Thursday, November 30, 2017
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Monday, November 20, 2017
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Friday, November 17, 2017
The House Just Voted to Bankrupt Graduate Students
Thursday, November 16, 2017
Tuesday, November 14, 2017
The proposed GOP "tax rform" is nothing more than a hack system that publishes people who did not vote for trump, and pastes all kinds of schemes into the tax code that invites the imbalance of voter representation to fit their needs. Add to this the redistribution of wealth from middle to the 1% and big corporations, and paying for this underhanded scheme with trillions in credit card charges that the 99% will be stuck with.
Opinion | OP-ED CONTRIBUTORS
Robbing Blue States to Pay Red
Call it the Republican two-step: redistribute upward, then sideways. The biggest beneficiaries are corporations and the rich regardless of where they are. But under the Republican plans, half of these big cuts have to be paid for in the first 10 years (the other half will be added to the national debt, increasing it by $1.5 trillion). And these "pay-fors," as they're called, are predominantly aimed at blue states.
As Representative Lee Zeldin, Republican of New York, lamented, the tax bills are "taking money from a state like New York to pay for deeper tax cuts elsewhere."
Republicans' red-state bias may seem like just more of the same. After all, their last big legislative drive — the Senate health bill, Graham-Cassidy, which failed in September — also sought a major transfer of resources from blue states that had done a good job expanding health insurance to red states that hadn't. Senator Rand Paul, Republican of Kentucky, derided that bill as "petty politics" — "just taking the Obamacare money, keeping it and taking it from Democratic states and giving it to Republican states."
But this nakedly partisan federalism is far from politics as usual. Parties generally try to favor segments of society that support them — and Republicans' bias toward big business and rich donors certainly fits that pattern. Yet major efforts by a dominant party to significantly redistribute resources toward states that support it are in fact extremely rare. Indeed, one of the last standout examples dates to the decades after the Civil War, when Republicans used the proceeds of high tariffs that aided Northern industry (while hurting the solidly Democratic South) to pay generous pensions to Union veterans concentrated in Republican states.
Because the Republicans' most prized constituencies, corporations and the rich, are actually more prevalent in blue states, the overall geographic distribution of the beneficiaries of the current Republican tax bills is mixed. But the growing signs that policies are being written to impose costs on states behind enemy lines are worrisome. A new spoils system based on state partisanship wouldn't just poison our politics. It could also cripple our economic future.
How do the tax bills favor red over blue states? Most notably, they curtail or eliminate the deductibility of state and local taxes. This is the largest single pay-for in the plans — roughly $1.3 trillion over 10 years in the Senate legislation, which kills the deduction. And a majority of those bearing the cost are tax filers in blue states. Indeed, all of the states that have above-average use of the state and local taxes deduction voted for Hillary Clinton in 2016.
The other major tax break in the cross hairs of House Republicans is the home mortgage interest deduction. As with local taxes, all the states that have an above-average number of homes that would be affected by the deduction cap in the House bill voted for Mrs. Clinton. (The Senate version doesn't include this provision.)
Some of the pay-fors aimed at blue states look even more gratuitous. The House bill would phase out certain deductions for personal casualty losses — but "grandfathers" victims of Hurricanes Harvey and Irma, though not the horrific California fires.
In sum, Republicans have put the majority of their tax cuts on the nation's credit card, but they've handed most of the rest of the bill to blue states.
To see just how unusual that approach is, think back to 2009, when President Barack Obama briefly had a filibuster-proof Democratic majority in the Senate. Did he use it to shift spending away from red states? Hardly. His signature accomplishment, the Affordable Care Act, was most generous to poorer states, where more people lacked insurance — that is, red states.
This effect was of course blunted by the Supreme Court's ruling that states could refuse the law's Medicaid expansion and blunted further by the unwillingness of many red states to accept the expansion's extremely generous terms. Even so, struggling parts of red America have come to depend heavily on Medicaid and other safety-net programs expanded by Democrats in 2009 and 2010.
Nor is the A.C.A.'s favoring of red states an exception. Compared with blue-state residents, people in red states get back much more in federal spending relative to the federal taxes they pay, mainly because red states are poorer on average. In other words, the Republican elimination of the state and local tax deduction is not fixing an "unfair" situation. It makes the existing blue state disadvantage even larger.
The A.C.A.'s universalistic approach has been the norm for a simple reason: National parties represent coalitions of local representatives that cut across state lines. Despite distinctive regional bases, the two major parties have generally featured a significant degree of geographic diversity, so partisan majorities had no political reason to systematically extract resources from some regions to the benefit of others.
