Defense Contractors Seek Fiscal Cliff Relief, Budget-Busting Tax Breaks At Same Time

Defense Contractors Seek Fiscal Cliff Relief, Budget-Busting Tax Breaks At Same Time

There’s probably no group of companies more alarmed about going over the “fiscal cliff” of tax increases and spending cuts due to take effect next month than defense contractors. The cliff is heavily geared toward inflicting pain on the industry, with $500 billion in cuts to government defense spending over the next decade, a process called for extraordinarily boring reasons “sequestration.”

In recent weeks, defense industry representatives have issued increasingly dire warnings about the dangers posed by the cuts.

“The dangers of sequestration are by now well understood, with more than 2 million jobs hanging in the balance and the Joint Chiefs warning of severe damage to America’s security,” David Hess, chairman of the Aerospace Industries Association, wrote to President Barack Obama earlier this week, in a letter signed by more than 130 aerospace and defense CEOs. “Accordingly, we are encouraged by the bipartisan commitment to stop sequestration and pursue a more responsible approach to our longer term fiscal challenges.”

Less understood is the role the industry has played in pushing the country to the economic precipice. For years, these companies have lobbied for — and won — lucrative tax breaks that have cost the government billions of dollars. Even now, their lobbyists are pushing for an extension of a break that allows some companies to avoid paying taxes on some income earned overseas.

According to a study by the nonprofit group Citizens for Tax Justice, aerospace and defense firms paid an effective tax rate of 17 percent from 2008 to 2010, much lower than the 35 percent corporate tax rate mandated by law and just under the 18.5 percent average effective rate paid by all industries.

Some of those companies, in fact, paid negative tax rates during that period, once you account for government tax breaks. One of those was aerospace giant Boeing, whose executive vice president Dennis Muilenburg signed the AIA’s letter to Obama. Boeing’s effective tax rate was -1.8 percent from 2008 to 2010, on $9.7 billion in profit, according to the Citizens for Tax Justice study. That cost the government more than $3 billion in tax revenue, had Boeing been taxed at the 35 percent rate.

Boeing spokesman Chaz Bickers pointed out that the Citizens for Tax Justice study does not include deferred taxes that the company expects to pay later. The study covers a period in which Boeing was investing in new products and hiring workers, for which it received government tax breaks. Once sales of its new jet, the 787, pick up, the company expects to pay much higher tax rates, Bickers said. 

“We’re doing what we’re supposed to do: investing in jobs,” Bickers said. “We’re the biggest manufacturing exporter in the country, and we earn our revenue here in the U.S., and we pay the overwhelming majority of our taxes here in the U.S.”

And he’s right. The U.S. government gave Boeing tax breaks to encourage its investment, which may ultimately benefit the whole economy. Boeing claims to have created 11,000 new jobs in the past year.

But the defense industry also lobbied hard for those tax breaks and wants more, including some that will never go away.

David Hess, one of the signatories of the AIA letter, is the president of Pratt & Whitney, a division of United Technologies Corp., a large defense contractor that manufactures everything from escalators to aircraft engines. The company has actively lobbied for legislation that tax reform advocates say would enshrine into law an exemption that encourages multinational companies to use offshore shelters to avoid U.S. taxes.

United Technologies did not immediately respond to a request for comment. It’s not clear how much the company stands to save — or lose — should the exemption go away. But the company has joined more than a dozen other large U.S. manufacturers with sizable overseas operations, including Dow Chemical, Procter & Gamble and Koch Industries, to support a permanent extension of the tax break.

The bill, in essence, would permit a company with an overseas subsidiary that earns so-called “passive” income, such as royalties, to avoid U.S. taxes on that income indefinitely.

The details are complicated, but a sample scenario would work something like this: An overseas affiliate of manufacturing company, in France, for example, sells a product. Ordinarily, it would pay its U.S.-based parent a royalty on those sales. That money would be taxable under U.S. law.

To avoid that tax, multinational companies came up with a work-around: Set up a new corporation in a low-tax country, such as the Cayman Islands, and transfer over the patent on the product. Now, the French affiliate pays royalties to the Cayman-based company, instead of to the parent on U.S. soil. Under current law, companies still must pay U.S. taxes on that income. But Congress has renewed a tax loophole almost every year since 2006, allowing the companies to avoid the tax.

