Today, I listened to a presentation at the Center for American Progress by Dr. Alan Krueger, Chairman of the President’s Council of Economic Advisors. As he spoke about the rise and consequences of inequality, I again recognized the timeliness of NETWORK’s campaign on the wealth gap (Mind the Gap!) – and the critical importance today of our work for economic justice.

Alan Krueger’s talk focused on how rising inequality and the diminishment of the middle class are very much at the heart of our nation’s economic woes. Overall trends in recent decades have been headed in the wrong direction. The percentage of middle class people has shrunk from a little over 50% in 1970 to 44% in 2000, to just 42% in 2010. We also now have more people at the lowest and highest extremes.

Growing inequality has come at a time when economic mobility has decreased. More and more, we find in our country that parents’ incomes are excellent predictors of their children’s future incomes – i.e., poor children are highly likely to become poor adults. This “land of opportunity” is providing less opportunity than we like to imagine.

Much of today’s rising income inequality can be traced to the dispersion in hourly wages. Dr. Krueger mentioned several causes – starting with technological changes that require more educated workers, the proliferation of very high salaries in the finance/real estate sector, less skilled U.S. workers competing with workers around the world, declining union membership, and tax policies that favor the rich.

Consequences of inequality include lower morale and productivity among those who feel they are underpaid. As their productivity decreases, economic problems grow.

NETWORK focuses on public policy, and Dr. Krueger mentioned several policy areas that could directly impact rising inequality. They include:

• Support of the Affordable Care Act (2010 healthcare reform legislation, which NETWORK helped pass). It is already helping many middle class families, including young people not able to go to college but who are now able to remain on their parents’ health insurance.
• Help for the middle class through a longer extension of unemployment benefits and the payroll tax holiday, two major focus areas for NETWORK in the coming weeks. These are helpful tools that support economic recovery.
• Better regulation to prevent excessive risk-taking and corruption in financial markets.
• Fair tax policies, another NETWORK priority, including more progressive taxes and a return of the estate tax to 2009 levels.
• Just access for all children to quality education, good nutrition, healthcare, etc. (i.e., safety net issues that have served as NETWORK priorities for decades).

I came away from Dr. Krueger’s talk with a renewed sense of purpose, along with a deeper appreciation for the thousands of NETWORK justice-seekers committed to strengthening our nation through fair government policies that foster equality and economic justice. Our work has never been more needed!

Yes, we know that President Obama and House Speaker John Boehner met on Sunday

“A lot of people know that the president and I met on Sunday. It was a nice meeting, it was cordial,” the speaker said. “But we’re still waiting for the White House to identify what spending cuts the president is willing to make as part of the balanced approach that he promised the American people. You know, where are the president’s spending cuts?”

My question is: Congressman Boehner, where is the list of tax loopholes you are going to cut or eliminate? You say you can get $800 million from reining in loopholes, but you have not specified which ones, now how much you would get from each – even though you have stated a total amount.

The Buffet Rule is intended to place an additional tax on those with income over $1 million/year. Many members of Congress continue to insist that we cannot do this because that would stop them from creating much-needed jobs. I seriously wonder about this for two reasons:

• I’ve not seen evidence of their creating great numbers of jobs in the 12 years during which they have enjoyed significant tax benefits. The unemployment rate rose to nearly 10%, and has only slowly returned to 7.8 as of January 30, 2013.
• Millionaires are well within the top 1% of earners in this nation – whose income accrued to 20% of the total national income. With the exception of two brief peaks (2000 and 2007) this is the highest percent of total national income that the group has held since before the Depression (1939).

As our legislators work to improve the economy of the nation and to protect those who are most vulnerable, The Buffet Rule seems one important action to include. It seems reasonable to hope that there would be scaled amounts or percentages for the Buffet Rule, as those with the greatest income are surely able to give the greatest support to the other 99.99% of the population (in 2011, 15,837 families, the top 0.01%, received annual incomes above $7.9 million each).

Sources: Saez, Emmanuel, 1.23.2013. Striking it Richer: The Evolution of Top Incomes in the United States(Updated with 2011 estimates) http://elsa.berkeley.edu/~saez/saez-UStopincomes-2011.pdf

Piketty and Saez (2003), series updated to 2011 in January 2013 using IRS preliminary tax statistics. Table A1 and Table A3, col. P90-95, P95-99, P99.99-100.

Income is defined as market income including (or excluding) capital gains.

This is California, and we don’t usually get quite so cold as it was here in December.  It was nothing like what was happening in the northern climes of this world, but we do not have the clothes, nor all of the other stuff we need to keep warm.  As a result, I shivered for at least four days.

So it was with a great deal of relief one night that, even though I was having trouble getting to sleep, I was warm, so I snuggled in and let my mind wander.  Eventually it wandered to the news of the day, which included some dim-wit Congressman stating he wasn’t going to vote for the extension of federal unemployment insurance because of some obscure Bible verse that suggested that if one doesn’t work, one doesn’t get to eat.  That swirled around for a while in my brain until I thought about the parable of The Good Samaritan.

