You could probably find a lot of people who are against bailouts but this morning the most unintentionally hilarious one is Craig T. Nelson. Coach went on Glenn Beck last night to promote this message. He’s pretty steaming mad about all this (“I’m just sick and tired of it”), and you know what he’s going to about it? Stop paying his taxes, that’s what. Whether or not they see eye-to-eye on the whole bailout nation situation, T. Geith’s ears will surely perk up when it’s put that way.
Beck: Are you saying you personally won’t pay income tax anymore?
Nelson: I’m really thinking about it, Glenn. As a fiscally responsible grandfather, there are programs they’re asking me to fund that I refuse to fund. They should be allowed to go bankrupt! We’re a capitalistic society. I go into business, I don’t make it, I go bankrupt. They’re not going to bail me out. I’ve been on food stamps and welfare,* anyone bail me out? No. I’m just SO SICK AND TIRED OF IT. I’m sick and tired of it!
*When was this?
It is an often forgotten fact that the United States is among the minority as a country that taxes citizens on their world-wide income. It is not self-evident that U.S. based corporations should pay tax on foreign income. This is certainly not some kind of global consensus, after all. So it is a tad annoying to listen to the bleating that seems to accompany articles about firms seeking to minimize taxation via offshore structures. Bear in mind, the vast majority of these structures are legal. The phrase “closing a tax loophole” is badly abused in this respect. We could as easily point out that your deductions for interest payments are “loopholes” that need to be “closed.” Likewise, we might insist that the loophole that fails to tax the last 55% of your income be closed.
Be this as it may, the whining from Caribbean nations that has resulted is grating:
Caribbean nations say they will be the economic victims of U.S. President Barack Obama’s proposals to collect more taxes on the offshore transactions of U.S. individuals and corporations.
Caribbean countries have spent decades building up a financial industry to serve companies and individuals from the U.S. and Europe, touting low tax rates, a friendly regulatory environment and proximity to the U.S. financial markets.
Caribbean nations are also the economic victims of drug enforcement efforts though, aren’t they?
Caribbean Nations Squawk At US Plans To Crack Down On Tax Havens [Dow Jones]
Count on a failing business backed into a corner to rely on “changing the rules of the game” to sustain itself, to carry it above water (barely) for another few periods. Just buy some time until something miraculous can be arranged (or more time can be purchased from the time vendor).
In this case, the “rule change” developed by some “genius” is the regulatory raising of the cost of operation of an entire industry’s flagship products so as to make one firm’s “novel alternatives” profitable. The “novel alternatives” are small cars and fuel-efficient models. The company is Ford. The “genius” is Bill Ford.
Higher taxes to push the price of petrol up by more than 70 per cent are needed to change Americans’ car-buying habits and usher in a new generation of fuel-efficient vehicles, according to Bill Ford, chairman of Ford Motor.
His comments mark a clear break with the rest of the US auto industry in the depths of a financial crisis that has sapped Detroit’s ability to fund a new generation of electric vehicles, hybrids and other more fuel-efficient models.
And what about the billions upon billions in extra costs heaved onto the back of everyone who drives so that Ford can sell some electric cars no one wants to buy otherwise?
Strong price incentives were needed for a lasting change in consumer demand, Mr Ford said: “It’s got to be a pocket book issue for the customer to change their behaviour.
That’s just fantastic, Bill.
Ford chairman calls for petrol tax to drive change [The Financial Times]
We would say we are surprised. But we aren’t.
Alistair Darling has announced a new top tax rate of 50% for those earning more than £150,000 from next April.
The chancellor unveiled the measure after delivering a stark Budget report on the state of the UK economy.
He said debt would hit a record £175bn this year and the economy shrink 3.5% – its worst performance since 1945.
This isn’t just some punish the bankers spanking tax, mind you, but a broad sweep. Imagine working for the government until the summer solstice. (You people in California and New York can skip this assignment). Then imagine gasoline is $9.00 per gallon and over 80% of that is tax.
