How does the Uber economy work?

The San Franscisco Chronicle ran a story yesterday entitled Here’s why Uber and Lyft send drivers such confusing tax forms in which they discuss the tax-related oddities surrounding Uber-type arrangements. In brief, these companies send drivers various forms, showing various unexpected amounts, and many drivers are terribly confused about what is going on. What's going on is that Uber and Lyft and so on are probably engaged in an elaborate dodge of both tax and labour/employment regimes.

I think it is fascinating that new economy firms are actually returning us to an old economy model, in which everyone is an artisan hunting for a daily paycheck. Planet Money had a story on the first employee recently that draws the picture, worth a listen.

If Uber drivers are employees, then a whole host of tax and other regulations apply. If they are independent contractors, then some different rules apply. But what if they are neither, and Uber is simply a rider/driver matchmaker and payment facilitator? This is a service that can be provided from anywhere in the world, and perhaps even makes the most sense from an international finance center. The international tax implications are intriguing.  More to come on this subject.

Koskinen: Tough as Nails on Individuals; Cautious and Worrisome on US Multinationals

Further to the last post, below are the full remarks from Commissioner Koskinen, with a few key remarks in bold. The remarks are long but I think worth reading in their entirety if only for the marked contrast between the IRS' divergent approaches to "cracking down" on individuals versus US multinational companies. These approaches will most certainly diverge further in the future, if Commissioner Koskinen's statements reflect hardening policy positions. 

I don't want to spend too much time analyzing what is, in the main, a plea for Congress to give the IRS more money, and secondarily some cheerleading for the hard work put in by the IRS and the financial industry to get FATCA operational. Still, it is worth noting that there is much unstated here, for instance: what is meant by "home" jurisdiction--a question no one seems too keen to ask or answer even as we rush headlong into global automatic information exchange. If we actually care about getting these things right we have got to have a global conversation about who owes what to whom as a matter of justice and as a matter of rights, and most importantly: who is going to make those decisions. 

When we don't have those conversations it is all too easy for someone to wax enthusiastically about the project of demanding the bank account numbers and balances of millions of people who don't reside in their country while in the next breath advising caution and restraint when it comes to other countries taxing "their" corporations.

PREPARED REMARKS OF

JOHN A. KOSKINEN

COMMISSIONER

INTERNAL REVENUE SERVICE

BEFORE THE

U.S. COUNCIL FOR INTERNATIONAL BUSINESS-OECD INTERNATIONAL TAX CONFERENCE

WASHINGTON, D.C.

JUNE 3, 2014

Thank you to the U. S. Council for inviting me to be here today. I’m honored to have the opportunity to participate in this important discussion about international tax issues.
Although I have been IRS Commissioner for only a few months, I have quickly come to appreciate the great importance of focusing on the international tax compliance of both business and individual taxpayers. And I’ve come to understand that it is not possible to overstate the challenge that globalization poses to tax administration for the United States and I’m sure for many other jurisdictions as well. Rapid and extensive globalization of markets, business models, and financial systems has presented taxpayers and tax administrations with challenges and opportunities of all sorts.

As you know, the United States government is attempting to respond to the global challenges -- sometimes aggressively and sometimes cautiously and collaboratively, but hopefully always with thoughtfulness, perspective, and a sense of global responsibility. It seems we are in a critical time in these respects, as all of you know well, and this makes it a very exciting time for global tax administration, a time in which rapid and dramatic changes are afoot. For example, it was only a few years ago that tax administration officials were talking about the need to pierce the veil of bank secrecy, and today it seems that veil is being shredded as we move toward a cooperative environment based on tax transparency.

One of the most exciting aspects of our current times is to see governments working so closely together to ensure that taxpayers comply with the tax obligations of their home jurisdictions. With respect to individual tax compliance, we see this collaboration in the process by which FATCA will soon go into effect, and its younger but already bigger sister, the Common Reporting Standard, or CRS, will soon be adopted globally. The cornerstone of these efforts, of course, is the automatic, multilateral exchange of information, which signals quite clearly that international tax transparency is no longer a distant hope, but rather an immediate reality.

But as far as we have come on this road, there is still a great deal of work to be done. Although the policy issue has been settled and tax transparency is the common goal, tax administrators still must answer the question of how we make automatic information sharing work well as a practical matter. We must devise brand new systems, processes, and protocols that maximize efficiencies, minimize burden on taxpayers and financial intermediaries, and ensure the safety and security of the information being transmitted. But before talking about these, I would like to step back for a moment and look at where the U.S. is today on offshore tax compliance and how we got to this point.

The IRS’ serious efforts to combat offshore tax evasion, which had long been a problem, began in 2008 with our efforts to address specific situations brought to our attention in part by whistleblowers. The most notable example of this was the situation with UBS. The IRS realized that the globalization of investment opportunities, and the marketing of those opportunities, could do serious harm to the integrity of the U.S. tax system if complete tax transparency was not part of the equation. This is especially true because our tax system is built on the notion of voluntary compliance. Allowing wealthy individuals to use overseas accounts without paying taxes not only erodes the home jurisdiction’s tax base, but it also is an affront to the vast majority of taxpayers who play by the rules and expect their neighbors to be doing likewise. So from the outset, the IRS adopted a clear message: International tax evasion was, and would continue to be, a top priority for the agency, and people hiding assets offshore would find themselves increasingly at risk of enforcement actions.

A turning point in our enforcement efforts came in 2009 with the agreement reached with UBS. This agreement represented a major step toward global tax transparency and helped build a foundation for our future enforcement efforts. Importantly, the agreement sent the message that the IRS would pursue tax evasion around the world, wherever it might be based, and would also focus on those facilitating tax evasion practices. The agreement also showed the IRS’ keen interest in working cooperatively with other governments to obtain the information needed to bring evaders to justice.

Since 2009, the IRS has taken a multifaceted approach to the offshore noncompliance problem. This has included working diligently and cooperatively with other governments to obtain information on U.S. owners of offshore accounts, as well as banks and other promoters of tax evasive techniques, and using that information to prosecute those willfully evading the law. We have mined the information we’ve obtained for future leads, and have shared our findings with other governments to help them enforce their own laws.

While maintaining strong enforcement programs, the IRS has also sought to encourage taxpayers to come into compliance voluntarily. In 2009, the agency first made available a special Offshore Voluntary Disclosure Program, or OVDP. This program has allowed U.S. citizens with undisclosed offshore accounts to voluntarily disclose those accounts, pay a monetary penalty, and avoid criminal prosecution. Because of this program’s success, modified voluntary programs were made available in 2011 and again in 2012. Since 2009, these programs have resulted in more than 43,000 voluntary disclosures from individuals who paid more than $6 billon in back taxes, interest, and penalties, and the numbers continue to rise. In fact, we have noted a significant uptick in participation since the Department of Justice announced its program for Swiss banks last August. So we have clear evidence that our enforcement efforts are working together with our voluntary programs, and we are hopeful that this dynamic will flourish until the offshore problem is stamped out completely.

