Companies find other ways to move offshore and avoid U.S. taxes
AUGUST 31, 2014 LAST UPDATED: SUNDAY, AUGUST 31, 2014, 1:21 AM BY ZACHARY R. MIDER BLOOMBERG NEWS THE RECORD
* Some firms have left the U.S. system not through inversions but through buyouts by investment funds
NEW YORK — There’s more than one way for a U.S. company to avoid taxes by claiming a foreign address.
Consider the business founded in 1916 as General Plate Co., a maker of sensors and controls for everything from Fords and Frigidaires to the spaceship that first carried Americans to the moon. While its top executives are still based in Attleboro, Mass., it’s now known as Sensata Technologies Holding NV of the Netherlands.
Sensata didn’t become Dutch by using the strategy known as “inversion” that has alarmed President Obama and that the U.S. Treasury Department and some Democrats in Congress are trying to curb. That technique, which involves reincorporating overseas without a change in majority ownership, has helped more than 40 U.S. companies lower their tax bills.
Instead, Sensata is one of at least 13 firms that have left the U.S. tax system through a sale to an investment fund, according to a tally by Bloomberg News. Although these companies have a combined market value of about $75 billion, this tax-avoidance strategy has gotten less attention in Washington than inversions and may be harder to discourage.
These buyouts mean profits for the U.S. private equity firms like Boston-based Bain Capital that orchestrated them. Bain earned more than $3 billion after it took Sensata public as a Dutch company in 2010, with an effective tax rate about one-tenth of some competing manufacturers.
Shifting to a foreign tax domicile “is looked at hard in every private equity deal,” said Joan Arnold, a tax partner at Pepper Hamilton in Philadelphia. “They will be interested in what they can do to minimize taxes and maximize sale price.”
– See more at: https://www.northjersey.com/news/business/tax-avoiders-get-creative-1.1078561#sthash.j4QYTjZn.dpuf
Labor Day exhausted: 40-hour work week grows to 47-60 hours
BY PAUL BEDARD | AUGUST 29, 2014 | 12:04 PM TOPICS: WASHINGTON SECRETS JOBS LABOR WORK REQUIREMENTS
The old “9 to 5” work week is becoming about as obsolete as the American Dream.
A new Gallup poll finds that economically-stressed Americans are now working an “average” of 47 hours, with a growing number clocking 60 hours or more.
“Adults employed full time in the U.S. report working an average of 47 hours per week, almost a full workday longer than what a standard five-day, 9-to-5 schedule entails. In fact, half of all full-time workers indicate they typically work more than 40 hours, and nearly four in 10 say they work at least 50 hours,” said Gallup, based on their 2014 Work and Education survey.
Full time workers:
— Less than 40 hours per week, 8 percent.
— 40 hours, 42 percent.
— 41-49 hours, 11 percent.
— 50-59 hours, 21 percent.
— 60 hours or more, 18 percent.
Gallup said that salaried workers are putting in more hours, on average five hours more per week, 49 vs. 44 for hourly workers.
Why A Six-Figure Salary No Longer Means You’re Rich in Investing by Holly Johnson
I was born in 1980, and I still remember the days when “bringing in six figures” was a sign of extreme wealth and success. It was more than enough to buy the perfect house with a white picket fence, after all, and achieving that sort of income implied a certain level of status that nearly everyone aspired to. You could even say that a six-figure salary was seen as the real “American dream,” simply because earning that much money meant that you had “made it,” at least in financial terms. As a child, I distinctly remember dreaming of a six-figure income myself, and fantasizing about all of the amazing things I could do with so much money.
Times have changed since then, but the public’s perception of a six-figure salary hasn’t necessarily changed with it. With the median household income stuck at around $53,093 in 2014, an annual salary of nearly twice that still seems like more than enough money to succeed and thrive in any economy, no matter the circumstances. However, a convergence of factors have fundamentally changed what it means to rake in a “six-figure salary” in America, and many families who look rich on paper are merely struggling to get ahead along with everyone else.
Why Six Figures Isn’t What it Used to Be
Earning a six-figure salary is still a sign of status and success, but it no longer guarantees a lifetime of wealth like it once did, especially in certain parts of the country. A recent analysis by USA Today goes even further to say that the average price of living the American dream has now risen to $130,000 per year due the rising costs of nearly everything. The authors of the study claim that the American dream is about “finding and pursuing a rewarding career, leading a healthy and personally fulfilling life, and being able to retire in comfort,” adding that only 1 in 8 households in the U.S. currently earn enough to achieve those goals. But, what exactly has changed?
