En Lagarde

NPR blasts IMF chief Christine Lagarde for paying no taxes while berating Greeks for doing the same thing (if unsanctioned, shall we say), but Fox defends her. But of course, Fox doesn't like to pay taxes, either, so tucks what's tuckable away in various havens.

NPR: IMF's Christine Lagarde, Who Chastised Greek Tax Evaders, Pays No Taxes

Essentially, Lagarde said she has very little sympathy for the Greeks and that if they want to solve their financial problems they should just pay their taxes.

Today, The Guardian ran the pot-kettle-black story, pointing out that Lagarde with her $467,940 a year salary and her $83,760 yearly allowance does not pay any taxes.

She's not a tax dodger; it's just that the Vienna convention on diplomatic relations of 1961 exempts diplomats from "all dues and taxes, personal or real, national, regional or municipal."

With that in mind The NewStatesman still comes down hard on Lagarde.

"... Right or not, it seems like a good rule of thumb that if you do not pay any tax, you do not get to tell other people off for not paying tax," the magazine writes. "Especially if you earn around twenty times the median wage of the country you are telling off."

Fox: Greece’s Lame Tax Attacks on IMF’s Lagarde

Greeks have a long history of borrowing money with no intention of paying it back, and the country was living beyond its means even before it joined the eurozone.

Greece is ranked as one of the worst countries in the world for tax evasion, worse than Italy, an intractable problem leaders of the European Union and even Greek officials have decried. Tax fraud is a “scourge” in Greece, a spokesman for the EU’s economics commissioner now says.

Lost in the debate is the fact that there is a reason why Lagarde and other diplomats pay zero taxes on their IMF pay. It’s to avoid harassment and vendettas launched by other countries via their home country’s tax systems, as well as falling prey to bribery or kickbacks (the exact same corruption which, news flash, is what’s plaguing the tax system in Greece).

And the furious backlash is a distraction from the fact that Greece is running a dysfunctional economy where corruption and tax evasion are a national pasttime, where officials want to preserve a system built on vice and limitless debt in order to feed growing government power and a teetering, bankrupt entitlement state.

The IMF as well as the United Nations reduce the pay for their workers and executives by the amount of the tax bills they owe, meaning, they get paid on a net basis. Workers at the IMF and the United Nations don’t pay national, regional or municipal taxes, says article 34 of the Vienna Convention on Diplomatic Relations, an international treaty signed by 187 countries in 1961.

Again, that article was enacted so diplomats do not face harassment, pressure or fall prey to corruption from other countries via their home country’s tax systems.

Read more @ the link above.

Guambat reckons he gets harrassed pretty regularly by his home countries, too. And he'd fall prey to bribery or kickbacks, if only given a fair chance at it. So why is he not entitled to equal treatment? Most things are Greek to Guambat, except himself. He's pureblood guambat.

Of public capital and public interest

First, on the matter of public capital, we are the 99.9%, according to this Forbes article/opinion piece carried on Yahoo Finance, excerpts extracted:

The Top 0.1% Of The Nation Earn Half Of All Capital Gains

The top 0.1%-- about 315,000 individuals out of 315 million-- are making about half of all capital gains on the sale of shares or property after 1 year; and these capital gains make up 60% of the income made by the Forbes 400.

The [Bush 2003]reduction in the [capital gains] tax from 20% to 15% continued the step-by-step tradition of cutting this tax to create more wealth. It had first been reduced from 35% in 1978 at a time of stock market and economic stagnation to 28%. Again 1981, at the start of the Reagan era, it was reduced again to 20%-- raised back to 28% in 1987, on the eve of the October 19 th-- 23% crash in the market [obvious transcription error in article here]. In 1997 Clinton agreed to reduce it back to 20%, which move was an inducement for the explosion of hedge funds and private equity firms-- the most "rapidly rising cohort within the top 1 per cent."

The facts are clear according to the Congressional Budget Office more than 80% of the increase in income inequality was the result of an increase in the share of household income from capital gains. In fact, you can go so far as to claim that "Capital Gains income is the most unevenly distributed-- and volatile-- source of household income," according to Laura D'Andrea Tyson, University of California business professor and former chairwoman of the Council of Economic Advisers under President Clinton.

I commend you to the late Justice Louis Brandeis warning to the nation that " We can have democracy in this country, or we can have great wealth concentrated in the hands of a few, but we can't have both."

Coincidentally, Guambat finally received his New Yorker magazine for October 24 in the mail today (thank you Captain Jack), and found resonance with its cover:



As as to public interest in those capital gains (and losses), consider the opinion of US District Court Judge Jed S. Rakoff, when asked to rubber stamp a "settlement" of a complaint by the SEC against Citibank. On October 19, 2011, the U.S. Securities and Exchange Commission
(the "S.E.C.") filed lawsuit [as well as a parallel Complaint filed the same day against Citigroup employee Brian Stoker], accusing defendant Citigroup Global Markets Inc. ("Citigroup") of a substantial securities fraud. Excerpts, snippets and such follow.

Although this would appear to be tantamount to an allegation of knowing and fraudulent intent ("scienter," in the lingo of securities law), the S.E.C., for reasons of its own, chose to charge Citigroup only with negligence.

The Court turns first to the standard of review. In its original Memorandum in support of the proposed Consent Judgment! filed before the case had been assigned to any judge, the S.E.C. expressly endorsed the standard of review set forth by this Court in its Bank of America decisions, i.e., "whether the proposed Consent Judgment ... is fair, reasonable, adequate, and in the public interest."

In its most recent filing in this case, however, the S.E.C. partly reverses its previous position and asserts that, while the Consent Judgment must still be shown to be fair, adequate, and reasonable, "the public interest ... is not part of [the] applicable standard of judicial review." This is erroneous.

