Turn Corporate Taxes Into Licenses

June 3, 2021

The new Trump tax code,

“lowered the U.S. corporate tax rate from 35% to 21%, but in practice large companies often pay far less than that because of deductions, tax breaks and other loopholes. In the first year of the law, the amount corporations paid in federal taxes on their incomes – their “effective rate” – was 11.3% on average, possibly its lowest level in more than three decades … [T]he new law introduced many new breaks and loopholes.”

Corporations around the world play the same tricks. Often they reside in tax havens and levy enough “corporate service charges” on their overseas subsidiaries to ensure that no taxes are paid.

And this all comes at a cost to the rest of us.  As corporate taxes fall and government deficits grow, there is increasing pressure to reduce those deficits by reducing spending on welfare services, health, and education.

Centre-right politicians have suggested that lowering corporate tax rates will encourage more companies to stay in-house as it were.  That is just an excuse to make the rich richer as the new Trump tax code proves.  There is a simpler and much more efficient way.

I suggest that corporate income taxes be eliminated completely. They should be replaced by a “license to operate” fee equal to, say, 10% of revenues earned in the country no matter where the head office is based. Simple to understand, simple to manage, and, I suspect, very difficult to get around.

Country of ownership becomes immediately irrelevant, and transfers to an offshore HQ will be pointless for tax purposes. Indeed, they may well create a double taxation situation in which those transfers become taxable revenue in the home country. It also gives corporations the right to NOT operate in any particular country if they choose to forgo the revenues.

Finally, I would make this tax law bullet-proof by including a provision that, should some smart accountant or lawyer find a loophole, then that loophole is closed retroactively to the dater of the law’s passage.

We should give this a try. It is a commonsense approach, eliminates the need for accountants, lawyers, and an army of regulators. It will produce fairness across the board.


Keeping Banks Safe For Our Money

April 27, 2021

As anyone who has read the papers or seen the news in the last few years knows, banks around the world have broken numerous serious laws, have had to be bailed out with taxpayers money, and yet still pay millions of dollars to inept executives and billions more to stockholders. Many of their problems involve their connection to complex financial transactions that do nothing but make money for already-rich individuals. There has to be a better way, and there is.  The economic melydown created by the covid-19 crisis seems a perfect time to reorganize the sector.

I would oblige all banks to become credit unions and I would strictly limit their functionality.

Credit unions are not-for-profit institutions cooperatively owned by their members. They operate solely for the benefit of their members rather than for outside shareholders, of whom there would be none.  Their senior management is elected by the members and their policies are offered up for approval at regular meetings of the membership. Senior management remuneration would require members’ approval. The billions of dollars that are currently paid out in dividends to outsiders would be used to increase services and lower costs for the members. Any surplus could be re-paid to the members or added to the credit union’s capital.

I would limit their functionality to the taking, managing and disbursement of members’ deposits, and to the issuance of personal loans (including credit cards) and personal mortgages.  Any member or corporation that required business loans, corporate mortgages, investments or insurance would turn to investment companies, mortgage brokers and insurance companies designed specifically for that function.

No one would be limited in their desire to engage in stock market or other investments.  But these would be handled entirely by companies separate from banks.   No longer would bank depositors’ cash be at risk in the marketplace for derivatives, for example.

Competition between credit unions, if such were needed, would become a function of service and accessibility.  I believe this would get us more branches on the streets and a more personalized service between member and bank.  It would bring banking back to the people, to a smaller scale that we can understand and control — after all, it is our money they are using.

 


Conspicuous Inequality

December 4, 2020

If you were ever to wonder what drives the revolutionary urge to throw capitalism from its arrogant throne, look no further than this single graph:

How anyone can possibly justify this in terms of equity or humanity or even efficiency escapes me.

This data is from a valuable article entitled “Five Undeniable Long Term Trends Shaping Society’s Future” at the always interesting Visual Capitalist.


Fast Food Doing Well?

November 22, 2020

We read and hear a lot about the damage the corona virus pandemic and the associated restrictions are having on the hospitality industry including restaurants. For example, as the Commercial Drive BIA reported at the last GWAC meeting, revenue for local bars and restaurants is down 50-75% this year over last. However, random headlines would also suggest that fast food franchises are thriving.

Every once in a while I find myself perusing the news at Nation’s Restaurant News (mainly to look at fascinating new menu options) and just today I saw the following four stories being reported.