A Lesson in Economic Analysis from the Minimum Wage Debate Mises Daily: Tuesday, August 26, 2014 by Ken Zahringer
In the ebb and flow of interventionist politics, there are some issues that surface periodically regardless of how many times and how completely they are proven to be harmful to the very people they are purported to help. Currently the tide is once again carrying the minimum wage to the forefront of collective attention. Supporters of this and similar measures often use straw-man arguments, like the one in the picture below.
I discovered this ad through one of my friends who shared it on Facebook. It was originally posted on July 12, 2014 on the website of OurTime.org. I propose to deconstruct this pseudo-argument here, pointing out its major errors. I do this not to convince hard-core supporters of raising the minimum wage that it is a bad idea; I doubt that is possible by any means. Rather, this can be a short lesson for those interested in sound economic analysis in how to proceed when confronted by opposing arguments buttressed by seemingly sound statistics.
The Ceteris Paribus Principle
The statement in the box is worded rather ambiguously, which is typical for this type of argument. It can be interpreted two different ways. On the one hand, it could be claiming that the minimum wage hike caused the increase in employment. This is a clear violation of ceteris paribus (i.e., all other things being equal or held constant), which is at the core of any good analysis and cannot be stressed often enough. In order for that interpretation to be valid, we must assume that all states are identical in all other respects and that the increase in the minimum wage was the only economic condition that changed. This is clearly not the case. States use a variety of policy initiatives to encourage job growth; focusing on this one factor ignores significant heterogeneity among states.
In its weaker form, the statement could merely be claiming that jobs were created in spite of the increase. This is obvious and trivial. In order for this interpretation to be meaningful we must assume that the minimum wage is the biggest kid on the block, the overriding factor that swamps all others. It’s all or nothing; either it kills all job growth or it’s not a factor. This is what makes the argument a straw man. It is overly simplified and no one who opposes the minimum wage takes the position it attempts to refute. The minimum wage is simply one factor among many affecting the job market; real-world outcomes are a result of a constellation of factors, each playing its part. But this is not the only thing wrong with this version of the argument — it gets better (or worse).
Obama’s Attention to Border Crisis Outrages African-Americans Sunday, 17 Aug 2014 03:10 PM By Todd Beamon
President Barack Obama’s attention to the illegal immigration crisis, which could lead him to issue executive orders early next week to delay deportations and grant work permits to as many as 6 million migrants, has soured many of his core voters: African-Americans.
Many blacks, who twice voted for Obama in record numbers to elect him — and keep him — as the nation’s first African-American president, are angry that he has neglected the problems facing inner cities while working on the border crisis.
These big-city ills include chronic black unemployment, poor housing conditions, steep prices for food and services, low high-school graduation rates, and high crime rates.
“Black people are being played,” Herman Cain, the 2012 Republican presidential candidate, told Newsmax. “They have been taken for granted by Democrats for decades. Now they’ve reached a boiling point with this whole crisis on the border, and some of them are speaking out.”
By all accounts and as reported by Brietbart.com, the number of Border Patrol arrests of illegal immigrants since Oct. 1 stands at 174,000 and is still rising.
Cain and other African-American conservatives charge that Obama “manufactured this crisis” through a 2012 executive order that created the Deferred Action for Childhood Arrivals program.
The DACA ended the threat of deportation for as many as 670,000 illegals between the ages of 15 and 31 who were brought to the U.S. before their 16th birthday. In June, the administration extended the program for two more years.
“We’ve got a real crisis in every major inner city in this country,” Cain said. “They’ve done exactly nothing to understand the problem, let alone do anything about it.”
Anita MonCrief, board member of the Black Conservatives Fund, told Newsmax that African-Americans have long been “sour on Obama.”
parasites and political clowns in Washington, Trenton
Don’t blame the business people
AUGUST 17, 2014 LAST UPDATED: MONDAY, AUGUST 18, 2014, 12:16 AM SUBURBAN TRENDS Print
Don’t blame the business people
Dear Editor:
A recent letter to the Suburban Trends expressed outrage that some business groups take their holdings offshore to avoid U.S. taxes.
The writer shows a complete ignorance of economics and a hostility to private business.
Business and industry flee America because of the anti-free market environment they have to deal with thanks to the politicians and unelected bureaucrats. No business leader in their right mind would want to set up shop where they will be penalized for being productive.
How many Americans know that the income tax, which we’ve been saddled with since 1913, has its origins in Karl Marx’s “Communist Manifesto” of 1848? “Comrade Karl” thought the income tax so important that it’s the number-two item (next to the abolition of private property) in his plan for a socialized all powerful centralized state!
Add in all the other unconstitutional agencies and bureaus like the EPA, FDA, BATF, and many, many more, and it isn’t hard to see why business leaves the United States.