As a fall-back, the S.E.C. suggests that, if the public interest must be taken into account, the S.E.C. is the sole determiner of what is in the public interest in regard to Consent Judgments settling S.E.C. cases. That, again, is not the law.

[A] court, while giving substantial deference to the views of an administrative body vested with authority over a particular area, must still exercise a modicum of independent judgment in determining whether the requested deployment of its injunctive powers will serve, or disserve, the public interest. Anything less would not only violate the constitutional doctrine of separation of powers but would undermine the independence that is the indispensable attribute of the federal judiciary.

Before the Court determines whether the settlement is fair, it must ask a preliminary question: fair to whom? As the holding of Trucking Employers quoted above makes plain, the answer is fair to the parties and to the public.

Purely private parties can settle a case without ever agreeing on the facts, for all that is required is that a plaintiff dismiss his complaint. But when a public agency asks a court to become its partner in enforcement by imposing wide-ranging injunctive remedies on a defendant, enforced by the formidable judicial power of contempt,3 the court, and the public, need some knowledge of what the underlying facts are: for otherwise, the court becomes a mere handmaiden to a settlement privately negotiated on the basis of unknown facts, while the public is deprived of ever knowing the truth in a matter of obvious public importance.

Applying these standards to the case in hand, the Court concludes, regretfully, that the proposed Consent Judgment is neither fair, nor reasonable, nor adequate, nor in the public interest. Here, the S.E.C.'s long-standing policy - hallowed by history, but not by reason - of allowing defendants to enter into Consent Judgments without admitting or denying the underlying allegations,4 deprives the Court of even the most minimal assurance that the substantial injunctive relief it is being asked to impose has any basis in fact.

As a matter of law, an allegation that is neither admitted nor denied simply that, an allegation. It has no evidentiary value and no collateral estoppel effect.

As for common experience, a consent judgment that does not involve any admissions and that results in only very modest penalties is just as frequently viewed, particularly in the business community, as a cost of doing business imposed by having to maintain a working relationship with a regulatory agency, rather than as any indication of where the real truth lies. This, indeed, is Citigroup's position in this very case.

Of course, the policy of accepting settlements without any admissions serves various narrow interests of the parties.

In this case, for example, Citigroup was able, without admitting anything, to negotiate a settlement that (a) charges it only with negligence, (b) results in a very modest penalty, (c) imposes the kind of injunctive relief that Citigroup (a recidivist) knew that the S.E.C. had not sought to enforce against any financial institution for at least the last 10 years, and (d) imposes relatively inexpensive prophylactic measures for the next three years.

In exchange, Citigroup not only settles what it states was a broad-ranging four-year investigation by the S.E.C. of Citigroup's mortgage-backed securities offerings, but also avoids any investors' relying in any respect on the S.E.C. Consent Judgment in seeking return of their losses. If the allegations of the Complaint are true, this is a very good deal for Citigroup; and, even if they are untrue, it is a mild and modest cost of doing business.

It is harder to discern from the limited information before the Court what the S.E.C. is getting from this settlement other than a quick headline. By the S.E.C.'s own account, Citigroup is a recidivist [external link added], and yet, in terms of deterrence, the $95 million civil penalty that the Consent Judgment proposes is pocket change to any entity as large as Citigroup.

While the S.E.C. claims that it is devoted, not just to the protection of investors but also to helping them recover their losses, the proposed Consent Judgment, in the form submitted to the Court, does not commit the S.E.C. to returning any of the total of $285 million obtained from Citigroup to the defrauded investors....

the Court is forced to conclude that a proposed Consent Judgment that asks the Court to impose substantial injunctive relief, enforced by the Court's own contempt power, on the basis of allegations unsupported by any proven or acknowledged facts whatsoever, is neither reasonable, nor fair, nor adequate, nor in the public interest.

It is not reasonable, because how can it ever be reasonable to impose substantial relief on the basis of mere allegations? It is not fair, because, despite Citigroup's nominal consent, the potential for abuse in imposing penalties on the basis of facts that are neither proven nor acknowledged patent. It is not adequate, because, in the absence of any facts, the Court lacks a framework for determining adequacy. And, most obviously, the proposed Consent Judgment does not serve the public interest, because it asks the Court to employ its power and assert its authority when it does not know the facts.

An application of judicial power that does not rest on facts is worse than mindless, it is inherently dangerous. The injunctive power of the judiciary is not a free roving remedy to be invoked at the whim of a regulatory agency, even with the consent of the regulated. If its deployment does not rest on facts - cold, hard solid facts, established ei by admissions or by trials - it serves no lawful or moral purpose and is simply an engine of oppression.

Finally, in any case like this that touches on the transparency of financial markets whose gyrations have so depressed our economy and debilitated our lives, there is an overriding public interest in knowing the truth.

the S.E.C., of all agencies, has a duty, inherent in its statutory mission, to see that the truth emerges; and if fails to do so, this Court must not, in the name of deference or convenience, grant judicial enforcement to the agency's contrivances.
Accordingly, the Court refuses to approve the proposed Consent Judgment. Instead, the Court hereby consolidates this case with the Stoker action, adopts the Case Management Order in that action as equally applicable to the instant case, and directs the parties to be ready to try this case on July 16, 2012.

Clearly, the Court believes the public not only can handle the truth hidden by settlements such as this, but they are entitled to know it. We need more same same decisions.

How do you tax the Nowhere Man?

When sales taxes, gross receipts taxes and the like get much above 1%, and when don't they, retailers who don't have to pay that tax have a significant advantage over those who do.

So, catalog order companies like Amazon (in Guambat's day, Sears, Montgomery Ward and the like, and in Mrs. Guambat's days, Lands End and Williams-Sonoma and a myriad of others) get more than a virtual leg up over the bricks and mortar mortal because, under pre-web days, the US laws required some physical presence "nexus" before you could tax those mail-order sales.

