The Unseen Threat of Capital Mobility

January 4, 2016 4:20 AM

For the Wealthiest, a Private Tax System That Saves Them Billions -"The very richest are able to quietly shape tax policy that will allow them to shield billions in income." (via)

With inequality at its highest levels in nearly a century and public debate rising over whether the government should respond to it through higher taxes on the wealthy, the very richest Americans have financed a sophisticated and astonishingly effective apparatus for shielding their fortunes. Some call it the “income defense industry,” consisting of a high-priced phalanx of lawyers, estate planners, lobbyists and anti-tax activists who exploit and defend a dizzying array of tax maneuvers, virtually none of them available to taxpayers of more modest means...

Operating largely out of public view — in tax court, through arcane legislative provisions and in private negotiations with the Internal Revenue Service — the wealthy have used their influence to steadily whittle away at the government’s ability to tax them. The effect has been to create a kind of private tax system, catering to only several thousand Americans... After all the loopholes and all the lobbying, what remains of the government’s ability to collect taxes from the wealthy runs up against one final hurdle: the crisis facing the I.R.S.

Capitalism must be refereed - "The Internal Revenue Service (IRS) has also been hollowed out. Despite an increasing number of wealthy individuals and big corporations using every tax dodge imaginable—laundering money through phantom corporations and tax havens and shifting profits abroad to where they'd be taxed least—the IRS budget by 2014 was 7 percent lower than it had been as recently as 2010. During the same period, the IRS lost more than ten thousand staff—an 11 percent reduction in personnel. This budget stinginess didn't save the government money. To the contrary, less IRS enforcement means less revenue. For every dollar that goes into IRS enforcement, an estimated $200 is recovered of taxes that have gone unpaid. Less enforcement does, however, reduce the likelihood that wealthy individuals and big corporations would be audited."

What might a regulatory tax and financial system look like if it was not beholden to Wall Street? Larry Summers* (of all people! ;) suggests the following:

• First, the financial regulatory agencies would be adequately resourced and would not be under pressure to kowtow to legislators pushing their contributors interest. The Commodity Futures Trading Commission head Tim Massad had it right when he condemned the recent budget agreement as undercutting the ability to regulate derivatives in a serious way.
• Second, the Balkanised character of US banking regulation is indefensible and would be ended. The worst regulatory idea of the 20th-century — the dual banking system — persists into the 21st. The idea is that we have two systems: one regulated by the states and the Fed and the other regulated by the Office of the Comptroller of the Currency, so banks have choice. With ambitious regulators eager to expand their reach, the inevitable result is a race to the bottom.
• Third, the current SEC and CFTC would be combined and charged with regulating in a coherent way all financial markets with respect to market integrity, manipulation issues, insider trading, transparency, fairness of execution, and systemic risk. When there were securities markets and commodity markets it may have made sense. It no longer is defensible when the vast majority of “commodity trading” is in financial derivatives. The current system persists only so that multiple congressional committees can maintain jurisdiction over financial regulation and reap the benefits in terms of campaign contributions. Quite possibly, it would be a good idea to give the new agency, if it was strong, jurisdiction over fiduciary rules for investment and pension advisors.
• Fourth, either the new agency formed out of the SEC and CFTC or the existing Financial Stability Oversight Council would take on systemic risks associated with asset management in a serious way. While the asset managers have the better side of the argument when they claim not to be systemic in the sense of JPMorgan or Goldman Sachs, their activities are systemic and egregiously under-regulated. It took far far too long to reach a still unsatisfactory solution with respect to money market funds. And ETFs are as likely as anything else to be the source of the next major bit of financial drama.
• Fifth, there would be appropriate taxation of financial activities and the financial sector. Among the obvious reforms held back only by special interests are the highly preferential treatment of carried interest, the privileged treatment of dividends and capital gains, the ability of financial institutions to reduce their tax liabilities by using off shore tax havens and the tax deductibility of huge fines paid to resolve allegations of wrongdoing.

also btw...

