Tuesday, January 31, 2017

Amgen’s Transfer Pricing (Psst – don’t got there)

The White House is boosting about this :
Amgen CEO Robert Bradway told President Trump at today's White House meeting that his company is adding 1,600 jobs in the U.S. this year.
Amgen had $21,662 million in sales in 2015 with $7978 million in profits. Its worldwide taxes were only $1039 million for an effective tax rate of only 13 percent. How did they pull the trick off? Their 10-K filing is a little sparse in information but does admit:
The effective tax rates for the years ended December 31, 2015, 2014 and 2013, are different from the federal statutory rates primarily as a result of indefinitely invested earnings of our foreign operations. We do not provide for U.S. income taxes on undistributed earnings of our foreign operations that are intended to be invested indefinitely outside the United States.
Did the White House discuss this massive base erosion to tax havens with no repatriation of earnings? Of course one has to wonder about their transfer pricing profile. All I could get from their 10-K was:
We perform most of our bulk manufacturing, formulation, fill and finish activities in our Puerto Rico facility and also conduct finish activities in the Netherlands. We also utilize third-party contract manufacturers to supplement the bulk, formulation, fill, and/or packaging of certain Amgen principal products ... We operate distribution centers in the United States—principally in Kentucky and California—and the Netherlands for worldwide distribution of the majority of our commercial and clinical products. We also use third-party distributors to supplement distribution of our products worldwide ... We have major R&D centers in several locations throughout the United States (including Thousand Oaks and San Francisco, California and Cambridge, Massachusetts), Iceland and in the United Kingdom, as well as smaller research centers and development facilities globally.
So we have three basic functions here: (1) production offshore; (2) local distribution; and (3) R&D done in the U.S. Amgen’s profit margin is near 37 percent, which should tell us most of its profits are attributable to its product intangibles, which were developed here. And yet most of the profits are sourced to tax havens. As we spend so much time debating the various aspects of the Destination-Based Cash Flow Tax, multinationals like Amgen are very happy that we are not discussing their transfer pricing.

The "Imperative Mandate" -- Recall: An Annotated Bibliography

Recall of elected officials is both the essence of Populism, the "imperative mandate" and consistent with good business principles.

"You're fired!, the voters' version of "The Apprentice": An analysis of local recall elections in California." Rachel Weinstein, Southern California Interdisciplinary Law Journal, Vol , 15. 2005-2006.

The title of this 2005 article contains the delicious irony of referencing Resident Dump's reality T.V. show, "The Apprentice." As the title indicates, the article analyzes the characteristics of local recall elections in California, looking specifically at such elements as community size, property values, signature requirements, campaign spending, motivations of elected officials, interest groups and the ability of citizens to monitor government activity. There is a brief comment in passing on the notion of national recall elections:
At a national conference on direct legislation organized by the Populist Party in 1896, delegates affirmed their commitment to direct legislation at the municipal, state, and national levels of government, but after a prolonged debate they withdrew a motion to include the recall, which they termed the "imperative mandate" as part of direct legislation. 
"Functions of the Initiative, Referendum, and Recall," Jonathan Bourne, Jr. The Annals of the American Academy of Political and Social  Sciences (September, 1912).

Jonathan Bourne, Jr. was the Republican U.S. Senator from Oregon when he wrote this article. The Republican Party did not nominate him to run for re-election in 1912 and ran instead under the Popular Government banner, coming in third. The preamble of this article, dealing with the initiative and referendum is a rousing denunciation of the extent to which popular sovereignty has been usurped by political manipulation and the commercialization of politics. Bourne argued that recall was a precautionary measure and that its existence "will prevent the necessity for its use." "Adoption of the recall," he wrote, "is nothing more than the application of good business principles to government affairs."
Every wise employer reserves the right to discharge an employee whenever the service rendered is unsatisfactory. The right of the employer to discharge his employee rests upon exactly the same basis as the right of the employee to quit. The principle is recognized throughout the business world, and it is put in practice by every large and successful corporation. Consider the absurdity of the recognition of the right of a public officer to quit his position at any time and the denial of the right of his employers to discharge him. To assert the right in one instance and deny it in the other is to maintain a one-sided contract, the discrimination being against the whole people and in favor of the individual. If we can trust an individual to deal justly with the people when he considers tendering his resignation, we can also trust the people to deal justly with a public servant when they consider discharging him.
Bourne stopped short of prescribing the recall for national office, stating somewhat ambiguously, "I think no one proposes, at present, to extend the recall to any federal official except those elected by the people of the several states," even though he had preceded that demurral with an explicit reference to the election of the President:
It is generally conceded that the American people have intelligence and honesty enough to be trusted with the power to select their public servants, even to choose a President of the United States. If it be granted that the people have intelligence enough to choose a President of the United States, no man can consistently contend that they have not the intelligence to act wisely upon the question of discharging a state, county, or municipal officer. 
"Presidents, Impeachment, and Political Accountability." MC Havens, DM McNeil - Presidential Studies Quarterly, 1978.

This article contains a brief historical note on recall and discussion of the implications of recall for the U.S. Presidency:
The idea of the recall election found its greatest popularity in the period between 1910 and 1920 when progressive politicians were interested in "cleaning up government."24 At that time, the recall election was viewed as the most effective means available for insuring the accountability of public officials and particularly executives. The first proponents of the argument concentrated their efforts on local and state officials, but by extending the scope of the concept national recall elections might be used to remove a malfeasant or incapacitated President. The thrust of this argument is that this means of removal leaves the ultimate responsibility for the unseating of a President in the hands of his national constituency. This would, of course, mean that many of the people who voted to put the President into office would be required to reverse their position and vote to oust him. Theoretically, this would insure that the President's crime, malfeasance, or incompentency would be of sufficient degree to erode not only his professional political support but his popular and party support as well. Such action could not be taken lightly. Second, it could be argued that the recall would decrease the trauma involved in the impeachment/removal process. Presumably by exercising their own political power through the vote, people would feel an increase in their sense of efficacy rather than a decreasing of their faith in government as the result of the ouster of a President. 
The article follows the above by noting the principle defects of recall, which would include the prolonged time that would be required to effect a recall petition and election and the ability of the incumbent to manipulate national crisis in order to defeat the recall.

"The 2003 California gubernatorial recall." Floyd Feeney, Creighton Law Review,Vol. 41, 2007.

This article deals primarily with the mechanics of the recall of California governor Gray Davis, including the more than twenty lawsuits that were initiated during the recall effort. The article also contains a brief historical note on the recall idea
In the America of the late 1800s, hard pressed farmers and workers, particularly in the Western states, viewed their legislatures as being under the thumb of special interests, especially the railroads. To cure this problem, Populists in the late 1890s and Progressives in the early 1900s advocated more direct control by the people themselves— through the initiative, the citizen-initiated referendum, and the recall. Although there were antecedents going back as far as ancient Rome, this agenda was clearly borrowed in major part from Switzerland, particularly Zurich where the Socialist Karl Buerkli was using the initiative and the citizen-initiated referendum to push reforms aimed at helping workers. Although the recall had existed in canton Schaffhausen, perhaps since the 1820s, even in Switzerland the recall was more novel and less developed than the citizen-initiated referendum and the initiative. The recall idea, however, had early American roots that helped to create a fertile climate. In 1776, Pennsylvania recalled its delegates to the Continental Congress when they refused to sign the Declaration of Independence.  And in 1778, even before they had completed winning their independence, the thirteen American colonies included in the Articles of Confederation a provision specifically authorizing the recall of delegates. Because these home grown procedures relied primarily on local legislative bodies to trigger the recall, however, the Swiss idea of using citizen signatures was an important innovation.

Monday, January 30, 2017


EconoSpeak has been receiving comments from an anonymous troll who is gaslighting. I will delete those comments on sight. Gaslighting is not about having contrary opinions. Gaslighting is not about "free speech." Gaslighting is abuse and manipulation.