It’s not just the bloated federal government that is to blame. We have tons of state, county, and local laws, taxes, and regulations across the land that stifle business. These petty local tyrants make life miserable for anyone trying to succeed in business development.
My father, retired construction official Gene Richards of West Milford, is a case in point, In 1998 he came out of retirement to serve on West Milford’s Zoning Board of Adjustment. It didn’t last long as he was thrown off for stating that zoning was a form of property rights violation by government. I don’t want to sound paranoid but I honestly think my pro-freedom libertarian activism over the years may have had something to do with it too. Nobody likes independent thinkers who see beyond the phony “Liberal” versus “Conservative” debates on various issues.
If you wish to bemoan America’s slow economic growth and decline, don’t blame business people. Rather focus on the parasites and political clowns in Washington, Trenton, and your local community who always want more “controls” on virtually everything. They are truly a menace! Vote them out ASAP!
Ferguson Unrest Shows Poverty Grows Fastest in Suburbs
By Toluse Olorunnipa and Elizabeth Campbell Aug 16, 2014 12:01 AM ET
A week of violence and protests in a town outside St. Louis is highlighting how poverty is growing most quickly on the outskirts of America’s cities, as suburbs have become home to a majority of the nation’s poor.
In Ferguson, Missouri, a community of 21,000 where the poverty rate doubled since 2000, the dynamic has bred animosity over racial segregation and economic inequality. Protests over the police killing of an unarmed black teenager on Aug. 9 have drawn international attention to the St. Louis suburb’s growing underclass.
Such challenges aren’t unique to Ferguson, according to a Brookings Institution report July 31 that found the poor population growing twice as fast in U.S. suburbs as in city centers. From Miami to Denver, resurgent downtowns have blossomed even as their recession-weary outskirts struggle with soaring poverty in what amounts to a paradigm shift.
Report: Many Americans’ Paychecks Have Shrunk Since Recession
Philip Wegmann / @PhilipWegmann / August 12, 2014
Today many Americans are taking home a smaller paycheck than they used to, according to a study released Monday by the United States Conference of Mayors.
According to the report, people who worked in job sectors particularly hard hit by the recession had an average salary of $61,637 before the recession. But when it comes to jobs gained after the downturn, the average wage was $47,171 dollars.
“The wage gap has nearly doubled from one recession to the next.” – United States Conference of Mayors.
Conditions have become worse since the last recession, when the internet bubble burst. At that time, the Conference of Mayors measured the wage gap at 12 percent, about half of today’s 23 percent.
“While the economy is picking up steam,” said Conference president and Sacramento mayor Kevin Johnson, “wage gaps are an alarming trend that must be addressed.”
Seeking Lower Taxes, Companies Flee the U.S.
Arthur Laffer / Stephen Moore / @StephenMoore / August 10, 2014
The last several months have seen a wave of American companies merging with foreign companies, a process known as “inverting.” In effect, inversion is the corporate equivalent of a renunciation of American citizenship. By some estimates, about $250 billion of these deals have been consummated since the start of the year, and another $100 billion could be finalized soon.
As inversions have exploded onto the policy scene, Washington is scrambling to find ways to counteract a trend that could deprive the federal treasury of tens of billions of tax dollars, which Washington believes belong to the government. In President Obama’s own words, “My attitude is I don’t care if it’s legal, it’s wrong.”
Inversions vividly illustrate the amazing dysfunctions of the U.S. corporate tax code. The corporate tax raises $250 billion per year, or 1.5% of GDP, which is one of the lowest tax revenues in the world. And, the U.S. has the highest corporate tax rate in the world. If that’s not enough, compliance costs are huge and the corporate tax is a job killer.
An inversion occurs when an American company merges with a smaller company in a lower-tax jurisdiction such as Ireland. The deal is structured so the smaller company acquires the larger American company. Operations and management often remain in the U.S., but the legal headquarters is changed to the lower-tax jurisdiction.
By inverting, the company is no longer legally U.S.-based and thus is not required to pay U.S. taxes on profits earned abroad.
A notable requirement — IRS code 7874 added as part of the American Jobs Creation Act of 2004 — is that the shareholders of the smaller target company must end up owning at least 20% of the inverting company’s shares. Obama wants to raise this requirement to 50%.
U.S. Tax System Onerous
The rush to invert is a direct result of the 39.1% U.S. corporate tax rate, including state and local corporate taxes, compared with an average corporate tax rate for the rest of the world of 25%.