The exemption expired at the end of 2011. The bill United Technologies has lobbied to support would make the exemption permanent. It’s not clear what will happen to that effort, but a Senate committee recently approved another extension, which is likely to be approved.

The Joint Committee on Taxation estimates that extending the exemption, along with continuing a closely related regulation known as “check-the-box,” will cost the the government about $115 billion in lost revenue over the next decade.

Rebecca Wilkins, senior counsel at Citizens for Tax Justice, said a basic problem with the exemption, which she has argued should be eliminated, is fairness.

“It gives multinational companies an advantage over domestic companies, and big companies and advantage over small companies,” Wilkins said. “Mom and pop companies don’t have foreign subsidiaries.”


Macy’s CEO Terry Lundgren Betrays ‘Christmas Spirit,’ Says Progressive Group

Macy’s CEO Terry Lundgren Betrays ‘Christmas Spirit,’ Says Progressive Group

Never mind Macy’s huge Santa display and legendary holiday parade, a progressive group is accusing its CEO of behaving like a “Grinch.”

On Thursday, the Progressive Congress — a nonprofit representing 75 liberal congressmen — announced that it gathered 100,000 signatures for a petition urging the department store’s CEO, Terry Lundgren, to drop out of a high-profile lobbying group. It accused Lundgren of “violating the trust” of families who see the company as a “symbol of home and holidays.”

Lundgren is one of 71 CEOs of public companies in the Fix The Debt coalition, which is lobbying to narrow the deficit by scaling back programs like Medicare and Social Security. The coalition backs lower corporate tax rates as well as a “territorial tax system,” which could save corporations up to $134 billion in taxes on overseas income.

Macy’s declined to comment to The Huffington Post for this story.

Fix the Debt CEOs have been criticized for suggesting cuts to the social safety net, while not fully contributing to tax revenue. Macy’s paid a lower-than-average tax rate between 2008 and 2010 — 12.1 percent of its profit — compared to a retail industry average of 30 percent, according to the most recent data available from the Citizens for Tax Justice, a nonprofit research group.

The coalition’s members are also under fire for not compensating workers for cuts to social programs, although Macy’s offers better jobs than are typical in the retail industry; many Macy’s workers receive commissions on top of hourly wages, and the store offers health benefits to some employees. The company also contributes to employee pensions — $375 million in 2011 and $825 million in 2010,according to its annual report.

Lundgren, who has been with Macy’s for 30 years, received a base salary of $1.55 million in 2011 with a bonus of $5.1 million, according to the company’s 2012 proxy statement.

In September, Lundgren explained his position on the fiscal cliff in a video posted by Business Roundtable, an association of CEOs. “The greatest challenge that we face today is the gridlock we have in D.C. and the inability to make decisions that help the business community,” he says. “We’re uncompetitive with the world with our tax structure.”

The coalition includes politically outspoken executives like Goldman Sachs CEO Lloyd Blankfein and J.P. Morgan’s Jamie Dimon, as well as other CEOs of consumer-facing companies like Delta Airlines, Foot Locker and Starwood Hotels. Annie Weinberg, the associate director of the Progressive Congress, said that her organization picked Macy’s because of the company’s symbolic importance to Americans.

“So many families shop at Macy’s, and they’re not expecting the CEO to be aggressively lobbying for policies that will hurt middle-class families and the elderly,” said Weinberg. “It’s not in the spirit of Christmas.”

Being the brand that personifies the Christmas spirit does have downsides, it seems. Macy’s has also been a recent target for critics of Donald Trump, who are pressuring the company to eliminate the real estate mogul’s line of clothing after Trump made controversial comments about President Barack Obama. The “Dump Trump” campaign sparked protests at the company’s flagship Herald Square store in November.

Seven Ways to Be Effective on LinkedIn

Seven Ways to Be Effective on LinkedIn

All social networking venues are not created equal. Each has its own identity. What works on Facebook may not work on LinkedIn or on Twitter. While you can use all social media platforms for an integrated approach to market your book or business, you have to know your audience. The LinkedIn audience is where professionals connect and help each other to be effective, productive and successful. LinkedIn is a great way to build your network, relationships and personal brand, but in order to do it effectively, you have to use LinkedIn in a professional manner. Here are seven ways effective:

Stay professional. If you wouldn’t put it on your resume, in your portfolio or say it in an interview, don’t put it on your LinkedIn page. It’s not the forum for personal posts and oversharing.

