…expanding it would only exacerbate the failure of the current system and would threaten even Texas with financial ruin,” Gov. Perry said in a letter to Kathleen Sebelius, secretary of the Department of Health and Human Services.

    But hospitals in Texas disagree with the governor, and say the state’s large uninsured population needs a health care solution. “With a strained state budget, it’s hard to imagine addressing the uninsured problem in Texas without leveraging these federal funds, which now will go to other states.”

  • The Fiscal Times: Conservative Super PACs Outraised Liberals 3-to-1. By Merrill Goozner. Excerpts: Through the end of June, conservative-leaning groups dominated the top 15 so-called Super PACs , which can now take in unlimited amounts of campaign cash from individuals and corporations to spend on specific campaigns as long as they don’t coordinate with the candidates. They outraised their liberal counterparts by a three-to-one margin, according to data compiled by MapLight, a California-based watchdog group. ...

    Spending on all federal races this year – for the White House, House and Senate – is expected to reach $6 billion, a nearly 20 percent increase from four years ago. About 15 percent or nearly $1 billion will come from groups whose contributors are no longer bound by limits in the nation’s campaign finance laws, according to Sheila Krumholz, executive director of the Center for Responsive Politics.

    And half of those contributions won’t be open to public scrutiny because they went to outside groups that, unlike the Super PACs, don’t have to disclose their donors unless they make “electioneering communications” within 60 days of the election. “The SuperPACs and outside groups will have a profound effect on this year’s election,” Krumholz said. “Most of what we can see is from conservative donors to conservative groups.”

  • New York Times op-ed: Understanding Medicare “Cuts”. By Paul Krugman. Excerpts: Jackie Calmes has a very good piece about those Medicare “cuts” Romney promises to repeal. As she emphasizes, all of these involve reductions in payments to insurance companies and health providers, rather than reductions in patient benefits. So what are we talking about? ...

    Medicare Advantage is a 15-year failed experiment in privatization. Running Medicare through private insurance companies was supposed to save money through the magic of the marketplace; in reality, private insurers, with their extra overhead, have never been able to compete on a level playing field with conventional Medicare. But Congress refused to take no for an answer, and kept the program alive by paying the insurers substantially more than the costs per patient of regular Medicare. All the ACA does is end this overpayment. ...

    As for the cuts in hospital reimbursement, the key thing to know is that the hospital industry itself negotiated those cuts. Here’s how John McDonough’s Inside National Health Reform describes it:

    The negotiation involved the White House and high-level Senate Finance staffers. The agreement involved two numbers: $155 billion in reductions over ten years, and health insurance coverage for 95 percent of all Americans. At these numbers, hospital leaders were convinced that the revenue from the added covered lives would more than make up for their losses on the Medicare side, and it was a deal they could embrace.

    So, does any of this sound like a devastating blow to seniors’ health care?

  • New York Times: Patients Would Pay More if Romney Restores Medicare Savings, Analysts Say. By Jackie Calmes. Excerpts: Mitt Romney’s promise to restore $716 billion that he says President Obama “robbed” from Medicare has some health care experts puzzled, and not just because his running mate, Representative Paul D. Ryan, included the same savings in his House budgets.

    The 2010 health care law cut Medicare reimbursements to hospitals and insurers, not benefits for older Americans, by that amount over the coming decade. But repealing the savings, policy analysts say, would hasten the insolvency of Medicare by eight years — to 2016, the final year of the next presidential term, from 2024.

    While Republicans have raised legitimate questions about the long-term feasibility of the reimbursement cuts, analysts say, to restore them in the short term would immediately add hundreds of dollars a year to out-of-pocket Medicare expenses for beneficiaries. That would violate Mr. Romney’s vow that neither current beneficiaries nor Americans within 10 years of eligibility would be affected by his proposal to shift Medicare to a voucherlike system in which recipients are given a lump sum to buy coverage from competing insurers.

    For those reasons, Henry J. Aaron, an economist and a longtime health policy analyst at the Brookings Institution and the Institute of Medicine, called Mr. Romney’s vow to repeal the savings “both puzzling and bogus at the same time.” ...