U.S. corporate taxes also apply to world profits, not just profits earned in the U.S., which makes an inversion cost-effective for an American company operating abroad. Anyone who is watching these inversions happen and still believes that tax rates don’t matter is living in a parallel universe.
The recent rush to invert is in part because other nations are cutting their corporate tax rates — the U.K., Japan and Spain most recently — making the cost savings much greater for U.S. companies. The other reason companies are rushing to invert now is to preempt discriminatory legislation proposed by the Obama administration.
The chart below encapsulates the problem. The U.S. was once a low corporate-tax rate nation; now we are the highest. The 39.1% U.S. rate has been effectively unchanged for 20 years, but the rest of the world has been slashing rates. This is a phenomenon we have called “supply-side economics goes global.”
We have also talked to CEOs who say they can negotiate sweetheart tax deals to bring their corporate tax rate below 10% and sometimes down to zero.
Blame Everyone Else
The administration’s response is simple: Blame everyone else for the dysfunctional tax code and then outlaw inversions retroactively. Because most inversions involve foreign minnows swallowing U.S. whales, a 50% foreign-ownership requirement, if made retroactive to May 2014, would make most of the mergers that have already taken place illegal and very expensive.
We believe the Obama proposal is pure demagoguery and would encourage multinational companies to avoid the U.S. altogether, meaning even fewer U.S. jobs. The Obama plan is like seeing a raging fire in a building and locking all the doors shut so no one can get out.
After the midterm elections, Congress and the White House could strike a bipartisan deal to slow down the inversion process, including some corporate-tax-rate reduction. A corporate tax rate of 28% could be “paid for” in part by closing corporate “loopholes” such as the wind tax credit and other energy subsidies.
Democrats will insist on repealing tax deferral on foreign-held profits. But even so, if the U.S. corporate tax rate is lowered enough, deferral will be less advantageous, and such a trade-off may be worthwhile.
In the longer term, Paul Ryan’s tax plan includes a swap of a value-added tax for a corporate profits tax. The Ryan plan is consistent with the Laffer Complete Flat Tax proposal. Because value added is essentially GDP and corporate tax revenues are between 1.5% and 2% of GDP, a full corporate tax switch from a tax base of profits to value-added would imply a corporate value-added tax rate in the low single digits.
We would put the odds of a partial corporate tax holiday on repatriated profits at 50-50. Companies with profits stored overseas could repatriate their earnings back to the U.S. at a lower tax rate. A tax holiday with a temporary tax rate of 5% to 10% could bring back to the U.S. as much as $1 trillion to $2 trillion parked overseas, raising as much as $50 billion for the Treasury.
Our view is simply that government doesn’t need more money; government needs to spend less. Thus, this $50 billion of additional taxes should be offset by permanent corporate-tax rate-reduction, dollar for dollar.
Tax On U.S. Jobs, Wages
We have always believed that the case for tax reform will catch on politically when American workers and unions start to see that this isn’t just a tax on corporate shareholders but on domestic workers as well.
The U.S. corporate tax sends jobs abroad by encouraging outsourcing, and it also lowers wages in the U.S. Kevin Hassett at the American Enterprise Institute finds that “corporate tax rates affect wage levels across countries. Higher corporate taxes lead to lower wages.”
Somebody please tell this to the Teamsters’ James Hoffa.
Another proposal would be to have the U.S. join other countries and move to a territorial tax system. American companies would simply pay the tax in the country in which their plant or facility is located. Republicans are skittish about this idea, worrying it would only further the incentive for businesses to move plants and jobs offshore.
Top Dems Urge Reform
The U.S. corporate tax is on the verge of complete collapse. Former Treasury Secretary Tim Geithner and former Fed Chairman Paul Volcker have advised Obama that the current corporate tax is an economic loser.
“The U.S. corporate tax incentivizes American businesses to move jobs offshore,” according to Volcker. “Unless the rate is cut substantially, this trend will continue and American workers will pay the price.”
Adds Geithner: “I do think there’s an overwhelmingly compelling case for broad-based corporate tax reform. The basic imperative is to get the incentives better and the fundamentals better for people creating and building things in the United States.”
In Senate race to watch, Jeffrey Bell is running against Janet Yellen
Why isn’t the National Republican Senatorial Campaign Committee coming in for Jeffrey Bell in New Jersey? He’s in a remarkable political fight, running surprisingly close to the incumbent, Cory Booker, despite having zilch in his campaign account. Yet he can’t get his phone calls returned by the national GOP. This is all the more amazing because Mr. Bell is framing a national issue — the failure of the Federal Reserve to create jobs. It’s almost as if Bell’s real opponent were not the glad-handing Booker but Janet Yellen, the Fed chairman. (Lipsky/The New York Post)
U.S. Senate candidate Bell says his focus is economy
With less than 100 days until the November election, recent polls have shown Republican candidates coming on strong. U.S. Senate Republican candidate Jeff Bell told NJTV News Anchor Mary Alice Williams that he has been a man for big ideas and that his campaign is focusing on the economy. (Williams/NJTV)
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News outlets are running stories about the rise in corporate tax inversions. Inversions are financial reorganizations that place U.S. firms under foreign parent corporations. They are one of the many ways that companies are responding to America’s uniquely high corporate tax rate.
