By the way, Robert Reich just wrote a piece about Walgreen's plan to do a tax inversion. He noted [emphasis mine]:
It’s true that the official corporate tax rate of 39.1 percent, including state and local taxes, is the highest among members of the Organization for Economic Cooperation and Development.
But the effective rate – what corporations actually pay after all deductions, tax credits, and other maneuvers – is far lower.
Last year, the Government Accountability Office, examined corporate tax returns in detail and found that in 2010, profitable corporations headquartered in the United States paid an effective federal tax rate of 13 percent on their worldwide income, 17 percent including state and local taxes. Some pay no taxes at all.
UPDATE (07/09/2014): In response to this post my Uncle T. freaked out, saying I was being manipulated by statistics. For some reason he thought the "effective tax rate" of a company was calculated on income before expense deductions, i.e. gross profit.
But I pointed out to to him that, according to the GAO report cited by Reich, "The most common measure of income for these estimates has been some variant of pretax net book income." So the starting point for calculation is net profit before taxes, not gross profit, just in case anybody else shared my uncle's confusion.
Continuing on a pet theme of mine, I want my readers to consider just what is a "U.S. company" (for tax purposes). What comes to your mind? Do you even know what the formal definition is? Does that definition meet your moral-reasonable expectations of an American company?
Pearlstein objects to those American companies that want to have their cake and eat it to, that want...
...all the rights and privileges of being an American company without the full complement of responsibilities that go along with it.
You want the peace and security guaranteed by a muscular military and intelligence apparatus that make it possible for you to operate and market in all the advanced economies of the world. You want the world’s most sophisticated and enforceable patent system to protect your intellectual property. You want a fair and efficient judicial system to enforce contracts.
You want a well-educated workforce to design and make your products, based on basic research done through an extensive network of government-funded institutes and laboratories. You want modern ports and highways and airports to ship your products to market, and an efficient border operation to speed them through customs.
You want an honest, efficient financial system that can provide you with cheap and plentiful capital. You demand a professional, credible regulatory agency that can expeditiously evaluate your products and ensure customers that they are safe and effective. And you insist on government-funded health care for the poor, the elderly and the disabled that will pay you more for your devices than any other country in the world.
Now, the EU isn't trying to help the USA collect more tax from these "American" companies, no sir. They are threatening potential punishments for handing out what amount to subsidies to home businesses -- an unfair trade practice that decreases the competitiveness of other EU states. It will be very interesting to see how this plays out!....
UPDATE: There's this far-right libertarian Nazi that I correspond with, he says he's a millionaire, let's call him Old Dirty Bastard, who responded to this post. I think this thread is pretty instructive for all you not-so-crazy folks, and shows why we need unions and collective bargaining to protect us from the ODBs of the "free market":
(ODB): Wake up and smell the coffee---it's been happening forever. They are dumb if they don't get their best deal. They do it to states by incorporating in states like Nevada also. (Me):Employers have always colluded to keep wages down in a given sector? Did you read the article? You don't even believe your own libertarian mumbo-jumbo! What a cynic you are! Don't preach to me anymore about your free-market beliefs, etc. because you believe in the Law of the Jungle, where Might Makes Right. (ODB):Explain the difference between free market and the law of the jungle. I do not see it (Me):That's your definition of libertarianism. The Sherman Anti-Trust Act, Teddy Roosevelt, Grover Cleveland... they were all long-haired hippy commies "ruining" the free market. There's no use arguing with you, you are so far to the right that you're back on the left with Hitler and Pinochet. UPDATE (20.02.2014): Mark Ames followed up his original report with more court documents and e-mails, this time between Apple's Steve Jobs -- "an American hero" -- and Palm's Edward Colligan: "Steve Jobs threatened Palm’s CEO, plainly and directly, court documents reveal."
Krugman aptly points out that austerity in Europe over the past 2 years hasn't worked. It hasn't encouraged investors to invest or EU consumers to spend; nor has austerity lowered crisis countries' public borrowing costs. Indeed, Ireland, the champion of European austerity, has higher borrowing costs than Spain and Italy!
Let's compare Europe to the U.S., which is projected to have between 2-3 percent GDP growth this year, depending whom you ask. Meanwhile the IMF projects that Europe as a whole will grow 0.2 percent this year, and "emerging Europe," the countries less hard-hit by the crisis, will grow only 1.9 percent. Austerity cases like Italy and Spain have fallen back into recession.
The U.S. has avoided austerity and thus repeat recession; it's growing slowly but steadily. And yet U.S. conservatives want America to emulate Europe, even now after all the evidence is in. Why? Why do they want us to copy failure?
Black asks if anybody cares to remember how Ireland and Iceland were trotted out by EU and US neo-liberals as great successes to follow in their deregulation, privatization of public assets, and budget cuts, particularly to the social safety net.
And yet budget surpluses and supply-side growth didn't save Iceland or Ireland from the financial crisis.
As Johnson describes, countries which host TBTF banks become their hostages when those banks act irresponsibly and cause a crisis. This is TBTF's moral hazard:
"This [TBTF banks' global presence] is also a major problem for the 'just let 'em go bankrupt' philosophy. There is no framework for cross-border bankruptcy, in the sense of clear rules about who gets compensated with what kind of assets. The courts can presumably sort it out, but it would take many years and cost billions of dollars in legal and other fees. As a result, if a large bank is on the brink of failing, everyone will assume the worst around the world and run for the doors."
[...]
