Tag Archives: taxes

A Foreign Tax on American Investors in America

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The European Commission earlier this month proposed a new financial-transaction tax for 11 participating states, including Germany, France, Italy, Spain, Belgium, Austria, Slovenia, Portugal, Greece, Slovakia, and Estonia.  These produce roughly two-thirds of the EU’s economy.

It’s an enormous tax, too, in a market where spreads are on the order of pennies, even fractions of pennies: 0.1% for trades in bonds and shares, and 0.01% for derivatives transactions, and it would apply to both buyers and sellers

as long as either of them is based in one of the participating states, or if the financial instrument being traded was issued in any of these countries.

As damaging as this tax is, they’re not done.  The tax is intended to suppress trading:

[The European Commission’s] own impact assessment estimates that the number and volume of trades in shares and bonds could drop by around 15%, while derivatives transactions may drop by as much as 75%.

Never mind that this activity—especially its volume—contributes to the liquidity of the instruments and so contributes to holding down their price to buyers.  Which facilitates more general investing in companies—their source of funds for R&D, plant expansion, even hiring.

But wait, there’s more: they’re claiming the right to tax folks outside their jurisdiction—we Americans, investing here in the US, for example, as a result of those domiciliary and passing-through aspects.

This tax will hurt us: Paul Jiganti, Managing Director of Market Structure and Routing Strategy at TD Ameritrade Holding Corp, estimates that

a typical [American] customer who pays $9.99 to buy 1,000 shares priced around $35 apiece could see that charge rise sevenfold, to around $70 on the trade.

Which will have the EU’s desired outcome.  Jiganti was caught by surprise by all of this:

To be honest, I thought that cooler heads would prevail.  I thought the US government would take care of it before it really became an issue.

For all of Treasury’s sharp words about the tax, though, don’t expect any real action.  President Barack Obama, Treasury’s boss, has never met a tax he didn’t like.  He’s not going to oppose this one in any meaningful way.

Return of Taxation without Representation

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As John Smith writes at BIZPAC Review,

Aggressive prosecuting [of regulation violations] is the newest form of taxation, a money tree for government.

This is only part of the problem, though (eliding the legitimacy of the regulations).  The regulations themselves exist as a form of taxation in the fees they require, and the regulations and their fee structures are enacted by appointed, functionally anonymous bureaucrats, not by our elected representatives.

Regulatory costs extant prior to Obamacare, combined with Obamacare’s regulatory fees, will cost Americans in the aggregate $1.8 trillion per year just to comply.  HHS’ regulatory requirements alone cost $184 billion/year.  A couple of others picked at random:

Environmental Protection Agency: $353 billion per year Department of Transportation: $64 billion per year Federal Communications Commission: $142 billion per year

Much of these costs, to be sure, are costs of compliance, and not payments to the Federal government.  But much of these costs are.  Think about the uses you, or private enterprise, have for that money if it were left in your pockets and cash registers.

Look also at the “negotiated” settlements between the SEC and its victim banks.  One example: in 2011 the SEC browbeat Citibank into a $285 million settlement (the money would have come to the government, not to reimbursement of any putative victims) over its involvement in mortgage debt securitization and sale (the practice of which has never been found to be criminal or otherwise illegal).  The deal the SEC forced Citi to take was so egregious that US District Judge Jed Rakoff, who had to approve the deal for it to take effect, rejected it out of hand, ruling that

the proposed Consent Judgment is neither fair, nor reasonable, nor adequate, nor in the public interest.

Rakoff founded his ruling in his rejection of a long-standing technique the SEC had been using to…cajole…such settlements: allowing its victims to say they didn’t do the deed, but they’ll pay up anyway.  Absent guilt, what’s the basis of the penalty?  Rakoff didn’t think there was any.  He’s just one judge, taking on one Federal agency, though.  And the SEC isn’t done demanding collections without guilt.

 

H/t The Spirit of Enterprise

Fact Checking the Fact Checker

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The AP has a series of “fact checks” on President Barack Obama’s Tuesday State of the Union claims.  Here’s one of particular interest to me.