Luke 10:29-37

But he, wiling to justify himself, said unto Jesus, And who is my neighbor?  And Jesus answering said, “A certain man went down from Jerusalem to Jericho and fell among thieves, which stripped him of his raiment, and wounded him, and departed, leaving him half dead.  And by chance there came down a certain priest that way; and when he saw him, he passed by on the other side.  And likewise a Levite, when he was at the place came and looked on him, and passed by on the other side.  But a certain Samaritan, as he journeyed, came where he was; and when he saw him, he had compassion on him, and went to him, and bound up his wounds, pouring in oil and wine, and set him on his own beast, and brought him to an inn, and took care of him.  And on the morrow when he departed, he took out two pence, and gave them to the host, and said unto him, take care of him; and whatsoever though spendest more, when I come again, I will repay thee.  Which now of these three, thinkest thou, was neighbor unto him that fell among the thieves?”  And he said, he that shewed mercy on him.  Then said Jesus unto him, “Go and do thou likewise.”

Usually when this parable is preached or spoken about, it is that someone from a different culture, or tribe, acted with more compassion than the members of the beaten man’s own tribe, and that we must be compassionate toward everyone.  Which in and of itself is certainly true.  But the thought that came to me was that after the initial compassionate acts of binding up the beaten man’s wounds and taking him to an inn and caring for him for one night, the Samaritan, having obligations he needed to attend to in the next days, paid the inn keeper to care for the man, with the promise that he would come back and see to it that the inn keeper was reimbursed for any further costs.  What the Samaritan didn’t do was berate the beaten man for having been so negligent as to not having learned the ancient equivalent of taekwondo in order to defend himself and not  be beaten in the first place, and then behave toward him with contempt for being a “loser”, and for deserving everything that happened to him.

With that being said, we don’t have inns or inn keepers like that anymore.  But we do have government agencies that are substitutes for them.  We have the Supplemental Nutrition Assistance Program, we have unemployment insurance, we have emergency rooms in hospitals, and we have Medicare, Social Security, and Medicaid.  We pay the “inn keepers” of our time with our taxes.  There is no way I can be everywhere, nor can anyone else, but we can see to it, as the Samaritan did, that people who have been beaten down by life are cared for by the appropriate government agency, if there is no other means possible.

Shame on those who do not want to fund these programs through closing tax loopholes, readjusting an outrageous tax system back to a progressive tax rather than the regressive one we have now.  How have we as a country, sunk so low that we would deprive people of any age food, but particularly children and seniors!  Now, in my book, this is viciousness personified!

Senator Patty Murray (D-WA) introduced new legislation, called the “21st Century Worker Tax Cut Act,” on March 26, 2014, which would increase the maximum Earned Income Tax Credit (EITC) for childless workers to about $1400 from $487 currently and reduce the childless worker eligibility age for the credit from 25 to 21.

It would also create a new tax deduction for low-to-middle income families with two earners and at least one child age 12 or less, allowing a 20% deduction on the secondary earner’s income.

For middle-income families the tax deduction would apply only to those with gross-adjusted family income below $130,000 (with phase-out starting at $110,000) and apply to no more than $60,000 for the secondary earner. This would enable a middle income family to benefit from a lower federal tax bill.

For low income earners, the tax deduction would help increase EITC benefits. For example, if a family has two minimum wage workers and the earnings of one is reduced by 20% for purposes of calculating the EITC, they may be able to apply for the EITC. At the present time, two minimum wage workers might earn more than the maximum allowed for calculating the credit. The additional amount of credit would likewise help to offset childcare, transportation and other costs associated with the working status of a second earner. Thus, working poor families would finally see economic gain from a spouse’s labor supply.

The bill also doubles the penalties for taxpayers who fail to comply with the IRS’ requirement for “due diligence,” a reform that addresses Republican concern about fraudulent claims. Since about 70% of all EITC claims are handled by tax preparers, the penalty would primarily fall on their bank accounts.

The bill already has two co-sponsors: Senator Jack Reed (D-RI) and Senator Sherrod Brown (D-OH).

As the EITC operates now, people under the age of 25 who do not have custody of their children, even though they are paying child support, are ineligible for the EITC. Those between the ages of 25 and 64 can receive the EITC, but the maximum credit is $487, compared to an average credit of $2,905 for families with children, according to a March 26 article in the Nation. The changes proposed in Murray’s bill in expanding benefits to childless adults would benefit about 13 million people, a Treasury Department estimate.

The expanded EITC in Murray’s bill would cost $144.9 billion over 10 years, which she proposes to pay for by closing widely-criticized tax loopholes used by corporations and their executives.

First, by reducing the tax breaks a corporation may take on paying stock options to an executive to $1 million per year. This change would subject stock options to the same $1 million per year deduction limit that already applies to cash compensation.