Now, while the 2012 OVDP and its predecessors have operated successfully, we are currently considering making further program modifications to accomplish even more. We are considering whether our voluntary programs have been too focused on those willfully evading their tax obligations and are not accommodating enough to others who don’t necessarily need protection from criminal prosecution because their compliance failures have been of the non-willful variety. For example, we are well aware that there are many U.S. citizens who have resided abroad for many years, perhaps even the vast majority of their lives. We have been considering whether these individuals should have an opportunity to come into compliance that doesn’t involve the type of penalties that are appropriate for U.S.-resident taxpayers who were willfully hiding their investments overseas. We are also aware that there may be U.S.-resident taxpayers with unreported offshore accounts whose prior non-compliance clearly did not constitute willful tax evasion but who, to date, have not had a clear way of coming into compliance that doesn’t involve the threat of substantial penalties.

We are close to completing our deliberations on these respects and expect that we will soon put forward modifications to the programs currently in place. Our goal is to ensure we have struck the right balance between emphasis on aggressive enforcement and focus on the law-abiding instincts of most U.S. citizens who, given the proper chance, will voluntarily come into compliance and willingly remedy past mistakes. We believe that re-striking this balance between enforcement and voluntary compliance is particularly important at this point in time, given that we are nearing July 1, the effective date of FATCA. We expect we will have much more to say on these program enhancements in the very near future. So stay tuned.

Now, I’ve mentioned FATCA a couple of times and let me talk about it more directly. With FATCA, Congress took a significant stride towards global tax transparency by calling for automatic information reporting on financial accounts held by U.S. taxpayers, no matter where those accounts are located. And so, as everyone knows, FATCA’s enactment has had a dramatic impact on the global financial system, as financial intermediaries all around the world have had to modify their systems and processes to carry out what FATCA calls for. We know that this implementation has been difficult and costly, to say the least, and I’d like to thank the financial community for working so closely with us to ensure that, in the future, all international investors are also tax-compliant investors. In a truly global economy, this is fundamental, of course, and I believe at some point in the future all of us, in both the private and public sectors, will look back with not only a strong sense of accomplishment, but also with wonder at how it ever could have been otherwise.

I’ll also note that the U.S. government’s preparations for FATCA have not exactly been easy. Since enactment, the IRS and Treasury have been working extremely hard to solidify the legal framework, global relationships, and infrastructure necessary to convert FATCA from a concept into a practical reality, and this has been no small task. For four years now, FATCA implementation has demanded a tremendous amount of hard work and dedication on the part of a relatively small group of public servants, without whom offshore tax evasion might still be considered a viable practice. These folks have diligently worked on issuing guidance that is clear and eases the FATCA compliance burden as much as possible, and they have made a herculean effort to take into account the extensive stakeholder comments we’ve received in order to get there. I know there are still a few more things to do, but I should take the time, midstream, to thank the IRS and Treasury FATCA team for the work they have completed so far, because that work has been monumental.

And beyond the legal and regulatory framework that’s been created, you’ll find a number of other very novel elements of the FATCA implementation effort that are important in their own right.
First, so that we can identify and interact with our stakeholders in the global financial community, we had to create a new Global Intermediary Identification Number, or GIIN, and develop a unique registration system. This system allows financial intermediaries around the world to establish their FATCA-compliant status and obtain a GIIN to prevent FATCA withholding when receiving payments from U.S. sources. The FATCA registration system opened several months ahead of schedule and has performed flawlessly to date. So far, tens of thousands of financial institutions have established FATCA accounts and received their GIINs. And just yesterday in fact, we successfully made available to all potential withholding agents the so-called “IRS FFI List” of Foreign Financial Institutions, so those agents can download the database of IRS-issued GIINs to their own systems and use that data to determine which of their account holders are FATCA-compliant and thus free from FATCA withholding.

Second, we had to be very mindful that FATCA data will be coming to us from a wide variety of sources and in a variety of ways. So we had to reach intergovernmental consensus, with extensive input from the financial sector, on a common data format, or schema, that will allow us to process and interpret all FATCA data, no matter its source, once we receive it. This hard work was guided by the OECD, and for that effort that I would like to extend my special thanks to the OECD representatives here in the room today, as well as to the individual members of the OECD Secretariat staff and the private sector financial community not with us who diligently worked through a tremendous amount of detail to ensure that FATCA information reports can be used efficiently and effectively, not only by the IRS but by our reciprocal FATCA partners as well.

Third, the automatic exchange of bulk information contemplated by FATCA will require a modern mode of data transmission, one that, frankly, is not available at the moment. This too has presented a challenge for IRS like no other faced in the past. So, working again with our partners in tax administration around the world, we have had to design a new system for electronic data exchange that will allow FATCA data to be transmitted quickly and securely. So far, we are pleased with the resulting design of this new “International Data Exchange System,” which we refer to as IDES. We believe it will accomplish our goals, and anticipate it will be available to users by January of the coming year so that FATCA data can flow on time.
In this regard, I also want to emphasize that we take very seriously the need to ensure that the financial data transmitted through IDES will be transmitted securely, kept confidential, and used only for tax purposes. Protecting this information and assuring its intended use must be our number-one goal. Toward that end, we designed IDES to include state-of-the-art encryption protocols, and we developed a set of safeguard standards addressing the security and use of data once it is received by a government.

Lastly and importantly, during the past several months, we have been conducting bilateral meetings with each one of our reciprocal FATCA partners to ensure that our safeguard needs are understood and that we and our partners achieve a high level of comfort that FATCA data will be kept confidential and used only for tax purposes, as our treaty and information exchange agreements contemplate.

Before I leave the subject of FATCA implementation, I want to mention our resource limitations at the IRS. The agency continues to be in a very difficult budget environment. Since Fiscal Year 2010, IRS funding has been reduced by more than $850 million, or about 7 percent, and we have 10,000 fewer employees, even as our responsibilities have continued to expand. In the absence of additional resources, our ongoing funding shortfall has major, negative implications for the agency’s ability to continue to adequately fulfill its dual mission of excellent taxpayer service and robust tax compliance programs.

Having said that, it is also important to point out that Congress has mandated that the IRS implement FATCA. Whatever else we are going to do, the IRS must move forward with our non- discretionary legislative mandates, and FATCA is at the top of that list. So I want to assure those of you dealing with FATCA implementation in other ways and in other realms that the IRS will continue to find the necessary resources for FATCA, and implementation will not be disrupted by our budget constraints.

Let me also offer a few words on FATCA enforcement. First, as I have already said, we realize that FATCA implementation is challenging not only for the IRS, but also for the financial institutions that are covered by it. We understand there is a great deal of complexity in FATCA, and that financial institutions must make substantial modifications to their processes and systems to implement it. And we understand that complying with the letter of these requirements, down to the final dotting of “I”s and crossing of “T”s, will take some time. As we announced publicly in an IRS Notice last month, we intend to view 2014 and 2015 as a so-called “transitional” enforcement period during which we will take into account a financial institution’s good-faith efforts to comply in our evaluation of what constitutes acceptable FATCA compliance.

Second, we’re well aware that our offshore enforcement resources going forward will need to be dedicated not to small-scale issues that those trying to be FATCA compliant may have, but rather to broader-scale problems presented by those who choose to seek new ways to evade their tax obligations. That is, we recognize that compliance with FATCA by those trying to comply, and with the new Common Reporting Standard when it goes into effect, will improve and be fine- tuned over time. Problems in this area will be corrected by the compliance-minded. The IRS and other enforcement agencies around the world will be able to focus on the structures and arrangements that, unfortunately but inevitably, will be devised to stay in the shadows in a new world of tax transparency. And in that new world, governments will need to work closely together to shine light into those shadowy spaces until they no longer exist.