Stephanie Sarkis posted a concise and useful analysis, "Gaslighting: Know It and Identify It to Protect Yourself" at Psychology Today. "Gaslighting is a manipulation tactic used to gain power," Sarkis writes there, "And it works too well." She enumerates and explains eleven gaslighting techniques. Each of these techniques could be illustrated with a video clip or tweet from Resident Dump but for now I will just post the list, abstracted from Sarkis's article:
1. They tell you blatant lies.
2. They deny they ever said something, even though you have proof.
3. They use what is near and dear to you as ammunition.
4. They wear you down over time.
5. Their actions do not match their words.
6. They throw in positive reinforcement to confuse you.
7. They know confusion weakens people.
8. They project.
9. They try to align people against you.
10. They tell you or others that you are crazy.
11. They tell you everyone else is a liar.
See also The War on Facts Is a War on Democracy at BillMoyers.com. "But it’s not just absence of facts that’s troubling; it is the apparent effort to derail science and the pursuit of facts themselves."

Sunday, January 29, 2017

If The Popular Vote Winner Was In The White House

Yes, she has been a crook and a liar, and if she were in the White House she and her money grubbing husband might be plotting which pieces of White House silverware and furniture they might abscond with when they leave, much as they did back in 2001, oh horror of horrors.

But as it is, if she was there, well, I do not think we would have people crying in airports as we have have had in the last few days.

OTOH, she might be using an unsecured phone, although that would not be any different from what is going on now, although heck, now it is just fine if the Russians hack the White House phones.

Saturday, January 28, 2017

Exclusive: Inside the Access Hollywood Locker Room Bus!

On October 7, 2016 the Washington Post published a 2005 recording of Donald J.Trump engaging in lewd conversation with Access Hollywood host, Billy Bush. “When you’re a star, they let you do it.. You can do anything... Grab them by the pussy... You can do anything.”

What Trump described is, of course, sexual assault. Subsequently, though, Trump insisted that he didn't commit the sexual offenses he described, it was all just locker room talk.

Well, that certainly was reassuring.

At best, then, the President of the United States, at the age of 59, had the emotional maturity of the cartoon characters Beavis and Butthead. In his first week in office, Trump has demonstrated that he has not grown up since the days he boasted and snickered about molesting women.

At last Sunday's Women's March, pink, knitted "pussy" hats became the ubiquitous symbol of resistance to the misogynous, racist and deranged administration that has been inaugurated the previous day. This got me to wondering: what did that now, yes, historic conversation look like inside that Access Hollywood locker room bus?

The video below is an exclusive artist's reconstruction of that locker room "banter" escapade:

Emails from the "Voter Fraud" Crypt

Why, oh why is there not an effective opposition party in the U.S. Congress? 

The last time "voter fraud" was as high on the GOP's agenda as it now is on Trump's, it led to the politically-motivated firing of nine U.S. Attorneys, which caused a scandal that resulted in the resignation of Attorney General Alberto Gonzales.

During the Congressional investigation into the firings, it was revealed that millions of emails were missing, some of which were germane to the issue at hand. They had been stored on a private RNC email server. 
Here is some relevant detail from a Newsweek story published September 12, 2016:
The supposedly lost emails also prevented Congress from fully investigating, in 2007, the politically motivated firing of nine U.S. attorneys. When the Democrat-led Senate Judiciary Committee subpoenaed related emails, Bush’s attorney general, Alberto Gonzalez, said many were inaccessible or lost on a nongovernmental private server run by the RNC and called gwb43.com. The White House, meanwhile, officially refused to comply with the congressional subpoena. 
Senate Judiciary Chairman Patrick Leahy (D-Vt.) called the president’s actions “Nixonian stonewalling” and at one point took to the floor in exasperation and shouted, “They say they have not been preserved. I don’t believe that!” His House counterpart, Judiciary Chairman John Conyers (D-Mich.), said Bush’s assertion of executive privilege was unprecedented and displayed “an appalling disregard for the right of the people to know what is going on in their government.” 
In court in May 2008, administration lawyers contended that the White House had lost three months’ worth of email backups from the initial days of the Iraq War. Bush aides thus evaded a court-ordered deadline to describe the contents of digital backup believed to contain emails deleted in 2003 between March—when the U.S. invaded Iraq—and September. They also refused to give the NSA nonprofit any emails relating to the Iraq War, despite the PRA, blaming a system upgrade that had deleted up to 5 million emails. The plaintiffs eventually contended that the Bush administration knew about the problem in 2005 but did nothing to fix it. 
Eventually, the Bush White House admitted it had lost 22 million emails, not 5 million. Then, in December 2009—well into Barack Obama’s administration—the White House said it found 22 million emails, dated between 2003 and 2005, that it claimed had been mislabeled. That cache was given to the National Archives, and it and other plaintiffs agreed, on December 14, 2009, to settle their lawsuit. But the emails have not yet been made available to the public. 
The Senate Judiciary Committee was operating on a different track but having no more luck. In a bipartisan vote in 2008, the committee found White House aides Karl Rove and Joshua Bolten in contempt of Congress for refusing to comply with subpoenas in the investigation of the fired U.S. attorneys. The penalties for contempt are fines and possible jail time, but no punishment was ever handed down because a D.C. federal appeals court stayed the Senate’s ruling in October 2008, while the White House appealed. Rove’s lawyer claimed Rove did not “intentionally delete” any emails but was only conducting “the type of routine deletions people make to keep their inboxes orderly,” according to the Associated Press. 
By then, Obama was weeks away from winning the election, so the Bush administration basically ran out the clock. And neither the Obama administration nor the Senate committee pursued the matter.

Thursday, January 26, 2017

Trump’s Errant Mouth and What to Do About it

The motive for Trump’s unending stream of blatant falsehoods is obscure.  It might be mental illness, or maybe it’s a Schelling-style hostage strategy in response to principal-agent issues in his administration.  I don’t know.  What matters most, however, is how the rest of us respond to it.

The losing strategy was artfully employed by Hilary Clinton: paint the Donald as abnormal, a caveman outside the normal bounds of respectable politics.  Even if it works—and as we saw it can fail in the face of competing narratives—it has a limited objective, taking down this one man.  A better approach would be to craft a straightforward and honest narrative that links Trump’s crass dishonesty to his political goals.

I’d go for the most basic version: Trump’s real plan is to enrich the wealthiest people in the country and allow the continued fleecing of the vast majority through deregulation, deunionization and defunding the public watchdog.  If he were open about this he wouldn’t be able to get to first base.  So he has to lie constantly, creating a fictitious parallel universe in which exploitation can be decked out as a crusade for justice.

Repeat this at every opportunity.  The army of the Right wants an America hardly any Americans actually want, so they have to lie.  They can do it with magic asterisks like Paul Ryan or whoppers about millions of hidden fraudulent voters, but the one thing they can’t do is tell the truth.

Why is Donald Trump Covering Up ALIEN ABDUCTIONS?

"We're gonna launch an investigation to find out. And then the next time, and I will say this: Of those votes cast, none of 'em come to me, none of 'em come to me. They would all be for the other side. None of 'em come to me. But when you look at the people that are registered: dead, illegal and in two states, and in some cases maybe three states. We have a lot to look into." -- Donald J. Trump
I regret to inform you that the nincompoop quoted above is President of the United States. When told that his claim of voter fraud had been debunked, the congenital fantasist-in-chief cited a 2012  Pew study. When the interview pointed out that the author of that study, David Becker, said they had found no evidence of fraud, the wack-doodle accused Becker of "groveling." Say what? Here is the transcript:
Muir: You say you’re going to launch an investigation into (voter fraud). 
Trump: Sure. Done. 
Muir: What you have presented so far has been debunked. It’s been called false — 
Trump: No it hasn’t. Take a look at the Pew report. 
Muir: I called the author of the Pew report last night. He told me they found no evidence of voter fraud. 
Trump: Really? Then why did he write the report? 
Muir: He said no evidence of voter fraud. 
Trump: Excuse me. Then why did he write the report? Look at the Pew Report. Then he’s groveling again. You know, I always talk about the reporters that grovel when they wanna write something you wanna hear. But not necessarily millions of people want to hear, or have to hear 
Muir: So you've launched an investigation. 
Trump: We're gonna launch an investigation to find out. And then the next time, and I will say this: Of those votes cast, none of 'em come to me, none of 'em come to me. They would all be for the other side. None of 'em come to me. But when you look at the people that are registered: dead, illegal and in two states, and in some cases maybe three states. We have a lot to look into.
This is not even about lying. It is about mental incompetence at lying. The jackass refutes his own alibi two sentences after presenting it.

