Jensen on the costly politics of tax competition

Nate Jensen recently published an op-ed of note, asking "Why Are Your State Tax Dollars Subsidizing Corporations?" Nate has studied tax and corporate decision making for some time, and recently published "Incentives to Pander: How Politicians Use Corporate Welfare for Political Gain", which is on my reading list. This is, of course, a favourite topic of mine. A few excerpts from the op-ed:

Politicians are using public policies, from renaming a city to offering billions of dollars in grants, infrastructure improvements and tax abatements, to take credit for companies’ location decisions. ...

In all likelihood, incentives are overpaying firms, leading to lost resources that could be used for other purposes. If the incentives don’t pay for themselves, they must be paid for by either higher taxes or decreases on government spending. Local school districts are vocal opponents of incentives; they see their tax base being given away in the name of economic development. 

But in fact it is most likely the quality of the work force that will be the deciding factor for Amazon, not the billions in incentives. Proponents of incentives often claim that these subsidies pay for themselves, and voters often support these efforts, believing the promises of good jobs. But this is possible only if governments perfectly target the companies that require incentives and pay just enough, and not a penny more, to sway a company’s decision.

...Political pandering is behind this explosion. But there is also some of what Brink Lindsey of the Niskanen Center and the political scientist Steven Teles call the “captured economy.” In between these politicians and corporations are economic incentive consultants, tax professionals and lobbyists all providing ways for businesses to maximize their take, and getting a percentage of these incentives in return.

There is a role for government in economic development. State and local governments can help businesses without access to finance survive and expand, provide worker training that is valuable to residents and companies, and invest in traditional education from pre-K to college. There are certainly worthy investments that can be made. But $7 million for Carrier, $3 billion for Foxconn and billions for Amazon is just using the public coffers for political theater.  

Highly recommended reading in full for anyone interested in tax competition.

How to rob from the poor and give to the rich: Border Tax Equity Act of 2016

In September, Donald Trump started calling for the US to tax imports from Mexico and China etc, on various theories having to do with his vision of what fair trade policy involving the United States would require. Democratic lawmaker Bill Pascrell appears to have seized the moment to re-introduce a bill that has failed multiple times in the U.S. Congress over the years, namely, the so-called Border Tax Equity Act. The idea of this act is simple: tax US consumers on imports and give the money to US companies that export things. If you find it amazing that anyone anywhere could support a tax and redistribute scheme like this, blame it on the pitch: Pascrell (and others) laud this as an answer to what they have characterized as a discriminatory practice, namely the exemption of exported products from value added taxes (VAT) by the 160+ countries that have federal consumption taxes. The argument is that "[t]he disparate treatment of border taxes is arbitrary, inequitable, causes economic distortions based only on the type of tax system used by a country, and is a primary obstacle to more balanced trade relations between the United States and its major trading partners."

This argument is specious and I don't expect the bill to pass but this issue is one that just does not seem like it will go away, I think because it is too easy to pitch the VAT border tax adjustment as "unfair." I had an exchange with trade expert Simon Lester almost ten years ago on this very subject, and re-reading my response today, it seems to cover the bases so I thought I would re-post it. You can see his original post here including a discussion in the comments between myself, Simon, and Sungjoon Cho on the matter. Sungjoon helpfully linked to a GATT working party report from 1970 but his original link is dead, however you can find that report here. Here is what I said (highlights added):

The great fallacy here is that the foreign exporter to the U.S. is somehow subject to no tax while the U.S. exporter is subject to two taxes. This is simply not the case. Other countries, especially our biggest trading partners (e.g. Canada) have both a federal corporate income tax and a federal consumption tax, while the U.S. has only a federal corporate tax. You cannot honestly assess the impact of the VAT in the context of only one country’s corporate income tax, and supporting this legislation this way is dishonest. The Textileworld site you reference conveniently ignores foreign corporate taxes in its analysis—I will leave you to decide for yourself why they might do that.

...I will give a drastically oversimplified example. Assume a U.S. person manufactures a product in the U.S. which it will sell in Canada. The company’s profit on the sale is subject to federal income tax in the U.S., plus VAT in Canada (there called a general sales tax). Let us assume a Canadian company makes a similar product. With the same profit margin as the U.S. company on that product, the big issue here is the different rates of federal corporate taxes each company pays to its home country, because both pay an equal amount of VAT tax in that market. What the export credit in the U.S. would do is lower the U.S . company’s federal income tax burden relative to the Canadian one.

Now flip the scenario, the U.S. manufactures and sells a product in the U.S., where there is no VAT, and the Canadian company manufactures a product in Canada to sell in the U.S. Now each company again will pay its income tax to its home country but what happens to the VAT? Well there is no U.S. federal sales tax, and Canada’s VAT only applies to sales in that market, so the VAT is not imposed on the Canadian product coming in to the U.S.—it is exempt from their VAT. Again, in the U.S. market, there is no price distortion other than the difference in corporate income tax burdens—neither product is subject to VAT. If the U.S. imposes a border tax, I think you might now see that as distortionary (to the extent you believe that a tariff is distortionary in any event). Now you might say yeah, but many states have state sales taxes, wouldn't that equalize the incoming product, exempted from sales (VAT) tax in its foreign country? The answer is, of course, yes. But you don’t see very many people complaining if New York does not impose its sales tax on a product being shipped out of New York for sale in Canada—that is a (much-ignored) direct corollary to the VAT exemption.

I could go on but this argument has been made many times before. I appreciate that tax is complex and there are many alternative taxes and scenarios in which they apply differently, so that it is easy to be swayed by something that “seem unfair.” The bottom line is that people will continue to compare VAT to income taxes when it suits their purposes (i.e., supports protectionist policies like the border tax), and not when it doesn’t (i.e, when they want to pressure a government to lower its corporate tax rate to align with other nations’ corporate tax rate). But don’t be fooled by someone who tries to get you to look at one piece of a complex puzzle and guess what the image is.

Further...

[I]f you seek a level playing field, border taxes and rebates do not achieve that, and in fact, I doubt anyone could ever be confident about how to go about getting it via tax breaks for some and tax penalties for others (I have some ideas about where I would start, but I'll restrain myself). A border tax/rebate does not operate like an inverse VAT or offset an extra cost imposed by a VAT. A border tax is a tariff and a rebate is a subsidy, plain and simple, and I would expect many of our trading partners to oppose it if enacted.

Incidentally, abolishing all income taxes might solve the problem of the income tax competition, but then you have a much different problem. By some estimates, if the U.S. were to abolish the income tax entirely in favor of a sales tax, the rate could be as high as 50%. More likely scenario: we keep the income tax just like it is and ADD a 10-20% federal VAT. This would get rid of the erroneous "VAT as distortion" complaint but I personally would rather keep the debate and take a pass on the VAT.

