As I have written before, when states announce a major new investment, it is far more likely that the announced subsidy is an underestimate than an overestimate. A new Good Jobs First study commissioned by the United Auto Workers unearths a new example of this, which I believe is the largest underestimate ever: Nissan in Mississippi.
When Nissan announced in 2000 that it had chosen Madison County, Mississippi, just north of Jackson, as the site for a new assembly facility, it was reported that the project had received $295 million in subsidies (at a present value of $289.7 million, as I calculated in Investment Incentives and the Global Competition for Capital). The project also was given the power of eminent domain, and while one family succeeded in avoiding condemnation, it no doubt weighed on voters when they overwhelmingly passed an eminent domain reform initiative in 2011.
It turns out, as Good Jobs First reports, that the announcements left a few things out. While the $295 million package was passed by the state legislature in a one-day session (North Carolina does this sort of thing, too), the project was also receiving incentives from Madison County, and the city of Canton agreed not to annex the plant for 30 years. In addition, it was eligible for huge subsidies under existing Mississippi programs, including Jobs Tax Credits, reductions in its business franchise tax, personal property and sales tax exemptions, as well as Advantage Jobs, which lets employers keep up to 90% of workers' state tax withholdings. This is a type of subsidy of which Good Jobs First is highly critical, as is David Cay Johnston.
Just how much was left out? $867 million, as follows:
Jobs tax credits: $400 million over 20 years
Franchise tax reduction: $72 million over 20 years
Advantage Jobs: $160 million over 20 years
County infrastructure: $25 million
County property tax abatement: $210 million over 30 years
Not only that, but Nissan received a further $68 million for an expansion in 2002, plus about $13 million in miscellaneous subsidies more recently. Finally, Good Jobs First estimates that the state had to spend about $90 million to finance the bonds for the infrastructure at the beginning of the project.
The report notes that employment is around 4500. Counting all the subsidies, but omitting the $90 million for financing, that comes to about a nominal value of $276,000 per job, more than the usual assembly plant project. In addition, about 20% of the jobs there are held by temporary workers, making the value of the project less than if all workers were directly employed by Nissan.
No doubt some of this information was available before. But the fact that it's taken over 12 years to get a full accounting of the costs of the project--and that the subsidy for the initial phase was almost three times the amount advertised--provides a stark warning about how difficult it is to have adequate oversight and accountability for even projects that receive a great deal of press coverage.
Thursday, May 23, 2013
Tuesday, May 14, 2013
Four Easy Fixes for Corporate Taxation
Everyone "knows" that the corporate income tax is a mess. Ask any company. They pay too much in corporate income tax, face rates higher than in any other OECD country, and are just following the law when they use tax havens to keep profits eternally deferred from taxation and to perform general sleight-of-hand.
Don't believe a word of it. While some economists believe we shouldn't tax corporations at all, the corporate income tax (CIT) is a necessary backstop to the personal income tax (PIT). With no CIT or a rate lower than the PIT, individuals have an incentive to incorporate their economic activities so they aren't taxed on them, or are taxed less. Needless to say, this is something an average wage or salary worker would not have the ability to do. This is another area where we have one tax law for the 1%, and different rules for the rest of us.
So what should we do? The answers are simple, which is not to say that achieving them will be simple. Corporate interests hold a lot of political sway right now, and overcoming them will be anything but easy.
1. End the usefulness of tax havens for secrecy by instituting "publish what you pay." Currently, companies can hide all sorts of transactions because they are only required to publish "consolidated" accounts of their global operations. Thus, Starbucks reports losses on its British tax statements while telling investors how profitable it is in Britain. Apple can get away with leaving its subsidiaries in Luxembourg, the Netherlands, and the British Virgin Islands off its annual report because it classifies them as not "significant." By forcing companies to un-consolidate their reports, we would know where their employees were, where their their sales (both source and destination of products and services) were, where they declared their profits and paid their taxes, etc. Part of the beauty of "publish what you pay" is that it doesn't require the cooperation of the tax havens to obtain the information.
