Will: In lame defense of tax inversions

In defense of foreign tax inversions by U.S. corporations, conservative George Will is obliged to argue that company managers have an obligation to company shareholders to maximize returns. Yet this is an assumed obligation, not a legal obligation, and not necessarily a moral one either, as the case of social enterprises proves. 

Moreover, I haven't heard about any shareholders' meetings where the crowd clamored for the corporation to abandon America and set up shop in Ireland or the Bahamas. Or about a Wall Street corporate analyst who ever urged such? Have you?  

The public's urging corporations like Walgreen's to remain in the U.S. and pay taxes where they actually operate and retain their headquarters is likewise a moral argument. Which is a stronger moral argument, patriotism or maximizing shareholder value? That's for individual companies' directors to decide; but nobody should dismiss patriotism as irrelevant. Nor should conservatives like Will, so fond of moralizing in other contexts, criticize our leaders such as President Obama for first exercising moral suasion to curb tax inversions before resorting to the big hammers of legislation or executive orders.

Next, Will labels the "race to the bottom" (something I have written about often) as "entrepreneurial federalism." This term is the acme of goobledygook: take two unrelated words that mean something, cram them together, and forfeit the meaning of both. Conservatives like Will assure us all the time that government cannot be entrepreneurial; that's business's turf. And federalism refers to various forms of political organization where national sub-units are subordinated to the national government in some matters, but retain their right to act freely in others. Federalism has nothing to do with states' respective policies and incentives meant to attract capital investment; nor does federalism refer to interstate economic competition. So, put these two terms together and you get... nothing. (Tom Friedman probably wishes he'd thought of it first.)

Also, Will summarily dismisses the idea that corporations that get rich partly thanks to U.S. roads, ports and other infrastructure, the U.S. legal system, patent protection, U.S. trade negotiations, not to mention U.S. public schools that educate their workers to be the most productive in the world, have some moral obligation to the U.S. to pay taxes or give something back. Corporations aren't people! say progressives. So Will replies, Then non-people cannot have any moral obligations!  Such petulance is typical of Will. 

Moral obligations are of the company's directors, primarily, and secondarily of the shareholders to keep the directors in line. Moral obligations are not necessarily legal obligations. Whereas the Citizens United and the Hobby Lobby cases turned on whether corporations had some of the same legal (First Amendment) rights as people: to make political donations and practice religion, respectively. Morality and law should not be conflated.

Beyond that, Will unwittingly offers up two contradictions in his own op-ed, and perfectly illustrates why the U.S. cannot win the race to the bottom. 

First, he tells the story how Airbus located a subsidiary in Alabama, a right-to-work state, "because capital, being mobile, goes where it is wanted and stays where it is treated well." Will picked an unfortunate example, because Airbus, as a consortium of European aviation firms, is heavily dependent on EU subsidies and contracts for its survival. Moreover it is headquartered in France. And Airbus employs over 60,000 workers in pro-union, "socialistic" Europe.  So Airbus would never dare to "invert" outside the EU to win some tax benefits! Obviously, multinational companies make their plans based on much more than tax rates and cost of wages.

Second, he tells the story how Maytag moved its production from Illinois to Mexico because, allegedly, Illinois was not a right-to-work (read: anti-union) state. Yet he doesn't attempt to explain why Maytag didn't move to a right-to-work state instead. Because he can't. Because no matter how low wages and taxes will be in Alabama or elsewhere, they will always be lower in some poorer, developing nation.  The U.S., the largest economy in the world, cannot hope to attract and retain businesses by trying to be "poorer" than poorest nations; or lower its taxes to the rates of tiny islands like Bermuda or New Zealand.  That's idiotic. Yet that's just what conservatives like Will advise: "the sensible corporate tax rate would be zero." Whoa! "This is so because," explains Will, "corporations do not pay taxes, they collect them, necessarily passing on the burden as a cost of doing business."

Hmm... I suppose that likewise, ordinary citizens do not actually pay taxes; they simply collect them from their employers, passing on the burden as a cost of staying alive.