    What Mr. Romney proposes to restore to Medicare, however, is not money but additional costs, for higher payments to hospitals, insurers and other care providers. Lobbying groups representing some care providers accepted those reductions during the health care debate, and in exchange they got the law’s mandate for nearly all individuals to have insurance, which meant that providers and insurers would have millions of new paying patients and policyholders. ...

    Mr. Romney has been especially critical of the cuts for insurance companies that provide Medicare Advantage, a popular private-policy alternative to Medicare. “This is the president’s plan: $716 billion cut, four million people losing Medicare Advantage and 15 percent of hospitals and nursing homes not accepting Medicare patients,” he said in a recent campaign appearance.

    But Medicare Advantage, which was created 15 years ago in the hope that private-market competition for beneficiaries would result in lower prices, has consistently cost more than standard Medicare — costs that Medicare beneficiaries must help subsidize through their premiums.

News and Opinion Concerning the "War on the Middle Class"
Minimize "It is a restatement of laissez-faire-let things take their natural course without government interference. If people manage to become prosperous, good. If they starve, or have no place to live, or no money to pay medical bills, they have only themselves to blame; it is not the responsibility of society. We mustn't make people dependent on government- it is bad for them, the argument goes. Better hunger than dependency, better sickness than dependency."

"But dependency on government has never been bad for the rich. The pretense of the laissez-faire people is that only the poor are dependent on government, while the rich take care of themselves. This argument manages to ignore all of modern history, which shows a consistent record of laissez-faire for the poor, but enormous government intervention for the rich." From Economic Justice: The American Class System, from the book Declarations of Independence by Howard Zinn.

  • Atlanta Journal-Constitution: Dems slam Ryan over Social Security privatization. By Stephen Ohlemacher. Excerpts: Democrats are eagerly renewing their fight against privatizing Social Security now that Republican presidential candidate Mitt Romney has picked Paul Ryan as his running mate. It was a fight that didn't go well for the GOP when President George W. Bush pushed the idea in 2005.

    In his 2010 "Road Map for America's Future," the Wisconsin congressman proposed a plan to allow younger workers to divert more than one-third of their Social Security taxes into personal accounts that they would own and could will to their heirs.

    Ryan wrote that the accounts would provide workers an opportunity "to build a significant nest egg for retirement that far exceeds what the current program can provide." Workers 55 and older would stay in the current system.

  • The Baltimore Sun commentary: Romney and Ryan build a bridge to the 20th century. Is the GOP ticket running in 2012 or 1912? By David Horsey. Excerpts: The budget plans that Mr. Ryan has put forward as chairman of the House Budget Committee would underfund or seriously alter nearly every liberal program instituted since FDR's New Deal. His schemes would also lower taxes on the rich to a level not seen since the 1920s while whittling away at the deductions for home mortgages and philanthropic giving that have helped the middle class. In 2010, he proposed a complete elimination of the capital gains tax, a step that would allow people who live off their investments -- people such as Mitt and Ann Romney -- to pay no taxes at all.

    The America Ryan longs for seems more like 1912 than 2012. Certainly, it was a simpler time a century ago. The majority of Americans were white, God-fearing Protestants who lived on farms or in small towns. Only a tiny elite went to college. The rich were very rich while the broad working class earned modest incomes through long days of labor in mines, factories and fields. Women stayed at home. Black Americans were kept in their place. Politicians were in the pockets of the wealthy. Only wild-eyed Socialists dreamed of helping the elderly with government-provided pensions and medical care.

  • Washington Post opinion: The obvious answer Romney won't give on his tax plan. By Jonathan Bernstein. Excerpts: The Tax Policy Center came out with a report yesterday confirming its earlier study: Mitt Romney’s tax plan is either impossible or would raise taxes on middle-class taxpayers.

    Once again, that’s because the specific commitments Romney has made just don’t add up. Remember, Romney has called for revenue-neutral tax reform that would cut rates by 20 percent while retaining and, in some cases, adding to current expenditures that he counts as “incentives for saving and investment” and eliminating the estate and alternate minimum taxes. The problem is that there just aren’t enough deductions, exclusions and credits remaining to make up the revenue lost just from the rich. ...

    The obvious conclusion is that the priorities in his plan are the specific rate cuts and tax advantages for upper-income filers. They are not about protecting the middle-class, and they certainly are not revenue neutrality. Indeed, the obvious conclusion is that those are the ultimate priorities for the Republican Party, and Romney has the nomination only on the condition that he will back massive tax cuts for the rich. The same condition, that is, that got George W. Bush the nomination.