2. End the usefulness of tax havens for avoidance by enacting unitary taxation. Upheld by the U.S. Supreme Court in 1983, unitary taxation treats multinational corporations the same way many states already tax the income of multistate corporations: considering all of a company's subsidiaries as a single entity, and using a formula to determine what portion of its global profits are taxable in your jurisdiction. The most common factors to put in the formula are sales, employment, and assets. Like "publish what you pay," this has the advantage of not requiring the cooperation of the tax havens, which have largely shown themselves to be minimally cooperative at best with global efforts to combat tax evasion and tax avoidance.
A big roadblock is the Organization for Economic Cooperation and Development (OECD), which promotes allegedly "arm's length" transfer prices that companies long ago learned to run rings around. Via the Tax Justice Network, Bloomberg reports that this allows U.S. and European companies to save over $100 billion a year on their taxes. As an indication of how uncertain lost tax estimates are, note on the one hand that this is significantly less than the $189 billion TJN estimates is lost to illegal tax evasion, but at the same time Bloomberg reports that the European Union says it loses EUR 1 trillion ($1.3 trillion) annually to tax avoidance and evasion, far in excess of these other two estimates. We're talking big money here. The OECD has begun a project called Base Erosion and Profit Shifting (BEPS), but there is widespread doubt about how much progress will come out of this. Bloomberg notes a major revolving door where OECD tax officials leave to work for tax avoidance consultants, and documents how many OECD conferences on tax are underwritten by the very enablers of tax avoidance in the accounting and legal professions. Unitary taxation would make the BEPS project unnecessary, but the OECD has long opposed unitary taxation.
3. In the United States, end the deferral of taxes until profits are repatriated. In other words, require companies to pay tax in the year the money is earned, rather than when it comes back home years later, if ever. Tax deferred is tax reduced, at the very least. To show just how difficult this will be politically, Robert Gilpin of Princeton University recommended this in his book U.S. Power and the Multinational Corporation--all the way back in 1975. (By the way, this book was quite influential on my thinking in graduate school and ever since.) Even now, U.S. multinationals are trying to get a "repatriation holiday" that would allow them to bring back $1 trillion in profits at a nominal tax rate, even though the 2004 repatriation holiday was a dud in terms of investment and job creation.
4. Don't cut the corporate income tax rate. There is a big difference between the headline rate of 35%, which is indeed tops in the OECD, and the effective rate of 12.1%, one of the lowest in the OECD. In fact, there is a significant economics literature showing that large countries can charge higher taxes than smaller ones do without suffering for it, just like the federal government can charge a much higher CIT than state governments can. There is no need for the U.S. to content itself with revenue neutral combinations of rate cuts and base broadening when government will actually put the money to work, something companies have avoided doing ever since the beginning of the recession which, need I remind you, began over five years ago.
While the road to truly fixing corporate income tax will not be easy, we seem to have reached a promising juncture in the battle with government initiatives like the Foreign Accounts Tax Compliance Act (FATCA) and the massive International Consortium of Investigative Journalists (ICIJ) tax haven investigations. Last week (via markthshark at Daily Kos), the U.S., British, and Australian tax agencies reported that they had received an even larger data leak than ICIJ had, and that one was gigantic. We certainly can't count our chickens yet; instead, we need to redouble our efforts to force governments to stamp out tax abuse by corporations and the wealthy.
Cross-posted at Angry Bear.
Don't believe a word of it. While some economists believe we shouldn't tax corporations at all, the corporate income tax (CIT) is a necessary backstop to the personal income tax (PIT). With no CIT or a rate lower than the PIT, individuals have an incentive to incorporate their economic activities so they aren't taxed on them, or are taxed less. Needless to say, this is something an average wage or salary worker would not have the ability to do. This is another area where we have one tax law for the 1%, and different rules for the rest of us.
