Category Archives: Taxes

Randy Wray: A PROGRESSIVE APPROACH TO FEDERAL BUDGETING – Or, Can One Take Billionaire Pete Peterson’s Money and Remain Progressive?

By L. Randall Wray, a Professor of Economics at the University of Missouri-Kansas City. Cross posted from FireDogLake

Yves Smith set off a firestorm in her criticism of several progressive groups that have joined forces with Pete Peterson to whip up deficit hysteria. There are three issues that need to be addressed:

1. Can a progressive take tainted money and remain progressive?
2. Did the Roosevelt Institute (in particular) take tainted money and remain progressive?
3. What would a progressive approach to federal budgeting look like?

Clinton Pimps Some More for His Bank and Corporate Benefactors

Of the many low points of the Clinton presidency, one was its questionable money dealings. Remember how Hillary managed to turn $1000 into $100,000 via successful commodities trading? 70% of retail commodities traders lose money. Boy, for a newbie trader, the First Lady was clearly a natural!

A former contact of mine, low profile but with a serious reputation among professional traders, was asked to review Hillary’s trading records by some Congressmen (they apparently asked two other market professionals).

“Somalia has slightly higher standards than Wyoming and Nevada” (Corporate Secrecy Edition)

We’ve taken an interest in tax havens thanks to Nicholas Shaxson’s book Treasure Islands, which is a must read. Although the book gives a historical account of the rise of what he calls “offshore”, which includes forms of tax avoidance that extend beyond the use of secrecy jurisdictions, which gives the UK the leading role, Shaxson discusses is that the US is the now the biggest tax haven in the world. He discussed briefly the role of Wyoming, which has incorporation rules that are so lax that it is trivial to hide the owners of Wyoming domiciled companies.

An article in Reuters fleshes out this topic in more detail. I encourage you to read it in full. Key extracts:

Philip Pilkington: Debt, public or private?: The necessity of debt for economic growth

By Philip Pilkington. Journalist, writer, economic anti-moralist and aficionado of political theatre

‘Tis not due yet; I would be loath to pay him before
his day. What need I be so forward with him that
calls not on me? – Falstaff, ‘Henry VII’

The Anxieties of Government and Debt

Apart from debt, there is perhaps one other economic phenomenon that generates exceptionally large amounts of emotive nonsense both on the internet and in real life – and that is government. So it’s quite unsurprising that when government debt is the discussion of the day, passions flare, accusations are hurled and the coming apocalypse is invoked.

It would be interesting to undertake a psychological study of modern man’s aversion to government and to debt. If I were to guess I would say that many people tend to associate government with authority and debt with obligation. Authority and obligation – surely in our era of selfish hedonism no other potential restraints are so terrifying to so many. These phenomena intrude rudely on one of our most cherished contemporary ideological myths: individualism. More specifically, that outlandish individualism conjured up by marketing men to flog their wares and crystallised in novels and narratives written by lonely and isolated individuals like Ayn Rand. It is, of course, a fantasy individualism; one that few truly adhere to in their day-to-day lives – but it is, like the religions of days gone by, an important determinate in the messages people choose to accept and those they choose to reject.

To put the questions of individualism and of liberty aside though, from an economic point-of-view debt is inevitable.

Bribes Work: How Peterson, the Enemy of Social Security, Bought the Roosevelt Name

Bribes work. AT&T gave money to GLAAD, and now the gay rights organization is supporting the AT&T-T-Mobile merger. La Raza is mouthing the talking points of the Mortgage Bankers Association on down payments. The NAACP is fighting on debit card rules. The Center for Budget and Policy Priorities and the Economic Policy Institute supported the extension of the Bush tax cuts back in December. While it seems counter-intuitive that a left-leaning organization would support illiberal extensions of corporate power, in fact, that is the role of the DC pet liberal. This dynamic of rent-a-reputation is greased with corporate cash and/or political access. As the entitlement fight comes to a head, it’s worth looking under the hood of the DC think tank scene to see how the Obama administration and the GOP are working to lock down their cuts to social programs.

And so it is that the arch-enemy of Social Security, Pete Peterson, rented out the good name of Franklin Delano Roosevelt, the reputation of the Center for American Progress, and EPI. All three groups submitted budget proposals to close the deficit and had their teams share the stage with Republican con artist du jour Paul Ryan. The goal of Peterson’s conference was to legitimize the fiscal crisis narrative, and to make sure that “all sides” were represented.

