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Tuesday, September 15, 2020

Report Shows Huge Cost of Tax Breaks to South Carolina Public Schools -- Up 31% in Two Years

 My colleagues at Good Jobs First released a new report today showing that South Carolina public schools are losing high, and rapidly rising, amounts of potential revenue to property tax abatements controlled solely by county governments.

Thanks to Government Accounting Standards Board (GASB) Statement #77 adopted in 2015, governments that passively lose income to "tax abatements" are required, in their Comprehensive Annual Financial Reports, or CAFRs, to list the total losses annually. Passive losses occur when they are the result of the actions of another governmental unit. The most common scenario for this comes about when a municipal or county government gives a property tax break to a company, and overlaying taxing units (school, library, or ambulance districts, for example) are required to also waive their portion of the property taxes abated.

“The Revenue Impact of Corporate Tax Incentives on South Carolina Public Schools” shows that in South Carolina, these passive losses are happening with a vengeance. The state's public school districts collectively lost a total of $423 million to property tax abatements in fiscal year (FY) 2019. That's 31% more than in 2017, an absolute increase of $99 million in just two years.

Some of the biggest losses were in the poorest school districts, as measured by the percentage of students eligible for free or reduced-rate lunches. Six of these districts lost more than $2000 per student, including four that had majority Black plus Latino student populations.

“Our members struggle to teach in crumbling schools with poor heating and cooling systems and a lack of reliable internet connections,” said South Carolina Education Association President Sherry East. “It baffles me to continuously hear we don’t have enough money to fund our schools, yet this report shows we are diverting huge pots of money that could be available if we just consider tax reform in South Carolina.” (From the Good Jobs First press release.)

 This situation has been developing for over 20 years. Reporter Jay Hancock of The Baltimore Sun described South Carolina in 1999 as having "crumbling" schools that sometimes flooded in rainstorms. Despite the problems apparent even then, the state has continued to be an aggressive pursuer of new companies (Boeing and Alenia/Vought are two Megadeal-sized example).

What can be done? The report's top recommendation is to exclude school districts from any incentive deal. This is what California did in 2012-2014 when then-Governor Jerry Brown spearheaded the abolition of tax increment financing (TIF) and signed off on a much-modified version that prohibited the use of school funds in TIFs, as well as allowing all other overlaying jurisdictions to opt out.

The second recommendation is to cap the duration (currently up to 40 years!) and cost of tax abatements, to at least reduce their outsize impact on schools. Finally, better transparency from county and municipal governments on the costs and outcome measures of subsidies can lead to improved policy in the future.

The research here is part of Good Jobs First's updating of its landmark 2018 report, The New Math on School Finance, which was the first to use GASB-77 data to address the impact of tax incentives on school budgets.

Note to the reader: I was not part of this research. But stay tuned...

Thursday, July 16, 2020

Apple skates on Irish taxes -- for now CORRECTED

On Wednesday, July 15, the European Union's General Court overturned a European Commission decision from 2016 that found Apple's tax arrangements with Ireland to constitute an illegal award of state aid (subsidies) that was incompatible with the common market, ordering the company to pay back 13 billion plus interest to the Irish government. As it has been almost four years since the Commission decision, let me refresh your memory on what brought about that outcome.

The Commission found that, as a result of negotiated advance pricing arrangements (APAs), Apple paid an effective tax rate of 1% in 2003 and just 0.005% in 2014. Since Ireland's official corporate income tax rate is 12.5%, these figures are more than a little concerning. Yet the General Court ruled the Commission had not proved that Ireland had given an advantage to Apple that it didn't give to other countries.

IANAL, but this is insane. As noted above, the APAs were negotiated, hence it is hard to see how other companies could have gotten the same deal. I'd like to hear what other firms have the right to pay just 0.005% of their profits in corporate income tax.

As I showed in 2016 just prior to the Commission decision, what was negotiated as the profit determination for the two Apple subsidiaries "non-resident" in Ireland, that is, Apple Operations Europe and Apple Sales International, had no reference to actual sales of these subsidiaries. Rather than defining "profit" as sales - costs, there was a very convoluted formula based solely on expenses, thereby making the "profit" subject to tax something very different from profit.