  • The Fiscal Times: Wall St. Widens Income Gap as Bonuses Take a Leap. By Suzanne McGee. Excerpts: Working on Wall Street is expected to get a little more lucrative this year. If you’re a trader and you don’t work for scandal-tarnished JPMorgan Chase (JPM) or Barclays (BCS), then you may see your bonus rise 5 percent to 15 percent if you trade stocks, and 10 percent to 20 percent if you specialize in fixed income. Bonuses in other parts of the Wall Street universe, according to a report from Johnson Associates, are likely to be flat to up to 10 percent higher, with gains in asset management, commercial banking, hedge funds and prime brokerage ahead of those anticipated in the worlds of private equity or retail banking. The losers? Investment bankers. Despite the Facebook IPO, underwriting activity has remained sluggish as has global mergers and acquisitions volume. ...

    Here’s a thought: Wouldn’t it be nice to start thinking about bonus payments for regulators – for the folks who are responsible for monitoring Wall Street – that compare with those on Wall Street itself? I’m not suggesting that they be as lavish as those awarded to top traders – after all, Wall Street compensation is so high in part because the jobs offer precious little in the way of security, especially when contrasted with government work. But we should want some of the best people on Wall Street to find working for the government attractive enough that the departments or agencies responsible for overseeing financial giants find it easy to recruit the foxes that are most skilled at protecting the chicken coop. Why wait until we have another MF Global; another London Whale; another LIBOR scandal? Instead, why not find a way to attract Wall Streeters to cross party lines and help to prevent such occurrences in the future? Surely the increased confidence in the health and integrity of our financial system would be worth the investment. ...

    And while we’re pondering extending Wall Street’s approach to compensation to the public sector, why not include the idea of clawbacks? When a denizen of Wall Street has overseen the destruction of a firm – wittingly or unwittingly – his compensation now will be “clawed back” under the increasingly popular provisions adopted by a majority of Wall Street firms. But what about the regulators? If there’s a blowup on their watch, that they missed opportunities to catch before it became a systemic crisis, they, too, could forfeit some of their own compensation. Think, for instance, of the opportunities that the SEC had to stop Bernie Madoff’s Ponzi scheme in its tracks.

  • Boulder Daily Camera: Subsidizing CEO welfare. By Scott Klinger. Excerpts: The debate about President Barack Obama's plan to end Bush-era tax cuts for the wealthy is riddled with references to "the richest 2 percent." Who exactly are these well-off Americans? A new report from the Institute for Policy Studies, which I helped research, reveals some of their names. We identified 57 CEOs who saved at least $1 million on their 2011 taxes thanks to the Bush-era tax rates. ...

    The tax code also empowers CEOs to save money in other ways unavailable to ordinary workers. Among the most lucrative are the executive deferred compensation programs at many large corporations. When ordinary workers, age 50 and up, put money in tax-deferred 401(k) or IRA retirement plans, the amount of income we can shelter is usually no more than $22,000. These rules don't apply to CEOs. Uncle Sam lets any and all of their earnings grow tax-free until they're withdrawn. ...

    The rest of us ordinary Americans have seen our wages plummet below the cost of living and the value of our homes and retirement savings sink. We've seen our teachers go from the classroom to the unemployment line. We've seen libraries close, roads and bridges crumble, and public safety threatened with police and firefighter layoffs. And we've heard CEOs and politicians declare that cutbacks in Medicare and Social Security are essential for the national bottom line.

    Meanwhile, wealthy CEOs are enjoying million-dollar tax breaks. It's time to change course.

  • Washington Post opinion: A Romney policy he dare not tout. By Charles Lane. Excerpts: Mitt Romney is a tax evader — but not, I hasten to add, in the sense that Senate Majority Leader Harry Reid (D-Nev.) so scurrilously suggested.

    Rather, Romney is being evasive about exactly what he plans to do on tax reform. Rates and rate cuts, he’ll spell out: Romney proposes an across-the-board 20 percent reduction in the existing marginal rates, while keeping the 15 percent top rate on capital gains, except for filers who make less than $200,000; for them, capital gains would be tax-free.