The Pew report is not the only research paper on voter fraud out there. There are two others. It only gets worse.

One paper by Richman and Earnest was based on an online survey of citizens. It included a question about citizenship. Nearly 19.000 people completed the survey. A relative handful -- probably fewer than 100 -- non-citizens took the survey. The minuscule number of people who reported both voting and being non-citizens 4 (four!) is extremely likely to be entirely a classification error resulting from less than .1% of the 18,878 citizens checking the wrong box for citizenship status. In short, Richman and Earnest's estimate was based on a very small sample of non-citizens and was probably entirely an error artifact. The methodological flaw was described in detail in two-page 2015 article titled, "The perils of cherry picking low frequency events in large sample surveys."

Let me repeat the substance of the Richman and Earnest finding: 4 people among nearly 20,000 who completed an online survey identified themselves as non-citizens who voted in either 2010 or 2012. The statistical likelihood of that having resulted from a citizenship classification error is virtually 1 out of 1.

There is a third study of voter fraud that is worth mentioning, "Alien abduction and voter impersonation in the 2012 US general election," It employed a technique called "survey list experiment" to try to elicit survey responses regarding sensitive or illegal behaviors that people may ordinarily be reluctant to report on a survey. Instead of admitting specific actions, respondents are only asked to report a number of items from a list. Sensitive items are tested for by having a control group that is given only innocuous items while the experimental group is given the innocuous items plus a sensitive one.

The list experiment found that about 2.5% of their sample reported have voted under a name that wasn't their own. Although a relatively small number, this might seem to be a significant factor in a close election, especially if the impersonations were predominantly on behalf of one party. However, the researchers argued that the result is most likely to be explained by respondent error. Most of the respondents reporting impersonation is accounted for by respondents choosing the maximum number, possibly to complete the survey more quickly. To test whether choosing the maximum number explained their voter impersonation results, the researchers conducted a second experiment, this time including an "impossible event," namely being abducted by an alien.

The second experiment found that more people reported having been abducted by aliens than having voted using a name that wasn't theirs. In fact, nearly the same percentage of respondents (2.4%) reported having been abducted by aliens and being audited by the IRS during the past twelve months as had reported having voted under a false name (2.5%). This was despite the fact that the IRS audit rate for 2013 was a little less than 1%! In short, survey respondent were two and half times as likely to be both abducted by aliens and audited by the IRS in the same year as the general public was to be audited by the IRS. Period.

Donald Trump claims that he is under audit by the IRS. Donald Trump claims that there was massive voter fraud in the 2016 which denied him the popular vote victory. Donald Trump claims that the Pew report is evidence for his accusation of voter fraud. But notably, Donald Trump is SILENT on the vital national security aspect of this whole episode: ALIEN ABDUCTION!

Why is Donald Trump covering up ALIEN ABDUCTIONS?

Monday, January 23, 2017

Paul Ryan’s Two-Faced Comments on Auerbach’s Tax

Page 15 of the tax portion of A Better Way makes this claim:
This Blueprint represents a dramatic reform of the current income tax system. This Blueprint does not include a value-added tax (VAT), a sales tax, or any other tax as an addition to the fundamental reforms of the current income tax system. The reforms reflected in this Blueprint will deliver a 21st century tax code that is built for growth and that puts America first.
A few lines later, it makes this claim:
The focus on business cash flow, which is a move toward a consumption-based approach to taxation, will allow the United States to adopt, for the first time in history, the same destination-based approach to taxation that has long been used by our trading partners. This will end the self-imposed unilateral penalty for exports and subsidy for imports that are fundamental flaws in the current U.S. tax system. The new tax system also will end the U.S. taxation of the worldwide income of American-based global businesses
So is the Destination-Based Cash Flow Tax, an income tax or a consumption tax? And why is Speaker Ryan contradicting himself within the same page? I earlier praised Joel Trachtman for articulating the legalese of whether this proposal would violate WTO rules:
The ability to tax imports and exempt exports –known as border tax adjustments—is permitted under World Trade Organization rules, but only for taxes on a product, such as a sales tax (as opposed to income taxes). Many of the U.S.'s major trading partners tax imports while exempting exports because they have a system of what are called value-added taxes, which act like a sales tax on goods (but are collected in stages along the production chain). Value-added taxes are understood to be taxes on a product and are eligible to be border tax adjusted: they are rebated on exports and applied to imports as the product crosses the border. Relying on corporate income taxes has precluded the U.S. from applying similar border adjustments—a fact the GOP blueprint aims to rectify. But, whether the border tax adjustments in the blueprint are deemed legal from a World Trade Organization perspective will depend on a core interpretation: Is the tax in question an income tax or a tax on a product? While some argue that the business cash flow tax is economically equivalent to a value-added tax, legally it does not seem possible to characterize it as a tax on a product under the World Trade Organization rules. It is a tax on a firm, calculated by reference to firm-based attributes under a new and simplified definition of net income, but a definition of net income nonetheless. Moreover, imports would face 20% tax on their price with no deductions while domestic producers would be able to deduct most expenses — including payroll — from the tax base. This discriminatory treatment could also make the import border adjustment illegal under the international rules.
Reuven Avi-Yonah and Kimberly Clausing have a longer discussion that reaches the same conclusion. These authors also wondered why Speaker Ryan does not simply call this a consumption tax with a labor subsidy. The answer might be simply politics – Speaker Ryan has always wanted to get rid of the corporate profits tax replacing it with a consumption tax. But of course Speaker Ryan does not have the political courage to just say so. No wonder President Trump finds this too confusing. The tax’s main political proponent has never been exactly honest about what his agenda is. I stand by my second post on this topic:
I think the real issue here is that this proposal smooshes together two very different ideas sort of like how shimmer was a floor wax and a dessert topping

Sunday, January 22, 2017

What are the "Alternative Facts"?

The lies of Sean Spicer, Kellyanne Conway and Donald J. Trump are not meant to deceive. They are manipulative displays that operate at a pre-linguistic level of communication. Conway's "alternative facts" are best understood as the equivalent of chimpanzee poo-flinging:
In short, what appears to be the main reward for throwing is the simple ability to control or manipulate the behaviour of the targeted individual (ape or human). For example, in our laboratory, chimpanzees will patiently wait for strangers or visitors to approach and then will throw at them. They do not conceal their intentions and they will often stand bipedal and threaten to throw by cocking their arm with the projectile in their hand in preparation for throwing. The passers-by can see this and will often try and negotiate with the chimpanzees to put down the projectile, or they will try to trick the ape by stopping, then dashing rapidly past the ape enclosure. This seems to be the reaction the apes hope to get from the humans and, in operant conditioning terms, is the only ‘reward’ the chimpanzees receive for throwing. 
Neurologically, throwing is complex because it demands coordinated precision in timing the velocity and release window of a projectile in relation to the speed of movement and distance of the target (i.e. prey). Some have suggested that the increased selection for neural synchrony of rapid muscular sequencing routines associated with actions such as throwing are similar to the motor programming demands of language and speech, and therefore engage similar neural systems, notably Broca's area. 
Kellyanne Conway demonstrating how to put extra "spin" on a fecal projectile. 
Cognitively, we believe that the development and acquisition of throwing skills by chimpanzees operates in a manner similar to the emergence of manual gestural communication. As noted previously, the motivation for throwing in chimpanzees is largely to alter the behaviour of other individuals (be it human visitors or conspecifics). For this reason, the apes that have learned to throw have acquired an ability to understand how their behaviour affects the behaviours of others. 
People really need to learn to stop trying to "refute" the "alternative facts" that are being flung. Shit is shit. You cannot refute feces.