Then there's the question of these "non-resident" companies. According to the Wall Street Journal, "Ireland contended however that its tax rulings “did not depart from ‘normal’ taxation” because it had merely followed a portion of Irish tax code that says nonresident companies shouldn’t pay income tax on profit that isn’t generated in Ireland." Wait a darn minute! Anywhere but Ireland, a "non-resident" company is one incorporated in some other country. Apple, Inc., the parent company, is non-resident in Ireland. But Apple Operations Europe and Apple Sales International are both incorporated in Ireland, and merely managed from abroad. Ireland, contrary to the practice of any other country I'm aware of (and God help us if this practice spreads to other countries!), classifies corporations with this bizarre form of organization as non-resident for tax purposes even though they are domestic corporations by ownership. Ireland had to affirmatively create such a form of organization in order to establish a corporate form that is not taxable in any country. It is this creation of a tax-immune corporate structure that makes Ireland destructive to the world economy, a "fiscal termite" in the evocative phrase of retired International Monetary Fund economist Vito Tanzi.

One last point from the Journal: "Those rulings [the APAs] allowed two Irish-registered Apple units to attribute only a small sliver of some $130 billion in profit to Ireland in an 11-year period. The commission said all that revenue should be attributed to Ireland, but the Irish government and Apple say they split the profit reasonably, given that almost all of Apple’s intellectual property is developed in the U.S., not Ireland." No, no, no, no, no! These two Irish-incorporated "non-resident" subsidiaries actually own gigantic swathes of Apple's intellectual property, that is, the patents, copyrights, etc., embedded in Apple products. By virtue of owning this intellectual property and charging royalties to other subsidiaries for the right to use it, these subsidiaries stripped $130 billion in profits from Apple units in the rest of the world, transferring them to low-tax Ireland. To try to then turn around and claim that the profits based on ownership should be massively diluted because the software was designed in the USA makes a travesty of the very concept of ownership. The intellectual inconsistency of the Apple/Irish government position takes your breath away.

What happens next? According to the BBC, the Commission has 14 days to appeal this decision to the European Court of Justice, the EU's equivalent to the U.S. Supreme Court. Since I think the Commission's decision was correct, I hope it appeals. The Commission was upheld by the General Court on a similar case involving Fiat Chrysler in Luxembourg, but overturned by the General Court last year on another similar case involving Starbucks and the Netherlands. We'll know soon if the appeal happens.

In addition, as Richard Murphy points out, the Commission is now very far advanced in discussion of an alternative tool to get around the fact that unanimity is required for EU decisions regarding direct taxation, which includes corporate income tax. As it stands, a single country (read: Ireland) can block changes such as a minimum level of corporate income tax rate that would exist throughout the European Union. However, if the Commission adopts rules under Article 116 of the EU Treaty that allows it to correct distortions in the Single Market, these would require only a qualified majority vote rather than unanimity. But this approach, too, would certainly be challenged at the European Court of Justice by Ireland and other low-tax Member States.

Score this round for the tax avoiders. May they not prevail in the end.

CORRECTION: The BBC was incorrect in stating that the Commission had 14 days to appeal. In fact, the Commission announced Friday, September 25, that it would appeal the decision. New post to follow.

Monday, June 8, 2020

Oops! Swedish head epidemiologist "admits mistakes"

Thanks to a non-blogging friend, I found this article from Bloomberg (my quote is from the Bloomberg headline) about Anders Tegnell, the epidemiologist directing Sweden's coronavirus strategy, which has been widely praised by conservatives. The policies followed by the government were much less strict than those of neighboring countries, allowing restaurants and schools to stay open, among other things.

Unfortunately, as I've reported here, this has had the effect that Sweden has one of the highest death rates per capita in the world, at 465 deaths per million (DPM) as of its June 8th reporting. This is an increase of 29 DPM in just the last week which, as I predicted on June 2, let it pass France for the world's fifth deadliest outbreak. By way of comparison, only five countries in all of Asia have a higher death rate over the entire COVID-19 outbreak than Sweden has had in a week. The highest death rate among Sweden's Nordic neighbors is 102 DPM in Denmark. The lowest Nordic death rate is Iceland's 29 DPM. Finland and Norway fall in between at 58 DPM and 44 DPM, respectively.

Now, per the Bloomberg article, Tegnell says Sweden's approach for a future pandemic should "land somewhere between what Sweden did and what the rest of the world has done." The lack of specificity did not go unnoticed by Lena Hallengren, minister for health and social affairs. She complained that Tegnell had not said what else the country should have done.

Meanwhile, in the United States, all the states are relaxing their previous restrictions, though some much more rapidly than others. While the country has now had several days in a row with fewer than 1,000 deaths, it still has about 20,000 new cases daily. Between states' rush to open up and the massive Black Lives Matter protests, I think we will see a spike in new cases shortly.