Now, although I’m suggesting here that FATCA will not put a complete end to the offshore problem we face, I am telling a very positive story, not a bleak one. FATCA and CRS clearly will make it much more difficult and costly to hide assets, so that those who still seek to do so will be forced to spend money to devise more complex structures, turn to riskier jurisdictions and riskier forms of investment, and face far greater certainty of prosecution when found. FATCA will also de-stigmatize those holding offshore accounts for legitimate purposes, as those accounts will be both reported and reported upon in the normal course, while tax administrations focus their enforcement efforts against those truly seeking to evade taxation.

Interestingly, we can already begin predicting that governments will be working on these future problems completely in concert. In fact, because our interests are aligned and the new instruments of transparency and enforcement we are developing together will be shared, I believe the melody of our total success will be sweet and come quickly.

Now, before I conclude, I would like to say a few words about the topic that is front and center at this conference – that is, Base Erosion and Profit Shifting, or BEPS. 

For some time now, the IRS and the U.S. Treasury have been active participants in the OECD’s project to address BEPS on a global scale. We fully support the goal of developing a coordinated and comprehensive action plan to update our international tax rules to reflect modern business practices. Hopefully, this coordinated work will help prevent, rather than exacerbate, the double taxation disputes that could arise if countries unilaterally attempt to address these issues without consensus-based principles. And of course, consensus-based principles are also critically important to ensuring that businesses have the tax certainty they need to operate efficiently around the globe.

That said, I have one point that I believe needs to be considered in the context of these important discussions. I urge that your policy and legal determinations not be made without thoroughly considering the practical implications of these decisions, not only for businesses, but for tax administrations. Let me provide just one example to illustrate what I mean.

I understand that among the reforms being considered is a process known as “country-by-country reporting,” under which multinational businesses would be required to provide, to the tax authorities in each country in which they do business, certain financial information, broken down by country (hence the term, “country-by-country reporting”). I also understand that one possibility for disseminating this data is for all the information reports to be provided to the tax administration in the business’s headquarters country and then shared by that tax administration with the other jurisdictions through the vehicle of treaty-based information exchange. Lastly, I’ve heard it is contemplated that these reports would be exchanged for general risk assessment purposes, not for purposes of an existing audit, which is the current, well-established information exchange standard.

So, given all this, let’s assume that the IRS receives 2,000 of these reports from U.S.- headquartered businesses (although the number could easily be much higher than that) and let’s assume that an average of just five other countries ask for each of these 2,000 reports in any given year. This would mean 10,000 new annual requests for exchange of information coming into our competent authority’s office. And this is just the initial requests. If the proposed new risk assessment standard would justify follow-on requests for additional specific or clarifying information to further the risk assessment, the demand could grow even greater on our Exchange of Information program, or EOI, which is the conduit used by foreign governments to request tax information from us.

So, I ask that this type of simple impact be taken into account as you go forward on this issue and the others you are working to address. One possible way to exchange “country-by-country” reports would be to require that they be automatically exchanged electronically, perhaps through the IDES system I mentioned earlier. Automatic exchange would eliminate the need for a person to evaluate whether or not a requesting country really has a legitimate interest in the information for risk assessment purposes. Together with this might be an agreement that there would be no follow-on requests unless an audit is begun. If this type of care were not taken, then tax administrations with a significant number of headquarters companies would have to reallocate our already dwindling resources to our EOI programs so that we can deal with just this one aspect of the BEPS project.

So again, I urge you in your policy discussions to carefully consider the administrative impact of your decisions. In order for your policy goals to be achieved, any new regime needs to be workable not only from the perspective of taxpayers but also from a tax administration standpoint. 

Let me close now by saying that the IRS looks forward to working with our tax administration partners around the world as we move together toward greater tax transparency and greater coordinated efforts to address common compliance challenges. Thank you for letting me spend this time with you today, and I would be happy to take your questions. 

Why It Would Be Great if Congress Was Forced to Buy Their Own Health Insurance at Full Cost

From FDL, highlights:

Making Congress and their staffers pay the full cost of their insurance is fine with me because that is how the law will treat millions of middle class families. All members of Congress and most staffers will have salaries high enough they would not qualify for subsidies on the exchanges. If Congress is going to make regular people with similar salaries buy insurance out-of-pocket than that should be good enough for Congressional aides.

I also have no problem with the law forcing Congressional staffers to lose their relatively good insurance because that is a long term goal of the law for everyone. The excise tax on “Cadillac coverage” was designed to stop employers from providing good insurance, covering a large share of your premium, and/or getting them to drop offering coverage altogether.  What might happen to Congress is very similar to what Congress intended to happen to others. 

Finally, if Congress is worried their staffers can’t afford to buy insurance out-of-pocket they can just use the money Congress would have spent on their premium and raise their salaries by the corresponding amount. The financing of the law was based on the theory that a dollar in benefits is exactly the same as a dollar in salary. The theory, put forward by Obama’s economists, advisers and the Joint Tax Committee is that if you force companies to offer their employees worse insurance, they will increase their wages by an equal amount. This sounds like a perfect opportunity to put the theory to the test.

Have laws apply to lawmakers the same as it applies to the governed, have the law play out as it was designed, and put the underlying economic theory to the test: these seem like common sense ways to make sure that our democratic decision-making structure is working. Unfortunately we have ample evidence that this structure is working better for lawmakers (and lobbyists) all the time, and correspondingly worse for everyone else.  Congress exempting itself from things that won't personally benefit its members is not a new story, and in light of the brazen roll-back of the "Stop Trading on Congressional Knowledge Act" in order to make it easier for members to quietly line their pockets via insider trading, there is ample reason for pessimism.

Still, WAPO has a story about how Congress isn't really trying to exempt itself, just trying to fix some inadvertent writing in the code that caused some unintended consequence that only a few people understand enough to get upset about. A book could be written on that recurring theme.

To understand why citizenship-based taxation is objectionable, consider the STEM Jobs Act of 2012

Victoria Ferauge explains in as clear a way as may be possible why it is important to understand what people mean when they talk about citizenship-based taxation, and why the US effort to impose it with the big stick of FATCA is so objectionable to Americans living in other countries (also known as "immigrants" in those countries). She makes a number of points but I wanted to highlight one here:

In the [dialectic on Americans living abroad, which equates expatriation with tax evasion] it seems not to have occurred to the American public or its lawmakers that the people they are trying to attract [through immigration policies aimed at high-skilled workers] are the product of other countries' investments in producing a well-educated populace. 

In light of that, consider what the Heritage Foundation says about the STEM Jobs Act of 2012:

American businesses are struggling to fill high-skilled employment opportunities. STEM jobs grew at over three times the pace of non-STEM jobs between 2000 and 2010 and are expected to grow almost twice as fast by 2018. Business groups have spent years urging Congress to reform the visa system in order to fill these empty positions.

Enhancing the ability of high-skilled workers to enter the U.S. would be an asset to the nation’s economy as well as its indebted government. 

In case the instrumentalist nature of our interest in immigrants is not clear, the point is we're going to make these foreign-born, foreign-raised, foreign-educated, now high-skilled, highly-paid workers a permanent part of the American taxpaying public, which can increasingly be defined as the American wage-earning public. One may be forgiven, perhaps, for juxtaposing this deep thirst for foreign talent against America's ongoing disinvestment in its own social infrastructure, including public education (also helped along by the Heritage Foundation).