    As for which deductions and special breaks Romney would eliminate to offset the lower rates — well, he’s getting back to us on that.

    onsider Romney’s position on one notorious tax break: the favorable treatment of “carried interest.” Mainly enjoyed by private equity and hedge fund managers, this break is a big reason Romney’s own tax bill was no more than about 14 percent of his multimillion-dollar income in recent years.

    The carried-interest break not only accentuates income inequality but also overincentivizes the formation of investment partnerships, diverting capital — financial and human — from other, more productive uses. President Obama has sensibly proposed getting rid of it.

  • AlterNet: How Nonprofits Spend Millions on Elections and Call it Public Welfare. Forget super PACs, their much-hyped cousins, which can take unlimited contributions but must name their donors. By Kim Barker. Excerpts: Matt Brooks describes the mission of the Republican Jewish Coalition as educating the Jewish community about critical domestic and foreign policy issues.

    But the well-dressed crowd that gathered in May for a luncheon on the 24th floor of a New York law firm easily could have figured that the group had a different purpose: Helping Mitt Romney win the presidency.

    Brooks, the group's executive director, showed the 100 or so attendees two coalition-funded ads taking aim at President Barack Obama. Then Brooks made a pitch for a $6.5 million plan to help Romney in battleground states, reminding guests that their donations would not be publicly disclosed by the tax-exempt group.

    "Contributions to the RJC are not reported," Brooks told the people sitting around a horseshoe-shaped table. "We don't make our donors' names available. We can take corporate money, personal money, cash, shekels, whatever you got."

    The Republican Jewish Coalition and similar organizations enjoy tax-exempt status in exchange for promoting social welfare. In this election, the most expensive in U.S. history, they also have emerged as the primary conduit for anonymous big-money contributions.

    Forget super PACs, their much-hyped cousins, which can take unlimited contributions but must name their donors. More money is being spent on TV advertising in the presidential race by social welfare nonprofits, known as 501(c)(4)s for their section of the tax code, than by any other type of independent group. ...

    Congress created the legal framework for 501(c)(4) nonprofits nearly a century ago. To receive the tax exemption, groups were supposed to be "operated exclusively for the promotion of social welfare." The IRS later opened the door to some forms of political activity by interpreting the statute to mean groups had to be "primarily" engaged in enhancing social welfare. But neither the tax code nor regulators set out how this would be measured. ...

    An investigation by ProPublica, drawing on documents filed with the Internal Revenue Service and the Federal Election Commission, offers the most detailed picture to date of how 501(c)(4) groups have used their tax status for purposes likely never intended. Our examination shows that dozens of these groups do little or nothing to justify the subsidies they receive from taxpayers. Instead, they are pouring much of their resources, directly or indirectly, into political races at the local, state and federal level.

  • Huffington Post: Mitt Romney Taxes Enriched Foreign Governments At U.S. Expense. Excerpts: Mitt Romney sought and received $787,455 in foreign tax credits from the U.S. Treasury to cover his tax payments to other nations in 2008.

    While there is no evidence that his actions violated the law, abuse of the foreign tax credit has been a problem for the Internal Revenue Service. The agency has prosecuted a number of international fraud cases in the last few years involving such credits. And the size of Romney's claim in 2008 raises questions about the sources of his foreign income.

    "This could definitely be a contributing reason for Romney's unwillingness to disclose prior years' returns," said New York University School of Law professor Daniel Shaviro, a tax expert. ...

    Much of Romney's foreign banking activity is also shrouded in secrecy. He has not released a 2010 tax form that details his foreign bank account holdings. He has, however, disclosed the existence of a Swiss bank account. Such accounts are prized by global elites for Swiss banks' extreme levels of secrecy, which has allowed thousands of American taxpayers to shield offshore income from the IRS by stashing it in Swiss accounts. There is no evidence that Romney broke the law with his Swiss account.

  • Huffington Post: Rich People Give A Smaller Share Of Their Income To Charity Than Middle-Class Americans Do. By Bonnie Kavoussi. Excerpts: While households that make at least $100,000 per year give an average 4.2 percent of their discretionary income to charity, those that make between $50,000 to $75,000 per year give an average 7.6 percent of their discretionary income to charity, according to the study.