But at the break-nexus speed of email-order sales, it is arguably time to have a rethink of the level playing field of tax policy (or, fantasy).

Amazon does not have a price advantage over other book (etc.) stores, it has simply externalized pre-tax overhead expenses and post-tax profits. And you can expect plenty of argy-bargy and spin as the coddled e-industries try to hide their profits from the taxman, and continue their externally taxpayer underwritten e-infrastructure, and their competitive advantage over the local showrooms and sales forces.

Nudging toward a new direction, but with caution born of identifying some kind of tangible nexus, California has joined a growing list of states trying to capture some of the tax base that the online world represents and virtually avoids.

Amazon to shut down California affiliates over new sales tax law

Late Wednesday, California joined the growing list of states attempting to collect sales tax from online retailers like Amazon in an effort to help close the state's vast budget deficit. Amazon, in typical fashion, has aggressively pushed back, warning its California-based affiliates that they'll have their revenue streams cut off as of September 30 if the law ends up being enacted.

California's new law, signed by Governor Jerry Brown on Wednesday, requires online retailers to collect sales tax even if they have no physical presence in the state. How does that work when federal law states they have to have a brick-and-mortar store to qualify? Like the many other states before it, California counts Amazon affiliates who reside in California as a "physical presence." So, if Joe Blow runs a personal blog with affiliate links to Amazon products (you know, to make a few bucks on the side), he is effectively "selling" Amazon products and making money from them via his home in California.

Because of this "physical presence" technicality, the state wants Amazon to begin collecting sales tax from California residents, and subsequently pay it back to the state.

California's—and other states'—laws don't just affect Amazon either, despite the "Amazon Tax" moniker. Plenty of other sites offer similar affiliate programs (Overstock.com, Drugstore.com, FatWallet.com, to name a few) and will either have to rework the way they do things with California residents or cancel their affiliate programs as well. eBay also claims to we worried about how the tax affects small businesses and individuals who are not actually involved with these large corporations. "We believe that putting a tax burden on small businesses and treating them the same as giant retailers is unfair," eBay senior director of government relations told Internet Retailer. "eBay is advocating a threshold that accurately defines a small business, so that the sellers that are getting started aren't held back from growing in across the US."

Amazon’s bad argument By Ezra Klein

I just received this e-mail from the company, as back when I had a personal blog, I was a member of their affiliates program:

Hello,

For well over a decade, the Amazon Associates Program has worked with thousands of California residents. Unfortunately, a potential new law that may be signed by Governor Brown compels us to terminate this program for California-based participants...

We oppose this bill because it is unconstitutional and counterproductive. It is supported by big-box retailers, most of which are based outside California, that seek to harm the affiliate advertising programs of their competitors. Similar legislation in other states has led to job and income losses, and little, if any, new tax revenue. We deeply regret that we must take this action...

Let’s be clear: Amazon opposes this bill because it wipes out a price advantage they currently have against their competitors.

And, as the Center on Budget and Policy Priorities has explained at length, their other arguments simply don’t add up.

Now, Amazon is a business, and so you can’t fault it for playing hardball in an effort to retain a competitive advantage. But this is bad policy that they’re trying to protect — it’s starving states, killing brick-and-mortar stores and encouraging a race to the bottom among states who want to attract the offices of online retailers. Brown is right and Amazon is wrong.

Guambat is sure there's some kind of hedge play for this situation, but reckons he'll hedge by going to that little shed out back and retrieving that Sears and Roebuck catalog. And replace it with his iPad.

It's a WIN-when? situation

What is the corporate tax rate in the USA? Doesn't matter if there is nothing taxed, does it? It's a European holiday for free.

If companies are allowed, indeed encouraged by certain "transfer pricing" regimes or other structured loopholes mechanisms, to park profits overseas and then every few years simply bring them back "home" to "repair" balance sheets, "create jobs" or just about any other euphemism you can choose for "avoid tax payments", companies get away with tax avoidance scott-free regardless of the ersatz tax rate.

Indeed, such "repatriation" schemes, from the stance of global companies, is just one more "transfer pricing" get out of tax jail free card.

Yeah, the US corporate tax rate may or may not be competitive/fair/productive or whatever, but it really doesn't matter if it is never imposed, or if imposed, done so on only a very small portion of profits. So, yeah, they may be taxed at a higher rate, but when if not ever?

Back in 2004 many of these global companies, claiming a tax "home" in the USA, transferred billions of dollars from other tax havens back to the US tax haven is a scheme called "repatriation", but it was like repatriating draft dodgers, only here it was repatriating tax dodgers.

They did it under a cynical scheme, sold easily to the US Congress, called the "Homeland Investment Act of 2004".

Same guys, same scheme is being reheated in the Congressional kitchen under the new banner of the WIN America Campaign, as reported a few days ago by Jesse Drucker in Bloomberg.

Biggest Tax Avoiders Win Most Gaming $1 Trillion U.S. Tax Break

Cisco, Oracle Corp. (ORCL), Microsoft Corp. (MSFT) and others formed a coalition called WIN America Campaign that plans to spend several million dollars pushing the issue.

“We simply don’t think it’s a good idea to do nothing while a trillion dollars sits overseas,” said Doug Thornell, a vice president for the firm who is advising the campaign.

Companies including Google Inc. (GOOG), Apple Inc. (AAPL) and Pfizer Inc. (PFE) are also pushing the proposed tax holiday, which would allow profits to return to the U.S. at a discounted 5.25 percent rate. Under current law, American companies can defer federal income taxes on most overseas earnings indefinitely. When they do return to the U.S., they’re taxed at the corporate rate of 35 percent -- with credits for foreign income taxes paid. Thus, companies paying little overseas face higher U.S. tax bills upon repatriation, and would get more benefit from the discount.