Moreover, the Maytag example betrays Will's muddled thinking: he starts out discussing tax inversions, then switches to unions and labor. These are completely separate issues! Indeed, Walgreen's and other tax inverters have not publicized any plans to shut down their U.S. locations; they simply wish to re-locate on paper, for the tax benefit. And in fact Whirlpool Corporation, which owns Maytag, is based in Benton Harbor, Michigan, not Bermuda or Ireland.

Will's lame defense of tax inversions betrays an inverted worldview unfortunately shared by many conservatives: Government is but a burden and an annoyance barely tolerated by corporations, for whom the nation exists.  

This is not to say that the nation exists to serve the government. No.  Even so, I'll put Big Government above Hobby Lobby, Walgreen's or the Kochs any day, because at least I have some say in what my government does; and government is legally accountable to all its citizens, not just the wealthy.

In a stew over inversions

By George Will

August 15, 2014 | Washington Post

URL: http://wapo.st/Vt8dhN

Summers: Piketty is right about the past, but the future is ours

I'm tired so I'm not going to analyze now in depth Larry Summers' analysis of Piketty's seminal, once-in-a-generation economic treatise, I'm just gonna say what Summers says Piketty's data should lead us to believe [emphasis mine]:

Perhaps the best way of thinking about Piketty’s wealth tax is less as a serious proposal than as a device for pointing up two truths. First, success in combating inequality will require addressing the myriad devices that enable those with great wealth to avoid paying income and estate taxes. It is sobering to contemplate that in the United States, annual estate and gift tax revenues come to less than 1 percent of the wealth of just the 400 wealthiest Americans. With respect to taxation, as so much else in life, the real scandal is not the illegal things people do—it is the things that are legal. And second, such efforts are likely to require international cooperation if they are to be effective in a world where capital is ever more mobile. The G-20 nations working through the OECD have begun to address these issues, but there is much more that can be done. Whatever one’s views on capital mobility generally, there should be a consensus on much more vigorous cooperative efforts to go after its dark side—tax havens, bank secrecy, money laundering, and regulatory arbitrage.

Beyond taxation, however, there is, one would hope, more than Piketty acknowledges that can be done to make it easier to raise middle-class incomes and to make it more difficult to accumulate great fortunes without requiring great social contributions in return. Examples include more vigorous enforcement of antimonopoly laws, reductions in excessive protection for intellectual property in cases where incentive effects are small and monopoly rents are high, greater encouragement of profit-sharing schemes that benefit workers and give them a stake in wealth accumulation, increased investment of government pension resources in riskier high-return assets, strengthening of collective bargaining arrangements, and improvements in corporate governance. Probably the two most important steps that public policy can take with respect to wealth inequality are the strengthening of financial regulation to more fully eliminate implicit and explicit subsidies to financial activity, and an easing of land-use restrictions that cause the real estate of the rich in major metropolitan areas to keep rising in value.

I'm no fan of Summers, yet his last two prescriptions are, I daresay, things you will never hear discussed in depth on Fox, MSNBC, CNBC, CNN or elsewhere. Wherefore the lib'rul media, indeed!

The only thing I will criticize now, is Summers' argument that "productivity" and "entrepreneurship" explain the outsized gains of U.S. managers. A look at average CEO pay among U.S. corporations and others gives the lie to this argument.  Nobody is arguing that U.S. CEOs are that much better, yet they earn orders of magnitude more than their workers.

As wonkish and un-sexy as it may be, I've talked about this before and will continue to talk about the OECD's effort to fight BEPS (tax base erosion and profit shifting) among global corporations. This is indeed a global problem, not just a U.S. problem, and the U.S. cannot hope to solve it in isolation, but must nevertheless play a leading role in ending this global "race to the bottom."

Thomas Piketty Is Right About the Past and Wrong About the Future

By Lawrence Summers

May 16, 2014 | The Atlantic

URL: http://www.theatlantic.com/business/archive/2014/05/thomas-piketty-is-right-about-the-past-and-wrong-about-the-future/370994/

Stiglitz: For nations, economic inequality is a choice

It's not too late to post this stirring essay on global inequality by my main bearded liberal economist Joe Stiglitz!