As with other lines of division in American politics, however, the geographic lines have been hardening. Today, blue-state Republicans and red-state Democrats are much less common. As the political scientist David Hopkins has pointed out, the 15 coastal and Northeastern states that now form the Democrats' geographic stronghold send only two Republicans to the Senate. The trends in the House are similar, with the Republican majority containing fewer and fewer seats in solidly blue states.
But Democrats haven't sought big transfers toward "their" states. Why are Republicans distinctive? Because of a second crucial feature of our federal system: Parties get rewarded not just for winning over specific people but also for winning in specific places. Because Republicans are stronger in the most sparsely populated areas, they possess a growing structural advantage. This, in turn, increases their incentive and capacity to favor red over blue states.
The Republicans' advantage stems from two main sources. First, the overrepresentation of less-populous states in the Senate has become more consequential as the population gap between crowded and rural states grows and as rural states become more solidly Republican. Second, the increasing concentration of Democratic voters in urban areas — and Republican gerrymandering to exploit this — means more and more Democratic votes are "wasted" on easy wins. As a consequence, Republicans in both the House and the Senate can lose the national popular vote and still control a majority of seats. Democrats, by contrast, still need to win some red regions of the country.
Of course, the remaining Republican legislators in blue states face cross-pressures. But many come from deep-red areas and feel more vulnerable to primary challenges than to a general election opponent. They also fear the wrath of Republicans' increasingly assertive big-money donors, who often reside outside a politician's district. As Chris Collins, another New York Republican who is conflicted about the tax bills, admitted, "My donors are basically saying, 'Get it done or don't ever call me again.' "
Republican leaders are betting that enough blue-state Republicans will put loyalty to party ahead of the prosperity of their state — or at least recognize that the first part of the Republican two-step (big tax cuts for rich people in blue as well as red states) may redound to their benefit even if the second (pay-fors aimed at blue states) doesn't.
But if their bet pays off, it isn't just blue states that will suffer. Red America may hold the key to Republicans' control of government, but blue America holds many of the keys to our nation's economic future. Indeed, among the blue-state pay-fors, the most troubling may be those that will bleed institutions of higher education, particularly in the House bill. In their zeal to extract revenues from blue states, Republicans are threatening our nation's ability to excel in a global knowledge economy.
The moral of Civil War pensions is cautionary. Pensions for Union veterans devolved into a spectacularly corrupt system that undermined political support for much-needed universal social policies. High tariffs outlived their utility and helped incite a global trade war in the 1930s. It took the Great Depression to unleash new social programs and major federal investment in the South. Republicans should think twice before succumbing to the dangerous appeal of territorial tribalism again.
Saturday, November 11, 2017
The United States loses, according to my estimates, close to $70 billion a year in tax revenue due to the shifting of corporate profits to tax havens. That's close to 20 percent of the corporate tax revenue that is collected each year. This is legal.
Meanwhile, an estimated $8.7 trillion, 11.5 percent of the entire world's G.D.P., is held offshore by ultrawealthy households in a handful of tax shelters, and most of it isn't being reported to the relevant tax authorities. This is… not so legal.
These figures represent a huge loss of resources that, if collected, could be used to cut taxes on the rest of us, or spent on social programs to help people in our societies.
How do they do it?
For an example, look no further than your search bar. In 2003, a year before it went public, Google (now a multinational conglomerate known as Alphabet) began a series of moves that would allow it to obtain favorable tax treatment in the future.
See where this is going? In 2015, $15.5 billion in profits made their way to Google Ireland Holdings in Bermuda even though Google employs only a handful of people there. It's as if each inhabitant of the island nation had made the company $240,000.
tax rate there?
In doing this, Google didn't break the law. Corporations like Google are simply shifting profits to places where corporate taxes are low. It's not just Internet companies with valuable intellectual property that do this. A car manufacturer, for instance, might shift profits by manipulating export and import prices – exporting car components from America to Ireland at artificially low prices, and importing them back at prices that are artificially high.
According to the latest available figures, 63 percent of all the profits made outside of the United States by American multinationals are now reported in six low- or zero-tax countries: the Netherlands, Bermuda, Luxembourg, Ireland, Singapore and Switzerland. These countries, but above all the shareholders of these corporations, benefit while others lose.
My colleagues Thomas Torslov and Ludvig Wier and I combined the data published by tax havens all over the world to estimate the scale of these losses. The $70 billion a year in revenue that the United States is deprived of is nearly equal to all of America's spending on food stamps. The European Union suffers similar losses.
So what can be done?