• On globalization and inequality - "Two new books link rising inequality to unseen forces: tax havens in economist Gabriel Zucman's case, and overseas labor and environmental exploitation in historian Erik Loomis'. The adverse consequences of the free movement of capital suffuse both narratives. Loomis recognizes that the threat of offshored jobs and outsourced supply chains is wielded to discipline the domestic workforce in the United States, and Zucman points out that tax havens have effectively allowed the wealthy to choose their own tax system and regulatory regime. They each question received wisdom and ideologically charged models in which 'globalization' is an inexorable force innocent of politics or power, which operates to either universal benefit or at worst whose ill effects can be compensated. In fact, thanks to globalization, the economic body—what its ideological affiliates call 'The Market'—is able to transcend the national body politic, to the benefit of multinational corporations and the wealthy individuals who own them." (via)
• 'Socially responsible', tax-avoiding companies - "Baruch Lev of New York University has found that companies with higher CSR ['corporate social responsibility'] scores have higher revenue growth. Yet the more vigorous companies are in reducing their taxes, the more they destroy any social capital that they have accumulated through CSR."
• We've made a major accounting error - "Which is why I suspect the economic problem can't be solved until technology combines with societal morality, and we begin to respect and honour every human person, whomever they may be, rather than treat them as commoditised entries in a spreadsheet which can be streamlined, disrespected or gamed for the sake of oneupmanship, cheap labour and profit. You can't synthesise trust in a system that has no underlying morality by simply removing humans from the process. The humans are the process. They're also the point of the process."
• The Bern Supremacy - "Progressives want to subordinate the imperatives of the market and of private business to the public interest, and to remove the special influence of business from the political arena. They want to achieve liberty and equality. They do not seek to eliminate capitalism but, through regulation and very selective nationalization, to reduce the inequities of wealth and power that a market system creates.
• Bill Gates, Crypto-Socialist? - "In sector after sector, the set of all things that are profitable is much smaller than the set of all things that are useful. Capitalism fetters production, limiting what we could produce to only those things that permit capital to expand — a diminishment of the lives of everyone, even the wealthiest individuals."
• How to Be an Anticapitalist Today[*] - "Give up the fantasy of smashing capitalism. Capitalism is not smashable, at least if you really want to construct an emancipatory future. You may personally be able to escape capitalism by moving off the grid and minimizing your involvement with the money economy and the market, but this is hardly an attractive option for most people, especially those with children, and certainly has little potential to foster a broader process of social emancipation. If you are concerned about the lives of others, in one way or another you have to deal with capitalist structures and institutions. Taming and eroding capitalism are the only viable options. You need to participate both in political movements for taming capitalism through public policies and in socioeconomic projects of eroding capitalism through the expansion of emancipatory forms of economic activity."
• The Melting Away of North Atlantic Social Democracy - "And our politics is something we can control. We as a civilization could decide that we are not willing to let money talk so loudly in politics. We could keep our politics from being one of establishing monopoly after monopoly and rent-extraction chokepoint after rent-extraction chokepoint." (via)

---
*if you'd like to follow along the -- one-time prospective Fed chair's -- great chain of (monetary) being...
-Are econ models just ways of explaining your ideas to people? 'Correct'
-Larry Summers on How We Know More than We Write Down in Our Lowbrow (or Highbrow) Economic Models
-How can we reconcile the models and reality?
-Optimal taxation with behavioral agents (with a model of nudges)
-Wealth, or permanent income, drives aggregate demand
-Economists' evolving understanding of the zero-rate liquidity trap
-Breaking Through the Zero Lower Bound and Electronic Money

posted by kliuless (31 comments total)

Thanks for all the work, the thoroughness and balance: It will take time to read but I will
posted by rmhsinc at 4:39 AM on January 4, 2016 [2 favorites]

"Which is why I suspect the economic problem can't be solved until technology combines with societal morality, and we begin to respect and honour every human person, whomever they may be, rather than treat them as commoditised entries in a spreadsheet which can be streamlined, disrespected or gamed for the sake of oneupmanship, cheap labour and profit.

Why do I feel like this will never happen?
posted by STFUDonnie at 5:02 AM on January 4, 2016 [3 favorites]

Capital is grey goo.

Thanks for the round up.
posted by PMdixon at 5:21 AM on January 4, 2016

Thanks for the great post. I read that NY-times article a few weeks ago and felt incredibly hopeless.
posted by cacofonie at 5:29 AM on January 4, 2016 [1 favorite]

Superb post, thank you.

I recently read the superb if chilling Treasure Islands by Nicholas Shaxson, which lucidly and entertainingly* outlines the history of the tax haven phenomenon; this post looks like an extremely fine collection of further reading on the same subject.