Inequality Is a Choice

By Joseph E. Stiglitz

October 13, 2013 | New York Times

It’s well known by now that income and wealth inequality in most rich countries, especially the United States, have soared in recent decades and, tragically, worsened even more since the Great Recession. But what about the rest of the world? Is the gap between countries narrowing, as rising economic powers like China and India have lifted hundreds of millions of people from poverty? And within poor and middle-income countries, is inequality getting worse or better? Are we moving toward a more fair world, or a more unjust one?

These are complex questions, and new research by a World Bank economist named Branko Milanovic, along with other scholars, points the way to some answers.

Starting in the 18th century, the industrial revolution produced giant wealth for Europe and North America. Of course, inequality within these countries was appalling — think of the textile mills of Liverpool and Manchester, England, in the 1820s, and the tenements of the Lower East Side of Manhattan and the South Side of Chicago in the 1890s — but the gap between the rich and the rest, as a global phenomenon, widened even more, right up through about World War II. To this day, inequality between countries is far greater than inequality within countries.

But starting around the fall of Communism in the late 1980s, economic globalization accelerated and the gap between nations began to shrink. The period from 1988 to 2008 “might have witnessed the first decline in global inequality between world citizens since the Industrial Revolution,” Mr. Milanovic, who was born in the former Yugoslavia and is the author of “The Haves and the Have-Nots: A Brief and Idiosyncratic History of Global Inequality,” wrote in a paper published last November. While the gap between some regions has markedly narrowed — namely, between Asia and the advanced economies of the West — huge gaps remain. Average global incomes, by country, have moved closer together over the last several decades, particularly on the strength of the growth of China and India. But overall equality across humanity, considered as individuals, has improved very little. (The Gini coefficient, a measurement of inequality, improved by just 1.4 points from 2002 to 2008.)

So while nations in Asia, the Middle East and Latin America, as a whole, might be catching up with the West, the poor everywhere are left behind, even in places like China where they’ve benefited somewhat from rising living standards.

From 1988 to 2008, Mr. Milanovic found, people in the world’s top 1 percent saw their incomes increase by 60 percent, while those in the bottom 5 percent had no change in their income. And while median incomes have greatly improved in recent decades, there are still enormous imbalances: 8 percent of humanity takes home 50 percent of global income; the top 1 percent alone takes home 15 percent. Income gains have been greatest among the global elite — financial and corporate executives in rich countries — and the great “emerging middle classes” of China, India, Indonesia and Brazil. Who lost out? Africans, some Latin Americans, and people in post-Communist Eastern Europe and the former Soviet Union, Mr. Milanovic found.

The United States provides a particularly grim example for the world. And because, in so many ways, America often “leads the world,” if others follow America’s example, it does not portend well for the future.

On the one hand, widening income and wealth inequality in America is part of a trend seen across the Western world. A 2011 study by the Organization for Economic Cooperation and Development found that income inequality first started to rise in the late ’70s and early ’80s in America and Britain (and also in Israel). The trend became more widespread starting in the late ’80s. Within the last decade, income inequality grew even in traditionally egalitarian countries like Germany, Sweden and Denmark. With a few exceptions — France, Japan, Spain — the top 10 percent of earners in most advanced economies raced ahead, while the bottom 10 percent fell further behind.

But the trend was not universal, or inevitable. Over these same years, countries like Chile, Mexico, Greece, Turkey and Hungary managed to reduce (in some cases very high) income inequality significantly, suggesting that inequality is a product of political and not merely macroeconomic forces. It is not true that inequality is an inevitable byproduct of globalization, the free movement of labor, capital, goods and services, and technological change that favors better-skilled and better-educated employees.

Of the advanced economies, America has some of the worst disparities in incomes and opportunities, with devastating macroeconomic consequences. The gross domestic product of the United States has more than quadrupled in the last 40 years and nearly doubled in the last 25, but as is now well known, the benefits have gone to the top — and increasingly to the very, very top.

Last year, the top 1 percent of Americans took home 22 percent of the nation’s income; the top 0.1 percent, 11 percent. Ninety-five percent of all income gains since 2009 have gone to the top 1 percent. Recently released census figures show that median income in America hasn’t budged in almost a quarter-century. The typical American man makes less than he did 45 years ago (after adjusting for inflation); men who graduated from high school but don’t have four-year college degrees make almost 40 percent less than they did four decades ago.

