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Friday, May 22, 2015

May Tax-Cast is Out!

The May Tax-Cast from the Tax Justice Network is just out. Highlights include tax transparency from politicians in Pakistan and around the world, as well as an analysis of the recent UK general election.

Tuesday, May 12, 2015

TPP blocked, at least for now

Breaking news: The United States Senate failed to end a filibuster on giving the President fast-track negotiating authority for the Trans-Pacific Partnership (TPP), the Transatlantic Trade and Investment Partnership (TTIP), and any future deals for a six-year period.

According to The New York Times, the bill failed with only a 52-45 majority for it, when 60 votes were needed to end the filibuster. The biggest complaint among swing Democrats was that the TPP does not have enforceable provisions against currency manipulation -- such as practiced by China which, though not currently involved in the negotiations, would seem like a logical future party to the agreement. The Times reported that Japan and Malaysia are both opposed to this provision.

For the time being, then, we are spared an expansion of investor-state dispute settlement and further unnecessarily strong protections for intellectual property (patents, trademarks, copyright, etc.). Unfortunately, if the proponents of the measure can reach a compromise with a group of eight Democrats (including Ron Wyden of Oregon) on enforcement measures, then they would have the 60 votes they need.

Monday, May 11, 2015

Why subsidize data centers?

A number of authors (Good Jobs First, David Cay Johnston, me, and me, among others) have pointed out that data centers (aka server farms) in the United States create very few jobs, yet receive state and local government subsidies that routinely exceed $1 million per job. I'm sure you already know that numbers like those make me ill: the typical automobile assembly plant will receive $150,000 or so per job, and require all sorts of component facilities to feed it -- though, sadly, economic development officials often given incentives to the supplier plants as well.

So why $1 million or more per job? Data centers pay reasonably well, and the biggest are connected to famous tech names like Apple, Google, and Facebook, but it seems to me that it's hard to get around the facts that there just aren't that many jobs, and they don't require an army of supplier facilities bringing indirect jobs.

But surely the competition for jobs is so steep that governments have no choice but to subsidize them? Actually, no. Aside from the fact that $1 million per job probably gives away more than the value of the investment to the government, my investigations have turned up multiple examples of companies building data centers without incentives.

One I've mentioned here before: American Express in 2010 built a $400 million data center in Greensboro, North Carolina, without any incentives at all. The leading explanation has been that Amex had already decided it was going to close a 1900-job call center in Greensboro (announced in 2011), a move it knew would trigger clawbacks of any incentives on the 50-150 job data center -- so it didn't bother seeking subsidies. Did I mention that North Carolina has cheap electricity?

More recently, I have found four Google data centers that opened or expanded without incentives in the last few years. New and expanded facilities in the Netherlands, Ireland, Finland, and Belgium all take advantage of cooler temperatures to reduce their electricity use. While Google did not respond to my email asking whether it received subsidies for those facilities, and IDA Ireland similarly was unresponsive, the Netherlands Foreign Investment Agency did respond with a confirmation that it had provided no "state aid" (EU-speak for subsidies) to the brand-new $773 million, 150-job data center opening in Groningen province in 2017. In addition, a search of the EU's Competition Directorate case database did not reveal any Google state aid cases for data centers. Thus, it appears that none of these cases received incentives.

So why did Google demand over $140 million (present value) in subsidies from North Carolina back in 2007? I think we're looking at the "usual suspect" once again, rent-seeking. Of course, North Carolina couldn't foresee the Amex no-incentive deal that didn't happen until 2010, but now that we can see how Google and American Express do business when they have to, it's time economic development officials around the country learned to "just say no" on data centers.

Cross-posted at Angry Bear.

Thursday, April 23, 2015

Moving the goal posts on ACA success UPDATED

Right. So the the same day that I posted about the substantial fall in the uninsured rate for adults that we have seen since Obamacare went into effect, a conservative writes at the Wall Street Journal making exactly the same arguments that Matt Yglesias had refuted. Cliff Asness writes in the WSJ:
That more people would be insured was never in dispute. If you mandate that people buy something, penalize them if they don’t and give it away to some, more people will end up with it. The proper response to this is: Duh.
So, as I said, Yglesias had already refuted this, giving a number of examples of conservatives who predicted there would be no reduction in the number of uninsured Americans. Today, Paul Krugman takes us to Jonathan Chait's response to Asness, where of course he piles on more examples of conservatives predicting a failure to improve the uninsured rate. Then he goes further. Asness wrote that a critical issue was "how many people covered by ObamaCare were previously uninsured." You can probably guess Chait's answer: "Well, that’s why you measure the net number of uninsured people, not just the gross expansion of coverage under Obamacare." Which leads us back to the chart showing the substantial fall in the uninsured rate that was in my last post (and Yglesias', Krugman's and no doubt many more besides).

