Tax riots in China

The WSJ reports:

” . . . the disturbance followed aggressive collection of new charges for the use of machines used to make children’s wear, the town’s mainstay product. The tax was targeted at small, independent workshops that often aren’t licensed and are manned mostly by migrant laborers who earn money per piece produced.

“They said workshop managers were being charged between 300 yuan (about $48) and 600 yuan for each machine used, in what Chinese discussing the matter online called the ‘sewing-machine tax.’ It amounts to about twice as much as was collected in the past.”

http://online.wsj.com/article/SB10001424052970204505304577003503223216724.html?KEYWORDS=china+tax

It’s a lot easier for taxers to count sewing machines once than either (1) to measure production by counting each and every item that leaves the facility or (2) to measure piecework, maybe daily, payments to workers.   Was the sewing machine tax in lieu of a tax on production?  Maybe so, since the operators were reportedly unlicensed.  In any event, it was too effective.  And it targeted a narrow group that could identify its members.

How I got interested in tax

Right out of college in 1969, my first job was teaching French at maybe the best public high school in North Carolina.  I was making $6,300 a year, which seemed like a lot, since all-in costs at Davidson College had been around $2,000.  So I could afford to go to France in the summers.  The epiphany was when I found out I could deduct all my living expenses (I took some classes, did an internship or “stage,” and traveled).

Deductions for travel were later called a loophole:  “Congressional discussion of the 1986 revisions makes clear that a French professor who tours France to brush up on his language skills is not entitled to a tax deduction.”  http://chronicle.com/article/Tax-PlanningSabbatical/126293/.  They got me.  I was on the Joint Committee staff then, and don’t remember the change.  I don’t think I was involved.

I remember, as I was putting my documentation together to claim my deduction, my father telling me, “If you claim $12 a day, they’ll never question it.”  I was living low to the ground back then.

 

 

 

Obama’s proposal on income from intangibles — the main part

“Under the [September 19 Obama Administration] proposal, if a U.S parent transfers an intangible to a controlled foreign corporation (CFC) in circumstances that demonstrate excessive income shifting from the United States, then an amount equal to the excessive return would be treated as subpart F income.  This would reduce the deficit by $19 billion over 10 years.”  http://www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/jointcommitteereport.pdf

Great.  But what is “excessive”?  How much income-shifting is OK?  This looks as vague as our old “commensurate with income” standard.  (I was always irritated when that standard was labeled “super-royalty.”  A salary commensurate with income is not a super-salary.)  Strike “excessive” and you’re getting somewhere.

Or “if a U.S parent shifts income from the United States by transferring an intangible to a controlled foreign corporation (CFC), then an amount equal to the income [from that intangible?] would be treated as subpart F income.”

The anti-tax crowd has it both ways. But so do I.

Advocates of a territorial system for international tax — where the USA would not tax any foreign income of U.S. corporations — say we should adopt it because the other major industrialized countries have it.

When it comes to a Value Added Tax, the fact that every other major industrialized country has one DOES NOT MATTER to those folks.

They are as consistent in their antipathy to taxation as I am in my sympathy for it.

Do we have a duty to discourage self-destruction by our fellow citizens?

This argument says “No one does.”:

“While the sales tax rate in North Carolina is 5.75 percent (plus another 2 percent in most localities), movies and other entertainment, alcoholic beverages, tobacco products, hotel rooms, and rental cars are all taxed at higher rates.

“In a free society the purpose of a tax system is simply to raise money for the operations of government. It should not be used to punish activities that are disfavored by politicians or to reward activities that politicians consider virtuous. Indeed, principles of both justice and economic efficiency would suggest that the tax system should be neutral with respect to people’s freely made choices.”

http://www.carolinajournal.com/articles/display_story.html?id=5982

That hard right view is as purely materialistic, in its own way, as Marxism.  Some of the folks on the hard right are believing Christians.  Are they buying this view?

Meanwhile, equating the government with “politicians” may be accurate in a way, but the tone of this argument shows little faith in our republican form of government.

How To Battle Obesity Among Children

Tax candy.

That will slow down the adults who supply them.  Or at least make them think.

This is almost common knowledge:

“Rather than subsidizing the production of unhealthful foods, we should turn the tables and tax things like soda, French fries, doughnuts and hyperprocessed snacks. The resulting income should be earmarked for a program that encourages a sound diet for Americans by making healthy food more affordable and widely available.”