One way multinationals avoid taxes is through “transfer pricing,” transactions among subsidiaries that allow for allocating expenses to high-tax countries and profits to tax havens.

Cisco Systems Inc. (CSCO) has cut its income taxes by $7 billion since 2005 by booking roughly half its worldwide profits at a subsidiary at the foot of the Swiss Alps that employs about 100 people.

Cisco transfers a portion of the patent rights to technology developed in the U.S. to a Dutch unit, which sells some of the resulting products back to its parent for eventual distribution in the U.S., according to annual reports filed by the Amsterdam subsidiary. That means Cisco credits about $5 billion in U.S. sales annually to the Netherlands.

At the same time, most of the income from sales in countries like Germany, France and Japan [and the US], where statutory income tax rates average more than 30 percent, is ultimately transferred to Switzerland, meaning the other nations lose potential tax revenue. The result: Cisco’s international earnings have been taxed at about 5 percent since 2008, records show.

All told, Cisco has accumulated $31.6 billion in overseas earnings on which it has paid no U.S. income taxes yet, records show -- part of more than $1 trillion in U.S. companies’ offshore profits, according to data compiled by Bloomberg. In total, almost 90 percent of Cisco’s cash sits overseas.

Cisco, the largest maker of networking equipment, wants to save even more -- by asking Congress to waive most federal taxes due when multinationals bring such offshore earnings home. Chief Executive Officer John T. Chambers has led the charge for the tax holiday, which would be the second since 2004. He says it would encourage companies to “repatriate” as much as $1 trillion held abroad, spur domestic investment and create jobs.

[In the Homeland Investment scheme, they used these "talking points":

* Increasing domestic investment in plant, equipment, R&D and job creation;
* Increasing investments in business ventures in emerging technologies,
* Increasing funding for pension plans depleted by declines in the stock market;
* Improving the long term financial strength of U.S.-based companies by reducing domestic debt loads, strengthening corporate balance sheets, and lowering corporate bond rates; increasing dividends to shareholders (which can be productively redeployed); and raising equity market valuations by increasing funds available for share repurchases.

Actually, that last point was rather right on the main purpose of the supporters, and perhaps too blatant.]

“I create jobs overseas,” Chambers told interviewer Lesley Stahl on the CBS News program “60 Minutes” in March. “I build plants overseas and I badly want to bring that money back.”

The company needs that cash to prop up its share price.

U.S. companies used $312 billion they repatriated under a 2004 tax holiday largely for stock repurchases, while doing little direct hiring or domestic investment, according to a paper in the current issue of the Journal of Finance by professors at the University of Illinois, Harvard University, and the Massachusetts Institute of Technology. It was the latest in a series of studies that reached similar conclusions.

“Cisco complies with all global tax laws,” said John Earnhardt, a spokesman for the San Jose, California-based company, which makes switches, routers and other products, in an e-mailed statement. “In the past three years alone, Cisco (which has over 35,000 U.S. employees) has paid approximately $4.4 billion in U.S. federal corporate income taxes.” The company reported an effective tax rate last year of 17.5 percent, half the U.S. statutory rate.

While Treasury Secretary Timothy F. Geithner has expressed skepticism about a new repatriation break, Representative Kevin Brady, a Texas Republican, introduced a bill on May 11 that, like the 2004 measure, would not require companies to use their cash for hiring.

Brady declined to address why his measure does not include a hiring requirement. “With millions of Americans seeking work it makes good economic sense to temporarily lower the tax gate and allow up to a trillion dollars of stranded American profits to flow back into our economy,” he said in a statement.

The idea gained momentum last week after Senator Charles Schumer, a New York Democrat, said his party’s caucus was discussing whether short-term revenue from the holiday could fund an “infrastructure bank” to create jobs. Senator John Kerry, a Massachusetts Democrat, has also signaled that he may reconsider his previous opposition.

“Why should we reward firms for successfully gaming the tax system when we in turn are called on to make up the missing tax revenues?” said Kleinbard, a former corporate tax attorney at Cleary Gottlieb Steen & Hamilton LLP. “Much of these earnings overseas are reaped from an enormous shell game: Firms move their taxable income from the U.S. and other major economies -- where their customers and key employees are in reality located -- to tax havens.”

Tax-Free speech

Do we live in the Age of Corporatism?

Well, as we have seen, the Supreme Court has determined that corporations are as free to back politicians and political parties as your average citizen. Sort of a palsy-walsy, in pari passu patronage system, neh?

After all, just like your average citizen, corporations pay their fair share of taxes, don't they?

Don't they?

Ask Barry Ritholtz: Corporate Tax Rates, Then and Now

The GAO reported in 2008 that “two out of every three United States corporations paid no federal income taxes from 1998 through 2005.”

Since tomorrow is April 15th, it is a good time to look at our corporate tax rates. As the graphic below shows, the change in corporate tax rates over the past half century is astounding.

Corporate Taxes as a Percentage of Federal Revenue
1955 . . . 27.3%
2010 . . . 8.9%

Corporate Taxes as a Percentage of GDP
1955 . . . 4.3%
2010 . . . 1.3%

Individual Income/Payrolls as a Percentage of Federal Revenue
1955 . . . 58.0%
2010 . . . 81.5%

The average citizen is now footing way more of the government bill and getting far less per capita bang for her buck in the political arena than corporations. This is a trend that has gone on Guambat's entire life.

Sorry, kids. Hope you find a way to survive in the Age of Corporatism.

The rich thimble game

Who gets the government's largess? The poor, the middle class, the minorities, the welfare bludgers, labor unions, ... the rich???

Commentary: Uncle Sam subsidizes the lifestyle of the rich, famous

The budget hides $1 trillion in spending that primarily benefits wealthy and upper middle-class Americans and corporations.

