Swiss-based multinationals such as commodities trader Glencore will receive subsidies and other incentives under plans Switzerland is drawing up to maintain its competitive tax rates, even as the country prepares to sign-up to the G7’s new plan for a global minimum tax on big businesses.
Bern is consulting its cantonal governments — which set their own corporate tax rates — to examine how measures such as research grants, social security deductions and tax credits could create a “toolkit” to offset any changes to headline tax rates, officials told the Financial Times.
Here is the full FT story by Sam Jones.
Sent this to [redacted, a man of substance] yesterday. LN = Lightning Network, Bitcoins layer 2 scaling solution based on channels:
As far as I understand it, everyone using LN in El Salvador has primarily been using Strike. Classic crypto conundrum in that they had to centralize to get it to work. There is a Twitter thread with the CEO where he shows they had to block their software using most non Strike LN nodes because there were so many failed payments.
Also looks like you submit USD and they have some kind of centralized payment system to manage the transactions to the Bitcoin layer 1 chain.
I imagine this is a big improvement for people in El Salvador and I’ve heard Strike has already been popular, but I don’t see it as what is being touted as.
Additionally to the email above:
There was an out at the end of the law that says you don’t have to accept Bitcoin if you are too poor. But a basic smartphone with the app means you can accept it. There is a small town where a donor gave the town Bitcoin and forced them to use it as currency and even started doing a private UBI in Bitcoin. Some of the stores started taking it. Strike is only available in the US and El Salvador. So in a truth is stranger than fiction, the idea probably got jumpstarted by a surfer that loved both a beach town and bitcoin. Helps that El Salvador uses the dollar. The legislators would just have to drive to the town to see how it works rather than read about it.
To me this is more like a new kind of bank than some decentralized currency takeover, because Strike is relatively centralized. Being like a bank probably implies some of the same advantages and vulnerabilities of a regular bank. The PR is nice! Not having to get cash at a Western Union that might be far (and where you can get robbed) could have more impact than cheaper fees. It will be a few years before the technology exists to do this in a more decentralized way. Interesting nonetheless.
A $100 exposure in bitcoin would result in a minimum capital requirement of $100, Basel said. The standards would apply to assets created for decentralised finance (DeFi) and non-fungible tokens (NFTs), but potential central bank digital currencies were outside the scope of the consultation, it added.
Here is more from the FT. While that is an entirely understandable move, the net result will be to hinder the incorporation of crypto into the traditional banking system, and speed the growth of non-bank crypto institutions. How they will try to regulate those is of course the more important question.
Here is FT coverage, I still feel I don’t know the whole story, but bitcoin will be legal tender and furthermore:
The government will set up a trust at the Development Bank of El Salvador to enable automatic conversion of bitcoin to dollars. The law will take effect 90 days after its publication in the official gazette.
“The entry of bitcoins will be equivalent to an increase in the country’s monetary supply, which will temporarily boost El Salvador’s economic activity, but will also pressure inflation higher and with that, interest rates will rise,” Gabriela Siller, head of economic analysis at Banco Base in Mexico, said in a note to clients.
Here are a few observations:
1. El Salvador already uses the U.S. dollar, so there is not much loss of monetary sovereignty here.
2. Maybe the easing into bitcoin is intended to lower the cost of sending remittances from the U.S., which are fundamental to the El Salvadoran economy? According to the FT, remittances are about one-fifth of gdp, and transfer charges can be steep.
3. Is this all just?: “You don’t have to move to Puerto Rico to avoid capital gains tax, you can just invest in El Salvador! We’re going to precommit to accepting your bitcoin so you will plan around that.”
3b. Isn’t it suspicious that their legislature approved the legal tender law by such an overwhelming margin? Is it that they all have read and digested so many Medium crypto essays? Or do they just see this as “a deal”?
4. I don’t see why this should increase price inflation in El Salvador. Prices are denominated in dollars, and El Salvadorans, or for that matter visiting tourists, already had the option of converting their crypto into dollars before buying more pupusas.
5. Even in the United States the retail demand for bitcoin transactional use has been quite low. Making merchants in El Salvador take bitcoin seems like a PR move to me. What does it mean to make a low-tech merchant in the countryside “take bitcoin”? How is he supposed to take it? Do the abuelas in the market have to set up Coinbase accounts?
6. Could this be a transitional or bridge move to ease El Salvador away from the U.S. dollar and to replace it with a native currency?
