Tag Archives: taxes

Good for the Latvians

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Mostly.  They are, after all, joining the Euro Zone next January, to their long-term detriment.  However, other than that, they clearly have the right idea, much to the chagrin of Euro Zone officialdom (given that chagrin, they’re still drawing Latvia into the fold.  What does that say about the consistency of officialdom’s judgment?).

Here’s why I like the Latvians, so far.

Latvia’s corporate tax rate is just 15%, far lower than the EU average of 23.5%.  Within the euro zone, only Ireland and Cyprus, each at 12.5%, have lower rates.

The problem here isn’t that Latvia’s tax rate is too low, as Euro Zone officialdom insists, it’s that the EU average is too high (never mind conflating the EU with the Euro Zone).  Moreover, officialdom—both Euro Zone’s and EU’s—arrogantly refuse to justify their claimed need for all that money, refuse to explain how all that money is better handled by them and not by the ordinary citizen of the EU/Euro Zone, refuse to justify the things on which they spend all that OPM beyond insulting generalities like “it’s good for everybody.”

Here’s more of why I like the Latvians:

Holding companies—firms that hold stock of other companies—enjoy further benefits in Latvia.  Since the beginning of 2013, their foreign profits earned via dividends and stock sales have been tax free.  Transferring such profits out of country is also not taxed.  Furthermore, as of 2014 Latvian holding companies will no longer have to pay taxes on interest and licensing fees they pay to foreign companies.

Business friendly is the same as jobs friendly, and jobs mean income and opportunity for the common man.  Oh, and revenue for government, whether that revenue is justified or not.

And

Markus Meinzer, an analyst with the Tax Justice Network, has already begun calling Latvia a “Luxembourg for the poor.”

What’s the downside of that, exactly?

Of course, officialdom objects to these things.

[T]he banking systems in both [Ireland and Cyprus] have collapsed—and both have been forced to seek emergency aid money from EU bailout funds.

Never mind that it was the knowledge of the existence of bailouts—at taxpayer expense, to boot—and too much regulation that led to the collapses.  Businesses that can be sure of bailout face no consequence from their decisions, and so no risk—and so make dumb, over-extensive moves.  Over-regulation compounds the problem by artificially constraining the range of moves allowed—constraints that the market can apply much more efficiently, much more broadly, much more flexibly, and much more promptly.

And

…money with shady origins keeps appearing.  In April 2012, the United Nations Security Council determined that Latvia’s Parex Bank (which has since changed its name to Reverta) assisted military officers from the Ivory Coast in circumventing international sanctions.

Of course, this has nothing to do with tax law or being business friendly.  Enforcing existing law against money laundering would handle this nicely.  To the extent the specific charge is true (if the UN says it, it’s automatically open to question), that’s a violation of such existing law; Latvia’s tax treatments are wholly irrelevant.

The Euro Zone needs a whole lot more tax havens within it—perhaps as many as 17 more.  It’s not the governments’ money, after all, and the governments for the most part don’t need it as much as the people do.

Social Engineering with the Tax Code

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Senators Max Baucus (D, MT) and Orrin Hatch (R, UT), Senate Finance Committee Chairman and Ranking Republican, respectively, had a thought, as described in a recent Wall Street Journal op-ed.  In a letter to their fellow Committee members, they suggested,

To make sure that we clear out all the unproductive provisions we plan to operate from an assumption that all special provisions are out unless there is clear evidence that they: (1) help grow the economy, (2) make the tax code fairer, or (3) effectively promote other important policy objectives.

In other words, they want to zero out all deductions, loopholes, subsidies, credits, carve-outs, and so on in the Federal tax code and start over, including only those that are explicitly defended and defended successfully.

Right idea; flawed execution.  Items 2) and 3) are mutually exclusive.  “Important policy objectives” can only come at the expense of this or that group.

Moreover, “policy objectives” through taxing is inherently ineffective and immoral.  If Congress can’t achieve the policy objective through legislation, it’s because the legislators and their bosses, the sovereign people, don’t want that objective, and so that objective is illegitimate.

Further, the circumscription created on this or that group by taxing for that or this objective limits arbitrarily the victimized groups, and it thereby immorally eliminates those groups’ equality of opportunity—which is supposed to be equal to the opportunities of other groups (vis., the opportunities of the tax-favored groups)—and their ability to exercise such opportunities as are left to them according to their own imperatives, not those dictated by government.

We’ll see how far even this idea gets, though, first in the Progressive-controlled Senate Finance Committee, and then in the Progressive-controlled Senate.

On the other hand, what’s happening along these lines in the Republican- (as opposed to Conservative-) controlled House?  Not much, mostly this year-old chit-chat.  Even on the matter of social engineering through the tax code, the Ways and Means letter and attachment merely identify the existence of damage done by social engineering, but they do not offer anything concrete to do about that damage or about the measures themselves.  At least the two Senators had that much.

In Which The Swiss Government Votes for National Sovereignty

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Switzerland’s lower house of Parliament voted 123-63 against the measure [to let Swiss banks otherwise violate Swiss banking laws to give up data demanded by the US], which would have enabled many of the Alpine nation’s banks to sidestep the Swiss banking secrecy laws and start handing information to the US Department of Justice about any past help they may have given to Americans hiding undeclared wealth in Swiss accounts.

Those lawmakers were worried about, among other things,

the heavy-handedness of the US effort to have them sign off on legislation that might have exposed the country’s banks and bank employees to legal hazards.  Lawmakers had also raised concerns about the lack of detail in the plan regarding potential fines for banks that would have opted to participate.

Peter Kunz, Professor of Business Law at the University of Bern, disagreed:

This is the major problem.  Swiss banks, and banks in general, need some certainty in their business—and right now no one really knows what’s going to happen.