Thankfully, Ireland has announced it will close the "double Irish" loophole that Google used, and arrangements that take advantage of that loophole must be terminated by 2020. But similar strategies will be used as long as we let companies choose the location of their profits.
Just look at what Apple did in 2014 — it's one of the most spectacular revelations from the newly released Paradise Papers. After learning Irish authorities were going to close loopholes it had used, Apple asked a Bermuda-based law firm, Appleby, to design a similar tax shelter on the English Channel island of Jersey, which typically does not tax corporate income. Appleby duly obliged, and Jersey became the new home of the (previously Irish) companies Apple Sales International and Apple Operations International.
A potential fix would be to allocate the taxable profits made by multinationals proportionally to the amount of sales they make in each country.
Say Google's parent company Alphabet makes $100 billion in profits globally, and 50 percent of its sales in the United States (a relatively similar scenario to the first quarter of this year, in which that figure was 48 percent). In that case, $50 billion would be taxable in the United States, irrespective of where Google's intangible assets are or where its workers are employed. A system similar to this already governs state corporate taxes in America.
Such a reform would quash artificial profit-shifting. Corporations may be able to shift around profits, assets, and subsidiaries, but they cannot move all their customers to Bermuda.
This system is not perfect, but it's orders of magnitude better than both the laws that now govern the taxation of international profits and the tax package being proposed by congressional Republicans. Under the proposed plan some international profits would be taxed at 10 percent, but there are many likely exemptions.
One advantage of allocating taxable profits as I suggest is that this reform can be adopted unilaterally. There is no need for the United States (or any other nation that wants to cut down on tax avoidance) to obtain permission from anybody.
But we'd still face an equally daunting problem, the far more shadowy – and ultimately illegal – tax evasion of ultrawealthy individuals, many of them with net worths already bolstered by the proceeds of corporate tax avoidance. Here's an example.
Meet Michael. Michael is the (fictional) chief executive and owner of an American company, Michael & Company. Like many people, he would like to pay as little in taxes as possible. But unlike most people, he can take some steps that will allow him to do just that.
The transaction generates a paper trail that can appear legitimate at first glance. But the reality is more insidious. By paying for fictitious consulting, Michael fraudulently reduces the taxable profits of Michael & Company, and thus the amount of corporate income tax he pays.
And once the money has arrived in Cyprus, it is invested in global financial markets and generates income that the Internal Revenue Service can tax only if Michael reports it or if his Cypriot bank informs the I.R.S.
It's supposed to, but many offshore banks have routinely violated their obligations in the past, by pretending they didn't have American customers or hiding them behind shell companies. So this way, Michael can evade American federal income tax as well as paying fewer corporate taxes through his company.
And meanwhile, in America, if he wants to use any of the money stashed in Cyprus, he can simply go to an ATM and make a withdrawal from his offshore account.
How do we know all this?
Until recently, we did not have a good sense of who owns the wealth held offshore, but with my colleagues Annette Alstadsaeter and Niels Johannesen, we have been able to make progress thanks to leaks over the last few years. In 2015, the Swiss Leaks revealed the owners of bank accounts at HSBC Switzerland, and in 2016 the Panama Papers revealed those of the shell companies created by the Panamanian law firm Mossack Fonseca. These showed that 50 percent of the wealth held in tax havens belongs to households with more than $50 million in net wealth, a minuscule number of ultra-high-net-worth individuals who avoid paying their fair share. In the Paradise Papers, we see that these are not only Russian oligarchs or Belgian dentists who use tax havens, but rich Americans too.
As I mentioned above, about 11.5 percent of world G.D.P. is held offshore by households. For a long time, the bulk of it was held in Switzerland, but a fast-growing fraction is now in Hong Kong, Singapore and other emerging havens.
We can stop offshore tax evasion by shining some light on darker corners of the global banking industry. The most compelling way to do this would be to create comprehensive registries recording the true individual owners of real estate and financial securities, including equities, bonds and mutual fund shares.
One common objection to financial registries is that they would impinge on privacy. Yet countries have maintained property records for land and real estate for decades. These records are public, and epidemics of abuse are hard to come by.
The notion that a register of financial wealth would be a radical departure is wrong. And the benefits would be enormous, as comprehensive registries would make it possible to not only reduce tax evasion, but also curb money laundering, monitor international capital flows, fight the financing of terrorism and better measure inequality.
The onus here is on the United States and the European Union. Why do we allow criminals, tax evaders and kleptocrats to ultimately use our financial and real estate markets to launder their wealth? Transparency is the first step in making sure the wealthy can't cheat their way out of contributing to the common good.