    It seems that rich people living in wealthy enclaves are the worst when it comes to thinking of the poor. In ZIP codes where more than 40 percent of taxpayers make more than $200,000 per year, residents give an average 2.8 percent of their discretionary income to charity. Many of those rich residents give no money to charity at all. ...

    The rich are not redistributing that money back to society. Total tax rates are roughly flat in effect across income levels, according to Citizens for Tax Justice. And on average, the rich aren't giving away extra money to charity either, according to this new study.

    The bottom line: Rich people are making much more money before, and they're keeping it for themselves.

  • New York Times opinion: Has Obama Made the Job Situation Worse? By Robert S. McElvaine. Excerpts: “Without a doubt President Obama inherited a difficult situation. Here’s the problem. He made it worse,” Paul Ryan, the Republican vice presidential candidate, has been saying in his stump speech.

    Ryan’s statement consists of two parts; the first is gross understatement, the second gross misstatement. It is the misstatement that is the essence of the case Republicans are putting before American voters: That President Obama has made the economy worse. Getting voters to believe that assertion is probably the Republicans’ only hope of winning the election. ...

    The following graph, which I put together using data from the Bureau of Labor Statistics, traces the annual rate of job creation under Democratic and Republican administrations from Harry Truman to Obama — with 2009 separated out as a year in which any fair-minded person would agree that the “difficult situation” Obama inherited was the main driving force. It dramatically illustrates just how wrong Ryan’s assertion is. ...

    Here is a second graphic illustration of what has happened in job creation under George W. Bush and Barack Obama. It also uses data from the Bureau of Labor Statistics.

    In the eighteen months from the beginning of 2008 through the middle of 2009, a period fully shaped by the Bush economic program to which Republicans now want to return, (but before the Obama stimulus had a chance to take effect), approximately 7.5 million jobs were lost.

    Over the most recent 18 months of the Obama administration, approximately 2.8 million jobs have been added.

  • Financial Times: Last decade worst for US middle class. By Anna Fifield. Excerpts: Median household income for America’s middle class fell from $72,956 in 2001 to $69,487 in 2010 (measured in 2011 dollars), the report said, the first time since the second world war that the middle class ended a decade with a smaller income than it started with.

    While all sectors of society experienced a decline in income, the middle class is the only one that also got smaller. It shrank from 61 per cent of adults in 1971 to 51 per cent last year.

    “The notion that the middle class always enjoys a rising standard of living is a part of the idea of America,” said Paul Taylor, executive vice-president of the Pew Research Center. “Now the middle class has a smaller slice of a smaller pie.”

  • In These Times: U.S. Tax Code Encourages Excess CEO Pay. By David Moberg. Excerpts: The recent news that the richest 1 percent captured 93 percent of all income gains in the United States was enough to give most working people indigestion. But they may react even more strongly to a new report that they are effectively paying--through higher income taxes and reduced government services--for the growing and often grotesque paychecks of their corporate bosses.

    In its 19th annual report on "Executive Excess," the Institute for Policy Studies, a Washington-based think tank, focused on how U.S. tax laws encourage exorbitant executive pay and then grant tax breaks and reduced rates to those same executives as well as their businesses. For example, last year Apple paid a record $374 million to Timothy Cook, its new CEO, at a time when journalists were reporting on how Apple contract manufacturers in China overworked, abused and underpaid workers making iPhones.

    As a result of these incentives in the tax code, 26 out of the 100 highest paid CEOs received more in overall pay than their companies paid in federal income taxes (and many of those corporations actually received tax refunds). With few exceptions, these were profitable companies. ...

    Simply by declaring that its pay to the CEO is for his or her performance, a corporation can write off on its taxes any amount, not just up to the limit of $1 million for standard compensation. Taxpayers also effectively pay for other incentives to high CEO pay--unlimited deferred compensation, double standards on accounting for stock options, and preferential treatment for "carried interest" in hedge, private equity and other investment funds (where payments that should be taxed like regular income are instead taxed at a much lower rate). ...

    Corporations, now paying a record-low 7.9 percent of federal revenues, further avoid taxes on the business itself. IPS cites the use of tax havens--where rich individuals have stashed somewhere between $21 and $32 trillion--as places that also shelter corporate profits. Its researchers found that the 100 corporations with the highest paid CEOs operated a total of 537 subsidiaries in tax havens, where accountants can place disproportionate shares of income, for example, by assigning patents and other intellectual property rights to the tax haven.