So what should we do? The answers are simple, which is not to say that achieving them will be simple. Corporate interests hold a lot of political sway right now, and overcoming them will be anything but easy.
1. End the usefulness of tax havens for secrecy by instituting "publish what you pay." Currently, companies can hide all sorts of transactions because they are only required to publish "consolidated" accounts of their global operations. Thus, Starbucks reports losses on its British tax statements while telling investors how profitable it is in Britain. Apple can get away with leaving its subsidiaries in Luxembourg, the Netherlands, and the British Virgin Islands off its annual report because it classifies them as not "significant." By forcing companies to un-consolidate their reports, we would know where their employees were, where their their sales (both source and destination of products and services) were, where they declared their profits and paid their taxes, etc. Part of the beauty of "publish what you pay" is that it doesn't require the cooperation of the tax havens to obtain the information.
2. End the usefulness of tax havens for avoidance by enacting unitary taxation. Upheld by the U.S. Supreme Court in 1983, unitary taxation treats multinational corporations the same way many states already tax the income of multistate corporations: considering all of a company's subsidiaries as a single entity, and using a formula to determine what portion of its global profits are taxable in your jurisdiction. The most common factors to put in the formula are sales, employment, and assets. Like "publish what you pay," this has the advantage of not requiring the cooperation of the tax havens, which have largely shown themselves to be minimally cooperative at best with global efforts to combat tax evasion and tax avoidance.
A big roadblock is the Organization for Economic Cooperation and Development (OECD), which promotes allegedly "arm's length" transfer prices that companies long ago learned to run rings around. Via the Tax Justice Network, Bloomberg reports that this allows U.S. and European companies to save over $100 billion a year on their taxes. As an indication of how uncertain lost tax estimates are, note on the one hand that this is significantly less than the $189 billion TJN estimates is lost to illegal tax evasion, but at the same time Bloomberg reports that the European Union says it loses EUR 1 trillion ($1.3 trillion) annually to tax avoidance and evasion, far in excess of these other two estimates. We're talking big money here. The OECD has begun a project called Base Erosion and Profit Shifting (BEPS), but there is widespread doubt about how much progress will come out of this. Bloomberg notes a major revolving door where OECD tax officials leave to work for tax avoidance consultants, and documents how many OECD conferences on tax are underwritten by the very enablers of tax avoidance in the accounting and legal professions. Unitary taxation would make the BEPS project unnecessary, but the OECD has long opposed unitary taxation.
3. In the United States, end the deferral of taxes until profits are repatriated. In other words, require companies to pay tax in the year the money is earned, rather than when it comes back home years later, if ever. Tax deferred is tax reduced, at the very least. To show just how difficult this will be politically, Robert Gilpin of Princeton University recommended this in his book U.S. Power and the Multinational Corporation--all the way back in 1975. (By the way, this book was quite influential on my thinking in graduate school and ever since.) Even now, U.S. multinationals are trying to get a "repatriation holiday" that would allow them to bring back $1 trillion in profits at a nominal tax rate, even though the 2004 repatriation holiday was a dud in terms of investment and job creation.
4. Don't cut the corporate income tax rate. There is a big difference between the headline rate of 35%, which is indeed tops in the OECD, and the effective rate of 12.1%, one of the lowest in the OECD. In fact, there is a significant economics literature showing that large countries can charge higher taxes than smaller ones do without suffering for it, just like the federal government can charge a much higher CIT than state governments can. There is no need for the U.S. to content itself with revenue neutral combinations of rate cuts and base broadening when government will actually put the money to work, something companies have avoided doing ever since the beginning of the recession which, need I remind you, began over five years ago.