Second, in an attempt to deter companies from shifting their U.S. profits to offshore tax havens (e.g. to Bermuda or the Cayman Islands), corporations would be required to pay an effective tax rate of 15% on these profits unless they were derived from legitimate business operations in a foreign country.

Given past Republican support for the EITC, it will be intriguing to see how Republicans will react to Senator Murray’s bill. In the recent past they have denied the long-term unemployed any emergency benefits; have fought to deny Medicaid benefits to low-income families and made repeated attempts to repeal the Affordable Care Act (ACA); cut billions of dollars from food stamps; and staunchly resisted proposals to raise the minimum wage, yet they have simultaneously professed their commitment to the poor.

The one area that appears exempt from Republican criticism is the EITC; in fact, the tax credit plan has received praise in Paul Ryan’s report on the War on Poverty. Others (e.g. Marco Rubio, Glenn Hubbard, Gregory Mankiw) have also spoken favorably of the efficiency and effectiveness of the EITC, especially as a tool to allay dependency. By encouraging individuals to work, the EITC addresses the enduring criticism that traditional transfer programs discourage work.

Interestingly, the president’s 2015 budget proposal also contains provisions for boosting the EITC for childless workers, but the wisdom of Murray’s bill is that she couples her EITC increases with the dual earner deduction piece, of benefit to the middle class as well as the poor. In addition, Murray’s proposal will pay for these increases by closing wasteful tax loopholes both parties have proposed eliminating. The main difference is that the House Chairman of the Ways and Means Committee, Dave Camp (R-MI), proposes that all funding from his reforms of closing tax loopholes be used to help lower the tax rates, and other Republicans are adamant that all savings be used for deficit reduction.

However, if Republicans really want to burnish their credentials in support of anti-poverty programs and take a small step toward alleviating income inequality, “The 21st Century Worker Tax Cut Act” provides an excellent starting point for negotiation. Will they engage with it seriously? A key question is: How robust are they willing to let the EITC become and will they agree to pay for it by closing wasteful tax breaks?

NETWORK supports the elements of Senator Murray’s bill, which would help struggling workers and their families, and begin the long trek toward greater income equality.

Corporate tax-dodging deals known as “inversions,” in which a U.S. multinational shifts its tax domicile to a lower-tax country, would be restricted for two years under legislation proposed in both houses of Congress on May 19, 2014. Representative Sander Levin and Senator Carl Levin, brothers from Michigan, proposed both bills, each of which had more than a dozen co-sponsors, all Democrats. The rationale behind the two-year moratorium would give Congress time to pursue broad changes in the corporate tax code. As Senator Ben Cardin (D-MD) said, “I look forward to redoubling our efforts on broader tax reform legislation that can fix our corporate tax code and make it more competitive.”

How does “inversion” work? Under current tax law, companies can create the deal of inversion and move overseas if foreign shareholders own 20% or more of their stock. Even if most of the business activity and corporate headquarters of the “new” company are in the U.S., the company would still be a “foreign” corporation for tax purposes. Many U.S. companies climb the 20% barrier by acquiring a foreign rival. The Levins’ bills would increase the threshold to 50% for two years, a threshold much more difficult to achieve. This proposal mirrors one in the President’s 2015 budget submission, which the Treasury estimates would raise $17 billion in revenue over the next decade.

Once a corporation is foreign, any profits earned in the U.S. are subject to U.S. taxes, but offshore profits are not. According to Citizens for Tax Justice, inversion makes it easier for a corporation to avoid U.S. taxes because corporate inversions are often followed by “earnings-stripping,” which makes U.S. profits appear, on paper, to be earned offshore. Corporations load the American part of the company with debt owed to the foreign part of the company, and the interest payments on the debt are tax deductible, thus reducing American profits “on paper.”

“These transactions are about tax avoidance, plain and simple,” said Senator Carl Levin (D-MI) chairman of the Senate Permanent Subcommittee on Investigations, who is the bill’s lead sponsor, in introducing the bill in the Senate. “Our legislation would clamp down on this loophole to prevent corporations from shifting their tax burden onto their competitors and average Americans while Congress is considering comprehensive tax reform.” Tim Kaine (D-VA) also stated: “This is about leveling the playing field and rooting out flagrant tax abuse in our system that could lead to billions of dollars of lost revenue.”

A splurge of deals resembling those of Pfizer (who recently made a bid to acquire the British pharmaceutical Astra-Zeneca, but was recently rebuffed and made it clear the company would not pursue a hostile takeover) or the U.S. advertising firm Omnicon Group Inc. might increase the chances of enactment of the Levins’ bills, but the odds are not bright that the bills will pass in either house. Not only is the opposition coming from Republicans in Congress, but also outside organizations, such as the Alliance for Competitive Taxation, the Rate Coalition and Right Wing News argue that the U.S. corporate tax system is unnecessarily complicated and global rivals pay less than the U.S. corporate rate of 35%. (As a matter of fact, both parties agree on these facts). However, Fortune 500 corporations that were consistently profitable from 2008 through 2012 paid, on average, just 19.4% of their profits in federal income taxes over that period. In fact, 26 corporations paid nothing in taxes over that 5-year period.