The Worst Human Being Ever Elected President Of The USA

That would be Donald John Trump, and I mean this judgment on a pretty traditional moralistic basis.  It may be obvious, but maybe not.  Anyway, I want to get this off my chest before we simply get swamped with all the probably bad policy things he will be doing in the near future.

Before I dump on him, let me note at least one more or less good thing, the same one that Hillary Clinton was able to come up with at the end of the second debate when asked to say something nice about him: he does seem to have been a mostly good father, at least to his oldest three children.  Now I could get off on some of his creepy remarks regarding Ivanka, and I am not sure how moral his two older sons are, although they do not seem to be unhappy or deranged or anything.  Tiffany seems to be somewhat estranged and off, but basically OK as well, I guess, and while some have been huffing and puffing about Barron not paying much attention at the inauguration, well, he is only 10, and I wish him the best. Anyway, not obviously bad as a dad.

I am mostly of the mind that sexual conduct is irrelevant to someone;s ability to  lead a country, and many world leaders have had scandalous sex lives reflecting their huge egos associated with lots of out of control sexual activity.  And we have certainly had some other presidents with records of apparently lots of extramarital sexual activity, notably Harding, JFK, LBJ, and Clinton, with probably some others in there as well, but with their activities unreported.  There were others that had reported affairs, notably FDR and Ike.  But Trump's activities have involved more flagrant contempt for women than any of these, with his nasty remarks, such things as wandering into the dressing rooms of the Teen Universe festival, and more accusations of rape than the others. Clinton has Paula Broderick, but Trump has his first wife, who withdrew the charge she initially made, and then a reputed underage woman whose name remains unrevealed, who was to bring a suit but pulled back.

As it is, noting a very conventional measure, he is the first president to have been divorced twice, both times following his cheating on existing wife with subsequent one.  The only other one to get divorced at all was Reagan, who was in Hollywood and only did it once.  There is, of course, the highly questionable conduct of Jefferson with Sally Hemings.  But I note that it was against the law to marry a slave in those days, although I suppose he could have freed her.  And there was the very odd detail that she was the half sister of his late wife.   As it is, I still know some old and conservative people in Virginia who refuse to accept the evidence that he fathered her children.

Bringing that up does bring up one area where Trump has been better than a whole bunch of our former presidents, including four of our first five: he has not owned any slaves.  But then I would argue that people should be judged by the standards of their times and compared to others of their times.  Certainly in terms of their views regarding policies, most earlier presidents were more sexist and homophobic and racist than Trump, if for nearly all of them less compared to other people of their periods than is Trump now compared to people of this time.

Of course many earlier presidents have done some pretty horrible things as president, and it may come to pass that Trump will not do things as bad as these.  John Adams, the only non-slaveholder among our first five presidents, signed the Alien and Sedition Acts.  Jackson forced Native Indian tribes to move with many dying on the Trail of Tears, a policy much admired by Hitler.  Lincoln suspended habeus corpus.  Wilson approved the Palmer raids.  FDR set up the internship camps for people of Japanese descent.  Truman dropped atomic bombs on Japan.  Nixon broke into competitors' offices and then lied about it. W. Bush invaded Iraq, and more.  For some of these things Trump has supported similar policies, if not too likely to fully follow through on them.  So, he has advocated making it easier to  sue the media for libel.  He has advocated a new Trail of Tears to deport massive numbers of people. He has suggested bringing back and expanding torture, as well as loosening various civil liberties in order to fight terror. But already on some of these he appears to have backed off. And, of course, some of the worst of these things were done in the midst of wars far worse than what we are involved in now, when, well, war is hell.

So where does he really look clearly worse than any of the rest in his personal moral conduct?  Well one of the biggest is his lying and another is his crookedness and financial corruption.  The best defense is an offense, and it is not at all surprising that among the memes he pushed at the GOP convention and regularly supported by his supporters who have  chanted "Lock her up," even at the inauguration when she appeared, was that HRC was a liar and a crook.  Well, she certainly did make some false statements, and she and Bill also had an unpleasant money grubbing aspect that reflected itself in everything from walking off with stuff from the WH when they left it and her abysmally stupid paid speeches to Wall Street banks, although the charges against them regarding their foundation look about as silly as the ones against her about Benghazi and her emails, especially when compared with the corruption and absurdity of his foundation, now being shut down.

But various studies showed Trump to be by far the biggest liar of all of the 23 candidates last year, with only Ted Cruz close to him.  He told so many lies that one could not keep track of them. The minute there was outrage about one, he would be issuing another. He has already put two out since his inauguration, one about the numbers attending and the other that it was the media who falsely claimed that he had differences with the CIA.  He has lied so frequently that the minute one is getting outraged by one lie, he puts out another.  One eventually just says, "Oh, there he goes again," and his supporters, those at least who realize he is lying a lot, simply view it as an acceptable part of his personality showing that he is strong, or something.  He can get away with it, good for him!

Certainly other presidents have lied, often about substantial policy matters, such as LBJ prior to the Gulf of Tonkin resolution that was used to justify the escalation of the Vietnam War.  But I cannot think of another president with such a record of just lying all the time repeatedly almost every other day, not a one.  If somebody can name one, please be my guest, and unfortunately it looks like Trump plans to continue doing it big time, which could end up having some really bad consequences.  It is one thing to lie as a candidate, and the number of presidents who broke campaign promises is  huge, but lying repeatedly, especially if he does it to foreign leaders, well, we simply have not see this, not remotely on this scale anyway.

Another is his level of his financial corruption and crookedness.  The simplest case of this is the simply enormous number of contractors he has shafted and not paid, or paid way less than they were legally owed, over the years.  This is fraud and theft, and while he has paid numerous fines for all this, he has not been in jail, and he has somehow managed to turn this into "being a good businessman," despite his numerous bankruptcies.  Oh, he did get nailed on his seriously fraudulent "university," but got off lightly with only paying $25 million, when the losses of those he defrauded on that far exceed that amount.  On top of this we have his refusal to release his tax returns, not illegal, but justified with something phony, that he cannot because he is being audited when that does not prevent one from doing so (Nixon did so)  We have suspicions of him being seriously in hock to a foreign power (Russian oligarchs, who reportedly poured money into his org after his 2009 bankruptcy when US banks refused to lend to him).  And he has not sold off his holdings or even put them in a blind trust, instead putting his sons in charge of his business dealings.  With foreigners openly staying at his hotel in Washington to curry his favor, he looks to be the first and only president to be blatantly in violation of the emoluments clause of the Constitution.  The presidencies of Grant and Harding were notorious for their corruption, but most of that involved their cronies and appointees, not them personally, and as it is Trump's appointees may well give the people in those administrations a serious run for their money.  This bodes to be by far the most corrupt administration ever, with the stink starting from the top, not bubbling up from the bottom.

Finally there is the matter of his completely unacceptable personal insults of other people.  He has made many, but the two that really stick in my mind are his slam on John McCain for getting captured during the Vietnam War and his very recent blast at John Lewis for being "all talk and no action."  But there have been many others.  Now maybe if previous presidents had had access to twitter, they would have been just as obnoxious and awful as Trump has been, but I doubt it.

Anyway, I could go on, but I would simply challenge anybody, any Trump supporter, anybody, to name another president who was a worse human being on moral grounds than Donald J. Trump.

Oh, I do have one figure to compete with him at the presidential level, but only a candidate and vice president.  That would be Aaron Burr.  He killed a political rival (Alexander Hamilton) and, after Jefferson dumped him as VP, he was arrested for treason in 1807 for plotting to lead a secession of portions of the Louisiana territory, although he was not convicted as he had only plotted it and not done it.  Heck, maybe Trump is even worse as a human being than that bad actor.