Connect carefully
. It’s more effective to form relationships just as you would in person. Don’t reach out and ask to connect professionally with people you don’t know. Work relationships slowly through shared connections or referrals.

Share resources
. On LinkedIn, be sure to share articles, stories and resources that will help your network. Avoid posting only your own content.

Build your credibility. Work on building up your recommendations but avoid just swapping recommendations with people you know as that doesn’t look as authentic. Make sure you have some recommendations on your LinkedIn page.

Stick with professional photos. You may love your dog enough to make it your profile photo on your personal Facebook page, but make sure your LinkedIn photo is a professional, forward-looking shot.

Don’t ask for favors. Nothing is more annoying than a person asking for favors on LinkedIn before they have built a relationship. LinkedIn, like real-life networking, is about give and take. Give first.

Don’t send mass emails. Connecting with people is a privilege. LinkedIn is best for one-to-one communication. It is not a forum for mass emails announcing your book, webinar or event.

LinkedIn is a great way to gain more visibility, increase your rank with search engines, get business insights and market your book by connecting directly to your audience — just do it professionally.


New Jersey’s First Marijuana Dispensary Opens But Customers Aren’t Cheering

New Jersey’s First Marijuana Dispensary Opens But Customers Aren’t Cheering

The first New Jersey marijuana dispensary opened Thursday morning, following years of political battles since such establishments were legalized in the state.

But Montclair locals were hardly dancing in the streets. The New York Times reports that customers “skulked in and out like criminals.” described one patient who “held up a folder to block his face and rushed passed reporters.”

New York Magazine’s Daily Intel blog summed it up as “kind of a bummer.”

While patients shuffled in and out of the Greenleaf Compassion Center for scheduled appointments, mostly keeping away from the hordes of press, at least two guys had no problem providing commentary: “It will give people a chance to, you know, relax,” one man, smoking a joint outside the dispensary — with weed acquired elsewhere — told the New York Post.

New Jersey officially legalized medical marijuana in January 2010, but uncertainty regarding federal backlash kept state-sanctioned marijuana off the market until recently. The Greenleaf dispensary is the first to complete the application and permitting process required to receive approval from local officials, according to the

Though medical marijuana dispensaries have reason to cheer in New Jersey, similar establishments on the opposite coast are ticked off.

In Washington, where marijuana was recently approved for recreational use, dispensaries are fearing a drop-off in business. They lobbied hard against recreational legalization and “now risk relinquishing that lucrative marketplace to new competitors,” reports The Huffington Post’s Lucia Graves.

The Coin That Could Save It All

The Coin That Could Save It All

Forget political brinksmanship, this whole debt ceiling thing could be solved quite elegantly with two coins. Made of platinum and worth, oh, $1 TRILLION each.

An analyst at Guggenheim Partners recently revived the possibility of “coin seignorage,” an idea that, ahem, gained currency during 2011’s debt ceiling debacle. Chris Krueger mentioned the idea as fourth in a list of ways that the U.S. could solve the debt ceiling problem, which is threatening to come up again as part of fiscal cliff negotiations.

The idea is pretty simple to understand. While there are legal limits to the amount of paper currency that can be in circulation and the amount of gold and silver than can be turned into coins, Treasury can issue coins made of platinum in any denomination. The coins would be created by the U.S. Mint and deposited at the Federal Reserve, allowing the government to meet its debt requirements and avoid the debt ceiling.

Krueger is skeptical that this would happen. “The effects on the currency market and inflation are unclear, to say the least. You would also likely trigger a wave of lawsuits,” he notes.

One economist tells the Washington Post that in terms of responses to the debt ceiling, “A government shutdown is much more straightforward.”

James Pethokoukis at the conservative American Enterprise Institute points out that the move might have a negative impact on inflation. Others, WaPo’s Brad Plumer among them, believe it would have little effect on the value of the dollar since it is money that would not be directly injected into the economy.