Back in Sweden, Prime Minister Stefan Lofven has promised a full investigation into the Tegnell-designed pandemic response and resulting death toll. Stay tuned.

Tuesday, June 2, 2020

40,000+ US COVID-19 deaths in May; Swedish model looking ever worse

May brought no solace to the world, or to conservative claims about COVID-19. Another 40,000 deaths in the United States put the lie to Trump's claim that the country is doing great, while he simultaneously takes no responsibility for his weeks and weeks of denial and downplaying the pandemic. The U.S. death toll now stands at over 106,000. Sweden, for the first time in its modern history the darling of conservatives, shot up the chart in terms of its death rate. Conservative-run United Kingdom did almost as badly as Sweden in May.

DPM May 1
DPM June 1
DPM Increase
+ 154
+   49
United Kingdom
+ 170
+   87
+   65
+ 173
+   62
+   78
United States
+ 124
+   19

DPM = deaths per million

The 10* worst-performing countries by deaths per million have remained the same over the last month, but their ranking has changed. As noted in an update to my last post on the pandemic, the United States passed Switzerland on May 3. At current rates, it will pass Ireland and the Netherlands in coming weeks, and Ireland will also pass the Netherlands. Over the course of May, Sweden quickly passed the Netherlands and left it in the dust. It will pass France soon. The United Kingdom leapfrogged Italy and is set to take the #2 spot from Spain within a week.

As I mentioned last time (link above), while conservatives have lauded Sweden's refusal to go for a hard lockdown, we can see that Sweden had the highest increase in deaths per million people over the last month. Now, instead of having 64 more deaths per million than the United States, the gap has grown to 113 per million. That would equate to an extra 37,380 deaths if the United States were doing as poorly as Sweden.

The global toll is worse still. Not only are there now 377,000 deaths worldwide, but the number of new daily infections shows a fairly steady increase since April 1, rising from about 75,000 new cases globally per day then to about 100,000 new cases per day on June 1. In the same period, daily deaths have fallen from about 5,000 to 3,000. Unfortunately, deaths are a lagging indicator, and the epidemic is now revving up in developing countries such as Brazil, Peru, and Ecuador. The latter has already risen to #12 with 194 deaths per million officially, and a New York Times analysis on April 23 suggested that the true death toll was 15 times higher as hospitals had been overwhelmed and the dead were overflowing the country's emergency rooms and morgues.

As if all this isn't bad enough, Trump fiddles pours on the gasoline as the U.S. burns, in an attempt to consolidate his dictatorship now, before elections interfere with his project. I'll be writing about this very soon.

* Excluding microstates (San Marino, Andorra) and dependencies (Sint Maarten, Isle of Man, Channel Islands, Montserrat).

Thursday, May 7, 2020

Department of "Justice" Moves to Drop Case Against Flynn

Talking Points Memo, and I'm sure every other news organization in the country, is reporting the bombshell move by the Bill Barr DOJ to drop the case against former National Security Adviser Michael Flynn for lying to FBI investigators, to which Flynn pleaded guilty over two years ago, in December 2017. According to the filing, the DOJ is now alleging that Flynn's statements were not "material even if untrue." It claims there was no legitimate reason for investigating Flynn, despite his making five phone calls to the Russian ambassador and lying about them.

The filing goes on to repeat all the rancid nonsense our so-called President has been making about the investigation, particularly targeting the FBI, then-Director James Comey, and of course FBI agents Peter Strzok and Lisa Page. Jesus fucking Christ! There really is nothing so low this regime won't do. Barr and his minions have put an exclamation point on the complete perversion of justice I highlighted in February.

As you can tell by the fact that I am breaking my own commenting rules, I am gobsmacked, speechless, and enraged. The would-be dictator continues to trash the rule of law in this country, and there are still 180 days left until the November election.

Judge Emmet Sullivan, who has presided over this case, does not have to accept the DOJ recommendation. I pray that he does not. You know, it might be worthwhile if Special Counsel Robert Mueller said something about the methodical lying about, and undoing of his investigation. That he has been silent this long is disgraceful. He swore to uphold the Constitution and it's being violated in plain sight.

You can see the entire filing at TPM. You can read it if you're a masochist or more detail-oriented than I am. I'm not going to tempt my blood pressure any more than necessary.

I'm sorry I can't be any more coherent than this. This is Saturday Night Massacre level lawlessness now. We're in the fight of our lives to save America.

