Questions and Observations

Free Markets, Free People

In support of Burger King

I’ve never really been much of a Burger King fan, but guess what I’m having for lunch today?

Why?  Because Burger King has given us an opportunity to point out one reason why our economy is lagging. And, as usual, it has to do with government policy.  Politicians would like to play the blame game and point at corporations like Burger King moving to Canada (after a merger with Canadian based Tim Hortons) as the reason.  Instead, it is the federal government’s oppressive and unprecedented corporate tax rate that is helping to keep our economy floundering by providing incentive for corporations to leave.

Megan McArdle writes a great column today.  To begin with she cites a paragraph from Matt Levine that makes the point that most in the media and almost all politicians opposing the merger fail to make:

The purpose of an inversion has never been, and never could be, and never will be, “ooh, Canada has a 15 percent tax rate, and the U.S. has a 35 percent tax rate, so we can save 20 points of taxes on all our income by moving.” Instead the main purpose is always: “If we’re incorporated in the U.S., we’ll pay 35 percent taxes on our income in the U.S. and Canada and Mexico and Ireland and Bermuda and the Cayman Islands, but if we’re incorporated in Canada, we’ll pay 35 percent on our income in the U.S. but 15 percent in Canada and 30 percent in Mexico and 12.5 percent in Ireland and zero percent in Bermuda and zero percent in the Cayman Islands.”

Got it?  The US government does something no other first world government does.  McArdle explains:

The U.S., unlike most developed-world governments, insists on taxing the global income of its citizens and corporations that have U.S. headquarters. And because the U.S. has some of the highest tax rates in the world, especially on corporate income, this amounts to demanding that everyone who got their start here owes us taxes, forever, on anything they earn abroad.

This is a great deal for the U.S. government, which gets to collect income tax even though it’s not providing the companies sewers or roads or courts or no-knock raids on their abodes. On the other hand, it’s not a very good deal for said citizens and corporations, especially because our government has made increasingly obnoxious demands on foreign institutions to help them collect that tax. Both private citizens and corporations who have a lot of income abroad are deciding that they’d rather renounce their ties to the U.S. than deal with the expense and hassle of letting it tap into income that they have earned using some other country’s roads and sewers and police protection.

Practically speaking, global taxation is hard to enforce and loaded with bad incentives, which is why our fellow members of the Organization for Economic Cooperation and Development have moved away from global taxation of corporate income, and abandoned global taxation of personal income. If anything, the U.S. has gone in the other direction — by insisting, for instance, that foreign companies report various financial transactions with U.S. citizens to the Internal Revenue Service, and taxing foreign cost of living allowances, which makes it more expensive for companies to employ expats. On the corporate side, the Barack Obama administration has repeatedly suggested tightening up on tax deferral of foreign income and other credits, which would make it even more expensive to be a corporation based in the U.S.

So why base in the US with this being the case?  Why wouldn’t any sane US based corporation be trying to find a remedy to this pernicious and oppressive tax code?  In reality, this describes it rather well:

[I]t boils down to “the police kept people from sacking your first headquarters, so therefore you owe us 35 percent of everything you make, forever.” Loan sharks and protection rackets offer more reasonable terms than this.

Yes, they likely do.   You know you have a problem when more and more of government begins to resemble criminal gangs.  And that’s where we are headed.  Instead of looking at a solution that will benefit a corporation and give them an incentive to remain and pay taxes, our government and the politicians seem bound and determined to make the corporation the bad guy with absurdly Orwellian insults like “economic patriotism” and “corporate deserters”.  This, instead, should be the bottom line:

If we’re worried about inversion, then the U.S. government should follow the lead of other developed countries, and move to territorial taxation. Otherwise, we should stop complaining when people and corporations decide that they’d rather be a citizen of some more sane system somewhere else.

Indeed.

~McQ

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Economic Statistics for 26 Aug 14

Durable Goods orders for July soared by 22.6%, Sadly, it was all due to aircraft orders. Ex-transportation, orders fell -0.8%. On a year-over-year basis, orders were up 33.8% overall, but only 6.6% excluding transportation orders.

The FHFA purchase only house price index rose a respectable 0.4% in June, but the year-on-year rate slowed by -0.4% to 5.1%.

The S&P/Case-Shiller home price index fell -0.2% in June, though it was up 8.1% on a year-over-year basis.

The Conference Board’s consumer confidence index for August once again rose above expectations, up 1.5 points to 92.4.

The Richmond Fed manufacturing index rose 5 points to 12 in August, as manufacturing strengthened in the mid-Atlantic district.

