Matt Levine has an illuminating post about why the recent reduction in corporate tax rates results in a reduction in some corporations’ reported profits. It seems that past losses can be saved as a “deferred tax asset,” permitting a reduction in taxes to be paid in future years. But the ratio of losses to tax reduction declines when the tax rate declines, so the deferred tax asset is reduced. Levine notes that such tax rate reduction can cause a corporation to appear less well capitalized, since it reduces assets, even tho it increases expected after-tax income.
Just another illustration of the absurdity of a corporate income tax (or perhaps of corporations in general). Of course corporations should pay taxes – based on the land (including spectrum and other natural resources) that they claim. And they should pay additional taxes reflecting the limited liability granted by the state. But the accounting concept of corporate income has little to do with this.
Image of a tangible bitcoin by Steve Jurvetson (cc) via flickr
Having heard two tremendously amusing interviews with John Lanchester (I think one was on Bloomberg and one on the BBC, tho maybe it was ABC and somebody else; in any case there seem to be lots of interviews with him floating around.) I was looking forward to reading his new How to Speak Money. I’ve long agreed with his basic point, that people talking about financial issues use a shorthand which can confuse civilians, and it would be helpful to have a glossary handy. What he has written gets part of the way there.
The first part of the book is an introductory, making the important point that economics isn’t a science, really can’t be in the way that physical or biological sciences are. For one thing, chemists don’t have to worry that the molecules they’re studying will read the results of prior research and decide that behaving differently would be to their advantage. He also notes that most of the main questions of economics remain open, but at least if we are going to discuss them we need to understand what we’re talking about. He brings up the concept of “reversification,” whereby things come to mean the opposite of the word used to describe them.”Securitization” doesn’t mean making things more secure, but more likely less so. The “Chinese wall,” which is supposed to divide functions within financial firms to prevent conflicts of interest, is in fact neither a physical wall nor an impenetrable barrier. And it’s reversification when the “credit” is defined as the amount of debt. Continue reading Words, including a new one, about money
After a couple of months’ diversions, I hope I am getting back to something like regular blogging, starting with a nice article — as far as it goes, at least– by Gregg Easterbrook about the subsidies and political favors governments provide for professional football. A lot of this, on stadium subsidies (not just for football), has been covered in the past by Heartland, most recently here (pdf). But Easterbrook covers some additional ground, noting the federal favors done for the football business. I hadn’t been aware that NFL has a special anti-trust exemption (I thought it was just one of the many many cases where feds choose not to enforce laws.) And I’d never made the connection between stadiums paid for by the public, and the “intellectual” “property” of football game images, which of course are government-created privilege.
Easterbrook does seem to be a football fan, which is a skill (affliction?) far beyond my capabilities. My preferred remedy for “sports” subsidies has always been for the audience to go away and do something else. But even tho I’m just as happy watching an amateur softball game, many people evidently get pleasure from seeing the professionals in action. Easterbrook suggests that it’s necessary that “public attitudes change.” Great idea, but as long as the public feel compelled to watch these games, it’s difficult to imagine any politician willing to risk the wrath of those who control them.
The focus on small business makes sense, since folks on payrolls or pensions generally can’t hide much of their income, and large corporations can obtain legislative action or legal advice providing their own loopholes. Two surveys were done, one of small businesspeople nationwide for whom, statistically, an audit would be expected to result in additional tax payments, and the other of small businesspeople in communities from which a high proportion of such returns was filed. (NOTE: When wooing their votes we call them “entrepreneurs” or “job creators,” but that would not be dainty when we are considering them “tax cheats.”) These “low compliance” folks were supplemented by a survey of those expected to be “high compliance.”
I see two surprising results in this report. First, on most attitude measures there’s little difference between the “low compliance” and “high compliance” respondents. For example, only 15% of the “low” group thought that federal tax laws were fair, and the same proportion of the “high” group agreed. Differences that did appear were fairly small. “Wealthy taxpayers minimize their taxes in ways the average taxpayer cannot” was agreed with by 74% of the “low compliance”‘ group, and 69% of the “high compliance” people.
