George Mundstock bangs his head against the wall as he contemplates Congress's "fix" of the ETI:
Posted by DeLong at July 19, 2004 04:50 AM | TrackBack | | Other weblogs commenting on this postDiscourse.net: No Corporation Left Behind: Hi, I’m George Mundstock. Michael was kind enough to let me guest blog while he travels. Always wanted to try running a blog, but was afraid of the start-up and commitment (and, OK, that I would throw a blog and nobody would come). This is a great opportunity for me. Thanks Michael! Hope that you all find my stuff at least somewhat interesting.
As a tax type, it seems mandatory that my first entry be on taxes. Unfortunately for America, there is a huge corporate tax bill working its way through Congress, which is likely to pass after the elections and, therefore, makes a perfect first topic. The House passed the American Jobs Creation Act with $130 billion (over 10 years) in new corporate tax breaks (and some offsetting corporate tax increases, but only one big one, which will be discussed in a minute). The Senate has its Jumpstart our Business Strength (JOBS) Act with about the same total new benefits (although it, unlike the House bill, also includes the energy stuff that will be discussed tomorrow), but a few more revenue offsets, so as to have a lower net cost.
Quo Vadis? Well, its a long story: Since the 1960s, the US has had a tax incentive for exports, first called DISC (Domestic International Sales Corporations), then FISC (Foreign International Sales Corporations), and now ETI (Exempt Territorial Income). Most of the current tax benefits go to few companies (Boeing, GE, Intel, Microsoft, Honeywell, Caterpillar, Motorola, and Cisco). Surprise, all 3 versions of the incentive have been ruled to violate GATT by interfering with free trade, most recently in January of 2002. Since then, Europe has waited patiently for Congress to repeal ETI. (The Bush Administration did not push very hard for a fix.) Finally, in January, various European countries began imposing WTO-approved sanctions: tariffs on various imported US goods, which tariffs increase the longer that the US is in non-compliance, until the tariffs reach a total of $4 billion a year. So, now, Congress must Act. But, there is a problem: Chair Thomas of the House Ways & Means Committee views this as a “competitiveness” issue: US corporations must pay as little tax on foreign operations as some hypothetical tax outlaw foreign corporation (that doesn’t really exist). In other words, GE needs new breaks for its foreign operations to replace its lost export incentive — that this makes it more desirable for US businesses to export jobs be damned. But, wait, says the Senate, what about Boeing and Caterpillar? We also need tax breaks for US manufacturing to replace the lost break for US manufacturers who export. And the House, which never met a tax cut that it didn’t like, agrees. So, now, we have 2 bills that, rather than pick up $50 billion in much needed federal revenues by repealing an illegal subsidy, instead provide expensive new rules that benefit companies’ offshore operations, while also rewarding anything that some accountant thinks is US manufacturing. Aarrgh! Why isn’t your business as valuable to America as manufacturing?
I recall from press reports of the first couple rounds of big tax cuts, for individuals, that corporate lobbiests were told to stay out of the way, that their turn would come. Now, their turn is here?
Posted by: kharris on July 19, 2004 05:17 AM"Why isn’t your business as valuable to America as manufacturing?"
Because manufacturing companies are unionised.
Posted by: Otto on July 19, 2004 08:10 AMThis is the US not the UK. Labor doesn't have that much power, and we spell things a bit differently. Yet again in US policy, the soundbite has nothing do to with the issue. The contestants are corporate powers, hence all the loopholes that benefit corporate powers. Manufacturing is already dead, and so are the analogous unions; how could they exercise this authority? No union member benefits from this unnecessary redistribution of corporate handouts.
Posted by: j on July 19, 2004 10:21 AMI think you will find that in the US, just as elsewhere, unionised companies have more influence than ununionised ones. Corporations whose objectives are backed by their unions get more than those with unorganised workers. Its one of the reasons for the political power of US defence contractors, BTW. And, in this case, the union members benefit from a relative tax reduction on unionised i.e. manufacturing production.
"we spell things a bit differently":
I say tomato, etc.
I think you will find that in the US, just as elsewhere, unionised companies have more influence than ununionised ones.
Would you attribute the behavior of the SEC, the annual Bankruptcy Reform bill debate, and the passage of the Gramm-Leach-Bliley Act to the powerful unions within the financial services industry? How heavily unionized are MBNA or Merrill Lynch?
Posted by: Brittain33 on July 19, 2004 12:58 PM"How heavily unionized are MBNA or Merrill Lynch?"
Not much, I take you to mean. Financial services are however very profitable and well-organised, and get a lot of what they want in the regulation of their own issue area (SEC, and the like). But the political effects of unionised job loss are much more than the equivalent drop in e.g. Wall Street jobs.
Of course, I am not saying that this is the only or most important source of political power in the United States. The AFL-CIO is not the instigator of the invasion of Iraq! Merely that, ceteris paribus, corporate power seeking objectives with the backing of unionised employees will do better than corporations without that backing. This would seem to be a reasonable explanation for the tax cuts for manufacturing (and not other businesses) highlighted in the original post.