Victoria's post thus seems to me to contain the contours for constructing the normative case for taxing humans. There is much to be done on this topic, but it seems clear that the practice of admitting immigrants at all, let alone actively seeking highly-skilled ones, demonstrates that inbound human mobility is a social good that states support; that inbound human mobility (perhaps especially of the high-skilled kind) may be the product of rather intense social investment by some other country; and that conversely taxing on the basis of citizenship regardless of residence is a means of preventing outbound human mobility and so runs strictly counter to the overall good of human mobility while also being hostile to the aims of other countries also seeking inbound labour.

The US has long objected to onerous fiscal controls on the capital it sends across borders, so it seems particularly difficult to understand the ongoing support for placing onerous fiscal controls on its outbound labour supply. Contextualize that observation within the story of the shift of taxation from capital to labour over the past 50 years, however, and a pragmatic explanation is easily ascertained. But pragmatism does not make the normative case. In fact, it violates the conventionally-understood major normative factors for assessing taxation--efficiency, administrability, and fairness--because it introduces an insurmountable amount of arbitrariness. This topic deserves much more thinking than has been allocated to it by tax policy observers, including myself.

There is much more at the link, please do go and read Victoria's whole post.

Taxpayer morale--a case study in Detroit

Someone could write a PhD dissertation on the fiscal devolution of Detroit and the role of taxpayer morale. Between the below story and the continuing sage of the attempt to make a tax haven out of Belle Island, it would be a fascinating study.

Half of Detroit property owners don't pay taxes:

47 percent of the city's taxable parcels are delinquent on their 2011 bills. Some $246.5 million in taxes and fees went uncollected, about half of which was due Detroit and the rest to other entities, including Wayne County, Detroit Public Schools and the library.

Delinquency is so pervasive that 77 blocks had only one owner who paid taxes last year, The News found. Many of those who don't pay question why they should in a city that struggles to light its streets or keep police on them.

"Why pay taxes?" asked Fred Phillips, who owes more than $2,600 on his home on an east-side block where five owners paid 2011 taxes. "Why should I send them taxes when they aren't supplying services? It is sickening. … Every time I see the tax bill come, I think about the times we called and nobody came."

...Detroit's delinquencies are so pervasive that some owners have been allowed to keep their property even if they don't pay taxes. Wayne County treasury officials are so overwhelmed by foreclosures that they ignored about 40,000 delinquent Detroit properties that should have been seized last year and said they will look the other way on about 36,000 this year.

...Leola Wesley questions what services she gets for her taxes. ...She was the only resident on her 32-parcel block who paid.

"It makes me not want to pay," said Wesley, 85, who would move from her home of more than 20 years if she could afford it. "If nobody else is paying, why should I?"

...In the past five years, the city has lost out on $317 million in taxes, county records show.

"It makes me wonder why I pay my taxes and keep my property up," said Kisner, a North Rosedale Park resident and former top finance official for the city and Detroit Public Schools. "I keep asking myself, 'Am I the stupid one?'"

The billionaires looking to liberate Belle Island don't want any part of this problem, and if they are successful they most certainly won't be any part of its solution.

Exit taxes and human mobility

An interesting article in Tax Analysts [gated] talks about exit taxes (taxes imposed on assets when a person or entity migrates to another nation) as an impediment to human mobility. I'd say yes, exit taxes do impede mobility, and whether and when they are justified is debatable and under-studied. But there's no universally recognized human right to mobility across national borders, as we well know. (There should be, of course, but that's a discussion for another day).

Instead, every country has high barriers to entry, some more onerous than others, and many have high barriers to exit, some more onerous than others. The US is high on both sides. Many people want to come in and are denied the chance; many others want to leave and can't escape the clutches. It's an odd world.

In any event, the Dutch exit tax has run into trouble becuase Europe has created a right to mobility within the EU zone, via the "freedom of establishment," under article 49 of the Treaty on the Functioning of the European Union (TFEU). The ECJ deemed the Dutch exit tax a violation of that freedom in Commission v. Netherlands (C-301/11), saying that while an exit tax may be justified to ensure a balanced allocation of taxing rights between member states, the Dutch obligation to immediately pay the exit tax was "disproportional." Tax Analysts explains:

Under Dutch tax law, when a taxpayer operating a business moves its place of management to another country, including another EU or European Economic Area member state, the taxpayer becomes subject to a tax assessment for the (deemed) capital gain upon exit. The tax is imposed on the unrealized profits (for example, goodwill, hidden reserves, and tax reserves) attributable to that business. 

The exit tax rules apply both to legal entities and to individuals that relocate their businesses' place of effective management from the Netherlands to another country. 

...As could be expected, in its January 31 decision, the ECJ referred to its previous decision in National Grid Indus. That case concerned Dutch exit tax imposed on a company that relocated its place of effective management from the Netherlands to the United Kingdom. The ECJ approved of the concept of exit taxes because of the need to ensure a balanced allocation of taxing rights between member states. However, a "balanced allocation measure" of this type must satisfy the proportionality test, and the ECJ found the immediate payment obligation disproportional. Because the cross-border relocation exposed the taxpayer to a cash flow disadvantage that would not have existed if the relocation had been domestic, the ECJ deemed the immediate taxation of the unrealized (foreign exchange) gains under some circumstances to be in violation of the TFEU principle of freedom of establishment. 

...This judgment comes as no surprise, as both the state secretary of finance (through the above policy statement) and the lower house of the Dutch parliament (through a draft bill) had already recognized this restriction in domestic law. On December 4, 2012, the lower house approved a bill of law concerning the deferral of exit tax. ... After the bill of law is approved by the upper house (which is expected in early 2013), the new rules will take effect retroactively from November 29, 2011 (the date of the ECJ decision in National Grid Indus). 

The Dutch parliament has drafted a bill to allow for deferral on a retroactive basis and the authors conclude that hopefully, a lesson has been learned. For those outside the EU zone, of course, there is no great comfort to be had but this is another interesting development on the connection between the state and the individual in a world featuring ever-increasing mobility.

Galt's Gulch Chile, Randian Utopia?

I've called charter cities "the ultimate gated community," and it turns out that characterization wroks well as a marketing strategy designed to appeal to Randians with visions of state-free utopias dancing in their heads:

With the oppression of the over regulated, over taxed, war riddled and welfare riddled society consuming the world, Ayn Rand's famous protagonist character, John Galt, came to conclude that he would not use his talents to support such a society any longer...driving him to create a community where scientists, inventors, entrepreneurs and many others would come together to escape from the confines of their daily lives to not only be free...but to thrive.  

In today's world, it is becoming more and more difficult to find true freedom from very much the same oppressive forces Ayn Rand wrote of...which drove John Galt and others to a place where they found their freedom, success and peace of mind. 

But you can find yourself in just such a utopia for a modest investment:

Residential lots at Galt's Gulch Chile will be offered at much more affordable price points than one would expect for a community of this caliber. In the initial phase of the project, which is over 4,200 acres, lot sizes will range from 1.25 acres up to over 10 acres, within the separate neighborhoods of the master planned community, which is projected to have well over 1,000 lots on over 10,000 acres at build out. 

I have no idea what price point to expect from a community of that caliber.  Doesn't it depend on the height of the retaining wall built to keep the bands of roaming marauders out of my libertarian paradise?