  • AlterNet: Even Adam Smith Would be Appalled by Romney's Tax Evasions. Romney’s alleged 13 percent tax rate is lower than that of most middle class Americans who earn a tiny fraction of what he earns. By Robert Reich. Excerpts: Mitt Romney says “every year I’ve paid at least 13 percent [of my income in taxes] and if you add in addition the amount that goes to charity, why the number gets well above 20 percent.”

    This is supposed to be in defense of not releasing his tax returns.

    Assume, for the sake of the argument, he’s telling the truth. Since when are charitable contributions added to income taxes when judging whether someone has paid his fair share?

    More to the point, Romney admits to an income of over $20 million a year for the last several decades. Which makes his 13 percent — or even 20 percent — violate the principle of equal sacrifice that lies at the core of our notion of tax fairness.

    Even Adam Smith, the 18th century guru of free-market conservatives, saw the wisdom of a graduated tax embodying the principle of equal sacrifice. “The rich should contribute to the public expense,” he wrote, “not only in proportion to their revenue, but something more in proportion.”

    Equal sacrifice means that in paying taxes people ought to feel about the same degree of pain regardless of whether they’re wealthy or poor. Logically, this means someone earning $20 million a year should pay a much larger proportion of his income in taxes than someone earning $200,000, who in turn should pay a larger proportion than someone earning $50,000.

    But Romney’s alleged 13 percent tax rate is lower than that of most middle class Americans who earn a tiny fraction of what he earns.

  • Salt Lake Tribune: Romney says his Mormon tithing shouldn’t be public. By Thomas Burr. Excerpts: Mitt Romney says in a new interview that one of the reasons he’s distressed about disclosing his tax returns is that everyone sees how much money he and his wife, Ann, have donated to the LDS Church, and that’s a number he wants to keep private.

    "Our church doesn’t publish how much people have given," Romney tells Parade magazine in an edition due out Sunday. "This is done entirely privately. One of the downsides of releasing one’s financial information is that this is now all public, but we had never intended our contributions to be known. It’s a very personal thing between ourselves and our commitment to our God and to our church." ...

    University of Utah political scientist Matthew Burbank says Romney may have a point about disclosing his finances since he never intended to make his LDS donations public. "I can understand why you wouldn’t want that information out there," Burbank says. However, the professor points out, if Romney were to release more years of tax returns, journalists and opponents would likely be more interested in Romney’s wealth and where he parks his money.

    "The amount of money given to the church is probably not going to attract the most attention," Burbank says. "People will look at that and say that’s nice but it’s not likely to draw a lot of comment or concern."

  • In These Times: ‘Outsourced’ Workers Chase Elusive ‘Romney Hood’. After Bain moved their jobs to China, three auto-parts workers are knocking on Romney’s door. By David Moberg. Excerpts: But Romney's old gang–the Bain (Capital) Gang–is still hard at work in the guise of a private equity firm. And Sensata, a Bain-owned company, is now in the process of shutting down the Freeport, Ill., sensor factory that it bought from Honeywell, in order to relocate it to China. Meanwhile, the roughly 170 workers like Randecker at the plant have been training their Chinese replacements while facing unemployment this November, in a region that has lost much of its once-strong industrial base.

    In a last-ditch effort to save the jobs that the overwhelmingly female and middle-aged workforce has relied on to raise their families–often for several decades–Randecker and her co-workers have been trying to meet with candidate and Bain co-founder Mitt Romney to ask him to intervene.

    They went to Romney campaign offices in Davenport, Iowa, and in Madison, Wis., where campaign staff called the police to disperse the workers–many of whom have voted for Republicans in past elections. ...

    After years of making good quality products and healthy profits for their employer, workers were stunned when Sensata managers announced last year they were closing the plant right after buying it. Only recently, Randecker said, did management offer an explanation: Labor and materials are cheaper in China.

    Randecker notes, however, that Chinese labor is less skilled. She claims that in some cases, it will take 13 Chinese worker to do what one Freeport worker did. Some analysts argue that markets for the products are shifting to China, but Randecker points out that U.S. auto companies–who have large U.S. market needs–are among Sensata's major customers.