American inequality began its upswing 30 years ago, along with tax decreases for the rich and the easing of regulations on the financial sector. That’s no coincidence. It has worsened as we have under-invested in our infrastructure, education and health care systems, and social safety nets. Rising inequality reinforces itself by corroding our political system and our democratic governance.

And Europe seems all too eager to follow America’s bad example. The embrace of austerity, from Britain to Germany, is leading to high unemployment, falling wages and increasing inequality. Officials like Angela Merkel, the newly re-elected German chancellor, and Mario Draghi, president of the European Central Bank, argue that Europe’s problems are a result of a bloated welfare spending. But that line of thinking has only taken Europe into recession (and even depression). That things may have bottomed out — that the recession may be “officially” over — is little comfort to the 27 million out of a job in the E.U. On both sides of the Atlantic, the austerity fanatics say, march on: these are the bitter pills that we need to take to achieve prosperity.  But prosperity for whom?

Excessive financialization — which helps explain Britain’s dubious status as the second-most-unequal country, after the United States, among the world’s most advanced economies — also helps explain the soaring inequality. In many countries, weak corporate governance and eroding social cohesion have led to increasing gaps between the pay of chief executives and that of ordinary workers — not yet approaching the 500-to-1 level for America’s biggest companies (as estimated by the International Labor Organization) but still greater than pre-recession levels. (Japan, which has curbed executive pay, is a notable exception.) American innovations in rent-seeking — enriching oneself not by making the size of the economic pie bigger but by manipulating the system to seize a larger slice — have gone global.

Asymmetric globalization has also exerted its toll around the globe. Mobile capital has demanded that workers make wage concessions and governments make tax concessions. The result is a race to the bottom. Wages and working conditions are being threatened. Pioneering firms like Apple, whose work relies on enormous advances in science and technology, many of them financed by government, have also shown great dexterity in avoiding taxes. They are willing to take, but not to give back.

Inequality and poverty among children are a special moral disgrace. They flout right-wing suggestions that poverty is a result of laziness and poor choices; children can’t choose their parents. In America, nearly one in four children lives in poverty; in Spain and Greece, about one in six; in Australia, Britain and Canada, more than one in 10. None of this is inevitable. Some countries have made the choice to create more equitable economies: South Korea, where a half-century ago just one in 10 people attained a college degree, today has one of the world’s highest university completion rates.

For these reasons, I see us entering a world divided not just between the haves and have-nots, but also between those countries that do nothing about it, and those that do. Some countries will be successful in creating shared prosperity — the only kind of prosperity that I believe is truly sustainable. Others will let inequality run amok. In these divided societies, the rich will hunker in gated communities, almost completely separated from the poor, whose lives will be almost unfathomable to them, and vice versa. I’ve visited societies that seem to have chosen this path. They are not places in which most of us would want to live, whether in their cloistered enclaves or their desperate shantytowns.

Meyerson on tax avoidance: More than one bad Apple

Meyerson reminds us that:

 ... the system of sovereign nation-states — a pretty impressive creation in its day — has become a plaything for big business in the age of globalization and digital communication. The world is full of places with dirt-cheap labor, low or no taxes and scant or non-existent regulation.

We call sovereign states' total submission to corporate puppeteers in this globalized system "the race to the bottom."

Meyerson also keenly notes that lowering U.S. corporate tax rates is not the solution for corporations' tax avoidance: 

Reducing the nominal tax rate on corporate profits in the United States to 25 percent, or 15 percent, from the current 35 percent won’t deter some future Apple from shifting profits to some future Ireland if the tax rate there is zero.

So what are the solutions?  Meyerson says we should consider: 1) replacing corporate profit tax with an increase on capital gains tax; or even 2) a tax on corporate sales revenue earned in the country, not corporate profit.