And that was just a quick look today.

Clearly that sector — perhaps because of their long history of drive-through contactless pickups — is doing OK during the pandemic.


Slow Down, Feel Better

September 16, 2020

I have for many years been a follower of the de-growth movement which

“emphasizes the need to reduce global consumption and production (social metabolism) and advocates a socially just and ecologically sustainable society with well-being replacing GDP as the indicator of prosperity. Degrowth highlights the importance of autonomy, care work, self-organization, commons, community, localism, work sharing, happiness and conviviality.”

My own views on de-growth tie in with my anti-capitalism and mutual aid proclivities.  However, it is possible to be a de-growth capitalist as this interesting article by Barry Schwartz explains. He blames the push for efficiency for many of our ills. He notes in particular that “unproductive” expenditures would have served us well this year:

“Why hadn’t we stockpiled key supplies and machines, built up hospital capacity, or ensured the robustness of our supply chains? The reason, of course, is that it would have been seen as inefficient and profit-robbing. Money spent on masks and gowns gathering dust in a warehouse could always be put to more ‘productive’ use in the marketplace. Likewise, employing more people than needed under ‘ordinary’ circumstances, or making products yourself rather than relying on international supply chains, would have been seen as inefficient. One lesson, then, is that to be better prepared next time, we need to learn to live less ‘efficiently’ in the here and now.”

He suggests that:

“[w]hen making decisions, instead of asking ourselves which option will give us the best results, we should be asking which option will give us good-enough results under the widest range of future states of the world … The term used to describe this approach to decision-making is satisficing. And satisficing with an eye toward a radically uncertain future might be called robust satisficing. Satisficing is a form of insurance – insurance against financial meltdowns, global pandemics, nasty bosses, boring teachers and crappy roommates.”

Of interest to Vancouverites:

“if people thought about their homes less as financial investments and more as places to live, full of the friction of kids, dogs, friends, neighbours and community, there might be less property speculation with an eye toward buying and selling houses merely for profit.”

An interesting read.


Labour Is More Important Than Capital

September 7, 2020

It is good to remember words of wisdom from long ago:

“[T]here is one point, with its connections, not so hackneyed as most others, to which I ask a brief attention. It is the effort to place capital on an equal footing with, if not above, labor in the structure of government. It is assumed that labor is available only in connection with capital; that nobody labors unless somebody else, owning capital, somehow by the use of it induces him to labor. This assumed, it is next considered whether it is best that capital shall hire laborers, and thus induce them to work by their own consent, or buy them and drive them to it without their consent. Having proceeded so far, it is naturally concluded that all laborers are either hired laborers or what we call slaves. And further, it is assumed that whoever is once a hired laborer is fixed in that condition for life.

Now there is no such relation between capital and labor as assumed, nor is there any such thing as a free man being fixed for life in the condition of a hired laborer. Both these assumptions are false, and all inferences from them are groundless.

Labor is prior to and independent of capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration.”

— Abraham Lincoln, State of the Union Speech, 3rd December 1861.


The Decline of Upward Mobility

August 30, 2020

Here is another wonderfully informative graphic from Visual Capitalist which tracks the ability (or lack thereof) of each generation to earn more than their parents.

“This graphic plots the probability that a 30-year-old American has to outearn their parents (vertical axis) depending on their parent’s income percentile (horizontal axis). The 1st percentile represents America’s lowest earners, while the 99th percentile the richest.

As we move from left to right on the chart, the portion of people who outearn their parents takes a steep decline. This suggests that people born into upper class families are less likely to outearn their parents, regardless of generation.

The key takeaway, though, is that the starting point of this downward trend has shifted to the left. In other words, fewer people in the lower- and middle-classes are climbing the economic ladder.”

In tabular format, the numbers look like this:

Decade Born Chance of Outearning Parents (Bottom Percentile) Chance of Outearning Parents (50th Percentile) Chance of Outearning Parents (Top Income Percentile)
1940 95% 93% 41%
1950 90% 81% 15%
1960 86% 62% 7%
1970 90% 59% 16%
1980 79% 45% 8%

The analysis suggests that stagnant income growth is the main culprit: “The average hourly wage in 1964, when converted to 2018 dollars, is $20.27. Compare this to $22.65, the average wage in 2018.” 

Corporate income in the same period has mushroomed beyond all measure, with CEOs and rich investors — who do not rely on income from labour — making money hand over fist. This helps explain why inequality is growing, with the rich growing richer while the poor face ever-increasing financial obstacles.


