Yves here. Nicholas Shaxson’s landmark book on tax havens, Treasure Island, described how the US was the biggest sponsor of what Shaxson called “offshore,” or tax havens and tax secrecy. He tells us how the US is working to keep it that way.
Read more...Yves here. When normally MEGO (My Eyes Glaze Over) inducing tax schemes become a topic of national debate, it’s because despite their complexity, they’ve become too big and ugly to ignore.
Mind you, multinationals already have tons of ways to escape from the tax man, starting with clever transfer pricing so as to claim pretty much all their profits occurred in super low tax domiciles. But the trick that has caused consternation is tax inversions. In crude terms is using mergers as a way to move the headquarters of a company from a higher tax to a lower tax jurisdiction. The acquired company in the lower-tax location becomes the new parent company.
The Treasury Department was so concerned about potential revenue loss that it took measures to reduce tax inversions. This article argues, in effect, that while Treasury may have made it more difficult, that the incentive to enter into inversion remains. The analysis is clever and compelling. It also happens to debunk the argument made by defenders of Antonio Weiss, the Lazard banker nominated to a Treasury post who is fiercely opposed by Elizabeth Warren. Weiss was an important advisor on the Burger King-Hortons merger, the deal that (according to the Wall Street Journal) that led Treasury to put rules in place to combat tax inversions. The defenders argued that the tax rates between US and Canada weren’t all that different, so that the tax considerations weren’t important to the deal. This article mentions the Burger King deal and the difference between US and Canadian inbound divident repatriation tax rates at 10%, more than enough to be motivating.
Read more...Most members of the great unwashed public, when they hear about unfair results of the tax code, like Warren Buffet’s secretary facing a higher tax rate than he does, or private equity and hedge fund barons paying capital gains tax rates on labor income, assume that those outcomes are the result of a combination of the rich getting the tax code changed over time or succeeding in preserving the exploitation of loopholes that should have been closed ages ago.
But there is another category of tax games that are not discussed much in polite company, that of outright abuses. What is disturbing about that behavior is that it has not only become increasingly common, but members of the bar, including those at white shoe firms, are enablers. “Money for nothing” private equity monitoring agreements are a blindingly obvious example.
Read more...The “ground truth” of the protests, the forces arrayed against them, the grand jury, political economy in Ferguson, and Mike Brown’s father.
Read more...Optimal tax rates for the rich are a perennial source of controversy. This column argues that high marginal tax rates on the top 1% of earners can make society as a whole better off. Not knowing whether they would ever make it into the top 1%, but understanding it is very unlikely, households especially at younger ages would happily accept a life that is somewhat better most of the time and significantly worse in the rare event they rise to the top 1%.
Read more...Yves here. Brace yourself for the perverse spectacle of Republicans and their US corporate masters whinging about tax rates when effective corporate tax rates are super low by historical standards, in large measure due to clever tax structuring and the use of tax havens.
The European Union has made a show of cracking down on Ireland as a tax scam, um, tax haven for its low corporate tax rate, while leaving the even more flagrant destination of Luxembourg untouched. A newly-relesed report shed some light on the scale of the Luxembourg tax scam, which is now leading to some official kabuki as to what to do about it. What goes unsaid is the degree to which the US and UK are top players in tax avoidance, the US through destinations here (including Delaware and Wyoming limited liability corporations) and the Caymans, the haven preferred by US banks. In the UK, the City has its own network of preferred tax haven, including the Isle of Man, Jersey, and Bermuda.
Read more...Yves here. One of the major charges leveled at immigrants in the US is that they use public services (the stereotype is that they show up in emergency rooms, which are not a taxpayer expense,* as well as send children to school) and don’t provide anywhere near the contribution to the economy in terms of tax contributions relative to what they extract.
Notice that that charge is implicitly made of illegal immigrants, who presumably don’t pay income taxes (although I personally know one who does, by virtue of being in an immigration Schrodinger’s cat uncertainty state and having a Social Security card and meticulously paying taxes for 15 years while no longer having a visa and not having become a citizen. Will not bore you whit his shaggy dog story). But their incomes are often so low that it’s not clear they’d pay much even if their taxes were reported, save regressive FICA taxes. Yet they do pay other taxes: sales taxes, gasoline taxes, and property taxes embedded in their rents.
There is a separate public policy argument about immigration and foreign guest workers on H1-B visas, which is that at least the way it is conducted in America, that in combination with an anti-labor-bargaining policies, cheap immigrant labor gives employers even more leverage against workers. This post focuses narrowly on the “are they worse than natives in terms of impact on the public purse?” The study focuses on the UK. One of the striking revelations is how little decent data there is on this topic, particularly in a country that has no where near the number of unofficial immigrants as the US.