Pictured: libertarian paradise

See that? No walls.  Also: no pesky roads, schools, hospitals, police stations, firehouses, courts, legislative bodies, telecommunications equipment, etc. But wait, here's another image:

These walls appear inadequate to protect paradise.

Galt's Gulch does have a facebook page...good thing facebook is still "free"!  But ...what is this?

The lots, roads, lakes and community amenities of Galt's Gulch Chile are currently being laid out by the architecture and engineering team. The on-site sales office is being retrofitted with solar panels and upgraded a bit inside and out, with a proposed opening sometime in March. Our Santiago office should be open sometime in the next two weeks as well. We look forward to getting in contact with everyone and meeting you down in Chile!

and, from their website:

Galt's Gulch Chile is slated to have all of the world-class amenities ...including a championship-caliber golf course, community clubhouses, tennis facilities, spa and fitness centers, hiking trails, horse facilities and trails, vineyards, underground storage facilities, downtown main street shopping, farmer's market, 24-hour guard-gated security and many others.  

Since there will be no imposing of onerous regulations or taxes here in Galt's Gulch, these items will obviously have to be priced into those "much more affordable price points than one would expect for a community of this caliber." But at least you won't have to use your talents to support a society. Your benevolent dictator GALT'S GULCH TRUSTEE LIMITED in Menlo Park, CA will contract you right out of all that messiness. Right? ....or, perhaps not.

Will this be like Independence, USA, "an entire city, developed around patterns?"

The Daily Show with Jon Stewart
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Actually, it does sound a little alike:

Galt's Gulch Chile is being designed to be a fully self-sustaining community, affording those who live there an abundant and unending supply of fresh drinking water from the natural springs located throughout the mountains and valleys of the community, clean and renewable energy from hydroelectric and solar power generation, organic fish from the scenic manmade lakes...and a plethora of organic fruits, vegetables and nuts, born from the fertile soil and the ideal year round climate of the region. 

Well then! Oh, how I yearn to sign up for more information on Galt's Gulch, if only it wouldn't mean being inundated with advertising from some trustee company in California trying to prey on my basic mistrust of government.

A handy guide to Davos-speak

From Ryan McCarthy at Reuters:

...What Davos folks mean when they constantly call for a “growth plan” or “restoring growth” is that no one can see any particular industry that’s going to increase the pace at which they get rich. And, as a result, the rest of us will have fewer jobs.

...[Bridgewater hedge fund CEO Ray] Dalio expanded a bit: the big conversation in politics and economics, he said, will be about how to get more out of workers – growth won’t come  from the next Internet, the next real estate boom or any new asset, in other words. This means, he said, hard choices about questions like “How long is a vacation?” or “What is a good life?” 

...what Dalio is saying is particularly dire for the rest of us. When the world’s most successful investors tells you economic growth is going to depend on whether or not you take a vacation, it’s time to worry. 

Emphasis mine. Make no mistake: whenever CEOs call for policies to increase growth, they mean in their own pockets.

What's FBAR got to do, got to do with it

Everything, I am guessing. Tina will give up her US citizenship now that she has attained Swiss citizenship.  Reason given: to "clarify her situation." John Nolte says "She's 73 years-old, her longtime partner lives overseas, and as far as I know she's not in any way making a political statement." He seems a bit puzzled about her decision to give up her status, and he welcomes her back anytime.

Well said. So why is she giving up her citizenship?  Short of making a political statement, I can think of only one good reason: America's newfound vigor for enforcing citizenship-based taxation, and all of the surveillance and form-filling that entails.  Just consider that giving up citizenship is not a simple matter of mailing in your passport. It can be a complex and time- and resource-consuming process which involves enhanced scrutiny and fees for those with high net worth, who are viewed as attempting to flee the tax jurisdiction.

The US has always had citizenship based taxation on the books, but it wasn't truly enforced until FBAR came under IRS authority and FATCA emerged as its enforcement mechanism in 2010.  Now those who have not been compliant will be "rooted out" (former IRS Commissioner Shulman's description of FATCA) with ongoing monitoring, and hefty fines for failure to file. Those who have been compliant will go on to face a regime that is increasingly byzantine, with new forms and requirement seemingly being piled on all the time, in a situation that is becoming very lucrative for tax return preparers and the compliance industry in general--just google FATCA compliance officer job posting and you will get the idea.  Of course, the regime is meant to catch Americans hiding their cash offshore: a laudable goal especially in light of so many high profile cases, many prominently featuring Switzerland.

So the question is whether Tina Turner is an "American" and if she, with her Swiss bank accounts, is "hiding offshore." This raises a series of unanswered questions about the relationship between the individual and the state, none of which, I think, are easily answered. These include, to which country does Tina belong, if she has dual citizenship?  Is this a first come, first served world, so she belongs to the US in perpetuity, based on her birth in Tennessee, no matter where she lives out her life?  Can she choose to belong to another country, or only if she is willing to pay the cost of her continued US status in the form of ongoing compliance with US tax law?  Is Tina going to be allowed to leave the US jurisdiction only on the condition that she renounces any right to come back?  What financial restrictions should a state place on people--especially wealthy ones--who want to move to other jurisdictions?

As long as Tina holds on to her citizenship, even if she is a dual citizen living in another country, the answer to the first question is that she is now and will ever be American. And as long as she has any accounts anywhere in the world outside of the US, the answer to the second is "guilty unless proven innocent on an annual basis." None of the other questions are answerable in law: all are a matter of opinion and, more than anything else, geo-political power.

I am sure that Tina's expatriation will be viewed by many as a response to the high US tax rate, or a betrayal of her US roots, or both. But it is likely neither.  As a Swiss citizen resident in Switzerland, Tina's worldwide income is subject to income tax (federal, cantonal, and municipal), wealth taxes, VAT, etc., and we can only speculate about how much tax she may be asked to pay in the US after credits, exemptions etc. as a US citizen living abroad.  It could very well be zero or close to zero.  So it is seems more likely this is about the hassle of filing a thicket of tax forms, year after year, despite owing little or no tax to the US, and stiff penalties for even "non-willful" infractions, including mistakes.  And it could be about having to do all of that because Americans living abroad are viewed as likely criminals because they have offshore bank accounts.  

If Tina has been tax compliant all these years, she may just be exhausted with the effort; if not, she may see many reasons to cut ties by going the drastic step of irrevocable renouncement.

I would very much like to know if there is some other reason to give up her US citizenship. "Clarifying" one's situation seems just abstract enough to cover the hassle of dealing with US tax compliance.

Manx tax strategy

Interesting: Isle of Man announces it will keep its 0/10 corporate tax rate and pretty much the rest of its tax system as is, but wil cooperate with the US on FATCA and the EU on its codes of conduct, and might join the mutual administrative assistance in tax matters agreement, and even "consider working with other countries and multilateral organisations on the development of co-operation systems similar to FATCA." I think that last one is in regards to the UK, but it could be broader in scope.

At the same time, the Isle of Man will

"maintain competitive  personal income tax rates  as one of the features making the Island an attractive place to live and work; and

maintain a competitive business tax system in the Isle of Man to support economic development;"

among other aspirations. I think they are in a tough spot, with the US and the UK focused on chasing individual tax cheats and corporate tax avoiders (respectively, perhaps) through their banks. By way of background, the tax strategy says:

The Isle of Man‟s taxation policies have played an important part in our economic success. 

