Eurostat, the European Union's statistical agency, reports that unemployment continues to worsen in the Eurozone, adding further evidence for the failure of the world's biggest experiment in austerity. When we last checked in in March, the January data had just been released. This week's release takes us to the end of March.
Select Unemployment Rates
Date Eurozone Spain Greece Portugal Ireland UK USA EU-27
1/2012 10.7% 23.3% 19.9% 14.8% 14.8% 8.3% 8.3% 10.1%
3/2012 10.8% 24.1% 21.7% 15.3% 14.5% 8.2% 8.2% 10.2%
Note: Greece and UK figures are for November 2011 and January 2012, rather than January and March
Source: Eurostat, 2 May 2012
Overall, Eurozone and EU unemployment continue to worsen, although there were reductions in the UK and Ireland. However, both Britain and Ireland returned to recession, along with Belgium, Greece, Italy, the Netherlands, and Portugal.
While Friday's jobs numbers were disappointing, the U.S. is still moving in the right direction, though hardly fast enough, with positive job growth and a falling unemployment rate at 8.1%.
The good news, for both Europe and the U.S., is that Europeans are beginning to wake up to the failure of austerity. The Dutch government has collapsed over its austerity measures, and it appears that Nicholas Sarkozy will go down to defeat for the same reason. As Krugman counterposes to these results, the Right in this country is keeping up a steady drumbeat for austerity It's important that we beat back such calls, or even millions more people will suffer needlessly when their policies increase unemployment.
UPDATE: And Sarkozy goes down in another defeat for the austerity caucus.
I grew up in a middle-class family, the first to go to college full-time and the first to earn a Ph.D. The economic policies of the last 40 years have reduced the middle class's security, and this blog is a small contribution to reversing that.
Saturday, May 5, 2012
Thursday, May 3, 2012
Living Wage Law Passes in New York City
On Monday, New York's City Council passed a living wage ordinance, reports Good Jobs New York's Bettina Damiani. The 45-5 vote means the Council can easily override a threatened veto by Mayor Michael Bloomberg (New York Post, May 1, via Nexis subscription service).
As I analyzed in Competing for Capital, the Living Wage movement attempts to reform, rather than abolish, economic development subsidies. The basic idea is the same as performance requirements in international investment negotiations, i.e., that a company that receives subsidies has to provide additional benefits to the city providing those incentives. As its name suggest, the most common demand is that subsidized firms have to pay a specified wage that is higher than the usual minimum wage. According to Living Wage NYC, over 140 cities in the U.S. have living wage ordinances, and the idea has spread to the U.K., Canada, and New Zealand.
In New York's case, the law specifies that companies receiving at least $1 million in subsidies must pay $10/hour if they provide health benefits, or $11.50/hour otherwise. This is not a lot of money in New York City, yet a study by the Fiscal Policy Institute, Good Jobs New York, and the National Employment Law Project found multiple cases where subsidized projects paid even less, such as the Bronx Gateway Mall, which the study found had starting wages of $8.80 per hour. According to the study, the city spends over $2 billion annually on economic development incentives.
Mayor Bloomberg blasted the measure as a "jobs killer," language reminiscent of minimum wage critics. We should remember that, according to Paul Krugman (Conscience of a Liberal) recent studies of the minimum wage do not uphold the long-claimed negative effects of the minimum wage on jobs. In fact, work beginning with that of David Card and Alan Krueger (now the chair of the Council of Economic Advisers) deftly picked apart previous studies in a process known as meta-analysis.
The biggest drawback to the New York law is that it was narrowly drawn by Council Speaker (and probable mayoral candidate) Christine Quinn in order to appease business interests. In fact, according to the Post story, it would affect "at least 600 employees a year," which is hardly a big number in New York. But we can count on advocates to try to expand its scope in the next few years.
As I analyzed in Competing for Capital, the Living Wage movement attempts to reform, rather than abolish, economic development subsidies. The basic idea is the same as performance requirements in international investment negotiations, i.e., that a company that receives subsidies has to provide additional benefits to the city providing those incentives. As its name suggest, the most common demand is that subsidized firms have to pay a specified wage that is higher than the usual minimum wage. According to Living Wage NYC, over 140 cities in the U.S. have living wage ordinances, and the idea has spread to the U.K., Canada, and New Zealand.
In New York's case, the law specifies that companies receiving at least $1 million in subsidies must pay $10/hour if they provide health benefits, or $11.50/hour otherwise. This is not a lot of money in New York City, yet a study by the Fiscal Policy Institute, Good Jobs New York, and the National Employment Law Project found multiple cases where subsidized projects paid even less, such as the Bronx Gateway Mall, which the study found had starting wages of $8.80 per hour. According to the study, the city spends over $2 billion annually on economic development incentives.
Mayor Bloomberg blasted the measure as a "jobs killer," language reminiscent of minimum wage critics. We should remember that, according to Paul Krugman (Conscience of a Liberal) recent studies of the minimum wage do not uphold the long-claimed negative effects of the minimum wage on jobs. In fact, work beginning with that of David Card and Alan Krueger (now the chair of the Council of Economic Advisers) deftly picked apart previous studies in a process known as meta-analysis.
The biggest drawback to the New York law is that it was narrowly drawn by Council Speaker (and probable mayoral candidate) Christine Quinn in order to appease business interests. In fact, according to the Post story, it would affect "at least 600 employees a year," which is hardly a big number in New York. But we can count on advocates to try to expand its scope in the next few years.
Monday, April 30, 2012
Whiny Apple Pioneered Avoidance Strategies, Books Fictional Tax Rates
If you haven't yet seen The New York Times article on Apple, go read it. I'll wait. It's a blockbuster.