* For certain values of 'entertainingly'.
posted by motty at 6:01 AM on January 4, 2016

Tax land. They can't offshore that.
posted by Heywood Mogroot III at 6:54 AM on January 4, 2016 [1 favorite]

Why do I feel like this will never happen?

habitus?

Or, to put it another way, an elite stays in power over time not just by controlling resources, or what Bourdieu described as "economic capital" (money), but also by amassing "cultural capital" (symbols associated with power). When they amass this cultural capital, this helps to make the status of the elite seem natural and inevitable. The wealthy French pupils at Bourdieu's boarding school, for example, exuded a "natural" sense of authority and power by wrapping themselves in dozens of tiny, subtle cultural signals...

Social silences matter. The system ends up being propped up because it seems natural to leave certain topics ignored, since these issues have become labeled as dull, taboo, obvious, or impolite... Or as Bourdieu said: "The most powerful forms of ideological effect are those which needs no words, but merely a complicitous silence."

posted by kliuless at 7:07 AM on January 4, 2016 [8 favorites]

Fantastic post, thanks!
posted by pt68 at 7:08 AM on January 4, 2016

Is this something I'd have to be a billionaire not to feel enraged by?
posted by From Bklyn at 7:11 AM on January 4, 2016 [2 favorites]

Most of these tax schemes involve various methods for converting income into long term capital gains. Eliminating the long term cap gains discount tax rate is politically unpopular because it affects retirees disproportionately. What I've never understood is why no one ever pushes to limit the total amount of gain you can claim and still get the reduced tax rate. Even if you set the limit quite high, like a million a year, you'd stop an entire cottage industry of schemes for the mega-rich.
posted by Lame_username at 8:10 AM on January 4, 2016 [12 favorites]

What I've never understood is why no one ever pushes to limit the total amount of gain you can claim and still get the reduced tax rate.

You answer your own question:

you'd stop an entire cottage industry of schemes for the mega-rich.
posted by PMdixon at 8:12 AM on January 4, 2016 [7 favorites]

This seems apropos to what kliuless is talking about.
posted by tobascodagama at 8:29 AM on January 4, 2016

Eliminating the long term cap gains discount tax rate is politically unpopular because it affects retirees disproportionately.

Does it? Aren't most retirees drawing a pension or a 401k/IRA/other retirement account where the capital gains tax isn't relevant? I know that some retirees are drawing down taxable accounts, but that's usually people who have exceptional amounts of money.
posted by indubitable at 8:31 AM on January 4, 2016 [2 favorites]

The examples of "loopholes" are pretty weird, given that the IRS is aggressively attacking both the offshore reinsurance and the basket options. They're effectively banning the former through regulation and having added the latter to its "listed transactions," which triggers additional disclosure and big fines).

I don't see how private placement life insurance is any more of a tax dodge than regular life insurance. And, in the real world, it's expensive, so it's extremely uncommon.
posted by jpe at 8:36 AM on January 4, 2016 [2 favorites]

And this:

The agency is not allowed to collect underpaid taxes directly from these partnerships, even those with several hundred partners. Instead, it must collect from each individual partner, requiring the agency to commit significant time and manpower.

Is no longer true. The recent extenders act changed that. eg:

Under the new rules, in general, audit adjustment to items of partnership income, gain, loss, deduction or credit, and any partner’s distributive share thereof, are determined at the partnership level. Subject to election of the alternative regime discussed below, the associated "imputed underpayment”—the tax deficiency arising from a partnership-level adjustment with respect to a partnership tax year (a reviewed year)—is calculated using the maximum statutory income tax rate and is assessed against and collected from the partnership in the year that such audit or any judicial review is completed (the adjustment year). In addition, the partnership is directly liable for any related penalties and interest, calculated as if the partnership had been originally liable for the tax in the audited year.
posted by jpe at 9:07 AM on January 4, 2016 [1 favorite]

Eliminating the long term cap gains discount tax rate is politically unpopular because it affects retirees disproportionately.


The mean wealth of the 65-75 cohort was over a million dollars (the median was around $230,000).