Friday, May 1, 2020

US has 9th* worst COVID-19 death rate in the world: WTH is Trump thinking? UPDATED

In a press conference on Thursday, April 30, the head of the illegitimate Trump regime said, "Our death totals, our numbers, per million people, are really very, very strong. We're very proud of the job we've done." Okay, we know he lies all the time, but this is ridiculous.

The United States has the 9th* worst COVID-19 death rate in the world! At 199 per million population as of 8:00pm EDT May 1, it is exceeded by only Belgium (665**), Spain (531), Italy (467), the United Kingdom (405), France (377), the Netherlands (286), Sweden (263), Ireland (256), and Switzerland (203). At recent rates, the United States will pass Switzerland to take the 9th worst spot within a week. How is this a record to be proud of?

Meanwhile, conservative darling Sweden (the first time Sweden has been a conservative darling!) is zooming up the list, and is doing far worse than its Nordic neighbors Denmark (79), Norway (39), Finland (39), and Iceland (29).

The global average death rate is 30.7 per million; the U.S. figure is more than six times that. Even if you doubt China's numbers (only 4,633 deaths, 3 per million), the figure when you remove China is still only 37, leaving the United States at more than five times the world average.

With such a wide divergence between the U.S. and world averages, it is not surprising that there are many countries with much lower death rates than the United States. Notable are Canada (90), Brazil (30), Mexico (14), Japan (4), Australia (4), India (0.9), and Taiwan (0.3). Moreover, Vietnam, with a population of 95 million, has had zero deaths. And we're supposed to think the United States is doing well?

Why is Sweden suddenly a conservative darling? Because it has not locked itself down like most of the rest of the world. As shown above, however, not only does it have a substantially worse death rate than the United States (its extra 64 deaths per million would translate to another 21,056 U.S. deaths), but it doing drastically worse than its most similar neighbors. Why Sweden is considered a success by conservatives is beyond me.

Georgia's reopening of the state beginning April 24 has generated substantial controversy. One reason this is surprising is that Georgia has a death rate of 113 per million, sixteenth highest in the country, three times the world average. One leading theory for the end of Georgia's lockdown is that it will force workers to go back to work or lose their unemployment benefits. It is certainly not a medical decision, given the state's low level of testing and inconsistent case decline (click on "daily cases" in the right bottom corner).

Don't be fooled by the goalpost moving, which we're going to see over and over as the death rate rises. The U.S. response to the coronavirus isn't "very, very strong" just because it isn't the worst in the world. No, this is just one more aspect of "winning" to get tired of.

P.S. While I was writing this, Rachel Maddow did a great segment on the sidelining of the Centers for Disease Control and Prevention. This is definitely a worrisome development to keep our eyes on.

* Excluding microstates (San Marino, Andorra) and dependencies (Sint Maarten, Isle of Man, Channel Islands, Montserrat).
** Unlike other countries, Belgium likely overcounts deaths rather than undercounting them. As The Independent notes:
According to Belgium’s Federal Public Service for Health, just 46 per cent of the country’s total official deaths were in hospitals where coronavirus cases were confirmed. But 53 per cent of the Belgian tally, or 4,100 people, were from care homes, and of these, 84 per cent are suspected but unconfirmed coronavirus deaths.
A University of Ghent virologist, Steven van Gucht, therefore says that to compare Belgium with other countries, one should "divide by two." Of course, even a 332 per million death rate is a very poor outcome. Moreover, the better other countries do at incorporating non-hospital deaths into their data, the less Belgium's death rate should be cut to be comparable.

UPDATE: On May 3, the United States passed Switzerland to move into the 9th-worst spot.

Friday, April 17, 2020

Comparative Responses to the Economic Aspects of the Crisis Show Many Drawbacks in USA

The global COVID-19 pandemic has created an associated economic crisis as many businesses have been forced to close because of lack of demand (travel, for example) or social distancing (too many to list). With predictions of a possible 32% unemployment rate in the United States, how does the response to the economic crisis here compare with those of other countries?

Both the United States and our major European allies have passed economic stimulus laws that exceed 10% of gross domestic product. The $2.2 trillion CARES Act package signed March 27 was 10.1% of 2019 GDP of $21.7 trillion. Spain passed an even larger package, equaling 20% of its GDP.

We can think of the CARES Act as having three main components. First, there are individual safety-net supports, including the $1,200 payments most individual adults will received, more money into the SNAP (formerly named Food Stamp) program, and greatly expanded unemployment insurance. Second, there are $350 billion in forgivable loans for small business, which become grants if the companies don’t lay off their employees (the “Paycheck Protection Plan”). Third, there is a $500 billion bailout fund for large companies. This is poorly designed, most importantly because it doesn’t require companies to maintain staff. Over 20 million people have filed for unemployment benefits in the last four weeks alone.