OBAMA: “After years of grueling recession, our businesses have created over 6 million new jobs.”
THE FACTS: That’s in the ballpark, as far as it goes.  But Obama starts his count not when he took office, but from the point in his first term when job losses were the highest.  In doing so, he ignores the 5 million or so jobs that were lost on his watch, up to that point.
Private sector jobs have grown by 6.1 million since February 2010.  But since he became president, the gain is a more modest 1.9 million.
And when losses in public sector employment are added to the mix, his overall jobs record is a gain of 1.2 million.

As the checker says, that’s true enough “as far as it goes.”  I wrote just last fall about what our jobs numbers should have been had certain events come to pass as Obama promised they would under his policies.

He promised in 2009 a 5.5% unemployment rate by now.  How many new jobs would have been created had we actually reached his promised number?  In December 2009…the civilian labor force was 153,059,000, of which 137,792,000 Americans were employed, a 10% unemployment rate….

In September 2012…the civilian labor force was larger, at 155,063,000….  There were some 142,974,000 Americans actually employed—that increase of 5,000,000 of which Obama is so proud.

However, a 5.5% unemployment rate corresponds, if my 1st grade arithmetic serves me well, to 94.5% of the civilian labor force actually employed: 146,535,000 Americans.  …there are some 3,561,000 Americans that should be employed but aren’t—because Obama’s proudly proclaimed policies have come up short, and we aren’t anywhere near 5.5% unemployment.

Let’s look at this another way.  ….  A normal recovery coming out of a downturn as deep and steep as was the Panic of 2009 typically sees growth rates of 5%-6% per year, or more.  This Obama recovery has been 6.7% over the entirety of his term in office….  Had we seen a normal recovery (and using a pessimistic 5%/year growth rate), we would have reached today’s unemployment rate after a shade over one year—in 2010—and we would have been back to full employment (in the range of 4.8%-5.5%) in just under 2 years—by [2011].

There’s more to it (and the links there) even than that, though.  Under Obama’s policies, our labor force participation rate has been shrinking rapidly as Americans despair of getting a job and quit looking, with its own impact on Obama’s jobs claims [emphasis in the original].

The labor force participation rate fell to 63.6% from 63.8% in October [2012].  If it had just held steady since then, the unemployment rate would be back over 8%.  Indeed, if the LFP rate was just where it was in November 2011, the unemployment rate would be 8.3%.  Some 542,000 Americans left the labor force just last month.

and

The number of long-term unemployed remains at a sky-high 40.1%, the same as in August.

The following graph tells the tale.

 

Budgets, Deficits, and Debt

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In his press announcement last week, President Barack Obama made a lot of…interesting…comments.  Here are some, with some editorial remarks associated.

We’ve created more than 6 million jobs in the last 35 months.

However, if our economy were undergoing the recovery he promised his stimulus spending would produce, it would have produced 8 million jobs in that time, and we wouldn’t have fewer Americans working today than at the start of that spending.  If we were undergoing a normal recovery, we’d have even more jobs “saved or created” by now.

But we’ve also seen the effects political dysfunction can have on our economic progress.  The drawn out process for resolving the fiscal cliff hurt consumer confidence.  The threat of massive automatic cuts have already started to affect business decisions.

And

Deep, indiscriminate cuts to things like education and training, energy, and national security will cost us jobs and will slow down our recovery.

True enough.  But given that, he shouldn’t have demanded such indiscriminacy in his sequester demand of 2011.  Today, he needs to get out of the way and let budgets be passed that cut spending responsibly and in a carefully targeted manner.  More, he needs actively to help this process by requiring his Party-controlled Senate to put House-passed budgets (see below) up for vote and passage.

[W]e’ve been reminded that while it’s critical for us to cut wasteful spending, we can’t just cut our way to prosperity.

As someone said repeatedly in 2008, “Yes, we can.”

He also had this riff:

Democrats and Republicans have been able to come together and cut the deficit by more than $2.5 trillion….  [A] balanced approach [of tax increases and spending cuts] have achieved $2.5 trillion in deficit reduction.  That’s more than half way toward…$4 trillion in deficit reduction…required to stabilize our debt.

And

There’s no reason why we should keep [loopholes and deductions] at a time when we’re trying to cut down on our deficit.

And

If we’re serious about paying down the deficit, the savings we achieve from tax reform should be used to pay down the deficit.

Notice that: deficit, and not debt.  Obama cares not a fig for the magnitude of our national debt—100% of our GDP today, including all of our national debt, not just the publicly held portion—and its rapid growth.  “Reducing” our deficit leaves a continuously growing debt—not stabilization.

He also was careful to include his stock demand for higher taxes as a quid pro quo for even token spending reductions:

And I still believe that we can finish the job with a balanced mix of spending cuts and tax reform.

Obama’s speech adds up to an ignorance of how a free market economy actually works that’s breathtaking in its scope.  Or a cynical disdain for free markets and the associated individual freedoms.

The WSJ noted,

House Democrats have drafted a plan to replace all of the March 1 spending cuts with a plan that calls for both tax increases and spending cuts.  The proposal, drafted by rep. Chris Van Hollen (D, MD), calls for tax increases on the wealthy, reducing tax breaks for oil and gas companies and a reduction in farm subsidies.

Notice this, too: more tax increases, especially on the hated wealthy, and the Progressives’ standard singling out of evil oil and gas producers.  Van Hollen carefully is seeking to protect “green” energy companies (I hesitate to call them producers) from a similar reduction in tax breaks or subsidies for “green” energy companies.  The Progressives—not just Obama—are busy designating winners and losers in our economy.

There are, though, some in Congress (not on the left side, alas) who do understand.  House Ways and Means Committee Chairman Dave Camp (R, MI), for instance:

Tax reform should be about making the code simpler and fairer for American families and helping employers create more jobs.  The president’s proposal is nothing more than another tax hike to pay for more Washington spending.

House Speaker John Boehner (R, OH) said before Obama’s speech,

Republicans have twice voted to replace these arbitrary cuts [Obama’s sequester] with common-sense cuts and reforms that protect our national defense.  We believe there is a better way to reduce the deficit, but Americans do not support sacrificing real spending cuts for more tax hikes.  The president’s sequester should be replaced with spending cuts and reforms that will start us on the path to balancing the budget in 10 years.

Because balancing the budget—actually eliminating the deficit, not just “paying it down”—is a critical first step to reducing—paying down—our debt.  After all, the CBO says that

continuing large deficits would push the level of government debt held by the public—a commonly used measure that excludes the US Treasury bonds held in Social Security and various trust funds—to 76.3% of GDP at the end of September, the highest level since 1950.

and

[Failure to fix will cause] the gross domestic product, the value of all goods and services produced in the US, to grow by just 1.4% this year, measured from the fourth quarter of 2012 to the fourth quarter of 2013.

That’s less than last year’s 1.9% growth.  And full employment won’t be reached before 2017, the CBO says.

Are Republicans Folding Again?

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With the effective date of the Obama sequester, with its defense cuts, approaching, Republicans are starting to waver.  Congressman Tom Rooney (R, FL) of the House Armed Services Committee, for instance, now is saying he would rather compromise on taxes than allow the cuts to take effect.

If you were going to hold a gun to my head and say you had to pick one…my constituents would expect us to keep them safe.  If it takes closing [tax] loopholes to get there, I would be willing to do that.

A carefully anonymous “senior GOP aide” confirms the growing softness of the Republicans.  He’s saying that, with the cuts, Rooney’s position will gain support as more Republicans fold.

Republicans have already foldedcompromised on tax increases in the fiscal cliff negotiations just concluded.  More “compromise” means more tax increases.

How, exactly, are Americans kept safe when ever more of their money is taken by the government as taxes, Congressman Rooney?

I also have to ask: has the Republican Party become the RINO Party?