If we reined in this hidden spending, it’d be a lot easier to balance the budget. But we can’t eliminate it — or even slow its growth — unless we’re willing to look at it squarely and call it what it is: welfare for the wealthy and for the middle class.

I’m talking about private spending that the government subsidizes through loopholes, deductions and credits in the tax code. These tax breaks — known as tax expenditures — subsidize some of the most expensive items in the family budget: buying a home, buying health care, saving for retirement and paying for college and child care.

Because the government provides these subsidies through the tax code instead of through direct spending, the benefits go largely to those who make the most money. A $1,000 deduction provides $350 in benefits to a taxpayer in the top 35% tax bracket, but just $100 to one in the bottom bracket of 10%. The 65% of taxpayers who don’t itemize deductions but take the standard deduction instead get nothing at all.

The richest 20% of families — those who make more than $115,000 a year — capture 71% of the benefits from the housing subsidies, as well as 80% of the benefits of retirement-savings deductions, according to the Tax Policy Center.

Meanwhile, the 20% at the bottom, who make less than $27,000 a year, get just 0.1% of the benefits of the housing subsidies and none of the benefits from the tax breaks for saving. Those in the exact middle 20% — families that make between $50,000 and $75,000 a year — get 8% of the benefits from the housing subsidy and 6% of the retirement subsidies.

The middle class doesn’t get much … just enough to ensure that Congress wouldn’t dare touch these giveaways.

These tax expenditures get in the way of balancing the budget, because the spending is largely hidden from view during the budget process. Congress doesn’t vote on these provisions each year, as it does for discretionary-spending programs, so they don’t get any scrutiny at all. In many cases, a direct subsidy would be a more efficient way of promoting a public good than a tax break.

Most of these incentives don’t actually do what they are intended to do. The deduction for mortgage interest just drives up the cost of housing, rather than making housing more affordable. Subsidies for saving mostly go to those who would save anyway. Also, one of the biggest reasons we can’t control health-care costs is that the tax code encourages us to buy too much health care.

In 2012, these so-called tax expenditures will amount to $1.1 trillion, more than twice as much as the $462 billion budgeted for nondefense discretionary spending. It’s a third of all federal spending, but you never hear about it.

The Republicans aren’t talking about the $1 trillion elephant in the room.

Fortunately a bipartisan deficit-reduction commission is.

Should we really be subsidizing mansions? Or cottages by the lake? Or “Cadillac” health-insurance plans? Or millionaires’ 401(k) plans?

Search Google for "Double Irish" and "Dutch Sandwich"

Photo © Karin Engelbrecht




They are not menu items in a trendy little bistro.


It's more like a zen question: How can you do no evil and pay no tax while making billions of dollars a year?


So, go ahead -- google "double irish" and "dutch sandwich".


Oh, for chrissakes, just click here.

Google 2.4% Rate Shows How $60 Billion Lost to Tax Loopholes

Google Inc. cut its taxes by $3.1 billion in the last three years using a technique that moves most of its foreign profits through Ireland and the Netherlands to Bermuda.

Google, the third-largest U.S. technology company by market capitalization, hasn’t been accused of breaking tax laws. “Google’s practices are very similar to those at countless other global companies operating across a wide range of industries,” said Jane Penner, a spokeswoman for the Mountain View, California-based company.

The tactics of Google and Facebook depend on “transfer pricing,” paper transactions among corporate subsidiaries that allow for allocating income to tax havens while attributing expenses to higher-tax countries. Such income shifting costs the U.S. government as much as $60 billion in annual revenue, according to Kimberly A. Clausing, an economics professor at Reed College in Portland, Oregon.

Facebook, the world’s biggest social network, is preparing a structure similar to Google’s that will send earnings from Ireland to the Cayman Islands, according to the company’s filings in Ireland and the Caymans.

Google’s income shifting -- involving strategies known to lawyers as the “Double Irish” and the “Dutch Sandwich” -- helped reduce its overseas tax rate to 2.4 percent, the lowest of the top five U.S. technology companies by market capitalization, according to regulatory filings in six countries.

“It’s remarkable that Google’s effective rate is that low,” said Martin A. Sullivan, a tax economist who formerly worked for the U.S. Treasury Department. “We know this company operates throughout the world mostly in high-tax countries where the average corporate rate is well over 20 percent.”

The U.S. corporate income-tax rate is 35 percent. In the U.K., Google’s second-biggest market by revenue, it’s 28 percent.

Google, the owner of the world’s most popular search engine, uses a strategy that has gained favor among such companies as Facebook Inc. and Microsoft Corp. The method takes advantage of Irish tax law to legally shuttle profits into and out of subsidiaries there, largely escaping the country’s 12.5 percent income tax.

The earnings wind up in island havens that levy no corporate income taxes at all. Companies that use the Double Irish arrangement avoid taxes at home and abroad.

Meanwhile, the U.S. government struggles to close a projected $1.4 trillion budget gap and European Union countries face a collective projected deficit of 868 billion euros.

As a strategy for limiting taxes, the Double Irish method is “very common at the moment, particularly with companies with intellectual property,” said Richard Murphy, director of U.K.- based Tax Research LLP. Murphy, who has worked on similar transactions, estimates that hundreds of multinationals use some version of the method.

“The sandwich leaves no tax behind to taste,” said Murphy of Tax Research LLP.

“You accumulate profits within Ireland, but then you get them out of the country relatively easily,” said Jim Stewart, a senior lecturer in finance at Trinity College’s school of business in Dublin. “And you do it by using Bermuda.”

Once Google’s non-U.S. profits hit Bermuda, they become difficult to track. The subsidiary managed there changed its legal form of organization in 2006 to become a so-called unlimited liability company. Under Irish rules, that means it’s not required to disclose such financial information as income statements or balance sheets.