Besides the catastrophic loss of wages, the biggest problem with allowing bailed-out companies to lay off staff is that such a large percentage of the U.S. workforce gets its health insurance through work, meaning that when they lose their jobs, they also lose their health insurance. As Saez and Zucman point out, people can continue their employer’s insurance under COBRA, but it is extremely expensive since there is no employer contribution. This comes precisely at a time when they may really need it, given the length and ruinous expense of treatment incurred for people with severe cases of COVID-19.

By contrast, in all western European countries (as well as Canada, Japan, South Korea, Taiwan, etc.) health insurance is universal. Even in a country with a public/private system like Germany, when you lose your insurance due to job loss, you transition seamlessly to a public health insurance plan with no loss of coverage.

European responses have focused much more on a wage-support approach like the small business program in the United States, except applied economy-wide. The U.K. government has been described as the “payer of last resort,” as it stands to guarantee 80% of workers’ wages indefinitely. For both employees and the self-employed, this would be capped at £ 2,500 (approximately $3,125) per month. Given that the United Kingdom has the National Health Service, a true socialized medicine system completely divorced from employment status, layoffs were never going to mean a loss of health care access for workers in Great Britain and Northern Ireland. But by guaranteeing employment, the United Kingdom will have higher levels of job security than U.S. workers will, with jobs to go back to when the crisis ends. Indeed, the problem in the United States is not simply health insurance, but the fact that each of the 50 states has different rules for unemployment insurance, with inter-state variation both in the generosity and length of payments in the different programs.

An important difference between wage support in Europe and for small business in the United States is that the European plans are open-ended, whereas the U.S. plan must be renewed with Congressional legislation every time it runs out of money. This opens the possibility of deadlocks if attempts are made to attach unrelated provisions to an extension bill, something that happens frequently in Congress. And this is no longer a prediction, because the $350 billion ran out on April 16.

Absent federal leadership, we also expect “the economic war among the states” to resume, with each state offering subsidies trying to attract investment, in some cases through job piracy. From our experience during the Great Recession (when there were far more desperate politicians chasing far fewer deals), we can expect to see another surge in expensive megadeals.

Facing high unemployment and relatively few opportunities to attract large numbers of jobs, states will bid more for those opportunities than they would in more prosperous times. States will be tempted to engage in job piracy in many multi-state metropolitan areas, such as New York, Charlotte, and Memphis.

We need to remind states about the first-ever binding anti-piracy agreement, the 2019 accord between Kansas and Missouri, where research by the Hall Family Foundation had documented that the two states wasted $335 million over 10 years moving companies short distances but across the state line within Greater Kansas City.

It is imperative that we support the anti-piracy legislation pending in 13 states this year, sponsored by Chicago-based Progressive Public Affairs, which has amassed lead sponsors from both parties (nine states have Democratic sponsors, while four have Republican sponsors). And we will need to keep the pressure on states to ensure that companies which receive government support fulfill their job and other commitments.

Given the predominance of wage support in European countries, most of this funding will not be subject to EU subsidy (“state aid”) rules. That’s because the money will be available economy-wide in the Member States, not favoring one company over another. In technical terms, this use of the funds is “non-selective,” and therefore not state aid at all, as our contacts at the European Commission have explained. Nevertheless, due to the large amounts of money at stake, each Member State will be responsible to ensure that recipients maintain employment in order to qualify for government paying their wage bills.

Some EU spending will qualify as state aid, such as the Danish’s government’s plan to partially compensate organizers of conferences and other events that were canceled due to the coronavirus pandemic. That is, it is selective, for being available to one industry. To spell out such distinctions, the European Commission published on March 19th its “Temporary Framework” notifying Member States about likely scenarios and whether or not it was likely to approve subsidies the Member States might propose. (Note that the Commission has exclusive power to approve, modify, or deny proposed state aid projects or programs by the 27 Member States, subject to court review.) As I have shown previously, the European Union has shown itself much better than the United States at controlling economic development subsidies.

As we can see, there are major drawbacks to the U.S. response to the economic crisis. By letting people become unemployed rather than making an open-ended wage guarantee, workers lose their health insurance and have no assurance of a job to go back to when the health crisis ends. High unemployment will also pressure state and local governments to return to worst practices in economic development. There is still time to change course, but it will take constant and high levels of political pressure to make it happen.

Cross-posted with Good Jobs First.