Barkley Rosser

Auerbach’s Tax and the Clone Wars

Menzie Chinn introduces a new asset to economist blogging. Joel Trachtman provides an excellent discussion of whether the Destination-Based Cash Flow Tax violates WTO rules concluding that it does. He adds:
If enacted, the plan would likely lead to lengthy litigation at the World Trade Organization. A (likely) ruling that the tax is an income tax, and is applied in a discriminatory manner, would mean that exempting exports would be considered an illegal subsidy and taxes on imports an illegal tariff. This could lead to trade sanctions against the U.S. and open the door to counter sanctions and the start of a trade war.
President Trump strikes me as someone who could care less about WTO rules. And starting a trade war fits his grand design of goverance. As Yoda noted:
Begun the clone war has
President Trump is Lord Palpatine.

Friday, January 20, 2017

Trump Will Make Us Wealthy Again?

I’m not alone in finding Trump’s speech incredibly disappointing. But there was one sentence that just struck me as beyond odd:
We Will Make America Wealthy Again.
Was the nation in the aggregate ever wealthier? I had to wonder and checked here. The $90.196 trillion is aggregate nominal household net wealth for the 3rd quarter of 2016 and cannot be compared to previous periods without two adjustments. Back in the 2nd quarter of 2007 was $67.705 but the GDP price index had risen by 14.87% over this period. So in real terms (2007QII = 1), real aggregate household net wealth had risen by around 16% to $78.52 trillion. And while we had only 301.7 million people back in 2007, population had risen to 324.6 million by the 3rd quarter of last year. So real wealth per capita was $224,412 back in 2007, it was recently $241,898 recently. In other words, real wealth per capita is 7.8% higher than it was in 2007. And yes I realize that the distribution of wealth was very uneven back in 2007 and in many ways got worse since then. But does anyone believe that this Republican Administration and Congress think for a moment that they intend to redistribute either income or wealth to the average Joe?

America First?

Fuck You's Inaugural Address

Dave Moss: What's your name? 
Blake: Fuck you. That's my name. You know why, mister? 'Cause you drove a Hyundai to get here tonight. I drove an $80,000 BMW. THAT's my name.
Long before Alec Baldwin did his Saturday Night Live impression of Donald J. Trump, Trump appropriated Baldwin's sadistic "motivational" character, Blake, from Glengarry Glen Ross. Blake is a caricature of the salesman-as-sociopath. Baldwin refers to him as "an asshole." Trump dialed the "you're fired" performance down a notch with a wink of tongue-in-cheekiness.

Watch the "always be closing" scene and judge for yourself which impersonation came first:

The tenth anniversary DVD of Glengarry Glen Ross includes a special feature in which the documentary film maker, Albert Maysles recounted the story of a sales manager who,  as he approached the prospect's door, started swaying his body and shuffling his feet. After the sale, the manager asked Maysles if he had noticed the odd movement and then explained,"when you're moving your body this way it's very hard for somebody listening to turn you down."

This calls attention to the erotic dimension of the sales transaction. Sometimes the commodity isn't the most auspicious thing being exchanged. Cue the traveling salesman jokes... did you hear the one about Amway Dream Night?
Where pathos rules, where pathos is finally derived, a character has fought a battle he could not possibly have won. The pathetic is achieved when the protagonist is, by virtue of his witlessness, his insensitivity, or the very air he gives off, incapable of grappling with a much superior force. -- Arthur Miller, Tragedy and the Common Man

Monday, January 16, 2017

Gavyn Davis on Auerbach’s Border Adjustments

Gavyn Davis struggles to grasp the Destination-Based Cash Flow Tax starting with this misconception:
The financial markets have begun to wake up to the fact that the Republican reforms to US corporate taxation will probably include important new “border adjustments” to the definitions of company revenues and costs. The basic idea is that US should shift to a “territorial” system, with corporations being taxed only on revenues and costs incurred within the US itself, and not on their worldwide aggregates, which is the principle behind the present system.
A lot of people are advocating getting rid of the repatriation tax and have the US join the rest of the world by having a territorial system. But the rest of the world taxes income at its source – not at its destination. Davis gets to this point eventually:
Although most other countries already operate “territorial” systems, the Republican plan includes other features that would make the new tax regime operate like a tariff on imports into the US, combined with a subsidy on many exports from the US, a combination that would have profound international economic consequences. This is not just an obscure change to the details of America’s corporate tax code. It would be seen by trading partners as a protectionist measure that could disrupt world trade.
Auerbach has noted that this plan is akin to replacing the corporate profits tax with a sales or VAT tax but with a twist – a subsidy to labor costs. Davis continues his discussion assuming that this labor subsidy would raise U.S. net exports, which would be the case if the exchange rate were fixed. Auerbach on the other hand has assumed that the dollar would so appreciate that there would be no effect on net exports. Davis notes this later:
Some proponents of a border tax, like Martin Feldstein, argue that the discriminatory nature of a border tax would be offset by an immediate rise in the dollar exchange rate which would exactly offset the impact of the tax on import and export prices.
If so – then what is the point of this proposal? Davis suggests:
Why would the US want to do this? First, in practice the new tax would be likely to raise a lot of revenue which could be used to pay for other reforms to the corporate tax system. Imports into the US exceed exports, so there would be a net gain reflecting the trade deficit.
Sure we import more goods than we export right now. But this is in theory a tax on profits with the big issue being that we would tax the intangible income created by foreign firms consumed in the U.S., while we would exclude the intangible income created by U.S. firms consumed abroad. As I noted:
we generate more IP income that most nations and DBCFT makes any IP income involved when foreigners consume our products tax free ... if we passed the DBCFT, then we would simply give up on taxing U.S. generated IP income when it is consumed abroad. This strikes me a very bad retreat from trying to enforce the transfer pricing rules.
I know I have been harping on this issue for a while but the other discussions of the transfer and income tax aspects of the Auerbach proposal strike me as falling horribly short.

Saturday, January 14, 2017

Interest Rates Since December 16

Yesterday Ben Bernanke offered a thoughtful discussion of fiscal policy that opens with:
Markets have responded strongly to Donald Trump’s election victory, pushing up equities, longer-term interest rates, and the dollar. While many factors influence asset prices, expectations of a much more expansionary fiscal policy under the new administration—higher spending, lower taxes, and larger deficits—appear to be an important driver of the recent market moves.
FRED provides the data on 10-year government bonds both in terms of nominal rates and real rates. Between the election and December 16, nominal rates rose by 80 basis points, while real rates rose by 60 basis points. This increase was indeed attributed to an expectation of fiscal stimulus from Team Trump. But notice over the past four weeks, interest rates have started coming back down. Why? Paul Krugman follows up on Bernanke’s post with this:
Let me be less gentle: there will be no significant public investment program, for two reasons. First, Congressional Republicans have no interest in such a program. They’re hell-bent on depriving millions of health care and cutting taxes at the top; they aren’t even talking about public investment, and would probably drag their feet even if Trump came forward with a detailed plan and made it a priority. But this then raises the obvious question: who really believes that this crew is going to come up with a serious plan? Trump has no policy shop, nor does he show any intention of creating one; he’s too busy tweeting about perceived insults from celebrities, and he’s creating a cabinet of people who know nothing about their responsibilities. Any substantive policy actions will be devised and turned into legislation by Congressional Republicans who, again, have zero interest in a public investment program. So investors betting on a big infrastructure push are almost surely deluding themselves.
It seems the initial market euphoria over a Trump fiscal stimulus has started to fade as we watch the clowns that Trump is appointing as his key economic advisors.

Thursday, January 12, 2017

Minimum Wages and Productivity

I had a chuckle reading a report in today’s New York Times that describes a pair of papers on the minimum wage presented at the recently-concluded economics meetings in Chicago, especially the first, an experimental study by John Horton of NYU.  Horton set up an online matching system between employers and workers, where each made wage offers for a variety of tasks that could be performed remotely.  The design allowed him to measure the actual productivity of workers in these tasks if they successfully concluded a deal with the employers.  Then he imposed a minimum wage to see what would happen.  The result was that employers sought out the most productive workers when they had to pay higher wages to everyone.  (They could estimate productivity differences from information on workers’ prior wages.)