“Sticking an unlimited company in the group structure has become more common in Ireland, largely to prevent disclosure,” Stewart said.

The high corporate tax rate in the U.S. motivates companies to move activities and related income to lower-tax countries, said Irving H. Plotkin, a senior managing director at PricewaterhouseCoopers LLP’s national tax practice in Boston. He delivered a presentation in Washington, D.C. this year titled “Transfer Pricing is Not a Four Letter Word.”

“A company’s obligation to its shareholders is to try to minimize its taxes and all costs, but to do so legally,” Plotkin said in an interview.

Technically, multinationals that shift profits overseas are deferring U.S. income taxes, not avoiding them permanently. The deferral lasts until companies decide to bring the earnings back to the U.S. In practice, they rarely repatriate significant portions, thus avoiding the taxes indefinitely, said Michelle Hanlon, an accounting professor at the Massachusetts Institute of Technology.

U.S. policy makers, meanwhile, have taken halting steps to address concerns about transfer pricing. In 2009, the Treasury Department proposed levying taxes on certain payments between U.S. companies’ foreign subsidiaries.

Treasury officials, who estimated the policy change would raise $86.5 billion in new revenue over the next decade, dropped it after Congress and Treasury were lobbied by companies, including manufacturing and media conglomerate General Electric Co., health-product maker Johnson & Johnson and coffee giant Starbucks Corp., according to federal disclosures compiled by the non-profit Center for Responsive Politics.

The rules for transfer pricing should be replaced with a system that allocates profits among countries the way most U.S. states with a corporate income tax do -- based on such aspects as sales or number of employees in each jurisdiction, said Reuven S. Avi-Yonah, director of the international tax program at the University of Michigan Law School.

“The system is broken and I think it needs to be scrapped,” said Avi-Yonah, also a special counsel at law firm Steptoe & Johnson LLP in Washington D.C. “Companies are getting away with murder.”

In February, the Obama administration proposed measures to curb shifting profits offshore, part of a package intended to raise $12 billion a year over the coming decade.

The key proposals largely haven’t advanced in Congress.

US Congressman Dave Camp from Michigan is the Ranking Republican on the House Ways and Means Committee.

He opened a hearing on "Transfer Pricing Issues" in May this year with a complete whitewash of transfer pricing, saying the policies protect American "leaders in innovation" and "these employers provide larger than average paychecks for Americans".

Transfer pricing rules have been a matter of interest for some time and today’s examination will help us all understand a little better how American companies struggle to stay competitive.

Now, it appears by the witnesses invited by the Majority that we will hear the argument that the transfer pricing rules provide an incentive for these companies to ship jobs overseas. If that is the Majority’s real concern – the tax code pushing jobs overseas – then I would suggest we focus on the real problem, which is the corporate tax rate.

shifting to an arbitrary “formula apportionment” system ignores not only the international competition U.S. employers already face, but also ignores the fact that such a move could expose worldwide American companies to double taxation. Unless foreign countries adopted a similar formula – and virtually all use our current “arms-length” standard to determine fair market value – the result could be double taxation.

[This ignores the fact that the techniques used pass through countries with very low to no tax incidents. There can be no double taxation without the second imposition of a tax. It also ignores the foreign tax credits that the US offers to US companies doing business in many or most of its significant trading partners. But ignor-ance seems to be the name of the came here. That and dissemblance, as he continues down a side track; indeed, he jumps the track and careens down a dirt road:]

Before I close, I want to make a particular point with regard to the pamphlet produced by the Joint Committee on Taxation. While I certainly appreciate their efforts, it is critical to note that the Joint Tax Committee, by its own admission, did not look at the transfer pricing practices of a representative sample of American companies. Instead, they focused on only six companies with similar tax liabilities.

Even more significantly, JCT’s pamphlet fails to meaningfully describe other countries’ international tax systems or their transfer pricing regimes, and it does not adequately discuss the global tax treatment or transfer pricing practices of foreign companies that compete directly against the six American companies that were studied.

For those reasons, JCT’s pamphlet, while very informative about the law, comes without the critical broader context that policymakers need to evaluate the effects on international competitiveness of proposed changes to our current law.

Guambat doubts that it was not only the large IT companies (and others) who take advantage of these tax havens. He's quite certain that the tax mavens who contrive, lobby and sell these convenient dodges also manage to discreetly secrete their nice fat fees in these rabbit holes, also.

Guambat can almost here the right-wing chorus warming up with renditions of "Obama Boys" as they try to pin this outrageous con on Obama, with the claim, "well, you know, Google backed Obama".

The Greenspan But

Ahh, the irrationally inscrutable Mr. Greenspan, he of the Greenspan Put.

Mr. Greenspan is now, it appears, older and perhaps wiser. Perhaps just conscious of his legacy.

This is him in testimony in 1998 on regulating the OTC derivatives market, which spun wildly out of control, bringing down the whole CDS and other credit derivatives markets in the last few years:

the Board supports a standstill of attempts by the Commodity Futures Trading Commission (CFTC) to impose new regulations on OTC derivatives

The Commodity Exchange Act of 1936 and its predecessor the Grain Futures Act of 1922 were a response to the perceived problems of manipulation of grain markets that were particularly evident in the latter part of the nineteenth and early part of the twentieth centuries.

Financial derivative contracts are fundamentally different from agricultural futures owing to the nature of the underlying asset from which the derivative contract is "derived." Supplies of foreign exchange, government securities, and certain other financial instruments are being continuously replenished, and large inventories held throughout the world are immediately available to be offered in markets if traders endeavor to create an artificial shortage. Thus, unlike commodities whose supply is limited to a particular growing season and finite carryover, the markets for financial instruments and their derivatives are deep and, as a consequence, are extremely difficult to manipulate.

Etc.

