POLITICAL INFLUENCE BUYING SURE SMELLS LIKE CORRUPTION

Corporations want to have political power and influence on issues that directly affect their interests. They make political contributions and engage in political spending to ensure they have access and a sympathetic ear with elected officials. They view these expenditures as investments from which they expect a return and often get a very high return. Their campaign contributions and political spending are used to grease the wheels of access and influence for their lobbying.

A blatant example of this occurred recently with Senator Kyrsten Sinema (D-AZ) and her demands for modifications in the Inflation Reduction Act in exchange for her critically important vote. Her vote was the crucial 50th vote for the bill and in exchange she demanded that two provisions that would have increased taxes on the wealthy operators of private equity investment funds and hedge funds be taken out of the bill, although they are broadly popular with other Senators as well as with the public. This will allow these few thousand, very wealthy individuals to pay a lower income tax rate than a typical worker. [1]

First, Senator Sinema demanded that the carried interest loophole remain unchanged. It lets hedge fund and private equity managers claim their income is capital gain taxed at around 20% instead of earned income taxed at around 37%. This saves them about $1.4 billion a year. Not only the public, but even many of the people who benefit from this special interest tax break, recognize that it so egregiously unfair that it should be ended.

Second, she demanded that private equity-owned firms be exempt from the new 15% minimum tax on companies with over $1 billion in annual profits. This change in the tax laws would ensure the large, profitable companies cannot use loopholes to avoid paying any income tax as many of them have done in the past. (See previous posts here and here for more on the long history of large, profitable corporations paying little or no income tax.) This exemption is estimated to save the private equity industry about $3.5 billion per year.

Senator Sinema has received more than half a million dollars in campaign contributions from private equity and hedge fund managers in the current two-year election cycle. This represents about 10% of her fundraising from individual donors. Since she was elected in 2017, she has received more than $2.2 million from the securities and investment industry. [2]

The roughly $5 billion per year tax benefit the private equity and hedge fund managers will receive with the elimination of these two tax changes represents an over 10,000 to 1 return on their investment! If this doesn’t scream corruption, I don’t know what does. As the Patriotic Millionaires group wrote, “It’s clear that [Senator Sinema] doesn’t work for her constituents, she works for private equity and hedge fund billionaire supporters.”

On a different front, the Blue Cross Blue Shield (BCBS) network of non-profit health insurance companies receives substantial tax benefits that are the result of significant expenditures on campaign contributions and lobbying. From 2018 to 2021, 12 of 32 BCBS companies didn’t pay any net federal taxes and have, in fact, collectively received more than $6.6 billion in tax refunds. This reflects a long history of working with people in Congress to craft complex tax rules that give the BCBS companies special treatment.

Most recently, the 2017 tax cut law passed by Republicans in Congress and the Trump administration repealed the Alternative Minimum Tax (AMT). The AMT was created to ensure that high-income taxpayers, businesses and individuals, could not use loopholes in the income tax system to owe little or no tax, which many had done and could do without the AMT. An AMT was first created in 1969, was significantly modified in 1982, experienced changes in other years, and then was repealed in 2017.

Many of the BCBS companies paid the Alternative Minimum Tax because the special treatment they had gotten into the tax system reduced their traditional income taxes to little or nothing. In particular, in 1986, the BCBS companies succeed in lobbying Congress to create them a special tax break that reduced their taxes by about $400 million per year. It has been described as “an artificial deduction that no one else gets.” [3]

Therefore, the BCBS companies lobbied hard and successfully to get the AMT repealed in the 2017 Tax Cuts and Jobs Act. Not only did this reduce their taxes for future years, it also allowed them to use tax credits they had accumulated in the past to receive substantial one-time tax benefits, reflected in the billions of dollars of tax refunds BCBS companies have received in the last four years.

(NOTE: If you’re surprised that the non-profit BCBS companies pay income taxes to begin with, they were historically considered tax-exempt non-profit charities. However, in 1982 their exemption was removed because they, and other health care non-profits, were operating much like traditional corporate businesses; they were for all intents and purposes commercial enterprises rather than charitable ones.)

The BCBS companies, over the last eight years, have invested an average of over $4 million a year in campaign contributions and over $23 million a year in lobbying. [4] Over the last four years, just the tax refunds they have received reflect a 60 to 1 return on investment, before even factoring in the reduced taxes paid by the BCBS companies.

The health care industry as a whole in the 2020 two-year election cycle spent $690 million on campaign contributions and $1.2 billion on lobbying. As a result, the internationally unique, private, capitalistic U.S. health care system had over $189 billion in profits in 2021 (pharmaceuticals: over $100 billion; hospitals: over $70 billion; and health insurers: $19 billion). Meanwhile, over 500,000 families experienced medical cost-driven bankruptcy in 2021. A recent National Academy of Sciences report estimated that a public, single-payer, universal health care system, similar to what exists in every other developed country, would save, every year, 212,000 lives and $438 billion. [5] [6]

[1]      Bowden, A., 8/5/22, “Sinema’s defense of carried interest is indefensible,” Patriotic Millionaires blog (https://patrioticmillionaires.org/2022/08/05/sinemas-defense-of-carried-interest-is-indefensible-2/)

[2]      Stancil, K., 8/8/22, “Sinema received over $500K from private equity before shielding industry from tax hikes,” Common Dreams (https://www.commondreams.org/news/2022/08/08/sinema-received-over-500k-private-equity-shielding-industry-tax-hikes)

[3]      Herman, B., 6/20/22, “Blue Cross Blue Shield system reaps billions in tax refunds,” The Boston Globe

[4]      OpenSecrets, retrieved 9/2/22, “Blue Cross / Blue Shield summary,” (https://www.opensecrets.org/orgs/blue-cross-blue-shield/summary?id=D000000109)

[5]      Hartmann, T., 6/15/22, “How many billions in profit is it worth to kill 212,000 Americans a year?” Common Dreams (https://www.commondreams.org/views/2022/06/15/how-many-billions-profit-it-worth-kill-212000-americans-year)

[6]      Galvani, A.P., et al., 4/22/22, “Universal healthcare as pandemic preparedness: The lives and costs that could have been saved during the COVID-19 pandemic,” Proceedings of the National Academy of Sciences (https://www.pnas.org/doi/epdf/10.1073/pnas.2200536119)

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