Today, I am less convinced that the income tax is worth saving and more open to a federal VAT, but that's a discussion for another day. To the above I would only add that in 2009 the US Congressional Research Service undertook a study called International Competitiveness: An Economic Analysis of VAT Border Tax Adjustments, well worth reading--the authors were Maxim Shvedov (now tax policy expert at AARP) and Donald Marples, whose more recent work on inversions with Jane Gravelle is also of interest. Their conclusion:

Economists have long recognized that border tax adjustments have no effect on a nation's competitiveness. Border tax adjustments have been shown to mitigate the double taxation of cross-border transactions and to provide a level playing field for domestic and foreign goods and services. Hence, in the absence of changes to the underlying macroeconomic variables affecting capital flows (for example, interest rates), any changes in the product prices of traded goods and services brought about by border tax adjustments would be immediately offset by exchange-rate adjustments. This is not to say, however, that a nation's tax structure cannot influence patterns of trade or the composition of trade.

In summary: No, taxing at the border for the reasons given does not introduce "equity." It introduces WTO-prohibited tariffs and export subsidies. One could imagine that if the tariffs so raised were used to fund public goods, the possibility for an equitable outcome could be increased. But taking the money out of the pockets of US consumers and putting it in the pocket of US exporters in no way fulfills the stated policy goal.

Tax competition redux: the Kansas-Missouri tug-of-war

Although I dislike the use of quasi-military imagery to describe tax competition, I think "tug-of-war" is more commonly used than "rope-pulling contest" and this is, I think, a good image to describe the phenomenon. This Planet Money podcast brilliantly captures the rope-pulling contest that characterizes tax competition among US states, which is a version of the same game playing out among the nations of the world. It should not escape attention that the taxes at stake in this story are those on property, but the two states are also involved in a race to the bottom on corporate tax--Kansas was featured in a prior Planet Money podcast (The Kansas Experiment) because its Governor is a true believer in a Laffer curve that tips at single-digits. 

The ending to this story is only surprising to those not paying attention to tax competition. Like any good rope-pulling contest, it ends with most of the people laying in the mud or on each other, and a short-lived victory for the last ones standing since there is always someone else willing to pick up the rope and tug again.

Senate Foreign Relations Committee Approves 8 Tax Treaties

Senator Rand Paul has been holding up tax treaties for several years but he apparently stepped away from the Foreign Relations Committee yesterday and eight slipped through. They will be considered by the full Senate which I assume will give consent to their ratification, since as far as I know Sen. Paul was the only opponent. From Reuters:

The U.S. Senate Foreign Relations Committee on Tuesday approved eight long-delayed international tax treaties, which had been held up for years because of one Republican senator's objections, despite support from companies that want consistency in rules for how to do international business. 

The treaties are with Switzerland, Luxembourg, Hungary, Chile, Spain, Poland and Japan and the international convention on mutual assistance on tax matters. 

U.S. Senator Rand Paul objected to the agreements for privacy reasons, saying they would allow more inter-governmental sharing of financial information on citizens, which U.S. officials deny. Although the Republican is a member of the committee, he was not at the meeting where the pacts were approved by unanimous voice vote. 

It was not yet certain when the treaties would be considered by the 100-member U.S. Senate, where they need a two-thirds vote to be ratified.

Should Corporate Tax Returns be Public?

Last year, I participated in a symposium at NYU on the topic of tax and corporate social responsibility, on a panel with the above title. The NYU Journal of Law and Business has published the symposium issue, including a transcript of the discussions. You can view the entire symposium issue here,. Below I excerpt from my contribution but the entire exchange is worth a read.

... I think the story Josh is telling is that using transparency as a means to generate the political will for corporate tax reform poses some risk, real risk, to the tax system administration. I think we'll have some discussion about how genuine that risk is and how it should be measured against other risks, like firm competitiveness and proprietary information and so on. But I'll leave that discussion aside for now to focus on the first part of the proposition, and that is that what we're trying to do with corporate tax transparency is generate the political will for reform. 

Now I should preface this by saying that I am by nature and profession a curious type of person, and I would love nothing more than to be able to pore over the 57,000 pages of some corporation's tax return ... I think if you've read some of my prior work on the subject, you will no doubt be unsurprised to hear me say let's raise the curtain and have a look. Let's call it an issue of accountability and governance, and let's keep lawmakers on their toes by letting folks at this data that lawmakers are so jealously gardening for their own reasons. We humans don't seem to have too much privacy from the government, so let's us get to the business of crowdsourcing, the monitoring of the artificial people among us. 

But I keep coming back to the problem of what are we trying to solve here. If the goal is to generate political will for change, then I'm actually not so optimistic that corporate tax return disclosures is going to get us there. Instead I think it will lead us to continue having interesting discussions about whether or not we should be taxing corporations at all, or the variation that we had earlier today, which is how to draw the line between avoidance and evasion. 

That's to say we've already been taught, even without corporate tax disclosure, to expect that most American companies, especially those with a global footprint, aren't paying much tax anywhere. The jig is already up. This is not a secret. We're not rioting in the streets about it for the most part. Sure, corporate tax disclosure will confirm what we already know, but I'm not sure if getting all the gory details is going to push the political picture that much further. Maybe it will, because we clearly have an "Overton Window" in which really taxing American corporations is not thinkable. And maybe widespread naming and shaming, or just naming, will move that window. I think it's also possible that the sheer enormity of everything that you're going to see laid bare is going to very quickly lead to resignation and more handwringing, and not so quickly to actual reform. 

But if we're already at that stage now, we already have the stories - we already know the story. If we're already there, then we don't have to wait for corporate tax disclosure, do we? We can already accept the notion that if we're going to collect more from any taxpayer, corporate or not, what we need is not more public information, but more withholding and more third-party reporting. 

So let's see if I can unpack that a bit because I know that's to say a lot. I think it's worth noting that for the vast majority of people, it is not the case that the income tax system is voluntary. And why is that not the case? It is because for that vast majority, every dollar they earn is reported to the IRS by someone else. And most of these dollars are also subject to withholding, and so you have to work some to get any of it back at the end of the year. And if you are an employee, you won't get much opportunity in terms of base erosion at all; you're basically paying a gross receipts tax. We have made wage earners easy to tax with withholding and third-party reporting. And more or less, gross basis taxation with a few exceptions. 

But corporations are different. They are really hard to tax, especially when they are crossing borders. We give them lots of opportunities to carve away their gross and get to a very small net. Withholding and third-party reporting and filing for refunds is generally not the way we get corporations to pay tax. For them, as Reuven said earlier today, the income tax system really is voluntary, and lawmakers have given them a lot of discretion. Transfer pricing is just one very prominent example of this. 

... maybe disclosure is a way to have more informed public debate about the income tax system. But if we're having that discussion, then it seems not at all clear to me why we would be limiting the conversation to publicly traded corporations at all, when we are as or more interested in Cargill or SC Johnson or your local mom and pop cash flow all-cash business as we are in Google or Apple, who have at least to tell us a few stories about their tax affairs. 