They are actually the most well off age-group in United States.
posted by srboisvert at 9:21 AM on January 4, 2016 [2 favorites]

Yes, but you would expect that given that 1) they've had the most time to accumulate savings and 2) most of them have no income other than Social Security and are therefore drawing down their savings. It's not like many people that age can just return to the workforce if they run out of money.
posted by indubitable at 9:47 AM on January 4, 2016 [1 favorite]

Aren't most retirees drawing a pension or a 401k/IRA/other retirement account where the capital gains tax isn't relevant? I know that some retirees are drawing down taxable accounts, but that's usually people who have exceptional amounts of money.

A disproportionate share of retirees have taxable savings, either because they only got serious about saving for retirement too late to maximize their tax deferred savings or because they have had to downsize their house and use the equity to manage the gap between SS and IRA income and their spending requirements. Some also realized significant life insurance proceeds from the death of their spouse. This group generally pays 0% capital gains tax (up to 37k for married couples), which can be the difference between poverty and relative safety. I know a lady who earns the average SS benefit of around 15k, has about 2k a year in IRA distributions and would struggle to pay rent, food and medical bills if it weren't for the 7k in tax free gains she gets from investing the proceeds of her husband's life insurance payment. Given that the average retiree has just 100k in their IRA, home equity, life insurance and the like make a big part of their retirement picture.
posted by Lame_username at 10:23 AM on January 4, 2016 [2 favorites]

The mean wealth of the 65-75 cohort was over a million dollars (the median was around $230,000).

The 2011 census breaks it down by 65-69 and pegs the median net worth at 194k, which declines as they age. If you exclude equity in their primary residence, the median net worth is $27,322 of which the largest asset is likely to be an automobile. It's still more than any other age group, to be sure, but mostly driven by 80% home ownership. Source: www.census.gov/people/wealth
posted by Lame_username at 10:36 AM on January 4, 2016 [1 favorite]

Yes, but you would expect that given that 1) they've had the most time to accumulate savings and 2) most of them have no income other than Social Security and are therefore drawing down their savings. It's not like many people that age can just return to the workforce if they run out of money.

Yes but there step up is larger than should have happened. And that was 2013 data. The current wealth of the sub-35 age is lower than it has been in several decades. That wage slump is a wave that will progress through groups. Their only hope of any of kind of similar advantage in retirement is their parents dying and leaving them some wealth.

The Boomers ate their children.
posted by srboisvert at 10:40 AM on January 4, 2016 [15 favorites]

It's still more than any other age group, to be sure, but mostly driven by 80% home ownership.

That really means nothing other than that have their wealth allocated in a specific way. If fact it may be worse than other forms of wealth because they are likely tying up family housing and keeping the younger generations off the property ladder.
posted by srboisvert at 7:10 PM on January 4, 2016

Pfizer and America's Corporate Exodus - "James Surowiecki on tax inversion, deferrals, and how to stop American companies from moving overseas." (via)
posted by kliuless at 8:26 PM on January 4, 2016 [1 favorite]

-Thomas Piketty: Capital, Predistribution and Redistribution[*]

One of the main conclusions of my research is indeed that there is substantial uncertainty about how far income and wealth inequality might rise in the 21st century, and that we need more financial transparency and better information about income and wealth dynamics, so that we can adapt our policies and institutions to a changing environment, and experiment different levels of wealth tax progressivity. This might require better international fiscal coordination, which is difficult but by no means impossible (Zucman, 2014)...

In particular, I suspect that new social movements and political mobilizations will give rise to institutional change in the future, but I do not pursue this analysis much further. As I look back at my discussion of future policy proposals in the book, I may have devoted too much attention to progressive capital taxation and too little attention to a number of institutional evolutions that could prove equally important. Because capital is multidimensional and markets are imperfect, capital taxation needs to be supplemented with other asset-specific policies and regulations, including for instance land use and housing policies[1,2,3] and intellectual property right laws...

Also, in my book I do not pay sufficient attention to the development of other alternative forms of property arrangements and participatory governance. One central reason why progressive capital taxation is important is because it can also bring increased transparency about company assets and accounts. In turn, increased financial transparency can help to develop new forms of governance; for instance, it can facilitate more worker involvement in company boards. In other words, “social-democratic” institutions such as progressive taxation (see Miriam Ronzoni in this symposium) can foster institutions that question in a more radical manner the very functioning of private property (note that progressive capital taxation transforms large private property as a temporary attribute rather than a permanent one – already a significant change). However these other institutions – whose aim should be to redefine and regulate property rights and power relations – must also be analyzed as such – a step that I do not fully follow in this book...