7. Is the increasingly authoritarian government of El Salvador looking to PR moves to boost its international legitimacy?
8. Given all the surrounding publicity, it does seem that “they really mean it,” and the government will try to “get something” out of the initiative.
I will keep you posted as I learn more. But as a general rule, if Central America is the laboratory for your ideas, beware before leaping to conclusions too quickly! At the very least do go visit the country you are wondering about, and, in trying to understand the equilibrium, have the country more prominent in your mind than the innovation.
Sometimes I wonder if I should blog on topics where I feel most of you already know what I think. I’ll just say this. The information was stolen illegally, yet on Twitter so many intellectuals were crowing about the disclosure. (Did some of those same people condemn the theft from Biden Jr.’s laptop? How many of them, in other contexts, will defend strong rights of privacy? I guess that right is for everyone except rich people who create a lot of jobs and output.)
ProPublica acted unethically, and in fact nothing fundamentally new or interesting or surprising was learned from their act as accessory.
The real story is how the numbers were obtained, and here I fear the worst. A single rogue agent can’t just pull up the files of rich people on demand, as I understand the system (if so, Trump’s return would have leaked a long time ago). So this was probably a coordinated effort of some sort, is it crazy to suspect the Russians having some role in it? Who else has the will and ability? (China has the ability, but the “coddled rich people” meme is not one they are looking to push.) What other breach of national security has occurred in the process of unearthing this information? How was it done? Are conspiracy theories becoming more true these days?
It is stunning to me how little consideration these issues are being given and how poorly so much of our MSM has performed.
In my latest Bloomberg column I consider the NBA:
A conservative estimate is that sports betting in the U.S., both legal and illegal, amounts to about $150 billion a year. How much of that is on basketball is an open question, but the NBA generates about $8 billion of revenue a year. It is quite possible that betting on the NBA already generates more revenue than the NBA itself, so integrating betting money into the sport could have a major influence.
The appeal of all this betting money brings me to my second worry: that the NBA, for commercial reasons, will create more bettable events, such as a mid-season tournament. Tennis is well-suited for betting (and corruption) because there are so many discrete wins and losses distributed across games, sets, matches and tournaments. Very frequently something decisive is on the line.
I prefer the longer story arc of a basketball season. Unlike the French Open, which takes place over the course of two weeks, the NBA season is nine months long, and the ongoing stories often are the relatively small events, understood primarily by the harder-core fans. That requires more patience, but it makes for a richer long-term narrative.
To be clear I think sports betting should be legal, but simply done apart from the leagues, such as in Las Vegas or through non-league-affiliated apps. And this:
The backdrop is that in 2018 the Supreme Court struck down federal restrictions on sports betting, clearing the way for states to allow the practice. State laws vary, and even when sports betting is legal, it may be restricted to casinos or to mobile devices. But the trend is to allow more betting, not less.
Again, the question is not whether sports betting should be prohibited. It’s how much official sanction it should receive. What would you think of a university that allowed betting on which students passed their exams? Like schools, sports leagues play roles as rule-setters and impartial referees. Maintaining that role is more important than pursuing the gamification of everything.
The Californians have not been solely occupied with “the diggings.” They have found time also to construct a set of institutions…It is worthy of remark how instantaneously any body of American emigrants, as soon as they have formed a settlement, proceed to make a constitution; though European authorities of no small account in their own estimation, are never tired of assuring us that constitutions cannot be made. But while these sages are stoutly denying the possibility of motion, the Americans, one after another, like Diogenes, rise up and walk; and not one stumble has occurred to mar the completeness of the practical confutation. Whatever other faults have been found with the Anglo-American constitutions, no one has yet said that they will not work; a fate so often denounced against all constitutions except those which, like the British, “are not made but grow,” or, it should rather be said, come together by the fortuitous concourse of clashing forces.
Mill in particular praised that the California Constitution gave women the right to own their own property. From the Toronto edition of the Collected Works, vol.XXV.
Written from the British context:
Should the system be changed to one where companies are taxed on all the profits they make from their sales in the country?
There are a few downsides to this.
First of all it would be very hard for one country to switch to such a system without getting the rest of the world to do it too. If we did it unilaterally it would open up more differences between national tax regimes and so create, rather than reduce tax avoidance loopholes.