  • Huffington Post: Middle Class Exit 'Lost Decade' With Little Hope: Pew Report. By Jillian Berman. Excerpts: The consequences of a disappearing middle class could be dire. Morin noted that political scientists speculate a functioning middle class could be key to a functioning democracy. "If you lose the middle class, you're in danger of losing a lot," he said.

    As middle-class households -- which the report defines as those making between two-thirds and twice the national median income -- feel they're struggling to make ends meet, their wealthier neighbors are making gains.

    Over the past four decades, upper-income Americans have increased their share of overall U.S. household income, from 29 percent in 1971 to 46 percent in 2010, according to the report. During the same period, the middle-class share of income dropped from 62 percent to 45 percent.

  • BusinessWeek: Ahead of Convention, GOP Dumps Mortgage Deduction. By Elizabeth Dwoskin. Excerpts: Political party nominating conventions are expected to present warm, glittery narratives about a presidential candidate and to signal that the country is in full-on election mode.

    While Romney was caving to pressure from Paul supporters, the platform committee itself made a surprising move. The GOP refused to put itself on record as supporting the mortgage interest deduction, writes my Bloomberg News colleague James Rowley. The idea is that Romney’s tax plans rest on eliminating deductions and loopholes he has not specified, so the party wants to give a President Romney ample room to maneuver by taking interest on mortgages off its protected list. However, on the same day, the platform group voted to retain its support for deductions granted to charitable donations.

    The mortgage interest deduction is the nation’s largest tax benefit. The government forgoes about $90 billion per year to the millions of American homeowners that claim it. It is cherished by the middle class, and some economists consider it the bedrock of the housing market. The mortgage interest deduction has many critics, but by virtue of its popularity among voters, killing it would amount to political suicide. That’s why you’ll find plenty of politicians who advocate getting rid of tax credits and loopholes, but you’d be hard-pressed to find a single one publicly opposing the mortgage interest deduction.

  • In These Times: How To Succeed in Business Without Adding Value. Private equity firms claim they help create jobs and improve businesses, but that is not the whole truth. By David Moberg. Excerpts: Here's how it works: The managers of private equity firms create big investment funds in which they are “general partners.” They pool unregulated private money from a variety of “limited partners,” ranging from public pension funds to rich individuals (including, in the case of Bain, dubious Central American plutocrats operating out of tax havens such as Panama). The general partners then buy a business in what is called a “leveraged buyout,” using more limited-partner capital and a huge loan, but very little of their own money.

    The high debt, or “leverage,” greatly multiplies the profit on successes, but also increases financial instability. The loans must be paid off even if business slows–a minor worry for the private equity fund, because it isn't responsible for those payments. Instead, the purchased business owes the debt created to buy it. The interest on this debt is tax-deductible (meaning that these deals are taxpayer-subsidized), but paying down the principal still puts pressure on the acquired businesses. They in turn typically squeeze employees as the easiest, quickest way to meet interest payments and profit targets.

    After Bain-style buyouts, employees often face wage and benefit cuts or mass layoffs. Businesses can also use takeovers to renege on implied contracts or to engineer bankruptcies, thus avoiding obligations to workers such as pension payments.

    After a few years, maybe a decade, the fund's partners typically try to sell the business at a profit. But the funds also have quicker ways to make money. They sometimes arrange for the businesses they buy to borrow money to pay extraordinary dividends in the first year, so that a firm such as Bain can quickly return to the general partners many times their original investment.

    In a Vanity Fair article, reporter Nicholas Shaxson relates what happened after Bain took over and merged two medical firms in 1994. First, Bain cut Dade Behring's research budget to half its competitors' level and began closing branches, even where the two firms had recently received location-based tax incentives for job creation. It converted traditional pensions to inferior alternatives (saving up to $40 million) and nickeled-and-dimed employees on benefit payments. Then Bain had Dade Behring borrow $421 million to pay itself, Goldman Sachs and some top managers $365 million in dividends. These participants had only invested $85 million. Romney continued to profit from the deal until at least 2001, one year before Dade went bankrupt. ...

    General partners also benefit from the notorious “carried interest” loophole. It allows their pay for managing the fund, which would be taxed as regular income, to instead be taxed as capital gains at a rate less than half of what most would otherwise pay. ...