The State Street Investor Confidence Index rose a very sharp 7.0 points in August to a very strong 122.8.

ICSC-Goldman reports weekly retail sales rose 0.6%, and were up 4.2% on a year-over-year basis. Redbook reports a 4.0% rise in retail sales over last year.


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The “cash for clunkers” era of government failure

While perusing a Frank Bruni op-ed in the NYT, I ran across this:

Conventional wisdom says that better unemployment and job-creation numbers could save Democrats. But many Americans aren’t feeling those improvements. When asked in the Journal/NBC poll if the country was in a recession — which it’s not — 49 percent of respondents said yes, while 46 percent said no.

Got that, despite what 49% believe, the country is “not” in recession?  Why?  Because some obscure organization (NBER) that determines that has said so.

But here’s a little clue, if 49% believe that, no matter what is declared, how does one suppose they’ll act when it comes to their own little piece of the economic pie?  Yup, that’s right, like we’re in a recession.  In other words, it really doesn’t matter whether or not the recession is “official” or not, like Bruni says, but then seemingly ignores, “many Americans aren’t feeling those improvements”.  That’s because vastly more than the “official” unemployment number remain unemployed.  Then there are the underemployed.   They don’t give a rip what NBER says.  They know how they’re living, how their lives have changed and what they’re facing.  Which is why you see:

There’s a feeling of helplessness that makes the political horizon, including the coming midterm elections, especially unpredictable. Conventional wisdom has seldom been so useless, because pessimism in this country isn’t usually this durable or profound.

A feeling of helplessness has never been something, at least in my life time, that this country has ever had.  I’m sure during the Depression, there was certainly some of that, but then, I wasn’t living then.

The interesting point there though is the Depression is where the citizens of this country began to look more toward government as an institution of hope.  However misplaced that was, it is indeed what happened.  FDR.  The New Deal.  Yatta, yatta, yatta – for years it was credited with pulling us out of the economic pit we found ourselves in.  Popular myth had it that without government we’d still be mired in a substandard economy (nevermind the growing body of evidence which puts the onus of the Depression on government failure).  Of course, in reality it was WWII that pulled us out.  But that myth was popular and a certain segment of the political sphere nurtured and grew it.

Well, as I’ve always said, reality has a way of bitch slapping fantasy at some point in time and that’s pretty much what has finally happened in the last 6 years.  Reality has set in.  The myth of big government being able to handle such a crisis has been blown to hell.  Result?

In the most recent of Sosnik’s periodic assessments of the electorate, published in Politico last month, he wrote: “It is difficult to overstate the depth of the anger and alienation that a majority of all Americans feel toward the federal government.” He cited a Gallup poll in late June that showed that Americans’ faith in each of the three branches had dropped to what he called “near record lows,” with only 30 percent expressing confidence in the Supreme Court, 29 percent in the presidency and 7 percent in Congress.

There should be no surprise for anyone in those numbers.  None.  Big government has failed.  After all the promises, all the money, all the “policies”, all the assurances and all the faith put in its ability to handle any crisis, especially the economic crisis, the myth has exploded. The gullible, who have believed the myth all these years,  now feel angry with the institution into which they put so much faith.  It was literally a secular religion for some.

Well if there’s a silver lining in all of this mess is the fact that in the future, when this myth again tries to reemerge, we have an era to point to which demonstrates its bankruptcy.  We’ll call it “the cash for clunkers” era of government – when government came up a clunker.

~McQ

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Economic Statistics for 25 Aug 14

The Chicago Fed National Activity Index, a gauge of overall economic activity and inflationary pressure, rose 0.27 points to 0.39 in August.

The PMI Services Flash for August fell -1.5 points to 58.5.

New home sales rose for July rose less than expected, coming in at an annualized rate of 412,000.

The Dallas Fed general business activity index fell from 12.7 in July to 7.1 in August.


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Politicians feel businesses work for government and their only function is a source of tax revenue

I’m not sure how else you interpret this “inversion” nonsense.

Burger King Worldwide Inc. is in talks to buy Canadian coffee-and-doughnut chain Tim Hortons Inc., a deal that would be structured as a so-called tax inversion and move the hamburger seller’s base to Canada.

The two sides are working on a deal that would create a new company, they said in a statement, confirming a report on the talks by The Wall Street Journal. The takeover would create the third-largest quick-service restaurant provider in the world, they said.

The point of this sort of a merger, beside the business aspect, is to move the headquarters of Burger King to a lower tax nation:

Inversion deals have been on the rise lately, and are facing stiff opposition in Washington given that they threaten to deplete U.S. government coffers. A move by Burger King to seal one is sure to intensify criticism of them, since it is such a well-known and distinctly American brand.
[...]