The last chapter of my book concludes: “Without real accounting and financial transparency and sharing of information, there can be no economic democracy. Conversely, without a real right to intervene in corporate decision-making (including seats for workers on the company’s board of directors), transparency is of little use. Information must support democratic institutions; it is not an end in itself. If democracy is someday to regain control of capitalism, it must start by recognizing that the concrete institutions in which democracy and capitalism are embodied need to be reinvented again and again” (p. 570). I do not push this line of investigation much further, which is certainly one of the major shortcomings of my work.

-At Stake in 2016: Ending the Vicious Cycle of Wealth and Power

The way to end this vicious cycle is to reduce the huge accumulations of wealth that fuel it, and get big money out of politics.

But it’s chicken-and-egg problem. How can this be accomplished when wealth and power are compounding at the top?

Only through a political movement such as America had a century ago when progressives reclaimed our economy and democracy from the robber barons of the first Gilded Age.

That was when Wisconsin’s “fighting Bob” La Follette instituted the nation’s first minimum wage law; presidential candidate William Jennings Bryan attacked the big railroads, giant banks, and insurance companies; and President Teddy Roosevelt busted up the giant trusts.

When suffragettes like Susan B. Anthony secured women the right to vote, reformers like Jane Addams got laws protecting children and the public’s health, and organizers like Mary Harris “Mother” Jones spearheaded labor unions.

America enacted a progressive income tax, limited corporate campaign contributions, ensured the safety and purity of food and drugs, and even invented the public high school.

The progressive era welled up in the last decade of the nineteenth century because millions of Americans saw that wealth and power at the top were undermining American democracy and stacking the economic deck. Millions of Americans overcame their cynicism and began to mobilize.

We may have reached that tipping point again.

Both the Occupy Movement and the Tea Party grew out of revulsion at the Wall Street bailout. Consider, more recently, the fight for a higher minimum wage (“Fight for 15”).

Bernie Sander’s presidential campaign is part of this mobilization. (Donald Trump bastardized version draws on the same anger and frustration but has descended into bigotry and xenophobia.)

Surely 2016 is a critical year. But, as the reformers of the Progressive Era understood more than a century ago, no single president or any other politician can accomplish what’s needed because a system caught in the spiral of wealth and power cannot be reformed from within. It can be changed only by a mass movement of citizens pushing from the outside.

also btw...
-Economists Take Aim at Wealth Inequality
-Why Economists Took So Long to Focus on Inequality

oh and if you're still following along! :P
-MOAR musings on whether we consciously know more or less than what is in our models - "In brief, Blanchard et al appear to think that only developing economies are 'Minskyite' in the sense of a strong vulnerability of the CC [credit channel] risk premium to 'confidence' even in the absence of fundamental shocks. Summers' judgment appears to be that all economies are 'Minskyite'. If I understand Paul's thinking, it is more that 'confidence' is only likely to matter as an equilibrium-selection device in a model with multiple equilibria like that of Krugman’s (1999b) third-generation financial-crisis model in 'Balance Sheets, the Transfer Problem, and Financial Crises'. No multiple equilibrium, no possibility of suddenly jumping to a bad equilibrium, and so little possibility of any sort of pure 'confidence' shock causing large amounts of trouble."
posted by kliuless at 11:11 PM on January 4, 2016 [2 favorites]

I know a lady who earns the average SS benefit of around 15k, has about 2k a year in IRA distributions and would struggle to pay rent, food and medical bills if it weren't for the 7k in tax free gains she gets from investing the proceeds of her husband's life insurance payment.

Her taxes are zero and it has nothing to do with the capital gains rate. Her Social Security is tax free and the remaining $9000 is below the standard deduction and personal exemption so her taxable income is zero.