It is also far from clear the UK would gain from such a change. We might gain from some of the big US-based multinationals paying more tax here, but we have plenty of multinationals of our own and they would generally end up paying less here. The biggest losers could well be poorer developing countries, especially those reliant on extractive industries such as mining. If they could only tax companies based on their sales to their residents in that country that would bring in a lot less than taxing them on the share of the economic value of the products generated in that country. The UK itself still generates between 8 and 9 percent of Government revenues from corporation tax, which is pretty respectable internationally, despite being a very open economy exposed to competition.
There is also an economic question as to who ultimately bears the burden of taxes on a company – is it the shareholders, the customers, or the workers, and if the workers, is it the highly-paid top management or the people at the bottom? The answer is not certain, but it does seem likely that a shift to sales-based tax would be at the expense of the customers. In other words, by taxing internet-based suppliers more, we could be more heavily taxing ourselves.
But the strongest argument against is fairness. If a product is invented / developed / mined / refined / built and potentially even marketed and sold all round the world entirely from country X, making use of staff educated in country X, who use country X’s health care system and transport network, often with tax breaks from country X to encourage its growth, and maybe even wage subsidies from country X for its employees, who deserves to be able to tax the company’s profits? Is it country X, or every country that has someone in it who buys a product from the company? Of course if a country wants to tax sales it can, and sales taxes such as VAT are a perfectly reasonable and sensible part of a country’s tax mix; though in the EU, this is governed to a considerable extent by EU rules.
There are many further detailed points at the link. And do note this:
There is a perceived issue with the internet making it easier than ever for companies to ‘sell into’ a country with little or no presence in that country, and therefore offering little or no taxable base for the government of that country to tax the profits of. Sales taxes can be part of the answer to this.
But of course a sales tax does not appear to consumers to be a free lunch, and so it is not as politically popular as a sales-based hike in corporate rates. And so we arrive at the current mess of a situation: “We want tax equity, but you can’t possibly expect us to do that in a way that is transparent!”
The G-7 nations have coordinated (NYT, FT here) to announce a minimum corporate tax rate of 15%. Even if seen through, that doesn’t mean all rates must be at 15% or higher, rather if a rate is at 5% another country (the home base country? the countries where the customers are?) gets to tack on another 10% to make the total take 15%. That limits the incentive to post very low rates in the first place, by checking the gains from tax haven strategies.
One perennial question is whether the 15% rate is defined over gross or net income. You don’t want to tax gross income, especially if the business under consideration actually is making a loss. In any case, you basically end up taxing business income acquisition per se.
If it is net income you are taxing at minimum 15%, you haven’t done as much to limit tax arbitrage as you thought at first. Especially if the multinational and its subsidiaries engage at arm’s length transactions with shadow pricing, etc. Net income is a major object of the actual manipulations, and would become all the more so under this new plan, assuming it is applied to net income. Won’t countries wanting to play the tax haven game end up with very lax definitions of “net income”? (Or for that matter gross income?) Or does that get regulated as well?
The more likely outcome of the current round of reform will be a continuation of the decline in corporate rates that we’ve seen for four decades. Even amid the push to prevent tax-base erosion in recent years, 24 of the 37 members of the Organization for Economic Cooperation and Development have cut their corporate tax rates since 2008, while just seven have raised them. Statutory corporate tax rates have trended downward by about 5% a decade since 1980 to the current situation, where the average sits at around 24%. Nations that want to compete with lower-taxed jurisdictions may find the pull of 15% irresistible.
The risk now is that 15% becomes not just a minimum, but an anchor for maximum tax rates as well.
In other words, the tax haven tax competition game is redone with a 15% floor, but the agreement also pinpoints a corporate tax rate that is “good enough” and would come to be seen as “best possible treatment.” Neither of those are forcing moves which would require countries to drop their rates to 15% in the resulting equilibrium, but yes I agree with Fickling that there might be a good deal of clustering right at or near 15%, accelerated by this plan of course.
Note also that, under the plan, the 100 largest corporations would have to pay tax in proportion to where they sell their goods and services, even if they are not formally located in those countries (will there be a literal notch right at “company #100”?). Ireland loses big on that provision, as in essence more corporate tax revenue would be routed to larger countries such as France and Germany. In how serious a manner would companies have to keep track of their customers? (What happened to privacy law here? Or did they never really care much about privacy to begin with!? What are crypto companies supposed to do about this?)
Biden wants to raise the U.S. corporate tax rate to 28 percent, and Ireland, one of the major supposed villains in this game, has a rate of 12.5%. So fifteen percent just isn’t that outrageously high, even if companies do end up having the pay that actual rate (though see above about gross vs. net income, and what other “outs” will there be?).