Most Republicans say they want to address inversion as part of broader tax code changes. Democrats respond that they (Republicans) ran away as fast as they could from Dave Camp’s (R-MI) bill to revise taxes. Democrats themselves have problems with several parts of Camp’s bill, e.g., moving to a territorial system under which 95% of the foreign earnings of U.S. companies would not be taxed at all. However, since the U.S. corporate rate of 35% is the highest among developed countries, lawmakers in both parties advocate lowering it, but disagree on the particulars. With the two parties deadlocked over how to proceed on tax revision, it’s highly unlikely that any changes will occur this year, leaving a window for firms like Pfizer and others considering a move.

Citizens for Tax Justice point out that no matter what the U.S. corporate tax rate is, there will always by a few countries with tax rates that are lower than ours – maybe even 0 – and these countries are definitely tax havens. In 2011, 40% of U.S. foreign profits were booked in Bermuda, Luxembourg, Switzerland, the Netherlands and Ireland, all of which are tax havens. Is it fair for American companies to pretend that their profits are earned in these countries even when they are plainly carrying out their business in the U.S.?

Reports indicate that at least 15 other U.S. corporations are presently considering corporate inversions similar to that of Pfizer. Pharmaceutical companies have been especially active in merging with other pharma companies in Ireland, where the corporate tax rate is only 12.5%. Many of the inversions have been done by health care companies. But technology firms, including Applied Materials and even the banana producer Chiquita have moved overseas, at least for tax purposes. U.S. drugstore chain Walgreen Co. has been under pressure from some investors to do an inversion with European rival Alliance Boots Holdings, the Financial Times reported. Walgreen bought a 45% stake in Alliance Boots in 2012, with an option to buy the rest in 2015.

As Richard Murphy commented in an August 13, 2013 article in the Financial Times, when corporate inversions to Bermuda were all the rage in the early 2000s, the U.S. clamped down on the practice when the abuses became too flagrant. Senator Charles Grassley (R-Iowa) said in 2002 during this rash of inversions: “These expatriations aren’t illegal, but they’re sure immoral.” In 2004 Congress passed rules treating such firms as U.S. businesses for tax purposes unless they had substantial business in the new location. In 2012 these regulations were strengthened further.

If lawmakers were able successfully to prevent the most egregious forms of inversion as recently as 2012, certainly Congress can put a stop to this latest round by tightening the rules via the Levins’ bills. Preventing corporate inversions should not be complicated, and Congress should move quickly to pass this stand-alone legislation at this time, with the intent to tackle full-scale corporate tax reform in 2015. There are many proposed methods for achieving tax reform, but the Center for American Progress strongly supports a corporate minimum tax, which would eliminate current incentives to park money in tax havens, since any foreign earnings taxed at very low rates would be immediately subject to the minimum tax.

Reforming the tax code is an essential component of building a competitive economy along with investing in workforce development, education, science, infrastructure and ensuring the common good through adequate safety-net precautions. As the Faithful Budget states so well, we must have “reasonable revenue for responsible programs.” While tax reform is an important goal, it should not be used as an excuse to block actions that will stop tax avoidance through schemes such as corporate inversions. As Senator Carl Levin said in introducing the bill, “The Treasury is bleeding red ink and we can’t wait for comprehensive tax reform to stop the bleeding.”

June 19 Update

On June 11, Senator Elizabeth Warren’s attempt to aid those carrying student loan debt unfortunately failed to get the required 60 votes to achieve cloture in the Senate. The bill, called the “Bank on Students’ Emergency Loan Refinancing Act,” did get the support of three Senate Republicans, two of whom had signed Norquist’s no-tax-increases pledge, but that number only gave the Democrats 56 votes, four short of the threshold. Senator Harry Reid (D-NV), Senate Majority Leader, voted against the motion for procedural reasons so he could call the bill up again, which means the bill really only lacked three votes.

Republicans said the bill did nothing to reduce borrowing or lower education costs, and they accused Democrats of playing politics by highlighting an issue that was bound to fail. In fact, Senator Lamar Alexander (R-TN), ranking member of the Senate Health, Education, Labor and Pensions Committee, called the bill a “partisan political stunt” that included a “class warfare tax.” He was particularly incensed that Warren’s bill had skipped the committee process.

Despite the setback, Warren later said at a press conference that she plans to reintroduce the bill after she has gained more bipartisan support. If that fails again, Senator Tom Harkin (D-IA) held out hope to student loan borrowers through his committee’s reauthorization of the Higher Education Act, the main law that lays out student loan policy. However, the rewriting process for that bill, which expires this year, is just beginning and it may take a very long time before it is signed into law.

