Mandel: Gingrich tax plan would increase the impact of globalization on Americans

By Michael Mandel Dec 13 2011, 10:50 AM ET Eliminating investment taxes, as the presidential hopeful has proposed, would be a needless gift to investors and executives profiting off the gains from outsourcing and "global income"

Reuters

"It starts very simply: Taxes, lower taxes."

That was the first line of Newt Gingrich's explanation of how he would create jobs, given at the December 10 Republican debate in Iowa. Gingrich talked about his desire to end the capital gains tax and cut the corporate income tax to 12.5%. In addition, Gingrich has proposed a 15% flat tax as an option for all Americans, going further than the 20% flat tax advocated by Rick Perry.

On one level, Gingrich's intense focus on lower taxes fits current dogma in the Republican party, which puts tax cuts above almost everything else. He is playing to the conservative base, as a way of counteracting some of his other personal liabilities.

In Newt's plan, someone making $40,000 could pay a higher rate than a millionaire

If enacted in their entirety, Gingrich's proposed changes would turn the U.S. tax system from progressive to regressive. Someone earning $40,000 in wages could pay a higher tax rate than another person who made $400,000 a year in capital gains.

This shift from progressive to regressive is not acceptable, of course. The tax system should be a tool for reducing the stresses of inequality in the economy, not increasing it. That's especially true now, coming out of such a devastating recession where so many American are unemployed or underemployed.

But these tax cuts, which lie at the heart of the Gingrich program, would have another striking implication as well, which has not yet been remarked on. He is targeting precisely those taxes -- like the corporate income tax and capital gains tax -- that capture the gains from globalization. In other words, Gingrich is waging war on Washington's ability to tax "globalized" income, which is likely to grow faster than domestic income for the foreseeable future.

What do I mean by "globalized" income? By my definition, globalized income means funds that come directly or indirectly from the operations of U.S. companies in the global economy. The most obvious example of globalized income is the money that companies report as "rest-of-world" or foreign profits. Today, the Bureau of Economic Analysis reports that "rest-of-world" profits are running at a $450 billion annual rate, small potatoes compared to a $15 trillion economy.

However, the category of globalized income includes a lot more than foreign profits. For example, suppose that a U.S-based company is highly profitable in Asia. Even if those profits are not repatriated, the company's share price is likely to rise. If an American stockholder sells those shares and collects a $5 million capital gain, that gain is reported as domestic income. But in fact, it's due purely to the operations of that company overseas. Similarly, when the CEO of that company cashes his or her stock options, it's the same thing. The stock option gains get reported as domestic income, even though they are directly connected to the company's operations overseas.

Here's another example. Suppose that a U.S. furniture retailer switches suppliers. Instead of buying from a domestic manufacturer, they now get their furniture from a cheaper foreign manufacturer. Because of this outsourcing, corporate profits rise, and the CEO gets a big bonus. To the government statisticians, that bonus looks like pure domestic wage and salary income. However, it flows purely out of the company's ability to take advantage of the cheaper prices on the global market place.

Ordinary workers generally don't have globalized income--their wages and salaries are purely domestic, unless they happen to be working directly on exports. Globalized income flows to those people whose incomes rise when the company as a whole does well--shareholders and high-ranking executives . And those are the people who are affected by capital gain taxes, corporate income taxes, and progressive tax rates on high earners.

And here's where we get back to Newt Gingrich and his plan. The U.S. population is being separated into two groups: Those people who are benefiting from the increased globalization of the U.S. economy in their work lives, and those who are not. This is the big divide in the economy right now--and we don't need a tax proposal that just widens the gap.

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Gingrich rise comes without big-name endorsements

U.S. Republican presidential candidate and former Speaker of the House Newt Gingrich speaks about brain science research during a campaign stop at the University of Iowa College of Public Health Medical Education Research Facility in Iowa City, Iowa, December 14, 2011.

Credit: Reuters/Jim Young

By Patricia Zengerle

WASHINGTON | Wed Dec 14, 2011 5:56pm EST

WASHINGTON (Reuters) - Newt Gingrich's surge to the top of the Republican presidential field is attracting donations and volunteers to his minimalist campaign. But Gingrich still lacks a staple of successful bids for national office: a big-name endorsement.