We Are To Blame For The Billionaires

August 22, 2020

Today, Bernie Sanders posted the following on Twitter:

 

It’s a true enough statement, and I entirely agree with Sanders that we need to tax billionaires out of existence. There are numerous progressives who post similar statements day after day.  And none of them — none of them — ever refer to the fact that most billionaires are billionaires because we make them so.

It is a fact that some of their billions come from their ability to manipulate the tax system and workers’ rights to their advantage. But the vast majority of their wealth comes from us buying stuff we don’t really need from Amazon, giving eyeballs to advertizers on Facebook, and selling our privacy to cell phone makers and data cloud managers in return for so-called convenience.

If we stopped doing those things, billionaires would disappear like fog in the sunshine.  But we are too damned lazy. We somehow expect the billionaire-sponsored politicians to create a tax system that will mildly ameliorate — not even solve — the problem for us. Are we really that stupid?

I’m no saint when it come to this stuff: I do occasionally buy from Amazon because I am too lazy to do otherwise.  But I live a fairly productive and I hope useful life without a cell phone, without a Facebook account, without a Tesla (or, indeed, any car), and roughly 95% of all my monthly purchases are made on Commercial Drive where I live. I rarely even shop in Cedar Cottage or Hastings Sunrise because I believe so strongly in buying local and supporting local businesses.

We can blame the billionaires for being billionaires, we can blame politicians for the failures of capitalist inequality, but we damned well better blame ourselves most of all.

 


Visualizing The Market Disconnect

August 10, 2020

Yet another visualization of data by Visual Capitalist.  This one is to explain the disconnect between the stock market and actual conditions,

Understanding the Disconnect Between Consumers and the Stock Market


The Amazon Phenomenon

July 2, 2020

Most of us almost subconsciously know that Amazon is just about everywhere, that it is such a natural part of our lives that we do not give it much more thought. Thanks once again to Visual Capitalist, we now have a useful visualization of just how powerful Amazon has become, and how swiftly it has overcome all competitors.

[Image: Visual Capitalist] Select image for a better view

There seems little to stop further exponential growth. Bezos can keep spinning off more and more multi-billion dollar corporations in emerging markets for as long as the aggregate cash flow is counted in the trillions. This will eventually lead to “trust busting” populists breaking it up, like Standard Oil and Bell, I guess.  But I think any unravelling of Amazon-Bezos will be far more wrenching than any of the historical parallels.


Back2Basics Sounds Like A Tory Trap

May 16, 2020

There is a petition circulating right now called Back2Basics. It seeks to cut back on the services provided by the City of Vancouver with the express aim of relieving home owners of any additional burdens placed on property tax.

It seeks to use the covid-19 crisis as the cover for what is, in reality, a major Tory-like austerity rollback. And we all know from bitter experience gained across so many jurisdictions, that the only people who suffer during such an austerity squeeze are the poorest and most vulnerable.  Their services are the first to be cut in austerity and — should the crisis ever be declared over — their services are always the last to be restored.

We should not be cutting services during a major crisis. In fact, progressive economists will say that now is the time we should be spending more. Governments need to step in when needs are greatest, and step back when good times are here.

The promoters of the petition will not remind you that Vancouver already pays the lowest property tax in North America based on tax per $1,000 value. Their petition does nothing but attempt to guarantee that unsustainable position into the future.

The petition says: “The city must stop pushing their out of control spending onto tax payers.”  We do have out of control spending but it is not because we are spending too much, but rather that we are spending so unwisely.

The failure of the Stewart administration in this crisis has been a failure to prioritize spending where it can do most good. Steered by City staff inherited from the woe-begotten Vision Vancouver years of build for greed and headlines not for genuine need, Vancouver city’s budget is top-heavy on administration and “world class” projects, and sorely lacking in a vision for the most needy half of the population. And any advantage extra staff may have provided is completely lost in the ridiculous byzantine world of delays in development approvals for local projects.

The best thing John Horgan in Victoria could do for the City right now is to free them up to move parts of the huge and unwieldy capital budgets into operations. Put those capital projects on hold for the time being, and plough money into services on the ground where they are most needed. Keeping transit free beyond the virus crisis would be helpful, too:  if we can afford Site C, we can afford free transit!