Senator Warren would have paid for the student loan refinancing bill with the so-called “Buffet Rule,” whereby a minimum 30% income tax payment would be levied on people earning between $1 and $2 million each year. Although Senator Warren initially said that she was open to alternative plans to replace the $66 billion lost to the Treasury by her rate reduction, no one across the aisle had any to offer. The “Buffet Rule” started out as the principle that the tax code should be reformed in a way that ensures that millionaires don’t pay lower taxes than middle-income people. A “Citizens for Tax Justice” (CTJ) report explains that because investment income, which primarily goes to the wealthiest Americans, is subject to lower rates under the personal income tax and is not subject to Social Security taxes, such taxes do foster inequity among people.

The vote on June 11 followed two days where President Obama highlighted the issue first to graduates in Massachusetts and then from the White House when he announced executive action to let borrowers before 2007 (about 5 million people) cap their monthly payments at 10% of their income. Unfortunately, none of this helped the Warren bill, which could have assisted an estimated 25 million people refinance their debt at less than a 4% interest rate.

As noted in my previous blog (below), student loan debt exceeds $1 trillion and has emerged as a major drag on the economy, affecting the young as well as the old and especially people of color. Until the Warren bill or the reauthorization of the Higher Education Act pass, there are few options available to worried borrowers. Some financial institutions have responded in a variety of ways, but there are numerous hurdles preventing them from assisting these borrowers. These hurdles range from the risks associated with attracting troubled borrower to the way student loans are packaged into securities and sold to investors. The terms of the latter often preclude any modifications of the loans that underpin the securities.

May 9, 2014

With extremely low interest rates available to those with decent credit ratings, homeowners, businesses, even state and local governments, have been rushing to refinance their debts. One group not among them is made up of students obtaining money for their education, even though student loan debt is the fastest growing category of debt – far exceeding auto loans, mortgages and even credit card debt. Why? As the Center for American Progress (CAP) put it in a November 2013 article, “one of the toughest things about student loans is [their] inflexibility.”

Student loans can be consolidated, but not refinanced legally today. Interest rates hit a high of 8.25% in the late 1990s and student loans were given at those rates. Today, those same loans are available to college students at a rate of 3.86% interest, thanks to legislation passed last summer (Bipartisan Student Loan Certainty Act), yet students who borrowed in the 1990s until June 2013 are still paying at interest rates charged at the time of their loans.

In that same November 2013 article, CAP said, “Providing student-loan borrowers the opportunity to refinance their debt is a way to solve a significant portion of the growing student-debt problem. Refinancing could significantly reduce monthly payments, increase repayment rates, and stimulate the economy by freeing up a portion of each student-loan borrower’s income that could be spent in other sectors of the economy or saved for larger purchases.”

The ripple effect in the economy would be extremely positive as those with less to pay in student loans could purchase homes, furniture, appliances and autos (the list could go on), which would then stimulate these industries, driving job growth, economic stability and all the other effects that come with economic stimulus.

The beauty of Senator Elizabeth Warren’s (D-MA) new bill, introduced on May 6, is that it is coming to the aid of nearly 40 million Americans saddled with $1.2 trillion in student debt. Her bill, called the Bank on Students Emergency Loan Refinancing Act, would allow borrowers with outstanding student loan debt to refinance at the lower interest rates (3.86%) currently offered to new borrowers. The most recent data from the end of 2012 found that borrowers had an average of $29,400 in student debt by the time they completed their courses.

By allowing student debtors to refinance at the current interest rate of 3.86%, Senator Warren’s proposal would reduce the amount of profit the higher rates are producing for the federal government. Warren pointed to a recent GAO report that estimates that the government will make $66 billion off of federal student loans dispersed between 2007 and 2012 as an indicator that there is room for refinancing. In her statement on the Senate floor, Senator Warren said that the current debts owed in student loans are unsustainable, destabilizing individual families and a measurable drag on our economy. She maintained that from 2004 to 2012 the average student loan balance increased by 70%.

Because of the economic repercussions of student loans as well as the fact that the “Higher Education Act of 1965” has to be reauthorized in 2014, five bills have been introduced by members of Congress during this past year to address the student debt problem, including that of Senator Warren, which appears to be the most viable.

Senator Warren’s bill has more than 20 co-sponsors in the Senate and Reps. George Miller (D-CA) and John Tierney (D-MA) have filed a companion bill in the House. At the present time, Warren proposes to replace the profit lost to the Treasury by raising the tax rate of people making more than $1 million annually. However, she later told the Wall Street Journal that she would be flexible about how the refinancing would be funded.

We at NETWORK heartily endorse Senator Warren’s bill for several reasons. Most importantly, by reducing debt, refinancing will allow borrowers to build their assets, especially through home ownership, thus helping to reduce the inequality that bedevils this country.

