Sunday, April 12, 2015



Is it a problem that some big companies pay little tax?

There has been a big debate about that in both Britain and the USA and it has recently heated up in Australia too. 

The British have attempted to plug the hole by a bureaucratic monstrosity that will have a main effect of increasing accountancy costs.  But the most just system would undoubtedly be to abolish company tax altogether.  Companies disburse their revenues to suppliers, workers and shareholders.  And those people are already taxed on those receipts.  Company tax is double taxation.  Australia has a unique "franking" system that reduces the burden on shareholders but the simplest system would be to abolish the tax altogether.

Politicians rarely abolish or reduce taxes, however. You almost have to be another Ronald Reagan to do that.  John Howard did but even he replaced the "lost" tax by a new tax (the GST).  Given that reality, the challenge is to  find a better system of taxation than the present one.

The simplest and most efficient change would be to impose a turnover tax as an alternative to a company tax.  A turnover tax of (say) 2% on all companies would yield similar revenue to what company taxes yield and would not be avoidable by profit shifting.  Multinationals would have no avenue of escape.  The turnover of a company (total revenue before disbursements earned in the country concerned) is readily ascertainable from existing company records  so would also require minimal bureaucracy to enforce.

It would also erode the temptation to divert profits into "fringe benefits" for company officers and employees.  Such diversion would have no effect on the tax bill. Even the temptation to retain profits in the hope of changed circumstance in the future would be minimized.  The revenue would be taxed whether it was retained or not. It would also require no international consensus or co-operation.

Why it never seems to be canvassed rather mystifies me.  Perhaps the bureaucrats don't like it because it would shrink their empires.  An excerpt from the current debate in Australia below

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Taxation experts have warned against unilateral action on corporate tax avoidance, telling a Senate Economics Committee Australia should be proactive and show leadership in the OECD and G20 tax processes already underway.

The inquiry, initiated by Greens leader Christine Milne, is exploring tax avoidance and aggressive minimisation by corporations registered in Australia and multinational corporations operating in Australia.

Treasurer Joe Hockey has hinted that a diverted profits or “Google tax”, similar to that introduced in the UK is being considered by the Australian government.

However Richard Vann, Challis Professor of Law at Sydney University told the committee he was somewhat cynical about such a tax, suggesting it would collect very little revenue in the UK.

“They don’t even know how they’re going to try to calculate the revenue that they’re going to collect from Google,” Professor Vann said.

Professor Vann said the government was sending a “mixed message” to the multinationals that presented the biggest tax avoidance problem to Australia, by suggesting in the tax discussion paper that we needed to cut our corporate tax rate, and at the same time highlighting the problem of tax avoidance by multinationals.

“There are no simple single-country solutions, it does require coordinated action, he said.

“I’m not saying the diverted profits tax or something like it is a bad idea, but if everyone introduced one that would be a problem. They would all be different, they wouldn’t be harmonised and then we would have breakout.”

QUT taxation Professor Kerrie Sadiq agreed, and said Australia must collaborate internationally and not act “hastily or unilaterally”.

“Personally, I believe we should strive to fix the current system, particularly the transfer pricing regime.”

Transfer pricing sees multinationals make intra-company transactions, such as billing a subsidiary company, for the purposes of avoiding tax in higher taxing jurisdictions.

SOURCE

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Obama's minions lie with statistics

A major reason to study statistics is so that you can't be hornswoggled by them

Take last week’s report from the Commerce Department about personal income, personal spending, and price.

The Commerce Department reported that wages increased by 0.3% and that American spending was up 0.1% in the month of February. That wasn’t much of an increase in spending, but Wall Street interpreted that as a giant victory given the heavy snow that covered the Northeast in February and sent the Dow Jones Industrial Average up by 263 points, or 1.5%.

Wall Street was impressed, but they shouldn’t have been, because those numbers were massively massaged and very misleading.
The Commerce Department used some accounting magic to come up with that positive spending number.

The Commerce Department uses something called the Price Consumption Expenditure or PCE deflator. The PCE is a mathematical attempt to factor in price changes to come up with inflation-adjusted numbers. The PCE deflator converts “real” numbers into “adjusted” numbers, and that’s where the deception lies.

More often than not, the massaged numbers are changed to fit the needs of our lovely elected officials in Washington, DC. In short, the PCE numbers are a bunch of crap. But I digress.

Since October, the magic calculator of the PCE deflator had been flat or even negative, but the Commerce Department decided to change the PCE deflator to +0.2 in February. The excuse for the change was to adjust for the drop in gasoline prices.

That seemingly small adjustment to the PCE deflator changed the “real” numbers from negative to positive. Instead of personal spending being up +0.1% in February, the original unadjusted number was -0.1%. So much for being positive.

And the PCE isn’t an isolated issue, either. There are all sorts of accounting hanky-panky going on in Washington, DC. But perhaps the biggest impact on the Bureau of Labor & Statistics inflation model is the slippery concept of “Hedonic Quality Adjustment” that attempts to adjust for improvements in quality. Here is an example from the BLS’s own website.

Item A is an old TV model that’s been discontinued, and Item B is a new, fancy plasma TV. The new TV costs five times as much as the old TV, but because the quality of the new TV is so much better, the BLS adjusts the price to factor in the higher quality.

The result of that massaging is that the BLS claimed that the “adjusted” price of the new $1,250 TV is actually 7.1% cheaper than the $250 TV. Yup. 7.1% cheaper. Really!