Zooming In On The Cash

May 15, 2020

For all of the security concerns, the China concerns, and the techno hiccoughs, Zoom is coining it when it comes to corporate valuation.  As shown in this chart from Visual Capitalist, it is now more valuable than the seven largest airlines in the world.

What this really shows is the flippancy of stock markets.

The full article has a lot of detail comparing these industries.  Well worth the view.


How Trickle Down Economics Works

April 18, 2020

 

trickle down.jpg-large

 

I wish I had someone to credit for this illustration. Found it on twitter unattributed.


Keeping Banks Safe For Our Money

March 31, 2020

As anyone who has read the papers or seen the news in the last few years knows, banks around the world have broken numerous serious laws, have had to be bailed out with taxpayers money, and yet still pay millions of dollars to inept executives and billions more to stockholders. Many of their problems involve their connection to complex financial transactions that do nothing but make money for already-rich individuals. There has to be a better way, and there is.  The economic melydown created by the covid-19 crisis seems a perfect time to reorganize the sector.

I would oblige all banks to become credit unions and I would strictly limit their functionality.

Credit unions are not-for-profit institutions cooperatively owned by their members. They operate solely for the benefit of their members rather than for outside shareholders, of whom there would be none.  Their senior management is elected by the members and their policies are offered up for approval at regular meetings of the membership. Senior management remuneration would require members’ approval. The billions of dollars that are currently paid out in dividends to outsiders would be used to increase services and lower costs for the members. Any surplus could be re-paid to the members or added to the credit union’s capital.

I would limit their functionality to the taking, managing and disbursement of members’ deposits, and to the issuance of personal loans (including credit cards) and personal mortgages.  Any member or corporation that required business loans, corporate mortgages, investments or insurance would turn to investment companies, mortgage brokers and insurance companies designed specifically for that function.

No one would be limited in their desire to engage in stock market or other investments.  But these would be handled entirely by companies separate from banks.   No longer would bank depositors’ cash be at risk in the marketplace for derivatives, for example.

Competition between credit unions, if such were needed, would become a function of service and accessibility.  I believe this would get us more branches on the streets and a more personalized service between member and bank.  It would bring banking back to the people, to a smaller scale that we can understand and control — after all, it is our money they are using.

 


Bailout Rules for Infected Corporations

March 17, 2020

Some years ago, I wrote a piece about Bombardier receiving tax-payers subsidies. In that piece I suggested some rules that should be put in place for such loans and subsidies.  As we are about to grant similar multi-billion handouts to major corporations, I thought I would repeat the rules as to how we should deal with the current crisis.

My own position is that no corporations should receive public funds, period.  However, until we straighten out our economy to be self-supporting, I would be prepared to lend affected industries the money they need, but only under certain conditions:

  1. The company cannot issue dividends or share buy-backs or any other kind of profit-sharing until the loan is repaid in full;
  2. No executive bonuses or similar payments to be paid until the loan is fully repaid;
  3. No executive salaries or other payments to be increased until the loan is fully repaid;
  4. If the company goes bankrupt (or similar), the taxpayer loan is in first place for repayment after wages and salaries.

Who on earth could object to this?  It gets the company the cash it needs and gives executives every incentive to repay the taxpayer as quickly as possible.  I would push this idea for any and all companies seeking tax-payer assistance.


Interest Rate History

February 4, 2020

The often interesting Visual Capitalist has published a graph of nominal interest rates from the 14th century through to today:

Select image for a larger look.

“Today’s graphic from Paul Schmelzing, visiting scholar at the Bank of England, shows how global real interest rates have experienced an average annual decline of -0.0196% (-1.96 basis points) throughout the past eight centuries.

Collecting data from across 78% of total advanced economy GDP over the time frame, Schmelzing shows that real rates* have witnessed a negative historical slope spanning back to the 1300s.  Displayed across the graph is a series of personal nominal loans made to sovereign establishments, along with their nominal loan rates. Some from the 14th century, for example, had nominal rates of 35%. By contrast, key nominal loan rates had fallen to 6% by the mid 1800s.

Centennial Averages of Real Long-Term “Safe-Asset”† Rates From 1311-2018

% 1300s 1400s 1500s 1600s 1700s 1800s 1900s 2000s
Nominal rate 7.3 11.2 7.8 5.4 4.1 3.5 5.0 3.5
Inflation 2.2 2.1 1.7 0.8 0.6 0.0 3.1 2.2
Real rate 5.1 9.1 6.1 4.6 3.5 3.4 2.0 1.3

*Real rates take inflation into account, and are calculated as follows: nominal rate – inflation = real rate.
†Safe assets are issued from global financial powers

Starting in 1311, data from the report shows how average real rates moved from 5.1% in the 1300s down to an average of 2% in the 1900s.

