taxes

Earlier this month, Bloomberg reported that John Paulson was considering making Puerto Rico his home for a little more than half the year, having been intrigued by the idea of working from the beach and not paying capital gains taxes. For its part, PR was pretty excited about the prospect of the hedge fund manager calling the island home on tax forms, as his presence would create a much needed you scratch our back we’ll scratch yours situation for the local economy. And while a spokesperson for Paulson has categorically crushed the dreams of the Commonwealth, apparently everyone has gotten over it pretty quickly and would like to make it clear that anyone with money to spend is welcome, nay, encouraged to come on down. Millionaires would be good, billionaires are better, but beggars/choosers/etc. Read more »

I’ve never heard of a “pint” before, but I hear the working classes like them.

What do you do when you’re Chancellor of the Exchequer and everything’s going wrong, possibly because of your policies, and you have to introduce a budget today full of evidence of failure? Do you abandon those policies in favor of something that might work and might not cause a triple-dip recession? Read more »

Despite reports to the contrary. Nueva York it is. Read more »

  • 07 Feb 2013 at 7:13 PM

If You Tax Derivatives, Only Derivatives Will Pay Taxes

In general when something is headlined “A Sensible Change in Taxing Derivatives,” or “A Sensible Anything,” that’s a good sign that it’s not; things that are sensible don’t have to advertise. Also: ooh derivatives are evil ooh, so the odds are even worse. But this particular sensible change – a Victor Fleischer DealBook column about a Republican House proposal to tax derivatives on a mark-to-market rather than “open transaction” basis – is more sensible than you might initially expect; it’s mostly plausible and inoffensive and non-pitchforky.1 (The idea is straightforward: if you own a derivative, and it went up in value this year, you pay taxes on the increase in value. Unlike with, say, stock, where you only pay taxes on the increase in value when you sell the stock.)

One way to tell it’s not too bad is that various reports suggest that the Wall Street reaction so far has been “meh?” or “huh?”; this is presumably in part because it’s not clear how real this is and in part because it’s not clear how bad it’d be if it was real. Wall Street, in the sense of derivatives dealers, already pay taxes on their derivatives inventory on a mark-to-market basis, so the dealers’ dog in this fight is not their own taxes but rather the marketability of various products, from boring ETNs to lovely variable share forwards, to customers focused on tax efficiency.

Nonetheless! There are two ways to think of derivatives. One is they are a specific class of evil things, often involving acronyms, designed to let banksters get up to dirty tricks. This line of thinking goes along with words like “complex” and “opaque” – “derivatives are complex instruments …” etc.

The other way to think of the term is as a catch-all for any sort of contract whose value is determined in part by something in the world. Read more »

  • 15 Jan 2013 at 2:48 PM
  • Banks

Goldman Exits A Tax Trade Early

Here is an important cultural difference between the US and the UK that you should, like, stick in the boot of your lorry or whatever: in the UK, it’s apparently not socially acceptable to put off paying bonuses by two months to save your employees five percentage points in taxes. In America, it’s considered perfectly reasonable to die to avoid a tax increase.1

I was not aware of this difference and it seems neither was Goldman Sachs:

Goldman Sachs has backed down from a plan to delay UK bonus payments until after the new UK tax year, which would have allowed bankers to benefit from a cut in the top rate of tax from 50 to 45 per cent. … The idea – first reported by the Financial Times on Sunday – would have seen the payment of the deferred portion of bonuses from prior years delayed from February until after April 6.

News of the plan prompted a flurry of criticism from lawmakers and even from within the banking industry.

Addressing the House of Commons Treasury select committee earlier on Tuesday, Sir Mervyn King, governor of the Bank of England, had criticised the idea.

“I find it a bit depressing that people who earn so much find it would be even more exciting to adjust their payouts to benefit from the tax rate, knowing that this must have an impact on the rest of society, which is suffering most from the consequences of the financial crisis,” Sir Mervyn told MPs. “I think it would be rather clumsy and lacking in care and attention to how other people might react. And in the long run, financial institutions do depend on goodwill from society,” he added.

You can sympathize with Goldman’s misunderstanding here, no? Read more »

“The only way to finance a big European-style state is to have it paid for by massive taxation of everyone, mostly the middle class. Right now, we are avoiding honest debate on this fact…The first truth is that the current tax rates cannot support the promises made to middle-class Americans. The most unaffordable items in fiscal projections are Social Security for everyone and government-sponsored health care for the middle class. You cannot preserve these even with Draconian slashing of military, infrastructure, welfare, education, and other expenditures. The second truth is that you cannot pay for the Life of Julia, or any vision of a cradle-to-grave welfare state, without massive and increasingly regressive middle-class taxes. The poor don’t have the money to pay for a European-style welfare state, and the rich, rich as they are, don’t have anywhere near enough. Not only that, it’s easy to tax middle-class assets and transactions — things like payrolls, sales, and real estate — but soaking the rich means taxing investments. Investments are complicated and can be restructured to minimize taxes. Also, investments are the lifeblood of economic growth. Raising significantly more taxes from the rich also requires higher marginal tax rates — and their rates are already quite high. High marginal rates distort the economy and yield less revenue than anticipated because they increase the rewards for legal and illegal tax avoidance…to achieve anything like the European-style entitlement state they advocate, we need to tax everyone a lot more, not just the 1 percent. Despite all the drum circles protesting the inequitable distribution of resources, the wealthy just don’t have enough. The middle class and even the poor must step up to carry more of the burden if this is our desired endgame.” [The American via Heidi Moore, related]

It wasn’t pretty or timely and didn’t seem to make anyone happy, but the fiscal cliff is no more… for another two months. Read more »