Tax Research UK

“The American people demand their inalienable right to have another bubble to invest in.”

No idea where it came from.

But I like it.

Richard Murphy USA

The Tax Justice Network blog has an entry on an old bête noire of mine, flat taxes. As they note:

Citizens for Tax Justice in Washington has another excellent short paper, this time about the flat tax. It begins:

Since 1995, Senator Arlen Specter of Pennsylvania has introduced legislation to create a federal “flat tax” in every session of Congress, including this session. This single-rate tax would replace the existing progressive personal income tax, as well as the corporate income tax and estate tax.

Now what’s wrong with the flat tax?

Well, for starters, there is the fact that the people who dreamed up this gimmick in 1983 admitted that a flat tax "will be a tremendous boon to the economic elite” and that “it is an obvious mathematical law that lower taxes on the successful will have to be made up by higher taxes on average people.” This table provides the evidence:

And CTJ’s time tested number crunching has analysed the proposal, and worked out that it would involve:

• Enormous tax cuts for the richest five percent of taxpayers, including an average tax cut of $209,562 for the richest one percent in 2010.
• Tax hikes for all other income groups. The bottom 95 percent of taxpayers would pay an average of $2,887 more in federal taxes in 2010.
• Low-income Americans would lose the refundable credits that they receive under the current income tax.
• The form of income that mostly flows to the wealthy — investment income — would be exempt from the personal income component of the flat tax, while all compensation for work, including wages and even employer-provided health care benefits, would be taxed.
• There would be little simplification in taxes for the majority of Americans. Replacing progressive tax rates with a single rate has nothing to do with simplicity, because progressive rates are not what makes the current system complicated.

What actually makes the tax system complicated are the various loopholes and special breaks that mostly benefit businesses and higher-income individuals. Capital gains income (which wealthy investors tend to have) is currently taxed at a lower rate than the wage and salary income that constitutes almost all income for most Americans.

Many wealthy people therefore have an incentive to use various schemes to disguise what is really compensation for work as capital gains income. But instead of addressing this by taxing all income the same way, the Specter flat tax makes capital gains income entirely tax-free!

As CTJ concludes:

Senator Specter’s flat tax is not so much about eliminating loopholes as it is about consolidating loopholes for the rich.

—————

To which I would add just one thing: remember it was not long ago George Osborne was flirting with this idea. Why was that, I wonder?

Richard Murphy Conservatives, Tax avoidance, USA

I’ve just noted the finance minister of India saying:

The structure and the location of the group entities of the multinational enterprises exploit the favourable tax regime offered by the low tax jurisdictions and tax havens.  This has lead to accumulation of wealth and shifting of intellectual capital to these jurisdictions.  The role of tax havens and low tax jurisdictions has become an area of great concern for a country like India which is putting its all acts together to mobilize resources to attack on poverty and illiteracy.

Then I read in Business Week that:

Software and computer companies such as Microsoft Corp., Hewlett-Packard Co. and Dell Inc. are gearing up to fight an Obama administration plan to curb offshore tax avoidance.

The $15.5 billion proposal in President Barack Obama’s 2011 budget targets what the Internal Revenue Service calls the growing problem of so-called transfer pricing. The technique allows companies to reduce their tax bills by transferring intangible property such as patents, trademarks and licenses to offshore subsidiaries.

The Business Software Alliance, a Washington-based trade group that represents technology companies, said it would “educate policy makers” on how the proposal would hurt U.S. companies, jobs and the economy.

The finance minister of India speaks with some authority on the issue. Microsoft and its chairman seek to direct world development through charitable structures whilst diverting attention  from the secretive tax policies that deny tax revenues to places like India by selling them product from places like Ireland so limited local taxable revenues arise.

Is this what Microsoft wants to ‘educate’ Washington about?  Is this to be a lesson in how to move wealth from the poorest to the richest in the world, because that’s what these structures are used to do.

And how does that help your charitable objectives Bill? Let’s debate it, anytime, anywhere. Your call.

Richard Murphy Development, Tax avoidance, USA

FT.com / US / Politics & Foreign policy - Democrats hit back on political advertising.