Posted by: Otto on July 19, 2004 01:22 PMGeorge,
Does the British tax system have parallel corporate and personal income taxes and the resultant double taxation of income from capital? This turns out to be a terrible burden on the whole economy. An incentive exists for firms to inflate expenses (depreciation, advertising, even wages when taxes are high) which causes our costs and therefore prices to be higher than otherwise. Consequently we have to erect all those dodges to subsidize exporters. Better we should integrate our income taxes and so unburden our productive enterprises. They would also become smaller, more flexible, and provide more autonomy and scope for their workers, who would have better morale and become vastly more efficient.
EO
Posted by: Eliot Orton on July 19, 2004 03:16 PMI agree that when the tax code is written to benefit a few large companies every other business pays for it. Please correct me on this one, but I thought part of the justification for the export credit was related to how European countries use the VAT tax to lower the tax burden on their own exports on things such as airplanes (GE and Boeing) and capital equipment in general. Sadly I agree with Otto ( I dont mean I am sad about agreeing wit Otto as a rule) in that when organized labor and a couple of big multinationals get together politicians jump on board faster than you can say election year. I would not be surprised to here that J Kerry is supporting some form of this as a way of creating his 10 million jobs.
Posted by: Dex on July 19, 2004 03:35 PMbrad-
fix the formating. its driving me crazy.
thanks
Brad,
Delete this is you want.
"By JOHN SOLOMON
WASHINGTON - President Clinton (news - web sites)'s national security adviser, Sandy Berger, is the focus of a criminal investigation after admitting he removed highly classified terrorism documents from a secure reading room during preparations for the Sept. 11 commission hearings, The Associated Press has learned.
AFP Photo
AFP
Slideshow Slideshow: September 11
Berger's home and office were searched earlier this year by FBI (news - web sites) agents armed with warrants. Some drafts of a sensitive after-action report on the Clinton administration's handling of al-Qaida terror threats during the December 1999 millennium celebration are still missing.
Berger and his lawyer said Monday night he knowingly removed handwritten notes he had taken from classified anti-terror documents he reviewed at the National Archives by sticking them in his jacket and pants. He also inadvertently took copies of actual classified documents in a leather portfolio, they said.
"I deeply regret the sloppiness involved, but I had no intention of withholding documents from the commission, and to the contrary, to my knowledge, every document requested by the commission from the Clinton administration was produced," Berger said in a statement to the AP."
I am tired of saying its privately. The Clintons, and enablers like Brad DeLong, have fucked me and every other Democrat in the ass for the last time. This blows the election. And the pun is intended. If Hililary had been good for BJ or anal sex or whatever, none of this would have happened.
Last week it was "Oh, Hillary has to be on the dias." Maybe Kerry knew what the fuck he was doing, but he got "zip" from dick-heads like Brad.
All my best,
Moe
Posted by: Moe Levine on July 19, 2004 07:31 PMYou know, I'm not the smartest guy on the block, but, well, why do corporations have to pay any taxes in the first place?
Wouldn't it be better for our corporations if they paid no taxes at all?
Posted by: John on July 19, 2004 08:28 PMAn analog to "no tax for corporations" would be no taxes for the vampiroyals investor class, no taxes for the nouveau riche, no taxes for the kleptocrats, leaving the entire Federal tax burden entirely on the fast-shrinking middle class, supporting a run-away corporate and lab-coat sci-fi welfare program in Defense and Homeland Security, a ballooning budget deficit and its debt service, and a legion of little porkbarrels devised by corporations for their own personal benefit. All of which brings Joe Schmo taxpayer nothing in return. Absolutely nada, other than theft of their kids to service the blood-for-oil-for-lucre pipeline of Wall Street. Almost sounds like Reaganomics, huh?
Tax Wall Street $2.00 for every stock and bond transaction made. The CUSIP's are documented, the prices recorded, most trades are online now, it would be simple, automatic, a debit of $2.00 per share traded, $1 going to service the Beast, and $1 going to service the Humans.
Posted by: Nancy Ragan on July 19, 2004 11:36 PMCome on Nancy don't hold back, tell us how you really feel. If you hold it all inside you might just explode.
Just a question on terminology. I get that GW and JFKerry are Vampiroyals (though John is more of a Prince consort, he has that Jane Austin thing going) and Dick Cheney is nouveau riche, but is John Edwards a Kleptocrat or Novewau riche? I just can't figure that one out.
Here's the truth about Democratic politics:
http://pep.typepad.com/public_enquiry_project/2004/07/sandy_berger_il.html
Posted by: Adrian Spidle on July 20, 2004 10:15 AMDrew wrote:
brad-
fix the formating. its driving me crazy.
thanks
Yes, please. The site was much easier to read when it had a right margin.