Apple’s U.S. revenue should be taxed

By Harold Meyerson

May 29, 2013 | Washington Post

URL: http://wapo.st/12MZKUA

Global development paid for by U.S. middle class

I'm not ready to say that  the global economy is zero-sum, where China's gains are always our losses. At the same time, nobody disputes that we're all interdependent.  What China or Taiwan produces, somebody must buy.  So if China is exporting and we're not, that would tend to be our loss.  If we're not buying then they're not producing that is China's loss.  

It's kind of a moral not an economic argument, nevertheless Paul reminds us that trade, not simple production, is what has lifted record millions out of poverty in the last 50 years, and the U.S. is largely responsible for allowing that trade to happen, not least by serving as the largest market/buyer of all the fastest-developing countries' exported goods.

Fairly, Paul also mentions the global companies like Apple and Google that are in fact without country and who benefit the most from increased global trade. Indeed, more than 60 percent of global trade takes place within multinational companies (MNCs).  

We can think of these as "great American" companies but we're kidding ourselves, we say so only to feed our vanity: it gives us a vague sense of self-worth to say we have a stake in a huge multinational company's success. (It's not unlike Americans who cheer on their local pro team which is probably a net drain on the local economy, yet it gives millions of local residents a great sense of pride that the privately owned sports franchise is "theirs.")

Unlike citizens and workers who are not so mobile, these MNCs go where the lowest cost of production and lowest taxes are.  Often they play off localities, regions and countries against each other -- who can offer them the cheapest labor, the lowest tax rates, the biggest subsidies, etc. -- in what has been called the "race to the bottom."  

Wrote Paul:

Companies such as Apple and Cisco Systems, and nations such as China, that have benefited from free trade are part of a closed system that has been built in large measure on the strength and confidence of the U.S. consumer. Yet those beneficiaries have been largely indifferent to the plight of the American middle class -- whose economic well-being and confidence in the future has been undermined by the expansion of free trade -- focusing instead on their own self-interest and entitlement to the benefits of trade. The leaders of Apple and Cisco gripe about tax rates, while the leaders of China disdain American concerns for their predatory trade practices.

Finally it's worth noting that no other major economy has adopted the U.S. approach, which is basically to open its markets to everybody and let domestic producers die.  

Beware the Global Consequences of Further Declines in the American Middle Class
By David Paul
May 11, 2013 | Huffington Post

URL: http://huff.to/19bTxE1

Progressive California pulling the rest with it, again

Thank goodness for the United State of California, the 8th largest economy in the world. When California says "jump," industry asks "how high?"

California is so big that their progressive reforms will trickle down to the Red States and flyover country, too -- in fact all over the world. This is the very opposite of the "race to the bottom," the dark side of globalization.

California Imposes Battery Charger Energy Standards For Mobile Devices

By Naoki Schwartz

January 13, 2012 | Huffington Post

URL: http://www.huffingtonpost.com/2012/01/13/california-battery-charger-energy-standards_n_1204969.html

Canada & U.S. in 'race to the bottom'

This is the "race to the bottom" in action, folks. Guess what? Canada's not going to win it; neither will we. That's why it's a fool's game; we shouldn't play it. Germany has found a better way.

Cheap U.S. Labor Used As Leverage To Lower Canadian Workers' Wages

By Alexander Eichler

January 6, 2012 | Huffington Post

URL: http://www.huffingtonpost.com/2012/01/06/us-cheap-labor_n_1189428.html

How German automakers double U.S. production AND wages

Great quote:

"So, if I believed what the neo-liberals are arguing, we [Germany] would have to be bankrupt, but apparently this is not the case. Despite high wages... despite our possibility to influence companies, the economy is working well in Germany."

I can tell you, collaborative work by management and labor is definitely not what is taught in U.S. business schools, nor is it the practice, obviously. Tellingly, BMW and Mercedes plants in the U.S. pay much worse wages and probably produce lower-quality cars, because even German producers in the U.S. succumb to America's race-to-the-bottom industrial ethos.

How Germany Builds Twice as Many Cars as the U.S. While Paying Its Workers Twice as Much

By Frederick E. Allen

December 21, 2011 | Forbes

URL: http://www.forbes.com/sites/frederickallen/2011/12/21/germany-builds-twice-as-many-cars-as-the-u-s-while-paying-its-auto-workers-twice-as-much/