Very few retired people benefit from the capital gains tax rate who are not quite well off financially. The capital gain tax preference is a loophole for the wealthy and should be eliminated.
posted by JackFlash at 11:43 PM on January 4, 2016 [6 favorites]

Discussion: Why doesn't someone start a company to democratize tax loopholes?
posted by Apocryphon at 3:31 PM on January 5, 2016 [1 favorite]

The costs and consequences of tax havens - "A lot of wealthy people in the United States, Europe, and elsewhere have been hiding money in foreign countries—above all, Switzerland, Luxembourg, and the Virgin Islands. As a result, they have been able to avoid paying taxes in their home countries. Until recently, however, officials have not known the magnitude of that problem." (via)

About 8 percent of the world’s wealth, or $7.6 trillion, is held in tax havens. In 2015, Switzerland alone held $2.3 trillion in foreign wealth. As a result of fraud from unreported foreign accounts, governments around the world lose about $200 billion in tax revenue each year. Most of this amount comes from the evasion of taxes on investment income, but a significant chunk comes from fraud on inheritances. In the United States, the annual tax loss is $35 billion; in Europe, it is $78 billion. In African nations, it is $14 billion... How might this problem be solved?

[For] producing an accounting of hidden wealth... Zucman much prefers the Foreign Account Tax Compliance Act (FATCA), which was signed into law by President Obama in 2010. Under FATCA, all foreign banks are required to identify any American citizens among their clients and to disclose to the Internal Revenue Service the amount of their holdings and any dividends and interest paid on them. What Zucman emphasizes, and especially admires, is the automatic nature of the act’s requirements. The IRS need not name names or show grounds for suspicion. Every year, foreign banks are required to comply. If they fail to do so, they face a severe sanction, in the form of a 30 percent withholding tax on gross income (including dividends and interest) from US sources. In Zucman’s account, the sanction appears to be working; foreign banks are meeting their obligations, and some initially skeptical nations (including China) are even praising the new law.

With this precedent in mind, Zucman unveils his principal proposal: an automatic, fully global register, so that every government in the world can know where money is kept, and who is trying to escape national taxes. Under his proposal, the register would record “who owns all the financial securities in circulation, stocks, bonds, and shares of mutual funds throughout the world.” If rich people in the United States or Germany are depositing their money into Swiss banks, the Swiss authorities would have to inform American and German officials of the deposits. Zucman emphasizes that all this should be done automatically, so as to make special inquiries or evidence of suspicion unnecessary.

With the register, tax authorities could tell, essentially immediately, if their citizens are using tax havens. Zucman notes that a global register of this kind could have other benefits, helping to combat the financing of terrorism, bribery, and money laundering; public and private corruption might be added to this list. He notes too (and here he will immediately lose some readers) that such a register[*] could facilitate the imposition of a global wealth tax, of the sort proposed, very controversially, by Thomas Piketty...

According to Zucman, the United States is losing $35 billion in annual taxes, and some estimates say that the real loss is as high as $100 billion.* If so, and if those who successfully evade taxes are mostly the wealthiest people, there is a serious problem. By way of comparison, the entire annual budget of the Department of State is in the vicinity of $50 billion.

Piketty, in three parts

Unequal power leads to unequal influence over the institutions that distribute the benefits of cooperation, which in turn means that the benefits are likely to be distributed in unequal and inefficient ways... Piketty’s claim is potentially much more corrosive. For him, the fundamental problem isn’t one of flawed markets and unequal power. It’s one of markets working as they are supposed to... institutional reforms aimed at removing market imperfections will do nothing to address the fundamental problem of economic inequality, and may, indeed, exacerbate it. The problem isn’t in the institutions but in market capitalism itself, so that efforts to reform corrupt institutions will not fix the core problem.* ... This conducts towards an account in which institutions are not the problem, but can serve as a brake on the problem. The right kind of institutions can restrain the innate and natural long run tendencies of the market to produce economic inequality. How to get to these institutions is a different problem... knowledge on its own is not a sufficient condition for successful political action (more on this below)...

Piketty’s policy prescriptions, some of which are proposed not so much to solve the problem of inequality, as to help generate the kinds of politics that might solve the problem. Piketty’s entire project could be seen as a bet – that generating increased knowledge about the actual shape of inequality will help generate the kinds of politics that can successfully address inequality... For example, his self-admittedly utopian proposal for a global tax on capital is in part motivated by the desire to reduce financial opacity, and to make it clearer just how well the truly rich are doing. He believes that many people don’t understand this:

For ... half of the population, the very notions of wealth and capital are relatively abstract. For millions of people, “wealth” amounts to little more than a few weeks’ wages in a checking account or low-interest savings account, a car, and a few pieces of furniture. The inescapable reality is this: wealth is so concentrated that a large segment of society is virtually unaware of its existence, so that some people imagine that it belongs to surreal or mysterious entities. That is why it is so essential to study capital and its distribution in a methodical, systematic way.

