Category: Web/Tech

Some points about corporate tax

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!”

Tax incidence on competing two-sided platforms

That is a paper by Paul Belleflamme and Eric Toulemonde, from a few years ago:

We analyze the effects of various taxes on competing two-sided platforms. First, we consider nondiscriminating taxes. We show that specific taxes are entirely passed to the agents on the side on which they are levied; other agents and platforms are left unaffected. Transaction taxes hurt agents on both sides and benefit platforms. Ad valorem taxes are the only tax instrument that allows the tax authority to capture part of the platforms’ profits. Second, regarding asymmetric taxes, we show that agents on the untaxed side benefit from the tax. At least one platform, possibly the taxed one, benefits from the tax.

This may all turn out to matter more if the new multinational corporate tax regime comes into existence.  Of course you can vary the assumptions further yet, and get additional and differing results, but please keep in mind: the tax you impose is not the incidence you get.

Chris Anderson of TED interviews me

Here is the full podcast series and also other ways to listen.

@pmarca lets loose

Don’t underestimate yourself! The great writers of the past tended to be disassociative cranks. Diogenes Laertius says Heraclitus lived “by himself in the mountains, feeding on grasses and herbs” and died by burying himself in literal dung. Rousseau condemned his own children to the hell of an 18th century orphanage while sanctimoniously passing judgment on the rest of society. Nietzsche went insane protecting a horse from a whipping, and in his last messages to the world demanded the pope be jailed and all anti-Semites shot. You see, you fit right in.

And that is one of the more anodyne parts of the interview.  And yes it has been confirmed to be real.  Here is another one of the boring parts:

I predict that we — the West — are going to WEIRDify the entire world, within the next 50 years, the next two generations. We will do this not by converting non-WEIRD people to WEIRD, but by getting their kids. Their kids, and their kids’ kids, are going to grow up on the Internet at least as much as they grow up in the real world, and the pull of WEIRD culture will overwhelm all existing non-WEIRD cultures. I realize this is a very strong claim, but this process is already underway; at this point I think it’s inevitable. The cost of this will be a collapse of global cultural diversity exactly as you and Rozin predict.

Niccolo Soldo is the interviewer.

The Ford F-150: An Electric Vehicle for Red America

The Ford F-150 truck has been America’s best selling vehicle for forty years! (Bubble test: Do you own one or know someone who does?) The new version, the F-150 Lightning, goes into production in 2022 and it’s electric. Even today there is still the whiff of “liberal America” around electric vehicles but what’s impressive about the Lightning isn’t that it’s electric, it’s that it’s a better truck. The Lightning, for example, can power a home and work appliances from its 11 outlets including a 240 volt outlet! Look at this brilliant ad campaign:

Security and peace of mind are invaluable during severe weather and unpredictable events. That’s why Ford helps ensure you never have to worry about being left in the dark…

Security, peace of mind, don’t be left alone in the dark…all great conservative selling points. Note the truck in the picture is powering the house and the chain saw. The husband and wife, their home and their truck, project independence, success and confidence–a power couple–even with a nod to diversity.

The Lightning is also fast with 0-60mph times in line with those of a Porsche 911 circa 2005, it has more carrying capacity (thanks to the smaller electric motors) than a similar gas vehicle, and it can tow a respectable maximum of 10,000 pounds with all the options.

The Lightning might succeed or it might fail but it won’t fail on politics, this is a vehicle a red-blooded, meat-eating skeptic of global warming could love.

The polity that is Canada

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.”

Omid on central bank digital currencies (from my email)

Really enjoyed your conversation with Mark [Carney] (as usual). I give him a B+ on his views on CBDCs. He gets credit for understanding that if nothing is done, then digitization means a disappearance of public money in the economy except for the banks. This has a lot of consequences, most of which are bad. There is no access for the unbanked, higher fees, lower privacy and more credit risk throughout the system.

Where Mark goes astray is by mentioning this oft proposed two-tier model for CBDCs, which is just a fallacy. Fiat money is a liability, and each unit can either be a liability of a central bank or commercial bank, it can’t be both. So if the Fed issues a digital dollar to the banks, and the banks issue private claims to their customers, we haven’t achieved anything, other than maybe a marginally better RTGS system. A real CBDC means the public can hold direct claims against the central bank, as it does today with cash.

Now, this is the point at which the skeptics say “what about disintermediation of the banks?” To that I say: so what? If lending via depository institutions (as opposed to via the bond market, money markets, etc) is a good, then the market will adjust to provide it. One way to think about the existing two-tier model is that savers are forced to subsidize borrowers. E.g., I want to make payments, so I have to open a checking account, for which the bank pays me no interest. The same model will exist with CBDCs, it’s just that banks will have to pay higher interest to attract deposits, or offer other value-added services.

CBDCs also allow lending via DeFi, which is more price efficient for savers and borrowers, so that will offset any increase in borrowing costs.

Paul Krugman or…LaMelo Ball?

Charlotte Hornets guard LaMelo Ball will become the first athlete to enter the world of dynamic nonfungible tokens (NFTs) when he releases a set of 500 prior to the announcement of the NBA Rookie of the Year in June, ESPN has learned.

NFTs are unique blockchain-based tokens that give owners specific rights to the asset — photograph, video clip, artwork — they represent. Dynamic NFTs are a recent technological advancement and, unlike conventional NFTs, have the ability to change over time. If Ball is named Rookie of the Year, the 500 NFTs will automatically update to include the award, which is expected to increase the value of the collectible.

“As I learn more about blockchain, I realize this is the most powerful and unique way to engage my fans in a way that’s special to them individually,” Ball tells ESPN. “I see this as the future for fans and athletes connecting together.”

Here is more from ESPN.  In the meantime, “UC Berkeley Will Auction NFTs for 2 Nobel Prize Patents.

Austin Vernon on digital dollars (from my email)

I was curious about if banks had many use cases for stablecoins, so I talked to [redacted] who works at a nationwide bank that focuses on small business lending. The use case he mentioned was that sometimes they need cash very quickly to stay within their requirements but wires are slow and cumbersome. If you could use a crypto network, the settlement time in minutes would be a big advantage.

The mechanics don’t quite work out because they would also want to use a product that does not change valuations compared to dollars. Stabecoins should fit the bill, but to transfer stablecoins from one bank account to another you would have to wire or ACH someone like Coinbase, do the transaction on chain, then withdraw the money from coinbase. So it would not be fast.

It is possible to imagine where every bank has their own stablecoin backed by US dollars they hold 1:1. It’d be like the days of banks issuing their own gold back notes. If Alice Bank needed more USD, they could borrow from Bob Bank. The actual mechanism might be that Bob Bank uses cash reserves to instantly create USDB and sends the USDB to Alice Bank’s wallet. Alice Bank then goes to Uniswap and trades USDB for their own USDA stablecoin. Alice Bank then retires those stablecoins and releases cash from their stablecoin cash reserves into their general fund. Any customer of Alice Bank or Bob Bank could do this same transaction with other bank customers to have cash faster than an ACH.

Can this happen today? Uniswap 3.0 is a leap forward for adding liquidity for automated market making and is especially beneficial for stablecoin transactions. There are practical limits on small transaction sizes and very large transaction sizes. The biggest practical transaction is limited by liquidity in the trading pools. Uniswap 3.0 should make this much larger than previous automated market makers, the actual amount depends on how much liquidity the market makers provide. The smallest size is limited by fees. Uniswap is launching Layer 2 scaling very soon, but the scaling is optimistic roll ups that utilize fraud proofs. If the banks were only transacting in Layer 2 this would not be a problem, but with fraud proofs it can take one week to take funds out of Layer 2 into the main Layer 1 chain. ZK-SNARK based roll ups would fix this, allowing instant settlement, and are progressing rapidly, but aren’t available yet. Blockchain technologies are still somewhat immature for this use case, but that capability is rapidly approaching.

Banks are so regulated they may not want to get involved without regulators giving them a nod. If the government favors a digital dollar, they may not want to give that nod. I think China has made its preference clear. They want a digital yuan and independent crypto networks will be subordinated. Very soon governments and central banks might have a choice between writing 100 pages of regulation that clarify standards for registered banks creating stablecoins and de facto creating a digital dollar system or embarking on a very large project to create their own digital dollar that requires much more work and owning implementation risk.

Will be fun to watch!

Matt Yglesias on the dynamics of Twitter

Social media is truly social in the sense that it features incredible pressures to form in-groups and out-groups and then to conform to your in-group. Unless you like and admire Cotton and Pompeo and want to be known to the world as a follower of Cotton-Pompeo Thought, it is not very compelling to speak up in favor of a minority viewpoint among scientists. Why spend your day in nasty fights on Twitter when you could be doing science? Then if you secure your impression of what “the scientists” think about something from scanning Twitter, you will perceive a consensus that is not really there. If something is a 70-30 issue but the 30 are keeping their heads down, it can look like a 98-2 issue.

I do not know a lot about science, so I will not opine how generally true this may or may not be.

But in economics, which I do know well, I think it’s a big issue. If someone tweets something you agree with, it is easy to bless it with an RT or a little heart. To take issue with it is to start a fight. And conversely, it’s much more pleasant to do a tweet that is greeted with lots of RTs and little hearts rather than one that starts fights. So I know from talking to econ PhD-havers that almost everyone is disproportionately avoiding statements they believe to be locally unpopular in their community. There is just more disagreement and dissension than you would know unless you took the time to reach out to people and speak to them in a more relaxed way.

My strong suspicion is that this is true across domains of expertise, and is creating a lot of bubbles of fake consensus that can become very misleading. And I don’t have a solution.

Here is his full Substack post, I am very happy to be a paid subscriber.  The broader question of course is what we can do to limit these problems.  More pseudonymous tweeters and writers?  More grumpy old people who don’t care so much about their reputations?  More who write for Substack?  Other?

CBDC, monetary competition, and monetary separation

That is the topic of my latest Bloomberg column, and here is one excerpt, related to earlier ideas from the New Monetary Economics:

The most common worry is that a central bank digital currency, or CBDC, would lead to disintermediation, with individuals or wholesalers putting their money into a CBDC system rather than commercial banks. The result would be fewer loans and less private-sector economic activity.

CBDC proponents typically say regulation can fix this problem. They favor some combination of issuance limits on CBDC units, CBDC access for wholesalers and major players only, or penalty interest rates or fees on CBDC holdings.

Yet all of these ideas create barriers — you might even call them “capital controls” — between ordinary dollars and CBDC dollars. If there are limits or barriers to dollar-to-CBDC conversion, dollars and CBDC units will not sell for the same price. Why should they? They perform different functions for different clienteles. Of course if the Fed allows unrestricted conversions, a one-to-one price would be enforced by arbitrage. But such open and unfettered privileges are precisely what policy advocates are seeking to limit.

The result would be a bit like the Chinese system. The yuan has for a long time had one value within China and another in world markets, with the difference being enforced by capital controls. And with a Chinese digital currency on the way, China may soon have (at least) three different currency prices.

In this new world, people will ask whether the U.S. dollar unit of account refers to “ordinary dollars” or to CBDC dollars. There might be two competing “dollar units of account” — or, more plausibly, retail prices would continue to be denominated in terms of ordinary dollars and the CBDC would have a floating exchange rate with respect to these “retail dollars.”

…the price of the CBDC dollar would become both a major policy variable and a major indicator of where central bank policy is headed. To what extent does the Fed wish to allow transactions, intermediation and resources to flow into the CBDC-linked sector? Current debates about open-market operations or interest on reserves will become arcane and outdated. The regulations roping off the CBDC sector from the retail-dollar sector would become truly significant, and would give the Fed (and other regulatory parties) much greater influence over sectoral allocation.

Over time, the CBDC financial sector would become much larger, as more of the economy digitizes and demands the hypermodern CBDC payment and settlement system. That would mean that the dominant U.S. currency — the CBDC dollar —would be fully separate from the mainstream accounting unit, namely the retail dollar.

Whether some other currency might replace the U.S. dollar as the world’s reserve currency is a perennial debate. Maybe the real alternative to the dollar is … the CBDC dollar.

There is further relevant analysis at the link.

My Conversation with Mark Carney

Here is the audio, video, and transcript, definitely recommended.  Here is part of his closing statement:

COWEN: Last question. You wake up each morning. Surely you still think about central banking. What for you is the open question about central banking, where you don’t know the answer, that you think about the most?

CARNEY: I gave a speech at Jackson Hole on this issue, and I started — which is the future of the international monetary system and how we adjust the international monetary system.

I’ll say parenthetically that we’re potentially headed to another example of where the structure of the system is going to cause big problems for the global economy. Because it’s quite realistic, sadly, that we’re going to have a fairly divergent recovery with a number of emerging, developing economies really lagging because of COVID — not vaccinated, limited policy space, and the knock-on effects, while major advanced economies move forward. That’s a world where rates rise and the US dollar strengthens and you get this asymmetry, and the challenge of the way our system works bears down on these economies. I think about that a lot.

And this:

COWEN: If you’re speaking in a meeting as the central bank president, do you prefer to speak first or speak last?

CARNEY: I prefer — I tend to speak early. Yes, I tend to speak early. I’m not sure that’s always the best strategy, but I tend to speak early. I will say, one thing that’s happened over the years at places like the G20, I noticed, is the prevalence of social media and devices. The audience drifts away over time, even at the G20, even on a discussion of the global economy.

And from the horse’s mouth, so to speak, do note this:

CARNEY: …I think you’re absolutely right on that, there wasn’t. It is revealed that there wasn’t a liquidity trap.

Rooftops!  Finally, on more important matters:

COWEN: Are the Toronto Raptors doomed to be, on average, a subpar NBA team due to higher taxes?

And:

COWEN: What’s the best Clash album?

CARNEY: Fantastic question. London Calling, and one of my best memories — I was very fortunate; they came to Edmonton when I was in 12th grade in high school. I went to the concert and that was fantastic, yes.

COWEN: I also saw them, I think in what would have been 12th grade had I been in school that year. But London Calling is too commercial for me. I much prefer the Green album, like “Career Opportunities,” “Janie Jones.”

CARNEY: Well, “I Fought the Law” was the best song at the concert. I have to say, they had got to Combat Rock by this time, which was relative — [laughs] Combat Rock was more commercial, I thought, than London Calling, although they threw it all out the door with Sandinista!

Again, here is Mark’s new book Value(s): Building a Better World For All.

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Here is the Amazon listing, via Ben M.