Colorado Governor Hickenlooper Vetoes Sales Tax TIF Expansion

Leigh McIlvaine at Clawback reports that Colorado Governor John Hickenlooper has vetoed SB 124, a bill that would have expanded the use of sales tax for tax increment financing of tourist projects under the Regional Tourism Act. While subsidy reformers in the state have so far been able to defeat sales tax TIF at the local level (unlike, for example, Missouri), the Regional Tourism Act allows this at the state level, but only for two projects per year expected to bring in tourists from out of state -- not that interstate sales tax competition is such a great use of subsidy dollars anyway.

The bill would have made it possible to approve six projects in a single year. This would weaken oversight of the program since all the projects would have been approved at one time. As McIlvaine points out, the bill was especially controversial because Gaylord Entertainment in Aurora (near Denver International Airport), already heavily subsidized, had applied to receive a further subsidy through the Regional Tourism Act. Gaylord has already lured a major convention, the Western Stock Show, to relocate from Denver.

Gaylord, already in the top 25 subsidies in the U.S. since 2000 (a revised version of my paper on this is almost ready to go back to the journal) at $300 million, is demanding that the state provide the full $85.4 million it has requested under the Regional Tourism Act or the $824 million project will not be built at all. This represents a nominal aid intensity of 46.8% of the investment and, according to Denver Business Journal, is more than twice as high a subsidy as Gaylord has ever received. The Colorado Economic Development Commission must make a decision on this and five other applications for the two awards on May 18.

The Governor's veto ensures that only two projects can be approved this year and allows him to "keep limits on the on the new tax-incentive program before the state committed too much money on an annual basis to tourism projects," as the Denver Business Journal said Tuesday. The story notes that the bill only passed the House of Representatives by a 37-27 vote. This guarantees that the veto will not be overridden.

Though it was a bad move to approve state sales tax TIF at all, Hickenlooper's veto prevents it from becoming a worse problem and slows the likely push to increase total subsidies under the program and weaken the targeting inherent in authorizing only two projects per year. For this, he is to be commended.

Obama Campaign Maps Romney's Tax Havens, (Almost) No One Notices

If a tree falls in the woods and no one hears it, did it really happen? That's what you've got to wonder in the wake of this week's (non-)coverage of Mitt Romney's tax haven use.

Via Tax Research UK, The Hill reports that the Obama campaign has published a handy map of presumptive opponent Mitt Romney's tax haven holdings around the world. So Tax Research UK obviously noticed. But a search ("Romney tax havens map) of the premium Nexis database shows virtually no one else did. Agence France Presse ran a story the same day (May 1) and India's The Pioneer mentioned it in a story on May 4, but that's the sum total for the week. Running the same search on Google yields the Tax Research UK article and one at The Political Carnival, plus Bob Cesca picking up The Political Carnival and then Political Ruminations picking it up from him.

Where is the U.S. press on this?

Note: I have a quibble with the Obama campaign's map. Since when were Australia and Germany tax havens? "Overseas" is not the same thing as "offshore." Indeed, Germany has done great work flushing out tax evasion from Liechtenstein by paying an informant to give them information.

Austerity fail: EU unemployment continues to rise: UPDATED

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.

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.

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:

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.

U.S. Leads Rich Countries in Mortality Rate for 10-24 Year Olds

In a depressing example of poor health outcomes in the United States, The Economist (via The Incidental Economist) shows that for 10-24 year olds, the mortality rate (deaths per 100,000 population) is considerably worse in the U.S. than in comparable rich countries (24 other OECD members plus Cyprus, Malta, and Singapore).

At about 59 deaths per 100,000, the U.S. rate was double that of South Korea, Sweden, Germany, Switzerland, Japan and the Netherlands, and almost triple the rate of Singapore. As the graph below shows, the U.S. has the highest level of deaths from traffic accidents (though not much higher than Portugal, New Zealand, or Greece). However, as the story points out, the U.S. has by far the highest rate of deaths in this age group due to violence: 8.9 per 100,000, which appears from the graph to be about three times the rate for second-place Israel. The story notes that the violent death rate in Britain is only 1/18th that of the U.S. for this age group.

The U.S. is further back on the suicide rate, where New Zealand is worst at about 12 per 100,000, followed by Finland at approximately 11, and Japan and Ireland about 10.

For "other" causes of death (disease plus non-auto accidents; thanks to commenter Marc Brown at The Incidental Economist for clarification of this point), Portugal narrowly leads the United States.

What does this mean for policy? Certainly automobile use is not going to change much any time soon, absent huge increases in gas prices and better mass transit and high-speed rail. Of course, as Thomas Friedman has advocated, the U.S. could force the price of gas up by raising the gasoline tax by $1-2 per gallon, but no one in a position to make this even possible advocates it. America's gun policies, similarly, will not change any time soon. According to a survey by Hepburn et al. (2006), Americans currently own somewhere between 260 to 305 million firearms. If the Supreme Court upholds the constitutionality of the Affordable Care Act, health insurance coverage will increase, perhaps slightly lowering mortality rates for some diseases.

In the near term, then, it appears unlikely that the mortality rate will change very much. Sorry that there's nothing less depressing to report. I'd be interested to hear your views on these issues, since obviously I have just scratched the surface here.

April TaxCast is Available

The Tax Justice Network has just released the April edition of its podcast, TaxCast (via Tax Research UK). Among the highlights:

In the wake of the Indian Supreme Court's decision on Vodaphone, India will retroactively change its tax laws to make Vodaphone's tax dodging illegal. Britain's Chancellor of the Exchequer, George Osborne criticizes India over this despite recently doing the same thing himself! (The United States has also passed tax laws with retroactive effect.) In addition, India has pledged to adopt a general anti-avoidance principle strong than anything OECD countries have done.

The European Parliament has passed a resolution calling for country-by-country reporting of corporate accounts (Publish What You Pay), criticizing the weak EU tax information exchange agreement with Switzerland, and setting automatic information exchange as the desired basis for fighting tax evasion and  avoidance.

And much more...Check it out!