And if we have that conversation, you must admit we are limiting ourselves to corporations ... and not looking at other untold billions of dollars that go untaxed because they're not subject to reporting or withholding. 

So now we come to the punch line, and that is that it is possible that corporate tax transparency is going to throw back the curtain on one sector of society - publicly traded corporations - but the irony is these are the people, this is the very sector about whom we actually have more information about tax than any other, precisely because they already have disclosure rules. That disclosure is exactly why we already know there's a problem, and yet we have not mustered the will to solve it. 

GE has been in the news with its zero corporate tax rate for years. ... I think little is likely to change with more info ... the conclusion, I think, we will be eventually forced to draw is that we, the public, haven't really mustered the political will for reform that would lead to more taxation of American companies. And we really can't help the IRS administer or enforce the tax system. In fact, as Josh suggests, we run the risk of undermining that effort, so disclosure might not get us very far at all. 

What we're going to have to do is start figuring out ways to do a lot more withholding and a lot more third-party reporting, and we are going to have to do that for all of our taxpayers, corporate or not, publicly traded or not. Maybe some or most of us already know that. We didn't need to read the corporate tax returns to tell us that, and we won't know anything new about the corporate tax system when we get that opportunity. 

Now I hate to end with the topic of FATCA. For those of you who don't know, FATCA is a global third-party reporting and preemptory withholding regime designed to make sure Americans declare and pay their taxes on income and assets held overseas. It is not a workable system, it's a mess, but think about the design. In theory, it says the IRS could eventually, once all the kinks are worked out and everybody gets onboard, track every dollar ever paid to any American anytime, anywhere. If that's true, if that's even partially possible, we can see the problem here is not at all about capacity. It is purely a question of political will and nothing more, and it never has been. 

A parade of stories about offshore tax evaders got the U.S. to adopt FATCA. Yet a parade of stories about GE, Google, and Apple avoiding their taxes has not got the U.S. to embrace corporate taxation. 

In fact, we seem to be seeing the opposite response in the base erosion and profit shifting initiative, but that's another story altogether. I'm not convinced, therefore, that corporate tax transparency will lead to more corporate tax. However, I would still love to get my hands on GE's tax return. Thank you.

Report by UN Special Rapporteur on Tax and Human Rights

UN Special Rapporteur Magdalena Sepulveda Carmona recently posted this Report of the Special Rapporteur on Extreme Poverty and Human Rights; of interest. Here is the abstract:

In the present report, the Special Rapporteur on extreme poverty and human rights presents fiscal policy, and particularly taxation policies, as a major determinant in the enjoyment of human rights. Taxation is a key tool when tackling inequality and for generating the resources necessary for poverty reduction and the realization of human rights, and can also be used to foster stronger governance, accountability and participation in public affairs. She outlines relevant human rights obligations to guide and inform State revenue-raising practices, including the duty to use the maximum available resources for the realization of economic, social and cultural rights. She also analyses the questions of how the principles of non-discrimination and equality and the duty of international cooperation and assistance should inform taxation policies at the global and national levels. After assessing how revenue-raising policies and practices can be strengthened through a human rights-based approach, she makes recommendations for fiscal and tax policies that are grounded in human rights and can lead to poverty reduction, sustainable development and the realization of transformative rights.

Avoidance, Evasion, and Taxpayer Morality

In light of the current sacrificing of Caterpillar on the altar of political posturing by lawmakers who are ultimately responsible for designing a global system that ensures US multinationals a world of tax-favorable opportunities, my latest SSRN post, Avoidance, Evasion and Taxpayer Morality appears à propos. It explores the difficult terrain we traverse when, confronted with the parade of household names apparently paying little or no taxes anywhere, we start talking about ethics and morality instead of law. Abstract:

In popular discourse, tax evasion by wealthy individuals is conflated with tax avoidance by multinational corporations to tell a single story about tax dodging and its negative impact on society. But conflating avoidance and evasion muddies the tax policy waters in important ways by turning legal obligations into moral ones. This Essay, prepared in connection with the Washington University School of Law colloquium on “Conceptualizing a New Institutional Framework for International Taxation,” makes the case for caution in using morality as a stop-gap measure to avoid drawing a regulated line between tax evasion and tax avoidance, while still meting out punishment within the undefined space between these two poles. It acknowledges the political gains derived from the rhetoric of morality but argues that the alternate view — that taxpayer behavior must ultimately be managed by law rather than social sanction — has the best chance of driving tax policy toward greater coherence in the long run because it makes the best case for more transparency in both lawmaking and the consequences of legislative decisions.

As always I welcome comments.

Is It Time for a Taxpayer Bill of Rights? Tax Analysts Conference: March 27

Tax Analysts is hosting a conference on March 27 in Washington DC that is of broad interest. The schedule includes National Taxpayer Advocate Nina E. Olson, as well as Christopher S. Rizek of Caplin & Drysdale and former Treasury Deputy and Acting Assistant Secretary for Tax Policy Alan J. Wilensky.

Chris Bergin of Tax Analysts & Forbes will be hosting and he has a number of articles on the problems of taxpayer rights and IRS accountability that should be read by everyone who cares about tax policy. Here are just a few:

• It's Not Just About Lois Lerner
• More Arrogance And Secrecy From The IRS
• Transparency: Worth Fighting For and Tax Analysts v. Internal Revenue Service 
• 'Your Voice At The IRS' Silenced

It should be noted that, of course, the IRS already does have a declaration of taxpayer rights. However, it is declaratory and not legal in nature, so apparently has no legal effect (though as far as I know, this has not been tested through litigation). The taxpayer advocate has been calling a legislated version for a long time, as I discuss here. 

Conference details:  

Thursday, March 27, 2014
9 - 11 a.m.  
Continental breakfast at 8:30 a.m.
The event is free and seating is limited.

Ronald Reagan Building
Polaris Suite
1300 Pennsylvania Ave. NW
Washington, DC 20004

Must read: @Salon on Lobbyists Posing as Think Tanks

This is a must read. My first reaction was: this is not new, this is old hat. But the intentional misleading might be categorized as new. I have been doing some work on the problem of uneven political influence and how that fits in with the narrative of tax compliance (i.e., when the lobbyists write the rules, is it any wonder that GE, Apple, Google, Starbucks, etc, can say with pride that they dutifully comply with all applicable laws), and I have suggested that what is needed is more policy input from those who do not themselves stand to benefit directly from promoting a particular policy direction, namely, academics who research subjects for the purpose of increasing human knowledge. This means that in my view academics--which includes anyone who calls herself a researcher in any capacity--should always provide detailed disclosure of funding whenever publishing anything, so that the public can distinguish between advertising/advocacy and information.*

This is getting increasingly tough in our uber-consumer oriented society but we must stay vigilant about this, hence the dire need for organizations around the world doing things like the Center for Media and Democracy did here. In this story Salon hits the target directly on why disclosing pecuniary interests is critical to ensuring that public discourse does not fall to the fate of political representation in a nominally democratic but factually plutocratic society, namely, pay to play.