Liberal policymakers and pundits are outraged by inversions because they fear that the government will be starved of revenues. Treasury Secretary Jacob Lew has demanded new rules to stop inversions because “allowing these transactions to continue, we run the risk of eroding our corporate tax base and undoing the progress we have made to reduce our budget deficits.”
However, it is our high 40 percent tax rate that is eroding our corporate tax base. If we chopped the rate substantially, tax avoidance would fall and U.S. investment would rise. Over time, more income would be reported to the government, with the result that the government would probably not lose any money, and it could even gain some. Governments, businesses, and workers would all win from a corporate tax rate cut.
Here is some evidence that the government would win. For 19 OECD countries for which there is good data back to the 1960s, I plotted the average corporate tax rates and average corporate tax revenues. The chart illustrates the Laffer effect of cutting high statutory tax rates on a very mobile tax base.
Millennial Jobs Report: 15.1% of Young People Out of Work in July
Washington, DC – (8/1/14) – Generation Opportunity, a national, non-partisan youth advocacy organization, is announcing its Millennial Jobs Report for July 2014. The data is non-seasonally adjusted (NSA) and is specific to 18-29 year olds:
The effective (U-6) unemployment rate for 18-29 year olds, which adjusts for labor force participation by including those who have given up looking for work, is 15.1 percent (NSA). The (U-3) unemployment rate for 18-29 year olds is 10.5 percent (NSA).
The declining labor force participation rate has created an additional 1.926 million young adults that are not counted as “unemployed” by the U.S. Department of Labor because they are not in the labor force, meaning that those young people have given up looking for work due to the lack of jobs.
The effective (U-6) unemployment rate for 18-29 year old African-Americans is 22.5 percent (NSA); the (U-3) unemployment rate is 20.6 percent (NSA).
The effective (U-6) unemployment rate for 18-29 year old Hispanics is 16 percent (NSA); the (U-3) unemployment rate is 11 percent (NSA).
The effective (U-6) unemployment rate for 18-29 year old women is 12.8 percent (NSA); the (U-3) unemployment rate is 9.9 percent (NSA).
Patrice Lee, Director of Outreach at Generation Opportunity, issued the following statement:
“My generation is scraping to get by. 15.5% of us are unemployed and desperately seeking full-time jobs. Nationally, college graduates owe an average of almost $30,000 in student loan debt. Entrepreneurial endeavors from ‘side hustles’ to full-time Internet businesses are a key to our current financial stability, freedom from debt, and future security.”
Students at Deep Springs College in the California desert, near the Nevada border, where education involves ranching, farming, and self-governance in addition to academics
The Hi-Tech Mess of Higher Education
David Bromwich AUGUST 14, 2014 ISSUE
Ivory Tower
a film directed by Andrew Rossi
Andrew Rossi’s documentary Ivory Tower prods us to think about the crisis of higher education. But is there a crisis? Expensive gambles, unforeseen losses, and investments whose soundness has yet to be decided have raised the price of a college education so high that today on average it costs eleven times as much as it did in 1978. Underlying the anxiety about the worth of a college degree is a suspicion that old methods and the old knowledge will soon be eclipsed by technology.
Indeed, as the film accurately records, our education leaders seem to believe technology is a force that—independent of human intervention—will help or hurt the standing of universities in the next generation. Perhaps, they think, it will perform the work of natural selection by weeding out the ill-adapted species of teaching and learning. A potent fear is that all but a few colleges and universities will soon be driven out of business.
It used to be supposed that a degree from a respected state or private university brought with it a job after graduation, a job with enough earning power to start a life away from one’s parents. But parents now are paying more than ever for college; and the jobs are not reliably waiting at the other end. “Even with a master’s,” says an articulate young woman in the film, a graduate of Hunter College, “I couldn’t get a job cleaning toilets at a local hotel.” The colleges are blamed for the absence of jobs, though for reasons that are sometimes obscure. They teach too many things, it is said, or they impart knowledge that is insufficiently useful; they ask too much of students or they ask too little. Above all, they are not wired in to the parts of the economy in which desirable jobs are to be found.