The average real rate between 2000-2018 stands at 1.3%.”

The current rash of negative interest rates that we see today is therefore in line with historical trends.


The State of Inequality

January 16, 2020

The Pew Research Centre has published interesting results from a survey on inequality — or rather, attitudes to inequality — in the United States.

 

Views on the importance (or lack thereof) of tackling economic inequality tend to be a function of the respondent’s current economic situation:

 

“Asked about what contributes to economic inequality in this country, Democrats are more likely than Republicans to point to structural factors, such as the tax system (56% of Democrats vs. 30% of Republicans say this contributes a great deal) and problems with the U.S. educational system (49% vs. 38%). In turn, Republicans are more likely than Democrats to say that the different life choices people make (60% of Republicans vs. 27% of Democrats) and some people working harder than others (48% vs. 22%) contribute a great deal to economic inequality.”

I guess I shouldn’t be surprised that no-one seems to have mentioned it, but capitalism is inherently unequal. The tax and education systems, the choices and the effort one puts into work are almost irrelevant to the systemic inequality that capitalism requires for it to function.


A Photo Essay on The Collapse of Malls

January 4, 2020

I have been writing about malls and their economic problems since the summer of 2008.  Further discussion, most of it 10 years old, can be found here, here, here, and here.

Philip Beuhler now gives us a photographic essay on the decline of one particular mall in Wayne, New Jersey.

Artworld, Philip Beuhler (2019)

There are some fascinating images here and, as the article states they are “neither a nostalgia fest nor disaster porn, but an unsparing documentation of the decay that marks time and cultural change.”


Turn Corporate Taxes Into Licences

December 16, 2019

A recent story in the Washington Post and republished in Greenwich Times shows that, once again, major profitable US corporations are playing the tax code to their own advantage and to the cost of the rest of US taxpayers.

  • 91 of the Fortune 500 paid NO taxes at all on earnings of $101 billion;
  • Amazon made a profit in excess of $10 billion but received a tax rebate of $129 million;
  • Video game maker Activision Blizzard had $447 million in profits but received a tax rebate of $243 million, resulting in an effective tax rate of -54.4%.

The new Trump tax code,

“lowered the U.S. corporate tax rate from 35% to 21%, but in practice large companies often pay far less than that because of deductions, tax breaks and other loopholes. In the first year of the law, the amount corporations paid in federal taxes on their incomes – their “effective rate” – was 11.3% on average, possibly its lowest level in more than three decades … [T]he new law introduced many new breaks and loopholes.”

Corporations around the world play the same tricks. Often they reside in tax havens and levy enough “corporate service charges” on their overseas subsidiaries to ensure that no taxes are paid.

And this all comes at a cost to the rest of us.  As corporate taxes fall and government deficits grow, there is increasing pressure to reduce those deficits by reducing spending on welfare services, health, and education.

Centre-right politicians have suggested that lowering corporate tax rates will encourage more companies to stay in-house as it were.  That is just an excuse to make the rich richer as the new Trump tax code proves.  There is a simpler and much more efficient way.

I suggest that corporate income taxes be eliminated completely. They should be replaced by a “license to operate” fee equal to, say, 10% of revenues earned in the country no matter where the head office is based. Simple to understand, simple to manage, and, I suspect, very difficult to get around.

Country of ownership becomes immediately irrelevant, and transfers to an offshore HQ will be pointless for tax purposes. Indeed, they may well create a double taxation situation in which those transfers become taxable revenue in the home country. It also gives corporations the right to NOT operate in any particular country if they choose to forgo the revenues.

Finally, I would make this tax law bullet-proof by including a provision that, should some smart accountant or lawyer find a loophole, then that loophole is closed retroactively to the dater of the law’s passage.

We should give this a try. It is a commonsense approach, eliminates the need for accountants, lawyers, and an army of regulators. It will produce fairness across the board.


The Cannabis Stock Market

December 10, 2019

The legalization of marijuana in Canada and various US states has created a market for cannabis related stocks.  As the following graph from Visual Capitalist shows, it is an extremely volatile market.

 

Select image for a better view.