The European digital taxes may be scrapped as well (with the details under negotiation and no one wanting to “move first”), which would ease a wee bit of the burden on the major tech companies from the broader change.
Here are various observations from Soumaya Keynes.
Is the underlying view that the U.S. Congress is supposed to approve this without further renegotiations? How about the other countries?
As millions of cicadas began emerging in Loudoun County about two weeks ago, Chef Tobias Padovano at Cocina on Market in Leesburg began foraging for the noisy insects and serving them in tacos.
That is, until last week when a customer ordered and ate the cicada tacos, only to later complain to the Loudoun County Health Department, which then forced the restaurant to temporarily stop serving them.
Victor Avitto, an environmental health supervisor with the Loudoun County Health Department, told the Times-Mirror that the cicadas needed to be sourced from an approved food source, and only then it would it be fine to serve them.
“They need to be sourced from a farm that is inspected and certified,” he said.
On Wednesday, Padovano said he found an online source for cicadas from Dubai which was approved by Avitto, allowing for the sought-after cicada tacos to again be served.
Here is the full story, via HHL.
Based on a panel between 1980 and 2016, I find that one more Sunday with precipitation at the time of church increases yearly drug-related, alcohol-related and white-collar crimes. I do not find an effect for violent or property crimes. These effects are driven by more religious counties. Previous evidence showing negative effects of church attendance on the demand for alcohol and drugs is consistent with a demand-driven interpretation of the results presented.
Here is the close of my latest Bloomberg column:
On a related note: Have you noticed that private universities often have a stronger “woke” culture, and less free speech, than public universities? This fact is also somewhat of an embarrassment for many libertarians. Though libertarian-leaning, I am myself happy to be teaching at a public institution, with its stronger legal and normative free-speech protections.
Might the parallel run deeper here? Perhaps the currently enforced codes of wokeism at many universities and technology companies are like mask-wearing norms. Maybe people would be willing to relax more about these issues once someone gives the signal that it is OK to do so.
That would imply that extreme wokeism, like mask mandates, won’t last long. More than just libertarians, perhaps, can take comfort in that.
There is much more at the link.
The Centre [national government] has asked states and Union Territories to initiate legal or administrative action against private institutions which are offering packages for COVID-19 vaccination in collaboration with hotels, noting that this is in violation of prescribed guidelines.
In a letter to all states and UTs, Additional Secretary to the health ministry, Manohar Agnani, said it has come to the notice of the ministry that some private hospitals have been offering vaccination packages with hotels, against the guidelines issued for the National COVID-19 Vaccination Programme.
Here is more from The Wire, via Rama. Obviously running vaccines through hotels adds explicit pricing and tends to allocate more vaccines to the wealthy (on average the relatively productive), and to boost total vaccine supply. So economists will see more merit in this idea than the Indian government does.
Canada wants to force YouTube, TikTok and other video- and audio-sharing sites to prominently feature more of the country’s artists, a move that digital-law experts and former government officials call one of the most aggressive internet regulations yet from a Western country.
The aim to promote domestic content on the sites is a step in the Canadian government’s multipronged effort to get the world’s biggest digital companies to contribute more financially to the country’s economy. Canada has vowed to levy a digital-services tax starting in 2022, regardless of whether there is a global deal among Organization for Economic Co-operation and Development members on such a tax this summer.
The Liberal government also intends to follow Australia in trying to get digital platforms to compensate media outlets for content, and to create a new regulator to police hate speech and other harmful online activity.
Here is more from the WSJ. I recall being a participant in trade negotiation sessions, way back when, and saying to the Canadian rep.: “What are you going to do when everyone consumes culture through the internet? Enforce quotas on that too?”
Even back then, of course, I understood that it was the pro-Canadian effort that was being valued in policies such as these, not the results per se. Perhaps the equilibrium is that the regulators tell the tech companies they have to tweak the algorithm to favor more Canadian content, there isn’t really an enforceable standard, the tech companies do in fact tweak the algorithms somewhat, culture consumption changes only marginally, and everyone goes away “happy enough.”
NYTimes: On average, people in more individualist countries donate more money, more blood, more bone marrow and more organs. They more often help others in need and treat nonhuman animals more humanely. If individualism were equivalent to selfishness, none of this would make sense.
…individualism promotes a more universalist outlook. In focusing on individual rights and welfare, it reduces the emphasis on groups — and the differences between “us” and “them” that notoriously erode generosity toward those outside one’s own circle.