Home sales are also drivers of economic growth, as Moody Analytics explains, in that each newly created household (i.e. new home purchased) leads to approximately $145,000 of economic activity. It is indeed stimulating that a large segment of the population could recover from the financial doldrums of the past few years and actually prosper economically. We at NETWORK believe that all people should be financially secure and that financial stability is the best way to ensure that all families can provide independently for their needs.

According to Generation Progress (a relatively new non-profit organization based at CAP which advocates for progressive political and social policy on behalf of young people), the cost of college has increased 1,120% over the past 30 years, drastically outpacing inflation, even though some form of higher education has become increasingly necessary for employment. Part of the increase in tuition is due to a disinvestment in higher education by strapped state governments. As college costs rise, so does the average amount of money that students, who are not wealthy, are forced to borrow. Today, student loan debt is second in size only to mortgage debt, but student loan borrowers are more severely delinquent (1 in 10) than any other debtors.

Who are these student-loan borrowers? They come especially from low and middle-income families, are often people of color, and are all ages: young, older and old.

Education debt has a greater impact on low-income families than other American families. According to Pew Research on Social Trends, borrowers in the lowest fifth of households faced student-loan debt that averaged 24% of their household income, compared to all households where student debt equaled just 6%. Because of rising college costs, a family in the lowest quintile (average income around $18,000 per year) would have to pay more than 70% of the family income to cover college costs, even after accounting for grant aid. This is a significant reason why so few low-income students apply to college, and this situation contributes to the shrinking economic diversity at colleges and universities.

Borrowers from middle-income families have been taking on increasing amounts of student debt, since the incomes for these families have fallen about 19% since 2007 while college tuition has skyrocketed. We know the middle class is shrinking and student debt is keeping borrowers from reaching it. As a matter of fact, this debt will cripple the core of the nation unless lawmakers reduce this burden, which acts as a tax on future wages and postpones the ability of young people to settle down, buy a home or start a family.

Let’s consider borrowers of color. They:

• are more likely to depend on financial aid to attend college, since their families generally have less equity than their white counterparts
• depend more on private loans (about a 16% increase among black and 16% increase among Hispanic borrowers, just from 2003 to 2008), which usually have twice the interest rate of federal loans, thus increasing their vulnerability to default
• have higher youth unemployment rates – 20.7% for African-Americans and 14.4% for Latinos
• are more likely to enroll in for-profit schools, which have higher tuition and account for nearly half of student loan debt, according to the Federal Reserve Bank of St. Louis
• receive more than half of Pell Grants, which have not kept pace with the cost of college and force borrowers to take out more in education loans

Student loan debt has a significant impact on senior borrowers, too. Seniors have often co-signed loans with their children or grandchildren to help them afford the cost of rising tuition. By 2011 90% of borrowers had a co-signer, up from 55% in 2005. Or they, themselves have gone back to school to become more competitive in their fields. Senior citizens still owe millions of dollars in education debt; the number of education loan borrowers over the age of 60 has tripled since 2005, according to Generation Progress. Defaulting on debt affects seniors more than any other age group because they are often living on fixed incomes due to retirement and often their social security checks are garnished for debt collectors who harass them for debts that may be decades old.

As if the facts stated above are not enough to stir your compassion, there are some additional facts to consider. According to the May 5, 2014 issue of U.S. News and World Report, the data surrounding how many people struggle with student debt is only measured through defaults and does not even include data on graduate loans or other types of loans (e.g., federal Perkins loans) of which there are thousands. The default rate includes only borrowers who skip payments for nine months, but does not include those who miss payments for three months and are reported to a credit bureau. A damaged credit report due to delinquency will make it harder for these borrowers to buy a home or car or even get a job. If we include all student-loan borrowers who have had major problems with their loans, for one reason or another, we are talking about several million people who have restricted purchasing power as consumers and struggle to support themselves and/or their families. Is it any wonder that our economy is sluggish or that inequality is a growing issue?

Another serious concern is that students taking out college loans for the next school year will face interest rates of about 4.66%, almost a percentage point higher than last year. That is because the rates for student loans are set by the rates of the most recent 10-year Treasury bond auction. And since the Federal Reserve is continuing to cut its ‘quantitative easing’ purchases each month, interest rates on Treasury bonds will cause student-loan interest rates to continue to rise, thus increasing the debt burden of all who take out loans.

As we have seen, student loan debt is a serious drag on the economy and adds to the number of Americans who are prevented from full participation in the economic life of our nation. Allowing for the refinancing of student loans is a pragmatic policy that would not only provide relief for millions of borrowers, but also would generate economic growth and add stability to family life.

NETWORK does not believe, as many cynics do, that the Warren bill is just a part of the political messaging rampant in this mid-term election year and is intended merely to bolster the argument of economic inequality. We believe it is critical for Congress to move quickly to support Senator Warren’s bill and its counterpart in the House while interest rates are still near historic lows. We also believe it will be a step in eradicating a form of economic injustice.

