Daily Archives: 11 August 2014

The White House as Tax-Writing Authority

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Secretary of the Treasury Jack Lew originally (originally: three weeks ago, in mid-July) acknowledged he had no authority to alter the tax implications of US businesses reincorporating overseas in order to reduce their US tax burden.

Now he’s looking at (not for) ways to “meaningfully reduce the tax benefits after inversions take place” because reducing a company’s cost structure, the legally and fiscally required behavior of any company’s managers, by making use of this “unpatriotic tax loophole” is unpatriotic. I’ll ignore the fact that what’s unpatriotic here is the usurious tax rates charged American companies and the zeal with which this administration attacks American companies for worrying about their bottom line more than they worry about government imperatives in order to get to a different point. As The Wall Street Journal put it,

So now we have a President in an election year looking for a way to raise taxes on corporations after he couldn’t get Congress to agree. Has anyone asked Treasury’s career lawyers or the Office of Legal Counsel? Someone should. And when the next President arrives in 2017, one of his first acts should be to release publicly all of the OLC memos making the legal case for Mr Obama’s many illegal acts, assuming there are any.

And if there are not, the next President should release far and wide the empty file folder that would be this administration’s lack of consultation with the law or with any government lawyers.

A Trade War

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Russia has announced that it won’t buy certain goods from certain of the nations that are sanctioning Russia over its invasion of Ukraine and its fomenting of rebellion in eastern Ukraine. This is a trade war that Russia shouldn’t be expected to win.

For one thing, Russia’s economy is the size of Italy’s and more moribund, so any trade war can only hurt Russia relatively more than it can hurt the far larger economies of the US, the EU, Australia, Canada, even Norway, who are the targets of the Russian boycott.

For another thing, here are some facts related to this boycott.

[Russia has] banned imports of meat, fish, milk and milk products, and fruit and vegetables….  The ban has been introduced for one year

[Russia] may also introduce restrictions regarding imports of planes, navy vessels, and cars…

And

Russia depends heavily on imported foodstuffs—most of it from the West—particularly in the largest and most prosperous cities such as Moscow, where imported food fills an estimated 60-70% of the market. Food and agricultural imports from the US amounted to $1.3 billion last year, according to the US Department of Agriculture, and in 2013 the EU’s agricultural exports to Russia totaled €11.8 billion ($15.8 billion). [This is against GDPs of $17.3 trillion and €13.1 trillion for the US and the EU and ₱75.8 trillion ($2.1 trillion) for Russia.]

A year, though, is plenty of time for the banned sellers to find new markets, which reduces the long-term need to sell to Russia at all. This, in turn, produces a capacity functionally to embargo Russia with respect to those goods—not by explicitly and legally refusing to sell to Russia, but by voluntarily and economically selling elsewhere instead.

A year also is plenty of time for Russia to find other sellers: Latin America, Turkey, other ex-Soviet nations, and so on. Russians won’t starve. However, the reason these other sources aren’t current suppliers is because the boycotted nations can sell into Russia at lower prices than those alternatives. These alternative sellers will, almost necessarily then, cause higher prices in Russian stores.