"Or we could also make the biggest banks smaller -- ideally, small enough to fail. This was the proposal of the Brown-Kaufman amendment to Dodd-Frank, which died on the Senate floor, largely because of opposition from Geithner and the Treasury Department. So we'll do nothing, it seems, except let these massive banks become bigger and even less well managed.
"Until next time, the people who run the country will again face the same choice as in November 2008: provide an unsavory bailout for management, shareholders and creditors that rewards failure and stupidity, or run the risk of causing a second Great Depression.
"If the big banks get large enough, we'll become like Ireland today -- saving those institutions will ruin us fiscally, destroy the dollar as a haven currency, and end financial life as we know it."
Before you read Krugman, here's a good synopsis of Ireland's housing bubble from the Irish Times in October 2008 (before the shite really hit the fan):
Ireland's Housing Market: Bubble Trouble says house prices rose by a cumulative 300 per cent in real terms between 1992 and 2006. The unprecedented boom in prices was fuelled by particularly strong housing demand caused by a relatively young and growing population, rapid growth in disposable income and low - at times negligible - interest rates.
It says the tax structure in the Republic played a role in fuelling the housing bubble by creating favourable tax treatment of residential property and house purchases for investment purposes.
"Households are allowed a tax deduction on mortgage interest payments, while there is no tax on property values or imputed rent and only limited taxation of capital gains on residential property . . . Generous tax provisions may have encouraged the spiral in houses prices," says the report, which concludes that the Irish tax structure is one of the most favourable to encourage home ownership across the EU.
Household indebtedness in Ireland, 81 per cent of gross domestic product, is among the highest in the euro area and about 80 per cent of personal credit is secured on property, says the report, which notes speculation in the buy-to-let market also helped fuel the boom.
"What," asked my interlocutor, "is the worst-case outlook for the world economy?" It wasn't until the next day that I came up with the right answer: America could turn Irish.
What's so bad about that? Well, the Irish government now predicts that this year G.D.P. will fall more than 10 percent from its peak, crossing the line that is sometimes used to distinguish between a recession and a depression.
But there's more to it than that: to satisfy nervous lenders, Ireland is being forced to raise taxes and slash government spending in the face of an economic slump — policies that will further deepen the slump.
And it's that closing off of policy options that I'm afraid might happen to the rest of us. The slogan "Erin go bragh," usually translated as "Ireland forever," is traditionally used as a declaration of Irish identity. But it could also, I fear, be read as a prediction for the world economy.
How did Ireland get into its current bind? By being just like us, only more so. Like its near-namesake Iceland, Ireland jumped with both feet into the brave new world of unsupervised global markets. Last year the Heritage Foundation declared Ireland the third freest economy in the world, behind only Hong Kong and Singapore.
One part of the Irish economy that became especially free was the banking sector, which used its freedom to finance a monstrous housing bubble. Ireland became in effect a cool, snake-free version of coastal Florida.
Then the bubble burst. The collapse of construction sent the economy into a tailspin, while plunging home prices left many people owing more than their houses were worth. The result, as in the United States, has been a rising tide of defaults and heavy losses for the banks.
[Gee, how did Ireland manage to do that to itself without its own version of Fannie Mae, Freddie Mac, and ACORN??.... - J]
And the troubles of the banks are largely responsible for putting the Irish government in a policy straitjacket.
On the eve of the crisis Ireland seemed to be in good shape, fiscally speaking, with a balanced budget and a low level of public debt. But the government's revenue — which had become strongly dependent on the housing boom — collapsed along with the bubble.
Even more important, the Irish government found itself having to take responsibility for the mistakes of private bankers. Last September Ireland moved to shore up confidence in its banks by offering a government guarantee on their liabilities — thereby putting taxpayers on the hook for potential losses of more than twice the country's G.D.P., equivalent to $30 trillion for the United States.
The combination of deficits and exposure to bank losses raised doubts about Ireland's long-run solvency, reflected in a rising risk premium on Irish debt and warnings about possible downgrades from ratings agencies.
Hence the harsh new policies. Earlier this month the Irish government simultaneously announced a plan to purchase many of the banks' bad assets — putting taxpayers even further on the hook — while raising taxes and cutting spending, to reassure lenders.
Is Ireland's government doing the right thing? As I read the debate among Irish experts, there's widespread criticism of the bank plan, with many of the country's leading economists calling for temporary nationalization instead. (Ireland has already nationalized one major bank.) The arguments of these Irish economists are very similar to those of a number of American economists, myself included, about how to deal with our own banking mess.
But there isn't much disagreement about the need for fiscal austerity. As far as responding to the recession goes, Ireland appears to be really, truly without options, other than to hope for an export-led recovery if and when the rest of the world bounces back.
So what does all this say about those of us who aren't Irish?
For now, the United States isn't confined by an Irish-type fiscal straitjacket: the financial markets still consider U.S. government debt safer than anything else.
But we can't assume that this will always be true. Unfortunately, we didn't save for a rainy day:thanks to tax cuts and the war in Iraq, America came out of the "Bush boom" with a higher ratio of government debt to G.D.P. than it had going in. And if we push that ratio another 30 or 40 points higher — not out of the question if economic policy is mishandled over the next few years — we might start facing our own problems with the bond market.
Not to put too fine a point on it, that's one reason I'm so concerned about the Obama administration's bank plan. If, as some of us fear, taxpayer funds end up providing windfalls to financial operators instead of fixing what needs to be fixed, we might not have the money to go back and do it right.
And the lesson of Ireland is that you really, really don't want to put yourself in a position where you have to punish your economy in order to save your banks.