A comprehensive proposal involves a lot of line drawing.  Even a tax on candy makes you decide about Kit Kats and Twix:  candy or not?  Here’s a definition that says not:

“Candy means a preparation of sugar, honey or other natural or artificial sweeteners in combination with chocolate, fruit, nuts or other ingredients or flavorings in the form of bars, drops, or pieces. Candy shall not include any preparation containing flour and shall require no refrigeration.”

Click to access PC10011%20All%20Candy%20Rule%20Public%20Comments%20with%20Response.pdf

If that’s too complicated, we could just tax sugar.

Multinationals at the trough

The so-called repatriation tax holiday makes the tension between corporate power and the general interest crystal clear.

US multinationals are simply shifting profits offshore – and now they want to bring them back nearly tax-free.  It’s a travesty.  http://www.bloomberg.com/news/2010-10-21/google-2-4-rate-shows-how-60-billion-u-s-revenue-lost-to-tax-loopholes.html.

The multinationals argue that getting this tax break will allow them to hire workers.  But this argument has three problems.  First, corporations have plenty of cash already.  Second, we tried this kind of amnesty before, in 2004’s Great American Jobs Act Tax Caper (see Charles I. Kingson’s article in the Tax Law Review) and they just distributed the cash to shareholders.  Third, if we let the multinationals get away with this money grab, they’ll be back again and again.  Plus all the conventional wisdom is that small companies are the ones that create the jobs.

If this is a done deal, Congress should at least (1) push to end future deferral of U.S. tax on foreign earnings to prevent future amnesties, (2) push for a repatriation rate of 20 percent or more, and (3) reject any face-saving tracing of funds: money is fungible, and tracing it is futile.

Somebody has got to pay for government.  Singling out huge multinationals for a tax break does not seem like a good idea right now.

 

Tax protesters — a more encouraging kind

Protesters drew attention at a rock concert recently.  Their complaint?  Rock stars who move to tax havens to avoid paying taxes.

“‘Tax(es) nestling in the band’s bank account should be helping to keep open the hospitals, schools and libraries that are closing all over Ireland,'” Art Uncut member Charlie Dewar said ahead of the protest.

“U2, [Ireland]’s most successful band, was heavily criticised in 2006 for moving its corporate base from Ireland to the Netherlands, where royalties on music incur virtually no tax.”

http://www.smh.com.au/entertainment/violence-erupts-as-u2-rocks-glastonbury-20110625-1gkbg.html#ixzz1QHiR2jEM

Nonviolent protests, I’m for.

What about corporations that shift income to tax havens?  Where, as Bob Dole once asked, is the outrage?

Extremes

Back in the 1980s President Reagan signed an income tax treaty with China in Beijing so as to prove his trip a success.  The treaty was a mess:  Treasury negotiators had orders to produce a treaty for him to sign, and they did — with huge giveaways to corporations that artificially routed transactions through China.  See http://ia600409.us.archive.org/16/items/preparedstatemen1185ogle/preparedstatemen1185ogle.pdf.

But signing does not a treaty make.  The Senate must approve it.  The most liberal Senator, Howard Metzenbaum of Ohio, put a hold on the treaty for allowing giveaways to multinational corporations;  the most conservative Senator, Jesse Helms of North Carolina, put a hold on it for being too lenient with Red China.  Those holds stopped the treaty in its tracks.  Treasury went back, renegotiated, and eliminated the loopholes.  Eventually, the repaired treaty came back to the Senate and sailed through.

Now the most liberal and the most conservative members of the U.S. House of Representatives join forces against the status quo.
Barney Frank and Ron Paul propose legalizing marijuana. http://ca.news.yahoo.com/lawmakers-introduce-bill-legalize-marijuana-225335489.html.  Time will tell how this turns out.

 

Foreign aid — to corporations

The American public views foreign aid as the kind of spending the Government should cut.  I’ll venture that few understand the aid that the Tax Code supplies for the foreign operations of U.S. companies.  This aid is exemplified by General Electric’s manipulation of the Code to use foreign operations to reduce its U.S. tax bill. It is explained in great detail in Edward D. Kleinbard’s “Stateless Income,” downloadable at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1791769.

Here’s the antipathy to foreign aid, from http://www.economist.com/blogs/democracyinamerica/2010/04/economistyougov_polling:

Corporate taxes aren’t so high

Folks like to point out that the USA has an unusually high corporate tax rate (35 percent).  But they don’t mention:

(1)  Some say our corporate taxes paid as a percentage of GDP are about average.  See http://www.oecd.org/dataoecd/48/27/41498733.pdf (Table B); that’s thanks to loopholes — or call them special rules.  Bruce Bartlett says ours are the lowest among developed countries.  http://economix.blogs.nytimes.com/2011/05/31/are-taxes-in-the-u-s-high-or-low/

(2) We don’t have a VAT.  All other developed countries do.