Senior Democratic lawmakers proposed legislation on Thursday that would force some of the most powerful political organisations in the US – including the US Chamber of Commerce on the right and MoveOn.org on the left – to reveal the names of the corporations and individuals who fund their advertising campaigns.

The proposal would also force US corporations to notify shareholders immediately of “all political expenditures” and bar companies that have “foreign ownership” of more than 20 per cent from spending money on US elections.

Absolutely right.

Whilst they’re at it, let’s know who funds the Heritage Foundation, Cato Institute and Center for Freedom and prosperity - all so committed to accountability that the data is not on record.

Richard Murphy USA

Ukraine’s election goes the wrong way for Uncle Sam as Viktor Yanukovych claims win | News & Politics | News & Comment | The First Post.

If you’re not the side that Uncle Sam favours then it seems you’re just not allowed to win an election fairly and squarely.

I do expect there’s a lot of truth in this.

And it’s not to the credit of the USA or the media that it’s probably true.

Richard Murphy Ethics, USA

FT.com / Comment / Opinion - Obama needs to perform a U-turn.

Good commentary in the FT. I agree with its three core arguments:

1) Obama has to be true to the convictions of those on the left who drove him to power

2) He has to treat the Republicans like the small minded people they are

3) He has to rid his administration of Clinton re-treads.

People wanted a different sort of president. Not another one too frightened to act or unwilling to act.

He has to deliver that.

Richard Murphy USA

Supreme Court Blocks Ban on Corporate Political Spending - NYTimes.com.

As the New York Times has reported:

Overruling two important precedents about the First Amendment rights of corporations, a bitterly divided Supreme Court on Thursday ruled that the government may not ban political spending by corporations in candidate elections.

The 5-to-4 decision was a vindication, the majority said, of the First Amendment’s most basic free speech principle — that the government has no business regulating political speech. The dissenters said that allowing corporate money to flood the political marketplace would corrupt democracy.

The ruling represented a sharp doctrinal shift, and it will have major political and practical consequences.

Too true. President Obama called it

a major victory for big oil, Wall Street banks, health insurance companies and the other powerful interests that marshal their power every day in Washington to drown out the voices of everyday Americans.

That just about sums it up.

The decision is of course wholly illogical. If it were true then corporations would also be due a vote, and they’re not.

If it were also true, of course, the tax incidence argument that corporations are mere agents, would also be wrong.

It’s amazing how corporations want it both ways to suit their own purposes. At cost to the rest of us and democracy.

The threat to our well being that big business poses seems to grow by the day. Fear is their weapon of delivery, with advertising its medium for supply.

Which will no doubt be evident in future US elections.

Richard Murphy USA

I’m aware I blogged Obama’s attack on Wall Street here this morning. But I also did so for Forbes. This is what I said there:

President Obama has achieved something few politicians manage: catching Wall Street off guard. His timing is late. Machiavelli would have suggested action a lot sooner. What is beyond doubt though, is that in the plan for banking reform he announced Thursday, Obama has set out an agenda for changes on Wall Street that will be the making or breaking of his Presidency, and maybe the rest of us as well.

His objective is simple: ensuring banks never hold taxpayers hostage again. To achieve that he has to cut them down to size; none must be too big to fail again. That involves the new “Volcker rule,” which stipulates that banks that take deposits will not be allowed to use their own money to trade on speculative markets, run hedge funds or make private equity investments. In addition to prevent banks getting too big, the U.S. will ban takeovers and mergers among American deposit-taking banks.

Amazingly, Wall Street did not see this coming. In fairness, whilst Tim Geithner was in office, backed by Larry Summers who did so much to dismantle Wall Street regulation under the Clinton administration, few could have anticipated such a turn of events. They’ve been the obvious obstacle to reform; the best friends Wall Street will now realize it ever lost. So surprise is on Obama’s side.

The debate now moves to whether the plan is good enough, and whether it will be contagious and spread to the U.K. and elsewhere. The second question is easiest to answer: around the world the excuse on the lips of all politicians has been that without bank reform in the United States, nothing could be done elsewhere.

Now there is to be reform in the U.S., everything can be done anywhere. There is no excuse for London, and for whoever is in power after the forthcoming general election this year, not to follow in Obama’s wake, and for exactly the same reasons that Obama has done this: it is overwhelmingly, politically popular. I have no doubt at all that this will happen.