While the road to truly fixing corporate income tax will not be easy, we seem to have reached a promising juncture in the battle with government initiatives like the Foreign Accounts Tax Compliance Act (FATCA) and the massive International Consortium of Investigative Journalists (ICIJ) tax haven investigations. Last week (via markthshark at Daily Kos), the U.S., British, and Australian tax agencies reported that they had received an even larger data leak than ICIJ had, and that one was gigantic. We certainly can't count our chickens yet; instead, we need to redouble our efforts to force governments to stamp out tax abuse by corporations and the wealthy.
Cross-posted at Angry Bear.
Friday, May 3, 2013
My appearance on "The Big Picture" with Thom Hartmann
Here is a link for my appearance on Thom Hartmann last night.
One of the things brought up was a new study by the Institute for Policy Studies and Campaign for America's Future showing that the CEOs behind "Fix the Debt" have benefited from tax breaks for executive compensation to the tune of about $1 billion in 2009-11, for just those companies. This tax break lets companies count pay using stock options -- which doesn't cost the companies anything -- as if it were cash pay and thus deduct it against corporate income. According to Citizens for Tax Justice (via Common Dreams and Huffington Post), the Fortune 500 saved $11.2 billion with this loophole in 2012. Apple alone profited by $3.2 billion from 2010 to 2012 from this tax break.
One of the things brought up was a new study by the Institute for Policy Studies and Campaign for America's Future showing that the CEOs behind "Fix the Debt" have benefited from tax breaks for executive compensation to the tune of about $1 billion in 2009-11, for just those companies. This tax break lets companies count pay using stock options -- which doesn't cost the companies anything -- as if it were cash pay and thus deduct it against corporate income. According to Citizens for Tax Justice (via Common Dreams and Huffington Post), the Fortune 500 saved $11.2 billion with this loophole in 2012. Apple alone profited by $3.2 billion from 2010 to 2012 from this tax break.
Thursday, May 2, 2013
Appearing tonight on "The Big Picture" with Thom Hartmann
I will be talking austerity tonight with Thom Hartmann on his show,
"The Big Picture." The program reaches 50 million homes in the United
States, and you can look for a station here. Alternatively, you can watch it online here. The show starts at 7:00pm Eastern Daylight Time, and I am told my segment will begin about 7:15.
The European Union released its unemployment figures this week. Eurozone unemployment increased from 12.0% in February to 12.1% in March, up from 11.0% in March 2013. Greece reached 27.2% unemployment in January 2013 (most recent data available), while according to Eurostat's harmonized unemployment measure, Spain reached 26.7% in March.
No higher resolution available.
Unemployment_rates,_seasonally_adjusted,_March_2013.png (750 × 388 pixels, file size: 7 KB, MIME type: image/png)
Tell me again why we want austerity here in the U.S.?
The European Union released its unemployment figures this week. Eurozone unemployment increased from 12.0% in February to 12.1% in March, up from 11.0% in March 2013. Greece reached 27.2% unemployment in January 2013 (most recent data available), while according to Eurostat's harmonized unemployment measure, Spain reached 26.7% in March.
No higher resolution available.
Unemployment_rates,_seasonally_adjusted,_March_2013.png (750 × 388 pixels, file size: 7 KB, MIME type: image/png)
Tell me again why we want austerity here in the U.S.?
Wednesday, May 1, 2013
Bad Economic Development Ideas from Conservatives
Good Jobs First today released a new study debunking so-called “business climate indexes” and showing them to be cover for an ideological agenda of cutting taxes and cutting wages.
“Grading Places: What Do Business Climate Indexes Really Tell
Us?” is written by University of Iowa emeritus professor Peter Fisher, a
well-known expert on investment incentives and fiscal policy, with a preface by
Good Jobs First director Greg LeRoy.
This is an ambitious study that analyzes six different
indexes published by five different groups. Four are simple combinations of a
wide variety of policy variables, each with its own idiosyncratic weighting
systems, all of which are published by conservative organizations such as the
Tax Foundation or the American Legislative Exchange Council (ALEC).