No prominent Republican leaders have jumped aboard Gingrich's growing but still-small bandwagon.

It is a reflection of the skepticism with which many top members of the party have viewed the former U.S. House speaker's rise in opinion polls, and adds to questions over whether Gingrich's upstart campaign will have the resources to endure a primary battle that could last into June.

By contrast, Mitt Romney, a former Massachusetts governor and the longtime leader of the Republican race before Gingrich broke away, has unfurled a long list of influential supporters.

They include New Jersey Governor Chris Christie, former Minnesota governor Tim Pawlenty and scores of state and local officials as well as Wall Street donors.

Gingrich received a nod of approval from the Union-Leader, the largest newspaper in New Hampshire, a dominant state in the nominating process because it holds an early primary on January 10.

But when it comes to major Republican office holders, "I think people are waiting and seeing to see if (Gingrich) is going to falter like so many of these other supposed front-runners" such as businessman Herman Cain and Texas Governor Rick Perry, said Republican strategist Keith Appell.

"So people are keeping their powder dry a little bit."

Boosted by strong debate performances, Gingrich became the Republican front-runner with an unconventional campaign run by only a few aides and his wife, Callista. His rise came after a staff exodus last summer seemed to have killed his campaign.

Gingrich's attraction to potential endorsers almost certainly is clouded by his past in Washington.

Gingrich, 68, alienated some Republicans during his tumultuous tenure as House speaker in the 1990s. He left Congress in 1999, two years after paying $300,000 to close an ethics investigation.

He also has a long history of making provocative statements that could alienate independent voters, such as when he recently referred to Palestinians as an "invented" people. And he has been married three times and admitted to extramarital affairs, a hurdle for him to overcome with some conservatives.

SIGNS OF PROGRESS

While it has not yielded a marquee endorsement, Gingrich's jump in the polls is beginning to pay off in other ways.

A former Gingrich aide said this week she had founded a SuperPAC for Gingrich, which is able to raise unlimited funds to back his campaign. And a Gingrich spokesman told the Wall Street Journal the campaign hopes to bring in $10 million in the three months ending December 31.

That would far outstrip Gingrich's efforts in the third quarter of this year, when he failed to reach $1 million in fundraising - a paltry amount for a national campaign that must run TV ads to be competitive.

However, Gingrich's fundraising goal would still amount to only about half the $20 million his chief rival, Romney, is projected to bring in from October through December.

More good news for Gingrich: His staff is expanding and volunteers are signing on.

The campaign said Tuesday that 60 officials from Gingrich's home state of Georgia were endorsing him, as did two Tea Party groups in South Carolina, which holds its primary on January 21.

"Newt is the most electable conservative who can clearly articulate the Tea Party agenda of lower taxes, free enterprise, smaller government and state sovereignty," Laurens County (S.C.) Tea Party President Dianne Belsom wrote in a statement endorsing Gingrich and distributed by his campaign.

Gingrich's lack of prominent supporters raises doubts about his campaign's longevity. But if he is successful in continuing to cast himself as a more conservative alternative to Romney, his campaign would epitomize the unusual nature of this year's race, analysts said.

Romney seems unable to attract more than 25 percent support from primary voters despite being widely seen as the candidate to beat among Republicans.

"This is an unconventional environment, which is why surprising things are happening," said Republican strategist Mark McKinnon. "And if Newt is the nominee, he may be the most unconventional nominee in American history."

WASHINGTON INSIDER

A Reuters/Ipsos poll on Tuesday showed Gingrich with a 10-point lead over Romney among Republicans nationwide, but showed he would fare worse in a general election contest against Obama.

Romney's team has been blasting Gingrich as an unreliable conservative and a Washington insider. And Obama's team has shifted to target Gingrich just as much as it has been going after Romney.

Romney's SuperPAC is financing a blizzard of negative advertising against Gingrich in Iowa, where another Republican candidate, Texas Congressman Ron Paul, is also assembling an army of volunteers in an effort to win the state's Republican caucuses on January 3.

Conventional wisdom is that no Republican can win the nomination without capturing the Iowa caucuses or New Hampshire, where Romney leads in the polls. Gingrich had a double-digit lead over Romney and Paul in recent Iowa polls.