Allen Sloan, a business writer for the Washington Post and hardly a flaming liberal, wrote a long blistering attack in the Post‘s July 13 edition on the U.S. stampede of “corporate inversions.” One might expect a liberal organization to write such an article, but not Allen Sloan!

“Corporate inversion,” according to ThinkProgress is a “loophole in the tax code [that]essentially allows a corporation to renounce its corporate citizenship in the United States, move its address overseas by merging with a foreign company, and dodge its U.S. tax obligations by paying most of its taxes to a foreign government with lower tax rates than the U.S.” The process takes place primarily on paper, since most corporate operations (often including corporate headquarters) remain here.

How does Allen Sloan define corporate inversions? In part, he says, “…companies that have deserted our country to avoid paying taxes but expect to keep receiving the full benefits that being American confers, and for which everyone else is paying.” And these benefits are not trivial. They include access to developed infrastructure, a highly educated workforce, the best universities in the world, first-class R&D sponsored by the government and universities, and peaceful, democratic conditions. Sloan goes on to say that “being legal isn’t the same as being right.” After reading his article, everyone should be angry!

Let’s consider some of the major aspects of corporate inversion. First, under U.S. tax law, the U.S. firm must have no more than 79% of its shareholders American, which means that the corporation will seek a smaller foreign firm with which to merge. In other words, in order to be considered a foreign corporation, only 20% of the shareholders need to be foreign. Senator Carl Levin (D-MI) and Representative Sander Levin (D-MI) introduced legislation this past May (that has been languishing in Congress) proposing that the number of foreign shareholders must be at least 50% of the total, a much more difficult goal for an American firm to achieve.

Secondly, in many cases very little economic activity is moved from the U.S. to the new home country, and the firm may continue to be listed on the U.S. stock exchange; yet, it is highly likely that future job expansion and investment will occur abroad rather than in the U.S. This fact is the source of frustration for most members of Congress.

Thirdly, the corporate tax bill of the new corporation will be lower, depending on the country in which the new firm is incorporated — many are incorporated in the UK where the tax rate is 20% or in Ireland, where it is 12.5%. The U.S. statutory tax rate for corporations is 35%, but given all the loopholes and deductions, the effective rate is much lower, even non-existent in some cases. U.S. stockholders, however, will continue to pay capital gains taxes (except tax-exempt shareholders, such as 401(k) plans and IRAs).

The new corporations would still be required to pay U.S. taxes on their U.S. operations, but many corporations have become expert at using profit-shifting techniques to book profits offshore for tax purposes, even though the proceeds result from activity and sales in the U.S.

Sixty companies have now either already succeeded in their efforts of corporate inversion or are in various stages of the process, and many more are planning to join the stampede. Congress’s Joint Committee on Taxation projects that failing to limit inversions now will cost the Treasury an additional $19.5 billion over 10 years — a figure that seems abnormally low, according to Sloan’s article in Fortune on July 12. But even $2 billion a year could usefully shore up many safety-net programs that have been decimated.

Many of the companies that have succeeded or are attempting corporate inversions are well-known corporations – Carnival Cruises, Medtronic, Walgreen, Pfizer (recently walked away from a smaller firm, but may try again), Mylan (whose CEO is Senator Joe Manchin’s (D-WV) daughter). Many others are not household names, but add to the deluge of lost taxes.

A recent article in the New York Times (July 14, 2014) explains why healthcare companies are part of the inversion wave that is sweeping corporate America. They are already a leader in mergers and acquisitions (it’s easier to buy smaller companies and acquire new drugs than to develop them); there’s an abundance of drug makers that are suitable targets; and most drug companies are already global players and have substantial international profits they are eager to use. Healthcare companies are the most active inverters, with an estimated $328.8 billion in deals announced through July 10.

Most analysts and members of Congress agree that the problem is our dysfunctional corporate tax system, but there is little agreement on the solution. Several bills have been introduced, primarily by Democrats, over the past several months (that of the Levin brothers was mentioned earlier), the focus of which would allow corporations to invert only if they truly become a foreign corporation.

It should be remembered that Congress enacted legislation in 2004 to deter corporate inversions, but these rules were far too weak to have the intended effect, as the recent increase demonstrates. Whatever legislation is finally passed, it should be straightforward and strong enough to deter companies from abusing the tax code by incorporating in a low tax country, until the corporate tax code can be overhauled.

Senate Democrats are planning to take action on corporate inversions during the week of July 21 by taking up S. 2569, being dubbed as the “bring jobs home” bill, a proposal by Senators John Walsh (D-MT) and Debbie Stabenow (D-MI) to cut off tax breaks for corporate expenses related to moving operations offshore. It is unclear where other proposals introduced earlier stand in relation to this bill and whether certain aspects of these bills would be included or bypassed, although Stabenow said she and other Democrats would press for votes on some measures included in other bills.