Now this tidy fact is not obvious if you check the Peterson Foundation publicity for its “Fiscal Summit:”

Quelle Surprise! Consumer Confidence Falls on Oil Prices, Housing, Job Outlook

Is the latest consumer confidence release yet another example of elite disconnect? One of the things that has become striking is the degree to which the chattering classes in New York and Washington DC seem utterly unaware of what is happening in the rest of the country. New York City is doing reasonably well based on the heroic efforts by the officialdom to prop up the major capital markets firm; DC is recession immune and more recently awash in lobbying funds. The influences range from visual signals (I had a friend visiting from Boston remark how striking it was that there were so few shuttered storefronts here in NYC) to continued Administration cheerleading (a constant since the 2009 bank stress tests). And since major media stories about the economy are driven by sources in these two cities, it feeds into business reporting.

Marshall Auerback: Revenue Sharing for the States – How It Works, Why We Need It and Why Nixon Liked It!

By Marshall Auerback, a portfolio strategist and hedge fund manager. Cross posted from New Deal 2.0.

States are being cut off just at the time they most need federal assistance. Revenue sharing would be a winning strategy for the economy and for Obama.

Goldman Cheats and Wins Again: Gets Special Treatment in UK Tax Abuse Settlement

How does Goldman get away with it again and again? Is it simply bribery? Well, we don’t call it bribes in advanced economies, since big fish typically have more complicated and indirect ways of rewarding people who help them out, but it amounts to the same thing. Or do they have the five by seven glossies on people in key positions of influence?

The latest sighting is in Private Eye, courtesy Michael Thomas. This is comparatively penny-ante stuff compared to other instances of Goldman winning at the expense of the general public. Here, the firm engaged in what is politely called a tax avoidance scheme:

Join Us At FireDogLake’s Book Salon on Saturday to Discuss Treasure Islands by Nicholas Shaxson

eaders may know that Nicholas Shaxson’s Treasure Islands: Uncovering the Damage of Offshore Banking and Tax Havens, has created a big stir in the UK by shedding light on the scale of offshore banking and the numerous types of harm it does. We’ll be hosting a FireDogLake Book Salon tomorrow at 5 PM Eastern 2 PM Pacific.

Not only did I enjoy this book (it manages the difficult feat of being a lively and accessible discussion of banking and taxation), but it is certain to be one of the most important books of the year.

From the FDL overview of the book:

IRS Likely to Expand Mortgage Industry Coverup by Whitewashing REMIC Violations

As established readers know, we’ve been writing since mid 2010 about the widespread, possibly pervasive, failure of mortgage securitization originators to convey the notes (the borrower IOU) to securitization trusts as stipulated in the deal documents, well before the robo signing scandal broke. This abuse matters because the transaction procedures were designed carefully to satisfy certain legal requirements, among them rules contained in the 1986 Tax Reform Act regarding REMICs, or real estate mortgage investment conduits, which required that the securitization trust receive all its assets by 90 days after closing and that all assets conveyed to the trust have to be “performing”, as in not in default. Failure to comply with the rules is a prohibited act and subject to taxation at a rate of 100%, and additional penalties may apply.

Now, with the Federal government under enormous budget pressure, shouldn’t the authorities be keen to go after tax cheats? The headline of a Reuters article, “IRS weighs tax penalties on mortgage securities,” would suggest so. But don’t get your hopes up. The lesson is don’t jump to conclusions when big finance is involved.

S&P Negative Watch for US Flagged Financial Sector as Major Risk

Yes, I know I dissed the S&P report as fundamentally wrongheaded, but as we will discuss shortly, it contained some interesting commentary on the US financial sector that has gotten perilously little notice.

But I’d first like to address the way the media and some blogosphere commentators have hopelessly muddied the issues on the downgrade scaremongering. One is the “we depend on foreigners to fund our budget deficit” hogwash. As Michael Pettis pointed out, the idea that the US is funding its federal deficit from foreigners is a widespread misconstruction.

S&P Negative Watch Smackdown Wrap

One of the few upsides of the patently silly negative watch announcement for US Treasury bonds was that it elicited colorful and instructive commentary (see our view, along with Mark Thoma’s and Barry Ritholtz’s at the New York Times’ Room for Debate). Some sightings: