Results for “corporate tax” 243 found
Why has it taken so long for a China crash to arrive?
This is an underdiscussed question, and it is the topic of my latest Bloomberg column. Here is one part of the argument:
Unlike the U.S., China is full of large, state-owned enterprises. That gives the Chinese government the ability to manipulate a large stock of asset wealth. The U.S. government is more dependent on flows of revenue from taxation and the private sector.
When bad economic news arrives, the Chinese government can instruct the companies it owns to spend wealth to keep workers employed. Think of this as using the companies to conduct fiscal policy rather than laying off workers, building another bridge or erecting another steel plant. Whereas Western economies take an immediate hit to income in bad times, the Chinese have been converting this into a hit to wealth, insulating themselves from major downturns.
That can be useful, but it also can be abused. Indeed, China has ended up with too few bankruptcies and significant excess capacity and lots of low-performing firms.
One problem comes when the stocks of corporate wealth are nearly exhausted, or perhaps sooner when managers of state-owned companies rebel against this policy and demand alternatives. Another problem is that too many low-productivity firms survive. So when the dramatic Chinese recession finally does come, it will be without the protective buffers of wealth that the U.S. had during its financial crisis.
The wealth vs. income distinction still does not receive enough attention in macro. There is much more at the link. I also consider under what conditions China might avoid a crack-up altogether, namely if the forces of catch-up keep on validating the ongoing malinvestments. Forecasting China is more like judging a race than just identifying a bubble. Note that “At least by traditional metrics, the Chinese system has showed signs of trouble and excess capacity at least since 2006.”
Saturday assorted links
1. Review of the new Richard Posner biography.
3. The blind astronomer of Nova Scotia.
And this:
A couple of months ago, Patrick Collison came to me with another crazy idea. He said Stripe wanted to make “simple incorporation as a service”, so that any entrepreneur worldwide could have a corporate entity and a bank account spun up about as easily as they could get an EC2 server.
This idea is crazy. I’ve incorporated four companies and opened business bank accounts for all of them. The most recent required over a hundred pages of documentation and six weeks of negotiation to assuage a risk department’s concerns about foreign tech entrepreneurs. (Thanks, Bitcoin.) You’re not supposed to be able to do this.
Stripe did it. With crazy speed: the project was in beta within 11 weeks of conception. It can take that long to form a single company in much of the world. Stripe solved the problem like an engineer: establishing one company requires an annoying amount of form-filling so instead of buckling down and doing it you just make a company-establishing web application and abstract away form-filling for all time.
And they’re crazily ambitious about where it ends up: not simply incorporating companies, but eating all of the crufty back office work which distracts Internet businesses from getting more real products into the hands of real customers. Payments, contracts, invoices, bookkeeping, incorporation, taxes, etc etc, all things you have to do even if what you’re actually doing is selling bingo cards to elementary schoolteachers.
Crazy! But stay tuned…
*The Nordic Gender Equality Paradox*
That is the new and quite interesting book by Nima Sanandaji. The main point is that there are plenty of Nordic women in politics, or on company boards, but few CEOs or senior managers. In fact the OECD country with the highest share of women as senior managers is the United States, coming in at 43 percent compared to 31 percent in the Nordics. More generally, countries with more equal gender norms do not have a higher share of women in senior management positions. Within Europe, Bulgaria does best and other than Cyprus, Denmark and Sweden do the worst in this regard.
One reason for the poor Nordic performance at higher corporate levels is high taxes, which limits the amount of household services supplied through markets. If it is harder to hire someone to do the chores, that makes it harder for women to invest the time to climb the career ladder. Generous maternity leave policies may encourage women to take off “too much” time, or at least this is suggested by the author. A history of communism is also strongly correlated with women rising to the top in business and management; this may stem from a mix of relatively egalitarian customs and a more general mixing up of status relations in recent times and a turnover of elites.
I don’t find this book to be the final word, and I would have liked a more formal econometric treatment. It is nonetheless a consistently interesting take which revises a lot of the stereotypes many people have about the Nordic countries as being so absolutely wonderful for gender egalitarianism in every regard.
Here is the book’s website, from Timbro (a very good group), I don’t yet see it on Amazon.
Why Germany doesn’t like negative interest rates
The business models of German financial institutions depend critically on the presence of positive nominal interest rates. The International Monetary Fund noted in its latest Financial Stability Report that the pre-tax profits of German and Portuguese banks are most affected by negative rates.
German life insurers are also vulnerable. They have to guarantee a minimum rate of return, which is now 1.25 per cent a year. This is hard to do when the yield of the 10-year German government bond is only 0.13 per cent. Germany and Sweden are the two EU countries where life insurers face the biggest gap between market rates and guaranteed rates. To achieve the promised returns, the insurers have to take on more risk, for example by buying corporate bonds or tranches of complex financial products. If, or rather when, the next financial crisis arrives and triggers a change in the valuation of these assets, we may find that sections of the German financial sector are insolvent.
Of the German banks, the Sparkassen and the mutual savings banks are most affected. They are classic savings and loans outlets in that they lend locally and fund themselves through savings. Credit demand is more or less fixed. So when savings exceed loans, as they now do in Germany, the banks deposit their surplus with the ECB at negative rates — known as “penalty rates” in Germany. They cannot offset the losses by cutting interest rates on savings accounts because of the zero lower bound. Savers would switch from accounts to cash in safe deposit boxes.
That is from the always superb Wolfgang Münchnau at the FT. Regulatory and federalistic issues are another and underdiscussed reason why the eurozone is not an optimal currency area.
Was it wrong to hack and leak the Panama Papers?
Let’s say a group of criminal defense lawyers kept a database of their confidential conversations with their clients. That would include clients charged with murder, robbery, DUI, drug abuse, and so on. In turn, a hacker would break into that database and post the information from those conversations on Wikileaks. Of course a lot of those conversations would appear to be incriminating because — let’s face it — most of the people who require defense attorneys on criminal charges are in fact guilty. When asked why the hack was committed, the hacker would say “Most of those people are guilty. I want to make sure they do not escape punishment.”
How many of us would approve of that behavior? Keep in mind the hacker is spreading the information not only to prosecutors but to the entire world, and outside of any process sanctioned by the rule of law. The hacker is not backed by the serving of any criminal charges or judge-served warrants.
Yet somehow many of us approve when the victims are wealthy and higher status, as is the case with the Panama Papers. Furthermore most of those individuals probably did nothing illegal, but rather they were trying to minimize their tax burden through (mostly) legal shell corporations. Admittedly, very often the underlying tax laws should be changed, just as we should repeal the deduction for mortgage interest too. But in the meantime we are not justified in stealing information about those people, even if some of them are evil and powerful, as is indeed the case for homeowners too.
Once again, politics isn’t about policy, it is about which groups should rise and fall in relative status. And many people believe the wealthy should fall in status, and so they will entertain the morality of all crimes and threats against them. These revelations will of course lead to some subsequent cases of blackmail, against Chinese officials for one group.
I had tweeted “Are your views on privacy and #PanamaPapers consistent? Just asking…” and my goodness what a response, positive and negative. Most interesting of all, many people had never pondered the question before. Somehow “good things” such as “privacy” and “transparency” cannot stand in such conflict because all good things, like all bad things, must come together.
Here is a good Kaddim Shubber discussion on FT Alphaville.
Here is Veronique de Rugy on the Panama Papers.
Here is Ray Lopez on the same:
1. There’s a tension between US and foreign law firms and FATCA (United States Foreign Account Tax Compliance Act (FATCA) has the objective of reducing tax evasion by American taxpayers with foreign accounts). This is because law firms are exempt from reporting on clients past crimes, not future crimes, however, money laundering is considered a future crime. When a known criminal is setting up an offshore account with the help of a law firm, is the law firm an accessory to money laundering or not? The better view is they are not: it’s up to the client to report any offshore account to the government, and not the law firm’s responsibility. That’s the better view, but see point #2, which rebuts this.
2. There’s a tension between client confidentiality and tax treaties. Check this out: https://www.lawsociety.org.nz/practice-resources/practice-briefings/FATCA-and-New-Zealand-Law-Firms.pdf In New Zealand, which is probably representative of others, a passive non-financial foreign entity–which almost always will be a law firm trust account holding money from a client–has a duty under FATCA to report on the client to the US government (“know your customer” is the buzz phrase banks use, which as you know already are required to ‘spy’ on their customers).
Both points 1, 2 are relevant for the conduct of the law firm of Mossack Fonseca. Except for the alleged destruction of evidence by them, I don’t see them doing anything that bad (by law firm standards; remember, any law firm of decent size has former crooks as clients, and for a firm in Panama I would say that’s not the exception but the rule!)
From the comments, here is Kai:
I practice law in cross-border banking and finance in China. I am puzzled by how non-professionals in this field view offshore jurisdictions as categorically related to criminal activity, embezzlement and corruption, etc.
Almost all cross-border transactions involve offshore jurisdictions at some level. For instance most companies listed on the HK stock exchange are incorporated in the Cayman Islands. Anything to do with Bermuda, Cayman, BVI, etc. in cross border transactions is very, very mundane.
According to the papers, Xi Jinping has relatives who are owners of offshore companies. How is that any sort of evidence of wrongdoing by them (much less of Xi Jinping)? I doubt anyone can provide an intelligent answer.
Maybe yes, maybe no, but I don’t see that the people rendering judgment know more about it than he does.
Trump, the Republican Party, and the logic of bailouts
As the possible nomination of Trump approaches, many Republicans are worried about the Party crashing. That could occur through convention warfare, a Trump nomination and an electoral disaster, or a non-Trump nomination and an electoral disaster. Maybe all of the above!
And what is wrong with the Party crashing? (Please, dear reader, consider this question from a logistic rather than a partisan point of view.) The Party contains information. Relationships. Procedures and processes and established patterns of cooperation. A well-known brand name. Organizational capital is lost if those connections are blown up and then go away. It would cost a good deal to rebuild them, whether through a new third party or through a reconstitution of the Republican Party in some new guise.
Large blocs of voters are in essence needed to help cover those fixed costs. If you tell too many voters to go away, however that might be done, the fixed costs can’t be paid the next time around and a new organization must be created, backed by some other, partially-overlapping group of voters. So during “bad times” Republicans still may wish to keep the Republican Party afloat, especially if they believe it is a viable concern over the longer haul.
This, by the way, is the same logic behind bank and corporate bailouts If the afflicted company is allowed to go under, a lot of organizational capital will be lost in what otherwise might be viable enterprises. (I am not suggesting those bailouts have zero cost, or are necessarily good, only that there is some associated benefit.)
So if you are a Republican, and considering supporting Donald Trump “for the sake of the party.” you are in essence considering whether a bailout of the Party is a good idea. Except instead of bailing out a private company with your taxes, or guaranteed credit, you are bailing out a political party with your …[fill in the blank]…
I believe that many of the people who usually claim to oppose bailouts will favor this one.
I have high hopes for Stripe Atlas
Stripe Atlas [is] a new product the company unveiled this week at Mobile World Congress in Barcelona. It aims to make it easier for entrepreneurs to set up small businesses in the United States. If all goes according to Stripe’s plan, Atlas could let start-up founders sidestep some of the bureaucratic hurdles that often hamper building a new business.
Determining eligibility requires little more than filling out a form. After that, Stripe will incorporate an entrepreneur’s company as a business entity in Delaware, and provide the entrepreneur with a United States bank account and Stripe merchant account to accept payments globally.
The target audience is all of the entrepreneurs outside the United States who want access to the country’s well-developed banking infrastructure and business services. Stripe is particularly interested in attracting entrepreneurs from Africa, Latin America, the Middle East and parts of Asia, among other regions.
…Eligible entrepreneurs will also be offered access to basic tax and legal consulting and business services from partners like PricewaterhouseCoopers, and will receive free credit to run their online business on the Amazon Web Services hosting platform.
Atlas is to begin on Wednesday in an invitation-only beta test; entrepreneurs can apply for the program through Stripe or one of the 50-plus start-up accelerator programs that the company has teamed up with globally. The beta program’s cost is $500.
Here is the Mike Isaac NYT article.
On what grounds will Keynesians reject Marco Rubio’s fiscal policy?
I am myself of the belief that we are fairly close to full employment, with full employment likely on the way, and our growth problems stem from the supply-side, not from the demand-side in the Keynesian sense, at least not circa 2015. For those reasons, I am skeptical of any plan to cut taxes without offsetting spending cuts or some other kind of offsetting fiscal adjustment (how about selling off some federal land?).
But on what grounds should the prevailing Keynesian approach reject the fiscal policies of Marco Rubio? In the context of discussing Rubio, Paul Krugman writes:
So now we have candidates proposing “wildly unaffordable” tax cuts.
But what’s wrong with that? In most demand-side liquidity trap and secular stagnation models, there is a shortage of safe assets and that is a major problem which requires remedy. Rubio’s plan, as I understand it, would raise the budget deficit and by a lot because it is unlikely to prove self-financing in the Lafferian sense. By current Keynesian views, that should be a feature not a bug.
You might rather the deficit be increased by cutting taxes for the middle class, or by building productive infrastructure, but still the Rubio plan would be better than just sitting tight and doing nothing.
Furthermore the wealthy will take their new surplus of funds and invest most of it and maybe spend some of it too. That boosts aggregate demand, and…if you think the multiplier still is high…well, you can see where this is heading.
Are we all ready to turn “C + I + G” into a mere “C + G”? I hope not.
And while the Fed is legally constrained from buying corporate bonds and other non-zero-ROR assets, wealthy people most certainly are not, so they could spend their Rubio tax cuts on equity, venture capital, and the like. In essence we would be using wealthy people, and fiscal policy, to make asset swaps which the central bank cannot. So liquidity trap arguments should not make this tax cut impotent and arguably they should necessitate it all the more. You might even (heaven forbid) wish to target the tax cut toward the wealthy, if they are the most likely to take cash and buy relatively risky assets with it. Right?
So by the standards of the current New Old Keynesianism, what exactly is wrong with Marco Rubio’s fiscal plan? Except that some other plan might be better yet. Inquiring minds wish to know.
Marketing Pork
Here is a great little story by Danny Vinik from Politico’s The Agenda on how so-called marketing boards are surreptitiously turned into lobbying boards.
Industries with a large number of producers find it difficult to organize collectively because of the free rider problem. Mostly, that’s a good thing because it prevents cartels. Collective action, however, could also be used to perform research or marketing that’s good for the industry as a whole but too expensive for any small subset of producers. In theory, therefore, some type of collective action could be beneficial and in agriculture governments have created checkoff programs which force producers to pay a tax to fund collective goods.
Checkoffs exist for dairy farmers, mushroom producers, and even popcorn processors. Critics say they violate economic freedom and distort the market; big corporate farmers, they allege, easily find ways to influence the boards and siphon the money off to push their own causes.
“In one sense, it’s a classic case of the larger producers are the more powerful political forces within these organizations,” said Dan Glickman, the Agriculture Secretary at the end of the Clinton administration who largely supports checkoff programs.
For the unhappy hog farmers, the current problem started with the 1985 Pork Law, when Congress set up the National Pork Board and required all farmers to contribute. Today, hog farmers must hand over 40 cents out of every $100 in revenue from pork sales. The board uses the money, totaling nearly $100 million a year, to conduct research and promote the pork industry, but is not allowed to lobby.
But as Adam Smith said “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” Quite so. And in this case by creating a National Pork Board the government is providing the meeting hall and paying for the conversation. According to the law, the money from the checkoff program isn’t supposed to go for lobbying but here is where the story gets interesting.
You may recall the slogan, “Pork: The Other White Meat.” The slogan hasn’t been used for years but the National Pork Board still pays $3 million a year every year for the rights. Why would the Pork Board pay millions for an unused slogan? The key is who they are paying. The slogan is owned by National Pork Producers Council. The NPPC is a lobby group and you won’t be surprised to know that it is closely connected with the NPB (having once even shared offices).
…critics say the two groups have never been as separate as the law calls for, and now are essentially colluding through a deal that lets the Pork Board funnel money to the NPCC by assigning an absurdly inflated value to the “other white meat” slogan; the money then goes to promote the NPPC’s lobbying agenda.
A neat trick. The story is also a good object lesson in Mancur Olson’s thesis about how special interest groups grow in power over time, slowly choking off innovation as they cartelize the economy.
Who benefits most from Uber?
The consumers, most of all. But how about amongst the workers? I think you have to slot French taxi drivers under “don’t benefit.” And otherwise? That is the topic of my latest New York Times column for The Upshot:
On the positive side, the so-called sharing economy allows workers to use their time more flexibly. Drivers can earn money without working full time, and without having to wait around at taxi stands for the next passenger. The workers can use their newly acquired spare time for other purposes, including studying for college, teaching themselves programming or simultaneously offering themselves out for different sharing services: If no one wants a ride, go help someone with repairs around the house.
In short, these developments benefit those workers who are willing and able to turn their spare time to productive uses. These workers tend to be self-starters and people who are good at shifting roles quickly. Think of them as disciplined and ambitious task switchers. That describes a lot of people, but of course, it isn’t everybody.
That’s where some of the problems come in. Uber drivers are much more likely to have a college degree than are taxi drivers or chauffeurs, according to the Hall and Krueger study. It found striking differences between the two groups: 48 percent of Uber drivers have a college degree or higher, whereas that figure is only 18 percent for taxi drivers and chauffeurs.
Only some workers benefit when each hour, or each 15-minute gap, is up for sale. One way to put the general principle is this: The more efficient market technologies become, the more important are human capabilities and backgrounds in determining who prospers and who does not.
The piece offers other ideas of interest, including about education. For instance, corporate investments in worker training may decline as the likelihood of freelance work rises. That too favors self-starters, who can learn on their own. Do read the whole thing.
Do government benefits for the poor subsidize large employers?
Adam Ozimek has a very good post on that topic, here is one of his final bits:
…many of these programs, including Medicaid and food stamps, are means-tested. That means as you earn more the programs become less generous, and as a result can generate extremely high marginal tax rates for low-income workers. This will reduce labor supply and create the exact opposite effect that “corporate subsidy” critics claim.
Unfortunately, there is little basis to claim that most public assistance programs benefit employers. This is unfortunate because such subsidies would incentivize firms to hire more low-income workers.
Do read the whole thing.
Assorted links
1. An impressive display of, um…Big Data (pdf), addressing how suppliers discriminate against customers in Singapore. There is also an NBER version, but I don’t see it on their site at this moment.
2. The religion that is Iceland.
3. “…the greatest work of journalism from the nineteenth century.”
4. The Hospital is no Place for a Heart Attack. And few from the EU side like the Greek debt swap idea.
5. Best films of the decade? Winter Sleep should be added to the list immediately, it is Ceylan’s masterpiece. That, along with Uncle Boonmee, should be very close to the top.
7. Timothy Taylor on the new corporate income tax proposals.
Sunday assorted links
1. Infovores.
2. The spiciest noodles in the world?
3. Unlike at Hinds, MRUniversity is open to goats too.
4. New David Autor paper on information technology and job polarization (pdf).
5. I agree with Greg Mankiw about tax reform.
6. The North Pond hermit (good story).
My interview with Ralph Nader
I interviewed him. You will find the full version here, the edited version here. Not surprisingly, I prefer the full version. Here is one excerpt:
TC: If I look back at your career, I see you’ve been fighting various kinds of wars or struggles against a lot of different injustices. If you look back on all those decades, during which time you’ve been right about many things, what do you think is the main thing you’ve been wrong about?
RN: Oh, a lot of things. Nobody goes through these kinds of controversies without making bad predictions. I underestimated the power of corporations to crumble the countervailing force we call government. We always knew corporations like to have their adherents to become elected officials; that has been going on for a long time. But I never foresaw the insinuation of corporatism as a policy in one agency after another in government. Franklin Delano Roosevelt foresaw some of this when he sent a message to Congress when he started the temporary national economic commission to investigate consecrated corporate power. That was in 1938. In his message he said that whenever the government is controlled by private economic power, that’s facism. Now, there isn’t a department or agency in Washington where anyone has more power—over it and in it, through their appointees, and on Congress, through lobbyists and political action committees. Nobody comes close. There’s no organized force that comes close to the daily power to twist government in the favor of Wall Street and corporatism, and to disable government from adequately defending the health, safety and economic well-being of the American people.
TC: Let’s say we look at the U.S. corporate income tax. The rate on paper is 35 percent, which is quite high. When you look at how much they actually pay after various forms of maneuvering or evasion, maybe they pay 17–18 percent, which is more or less in the middle of the pack of OECD nations. So if corporations have so much political power in the United States, why is our corporate income tax still so high?
…Sweden, a country you cited favorably, taxes capital income much more lightly than the United States does—not just on paper but in terms of what’s actually paid.
I also ask him about the Flynn effect, whether America needs a new kind of sports participation, and how much American churches have resisted corruption through corporatization, among a variety of other topics. I tried to avoid the predictable questions.
By the way, you can buy Nader’s new book, Unstoppable: The Emerging Left-Right Alliance to Dismantle the Corporate State. I very much enjoyed my preparation for this interview, which involved reading or rereading a bunch of his books and also a few biographies of him.
John Roemer changes his mind on a bunch of things, including socialism
He has a new published paper, in Analyse & Kritik, entitled “Thoughts on Arrangements of Property Rights in Productive Assets,” here is the abstract:
State ownership, worker ownership, and household ownership are the three main forms in which productive assets (firms) can be held. I argue that worker ownership is not wise in economies with high capital-labor rations, for it forces the worker to concentrate all her assets in one firm. I review the coupon economy that I proposed in 1994, and express reservations that it could work: greedy people would be able to circumvent its purpose of preventing the concentration of corporate wealth. Although extremely high corporate salaries are the norm today, I argue these are competitive and market determined, a consequence of the gargantuan size of firms. It would, however, be possible to tax such salaries at high rates, because the labor-supply response would be small. The social-democratic model remains the best one, to date, for producing a relatively egalitarian outcome, and it relies on solidarity, redistribution, and private ownership of firms. Whether such a solidaristic social ethos can develop without a conflagration, such as the second world war, which not only united populations in the war effort, but also wiped out substantial middle-class wealth in Europe — thus engendering the post-war movement toward social insurance — is an open question.
There are some probably gated versions here. He also explains later in the paper that socialism cannot work because a generally solidaristic social ethos will be undermined by a selfish minority, driven by greed, which will turn social institutions to their favor and evolve into a new ruling class. In other words, Hayek’s The Road to Serfdom is not yet obsolete and still holds the power to sway men’s minds.
For the pointer I thank Kevin Vallier.