This is him again in 2002 discussing bank regulation more broadly:

an ever burgeoning global financial system also inevitably raises the potential of increasing systemic risk. Here I would like to focus on a narrower, but nonetheless increasingly important, issue: the nexus of risk-taking, regulation, innovation, and wealth creation.

evolution in financial structure has also meant that supervision and regulation must be continually changing in order to respond adequately to these developments. In today's markets, for example, there is an increased reliance on private counterparty surveillance as the primary means of financial control.

An example more immediate to current regulatory concerns is the issue of regulation and disclosure in the over-the-counter derivatives market. By design, this market, presumed to involve dealings among sophisticated professionals, has been largely exempt from government regulation. In part, this exemption reflects the view that professionals do not require the investor protections commonly afforded to markets in which retail investors participate.

But regulation is not only unnecessary in these markets, it is potentially damaging, because regulation presupposes disclosure and forced disclosure of proprietary information can undercut innovations in financial markets

But unfettered competitive capitalism is by no means fully accepted as the optimal economic paradigm, at least as yet. Some of those involved in public policy often see competition as too frenetic. This different perspective is captured most clearly for me in a soliloquy attributed to a prominent European leader several years ago. He asked, "What is the market? It is the law of the jungle, the law of nature. And what is civilization? It is the struggle against nature." A major determinant of regulatory regimes is how a rule of law is applied to strike a balance between the perceived benefits of wholly unfettered markets and the perceived societal costs of overly fierce competition.

The extent of government intervention in markets to control risk-taking is, at the end of the day, a tradeoff between economic growth with its associated potential instability and a more civil but less stressful way of life with a lower standard of living.

Those of us who support market capitalism in its more-competitive forms might argue that unfettered markets create a degree of wealth that fosters a more civilized existence. I have always found that insight compelling.

And here, at last, is Mr. Greenspan discussing this topic in 2008:

Greenspan Says He Was Wrong On Regulation

The former chairman of the Federal Reserve said the crisis had shaken his very understanding of how markets work, and agreed that certain financial derivatives should be regulated -- an idea he had long resisted.

"You found that your view of the world, your ideology was not right, it was not working?" said Rep. Henry A. Waxman (D-Calif.), the committee chairman.

"Absolutely, precisely," Greenspan said. "You know, that's precisely the reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well."

Waxman asked whether the former chairman was wrong to consistently oppose regulating the multitrillion dollar derivative market that has contributed to the financial crisis.

"Well, partially," said Greenspan, before stressing the difference between credit-default swaps and other types of derivatives.

Greenspan seemed genuinely perplexed yesterday by all that had happened, hard-pressed to explain how formerly fundamental truths about how markets work could have proved so wrong.

"I made a mistake," Greenspan said, "in presuming that the self-interests of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and their equity in the firms."

"The Federal Reserve had as good an economic organization as exists," Greenspan said. "If all those extraordinarily capable people were unable to foresee the development of this critical problem . . . we have to ask ourselves: Why is that? And the answer is that we're not smart enough as people. We just cannot see events that far in advance."

BUT ..., he said:

"We have to recognize that this is almost surely a once-in-a-century phenomenon," Greenspan said, "and in that regard, to realize the types of regulation that would prevent this from happening in the future are so onerous as to basically suppress the growth rate in the economy and . . . the standards of living of the American people."

And, now, here he goes again. While he supported the Bush tax cuts when they were proposed, he's not supporting their extension.

He would, BUT ....

Greenspan Calls for Repeal of All the Bush Tax Cuts

“I’m in favor of tax cuts, but not with borrowed money,” Mr. Greenspan, 84, said Friday in a telephone interview. “Our choices right now are not between good and better; they’re between bad and worse.

"The problem we now face is the most extraordinary financial crisis that I have ever seen or read about.”

There are plenty more backtracks, qualifications and prevarications in that NYT piece.

It's sure to make him the BUT of many more jokes.

Taxing the imagination?

Lexington, Kentucky? Interesting place to see this editorial.

Rebelling against lower taxes?

Most Americans don't know they got a tax cut last year, according to a New York Times/CBS News poll.

Seventy-nine percent said the Obama administration had raised taxes or kept them the same.

Only 12 percent knew that most Americans are paying less in federal income taxes.

Ninety-eight percent of working families and individuals got a tax cut, saving them an average $1,158

The top 1 percent in Kentucky (average income $769,270) got an average tax cut of $3,644 mainly because of relief from the alternative minimum tax.

It's probably a safe bet that most Americans also don't know that federal taxes are lower now than they have been in most of our lifetimes.

Read more: http://www.kentucky.com/2010/04/16/1226417.html#ixzz0lF4Qeoyz

Putting an end to a capital idea

Gain on stock are generally treated as capital gain. But not when the gain is from stock given as compensation for services. Then it's ordinary income. (That is an oversimplification because of the rules put in place to try to change the character back to capital in the years since stock options have become such an integral part of some paychecks.)

Ordinary "income" from your wages and other service compensation has traditionally been taxed at higher or less concessional rates than "profits" from capital assets. It's one of the ways the rich get richer.

Interest income is also taxed at ordinary rates, but interest paid to purchase capital assets is deductible from ordinary income received. (Again, oversimplified to ignore numerous anomalies.)

With that basic notion of the difference between tax treatment of capital and income, consider this:

Managers of investment partnerships typically are paid 2 percent of fund assets as an annual management fee and 20 percent of the profit earned for investors above certain levels. While the management fee is taxed as income, the share of profit, known as carried interest, is treated at the capital- gains rate

Seem fair to you?

The spin given in this article, starting with its title, clearly seems to want you to. Pay attention to the fanciful use of italicized words.