There was lots of back and forth in the article about whether this result would generalize to a minimum wage established over all employers within a region rather than just a few (who could better pick and choose), but for me the irony is that this is exactly what proponents of the minimum wage hope it will achieve.  That is, one of the main purposes of setting a floor under wages is to generate incentives for firms to increase productivity.

Note that it is the firm that is expected to do this.  Economists for some reason tend to assume that productivity is essentially a worker attribute, like how tall you are or whether you’re left-handed.  No doubt workers differ greatly according to their potential productivity, but most actual, realized productivity is the result of the way the work is set up—whether the output is of lesser or greater value, how much and what kind of equipment the worker has available to work with, what kinds of skills the work develops and makes use of, and how much opportunity the worker herself has to tinker with the job to make it go better.  These are employer choices.  In a world of low wages employers have less incentive to invest in the productivity of work, so they don’t.

This argument will hardly come as earth-shattering news to development economists and economic historians.  One of the arguments why the industrial revolution first occurred in Europe rather than China, for instance, is that the possibility of emigration prevented European labor from being as abundant as Chinese, with correspondingly higher wage costs.  A major factor in the explosive rise of the US as an industrial power in the nineteenth century was the availability of cheap land, which put an even higher floor under wage rates.  This is not to say that workers had it easy, of course, just that they were significantly less destitute in some regions than others.

If increasing labor productivity is a major social goal—and it should be—then making labor more expensive is a good thing, all else being equal.  The only trick is to see that, in the modern, mechanized interdependent world, it’s the quality of the job that turns the worker’s potential productivity into the real thing.

Wednesday, January 11, 2017

The World Bank on Trump’s Fiscal Stimulus

Did this news account properly capture what the World Bank said? If so, I have some quibbles with it. First up a line that makes sense but needs further comment:
President-elect Donald Trump’s tax cuts and spending plans could deliver a shot in the arm to the U.S. economy, lifting growth around the world, although uncertainty about his trade policies adds to the risks, according to the World Bank.
As the U.S. economy grows, the story is that we import more from abroad. If this also leads to dollar appreciation, then net exports further turn negative which means the rest of the world enjoys increases in net exports. Assuming the U.S. economy is still below full employment – which I believe – this is good news for us even as we see a higher trade deficit. And it would certainly be good news for Europe. But now to the second paragraph of this story:
The Trump administration could squander the economic gains of fiscal stimulus if it imposes new trade barriers that provoke retaliation by other countries, the Washington-based development lender said Tuesday in the latest update to its global economic outlook.
I’m sorry but this is just bad writing. Squander for who? Trade protection allegedly shifts aggregate demand away from the rest of the world towards the U.S. So yea- it would squander the gains for Europe but it would increase even further aggregate demand for the U.S. Of course one could argue that Europe needs aggregate demand expansion even more than we do. The better argument is that a trade war might end up being net export neutral. The same might hold if the Trump trade protection led to dollar appreciation. But this is not the same thing as saying the fiscal stimulus would be squandered.

Tuesday, January 10, 2017

Why Did Bernie Sanders Lose The African-American Vote? The Death of Roy Innis

OK, weird juxtaposition, especially three quarters of an hour before Barack Obama delivers his farewell address in the McCormick Center in Chicago, not too far south of where the ASSA/AEA meetings were just held. But the death at age 82 of Roy Innis, the leader since 1968 of the Congress of Racial  Equality (CORE) has pushed me to this, especially as I have no doubt there is nobody else out there who is making these connections.

The immediate relevance of Roy Innis is that Bernie Sanders's very authentic role in the US civil rights movement was his very serious participation in CORE activities in Chicago during 1962-64, give or take a year on either end.  He was a local leader out front in numerous demonstrations, appearing in the local media, and so on.  He was about as solid and sincere an activist in support of CORE in Chicago as one could find fine, a very hard place then as well as now.

So, why did he lose his poltical standing with African-Americans?  I mean arguably they gave the Dem nomination to Hillary, especially southern female African-Americans, who then, unfortunately, were unable to deliver their states for her in the general election. In early spring, 2016, youth went for Bernie 2 to 1, but African Americans went for her 2 to 1, even if they did not turn out sufficiently in Philadelphia to offset the rural and Erie/Scranton white vote that gave PA to Trump, despite her spending lots of time and effort there, including on the closing night of her campaign.

Well, I do not think anybody can seriously diss the loyalty of older southern African-American women to Hillary over Bernie, but maybe it is too bad, especially given what is coming down on us soon after Barack Obama exits the White House.  A lot of it has to do with Bernie's specifically overt activism on this front was a long time ago, more than a half century, and he ended up in very white Vermont with white millennials supporting him. The southern African-Americans dumped Hillary for Obama in 08, although with a lag, despite their long support for her husband, "America's first black president," but they came home for her.  So it is.

Regarding CORE, it was founded in 1942 by the late James Farmer, who still led it in the early 60s, the most activist of the four major civil rights orgs of that day, NAACP, Urban League, SCLC, and CORE, with Martin Luther King specifically associated with the SCLC.  They all agreed on equal treatment between races and all people and nonviolence, although CORE pushed the envelope harder than the others.

It was after the death of MLK, Jr. in 1968 that Roy Innis came to the leadership of CORE.  He moved it towards black nationalism and violence, as well as a "conservative/libetarian" political economic perspective.  As near as I can tell it never played a significant role in national politics under his long leadership, lasting until now, near as I can tell. The most dramatic event of this many decades period was a showdown he had at one point with Al Sharpton over something, a showdown between two people between whom I am not sure which I view with less respect, frankly.

I note the odd detail that slightly overlapping with Bernie, around 1963-65, I was involved with CORE in Madison, Wisconsin, when I was in high school.  I was not nearly as active or as important as Bernie, but I did participate in some demos against Sears for discriminatory hiring.  For this I earned my first entry in the FBI lists, as I was informed by my well-too-well-informed late Old Man.

And now I shall send this off so I can hear Barack Hussein Obama give his farewell address, for better or worse.

Barkley Rosser

Tim Worstall on Trade Policy: Reductio ad Absurdum

Tim Worstall makes some bizarre arguments including this one which sort of cracked me up:
As we know the President-elect, Donald Trump, tweeted that he was most unhappy that Toyota announced an investment in and expansion of a plant in Mexico. Instead, cars should be built in the US--with the idea that if not perhaps a large border tax, a trade import tariff, should or would be considered. To which we've had the answer from Toyota--they have agreed to increase the US trade deficit by $10 billion over 5 years. Obviously, that's not quite what they've said, instead, they've pointed out that they're going to invest $10 billion in the US over the next 5 years, as they did in the past 5 years. Left unsaid is the point that obviously they've not decided to do this because of a soon to be President's tweet.
Alas his explanation was nothing more than some balance of payments identities which should draw the fire of Peter Dorman. How might I have made the point instead?
With a national savings rate of only 1.75%, we should not repeat the mistake of 1981 giving the rich another massive tax break which would further reduce national savings and make the trade deficit worse. We should instead think in terms of how to get investment demand – be it public infrastructure or private investment – higher. As Brad notes, lower interest rates and infrastructure investment would be good policy.
If the shareholders of Toyota want to build more U.S. automobile plants and sell their cars to Latin America, that would be a great thing even if it is partially offset by a modest dollar appreciation. So yea Worstall made me laugh as there is way too much internet and Twitter stupidity on this topic even if his own poking fun at it involved exploiting an identity rather thinking this issue through.