Keep the Liquor Monopoly

North Carolina Governor Bev Perdue has come out against selling the State liquor monopoly.  Good for her.  Selling income-producing assets to plug revenue holes looks shortsighted.  What’s next, selling Mount Mitchell State Park, http://www.ncparks.gov/Visit/parks/momi/main.php?  Jockey’s Ridge, http://www.jockeysridgestatepark.com/?  Hanging Rock, http://www.ncparks.gov/Visit/parks/haro/main.php?

Yes, we need to clean up the mess in the ABC system, but the free enterprise theoreticians who want private choice to rule supreme always and everywhere shouldn’t cause us to confuse the baby with the contents of the bathtub, be they water or gin.  The profit motive is a powerful force, and we the people have the power and the duty to channel it.  (That’s my opinion.) Continue reading “Keep the Liquor Monopoly”

A harsh view of our tax system

Lee Sheppard, one of America’s top tax journalists, writes:

Congress is completely corrupt, much as it was in the late 19th century, except that we have no Theodore Roosevelt to fight the corruption. The recent Supreme Court decision in Citizens United cements the obvious corporate control of the political process. It is ironic for the president to complain about it, when he, like his opponents, has been bought and paid for by the banks.

The corruption is not just financial but philosophical. The entire ruling class, regardless of party affiliation, has been persuaded to see the world through the eyes of the investor class. The shorthand for this is “free markets,” but markets are never really free, and investors prefer to have them rigged in their favor. And as the meltdown has shown, it is not true that what benefits the investor class benefits everyone else.

The investor class dislikes taxation of investment income or gains, inflation, regulation, and renegotiation of failed debts. The investor class likes deregulation, captive central bankers, and the unfettered flow of capital across national borders.

We are not talking about low taxes. We are talking about no taxation whatsoever, guaranteed by bilateral treaties and foolish practices like respect for paper corporations that allow income to be shifted wholesale to tax havens.

Excerpted from http://www.taxanalysts.com/www/40thpub.nsf/Web/06A5E6CBB0D33888852577FC00765F59?OpenDocument

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That may not be a mainstream view.  But here are some thoughts in reaction:

G.K. Chesterton said when people stop believing in God, the problem is not that we believe in nothing, it’s that we believe in anything.  Now we believe in something like free markets:  I might say instead the profit motive, because (despite what anyone says) we do regulate markets some, but many of us believe in the invisible hand (and want to harness it via incentives, public and corporate, or disincentives, like excise taxes).

As for treaties, some folks defend loopholes against overrides as if some question of national honor were involved — as if all Americans had a duty to sacrifice to show respect for and deserve respect from other countries.  Or something.  See N.Y. State Bar Ass’n Tax Section, “Comments on the Proposed Denial of Treaty Benefits for Certain Related-Party Deductible Payments” 10-11 (May 22, 2010),available at http://www.nysba.org/AM/Template.cfm?Section=Home&CONTENTID=38538&TEMPLATE=/CM/ContentDisplay.cfm.  That might be true if the loophole were bargained for or anticipated, but those aren’t the ones Congress overrides.

IRS verbiage

OK, this is nitpicking, but http://www.irs.gov/pub/irs-pdf/f1023.pdf has this:

User fee increases are effective for all applications postmarked after January 3, 2010.

1. $400 for organizations whose gross receipts do not exceed $10,000 or less annually over a 4-year period.

================

They could have said

$400 for organizations whose gross receipts do not exceed $10,000 annually over a 4-year period.

or $400 for organizations whose gross receipts are $10,000 or less annually over a 4-year period.

A virtue of bureaucracy is (or was) to have enough eyes look at drafts to prevent this kind of redundancy.  My faith is the Service is still great enough that I think I may be missing something.

Ethanol as usual

It looks like the late 2010 tax bill will sacrifice revenue to benefit ethanol, which is environmentally unfriendly, http://www.edf.org/page.cfm?tagID=1550, and competes with food production.  If the bill is going to be porked up, Senator Grassley is going to help his people (what else could he do?).   Even as a Democrat, I have admired Senator Grassley as a serious public servant generally, though not for this log-rolling.