Senate Considers Tax Rise on Buyout-Firm Managers, Schumer Says

The U.S. Senate, seeking funds for jobs bills and other initiatives, will consider adopting a House proposal to more than double tax rates on executives at private- equity firms, said Senator Charles Schumer, a New York Democrat. [This is not a rates issue, it's a characterization issue. And it's not a tax on executives, but on the compensation they earn from their services.]

The proposal, projected to raise $24.6 billion over a decade, would affect venture capitalists, managers of real- estate partnerships, and hedge-fund managers who make long-term investments. [It is not an investment, it's deferred income, based on the investors' income. These guys just make and manage the investment for a fee. Real estate agents who manage property for other owners also get a percentage of the rent due under the lease, which is taxed as ordinary income.]

Democrats in Congress need to tap new sources of revenue for any spending after the passage last month of the $940 billion health-care bill. [This tries to make it seem an unfair grab to underwrite what some keep wanting to portray as a grubby health bill. No one mentions how unfair it was that this scheme was allowed to go on in the first place.]

“Even though the measure doesn’t produce a lot of revenue, it’s good economic policy,” Geithner said at the time. Investment managers shouldn’t be paying less in taxes than firefighters, he said.

Senate Finance Committee Chairman Max Baucus, a Montana Democrat, said through a spokesman in December that he wanted to address the carried-interest issue in the context of a broader overhaul of the tax system. [Wolves up in Montana know that the first thing you have to do to get a kill is to cull the prey from the herd.]

Buyout managers are getting back to business after the global credit crisis that began in 2007 prevented them from buying companies or selling assets. About $14.2 billion worth of private-equity deals have been announced in 2010, compared with $3.36 billion in the same period a year earlier, according to data compiled by Bloomberg. [Private equity buy out managers were a contributing cause of the credit meltdown. See here and here, etc.]

John Chapoton, a partner at Brown Advisory in Washington who served as a top tax-policy official under President Ronald Reagan, said both venture capitalists and buyout firms are defending an undeserved tax break.

“Capital-gains rates are meant to encourage investment of risk capital; there is no capital placed at risk when a carried interest is received for services rendered,” Chapoton said.

“The preferential treatment of carried interests would not be in the law except for an historical anomaly, and its repeal would not warrant any thought on the Hill but for large campaign contributions.” [Amen to that.]

Middle class taxpayer revolts over state tax

Why do I pay only $474 in Virginia income tax?

The trouble is that the decision-makers in Richmond, particularly the Republicans, coddle the well-to-do and threaten to starve state services to levels seen only in the Third World.

Virginia's tax system, with a marginal tax of only 5.75 percent on income over $17,000, and no tax on estates, is rigged for the rich and against the middle class.

I am an 81-year-old Arlington resident who has just completed his Virginia tax return and finds it unfair that younger Virginians pay eight times as much as I do.

Virginia is overlooking the foolishly generous income tax break it gives its affluent elderly. My wife and I had a federal adjusted gross income of $92,000, but our state income tax bill came to only $474, about one-half of 1 percent, compared with the $7,529 we paid to the feds.

With a total income of almost $100,000 a year, we pay all of $1.30 a day in state income taxes. But a 40-year-old couple with my income would pay the state $3,716 in taxes, about eight times what my wife and I pay.

If guambats had hands instead of paws, Guambat would like to shake that man's hand.

Tobin Hood tax??

As Guambat mentioned in a post last November, world leaders (except in America) were calling for imposition of what was then termed a "Tobin tax".

As explained in the post, the idea was the brainchild of James Tobin, an American economist, Noble Prize winner. He came up with the idea back in the 1970's. He proposed a minuscule tax, at least as measured on a per transaction basis, on currency transfers to discourage purely speculative gambits without interfering with the real business of currency transfers.

The current idea is to attach it to derivatives to discourage the speculative volatility seen in the markets and the speculative bubbles that have predominated in financial instruments of late.

Curiously, we now, suddenly, are seeing it caste as a "Robin Hood tax".

Robin Hood banking tax 'would raise billions'

Last month, the World Economic Foundation gave its backing to a levy on financial institutions that would be used to help bail out banks in any future crisis. The call was backed by politicians and the International Monetary Fund (IMF) at its gathering in Davos.

Meanwhile, the European Union has been calling on the IMF to back the plans for a so-called "Tobin Tax" on international transactions.

The tax, named after the Nobel Prize-winning economist James Tobin, was originally designed to raise funds for developing nations, but many supporters now say it is one way to ensure that banks do not take excessive risks that could trigger another financial crisis.

Under the Robin Hood Tax plan, the tax would not be levied on banks' transactions with their high street customers.

The outcome of a debate is all about how you frame it. Curiously, the people framing the debate as a Robin Hood matter are not people opposed to the idea. Guambat says "curiously" because he is certain that anything as populist sounding as a Robin Hood anything is bound for derision.

It appears the Robin Hood proponents are all from the lands of the Sheriff of Nottingham:

A coalition of charities, unions and aid agencies have called on the UK's political parties to support a global "Robin Hood tax" on financial transactions that could raise up to £250bn every year to fight poverty, protect public services and tackle climate change.

Guambat reckons they ought better be advised.

Oregon tosses out the first snow ball??

US State budgets north and south, east and west, and most points in between are busted.

New Year but No Relief for Strapped States

Looking at its choices, Oregon has elected to raise taxes.

Oregon voters OK tax hikes on wealthy, businesses

So does that little bit of populism neutralize the Brown election win in Massachusetts?

More to the point, as the Christian Science Monitor rhetorically asks,

Will Americans raise taxes to curb deficits? Oregon a test case.

A vote in Oregon Tuesday will resonate far beyond the Cascade Mountains as a gauge of whether Americans will support tax hikes to keep budget-strapped governments afloat.

Several states raised taxes last year on high-income earners, as the measure in Oregon would do. But in Oregon, the issue is directly in voters hands, not with the state legislature.

And Oregon voters handed out a tax hike.