...The key principles of fiscal sovereignty, economic stability and adherence to international standards which underpinned the original taxation strategy remain just as relevant today. 

I'm not sure what anyone means by fiscal sovereignty anymore. Then again, I never really did think it was a real thing.

Recent scholarship of interest

Here are some recent papers of interest:

On the power and role of the state:

• Bernard Schneider, The End of Taxation without End: A New Tax Regime for U.S. Expatriates, arguing that the US should settle for residence based taxation like everyone else in the world. Has a nice section on the history of the practice.
• Claudia Williamson, Contracting Institutions, asking what constrains the state from plundering its people, if the state has monopoly power, and concluding that cultural norms do.
• Martha Fineman, Beyond Identities: The Limits of an Antidiscrimination Approach to Equality, comparing legal cultures of equality and concluding that in the US, human need is seen as a matter of individual responsibility alone while other constitutional democracies also see it as a state responsibility. 

On the inequitable impact of tax treaties:

• Fabian Barthel & Eric Neumayer, Competing for Scarce Foreign Capital: Spatial Dependence in the Diffusion of Double Taxation Treaties, when bilateral FDI positions are asymmetric (as between rich and poor countries), capital importers (poorer countries, usually) lose by entering into a tax treaty; they sign anyway because of competition. Studies DTTs between 1969–2005.

On subsidies & industrial policy:

• Stephanie Rickard, A Non-Tariff Protectionist Bias in Majoritarian Politics: Government Subsidies and Electoral Institutions. Examines how different governments use trade protection via tariffs and subsidies, and finds that majoritarian systems are biased toward both.

And on methodology in legal scholarship:

• Tom Ginsburg, Pitfalls of Measuring the Rule of Law, pointing out methodological challenges for rule-of-law scholarship, calling for caution in policymaking (same argument as I made about using "case studies" to advance international tax principles, you can find that here)

Speaking of austerity: Surprise for Quebec's Universities

Just in time for the holidays: the Quebec government has announced it will cut another $140 million from University budgets this year; schools will have to come up with the cuts by April--yes, in 4 months. That's on top of the rolled-back tuition increases, which represented about another $40 million. This is not a good surprise. It's especially harsh when the PQ is raising taxes all over the place and we all know into whose pockets some outlandish proportion of our taxes go. From the Montreal Gazette:

the PQ repeatedly promised to maintain funding to universities for this year despite cancelling the strongly opposed tuition hike that was to have gone into effect this fall. Universities have been waiting for compensation for about $40 million in lost revenues from the aborted increase.

The student protesters see this as an unintended consequence of their success:

Even the Fédération étudiante universitaire du Québec (FEUQ), which has suggested that universities are more mismanaged than underfunded, was shocked with what president Martine Desjardins called a “hasty” decision. 

“We talked about a redistribution of money, but we never wanted to see university budgets cut,” said Desjardins. “We’re shocked. We fear it’s services to students that will be cut, that students will have to pay the price again.”

I doubt the students alone will pay the price, but the juxtaposition of widespread & rampant corruption, steadily increasing taxes, and steadily increasing cuts to education reads like a serious governance crisis.

Tax chats, with your friendly local tax authority

From the Daily Mash (satire): "YOUR tax bill can be negotiated over a cup of tea and a chocolate Hobnob, officials have confirmed."  That's because:

Her Majesty’s Revenue and Customs revealed that tax laws are all very well, but what really matters is having a nice chat about how much you think you should pay.

But don't get too excited:

The spokesman added: “Oh Christ, I’m really sorry, but I’ve just realised I should have said that ‘tax chats’ are only available to large corporations.

Another sign of the widespread effect on public perception of the Starbucks approach to taxation; more at the link.

 

Activists: inequality is a legal, institutional choice that can be revisited through resistance

Al Jazeera has a short article by a couple of global justice activists and well known justice scholar Thomas Pogge, about growing global wealth inequality, the role of law and legal institutions in fostering and protecting the status quo for those who benefit from it, and the rise in information and collaboration that is empowering resistance from civil society:

The scale of inequality and poverty can appear overwhelming and unchangeable. Yet it is not inevitable. It is the outcome of active choices by people who make and enforce the rules we all live by: rules about global trade, banking, loans, investment, taxes, working conditions, land, food, health and education. These rules are made by people and people can change them.

...Right now, there is a special moment of opportunity. Throughout the world, citizens have access to information in ways once unimaginable. Affordable technologies are revolutionising our ability to communicate with one another and act collectively. The opportunities for new citizen-powered movements to become catalysts for change have never been greater than today. Powerful elites are losing the structural advantages they once enjoyed of being able to maintain secrecy, restrict information and suppress popular movements.  

The authors are launching an activist initiative entitled /The Rules.  This is something to watch as the activists circle around international tax--a technical expertise-laden field that has not worked out important questions of justice in any kind of coherent matter. When Lennon sang about power to the people he did not mention tax havens, but global tax avoidance and evasion appear to be front and center of popular resistance to status quo legal regimes today.

CEOs: welfare is good, but only if it's corporate

From Naked Capitalism, 9 Greedy CEOs Trying to Shred the Safety Net While Pigging Out on Corporate Welfare:

A gang of brazen CEOs has joined forces to promote economically disastrous and socially irresponsible austerity policies. Many of those same CEOs were bailed out by the American taxpayer after a Wall Street-driven financial crash. Instead of a thank-you, they are showing their appreciation in the form of a coordinated effort to rob Americans of hard-earned retirements, decent medical care and relief for the poorest.

...they are gearing up to pull the wool over the public's eyes by cutting Social Security, Medicare and Medicaid. The CEOs are part of the Fix the Debt campaign ... which plans to unleash tens of millions pushing for a deficit reduction deal that favors the rich.

...these Scrooges are so bold as to publicly announce their desire to pick the pockets of fellow Americans while simultaneously pigging out at the corporate welfare trough. Multitasking!

NC provides a sample of what it calls the Fix the Debt CEO Council Hall of Shame (complete list at the Fix the Debt website here):

1. Lloyd Blankfein, chairman and CEO, Goldman, Sachs & Co. Blankfein, infamous for describing his financial activities as "God's work," shared his attitude toward society with CBS news recently. He explained his keen desire to see Americans lowering their sights for the future. ...he gives a pithy summary of what life is going to be like for the 99 percent:

You're going to have to do something, undoubtedly, to lower people's expectations of what they're going to get, the entitlements, and what people think they're going to get, because you're not going to get it.

...Since the financial crash, Blankfein's company, Goldman Sachs, has received tens of billions of dollars in ..."direct and indirect succor from the Fed."...

2. Jeffrey Immelt, chairman and CEO, General Electric Company. ...supporting disastrous financial deregulation, dodging taxes and helping to destroy American manufacturing has not satisfied Immelt. He'd like to add insult to injury by making sure that people who have been screwed by the reckless activities of short-sighted corporate titans like himself are left to starve in their golden years and go without medical care. And as for the poor, well, couldn't they be just a little bit poorer? Immelt thinks that would be swell.

After the 2008 crash, the government gave a giant boost to hard-pressed GE Capital, the company's financing arm, through the Temporary Liquidity Guarantee Program. GE has also helped itself to enormous taxpayer-funded subsidies, especially in green energy. And guess how much GE paid in taxes in 2010? Nothing. ...