Yet a truly systematic understanding is impossible given currently available data. A global capital tax could help generate this data... In part, this policy proposal doubles down on the bet that Piketty’s book embodies – it is another way to generate empirically validated knowledge that can inform democratic debate.* The implication is that if we (as a democratic society, in the US, France, Ireland or some congeries of these national societies) truly understood how rich the rich were, we could do something about it, and perhaps address a number of collective challenges that otherwise seem insuperable.

Obviously, this bet is an uncertain one. Piketty has little to say about the politics through which knowledge generates political action. What one might say is that this and other proposals he makes for knowledge generation might help create a plausibly necessary but insufficient condition for political change. What more we might need than knowledge is difficult to say (I have little idea beyond broad generalities). One plausible surmise though, is that if we’re in the world of the theoretical double bind where (a) Piketty is right about the inherent tendency of capitalism to produce enduring economic inequality, and (b) his critics are right about how economic inequality generates political and institutional inequality, we’re in a very difficult position. It’s unlikely under these conditions that democracy can generate the required political action, regardless of how much knowledge is generated. We need to hope either that capitalism isn’t as prone to generate economic inequality as Piketty believes, or that this economic inequality does not translate seamlessly into unequal political power.

---
*re: 'the core problem', to reiterate leigh phillips' formulation in jacobin - "In sector after sector, the set of all things that are profitable is much smaller than the set of all things that are useful."
posted by kliuless at 8:43 PM on January 7, 2016 [1 favorite]

JackFlash: And even if she made more, the long term capital gains rate is zero for people whose other taxable income is less than $37,450.
posted by wierdo at 1:41 PM on January 8, 2016 [1 favorite]

Thinking about wealth taxes[*]

also btw...
-Reporting rule adds $3tn of leases to balance sheets globally
-The Fed Is Finally Going After Leverage in the Shadow Banking Sector
posted by kliuless at 1:01 PM on January 13, 2016

Corporate Income Tax & the Double Taxation Myth - "I've long been in favor of eliminating the corporation — especially when I was a libertarian. So I say we give the rich what they want: repeal the corporate income tax — right along with the corporation as a legal entity."
posted by kliuless at 10:34 AM on January 25, 2016 [1 favorite]

Google tax: the 6-year audit that ended in a political storm

The Google party was one of the hot tickets in the Swiss ski resort of Davos last week, as the pop star will.i.am mingled with business leaders and Idris Elba, the actor, DJ-ed. But as Google’s most senior European executives worked the crowd at the World Economic Forum event, they were sitting on a closely guarded secret. The company had reached a £130m tax settlement with the UK’s revenue service a while earlier after six years of being audited...

A storm erupted. The opposition Labour party called the agreement a “sweetheart deal”. Boris Johnson, London’s Conservative mayor and a man with ambitions to lead the country, called Google’s payment “derisory”. Tax experts described the deal as opaque. In Downing Street, Mr Osborne’s warm welcome for the Google settlement was immediately recognised as a serious political mistake...

In October 2010, the reasons for the investigation became clear. Reports emerged that Google had a 2.4 per cent foreign tax rate and had implemented a complex tax structure to minimise its liability. Later, Eric Schmidt, Google’s executive chairman, said: “I am very proud of the structure that we set up. We did it based on the incentives that the governments offered us to operate.”

As phrases such as the “double Irish” and the “Dutch sandwich” entered the public lexicon, anger over corporate tax avoidance was growing. While public spending was being slashed, there were more and more revelations over the low taxes paid by the likes of Apple, Starbucks and Amazon. Protest groups such as UK Uncut harried tax officials and blockaded the stores of companies they accused of avoidance. Smaller companies complained they could not compete...

On Monday, after the deal was announced, Prime Minister David Cameron’s spokeswoman refused to endorse Mr Osborne’s view that the deal was “a major success”, instead calling it a “step forward”. For a prime minister usually so in step with his chancellor, it was a rare moment of dissonance.

The political sensitivity of the issue was obvious. Google’s senior brass was intertwined with Number 10: Eric Schmidt was a member of the prime minister’s business advisory group while Rachel Whetstone, a godmother to Mr Cameron’s late son Ivan, and until recently a senior Google executive, is married to Steve Hilton, the prime minister’s former head of policy.