I disagree with the good professor.  To the extent there is uncertainty, it’s in the Swiss government’s behavior.  With this rejection, Swiss banks remain free to obey Swiss law without fear of retaliation, which would not have been possible under the proposed law.  That law would have subjected Swiss banks to the vagaries of American law.

This may be more coming down the pike.

Senior officials from Germany, France, Japan and the European Commission have expressed deep concern to Federal Reserve Chairman Ben Bernanke about the Fed’s proposed new regulatory regime for foreign banks under Section 165 of the Dodd-Frank Act.

This is what concerns them:

the Fed proposes to require over two dozen foreign banks to move their U.S. broker-dealer and other nonbranch operations under separately capitalized, intermediate holding companies that would be subject to U.S. bank capital requirements, liquidity buffers and single counterparty credit limits.

…

For purposes of complying with the Fed’s higher capital requirements under Section 165, U.S. bank holding companies would be allowed to take account of their global consolidated operations. Foreign bank-owned IHCs would not—which means that capital held at the foreign bank parent level would not be available to support U.S. operations. This would tilt the competitive playing field against foreign bank-owned broker-dealers, and it is a glaring violation of long-standing principles of equal national treatment.

Sovereignty—what a concept.

Progressives and Taxes

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Look no further than California for the latest example of foolishness.

That state’s latest budget counts on at least $500 million from that state’s auction of carbon credits under its cap-and-trade…business…to balance its budget.

There’s a problem with that bait-and-switch…business…though.  As California’s Supreme Court ruled in its 1997 Sinclair Paint Co opinion, regulatory fees can’t

exceed in amount the reasonable cost of providing the protective services for which the fees are charged

or be imposed for

 unrelated revenue purposes.

The cap-and-trade collection, however, explicitly is a fee and not a tax—that’s how the fees were successfully assessed in the aftermath of California’s Proposition 13, which requires a supermajority in each house of the California legislature to raise taxes.

This leads to a couple of problems that would be no-brainer deal killers for anyone but a Progressive:

First, the stated purpose of the diversion: to put the monies into the state government’s general coffers in order to balance the budget, rather than to spend the money on “green” goals, which is the stated purpose of the cap-and-trade program.  The monies can’t be diverted to the general coffers.  Not legally, anyway.

Second, the diversion of the $500 million demonstrates that the state government believes the money is not needed so much for those “green” goals: the cap-and-trade fees “exceed in amount the reasonable cost of providing the protective services for which the fees are charged” by those $500 million.

Hmm….

Social Engineering with Taxes

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Dr Alan Blinder, Princeton University Professor of Economics and Public Affairs, is at it again.

First, some side issues which he raises:

Since the economy as a whole created 5.41 million net new jobs over the past three years, you might expect that about 4.51 million of them were in the private sector and about 900,000 were in the public sector.  In fact, the private sector created 6.56 million net new jobs over the past three years while about 1.14 million net government jobs were eliminated via layoffs and spending cutbacks.

Never before in postwar history has government employment declined during a recovery. Compared with historic norms, we’re down over two million government jobs.

Never mind that the private sector’s performance is about 2/3 of what President Barack Obama promised with his 2009 stimulus and less than that compared to other recoveries, held back by his interfering policies.

Separately, the reduction in government employment is a good start.  Government remains far too big, and it’s not a jobs welfare program: further cuts in Federal employment are warranted.

Then,

Real GDP growth has averaged a paltry 2% per annum over the past three years.  But growth of GDP excluding government purchases—the things governments buy, including hiring workers—has averaged 3%.

But this just confirms how much government interference is inhibiting recovery.

Next, he offers a partial solution:

So Congress could make a good start on faster job creation simply by ending what it’s doing—destroying government jobs.

There’s that employment security welfare claptrap made explicit.  Government actually has a few very specific tasks, named by the Constitution, and no other thing to do at all.  It doesn’t need to employ lots of workers, outside of soldiers, sailors, marines, and airmen, in order to do those few tasks.

Now, he comes to his tax policy as social engineering tool:

Virtually since the Great Recession began, many economists have suggested offering businesses a tax credit for creating new jobs.  While details matter, the basic idea is straightforward: Offer tax breaks to firms that boost their payrolls.

For example, companies might be offered a tax credit equal to 10% of the increase in their wage bills over the previous year.  No increase, no reward.

You might imagine that Republicans would embrace an idea like that.  After all, it’s a business tax cut….

Here’s that foolishness of using taxes to drive our economy to a government goal.  No.  The ways to help our businesses and spur hiring include reducing—or even eliminating—taxes on businesses, canceling the additive costs and outright taxes Obamacare imposes on businesses for hiring, and stopping paying the unemployed for not working.

And no, the “tax credit” isn’t at tax cut at all.  It’s an increase in spending.

Blinder also had this idea:

Suppose Congress enacted a partial tax holiday that allowed companies to repatriate profits held abroad at some bargain-basement tax rate like 10%.  The catch: the maximum amount each company could bring home at that low tax rate would equal the increase in its wage payments as measured by Social Security records.

Again, no.  Eliding the social engineering claptrap of the suggestion, temporary tax moves have no effect.  We’d be better off moving to a territorial tax scheme at the new reduced overall business tax rate.  Or eliminating the business tax altogether.

Blinder concludes with this:

My general point is that the fiscal cupboard is not bare.  There are things we could be doing to boost employment right now.  That we are not doing anything constitutes malign neglect of the nation’s worst economic problem.

Indeed.  Let’s reduce/eliminate business taxes, get Obamacare off the backs of businesses, and restore unemployment payments to the status quo Harding right now.