How much of this do we think the UK can take?
Darling Unveils 50% Top Tax Rate [BBC News]
State income tax hikes, of course.
The squeeze is especially severe in states hit hardest by the recession, such as Arizona, where sales-tax revenue has fallen by 10.5%, income-tax collections are down 15.7% this fiscal year, and the government faces a $3.4 billion budget gap next year. But such shortfalls are likely to be widespread; federal income-tax receipts from individuals have dropped more than 15% in the past six months, according to Congressional Budget Office estimates.
Brace yourselves. The lust for municipal spending is going to see no abatement, even while state and municipal pension funds are facing rather frightening unfunded obligations. One expects to see repeats of California’s recent “to the public” bond issuance- a trend that we see mirrored in the Administration’s hope that financial “Liberty Bonds” are the answer to toxic waste pits that pock the financial landscape at present.
Is debt the answer? It will have to be, because it really doesn’t look much like tax revenues are going to recover anytime soon (the Administration’s rosy economic projections notwithstanding). Does anyone else see some irony in the recursive folly of pitching to the public tax free bonds that will be funded by later tax hikes? Or is that just us?
What, exactly, is it going to take to slow down spending?
More States Look to Raise Taxes [The Wall Street Journal]
For years it seemed California could pretty much spend itself past drunken sailor levels and tax the stuffing out of everyone to keep the debt payments current. The state’s goal to be the leading tax-and-spend municipality was boosted not insubstantially by skyrocketing real-estate prices (and the heavy taxes thereon) and permitted some absolutely eye-popping defined-benefit plans for government workers. Now, with pension funds dizzy from repeated blows to the head, tax receipts looking dismal, IOUs instead of refund checks and ballooning unfunded liabilities, California is going to need more than an oversubscribed bond issuance (fueled by tax free status, we might add) to pull the chestnuts out. As if the times were not rough enough, the citizenry are starting to get pissed. (It’s about time?)
An angry mob of thousands converged on an Orange County parking lot in southern California on a recent Saturday morning for an anti-tax protest, stunning even the organizers with the size of the turnout. It was just one in a series of public demonstrations that have cropped up around the state.
Talk of a brewing tax revolt has been largely ignored by the mainstream media, and many political analysts are skeptical, though they concede that the taxpayer mutiny that led to the landmark Prop 13 was similarly dismissed by political professionals.
So here’s the scoop:
A “whistleblower” says that Barclehs is planning to “dodge taxes.” Maybe it is the reporting style in the International Herald Tribune, or the fact that Her Majesty’s Revenue and Customs representative doesn’t know the difference between tax evasion and tax avoidance (one might explain this away by pointing out that the distinction and usage of the two terms is less clear in the United Kingdom) or, perhaps, we have actually gotten to the point where an allegation of tax planning is enough to fire up the investigative machine.
“We have received papers relating to allegations of tax avoidance in the banking industry which we are studying carefully,” HM Revenue & Customs said.
The Guardian newspaper reported on the weekend that the documents reveal the existence of a scheme codenamed Project Knight, which appeared to be an attempt to obtain tax relief in different countries.
The newspaper said the 2007 plan was created by a team within Barclays Capital, a subsidiary of the bank, to legally avoid tax.
Barclays said that the project was voluntarily and fully disclosed to the tax office.
Lesson #1: In this environment, do not give your legal tax avoidance plans secret sounding codenames like “Project Knight.”
Barclays investigated for alleged tax dodging [The International Herald Tribune]
While it may not be the place for tax avoiders (evaders) it’s still a Mecca for legitimate tax arbitrage. Convinced, with good reason, that they are about to be tagged with windfall profits taxes, green taxes, anti-petrol taxes, and “you are too profitable” taxes, a number of energy companies are moving to Swiss cantons, like Zug, to take advantage of promotions like 5 and 10 year tax holidays, pre-negotiated corporate tax rates and, occasionally, the personal tax rates for executives that remain valid for up to 20 years and a fistful of “C Permits” for your closest relatives and essential colleagues.