Posted by: Fred on July 20, 2004 11:31 AMI see that Republican stormtroopers have captured the thread. Friggen totalitarians.
I agree Brad, it is part of the long long campaign to unburden Capital from any obligation to the state. They want to force labor to pay all the taxes via payroll and consumption levies. I would love to see massive simplification and extra territoriality. Say 15% of retained earnings on an annual basis with no deductions. Losses can not be carried forward from one annual income statement to the next for credit.
As for the tax heavens we should work with the Europeans to pick them off mercilessly. If the company is not incorporated in a jurisdiction that has a Tax agreement with the US they should be liable to extra territorial taxation. Complete with international warrants. You could even privatise the seizure process to baliffs granted immunity by the US government to work overseas. Similiar to the immunity granted CIA agents by current US law. This is all in our power but we choose not to exercise it and let the tax evaders dictate the terms of engagement. ENOUGH!
RESPONSE TO SCOTT MCARTHUR
http://pep.typepad.com/public_enquiry_project/2004/07/read_what_kerry.html
Posted by: Adrian Spidle on July 20, 2004 01:28 PMI love a post that decries one group as "Friggen totalitarians" and then goes on to advocate an international force of tax storm troppers with powers of the CIA to hunt down tax evaders. Maybe that justice department memo about relaxed legal status for terrorists might apply. We could issue these tax vigilantees with rubber hoses and Barbara Striesand CD's. They could go chasing down George Soros's boys running hedge funds out in the Caribbean. Thank you Scott I am going to be giggling about that one all day.
On a more serious note, perhaps we should consider adopting a VAT like most EU countries instead of a corporate tax system. It would be harder to evade (in theory, but when you hire that many high price Ivy League tax attorneys, nothing is safe) and would avoid export subsisdy problems. Any thoughts? or have I completely misinterpreted the VAT.
Posted by: Dex on July 20, 2004 01:38 PMOT
A Tale of Two Networks: Berger and the Classified Documents
In the Fox News version we have "Berger and his lawyer said Monday night he knowingly removed the handwritten notes by placing them in his jacket, pants and socks",
http://www.foxnews.com/story/0,2933,126249,00.html
while in the CNN version we have an anonymous archive staffers making this claim and Berger denying this happened.
http://www.cnn.com/2004/ALLPOLITICS/07/20/berger.probe/
Who do you believe? Someone is playing fast and loose with the facts. Did Berger and his lawyer ever make the statement that Fox News claimed they made? Would Fox lie to you?
"You know, I'm not the smartest guy on the block, but, well, why do corporations have to pay any taxes in the first place?
Wouldn't it be better for our corporations if they paid no taxes at all?
Posted by John at July 19, 2004 08:28 PM"
How's 'bout because they use the public infrastructure (for starters)? And who are those guys in uniform overseas fighting for? (that can't be cheap!)
I'm very sorry to go OT, but I just came across something on Jane Galt's blog that had me slapping my head. I wonder if any of the very learned folks who frequent this blog might have the same reaction to this statement made in a discussion of global warming and the Kyoto Accord (and which went completely unchallenged on janegalt.net):
"... We are already competeing with many of the unaffected by Kyoto nations on an uneven playing field due to wage, enviromental and workplace laws ..."
I'm no economist and I'm *certainly* no climatologist (or should it be, I'm no climatologist and I'm *certainly* no economist? ... either one works!) but the idea that any developing country or NIC has an overall economic advantage over the US strikes me as a bit counterintuitive.
Posted by: Demogenes Aristophanes on July 20, 2004 07:45 PMSticking with the tax thread for a moment, my proposal for tax integration will appeal to both Democrats and Republicans and perhaps restore some civlity to political discourse.
Under an integrated scheme one tax exists on personal income. All corporate net income is attributed to stockholders proportionate to their holdings and taxed as personal income at your own personal rate.
Advantages of this approach: 1. All income is taxed fairly at rates appropriate to income. (Rate structure could be flat or progressive as desired, but the main advantage that all income whether from labor or capital is taxed).
2. Earnings of corporations are not retained in the firms and thrown down the company rat hole; they are returned to the investor and reinvested in the best opportunities consistent with the investor's tolerance for risk.
3. Whole armies of clerks and accountants now engaged in the preparation of corporate and personal income taxes would be freed to pursue productive employment, while income tax returns could be put on post cards.
To the barricades!
EO
Posted by: Eliot Orton on July 22, 2004 09:43 AMTaxing corporations is a fantasy. In the end, all of the corporate taxes are paid by either workers, consumers or investors (the relative burdens depend upon the supply and demand curves for the product of the company). I think we'd all be better served if corporations were taxed like REITs - that is, not taxed so long as they distribute their earnings to investors. The biggest loser in such an arrangement would be the corporate management because they would no longer have retained earnings, so that if they wanted capital to grow their businesses, they'd have to make a fresh appeal to the market.
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