An even bigger surprise, to the IRS analysts as well as this blogger, is that “low compliance” seems to be associated with greater participation in their local communities, including churches, schools, volunteer organizations, and even were more likely to vote than “high compliance” people. I hesitate to speculate on what this means, but it is probably a positive for those of us who believe (along with most respondents) that federal government is not an appropriate way to deal with many of the areas it has become involved in.
The report acknowledges that the survey suffers from an indirect method: “Low compliance” merely indicates a statistical likelihood of same, not an actual lack of compliance by the respondent. Because a random selection of taxpayers are audited simply to calibrate the compliance-prediction model, it would have been possible to target these particular taxpayers for the survey. Of course they couldn’t be surveyed after their audits because they might be especially unhappy with IRS at that point. But they could have been surveyed just before being notified on the audit. IRS decided not to do that because they “deemed it overly deceptive.” However, the actual survey (done over the phone by a contracted private company), did not reveal that this was an IRS project until the conclusion, after the data had been gathered. That apparently was deemed just deceptive enough.
Not part of the published report is a list of “clusters of potential tax cheats” posted by AP but presumably originating with IRS. Apparently tabulated by zip code, here’s the Illinois portion of the list:
Bellwood, Calumet City, Dolton, Grand Crossing, Hazel Crest, Matteson, Maywood, Ogden Park, Phoenix, Riverdale, Roseland, South Chicago Heights, South Holland, University Park. I assume that folks in Oakbrook and Barrington Hills had already purchased their own loopholes.
Proposals for a small tax on investment transactions seem to make some sense. Ordinary investors, small or large, are likely to buy or sell a small percentage of their holdings each month or year, while high-frequency traders could turn over theirs dozens of times per day. A tax of, say, 0.1% would hardly be noticed by investors, but could make high-frequency trading (HFT) unworkable. If HFT helps destabilize financial markets, then taxing trades this way would raise some revenue while improving economic stability.
Though I don’t see such a tax as consistent with geoist principles, it seems a lot less damaging than many of the taxes we already face. The problem is that it cannot be enforced. Trades can always be done in some way “off the books,” probably legally but otherwise if necessary. Since those who benefit from HFT also have resources to control relevant regulatory decisions, any such tax will have loopholes or other means to prevent effective enforcement.
Sure enough,
most investment banks offer significant UK traders “contracts-for-difference” which are contracts that precisely simulate equity ownership while circumventing UK taxes on transactions (“Stamp Duty”).
— J Doyne Farmer and Spyros Skouras
“An ecological perspective on the future of computer trading” (pdf)
So what to do about HFT? If we consider what HFT deals in, which is largely securities issued by corporations, it may be appropriate to modify the privileges that government grants to corporations, in ways that would make HFT less damaging.
Photo of Dilbert model by Jon Stefansson via Flickr (cc)
Six weeks without a post, OMG! Not because I had nothing to say, but perhaps too much to organize into something readable. Or maybe I’ve just found it too difficult to locate suitable images to go with the posts. Well, forget that, it’s time to get back to blogging.
And it was nearly six weeks ago that Miles Kimball blogged about some great ideas expressed by Dilbert creator Scott Adams for improving taxation of the “rich.” Adams’ piece was published in WSJ, I can’t figure out which date, I don’t know how long the public link will last and I can’t actually figure out the title of the article. Adams’ point, if I understand it correctly, is those who pay the greatest amount of taxes would more willing to do so, if given suitable nonmonetary incentives. He suggests maybe the top 100 taxpayers should be invited to a celebratory dinner at the White House, where they’ll be praised for their contributions to America. (I wonder whether richest-men Warren Buffett and Bill Gates would qualify for this event. More likely a bunch of wealthy heirs and heiresses who got poor tax advice). Another idea is that top taxpayers should get certificates allowing them to violate certain regulations, such as parking in handicapped spaces or using carpool lanes alone. (Of course, the very wealthy wouldn’t worry much about the fines such actions would impose if unauthorized). Or, suggests Adams, maybe the top taxpayers should each get two votes (which would make no difference in election results compared to the influence the wealthy can already buy).
