Tag Archives: economics

Byzantine Taxing

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Many companies, sitting on billions of dollars of tax credits, want to be able to cash them in promptly.

For example:

Duke has been unable to use all the corporate-research and renewable-energy credits it accumulated because it has been using accelerated tax deductions for capital investments to lower its taxable income, said Dwight Jacobs, the company’s chief accounting officer. That bumped it up against tax-code rules that limit tax credits, leaving $1.8 billion in unused credits on Duke’s books. Under the proposal, the company could get that within months instead of years.
The proposal “would give us more cash today and that would cause us to avoid borrowing money that we would otherwise have to borrow,” said Mr Jacobs.

And

Under the tax code, companies can claim credits for activities encouraged by the government. Among the largest are credits for conducting corporate research, funding low-income housing, and producing renewable energy….
Unlike deductions, which lower taxable income, credits reduce a company’s tax bill directly. But there are limits. Companies can generally offset only 75% of the taxes they owe by using credits. Any leftover credits can be used for one previous year or up to 20 years in the future.

Sound complicated? That’s the point. This isn’t a matter of helping out Duke, et al., with a particular section of the tax code. This is a matter of a too-complicated tax code.

We need, badly, to simplify it. A single, low rate, with no deductions, subsidies, credits, or other froo-froo would be suitably simple.

Better, would be eliminating corporate taxes altogether. In the end, the taxes a business pays are just costs passed on to customers in the form of higher prices; the taxed business doesn’t itself pay very much of its tax liability.

Either move would be doubly beneficial: more money left in the company’s coffers for R&D, marketing, capital improvement, jobs, wage increases from the reduced/eliminated taxes. More money also would be left in the company’s coffers for R&D, marketing,… from the reduced/eliminated tax compliance costs.

And all of that adds up to lowered prices for the company’s customers.

A Taxing Case

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Apple won its appeal of a European Commission ruling that it owed €13 billion ($15 billion) in back taxes because Ireland had illegally subsidized the company.

The General Court agreed with Ireland’s argument that the matter wasn’t an illegal subsidy because the nation cut similar tax deals with all comers.

The EU, of course, is not happy. It’s Tax Justice Coordinator (no irony in that title), Tove Maria Ryding, said,

If we had a proper corporate tax system, we wouldn’t need long court cases to find out whether it is legal for multinational corporations to pay less than 1% in taxes.

She’s not far wrong, but not in the way she intends. If the EU had a proper corporate tax system, if it were truly interested in tax justice, if the rest of the member nations had proper corporate tax systems, the EU and its constituents would have far lower tax rates and be more effective competitors with Ireland, Luxembourg, and Netherlands on taxes and business attractions.

Then neither the EU nor its other constituent nations would need long court cases in efforts to force low-tax nations to raise their taxes, which would only be to the detriment of those nations’ businesses and citizens. And the EU and those other constituent nations’ citizens could share in the prosperity the citizens of the three enjoy, rather than forcing those to their prosperity and opportunities to the level of the rest.

Market Performance

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Great Britain has decided to bar the People’s Republic of China’s telecom company, Huawei, from participating in the British build-out of their 5G network.

The PRC isn’t happy. Foreign Ministry Spokesperson Zhao Lijian:

Whether the UK will provide an open, fair and non-discriminatory environment for Chinese businesses offers a telling clue to how the post-Brexit British market will perform and how secure China’s investment will be in that country. So, we will be closely following the situation.

I certainly hope it’s a telling clue, given that PRC companies are extensions of that government’s intelligence gathering facility.

Besides, diversity in 5G network buildout and operation, which will be facilitated by avoiding Huawei participation and domination, will only enhance the communications market; enhancing national security in the several nations is a happy additional outcome.

“Tax Us”

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Some members of the rich class have formed a group and extended a demand that governments should tax all members of their clique.

Over 80 men and women worth seven figures from the US, UK, Germany, New Zealand, Canada, and the Netherlands calling themselves the “Millionaires for Humanity” have signed an open letter asking their governments to “raise taxes on people like us. Immediately. Substantially. Permanently.

The Americans in that crowd first must prove they mean it by committing—with publicly available means for verifying that they’re honoring that commitment over the succeeding years—to making donations to the US Treasury of the amounts they’d pay under this “tax us” plan.

They don’t get to force their taxes on the rest of us, especially when they don’t believe in them themselves.

Markets

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Zimbabwe, in attempt to protect its currency—already a close neighbor of worthless—has decided to close its stock exchange.

If there is no market for the currency, then it has little value in terms of purchasing power. If there is no convertibility of the currency into other currencies, then there is both high risk in holding the currency and reduced interest in holding it.  And so reduced purchasing power.

If the currency has little value and limited convertibility—or either alone—there is little interest in investing in the country or in simply buying its goods or selling foreign goods in—especially if the investments must be done in the domestic currency.

Without foreign trade or investment, domestic production of goods and services is strongly limited—especially when the nation is so far from self-sufficient in necessary resources—the inputs to any production.

Limited production, limited buying—the stuff of economic stagnation moving into decline.

Closing a stock exchange in such an environment is a move with no relevance to the failure of the ZWL. Aside from the fact that only the very rich Zimbabweans and foreign investors traded on that market, the failure of the currency is a failure in citizens’ belief in the government, a failure of their confidence in the nation, and a disbelief in the citizens to keep what they’ve earned, whether hard goods or money. It’s a failure in confidence in the future.

Getting the future back is more serious business than closing a stock market.