    Appelbaum also finds that when private equity firms take over, they do not create jobs faster than comparable businesses, but they do destroy jobs faster. (So much for “job creation.”) Meanwhile, Shaxson reports that a Bain internal study concluded that there is “little evidence that private equity owners, overall, added value” to the companies they took over.

    All this means that even when a private equity firm “succeeds” (usually after buying an above-average business), much of their gains are reaped simply by transferring large amounts of wealth to themselves. The losers are usually the companies they acquire, their investor partners, taxpayers, government agencies and workers–ultimately, the entire economy.

  • New York Times: Documents Show Details on Romney Family Trusts. By Nicholas Confessore, Floyd Norris and Julie Creswell. Excerpts: Hundreds of pages of confidential internal documents from the private equity firm Bain Capital published online Thursday provided new details on investments held by the Romney family’s trusts, as well as aggressive strategies that Bain appears to have used to minimize its investors’ and partners’ tax liabilities. ...

    As part of his retirement agreement with Bain, Mr. Romney has remained a passive investor in the company’s ventures and continues to receive a share of the firm’s investment profits on some deals undertaken after his departure. ...

    Bain private equity funds in which the Romney family’s trusts are invested appear to have used an aggressive tax approach, which some tax lawyers believe is not legal, to save Bain partners more than $200 million in income taxes and more than $20 million in Medicare taxes.

    Annual reports for four Bain Capital funds indicate that the funds converted $1.05 billion in accumulated fees that otherwise would have been ordinary income for Bain partners into capital gains, which are taxed at a much lower rate. ...

    In a blog post Thursday, Victor Fleischer, a law professor at the University of Colorado, said that there was some disagreement among lawyers, but that he believed: “If challenged in court, Bain would lose. The Bain partners, in my opinion, misreported their income if they reported these converted fees as capital gain instead of ordinary income.” ...

    A typical private equity or hedge fund pays its managers in part with a management fee based on the size of the fund, and in part with a share of the profits earned by the fund. Those profits are considered “carried interest” and taxed at capital gains rates, which in recent years have been 15 percent, assuming that the underlying investment profits qualified for that treatment.

    The tax strategy Bain appears to have used is intended to convert the remaining management fee — the part not based on investment profits — into capital gains. Mr. Romney appears to benefit from the carried interest structure in these funds, but it is not clear from the documents made public whether he also benefits from the fee waiver. The Romney campaign declined to comment.

    In an article that appeared in the journal Tax Notes in 2009, Gregg D. Polsky, a tax law professor at the University of North Carolina School of Law, called the tax strategy “extremely aggressive” and said it was “subject to serious challenge by the I.R.S.” ...

    The documents also showed that some of the funds owned equity swaps, which have been used to avoid taxes that would otherwise be owed on dividends paid by American companies to foreign-based investors, like funds based in the Caymans.

  • Huffington Post: Bain Capital's Tax Dodge. By David Callahan. Excerpts: It's not often that we get a detailed look inside the tax strategies of a private equity firm, so Gawker's publication of a trove of documents related to Bain Capital is a welcome event.

    The documents show -- once again -- how sophisticated business people have myriad ways to avoid taxes and, in the case of Bain anyway, will readily skirt or break the law.

    The main revelation so far is that Bain seems to have pushed the envelope and misrepresented some of its income -- saying that management fees, which would be taxable as regular income, were actually capital gains, which are taxed at a much lower rate thanks to the infamous "carried-interest" loophole. ...

    You would think that the super wealthy might shrug at paying taxes they can easily afford, but here the opposite appears to be the case: Bain's wealthy partners have been hyper-aggressive about lowering their tax bill.

    The Medicare dodge is especially notable, given how conservatives endlessly trumpet the financial troubles of that program. Capital gains are not subject to payroll taxes, which means that one effect of the carried-interest loophole -- which the right defends -- is that it weakens the financial situation of Medicare and Social Security.

If you hire good people and treat them well, they will try to do a good job. They will stimulate one another by their vigor and example. They will set a fast pace for themselves. Then if they are well led and occasionally inspired, if they understand what the company is trying to do and know they will share in its sucess, they will contribute in a major way. The customer will get the superior service he is looking for. The result is profit to customers, employees, and to stcckholders. —Thomas J. Watson, Jr., from A Business and Its Beliefs: The Ideas That Helped Build IBM.

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