The concluding sentence says it all:

Certainly corporations have a right to have their voice heard, but that voice should be their own, not that of a phony expert on retainer.

* Note that this doesn't in any way mean that getting funding for engaging in research is inherently bad. It means that it is relevant to the conversation because some people find it politically expedient to provide funding in order to obtain specific findings and disseminate those findings as credible on the facts, and as an academic you ought not to want to be associated with that sort of propaganda, so you want to disclose your sources of support. In my view the research question should attract the funding and not the other way around. 

The Shutdown and a Tea Party Tax Paradigm Shift: Guest Post by Marco Garofalo

One of the many benefits of hosting a tax policy colloquium is that the students become deeply engaged in grappling with tax policy principles through contemporary scholarship, and they apply these ideas to the world in which they find themselves. After our recent presentations by Reuven Avi-Yonah on the shifting pressures of globalization on the tax base, by Clifton Fleming on the politics of tax expenditure analysis, and by Lyne LaTulippe on the topic of tax competition, in which she introduced us to work by the political scientist Mark Blyth, one of my students came back with the following analysis of tax politics in the US, and he agreed to share it here.

Government Shutdown and a Tea Party-Induced Tax Policy Paradigm Shift in the United States

A paradigm shift in tax policy may be unfolding in the United States, as the Tea Party positions itself differently than either the Democrats or the Republicans when it comes to important aspects of tax policy processes and practices.  In a recent article, "Paradigms and Paradox: The Politics of Economic Ideas in Two Moments of Crisis," Mark Blyth investigated why we did not see a paradigm shift in economic policy after the financial crisis of 2008. He argues that paradigm shifts are usually:

1. triggered by failures in the current paradigm; 
2. accompanied by a new paradigm that is waiting in the wings to replace the current one; and 
3. driven by a change in who can speak authoritatively on the subject.

He concluded that “it is politics, not economics, and it is authority, not facts, that matter for both paradigm maintenance and change.” Consequently, he argues that we did not see a paradigm shift after the financial crisis for a few reasons. First, even though there was a failure of the current paradigm, there was no challenger waiting to replace it. To illustrate his point, Blyth suggests that it was inconceivable that the Washington Consensus would be replaced by the Beijing Consensus, “so complete was its initial victory.” Second, the sudden policy failure did not result in a change of who speaks authoritatively on the subject, as protagonists did not change (individuals in the US Treasury, the ECB, and the IMF all retained their authority) and thus their solutions did not either. Blyth calls this ‘disciplinary incentive’; in other words, “too many careers and institutions are at stake!” Thus the financial crisis did not spur a paradigm shift.

But consider the Tea Party and its crusade. Since 2009, the Tea Party has been an unavoidable presence in US politics. While the Tea Party story has many permutations, causes, and manifestations, only the current government shutdown is important for the purposes of the current discussion. The current shutdown is not about Republicans versus Democrats; it is about the Tea Party versus Republicans. The Patient Protection and Affordable Care Act passed in Congress, was upheld by the Supreme Court of the United States, and its funding was not seriously contested by the Republican Party. This is an artificial crisis, a main architect of which appears to be Jim DeMint, former US Senator and current President of the Heritage Foundation.  If non-Tea Party GOP members do not want to play along, the implicit threat, according to Joshua Green of Bloomberg Businessweek, is that the Tea Party will turn on them, such as by launching “attack ads calling [Republican Senator Mitch] McConnell a ‘turncoat’ who ‘surrendered to Barack Obama’ in the healthcare fight."  So far, the Tea Party is pulling off this political coup: the government is shut down and positions are becoming entrenched.

Now consider this political impasse as a paradigm shift. First, we have a failure in the current paradigm (even though it is artificial). Joshua Green argues that “What’s causing the malfunction is a battle within the GOP.”  Second, we have a paradigm waiting in the wings to replace the current one. In fact, the Tea Party is not so much waiting to replace the Republicans as forcing that to happen. Third, the loci of authority in the Republican Party are shifting, either to Tea Party members or to the remaining GOP members who agree to change their tune. Hence we may see a paradigm shift, in which the Tea Party becomes the dominant faction in the Republican Party, resulting in a recalibration of the Democrat-Republican relationship.

Such a paradigm shift would have serious implications for tax policy. At least two would arise immediately, in the areas of tax expenditure analysis and tax consultations. First, tax expenditure analysis may begin to play a greater role. While the Republicans and Democrats function largely by dressing government spending as tax credits and deductions, the Tea Party is having none of that. The prime example would be the current crisis. The current government shutdown is itself a tax issue: the Patient Protection and Affordable Care Act, SCOTUS cogently reminds us, is a piece of tax policy. If the Tea Party does become the dominant Republican faction, then tax expenditure analysis may take center stage as a tool to sniff out government spending in all of its forms.

Second, the structure and content of tax consultations could change. Professor LaTulippe argues that international tax policy is beholden to a discourse of competitiveness (draft forthcoming). While part of the competitiveness discourse is about low rates, which the Tea Party presumably likes, part of the discourse is about tax expenditures, which the Tea Party would not like. Currently, tax consultations perpetuate this discourse by giving short time frames for the private sector to contribute to proposed tax reforms, with the result that a certain class of participants (accountants and lawyers) is greatly advantaged in giving feedback and achieving client-favored tax policy results. With the Tea Party paradigm, that policy loop could be disrupted, as this recent article suggests.

A paradigm shift in US politics is not certain. Any number of things could happen, including the Republican Party standing up to and beating the Tea Party. If that were to happen, then tax policy commentators should be concerned about the issues described above. Maybe once the dust settles we will meet the new boss, same as the old boss. But the current government shutdown (and impending sovereign debt default deadline) exhibits signs of a paradigm shift.  Something fundamental does seem to be changing on the small government side of political discourse. As such, we should stay tuned to the implications for tax policy.

How to Buy a US Ambassadorship, and How Much to Pay

The recent news about the newly appointed US ambassador to Canada, Bruce Heyman--described as "A veteran Goldman Sachs & Co. executive and major fundraiser" for President Obama--reminded me of a paper I read some time ago in which the authors showed that ambassadorships are bought by contributing to the political coffers of the winning presidential candidate. All too unfortunately, this comes as no surprise. The more contributed, the more likely the desired post is obtained.  The paper is "What Price the Court of St. James? Political Influences on Ambassadorial Postings of the United States," by Johannes Fedderke and Dennis Jett, and here's a sample of the menu it describes, from a Table called "The Price of Some Lucrative Postings Implied by the Model":

The paper notes the low-end cost is usually for bundlers, while high-end cost is usually for individual donors, and "the greater pay-off attaches to bundled rather than personal contributions." The Center for Public Integrity's story about Bruce Heyman affirms the authors' predictions. Notice in the table above that the low-end price for the ambassadorship to Canada, most associated with the bundlers, is $740,418. From the CPI story:

Chicago-based Bruce Heyman raised more than $750,000 for Obama’s committees since 2007, along with his wife, according to a Center for Public Integrity review of records.