3. Jamie Dimon, chairman and CEO, JPMorgan Chase & Co. ... Dimon is deploying a familiar scare tactic on the topic of the so-called fiscal cliff. He's claiming that his company will be forced to cut down on hiring and so on if a budget plan is not tailored to enrich the wealthy. ...Maybe Dimon's company would be better served figuring out what happened to the $6 billion that recently went up in smoke in the "London Whale" derivatives fiasco.

NC covers several more including the CEO of Honeywell (of powerpoint "union busting for dummies" fame), all at the link.

U.S. Headed For Fiscal Cliff

The Onion gets it more right than not, in characteristic fashion:

Unless Democrats and Republicans can reach an agreement by Jan. 1, 2013, the United States will go over the so-called “fiscal cliff,” triggering automatic spending cuts and tax increases that many experts believe could plunge the nation back into recession. Here is what will happen if the government fails to act: 

• National Park Service forced to cut Old Faithful eruptions down to once per week 

• Total breakdown of effective government will turn large parts of the country into an unimaginably hellish libertarian paradise 

• Severe cuts to education spending, if you can fathom that 

• Pentagon will be forced to buy off-brand tanks instead of the more costly name-brand ones 

• Historic bridges such as the Brooklyn and Golden Gate will be folded up and put away for safekeeping 

• The American people’s faith in the ability of Congress to get things done will be damaged 

• At stroke of midnight, every government office, place of work, center of commerce, and piece of infrastructure will simultaneously explode 

• Someone will take care of it

Charity vs taxes and the destruction of the state

From the FT this week, a story on John Paulson's $100 million donation to the Central Park Conservancy.  The article focuses on the idea that charitable organizations can step in for government to provide public goods, and why that idea is pernicious:

[America]’s philanthropy is unique. Its two key institutions are the tax deduction for charitable gifts and the tax-exempt foundation. Noting the role of the Ford Foundation in Lyndon Johnson’s “war on poverty” in the 1960s, Daniel Patrick Moynihan, the late senator, called foundations a “new level of American government”. 

Americans pat themselves on the back for their generosity, not always with good reason. Olivier Zunz, a historian of philanthropy at the University of Virginia, calls American charity a “capitalist venture in social betterment, not an act of kindness as understood in Christianity”. 

Giving to a foundation can be self-interested – a way for a rich person to launder economic power that he does not need into political power that he does. Foundations inevitably get politicised, not because donors are corrupt or insincere but because they are rational. Lobbying for a piece of a government budget is a more efficient way of serving most causes than simply spending donations.

Note that this story comes on the heels of the recent news about how presidential candidate Mitt Romney has used donations to the Mormon church to secure huge tax breaks for himself, even while he campaigns to dismantle agencies like FEMA.  True to form, the Heritage Foundation has suggested that the right answer to Sandy and other natural disasters is for the private sector to support charities like the Red Cross.  It is ironic that Heritage begins its discussion by lauding the fact that "Americans are already coming together to help family, friends, and neighbors."  Isn't that, after all, the whole point of our democratic society: people come together and decide how to govern themselves, including how and when to help each other when disaster strikes someone you don't know personally but who is part of your larger community?

We need only look a little closer at the Red Cross to see the utter silliness of the Heritage foundation's response.  From the Red Cross website:

We have the legal status of “a federal instrumentality,” due to our charter requirements to carry out responsibilities delegated to us by the federal government. Among these responsibilities are:

• to fulfill the provisions of the Geneva Conventions, to which the United States is a signatory, assigned to national societies for the protection of victims of conflict,
• to provide family communications and other forms of support to the U.S. military, and
• to maintain a system of domestic and international disaster relief, including mandated responsibilities under the National Response Framework coordinated by the Federal Emergency Management Agency (FEMA).

Yes, the federal government and the several states contract (pay) the Red Cross to fulfill government functions, even on occasion appropriating funds for the direct support of this organization.  It is not an independent charity that sinks or swims on the altruism or lack thereof of the giving class.  It is a public/private hybrid that relies on donors and the government, and--more importantly--that follows direction from the government in responding to matters involving the common good.  It is not, in other words, subject solely to the whims of its donors in deciding what public goods to provide.


The dismissal of FEMA that characterizes organizations like Heritage and sympathetic politicians like Romney and Ryan even while they laud charitable organizations like the Red Cross betrays the utter emptiness of their fundamental mistrust of "government" as well as that of their trust in the private sector to furnish necessary public goods.

The central problem with relying on purely private charities to provide public goods like disaster relief is not that the donors are self-serving (they are) but that in promoting a mythical idea of a private sector that solves public goods problems without any coordination from government, you have to believe that such a sector exists and further that is can and will accurately assess public needs and mete out coherent responses.  That involves a lot of faith in individuals and organizations that are subject to any number of cognitive biases and mistakes even while they are not subject to the same level of scrutiny to which we can subject government.  The FT says, "most charity does some good for someone, at the price of a certain corruption."  True enough, but what are we to do about public goods problems that rich donors don't find compelling or interesting enough to support?  Moreover, where is the accountability if no private charity steps up to meet a given demand or that in responding to a real and serious demand, bungles the job?

That is why the Red Cross' mandate from the federal government to respond to FEMA reveals the bankrupt idea of anti-government sentiment when it comes to disaster management in particular and government vs charity more broadly.  We should be very skeptical of any attempt to wrest the mandate to provide public goods out of the hands of government and into the hands of the private sector alone.

The FT concludes:

[Mr. Paulson's gift raises] no worries that well-heeled experts are bypassing or steering democratic processes. It simply puts a large fortune at the disposal of a beloved and perennially underfunded institution. There is no better use for a billionaire’s money, short of taxing it.

That's the right answer.  Taxes are what we pay for a civilized society: one in which public goods problems are identified, assessed, and responded to in a way that can be in turn assessed, evaluated, and yes criticised when necessary (cf: Katrina).  That accountability loop exists in government, even if imperfectly.  It is not the same for individual donors or purely private charities.  Churchill's famous quote about democracy holds true for taxing and spending.  It's the worst way to fix public goods problems except for everything else.

Walmart workers rejecting Walmart's vision of the social contract

Walmart workers in California walked out last week to protest unfair labor practices, and now a nationwide strike is under works.  The company, of course, has no unions.  So how do they strike?  Cautiously, and under justified fears of retaliation:

It was the first-ever employee walk-out in the company’s 50 year history, said Dawn Le, a spokeswoman  for Making Change at Walmart, a coalition whose mission is to change the way Walmart conducts business.

“Everyone else has a union,” said Le. “Workers in every other country — Japan, the U.K., Nicaragua, South Africa, Brazil, Argentina — have been able to form a union, except the U.S. and Canada. We just don’t understand the double standard Walmart has. How come those in other countries get to have a voice, yet not in the U.S., its home country?”

Walmart's answer is that the workers don't want to unionize here:

Walmart spokesman Dan Fogleman disputed Le’s charges, claiming that most employees have “repeatedly rejected unionization. “They seem to recognize that Walmart has some of the best jobs in the retail industry — good pay, affordable benefits and the chance for advancement,” he said in a telephone interview with  ABC News.