More important, I think, is Adams’ point that, if you can’t think of a good idea, it’s best to think of some bad ideas and offer them for criticism. It’s a technique I have used with fair success (my role being to offer the bad idea).
But the main lesson we can draw from Adams essay is that,if your idea regards public policy, then no matter how good (or bad but creative) it is, nobody powerful will pay attention to it until it’s expressed by somebody who is already influential. Thank you, Scott Adams.
Twitter says it plans for its future patents to be subject to an “Innovator’s Patent Agreement,” which will prevent them from being used “to impede the innovation of others.” Seems like a good thing, but it’s still very much a proposal, with the latest draft apparently here. Like Google’s “don’t be evil,” I suspect there will end up being some flexibility as to what is “defensive” and what actually “impedes innovation.”
I have written before about the “economic development” tool which allows employers to keep the taxes paid by their employees. Now I find that Good Jobs First has compiled a report showing that over 2700 companies in 16 states have got this kind of deal. The report includes a spreadsheet detailing the 3750 cases. Turns out that Illinois is far from the worst offender, gifting just $35 million of employees’ tax money, compared to $89 million in Indiana.
Thanks to David Cay Johnston via Reuters. Johnston says that these direct subsidies are considered necessary because states are already exempting such corporations from most real estate, income, and other taxes. Altho he doesn’t mention it, states are also typically paying for worker training and infrastructure improvements.
Longtime HGS supporter Joseph Bast, head of the Heartland Institute, has a new policy brief (pdf), with a podcast overview, recommending that fans of professional “sports” own the teams thru nonprofit corporations. The only actual example of this is the Green Bay Packers, which originated as a for-profit organization but was bought out of bankruptcy by a fan-organized nonprofit. They would never leave Green Bay since the owners cannot profit by moving them. Thus the main lever used by for-profit teams to extort new stadiums and other favors would be broken.
Pointing out that teams currently extract monopoly rents from the community, Bast mentions Henry George but rejects George’s idea that natural monopolies should be municipally-owned. Of course, George never applied this concept to professional “sports,” which existed in his day but was nothing like what we see now. The closest I can think of is that George considered the idea of a publicly-subsidized theater to be so absurd, that he compared it to subsidy of various other industries to illustrate the absurdity of the latter.
So why don’t fans establish nonprofit teams? My personal theory is that most fans of professional “sports” are masochists and like to be abused. But perhaps I’m wrong. Bast suggests routes around other barriers including opposition of major leagues, high cost of setting up a team, and existing taxpayer-subsidized facilities which are controlled by existing monopolies.
Just in case there was any doubt, Pam Martens in Counterpunch gives us a report on the Lower Manhattan Security Coordination Center, where feeds from sophisticated spy cameras are integrated to essentially track anyone and everyone on the streets who might interest our supervisors. What’s news here, tho I suppose I already suspected it, is that partners in this operation are not just the NYPD, but also “the same firms under investigation in 50 states for mortgage and foreclosure fraud and widely credited with causing the Nation’s economic collapse.” Presumably they have added some of the proceeds of their crimes to the $150 million public money that’s been used for this project.
It’s difficult to believe that Chicago doesn’t have something similar.
Meanwhile, and I suppose it’s more relevant to us here, the CTA will be paying up to $58,000/month, plus commission, to Goldman Sachs and other “financial advisors.” The Authority assures us such amounts “are comparatively very small compared to the billions of dollars in much-needed funding CTA would secure” if such commissions are paid. “Funding” more likely means “loans” or “new ways of packaging existing streams of money” rather than any actual additional resources or capture of land value which transit could create.