Two use “representative firm” models to attempt to calculate
the tax burden on different types of companies in each state. One is sponsored
by the Tax Foundation, the other by the Council on State Taxation.
Since Good
Jobs First just knocked
out the ALEC study in December, and because the Tax Foundation index is far
more widely cited (at least 3 times as much, according to searches of the premium
Nexis news database; subscription required), I am going to focus primarily on
the critique of the Tax Foundation’s State Business Tax Climate Index (SBTCI).
The SBTCI measures 118 features (p. 49) of state tax law
grouped in five categories (p. 50): personal income tax (33.1% of the index),
sales tax (21.5%), corporate income tax (20.1%), property tax (14.0%), and
unemployment insurance tax (11.4%). As the study shows, these weightings are
the source of the most mischief. They are based on the variability of each
factor among the states; that is, personal income tax varies the most, and so
on.
However, a study by Ernst & Young for the Council on
State Taxation determined the actual percentages that businesses pay in state
and local taxes, based on analyzing tax returns. Counting the five taxes listed
above, the costs are: property tax, 45.9%; sales tax, 30.8%; corporate income
tax, 8.7%; unemployment insurance tax, 7.7%; and personal income tax, 6.7% (p.
51).
It won’t surprise you that using the Tax Foundation data
with the Ernst & Young weights gives you a very different ranking of the
states, with “six states’ ranking changing 20 or more positions, and another 11
states by 10 to 19 positions” (p. 51). In fact, there is essentially no
correlation between the Tax Foundation’s ranking and the one constructed by Fisher
(-.05, to be exact). In other words, the Tax Foundation’s tax ranking tells you
literally nothing about business taxes paid as a percentage of gross state
product.
If that is so, what is the whole point of the Tax Foundation
exercise? Fisher does not mince words (p.51):
But the TF sticks with its system because it enables the Foundation to heavily penalize states with more progressive tax systems above all, while concealing this objective in an arbitrary system of scaled and weighted numbers.
As if this were not enough, the four simple indexes produce
widely varying scores: Massachusetts ranks from best on the Beacon Hill Institute’s
State Competitiveness Index, 22nd on the Tax Foundation’s State
Business Tax Climate Index, 26th on ALEC’s Economic Outlook Ranking,
and 38th on the Small Business and Entrepreneurship Council’s U.S.
Business Policy Index (p. 68).
In some ways, this could be considered a feature, and not a
bug. As Peters explains (p. 68), “Conversely, those arguing for lower taxes
could find, in 39 states, a measure that ranks them in the highest 15 states,
and 27 could find a measure placing them in the highest 10.”
The bottom line is that, like the ALEC report analyzed in December,
these indexes are designed to pressure state governments into lowering taxes, even if that requires cutting
spending that benefits business throughout the state (such as a university
system); and putting downward pressure on wages, even though it is hard to see
how you create a prosperous state based on low-wage jobs.
Friday, April 26, 2013
New Domain Name
I have moved the site to www.middleclasspoliticaleconomist.com. No more "blogspot" in the address. This should not affect how you view the site, nor the feed. Please let me know if you do experience problems, of course.
It does affect some of the statistics. For example, all the tweets recorded at the old domain no longer show up, and all the votes in the poll from before the changeover have disappeared. Hopefully, that will be the extent of it.
Thanks for your support!
It does affect some of the statistics. For example, all the tweets recorded at the old domain no longer show up, and all the votes in the poll from before the changeover have disappeared. Hopefully, that will be the extent of it.
Thanks for your support!
Thursday, April 25, 2013
Unemployment Hits New Highs in Spain and France
As if there were not already abundant proof of the failure of austerity in the eurozone, the BBC reports today that both Spain and France have hit new unemployment milestones.
In Spain, unemployment has jumped from February's 26.3% to a first-quarter rate of 27.2% (implying an even higher figure for March). In March 2012, it was "only" 24.1% (see source in table below).