As I wrote last month, Apple whines about the fact that it has to pay taxes. But of course, it does much more than whine. It sets up subsidiaries in tax haven states like Nevada to avoid U.S. state taxes, and establishes foreign tax haven subsidiaries in order to avoid U.S. and other government's taxes. Then, through the magic of transfer pricing, profits made in high-tax jurisdictions becomes taxable only in Nevada, Ireland, Luxembourg, etc. The Times reports estimates by Martin Sullivan that this saves Apple $2.4 billion a year in U.S. federal taxes alone, not to mention what it save in U.S. states or foreign countries. This is a conservative estimate, based on only 50% of its profits being due to U.S. operations. A more realistic 70% allocation of profits to the U.S. would mean that Apple's federal tax bill would be $4.8 billion higher, according to Sullivan.
Based on extensive interviews with former Apple executives as well as accountants for other firms, Charles Duhigg and David Kocieniewski show that not only does the company practice extensive legal avoidance of its taxes, but that the firm pioneered several of the most important tax avoidance techniques out there:
Here's the kicker: Even "cash taxes" is not a figure that accurately represents a given year's tax payments, according to The Times.
As Richard Murphy points out, while Apple's tax strategy is no doubt all legal ("perfectly legal," as in the title of David Cay Johnston's great book), "It's also profoundly unethical." Apple largely rejects its duty to help pay for living in a civilized society, even as state (like its home of California) and national governments flounder with debt. Its behavior forces one or more of three outcomes, as I have written many times before: shifting the tax burden to others, more government debt, or program cutbacks. Apple's behavior shows that it's clearly okay with that.
The solution starts with Murphy's innovative "country-by-country" reporting, which does not require the tax havens to cooperate because all the information would be supplied by the company. Then, as I noted in November, we need worldwide unitary taxation to strip out the artificiality of companies' allocation of assets and profits. We could treat Apple's (and Microsoft's, and...) "ownership" of patents in Ireland as the fiction it is, and force these companies to pay their fair share of taxes.
As I wrote last month, Apple whines about the fact that it has to pay taxes. But of course, it does much more than whine. It sets up subsidiaries in tax haven states like Nevada to avoid U.S. state taxes, and establishes foreign tax haven subsidiaries in order to avoid U.S. and other government's taxes. Then, through the magic of transfer pricing, profits made in high-tax jurisdictions becomes taxable only in Nevada, Ireland, Luxembourg, etc. The Times reports estimates by Martin Sullivan that this saves Apple $2.4 billion a year in U.S. federal taxes alone, not to mention what it save in U.S. states or foreign countries. This is a conservative estimate, based on only 50% of its profits being due to U.S. operations. A more realistic 70% allocation of profits to the U.S. would mean that Apple's federal tax bill would be $4.8 billion higher, according to Sullivan.
Based on extensive interviews with former Apple executives as well as accountants for other firms, Charles Duhigg and David Kocieniewski show that not only does the company practice extensive legal avoidance of its taxes, but that the firm pioneered several of the most important tax avoidance techniques out there:
Apple, for instance, was among the first tech companies to designate overseas salespeople in high-tax countries in a manner that allowed them to sell on behalf of low-tax subsidiaries on other continents, sidestepping income taxes, according to former executives. Apple was a pioneer of an accounting technique known as the “Double Irish With a Dutch Sandwich,” which reduces taxes by routing profits through Irish subsidiaries and the Netherlands and then to the Caribbean. Today, that tactic is used by hundreds of other corporations — some of which directly imitated Apple’s methods, say accountants at those companies.Not only that: Apple paid, according to The Times article, $3.3 billion in "cash taxes" on its $34.2 billion of worldwide profits, for a 9.8% tax rate, as opposed to the $8.3 billion the company's 10-K report said it paid. As the article notes:
“The information on 10-Ks is fiction for most companies,” said Kimberly Clausing, an economist at Reed College who specializes in multinational taxation. “But for tech companies it goes from fiction to farcical.”Some commenters on my article last month actually cited these 10-K figures as proof that nothing was amiss at Apple. As it turns out, the company's reporting has other major gaps. Its 2011 10-K Annual Report states that it has only two "significant" foreign subsidiaries, both based in Ireland. Apparently its Luxembourg subsidiary -- with over $1 billion in 2011 sales, according to The Times -- is not significant. Nor are its subsidiaries in the Netherlands and the British Virgin Islands, despite their importance in keeping Apple's worldwide taxes low. Because Apple only deems its Irish subsidiaries "significant" and does not report on any others' existence, the Government Accountability Office report of 2008 on tax haven subsidiaries was misled into saying that the company had only one such subsidiary. We can only wonder how many other tax haven subsidiaries are omitted from companies' SEC filings.
Here's the kicker: Even "cash taxes" is not a figure that accurately represents a given year's tax payments, according to The Times.
As Richard Murphy points out, while Apple's tax strategy is no doubt all legal ("perfectly legal," as in the title of David Cay Johnston's great book), "It's also profoundly unethical." Apple largely rejects its duty to help pay for living in a civilized society, even as state (like its home of California) and national governments flounder with debt. Its behavior forces one or more of three outcomes, as I have written many times before: shifting the tax burden to others, more government debt, or program cutbacks. Apple's behavior shows that it's clearly okay with that.
The solution starts with Murphy's innovative "country-by-country" reporting, which does not require the tax havens to cooperate because all the information would be supplied by the company. Then, as I noted in November, we need worldwide unitary taxation to strip out the artificiality of companies' allocation of assets and profits. We could treat Apple's (and Microsoft's, and...) "ownership" of patents in Ireland as the fiction it is, and force these companies to pay their fair share of taxes.