From a National Post story on the appointment, Bruce Heyman looks to be happy about the outcome:

Related findings from the Fedderke and Jett paper, some of which also affirmed by the latest appointment:

• the probability of a political appointment to a posting rises in the attractiveness of the posting as a tourist destination, and as the hardship allowance associated with a posting declines
• appointees that have personal political connections receive more lucrative postings in per capita GDP, tourist volume and hardship allowance terms. They are also more likely to receive postings in Upper Middle Income countries and in the Caribbean, North and Central America. 
• The greater the personal or bundled campaign contributions to a presidential campaign, the more lucrative the posting the contributor can expect in terms of per capita GDP, tourist volumes, hardship allowances, and the more likely the posting will be in High Income countries and Western Europe, and the less likely it will be in Central and South Asia or Sub-Saharan Africa.

And then there is this interactive from the CPI (below is a capture but you can click the link to roll over each country and see the details):

Notice how the bundlers and political appointees versus the "career diplomats" correspond to the observations above by Fedderke and Jett, and if you review the interactive's details about each of the ambassadors you get further affirmation of Fedderke & Jett's predictions about the costs of obtaining these posts based on their model. Incidentally, from the paper the price of the Court of St. James was "between $650,000 and $2.3 million": according to CPI, that appointment has been confirmed to Matthew Winthrop Barzun, National Finance Chair for Obama's 2012 campaign, who raised at least $1.2 million for the President. Fun fact: the first ambassador to represent the US there was John Adams, who, along with four others to hold that post, later became President themselves, thus completing the cycle. No idea how much each paid to get there, though.

Money might not buy happiness, but it appears that it might well get you to a nice diplomatic post in a tourist destination.

What the banks’ three-year war on Dodd-Frank looks like

A fascinating account from the Sunlight Foundation of the gutting of a regulatory initiative by the kind of methodical persistence that can only be sustained by special interest groups with much to be gained from weak regulation:

In the three years since President Barack Obama signed the Dodd–Frank Wall Street Reform and Consumer Protection Act, federal regulators charged with implementing it have opened their doors to the biggest banks over and over again – 14 times as frequently as they have to representatives of consumer and pro-financial reform groups, a new Sunlight Foundation analysis finds. 

By most accounts, the banks’ besiege-the-regulators strategy has yielded rich rewards in sapping, slowing, and stymieing regulations intended to prevent another massive financial crisis. The emerging consensus is that Dodd-Frank implementation is limping, while the big banks are poised to return to being the most profitable industry in the U.S.

The website feature an interactive showing the number of meetings by sector over the three years; you can mouse over the dots to see their identities. Is it any surprise that the Giant Vampire Squid is at the top with a whopping 222 meetings, followed closely by JP Morgan with 207? Each of these giants independently dwarfs the entire "pro-reform" group, that tiny cluster of dots on the other end of the graph.

Here's a chart depicting meetings by sector over time:

From the discussion:

In the 152 weeks our data cover, we find 59 weeks in which regulators met with financial sector representatives at least once every single day (Monday through Friday), and 47 weeks in which they met with financial sector representatives at least four times. 

... By contrast, active pro-reform groups appeared in only 153 meetings logs – only about one meeting for every 14 regulators held with financial institutions and associations. Moreover, 24.2 percent of pro-reform group meetings took place on a single issue: the Consumer Financial Protection Bureau. 

...Law and lobbying firms, largely working in service of financial institutions, appeared in 707 meetings. Other, non-financial corporate interests, largely energy and agricultural companies, participated in 381 meetings. These companies are major purchasers of derivative contracts, which they use to hedge against price risk.

Imagine you're a regulator. 3,000 meetings with finance industry lobbyists, lawyers, and other corporate interests over three years, each one doing their best to explain why you should undermine the law as written in some tiny way. Would you not want to tear your hair out? Quit in despair? Or just give in to the soothing balm of lobbyist favor? What could possibly be left of the law after this barrage? Meanwhile the anti-regulation crowd has worked very diligently to kill Dodd-Frank's provisions in other ways, such as the lawsuit against the corporate tax transparency provisions sponsored by the American Petroleum Institute.

Sunlight catalogues the delays and dismantling of Dodd Frank that has been accomplished by all this lobbying and litigating and concludes:

...Collectively, the data offer a powerful testament to the oldest and still perhaps most effective technique in the lobbyist’s playbook: sheer persistence. As the Dodd-Frank law passes its third anniversary, lagging on deadlines, and increasingly defanged, the meetings log data offer a compelling reason why: the banks have overwhelmed the regulators. 

Lobbying pays, and it pays whether it is done before, during, or after legislation has been passed. This represents a major governance crisis with no redress anywhere to be found.

Senate quietly easing restrictions on their own insider trading, to protect "national security"

I wish I could express surprise. I can, however, muster some dismay:

The Senate has severely scaled back the Stock Act, the law to stop members of Congress and their staff from trading on insider information, in an under-the-radar vote that has been sharply criticised by advocates of political transparency. 

The changes, if they become law, will exclude Congressional and White House staff members from having to post details of their shareholdings online. They will also make online filing optional for the president, vice-president, members of Congress and congressional candidates. 

The House was expected to pass a similar bill on Friday.

MR posts links to the FT article, other sources, and says "Some officials suggested that transparency "could threaten national security," more detail on that here.  Here are some further interesting details."

Clearly, what we least need right now from our elected leaders is an assurance that we will know less and less about their business and financial dealings while they ostensibly serve in the public interest. For shame.

Bridge Over the River Detroit

Surprise--despite determined efforts to stop the process, the US has pushed through approval for the new Detroit-Windsor Bridge.  As you may know the new bridge is opposed by Matty Maroun, who controls much of the current cross-border traffic between these two cities via his ownership of the Ambassador Bridge. From the WSJ blog:

The Detroit-Windsor bridge would be the third international connections between the two cities, joining the 84-year-old Ambassador Bridge and the 83-year-old Detroit-Windsor Tunnel. Those two links are the busiest, and second-busiest, border crossings in North America, respectively, funneling tourists and trade between the two countries.

Canada agreed last year to provide as much as $550 million to build the new six-lane bridge, which would relieve congestion at the border. Under the deal, the private sector will cover the rest of the costs, sparing the already stretched Michigan taxpayers from having to pony up. 

The cross-border financing deal was a big issue and Maroun wanted to take the question to voters via a referendum with the help of some sympathetic funders, but apparently, he failed. Of course, there is the matter of staffing all the booths--that's going to be tough on the US side given sequester-driven cuts.

US to OECD: target your anti-BEPS regime carefully

This is rich. The US wants the OECD to not go overboard on the BEPS thing.  From Tax Analysts [gated], Treasury International Tax Counsel Danielle Rolfes said that the Treasury wants to

"make sure that any suggested solutions are targeted at addressing the source of the problems and don't go beyond the scope of the BEPS project."