In France, there are now 3.2 million unemployed, more than at any time since the country began keeping records in 1996. Complete EU unemployment data for March should be released in early May.
For a fuller picture of the continuing deterioration of the situation in the European Union and the eurozone, the unemployment rates tell a stark story.
Date Eurozone Spain Greece Portugal Ireland UK USA EU-27
3/2012 10.8% 24.1% 21.7% 15.3% 14.5% 8.2% 8.2% 10.2%
2/2013 12.0% 26.3% 26.4% 17.5% 14.2% 7.7% 7.7% 10.9%
Note: Greece and UK figures are for January 2012 and December 2012, rather than March 2012 and February 2013
Sources: Eurostat, 2 May 2012, for March 2012; Eurostat, 2 April 2013, for February 2013; Bureau of Labor Statistics for U.S.
Moreover, it is important to note that despite drastic budget-slashing, in none of the EU countries did debt come under control, even for Ireland and the UK, which have managed some slight growth over the 11-month period. Using this handy BBC interactive tool, we can see that Spain's debt/GDP ratio increased from 69.3% in 2011 to 84.2% in 2012 (Wait, that's under 90%! What's happening?), Greece declined from 170.3% to 156.9%, Portugal increased from 108.3% to 123.6%, Ireland increased from 106.4% to 117.6%, and the U.K. increased from 85.5% to 90%. In fact, just six short years earlier, Ireland had a debt/GDP ratio of just 24.6%. The Celtic Tiger, favorite of conservatives everywhere, has truly crashed and burned.
Given the Spanish and French figures, look for bad news for EU unemployment next week. Despite the continuing austerity fail, Republicans and some Democrats continue to push for deficit cutting here, and will maintain a steady drumbeat. But, like Reinhart and Rogoff, they all deserve the Colbert treatment.
Cross-posted at Angry Bear.
In Spain, unemployment has jumped from February's 26.3% to a first-quarter rate of 27.2% (implying an even higher figure for March). In March 2012, it was "only" 24.1% (see source in table below).
In France, there are now 3.2 million unemployed, more than at any time since the country began keeping records in 1996. Complete EU unemployment data for March should be released in early May.
For a fuller picture of the continuing deterioration of the situation in the European Union and the eurozone, the unemployment rates tell a stark story.
Date Eurozone Spain Greece Portugal Ireland UK USA EU-27
3/2012 10.8% 24.1% 21.7% 15.3% 14.5% 8.2% 8.2% 10.2%
2/2013 12.0% 26.3% 26.4% 17.5% 14.2% 7.7% 7.7% 10.9%
Note: Greece and UK figures are for January 2012 and December 2012, rather than March 2012 and February 2013
Sources: Eurostat, 2 May 2012, for March 2012; Eurostat, 2 April 2013, for February 2013; Bureau of Labor Statistics for U.S.
Moreover, it is important to note that despite drastic budget-slashing, in none of the EU countries did debt come under control, even for Ireland and the UK, which have managed some slight growth over the 11-month period. Using this handy BBC interactive tool, we can see that Spain's debt/GDP ratio increased from 69.3% in 2011 to 84.2% in 2012 (Wait, that's under 90%! What's happening?), Greece declined from 170.3% to 156.9%, Portugal increased from 108.3% to 123.6%, Ireland increased from 106.4% to 117.6%, and the U.K. increased from 85.5% to 90%. In fact, just six short years earlier, Ireland had a debt/GDP ratio of just 24.6%. The Celtic Tiger, favorite of conservatives everywhere, has truly crashed and burned.
Given the Spanish and French figures, look for bad news for EU unemployment next week. Despite the continuing austerity fail, Republicans and some Democrats continue to push for deficit cutting here, and will maintain a steady drumbeat. But, like Reinhart and Rogoff, they all deserve the Colbert treatment.
Cross-posted at Angry Bear.
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