If London and New York are reformed, the rest of the world follows suit, unless (and there’s an outside chance) we see the world’s banks all move to Cayman. This battle is going to be long and bloody. Bankers are fighting for what they see as their cash after all (whether or not that’s true), and nothing is a stronger motivator.

Offshore has always been their “get out of regulation free” card, the place to which they have said they will run when a politician threatens them. They might try it again. If so, this battle will change. The very nature of the state itself will come into question as countries like the U.S. and U.K. seek to protect themselves from catastrophic damage at the hands of banks located in small states whose legislatures they have already effectively captured for their own gain.

So, is this the right fight, for the right reason, taken to the right battle lines? I have no doubt banks need reform. I have for a long time argued that bank profits have been made by capturing for their own benefit massive financial resources that are not theirs to use.

Those resources include our pension funds, life-assurance funds, our savings and now our tax revenues, all of which are intended to be used for our long term benefit, not for the purpose of being churned in excessive trading from which banks make enormous profit with all risk and cost being passed to someone else–-us again. If you’re wondering why your 401K has not performed for years, this is exactly the reason.

So the fight is the right one to take and it’s being taken for the right reason. It may be populist, and there’s no doubt Obama is exploiting that, but for once this is a politician riding a populist wave that reflects an underlying sentiment of something being wrong that, whether explicable or not by those who feel it, is wholly justified by the facts. They feel they are being ripped off exactly because they are being ripped off, and Obama’s right to say so.

How far can the President push the banks? Like many I would have liked to have explicitly seen a new Glass Steagall Act. This was the 1933 legislation, abandoned in 1999, that meant commercial and investment banks had to be separate. It worked: we had nothing like the current crisis whilst we had it. We had crises before it. We’ve had them after it.

We do, however, have to be realistic. Going back to the status quo ante is just not possible sometimes. Obama’s new rule will radically alter the risk profile of banks. The Bank for International Settlements suggests 43% of all foreign exchange trading is on bank’s own account, for example. Almost all of this will now have to be ring-fenced from deposit taking. And hedge funds and private equity are massively volatile. However the risk will not be ring-fenced if the deposit-taking banks simply lend their capital to the risk-taking banks in future, leaving them exposed second hand.

The rules have also to require that those who will be trading, hedging and private-equity dealing do so out of their own capital, and not the capital of deposit-making citizens. Only then will the risk be segregated.

The details will be diabolical work, as ever. But for now Obama deserves applause for at last following his instinct and showing the courage to tackle the biggest crisis of our time: the takeover of our economies and well being, by banks motivated by their own well being. It’s a battle he has to win.

Richard Murphy Banking, USA

Debtonation » Blog Archive » Ted Kennedy’s seat lost to Wall St.?.

From Ann Pettifor’s blog:

I am hearing from informed sources in the US that the Democrat candidate in Ted Kennedy’s seat is already blaming President Obama. for the loss of the ultra-safe Democratic seats.

“We were hurt by White House Failure to confront Wall St.” says the candidate’s pollster.

Celinda Lake pointed to polling released by the Economic Policy Institute showing that 65 percent of Americans though the stimulus served banks interests, 56 percent thought it served corporations and only ten percent that it benefited them.

Is there still time for Labour to learn from the spectacular misjudgement of a President considered the most sophisticated of politicians?

You just have to hope so.

Richard Murphy Banking, USA

FT.com / Financials - US banking levy expected to raise $90bn .

The FT has reported:

President Barack Obama will announce on Thursday a sweeping levy on about 50 financial institutions that will raise an estimated $90bn to reduce the federal debt.

The “financial crisis responsibility fee” will hit investment banks such as Goldman Sachs particularly hard because insured deposits, the main funding mechanism of retail and commercial banks, are exempt from the charge that is levied on other liabilities.

The timing – in the week that banks are set to announce billions of dollars in bonus pay-outs – is widely seen as an attempt to assuage public anger at the industry whose compensation is frequently held up in stark contrast to the high unemployment rate in the rest of the economy.

Good news.

Richard Murphy Banking, USA