The latest round is that yesterday Asness responded to Chait. Here is where the goal post move comes in:
In contrast the rise in coverage is heralded by a myriad of Obamacare supporters as one of two major pieces of proof the law is working. But, how can something we knew before the fact be proof of anything?
Did you catch that? If we predict that something good will happen as a result of a new law, and that good thing happens, it doesn't count as proof that the law was good. This is silly. We didn't actually know the insurance rate would fall, but we had economic models that told us it would. So not only is the fall evidence that the law is working, it's evidence that the models were right!

Somebody wake these people up.

UPDATE: @HaroldPollack points me to a new J.D. Power survey finding that people who signed up for insurance on the exchanges were more satisfied (696 out of 1000) than people with non-exchange plans, usually through employers (679 out of 1000). People re-enrolling on the exchanges scored even higher, with a score of 744 for people who re-enrolled on the Exchanges. Private plans offering multiple options were able to reach the 696 average for Exchange enrolees, which means that companies offering one insurance option had to be doing substantially worse than 679. Not surprisingly, new enrolees for 2015 were a large 55 points more satisfied than 2014 enrolees, who of course went through the disastrous rollout of healthcare.gov.  So people like their subsidies and they like their actual insurance policies, on average. Maybe that's why Republican Senators are getting antsy that there will be hell to pay if the Supreme Court rules for the plaintiffs in King v. Burwell.

Cross-posted at Angry Bear.

Wednesday, April 15, 2015

Oh, look! The uninsured rate fell again!

As any conservative can tell you, Obamacare is a job-killing "train wreck." Not only is it a job killer, there is no way that it could possibly work. Except, of course, it does.

When I last visited this issue, the percentage of adults without health insurance had fallen from its peak of 18.0% in the third quarter of 2013 to 13.4% in the second quarter of 2014. Now, as Gallup (via Matt Yglesias) shows us, it continues to fall, dropping to 11.9% in the first quarter of 2015, based on over 43,000 interviews throughout the quarter. This is a drop of exactly one percentage point from the fourth quarter of 2014, or about 2.4 million adults.

The gains that we have seen now through two enrollment cycles (Q4 2013 through Q1 2015) affect every major demographic group, as the following table from Gallup shows.

Percentage of Uninsured Americans, by Subgroup

Especially notable are the gains for minorities (8.3 percentage points for Hispanics and 7.3 for African-Americans), those with income below $36,000 per year (8.7 points) and adults from 26-34 (7.4 points). But notice that even Americans making over $90,000 annually have seen their uninsured rate fall by 2.3 points, meaning that 40% of this group is no longer uninsured. This is actually the biggest percentage gain among any of the demographics Gallup surveyed.

As Gallup and Yglesias both point out, part of the reason for the improvement is the declining unemployment rate. But Yglesias is right on the money that this undermines the "job-killer" meme. In fact, as he shows, 2014 was "the best year of job creation since 1999."

This is one argument conservatives aren't going to win. In fact, it looks like they've already lost the vote of one Tea Partier who was able to retire early because of Obamacare.

Cross-posted at Angry Bear.

Saturday, April 11, 2015

Good Jobs First reveals top federal subsidy recipients: Subsidy Tracker 3.0

Slow to be getting to this, but I have to come back to such a major development. Good Jobs First, a national non-profit best known for its work on state and local subsidies to business, unveiled in March its Subsidy Tracker 3.0. This work differs from previous publications on federal subsidies by being project-based/firm-based, rather than program-based. This lets us know which companies have received the most federal subsidies over the years.

"Uncle Sam's Favorite Corporations" finds that the federal government has awarded $68 billion in "grants and special tax credits" in the last 15 years. 2/3 of this has gone to large corporations. This is on top of hundreds of billions of dollars given to the banking sector during the financial crisis. One advantage of using Subsidy Tracker 3.0 is that it incorporates previous work by Good Jobs First tracking parent/subsidiary relationships.

One substantial finding is that:
Six parent companies have received more than $1 billion in grants and allocated tax credits (those awarded to specific companies), 21 have received $500 million or more, and 98 have received $100 million or more. Just 582 large companies account for 67% of the $68 billion total.
All six of the billion-recipients are in the energy sector: Spanish company Iberdrola tops the list with $2.2 billion, followed by NextEra Energy, NRG Energy, Southern Company, Summit Power, and SCS Energy. And five companies were on all three of the top 50 federal subsidy recipients list, the top 50 bailout list, and the top 50 state & local subsidy list: Boeing, Ford, General Electric, General Motors, and JPMorgan Chase.

It's important to recognize that project-based and program-based subsidy databases serve two functions that that do not reduce to each other. If you want to know the total amount of money governments give in incentives, you need program-based reporting. This is because many subsidy programs provide benefits automatically to all investors meeting certain criteria and they rarely list all the automatic recipients. In that case, you need to know what the program as a whole is spending. This is the approach I have taken in my subsidy estimates in Competing for Capital and Investment Incentives and the Global Competition for Capital, and Louise Story took in the New York Times program database ("State Money Flow") in its December 2012 series "The United States of Subsidies." To understand the overall scope of the problem, you need program-based reporting.