Over the past six months companies including offshore drilling contractors Noble Corp and Transocean, energy-focused engineering group Foster Wheeler and oilfield services company Weatherfield International have all announced plans to shift domicile to Switzerland.
“Switzerland has a stable and developed tax regime and a network of tax treaties with most countries where we operate,” Transocean Chief Executive Bob Long said in a statement in October, when it announced its move.
“Stable” being the key word here. Regulatory predictability is still, in some countries, an asset.
…in Zug, corporate tax is about 16 percent but can fall as low as 9.5 percent for companies that do most of their business outside Switzerland. That compares with an average global corporate tax rate of 25.9 percent, according to consultancy KPMG.
“One trend that we see is that particularly Bermuda-based companies are now moving to Switzerland,” said Martin Frey, a partner at law company Baker & McKenzie. “That may only partly be obviously for tax reasons, but also for security reasons and the fact that the Obama administration may go after them.”
I wouldn’t be surprised if the executive office building suddenly mutates a copy of the “expatriation is a death event” tax statutes and creates the “corporate expatiation is death event” tax, treating the corporate departure from the United States as a sale of all assets and leveling a tax on the hypothetical gains. Laws extending United States taxation to non-citizens in a similar way have been on the books since 1996. Effectively, the intent is to make sure that the departing ex-pat continued paying “their dues” long after they had left the country with no intention to return.
Is anyone really surprised that as expat tax terms stiffened in 2006 the United States saw an increasing number of citizens turning in their passports? We think that a little extreme, but wouldn’t blink twice at moving our little corporate headquarters out of the United States for friendlier lands if someone decided to level a punitive tax on snarky blogs.
Corporate oil booms in low-tax Switzerland [Reuters]
The thing about this production of “Theater of the Absurd” is that the first act never seems to end.
A Senate committee put off its vote on Representative Hilda Solis’s nomination as labor secretary, one day after her husband paid to settle tax liens.
Welcome to the big leagues, gang!
Solis Nomination Vote Delayed After Tax Issue Arises [Bloomberg]
Phil Gramm gave his first political interview in years to Stephen Moore in the Wall Street Journal’s weekend edition. The interview is clearly meant to reassure conservative voters about Republican presidential candidate John McCain. What separates McCain from Obama, Moore writes, is that although neither of them know much about economics, “McCain has the good sense to know where to turn to for first-rate advice.”
Gramm was something of a hero to a lot of conservative activists. He cut his teeth as a Reagan Democrat in the House of Representatives, championing Ronald Reagan’s tax cuts in the early eighties. Later he switched allegiances to the Republican party and got elected to the Senate. With the GOP victories in 1994, Gramm became the chairman of the powerful banking committee. Moore writes that he played a “decisive role in nearly every fiscal conservative victory in the 1980s and 1990s.”
But that was then and this is now. Gramm is now 65 years old, and he vanished from the political stage six years ago when he took a high-rolling investment banking job at UBS. So what does Gramm offer voters now?
New York’s City Council is backing a plan to raise a $200 million per year tax on the investment income of hedge fund managers and private equity partners. Such a tax increase would have to be approved by lawmakers in Albany, but the council’s support makes it more likely to garner approval there, the New York Sun is reporting.
The new tax is meant to repair holes in the city’s budget, created in part by the downturn on Wall Street. As layoffs pile up and bonuses expectations diminish, the city is facing a dramatic fall in revenue. Of course, raising taxes on hedge fund managers and private equity partners is likely to drive them out of the city, according to critics.
The move is part of a broader push by lawmakers from Albany to Washington DC to tax “carried interest” as income rather than capital gains. Currently the city taxes management fees they at the 4% unincorporated business tax but that tax currently does not cover “carried interest.”
At least one group can expect to benefit from this tax threat: owners of commercial real estate and their agents in Connecticut.
Council Gets Set To Press a Tax on Hedge Funds [New York Sun]