We are talking about a country that can't seem to distinguish between an au pair financing a trip to Europe and a billionaire stashing money in a series of hidden offshore accounts. Yet there's more:

...The BEPS project carries a risk of "scope creep," Rolfes said. ... "We want to stay mindful of what BEPS is and make sure that in trying to solve those problems we don't come up with solutions that are broader than necessary or that have other implications, particularly with respect to the allocation of taxing rights between two taxing jurisdictions," she said.

...While Treasury endorses the sense of urgency around the BEPS project and the feeling that the problems must be fixed, Rolfes said that U.S. officials intend to be thoughtful about how the rules should or should not be changed.  

I'm not sure what is meant by being thoughtful. Being thoughtful might mean thinking through what you need to change, how you mean to change it, how you avoid over-breadth and under-breadth at the same time, how much everyone has to spend in order to get the result you seek, and whether what you write as rules can be coherently implemented in practice.

Perhaps Rolfes is worried that if the OECD looks too closely at the allocation of taxing rights between two taxing jurisdictions, the world will see clearly that (1) the US is the most overreaching in this respect given that it taxes on the basis of citizenship and (2) the global North has long arranged the allocation to favor itself at the expense of the global South.  

Maybe it is just that Rolfes does not appreciate the finger pointing at US companies:

"It's not just U.S. companies that engage in BEPS. Moreover, all agree that the BEPS we are primarily concerned with is driven by tax planning that is perfectly legal."

Rolfes called some of the moralizing on this issue "ironic," though I think she means "hypocritical." It might not not sound right for the Treasury to use that word when talking about tax competition, so maybe this is carefully chosen rhetoric:

Rolfes [added]that while much of BEPS income lands in zero-tax jurisdictions, some of the elements of tax laws that enable BEPS are attributable to tax competition that's occurring between the same taxing jurisdictions that are trying to solve BEPS.

"This tax competition itself contributes to BEPS," she said.

She acknowledges that "many of the current international standards, such as those relating to transfer pricing and tax treaties, have been developed over many years by U.S. tax policymakers working with their counterparts in the OECD."  She says "We at Treasury are humbled ...And we want to make sure that any solutions we have are targeted to that problem and not to other problems."

Treasury economist Michael McDonald added that

The BEPS project should clearly undertake a cost-benefit analysis of the possible alternatives...clearly I think if the BEPS project is going to be successful, one has to weigh the benefits of the current [OECD] Transfer Pricing Guidelines, in addition to the costs."

Tax Analysts economist Martin A. Sullivan can't understand why the US is focused on the BEPS thing at all, since Dave Camp has a proposal for switching the U.S. to a territorial system:

"To me, that seems much more important than an OECD initiative. I don't understand how the two are going to work together. If Chairman Camp achieves his goal by the end of the year of putting the entire international tax system up for a vote, shouldn't that be our starting point?"

Rolfes responded that the BEPS project would still matter even if the US changed to territorial, since such a switch would not in any way make profit shifting less an issue. She also had some interesting things to say about participation and influence in tax policymaking via the OECD:

Treasury needs to be engaged in a significant tax policy initiative like BEPS, which would be undertaken by other countries with or without the U.S. ...Having a seat at the OECD table provides the United States the opportunity to be a part of the dialogue and to have an influence on how international tax rules are developed ... [and] other countries are not going to wait for the conclusion of the U.S. Congress's reform debate.

So the US sees the OECD as playing an important role, and one that could have negative impacts on US policymaking choices absent Treasury's involvement. And this exchange shows that at least some at the Treasury are capable of articulating at least a sense of understanding the concept of regulatory overbreadth. But you could interpret these statements as at best tepid support for the OECD's initiative, at worst a foreshadowing of resistance to come. The US torpedoed the OECD's efforts on harmful tax practices, only to come up with the much more expansive and awe-inspiring FATCA on its own. If the US torpedoes BEPS, what will be in store for the taxation of multinationals? It should be a fascinating ride.

Can States Shame Each Other into Good Behaviour?

Interesting new paper by Sandeep Gopalan & Roslyn Fuller, Enforcing International Law: States, IOs, and Courts as Shaming Reference Groups. From the abstract:

We seek to answer the question as to whether international law imposes meaningful constraints on state behaviour. Unabated drone strikes by the dominant superpower in foreign territories, an ineffective United Nations, and persistent disregard for international law obligations suggest that the sceptics have won the debate about whether international law is law and whether it affects state behaviour. We argue that such a conclusion would be in error because it grossly underestimates the complex ways in which IL affects state behaviour. ... We show that IL is enforced by states, courts, and international organizations by the imposition of shame sanctions on offenders and that these sanctions affect state behaviour in the same ways that traditional coercive sanctions do. In doing the above, we also develop the concept of a shaming reference group.

I'm in general a skeptic, viewing the tripartite failures highlighted in this abstract as overwhelming evidence that in the international community, might makes right, full stop. The tenth anniversary of America's unprovoked war on Iraq, which is now clearly characterized as a strategy to gain control over its oil resources that was planned far in advance of 9/11, seems too ample evidence backing the skeptical view. But I'm willing to engage that social pressure might have some amount of impact on state behaviour in some cases. At least, I am willing to believe that states will work hard to appear to be good citizens in the international legal order, and that this might cause some leaders to make decisions differently than they might absent shaming in the international community. But I remain at heart a skeptic so I will continue to believe that in practice states will use any power they have to achieve their ends at the expense of other states (much as leaders will do the same at the expense of their own people if they can get away with it).

This skepticism is reinforced by the part in the paper that talks about how shaming is undertaken and shows that the resources of the "shamer" come to bear in important ways on who and what gets shamed:

States are likely to be the principal enforcers of shame sanctions. ... States make evaluative opinions about other states all the time. Some have the resources to make elaborate justifications and provide evidence for those opinions in a legal manner. One example is the United States State Department’s annual human rights reports. These have come in for harsh criticism as being partisan. ...partisanship is a major problem for shaming. The US has also been accused of hypocrisy. 

Attacks based on the lack of neutrality and credibility to engage in shaming are severely debilitating, and do suggest that neutrality, or a perception thereof, is important if shaming sanctions are to work. This is not to say that shaming by individual states should be ignored altogether. Some states will be persuaded by the US State Department’s reports, and it must ultimately fall to a process of democratic debate to determine if the state being shamed is indeed deserving of punishment. There is nothing stopping Iran and Venezuela from issuing shaming reports of their own. If members of the international community believe these reports are the products of serious investigation and research, they will be credible. On the other hand, if they are merely propaganda, they are likely to be ignored. 

This suggests major cognitive bias problems if shaming is to be a regime for uncovering egregious offenders, at least, if we seek any sort of even-handed regime. If we don't worry about that problem, I think we're back to might makes right, and shaming just becomes another resource for wielding power to act in self-interest, while simultaneously shielding the shamer from reciprocal pressure.