Of course, program-based reporting can have its flaws. A number of think-tanks with widely varying ideologies have produced these reports over the years, and they appear to give dramatically different answers. In fact, as I showed in Competing for Capital (pp. 152-158), the answers are all highly consistent, as they are based on a handful of federal studies (the Joint Committee on Taxation's Tax Expenditures reports, the Congressional Budget Office's Reducing the Deficit: Spending and Revenue Options, and the CBO's occasional publication, Federal Financial Support of Business). The differences, even when they are seemingly vast, stem from clear ideological choices by think-tank researchers.

To take the most obvious example, when the Cato Institute estimates "corporate welfare," it does not include the value of subsidies which take the form of tax expenditures. This give a much smaller number than estimates that follow the JCT/CBO methodologies closely, since tax expenditures easily total 2/3 of federal subsidies (and often 90% of state and local subsidies). In Cato's 2012 estimate of federal corporate welfare, author Tad DeHaven admits (p. 12) that tax expenditure are a "form" of corporate welfare, but he does not include them in his claimed total of $98 billion in federal "corporate welfare" annually. On the flip side, for any federal agency Cato wants to see privatized, it counts the entire budget as "corporate welfare." This inflates the Cato estimates relative to those which stick closer to the JCT/CBO methodologies, such as Citizens for Tax Justice.
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Project-based reporting, like Good Jobs First does with Subsidy Tracker and Megadeals, can find large individual recipients and projects, but it does not get you anywhere near the total amount of subsidies given by an individual government. As mentioned above, many programs with automatic tax breaks for investors do not give individualized listings of their recipients. (Hopefully this will change when the Government Accounting Standards Board releases its final tax incentive rules.) But because you can document every single individual award, you can derive an absolute baseline which is irrefutable.

The inauguration of Subsidy Tracker 3.0 is a great addition to the transparency tools brought to us by Good Jobs First.

Cross-posted at Angry Bear.

Thursday, March 26, 2015

Wikileaks Releases Trans-Pacific Partnership Investment Chapter

Via Daily Kos, we learn that Wikileaks has released the investment chapter of the Trans-Pacific Partnership (TPP). This is a critical chapter, as it was in the North American Free Trade Agreement (NAFTA), because it establishes investor-state dispute settlement (ISDS) mechanisms.

Despite its neutral-sounding name, ISDS is actually a radical concept. Instead of using the courts to settle disputes, which have appeals procedures and build up case law via precedent, ISDS allows companies to take governments to arbitration, where neither precedent nor appeals exist.

Susan Sell gave several examples of ISDS in her guest post in February, which illustrate the dangers well. Eli Lilly had two of its pharmaceutical patents invalidated in Canada; the company appealed both of these decisions to the Canadian Supreme Court, and lost both times. Then the company turned to investor-state dispute settlement under NAFTA to receive $500 million in compensation for the Supreme Court decisions. That case is still ongoing.

In an example also noted by Wikileaks, Sell points out that U.S. tobacco maker is using ISDS against Australia because the country mandated plain packaging on cigarettes to make them look less attractive. This should not be possible, because the U.S.-Australia Free Trade Agreement does not include investor-state dispute settlement provisions. Instead, the company is using a subsidiary in Hong Kong, which has a free trade agreement with Australia that does include ISDS, to bring the complaint. Indeed, the government alleges that Philip Morris Asia bought the Australian subsidiary, already owned by the parent company, so that it could bring this complaint.

Unsurprisingly, Australia is opposed to including ISDS in the TPP agreement, and in the current draft has excluded itself completely from ISDS. However, the draft also shows that Australia might end its objection "subject to certain conditions." Since the negotiation is being conducted in strict secrecy, there is no way to find out what those conditions might be, unless someone leaks them to the press.

The Obama administration continues to seek "fast track" negotiating authority from Congress for the TPP. This would allow the agreement to be voted on only as negotiated, with no amendments allowed. Note that this also means that the TPP would be incorporated as a U.S. law rather than as a treaty. As a law, it only needs a majority in both Houses of Congress. If it were to be offered for approval as a treaty, it would need a 2/3 majority in the Senate, with no House vote. Both NAFTA and the World Trade Organization agreements were passed as laws rather than treaties.

Don't forget that ISDS is also on the negotiating table in the Transatlantic Trade and Investment Partnership (TTIP) with the European Union. ISDS is also under fire in the European Union. In an ironic twist of events, the European Commission, a supporter of ISDS (h/t Washington Post) so far in the negotiations, has ruled in a state aid case involving Romania that paying an ISDS award (Micula v. Romania) to a company whose subsidies were terminated due to EU law, would itself be an illegal state aid! The Commission's effort to effectively nullify the decision (further irony: brought under the Sweden-Romania bilateral investment treaty, so both EU members) is not sitting well with proponents of ISDS. Too bad!

If we're lucky, the combined opposition of Germany, a large part of the EU public, some parts of the European Commission, and a growing portion of the U.S. public will kill off ISDS in the TTIP. We need to make sure it disappears from the TPP as well, even if that means rejecting the TPP. And we may well want to reject the TPP anyway over its provisions on medicines and other intellectual property issues.

Cross-posted at Angry Bear.