The BLS applies this accounting magic to everything that’s part of the CPI, so all kinds of things we buy are getting “cheaper” even though they’re going up in price. These lower prices help keep increases to things such as Social Security payments and TIPS (Treasury Inflation Protected Securities) bonds low.

Love your country, like my father, but always keep a skeptical eye on everything that comes out of Washington, DC.

SOURCE

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Why Obama’s Jab at Walker’s Foreign Policy Knowledge Misses the Point

In response to Wisconsin Gov. Scott Walker’s criticism of his Iran policy, President Obama suggested that the presumed candidate for the 2016 Republican presidential nomination “bone up on foreign policy.”

In other words, anyone who disagrees with the president on Iran’s nuclear program, or any other national security issue, is just not knowledgeable enough to understand.

Of course, there is a very serious irony at play here. The president’s foreign policy is in shambles from Ukraine to the Middle East to the South China Sea. Yet it is his critics who just don’t get it.

A great deal is certain to be written on this and other ironies in the days to come. Indeed, it takes gall for a president who came to office with negligible experience in foreign affairs, and even less apparent interest, to criticize the background of another aspirant to the office.

During his 2008 presidential campaign, Obama’s principal claim to foreign policy experience lay in befriending the Republican chairman of the Senate Foreign Policy Committee, then-Sen. Dick Lugar.

Many liberals do not accept that intelligent, decent people can have honest differences of opinion.

It is also tempting to point out how little Obama appears to have grown into the job. After six years, he still displays a troubling misunderstanding of power and the leadership role the United States plays in the international system.

But the cheap shot at Walker also betrays a liberal conceit too rarely commented upon. Many liberals do not accept that intelligent, decent people can have honest differences of opinion. And they are aided and abetted by a media that—whatever its differences with the president on their own access—are always eager to be seen as “smart.” As a result, the president’s critics are often portrayed as either uniformed or politically motivated.

Obama used this dynamic to excellent effect in the 2012 campaign when he mocked another “inexperienced” state government chief executive, Mitt Romney, for his concern about Russia and the deteriorating state of America’s armed forces.

Yet Romney was right about both. But the gotcha moments were too good for the press to resist. Obama was smart; Romney not so much. The story was written. Sen. Tom Cotton, R-Ark., (a graduate of Harvard Law School, by the way) and the 46 other senators who signed the open letter to Iran’s leaders concerning Congress’ constitutional authorities fell afoul of the same dynamic.

Criticism of Obama’s Iran policy is not a matter of who’s smarter. It should be a question of who’s right. Questioning the foreign policy credentials of critics with a cute turn of phrase cannot substitute for substantive defense of an already highly controversial policy choice.

SOURCE

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Framework for Iran Deal Collapses

To those with common sense, and to those who have followed the continuing comedy that is our nuclear negotiation with Iran, this will come as no surprise. But it seems the Obama administration was caught flat-footed when it was learned that the Iranians expect all economic sanctions against them to be lifted once a deal is concluded in June.

Even more grating to Iranian leaders, the American summary of the deal states that “sanctions on Iran for terrorism, human rights abuses, and ballistic missiles will remain in place under the deal.” For that, Iranian Supreme Leader Ayatollah Ali “Yes, Of Course, Death To America” Khamenei claimed the fact sheet was “wrong on most of the issues.” Of course, Khamenei also revealed he “was never optimistic about negotiating with America,” and this tends to reflect our opinion about Iran as well. Yet the Obama administration is choosing to believe that the sheer force of their negotiating skills can keep Iran one year away from going nuclear for the next decade.

Skeptical as well, for different reasons, are former secretaries of state Henry Kissinger and George Shultz. They penned a stinging op-ed in The Wall Street Journal dismantling the deal. In it, they noted, “Absent the linkage between nuclear and political restraint, America’s traditional allies will conclude that the U.S. has traded temporary nuclear cooperation for acquiescence to Iranian hegemony.”

The pair also point out that the two sides have divergent interests elsewhere, even when ostensibly working together as they are against the Islamic State. “Even while combating common enemies, such as ISIS, Iran has declined to embrace common objectives,” write Kissinger and Shultz. Iran’s goal in Iraq, for example, is one of spreading its influence all the way to the Mediterranean Sea, putting Israel in peril. On the other hand, one of the strategic interests to our presence in Iraq and Afghanistan was to place American allies to either side of Iran, which we’ve known to be a bad actor ever since the Shah was deposed in 1979.

That same grand game is being played in Yemen, which had often been touted as a success by the Obama administration until it no longer was successful or even a viable state. Iranian-backed Houthi rebels are now the target of a Saudi-led coalition for whom we’re playing a minor support role.

Given the ramshackle framework for the current nuclear “deal,” it seems Iran is using its typical delaying tactics to edge closer to arming itself with nuclear weapons. The mullahs realize the sanctions won’t return once lifted, giving them a final victory in their quest to go from a rogue nation the world determined would never be nuclear to joining the North Korea club.

As for the rest of the region, Kissinger and Shultz warn the future’s not bright. “Some of the chief actors in the Middle East are likely to view the U.S. as willing to concede a nuclear military capability to the country they consider their principal threat. Several will insist on at least an equivalent capability. Saudi Arabia has signaled that it will enter the lists; others are likely to follow. In that sense, the implications of the negotiation are irreversible.”

Age-old differences in religious belief are one thing when fought with conventional armaments, but add nuclear weapons to the mix and the unthinkable becomes much more probable.

SOURCE

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2 comments:

C. S. P. Schofield said...

"Obama's minions lie with statistics"

The last two words are superfluous.

Robert said...

I think it was Harry Truman who identified three kinds of lies:

lies
damned lies
statistics