 If Joe Biden was there, perhaps he would have laughed at the absurdity and wished that Fogleman "would just tell — be a little more candid."  Matt Stoller reports on the high stakes, not just for Walmart's workforce but for society in America and globally:

Workers at Walmart stores across the country, as Josh Eidelson reports, are threatening to walk out on Black Friday, the biggest shopping day of the year. These labor actions are coming on top of earlier labor actions at Walmart's warehouse contractors linked to "non-payment of overtime, non-payment for all hours worked, and even pay less than the minimum wage."

...Walmart is massive – the company is the largest private employer in the US, with more than 2 million employees. The average American household spends $3500 at Walmart, and in 2006, the company alone represented 2.3% of the American GDP. The company is so powerful that when a Walmart Supercenter comes into your community, the entire community's obesity rate increases. It is also, as  New America scholar Barry Lynn has argued in End of the Line, a force that has reshaped the American corporate world.

According to St. Louis Federal Reserve President William Poole... "About 20 percent of their associates are part time and that they are going to be increasing that share to 40 percent so they can staff at peak times and get more productivity out of their workforce."

But the threat of strike could impact this strategy:

Just two months later, Poole offered some very different and shocking news, "My Wal-Mart contact also said that "Wal-Mart is in the process of raising starting wages in about 700 stores. This is the first time in eight years of talking with him that I've heard any comment like that. He said that some of the raises are part of the Wal-Mart, I'll call it "Social/political" agenda because of all the controversy about Wal-Mart." 

... The company, not surprisingly, is ... known for brutal tactics against workers. It is known for retaliating against employers who attempt to organize. Walmart employees often rely on food stamps and Medicaid, because of insufficient wages and lack of adequate health care. In 2005 ... Walmart "observed among their own employees a reduction in health care utilization – that is, fewer doctors' visits – but an increase in emergency room visits. Apparently employees are struggling some to make the co-payments and that kind of thing, again emphasizing the stress that exists in many lower-income households."

That's as it should be, if you're into Romney's current plan for the health of the 47%.

Stoller concludes:

In the 1950s, the so-called "Treaty of Detroit", an agreement between government, business, and labor for ever increasing wages at automakers, set the tone for the next twenty years of political economy. From the 1970s onward, the new social contract was increasingly set, not just by companies like Walmart, but by Walmart itself. As a new social contract, let's call it the "Treaty of Walmart", emerged as a deal cut between the US government, the Chinese government, and global trading corporations, American society began to reflect a race to the bottom. This strike is thus worth watching – if Walmart loses some pricing pressure because of tactics that impact the company's supply chain or ability to sell, we'll be in uncharted territory.

More from Stoller on just how deeply Walmart influences manufacturing practices, retail prices, and wages here, and for an international perspective, take a look at this.  

The ultimate gated community is just a free zone with a new name

MR cautions not to "equate charter cities with extraterritoriality": a charter city works either "because a dominant hegemon — perhaps at a distance — supports the external system of law" or because "the external system of law serves up some new and especially tasty rents to domestic interest groups."  Either way, the charter city is not sovereign, rather some established sovereign is exerting control.  So a charter city is really just a free zone: another experiment in relaxing regulation that Honduras has already tried (along with many many countries, yes, including the U.S.), this one just has a name that taps into some emotional sentiment having to do with freedom and choice and entrepreneurialism.  If Honduras just called this another free zone project, perhaps few would take notice or wonder about it.

As this is just a new name for an old idea, it should not be surprising how quickly we see the familiar accountability/transparency issues pile up.  MR points to the Guardian, which reports:

Plans to create a neo-liberal start-up city in Honduras with its own laws, tax rules and police force suffered a setback on Friday when the economic guru who inspired the project said he has been unable to act as its guarantor and watchdog. 

...days after the deal was announced, Romer said he had not been given the powers and information necessary to fulfil his role as chairman of the transparency commission, which is meant to ensure governance of the new development zones.

Romer said he and four other international figures were appointed by presidential decree to the commission, which has wide-ranging powers to appoint and fire governors, nominate judges and hire auditors in the proposed new zones. But the five will issue a statement distancing themselves from this week's announcement and calling into question the legality of their appointment, which they say has not been published in the official gazette as required by Honduran law, ostensibly because of a challenge in the constitutional court.

Free zones have been around for a long time, they have been studied extensively, and they don't have a great track record, most especially when they lack major up front governance policy planning.  Calling the project a charter city won't avoid these difficult problems.

As an aside, I notice that the Guardian puts a price tag on the deal: a business consortium called NKG is paying $14 million for its city.  Who is NKG?  Not the Northern Kite Group or the Neumann Kaffee Group, I suspect.

 

 

The private sector really is doing ok, or, why workers collaborate in their own self-destruction

If by private sector you mean US corporations, which are making more profit than ever:

From Business Insider.  But not if by private sector you mean wage earners.  As we know median wages have plunged in the US; this article shows that in addition wages as a percentage of GDP are at an all-time low:

The author comments that "[o]ne reason companies are so profitable is that they're paying employees less than they ever have as a share of GDP. And that, in turn, is one reason the economy is so weak: Those "wages" are other companies' revenue."


The juxtaposition thus paints a zero-sum picture: that as wages fall, corporate profits rise.  We've seen other charts that show corporations and managers claiming most or all productivity gains over the last several decades at least.

Richard Murphy responds: "the reason why we have a crisis is that the wealthiest and companies got too rich whilst most got left behind so the wealthiest and companies lent the rest of us their excess wealth through debt arrangements which people could not repay."

Now consider Yves Smith's post today in response to sociologist Claude Fischer, who asks "Why Don't Americans Take Vacations?" and answers with rugged individualism and something about the American way.  Nonsense, says Yves, the right answer is, because of a systemic and steady diet of anti-labor propaganda.  Yves points us to a related article of interest by Mark Ames from 2006, "We're not going on a summer holiday," which says:

vacation time has been slowly disappearing for American workers ever since the Reagan Revolution, which ushered in a violent shift in corporate culture away from the paternalistic post-New Deal model towards the current stock-price-is-God model. According to Harvard economist Juliet Schor, in the 30 years before Reagan's presidency American workers were getting more and more vacation time; however, in the 1980s, that trend suddenly reversed. By the time Reagan left office, Americans got three and a half fewer days off per year, on average.

Ames says at the same time corporate managers have vastly increased their leisure time and pursuits.  A glance at the FT's How to Spend It can certainly confirm the market for vacation by the ultra-rich.  For Ames the most amazing aspect is that

the designated victims in this drama - America's workers - are such willing collaborators in their own existential demise.

...according to a New York Times article, British workers get more than 50% more paid holiday per year than Americans, while the French and Italians get almost twice what the Americans get. The average American's response is neither admiration nor envy, but rather a kind of sick pride in their own wretchedness, combined with righteous contempt for their European worker counterparts, whom most Americans see as morally degenerate precisely because they have more leisure time, more job security, health benefits and other advantages. 

We have seen a related version of this in the public outrage ginned up over the "generous" health and pension packages of public sector employees that has allowed conservative governors to eviscerate worker's benefits and their rights in the process--c.f. Wisconsin.   A constant stream of propaganda tells us that public sector workers must be stripped of their many unearned and undeserved benefits.  There is no equally powerful alternative stream of propaganda demanding better health and pension benefits for all workers.   There is no alternative stream painting a picture of life as an American worker when wages stabilise to global median levels.  The result seems to perfectly illustrate Ames' willing collaboration in self-destruction.