Read more...Linda Beale, of ataxingmatter, has written forcefully and persuasively about some of the propagandizing-accepted-as-gospel that the well-heeled use to advocate policies that advance their economic interests. For instance, as most Naked Capitalism readers appreciate, but a remarkably large swathe of the US population does not, tax cuts for big corporations are simply a transfer to the rich. From a post last year:
I’ve argued frequently in the past that there is no there there–i.e., that lowering corporate tax rates will do nothing to create jobs. Instead, I’ve said, it will simply deliver an even higher profit margin to be skimmed off by the highest paid executives and, possibly, shareholders. The higher profit margins are unlikely even to be used to increase workers’ shares of the corporate revenues through higher wages, a place where they could most help the economy other than new jobs created. Thus, the drive for “revenue neutral” corporate tax reform (cut corporate taxes, cut expenditures elsewhere to make up for the decreased corporate tax revenues) is just another example of corporatism as an engine of the modern form of US class warfare
Beale takes up a different theme today: how the rich and poor act against their economic interest. For many in middle and lower income strata in red states, hostility to the government is an article of faith even though those states (and many of those same govement-hating citizens) are significant beneficiaries of Federal programs.
But less well recognized are the ways that the wealthy are undermining themselves. They’ve taken the “increase our distance from everyone else” experiment well beyond its point of maximum advantage, not just to the society around them but also in terms of the costs to the class warriors.
As we’ve pointed out, highly unequal societies have lower lifespans, even among the rich; the shallower social networks of stratified societies and the high cost of losing one’s perch, in terms of loss of friends and status, creates an ongoing level of stress that has a longevity cost. Beale points out something we’ve mentioned occasionally in the past, that creating an underclass with inadequate access to medical services is a great breeding ground for public health problems. The fact that many low income Americans can’t afford to take sick days and health plans generally have high deductibles, which discourage individuals from getting treated until they are sure they are really sick, isn’t a great program design if you want to reduce the spread of infectious diseases.
Read more...It’s widely known among tax professionals that the US does little in the way of tax enforcement, and the little that it does do is directed against individuals and small businesses.
What is not so widely known is how deep the institutional bias is in the IRS in favor of letting big corporate tax cheats get away with it.
Conventional wisdom is similar to the rationalization of weak enforcement at the SEC: that the agency is afraid that if they go after big companies, they’ll have the penalties and fines challenged in court, and they’ll often lose by virtue of being outgunned by better lawyer (yes, Virginia, even if you have a solid case, that doesn’t mean you’ll win at trial). And top tax litigators are among the most highly paid legal talent. I’m not up on current rates, but in the mid 1980s, Sumitomo Bank fought the IRS on a $100 million assessment and won. Their attorney was a solo practitioner who charged $1000 an hour.
It turns out that the picture is vastly worse than that.
Read more...Yves here. The main way that those of the left-leaning persuasion see Amazon as a bad guy is for its treatment of warehouse workers, who work in physically-taxing conditions and are paid what is barely a living wage for a single person.
As Matt Stoller describes in this piece, Amazon’s ambitions are monopolistic, and they’ve already gone a long way towards achieving that ambition in a large number of markets. They regularly engage in predatory pricing to crush competitors and gain market share. Their dominant position then allows them to chose how to extract more profit, which is usually a combination of squeezing suppliers and raising prices.
Antitrust has become close to a dead letter in the US. Amazon makes for a worthy object for reviving it.
Read more...Yves here. Pop star Bono is a case study in hypocrisy thanks to his use of corporate-friendly tax dodges and and advocacy of creating tax havens as a viable form of economic development. Ireland exemplifies of how well, as in badly, this approach has worked.
Read more...Yves here. We are delighted to welcome two world-recognized tax experts as writers on our site. They also happen to fall in the minority that believes that paying taxes is the price of civilization. And to top it off, they write in a layperson-friendly yet technically accurate manner.
Read more...Yes, the rich, and particularly the 1%, are getting richer. It’s the result of rewriting the rules in their favor.
Read more...Yves here. It’s hardly uncommon for big international pow-wows like the G20 to produce grand-sounding statements that when read carefully call for unthreatening, which usually means inconsequential, next steps. But this G20 just past was revealing, in a bad way, about the state of international political economy.
Read more...As the SEC, reporters, and analysts dig into the operations of private equity firms, it is becoming obvious that one of the reasons that these financiers have cornered the best legal talent in America is for the express purpose of better fleecing their investors.
A prime example comes up in the use of clawbacks in private equity agreements.
Read more...