Both Downing Street and Google were astonished when Mr Hilton spoke to the BBC this week, attacking the settlement and the “lobbying efforts” of big companies.

Google thought the settlement would dampen the criticism. There was anger that the transaction was being seen as a cosy deal forged behind closed doors, when it was responding to the taxman’s decision on how much money should pay back. Executives were left blaming Mr Osborne for trying to make political capital out of a settlement they say he had no part in brokering. Peter Barron, Google’s European public affairs chief, wrote in the FT this week: “Governments make tax law, the tax authorities independently enforce the law and Google complies with the law.”

For many people, neither Google’s explanation nor the size of its tax bill are anything like good enough.

Alphabet and Apple spell global tax war - "A fiscal system formed under the League of Nations in 1928 is about to fracture and fall apart."

The uproar about Google paying £130m in back taxes and raising the amount it pays in the UK by just £10m a year is merely a little local difficulty compared with what comes next. Apple could soon be instructed to pay billions, triggering a showdown between Europe and the US and a potential breakdown of the international tax system. This sounds apocalyptic but it is a decent bet.

If you doubt it, consider the following. From irate taxpayers and infuriated politicians to defiant bosses of multinationals, many are at the ends of their tethers about corporate tax. Countries in the Organisation for Economic Co-operation and Development have spent two years trying to fix the system; one of the first results, Google’s UK deal, has gone down terribly...

The question on which the future of global tax harmony rests is not whether Google should pay more in the UK and less in Ireland. It is whether US multinationals pay much tax anywhere on overseas earnings, and whether they ever will. For now, billions in profits are booked in Bermuda and offshore entities, annoying everyone.

The centre is not holding for Alphabet, Google’s parent group, as France and Italy reinterpret their laws to make it pay more tax before local profits escape to Ireland and then, via the Netherlands, to Bermuda. It will surely fracture over EU cases against Apple and Amazon since the US lives in hope that one day, over the rainbow, their cash will come home to be taxed.

We face a historic moment. The tax system formed under the League of Nations in 1928 relies on the idea that companies should be taxed largely where profits are created, not where they sell their products and services. It could soon fall apart and what happens then is anyone’s guess, although it will not be pretty and will probably resemble a global tax war.

The European taxpayer in the street might just credit the idea that Alphabet or Apple create, design and manage their products and services from California, and so the US should receive a larger share of its profits than Italy or the UK. This is the intended outcome of international tax treaties.

Why, though, should he or she accept that intellectual property can be shifted to any convenient spot, according to which jurisdiction levies the least tax? Google’s search engine was not invented in Bermuda and Apple did not develop the iPhone in a tax-advantaged entity sitting between Ireland and the US. Such structures obey the letter of the law but they are nonsensical.

They exist to hold what is in theory a US tax liability until Congress gets around to cutting the US corporate tax rate from 40 per cent (including federal and state taxes) and luring the cash back. Yet the chance of Apple repatriating the entire $200bn is slim; some of it will never return, being invested instead in overseas expansion...

The US Treasury is lining up on its companies’ side. It worries about taxpayers footing the bill in forgone tax receipts if more is taken by European countries. The Senate finance committee wants it to consider retaliating by double taxing European companies if billions are bitten from Apple.

The incentive to carry on co-operating is slim. The UK tax authorities tried to raise Google’s bill while still treating its British arm as a minor contributor to global profits — a plausible view under revised OECD guidelines. They are now in disgrace for not being tough enough while France and Italy, which have changed tack to enforce far higher local taxes, bask in approval.

It is clear where this ends. When the global tax consensus cannot hold, it is every nation for itself. This was what they tried to remedy in 1928 but the goodwill is fading fast.

posted by kliuless at 8:53 AM on January 30, 2016 [2 favorites]

Osborne backs push for multinationals tax transparency - "George Osborne is backing an initiative to force multinational companies to open up their tax arrangements to public scrutiny, in an effort to bring transparency to a system that was heavily criticised in the light of Google's £130m British tax settlement."

The World's Favorite New Tax Haven Is the United States - "Moving money out of the usual offshore secrecy havens and into the U.S. is a brisk new business."
posted by kliuless at 9:54 PM on January 31, 2016 [1 favorite]