It appears that the Walsh-Stabenow bill has broad support from Democrats, but none of the numerous cosponsors is a Republican, which does not bode well for passage. One hopes that this flurry of activity is not merely laying the groundwork for an election-year fight about jobs, but that Democrats are serious about ending a real travesty of justice. As Sander Levin (D-MI) said upon hearing about another U.S. healthcare company’s successful inversion, “Action on this critical issue cannot wait for comprehensive tax reform.”

Republicans have indicated their opposition to the bill, not only because of an absence of full offsets, but also because they claim that the best way to deal with foreign outsourcing and corporate inversions is through a complete tax overhaul that would lower the current 35% corporate tax rate. Even some Democrats, including Senator Ron Wyden (D-OR), Finance Chairman, express concerns about the impact of this tax proposal on the ability of Congress to tackle comprehensive tax reform.

Other Republicans are supporting a temporary tax holiday for “repatriated” foreign profits, which would allow multinationals to bring home their foreign profits and pay taxes on them at a much-lower-than-usual tax rate. It should be noted, according to the Center of Budget and Policy Priorities (CBPP), that this measure was already tried in 2004-05 and failed miserably. Independent studies found that corporations used the profits not to invest and create jobs in the U.S., but instead for stock buybacks and larger dividends for stockholders. Some of the companies that repatriated the largest amounts of money then laid off thousands of U.S. workers.

But there are some fresh signs of hope. Jack Lew, Secretary of the Treasury, in a letter to Congress requested a “new sense of economic patriotism” and not only received a signal of support for the bill from Wyden (who had formerly given his confreres a rather chilly response), but aroused a key Republican, Senator Orrin Hatch (R-UT), who said he was open to a short-term fix for offshore corporate tax deals, the first Republican to show any support for the bill.

Given the current uptick in corporate inversions, waiting for corporate tax reform will only invite more tax avoidance-driven company exits from America. There’s far too much at stake in the short-term to allow this behavior to continue, especially when companies themselves are keeping up with this latest fad.

On Thursday, July 24, the House of Representatives will vote on a bill significantly revising the Child Tax Credit (CTC).

The bill would permanently extend the credit higher up the income scale making it available to households with much higher six-digit incomes while the benefit to low-income families (expiring in 2017) will not be renewed. More affluent households would benefit more than the millions of low-income working families!

NETWORK stands in strong opposition to this bill (H.R. 4935, the Child Tax Credit Improvement Act of 2014). The CTC, as revised in 2009, should be made permanent, with the indexing suggested in the House bill. But, the less just aspects need to be eliminated.

To date, the CTC has been a major contributor to keeping millions of families out of poverty, a great example of tax policy benefiting the 100%. One portion the credit in particular, a refundable credit for working families with limited earnings, has helped lift families from poverty. Currently, the Child Tax Credit is worth up to $1000 per eligible child, the amount varies by income, with a phase out beginning at income over $110,000 in the filing year. A household must have a reportable income of at least $3000 in order to be eligible. For low incomes, over the $3000, the credit is refundable.

Here’s an example of what this bill would do:

A married couple with two children making $160,000 would receive an additional tax cut of $2200. But, a single mother with two children, receiving minimum wage, earns just $14,500 a year and would lose $1,725 as her CTC would disappear altogether.

Earlier today, this letter was sent up to the House expressing our views on the bill:

Dear Speaker Boehner:

Tomorrow, the House will take up consideration of H.R. 4935, the Child Tax Credit Improvement Act of 2014 (CTC), which modifies the current credit and makes it permanent. Catholic teaching has long promoted support for families and we believe tax policy can be used to promote the common good. We are deeply concerned, however, about two fatal flaws in the bill and therefore cannot support the bill in its current form. We respectfully ask that you oppose this bill and seek to improve it by adding provisions that permanently protect all families, particularly those families living in poverty.

First, the bill fails to make permanent a key CTC improvement for working families earning as little as $3,000 per year, slated to expire at the end of 2017, while permanently extending it to higher income families. Extending a permanent CTC that helps wealthy families, while failing to make permanent the credit for those living in poverty is unjust. This failure would have a devastating impact on more than 2 million families that are already struggling to makes ends meet and who need the credit the most.

Second, the bill was recently modified to deny the credit to parents who file with an IRS-issued Individual Tax Identification Number (ITIN) rather than a Social Security number thus harming children from some of the poorest working families in America. Legal residents and undocumented workers who file their taxes using ITINs pay billions of dollars in taxes — payroll, Social Security and Medicare – and yet are not eligible for benefits. Cutting them off from the CTC will hurt up to 5.5 million children, 4.5 million of whom are U.S. citizens. These taxpaying families — like all families — deserve support and an opportunity to succeed.

A permanent child tax credit must address the needs of all families, but particularly the ones who earn the least. As you vote tomorrow, please vote no for the Child Tax Credit Improvement Act as proposed. We look forward to working with you to develop a credit that promotes the common good for 100% of America’s families.