It also suggests the major role of geo-politics in the name and shame game. In a footnote to the above paragraph, the authors highlight a particularly disturbing example:

...William Schulz, executive director of Amnesty International USA, remarked on the occasion of the release of the State Department’s annual human rights report: “The content of this report has little correspondence with the administration’s foreign policy; indeed, the U.S. is increasingly guilty of a ‘sincerity gap,’ overlooking abuses by allies and justifying action against foes by post-facto references to human rights. In response, many foreign governments will choose to blunt criticism of their abuses by increasing cooperation with the U.S. war on terror rather than by improving human rights.” 

This is a frightening and ultimately very discouraging status quo. It suggests that when we talk about shaming the result will not necessarily be better behaviour, but rather behaviour aimed at currying the favor of those who decide whom to shame. It worries me if that is the best we can do to guard against states doing terrible things to each other and state leaders dong terrible things to their people.

Sheppard: OECD report on base erosion demonstrates OECD is not serious about base erosion

Lee Sheppard has a column today on the OECD's new-found vision for reversing course on the international regime of tax base erosion it created [gated]. She's not buying it. Highlights:

...the OECD Centre for Tax Policy and Administration has been adept at sweeping huge problems under the rug. It was long in the habit of denying the multinational tax avoidance problems that OECD guidance and the international consensus enabled. 

But the problems are now blindingly obvious, as leading investigative journalists have attached corporate names and faces to tax avoidance. The person on the street now knows that some household-name companies pay no corporate income tax anywhere in the solar system. And a new group of managers has come to the OECD, ready to at least admit to the problems. So with its newly issued report, "Addressing Base Erosion and Profit Shifting," the OECD promises to do something about the income shifting problem and meet its critics. 

The report contains some astonishing admissions against interest about the causes of the zero-tax results under the current international system. Putting the best face on it, the report is a baby step toward practical proposals -- which are supposed to be ready for the G-20 meeting in a mere four months! 

The report provides little in the way of proposals, and it leaves the reader worrying that the OECD will jump in front of the parade and carry on with its useless projects. 

Pressure Points 

The report identifies six pressure points in the international system, without ascribing blame. Here is the list, annotated with blame: 

• hybrid structures and instruments (U.S. check-the-box rules and European formalistic characterization rules); 
• treaty treatment of remote commerce (OECD model treaty); 
• tax treatment of related-party financial transactions (OECD model treaty); 
• transfer pricing, especially separation of income from relevant activity (OECD transfer pricing guidelines); 
• antiavoidance measures (American, British, and commonwealth courts); and 
• harmful preferential regimes (Vienna Convention on the Law of Treaties). 

Despite these admissions, the report is strangely solicitous of tender corporate feelings. The drafters appear to have inherited the OECD's long-standing fear of incurring the displeasure of the United States and its mighty multinationals. 

...The report makes the seemingly harmless statement that member countries have a common interest in stopping base erosion and establishing a level playing field. As the drafters understand, it is not at all clear that every OECD member is on board. The British are systematically dismantling their corporate tax base, and the Americans are being urged to follow. Those are the home countries of the most tax-aggressive multinationals. 

And ever mindful that its real constituency is multinational business, the OECD proposes to come up with its coordinated action plan in consultation with all the stakeholders! It was considerate of the OECD to include "civil society" among those to be consulted. The old order ignored nonbusiness groups. 

One could well ask why multinationals should be invited to this particular discussion -- not that they don't appear to have veto power over every OECD project. They have cast their votes already. They don't feel like paying corporate income taxes, thank you very much. What are they expected to do, apologize for stripping income out of every market country? 

... Maybe it's easier to blame globalization than to blame a highly discriminatory system that is a vestige of World War I. The international consensus was designed by the Europeans and Americans to minimize taxation of multinationals. 

...The report does not admit that a large part of the problem is the international consensus itself. Like a manager firing workers, the OECD blames globalization. 

...The report's suggested fixes are already being pursued by member governments: more government-to-government cooperation, more transparency, simplified transfer pricing guidelines, better documentation, antiabuse rules, and controlled foreign corporation rules. The report recognizes that some of these fixes are difficult to administer, leading only to counterproductive litigation against well-represented multinationals. 

A constructive suggestion is that intragroup financial transactions be subject to restrictions. This is a startling admission from the organization whose transfer pricing guidance has required recognition of nonsensical legal arrangements and self-serving intragroup contracts in all but the most drastic cases. 

...The report suggests that something be done about harmful preferential tax regimes. But the previous mangled effort was squelched by the United States two decades ago, and hypocritical to boot. European enablers were not included in the list of harmful regimes. The OECD gives itself credit for the Global Forum on Transparency, an effort to accommodate tax havens while signing a lot of unenforceable tax information sharing agreements. 

...The degree to which the OECD still acts like this is a real risk is shown by the report's suggestion that it should be easier for multinationals to get their money back in mutual agreement procedures. The real risk of collective action is, as always, veto by the United States, whose multinationals pioneered the techniques complained about in the report. 

...Having blessed restructuring to stripped-risk distributors and contract manufacturers as business motivated, the OECD now admits that it is a component of the base erosion problem. The restructuring nonsense recently added to chapter 9 of the transfer pricing guidelines hardly merits a mention in the base erosion report, which seriously undercuts that guidance. 

...If the OECD were serious, it would advise member governments to disallow deduction of payments by and to entities treated as tax nothings by the other government. Some governments treat hybrids the same way their home governments treat them. Either straightforward fix would claw back the benefits of the U.S. check-the-box rule. Essentially a check-the-box switchover clause, either approach would ensure that the income represented by the payment was taxed somewhere. 

...Several times, the report describes tax planning as reducing profits attributed to substantive operations while increasing the profits associated with legal constructs like intangibles holding companies. This is a huge admission for an organization whose own transfer pricing guidelines call for intragroup contracts to be respected except in drastic circumstances. 

...The report does not explain why affiliates with no assets and no activities should be respected in the first place -- only that the transfer pricing rules entitle them to very little income! Google had an APA approving its transfer of intangibles outside the United States. Google's Irish affiliate has 2,000 employees. The point of the arrangement was to keep intangibles income out of the United States and to siphon it out of Europe. 

What would the OECD do if it were serious about intangibles migration? It would be compelled to think about factor allocation of intangibles income to countries where they are exploited. ...

Oh so much more at the link. This is a lengthy and detailed criticism. I am with Lee that the OECD is not likely a true apostate when it comes to base erosion. I would like to be wrong but the institutional structure of tax policy norm-making being what it is, there is no reason for optimism. The OECD used to like referring to itself as the "market leader in international tax policy," as if tax policy was a commodity they were particularly adept at creating and selling. Recent developments show tax policy is a commodity all right, but the OECD understates its own market share: it holds 100%. It is a monopoly that created the regime it now professes to view as having failed to keep up with the times.