Sunday, January 8, 2017

Disney’s Transfer Pricing and the Destination Based Cash Flow Tax

Neil Irwin adequately addressed the trade policy debate over the Destination Based Cash Flow Tax (DBCFT) but his discussion of the transfer pricing angle leaves me cold:
Two prime examples are transferring intellectual property to overseas holding companies and engaging in corporate inversions that move a company’s legal headquarters to a country with lower taxes.
Corporation inversions do not impact transfer pricing as all they do is to allow a multinational to have a territorial system which many already effectively do. But I need to update my discussion to focus on intellectual property (IP) as this goes to the heart of my beef with what Auerbach has proposed. In my Trump Toaster Ovens example (Canadian production with U.S. distribution), I noted:
Total profits are $25 per oven with 80% going to the Canadian affiliate if the intercompany price is $100. US tax rates are now 35% and Canadian tax rates are close to 25% so with no repatriation tax involved (Canada is a territorial system), the effective tax rate is 27%. While currently Tiffany might want to raise the intercompany price – she knows the IRS could object. Of course Auerbach’s DBCFT would change her incentives as she might want to lower this price to only $80 to eliminate the Canadian income tax – assuming the Canadian Revenue Agency does not object. What’s going on here?
What’s going on per multinationals is that the U.S. becomes the tax haven per income taxation but also imposes sales taxes on imported goods. I know many U.S. centric transfer pricing types think all IP is created here but companies like the Japanese automobile manufacturers, Novartis, Adidas, Jimmy Choo, and Zara created IP abroad. DBCFT would be bad news for them as their IP faces sales taxes here as we consume their products but also face income taxes abroad. Let’s toss in Ikea even if Tim Worstall struggles to understand what an arm’s length royalty rate is. Of course we generate more IP income that most nations and DBCFT makes any IP income involved when foreigners consume our products tax free. Ricardo Hausmann and Federico Sturzenegger illustrated their “Dark Matter” idea with this:
Imagine the construction of EuroDisney at the cost of 100 million (the numbers are imaginary). Imagine also, for the sake of the argument that these resources were borrowed abroad at, say, a 5% rate of return. Once EuroDisney is in operation it yields 20 cents on the dollar. The investment generates a net income flow of 15 cents on the dollar but the BEA would say that the net foreign assets position would be equal to zero. We would say that EuroDisney in reality is not worth 100 million (what BEA would value it) but four times that (the capitalized value at our 5% rate of the 20 million per year that it earns). BEA is missing this and therefore grossly understates net assets. Why can EuroDisney earn such a return? Because the investment comes with a substantial amount of know-how, brand recognition, expertise, research and development and also with our good friends Mickey and Donald. This know-how is a source of dark matter.
In its latest fiscal year, Disney sourced over 94% of its worldwide income in the U.S. as its foreign affiliate pay the U.S. parent for the value of Mickey and Donald. While Starbucks has received some weird attention with respect to its transfer pricing, the 6% royalty rates paid by its foreign affiliate to the U.S. parent are consistent with what third parties pay and hence are arm’s length. In its latest fiscal year, over 84% of its worldwide income was sourced to the U.S. as a result. Both of these U.S. based multinationals are currently sourcing their IP income in the U.S. A switch to DBCFT would change that significantly reducing U.S. tax collections. Now you might ask what about those accused of Base Erosion and Profit Shifting such as Caterpillar? In her defense of their transfer pricing, Julie Lagacy noted that their Swiss affiliate paid the U.S. parent a 6% royalty rate for the use of Caterpillar’s technology but then other witnesses noted:
“I think the I.R.S. should have attacked this transaction on economic substance grounds,” said the other tax professor, Reuven S. Avi-Yonah, of the University of Michigan. To make the transaction bona fide, he said, the I.R.S. should have applied a 1986 law requiring the subsidiary to pay a “super-royalty” to its parent. That would have brought the profits back to the United States where Caterpillar’s higher rate, around 29 percent, would apply. Its negotiated rate in Switzerland was less than 6 percent. “There are all these opportunities that the I.R.S. had to go after this transaction, and unfortunately it didn’t,” he said.
The 29% percent effective tax rate was due to the fact that around 45% of Caterpillar’s income was U.S. sourced whereas only 30% of its sales were in the U.S. Again DBCFT would have meant even less U.S. taxes given the fact that a lot of the foreign generated IP income already was coming back to the U.S. This “super-royalty” would have the royalty rate raised from 6% to 9% as if the U.S. owned all worldwide intangibles, which strikes me as a very aggressive IRS view on this issue. In other words, one can make the case that the 6% royalty rate was arm’s length. If the IRS wants to disagree and pursue a transfer pricing challenge, then let it. But if we passed the DBCFT, then we would simply give up on taxing U.S. generated IP income when it is consumed abroad. This strikes me a very bad retreat from trying to enforce the transfer pricing rules.

Heterodox Session at ASSA: Marx, Rawls,Sraffa, and... Acemoglu

Yesterday morning I attended an URPE session at ASSA in Chicago titled,, "Marx, Rawls, and Sraffa, and the Limits of Mainstream Economics."  The Rawls person did not appear, but there was a paper on recent J.B. Clark award winners as reps of mainstream econ.  Lots of attention on Daron Acemoglu, with people arguing about whether what he is doing is good or not.  Wisecrack I heard was that "MIT economists are rediscovering insights of Marx, Kalecki, and Steindl, but not citing them."  This paper was presented by Robert Chenomas of U. of Manitoba.

The main debates came from presntations by Robin Hahnel and Michael Perelman.  The big whoop is that the archives of Piero Sraffa are now being made available.  This is engendering a massive search into his long secret writings with various proposed reinterpretations going on. A big issue is his relationship with Marx, with Hahnel claiming an FST vs an FMT, a Fundamental Sraffa Theorem vs a Fundamental Marx Theorem. The argument is that in a proper input-output Sraffa type system any commodity can be the "source of value," with the Marx argument being that it must be labor.  Well, all hell broke loose, and I shall not leak who was carrying on more than whom.

What is clear is that we are going to be hearing more  about this now that those long held archives have been opened.