For Gingrich, "the question will be, can somebody with not a lot of money stand that kind of massive negative TV attacks? In the past, negative TV attacks have worked, so we'll see," said Richard Schwarm, a longtime Iowa Republican activist and former chairman of the Iowa Republican party.

Rachel Paine Caufield, professor of politics at Drake University in Iowa, said Gingrich's supporters believe he is the best candidate to take on Obama because he is combative.

"There's a group of Republicans who really want to defeat President Obama. There's a sense that a little bit of excitement goes a long way," she said. "Any time (Gingrich) says something that's provocative, he gets attention. A lot of attention."

(Editing by David Lindsey and Todd Eastham)

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Gingrich worse against Obama than Romney: Reuters/Ipsos poll

Newt Gingrich greets a young girl during a campaign stop at Hollis Pharmacy in Hollis, New Hampshire, December 12, 2011.

Credit: Reuters/Brian Snyder

By Andy Sullivan

WASHINGTON | Wed Dec 14, 2011 11:32am EST

WASHINGTON (Reuters) - Newt Gingrich holds a 10-point lead in the fight for the Republican presidential nomination, but he would fare worse against President Barack Obama than Republican Mitt Romney, according to a new Reuters/Ipsos poll.

With the first nominating contest in Iowa less than three weeks away, Gingrich leads Romney among Republican voters nationwide by 28 percent to 18 percent, the poll found.

However, the poll raises questions about whether Gingrich -- a former speaker of the U.S. House of Representatives who has shot to the top of Republican opinion polls in recent weeks -- would be able to defeat Obama.

The poll found that if the November 2012 presidential election were held today, Obama would defeat Gingrich, 51 percent to 38 percent. By contrast, Obama would defeat Romney by a narrower margin, 48 percent to 40 percent.

Analysts say the results reflect the risk that Republicans could face if they nominate Gingrich, whose strong performances in debates have won him support among conservatives seeking an alternative to Romney.

Gingrich has a long record of making provocative statements that could alienate independent voters, such as when he recently referred to Palestinians as an "invented" people.

Even so, some conservative Republicans see him as preferable to Romney, a former Massachusetts governor who has built a more extensive campaign and fundraising operation.

"This is the Republican dilemma," said Calvin Jillson, a political science professor at Southern Methodist University. " 'Do I want to enjoy myself by voting for Gingrich ... or do I want to look toward the general election and see a winnable contest?'"

Romney has been widely viewed as the candidate to beat among Republicans.

Obama's campaign was focused squarely on an eventual race against Romney until this week, when it began taking shots at Gingrich -- an acknowledgement of the former speaker's elevated standing in the Republican race.

The new poll found Texas Representative Ron Paul and Texas Governor Rick Perry tied for third place with 12 percent each, while Minnesota Representative Michele Bachmann has the support of 10 percent of Republicans.

Former Utah Governor John Huntsman is next with 5 percent, followed by former Pennsylvania senator Rick Santorum, with 4 percent. Another 4 percent picked other candidates or none at all.

The poll, taken from December 8 to December 12, shows Gingrich's remarkable comeback since a staff mutiny and criticism by fellow Republicans nearly torpedoed his campaign in June. A Reuters/Ipsos poll taken during that period showed him polling at 6 percent.

The poll also found that Obama could be making a comeback of sorts as the economy shows signs of improvement and Republican candidates bloody each other in a series of televised debates.

Obama's 8 point lead over Romney is a dramatic increase from the 1 point deficit he faced in a Reuters/Ipsos poll taken from October 31 to November 3.

Although Obama is doing better compared with Republicans, his approval rating, at 47 percent, is little changed since the beginning of the year.

Americans remain generally pessimistic, the poll found. Only 27 percent say the country is moving in the right direction, while 69 percent say it is on the wrong track, a slight improvement from the October poll.

The poll was based on telephone interviews of 1,102 adults, 443 of them registered Republicans. The margin of error for all adults is plus or minus 3 percentage points; for Republicans the margin of error is plus or minus 4.7 percentage points.

The complete poll results can be found ">here

(Reporting by Andy Sullivan; Editing by David Lindsey)

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