You can't call it base erosion when you've been operating the backhoe and preventing anyone from building a retaining wall for 50 years.

Hearings on tax evasion & tax havens in the Canadian parliament tomorrow

Meeting of the Standing Committee on Finance beginning at 8:45 in Room 7-52, 131 Queen Street, featuring a fascinating line-up:

Tax Evasion and the Use of Tax Havens		Fraude fiscale et le recours aux paradis fiscaux
Witnesses		Témoins
Canadian Bankers Association		Association des banquiers canadiens
Marion Wrobel, Vice-President Policy and Operations		Marion Wrobel, vice-président Politiques et opérations
Darren Hannah, Director Banking Operations		Darren Hannah, directeur Opérations bancaires
Canadians for Tax Fairness		Canadiens pour une fiscalité équitable
Dennis Howlett, Executive Director		Dennis Howlett, directeur exécutif
Videoconference - Cambridge, United Kingdom		Vidéoconférence - Cambridge, Royaume-Uni
Tax Justice Network		Tax Justice Network
Richard Murphy, Director		Richard Murphy, directeur
Videoconference - Austin, Texas		Vidéoconférence - Austin, Texas
As an individual		À titre personnel
Arthur Cockfield, Professor Faculty of Law, Queen's University, Fulbright Visiting Chair in Policy Studies, University of Texas

US and Canada do some more dancing on energy

From the FT: US approves $18bn Cnooc bid for Nexen. That headline struck me as odd--why would one non-US company acquiring another non-US company require US approval? But this is the oil & gas industry, and that impacts US security, so bring on a committee review:

Tuesday’s approval from the Committee on Foreign Investment in the US, a multi-agency body that reviews large deals that could affect US security, gives Nexen “all of the requisite approvals to proceed to close”...

Late last year it looked as if Cfius might challenge the deal. In November, Cnooc and Nexen resubmitted their agreement for approval, raising concerns that Cfius was taking a hard line.

Though less than a tenth of Nexen’s assets are in the US, those that are include a series of oil platforms in the Gulf of Mexico. Some of those are near US military assets, leading some to believe that Cfius might block the deal or require mitigation agreements.

The US (or at least two American brothers) has pretty high financial stakes in the Canadian oil & gas industry, as a recent real news interview of BBC's Greg Palast reveals: if the Koch brothers (yes, those down-home folks with their "plan to reshape America")  can get that pipeline through, they can cut out their Venezuelan competition with a cheap alternative, putting an additional $2B or so in their pockets each year. But this time the US interest is not about its energy security, at least according to Palast. Rather, the plan here is to sell the supply on to the Caribbean. From the transcript:

[The Koch brothers says to themselves] If we can use our political muscle to jam a pipeline through the guts of the United States down to Texas...we can make a killing. 

And by the way, they're making an extra killing. When the Republicans were talking about the XL Keystone pipeline making us energy-independent...We're not energy-independent if it comes from Canada. But if it comes from Canada, let's assume that this is our buddies, because they'll give us the oil cheap, and that's what makes them our buddies. 

It also undermines Hugo Chávez. They have to undermine Chávez, which they want to do for geopolitical reasons. 

But then the oil will not be used in the United States. It will be refined mostly for gasoline that will be sold at a premium in the Caribbean. Remember, these refineries are in the Gulf coast. Selling it, then running that stuff back into New Jersey is not a moneymaker. The way you make the money is you sell gasoline in places that don't have the refining capacity and will pay a premium, like, you know, Jamaica, Santa Domingo. That's where your money's going to be made. So this is oil from Canada which will then go into the Koch refineries and sold into the Caribbean.

I admit I am puzzled. How is it in the interest of either Canada or the US to build a mechanism for the Koch brothers to insert themselves as intermediaries in an energy supply chain to the Caribbean? From Canada's perspective, why not cut out the middleman, or to out it another way, why be such good buddies?  Is this a question of risk, cost, technological capacity, logistics, something else? And for the US, if the environmental hazards to communities across the nation are as Palast describes, why subsidize that risk for the greater personal profit of billionaires when the political costs of support for the pipeline seem so high? 

I also don't know the financing of the pipeline, haven't studied it. I am scared to go and look, if I am going to find out that the entire infrastructure is to be underwritten by government.

US fights EU on data privacy law, says EU should respect US right to regulate

For the life of me I cannot understand the FT's headline, which reads "Brussels fights US data privacy push."  No, it's the US sending a team of lobbyists to fight against EU regulation--the penultimate sentence of the article even labels this "aggressive lobbying."

Why are the US lobby troops going into battle? Because the EU seeks to impose a fine of 2% of global annual revenues for any company, anywhere in the world, that violates the data rights accorded to EU citizens. US lobbyists and a sympathetic administration seem all too eager to push other countries to ease up on their regulatory burdens on US companies, so it is not surprising to see them in full force against the EU parliament here. But this effort is especially rich given that it comes at the very moment that the US is seeking to impose a fine of 30% on any company, anywhere in the word, that violates its own data sharing requirements. From the story:

Viviane Reding, EU commissioner for justice, said that the EU was determined to respond decisively to any attempts by US lobbyists – many working for large tech groups such as Google and Facebook – to curb the EU data protection law.

“Data protection is a fundamental right in Europe which is clearly enshrined in the Charter of Fundamental Rights. Whilst this may not be the case in other parts of the world, one thing is clear: if companies want to tap into the European market they have to apply European standards.” 

Ms Reding’s firm approach is likely to spark a diplomatic battle between Brussels and Washington, which has actively been trying to water down the EU’s tough new privacy legislation by handing US companies a de facto exemption from it. 

“Europe, the United States and other democracies around the world share many of the same values,” said William Kennard, US ambassador to the EU at a conference on European data protection and privacy. “We need to accept that each of these democracies has the right to choose whatever legal framework is suited best for them to defend and protect those values.”

Translation: respect our sovereign authority to write the laws we want to write to regulate our companies; don't use sanctions or threat of sanctions to force our companies to abide by your laws.  Or, do that to other countries, but give us an exemption because we're good guys that share your values.  Further:

US tech companies are trying to shield themselves from the legislation as they argue that it would be unfair for them to be subject to EU laws that are too stringent and could result in expensive administrative burdens and hefty fines for errant companies.

So here we have a US ambassador stating the cause for US companies that complain of the "unfairness" of stringent and expensive compliance costs backed by hefty penalties for noncompliance. The EU's position is, we are trying to protect our people wherever they go in the global market. The world is our jurisdiction to the extent it impacts the people we call "ours," and we aim to protect our people.

Are we not coming to a place where it is becoming obvious that global markets cannot peacefully co-exist with autonomous states?  Not one world government at all but instead an impenetrable mass of overlapping and conflicting regulatory states, a venn diagram of massive and chaotic proportions, and no possible way for anyone to comply with all of it.  Stock tip: invest in data compliance companies, they might be the most important drivers of the global economy in the near future.