Barkley Rosser

Saturday, January 7, 2017

Ikea Transfer Pricing: The EU Green Party v. Tim Worstall

I may be late to the party but I started researching Ikea’s European transfer pricing after Ikea lost a Norwegian Supreme Court decision regarding intercompany interest deduction case. Tim Worstall attacked the EU Green Party for the Green Party’s claims that Ikea has been doing some old fashion income shifting. The title is a bit rough:
The Green Party Doesn't Grasp EU Tax Laws Concerning IKEA
Look – I’ll admit that the Green Party often says any transfer pricing that moves income from a high tax jurisdiction to a low tax jurisdiction is per se transfer pricing manipulation even before they have thought about what the appropriate transfer pricing should be. But as I recount Worstall’s account, it should be clear that he certainly is not proving that Ikea’s transfer pricing policies are consistent with the arm’s length standard:
Here's how bad their assumptions are. They're complaining about the non-taxation of royalties and interest flowing from one EU based company to another. And yet EU Single Market law specifically states that it is illegal for anyone to try to tax royalties and interest flowing from one EU company to another.
Worstall starts off by assuming that these intercompany payments are per se arm’s length, which is a bit premature. To be fair, Worstall does continue with this:
Here's the gist of the complaint. At the top of Ikea there're two tax free foundations. Tax free foundations do not, as the name implies, pay tax. One owns the operation of the stores and network, the other owns the trademark. The one that owns the trademark charges 3% to the other for the use. Those royalties flow around Europe and then into that tax free foundation. Much the same happens with interest payments on the fee that was paid to buy that trademark. And that's pretty much it, there's no more real complexity than this….Which is that we do have transfer pricing laws, laws to make sure that people don't just strip every amount of profit out of a country and stick it where there's no tax to pay. And those transfer pricing rules insist that inter-company transactions must be made at arms length prices. That is, related companies must charge each other an amount of money at least comparable to what they would charge an entirely independent company.
But there are two serious problems with this 3% trademark royalty. One is simply that the tax foundation was not likely the entity that created the trademark value in the first place. Did the tax foundation pay fair market value for any transferred intangibles? Worstall does not even address this. And how would one justify a 3% royalty rate as opposed to only 1%. Worstall’s defense is:
And 3% is actually fairly low by the standards of these things. Starbucks, an unrelated EU investigation found, charges itself 4% and this is considered just fine.
Actually Starbucks charges 3rd parties 6% royalty rates for its entire suit of intangible assets. To presume that this 3rd party royalty rate is a comparable for the Ikea name is beyond absurd. Here is a hint for multinationals that must defend their intercompany pricing – do not hire Worstall as this defense is beyond clueless. While Worstall does not address the intercompany interest rate issue, my understanding is that no one is questioning whether the interest rates are arm’s length but they are questioning whether another affiliate is actually receiving intercompany interest income. It is precisely this kind of debt versus equity hybrid mismatches that the OECD’s Action Plan 2 on Base Erosion and Profit Shifting addresses. May I suggest Mr. Worstall read this document before writing such an utterly embarrassing blog post. Update: While Worstall’s link to the EU report - this should work. Page 23 describes “the notional interest deduction in Belgium”:
Belgium belongs to the list of European countries having a strong tradition of treasury locations (together with Luxembourg, Ireland and Switzerland). The Notional Interest Deduction regime has been conceived as a replacement for the coordination centre measure, deemed illegal according to European competition law by the European Commission in 2003. This new measure, entered into force in 2007, allows Belgian subsidiaries of multinational companies to offset income derived from providing loans or services to affiliated companies around the world, while those affiliates can deduct the expense of these loans or services from their taxable income in their respective countries. This is a classic way for big companies to shift profits to low or no tax jurisdictions at minimal cost. And in cases where the source country imposes withholding tax on interest payments to Belgium, the Belgian entity can generally offset that expense with a foreign tax credit.
Page 21 notes how this works in Luxembourg:
PwC proposed, and Luxembourg accepted, an arrangement which guaranteed that an Inter IKEA Group subsidiary (now called Inter Finance SA) domiciled in Luxembourg would pay almost no tax on an estimated €6 billion in loans funded by subsidiaries in Curacao and Cyprus and funnelled to affiliates through a newly established Swiss branch of Inter Finance SA. In 2014, Inter Finance SA posted a profit of €13.6 million, and paid tax at an effective rate of just 2.4%, as compared with the Luxembourg statutory rate of 29.2%.
But enough about the intercompany loans – what about those trademark royalties? Table 3 on page 16 shows selected income statement information for a few European affiliates such as France. After paying its 3% intercompany royalty, the French profits were only 1.65% of sales. In other words, the trademark royalty captured almost 65% of consolidated profits in France. I’m sorry but that sounds a bit excessive to me.

Thursday, January 5, 2017

Trump And The Wrigley Building

So, I am in Chicago for the ASSA/AEA meetings, which I missed last year because a year ago today I was having (successful) open heart surgery.  Anyway, on my way to get program and registration at the Hyatt Regency earlier this evening, I saw the iconic Wrigley Building, and then next to it a Trump hotel or whatever, with his name in seriously Yuge letters on it next door to the Wrigley building, and I mean like a couple of stories of the building worth of TRUMP.  Really, worse than you can imagine.

So, there is an irony here given all the controversies over possible Russian hacking of the US election to help Trump win (which ultimately in my view had to do with her multiple weaknesses as a candidate plus the Comey intervervention in the last two weeks). It is that the most of the largest buildings in Moscow are 7 so-called "Stalin Gothic" style, which include the Foreign Ministry building, but others of a variety of functions, including hotels and apartment builidings.  They have long provided the high points of the visual landscape of Moscow.

So, the big joke is that they are all modeled on Chicago's Wrigley building. They are all a bit bigger than it, but there is no question: it is their model.  As it is, this looks like some sort of ironic Gen-X fantasy, that the incoming president of the US, an apparent total pawn/sycophant of the current Russian leader, has a big building with his name big time emblazoned on it, right next door to the model for the dominant buildings in the capital city of the country whom he is  now widely viewed as falling all over himself to please.

Barkley Rosser 

Tuesday, January 3, 2017

Trump and the Chevy Cruze

Trump attacks GM:
President-elect Donald Trump on Tuesday attacked General Motors in a tweet, claiming the auto giant is making a Chevy Cruze model in Mexico and then sending them to U.S. dealers tax free. "General Motors is sending Mexican made model of Chevy Cruze to U.S. car dealers-tax free across border. Make in U.S.A.or pay big border tax!" Trump said on Twitter.
GM and Ford sell around $150 billion worth of cars per year to consumers around the world. Their production is also global. My understanding is that this Cruze was more of a hit among Asian consumers but yes a few are sold in the US. GM’s response?
GM later responded to Trump's tweet, saying it makes most of its Chevy Cruze models in the United States and sells only a "small number" of one model made in Mexico in the U.S. "General Motors manufactures the Chevrolet Cruze sedan in Lordstown, Ohio. All Chevrolet Cruze sedans sold in the U.S. are built in GM's assembly plant in Lordstown, Ohio. GM builds the Chevrolet Cruze hatchback for global markets in Mexico, with a small number sold in the U.S," the company said in a statement. GM told CNBC that it sold about 190,000 Cruzes in the U.S. in 2016. About 4,500 of those, or 2.4 percent, were hatchbacks made in Mexico.
Bloomberg BNA adds more context to this dust up:
General Motors CoBy Ben Brody and David Welch President-elect Donald Trump criticized General Motors Co. for building a version of the Chevrolet Cruze compact in Mexico, saying the largest U.S. automaker should build the car at home or face a hefty tariff. “General Motors is sending Mexican made model of Chevy Cruze to U.S. car dealers-tax free across border,” Trump tweeted Tuesday. “Make in U.S.A. or pay big border tax!” Every Cruze sedan is built in Ohio and most of GM’s Mexican-made hatchbacks are exported to global markets,said Tony Cervone, a company spokesman. He declined to comment on whether the company planned to talk to Trump. Trump’s tweet is the latest example of interventionist behavior toward U.S. companies that have included Boeing Co., Lockheed Martin Corp. and United Technologies Corp. His threats against Mexican-built vehicles have the potential to impact the nine global carmakers, including Toyota Motor Corp. and Nissan Motor Co.,that have announced more than $24 billion in Mexico investments since 2010. Volkswagen AG’s Audi, BMW AG and Daimler AG each build or plan to assemble luxury vehicles, engines or heavy trucks in the country. GM said in November it planned to cut a shift at its Cruze plant in Ohio and furlough 1,200 workers there due to weak demand for small cars.
Got that – Mexico makes for foreign markets and the US purchased cars are made here. Trump is an idiot.

Sunday, January 1, 2017

Confirm Merrick Garland

The details are complicated, but there has been a meme batting about off and on that this Tuesday,  January 3, when the new Congress starts, there will be an odd moment when the Senate will have a majority of Democrats due to people leaving and arriving.  At that moment, apparenty, Vice President Biden as President of the Senate could make certain motions turning the chair over to the Dem Leader, who could then introduce the nomination of Merrick Garland for the Supreme Court, and they could just pass it. It may be that there is some flaw in this plan and that has been realized.  But if there is not and the only thing holding Biden and Schumer and other Senate Dems back  from doing this is  some sort of sense of propriety and not doing things unusual, I would say to  heck with that.  The Republicans have broken nearly every rule in the book, including their refusal the whole last year to consider Garland's nomination, which was already unprecedented and effectively breaking the rules.

So, given that this  may be the only and last chance to hold off Trump from giving control of SCOTUS to conservatives, and it would be morally justified in that Obama had his right to appoint his pick, I think they should do it if they can.  But I have heard nearly no talk in the last few days about this, which makes me suspect that either there is some flaw in the plan or that they are just plain too chicken to do it.  If the latter is the case, then no wonder the GOP is just taking over everything.  But, who knows, maybe they are plotting it and keeping that quiet and will  do it.  At least I can hope so  for the next two days or so.

Barkley Rosser