By moving to a lower-tax jurisdiction, inversion deals enable companies to save money on foreign earnings and cash stowed abroad, and in some cases lower their overall corporate rate. Even though many of the headline-grabbing inversion deals of late have involved European companies, Canada has also been the focal point for a number of them, given its proximity and similarity to the U.S. Canada’s federal corporate tax rate was lowered to 15% in 2012.

And surprise – Canada’s economy is picking up steam and corporations are eyeing it as a place to locate.  Imagine that.

Canada’s corporate tax rate in Ontario of 26.5% (the federal rate of 15% plus Ontario’s provincial corporate tax rate of 11.5%) is considerably favorable to the American corporate tax rate of 35% thanks in large part to the conservative Canadian government led by Stephen Harper. The Harper government lowered the federal tax rate to 15% in 2012 down originally from 28% since it took office in 2006.

In fact, a recent KPMG Report, Focus on Tax, ranked Canada as the #1 country with the most business-friendly tax structure among developed countries when adding up a wide range of tax costs to businesses from statutory labor costs to harmonized sales tax. When comparing developed countries to what companies pay in the U.S.; Canada came in at 53.6%, the U.K. came in at 66.6%, and the Netherlands at 74.5% of the U.S. corporate tax burden.

Meanwhile, our politicians are trying to find a way to prevent that, because, well because they apparently think corporations work for them and exist to pay whatever tax rate they deem necessary.  Of course, in a free country, this wouldn’t even be an issue.  Corporations, like people, have the right to move wherever they wish.  It is their call, not the government’s.

But, here that’s not the case:

Burger King’s possible merger to obtain the favorable Canadian corporate tax rate is a true reflection of the American corporate tax rate being the highest in the OECD. However, rather than taking the same stance on outright cutting the corporate tax rate as the Harper government did to keep the U.S. a competitive place to do business, President Obama calls tax inverting companies like Burger King “corporate deserters who renounce their citizenship to shield profits”. At the urging of President Obama, Congress is considering a bill to make it harder for companies to change addresses abroad. Treasury Secretary Jacob Lew called for a “new sense of economic patriotism,” asking Congress to pass curbs to inversions. The Treasury Department currently is also preparing options to deter or prevent corporate tax inversions potentially on its own.

“Corporate deserters”.  “Economic patriotism”.  It’s Orwellian Newspeak at its finest.  Imagine anyone trying to “shield profits” from a grasping and out-of-control government. It is also another, in a long line of indicators, that this is no longer a free country in the sense we used to believe it was.  It is now a country where every other entity is subservient to the needs or wants of intrusive, controlling government.

~McQ

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Exactly how often do cops shoot people?

Well, actually, we really don’t know.

D.Brian Burghart is the editor of the Reno News & Review, the city’s alt-weekly. Driving home one day, he came across the aftermath of a police shooting, and became curious about it. So he started to look for the figures on how often officer-involved shootings happen. And he couldn’t find them. Anywhere.

Nowhere could I find out how many people died during interactions with police in the United States. Try as I might, I just couldn’t wrap my head around that idea. How was it that, in the 21st century, this data wasn’t being tracked, compiled, and made available to the public? How could journalists know if police were killing too many people in their town if they didn’t have a way to compare to other cities? Hell, how could citizens or police? How could cops possibly know “best practices” for dealing with any fluid situation? They couldn’t.

So, he decided to create one. He’s spent the last two years building a crowd-sourced database of officer-involved shootings at Fatal Encounters. And it hasn’t been easy, as he explains:

The biggest thing I’ve taken away from this project is something I’ll never be able to prove, but I’m convinced to my core: The lack of such a database is intentional. No government—not the federal government, and not the thousands of municipalities that give their police forces license to use deadly force—wants you to know how many people it kills and why.

It’s the only conclusion that can be drawn from the evidence. What evidence? In attempting to collect this information, I was lied to and delayed by the FBI, even when I was only trying to find out the addresses of police departments to make public records requests. The government collects millions of bits of data annually about law enforcement in its Uniform Crime Report, but it doesn’t collect information about the most consequential act a law enforcer can do.

I’ve been lied to and delayed by state, county and local law enforcement agencies—almost every time. They’ve blatantly broken public records laws, and then thumbed their authoritarian noses at the temerity of a citizen asking for information that might embarrass the agency. And these are the people in charge of enforcing the law.

Frankly, I find this all too easy to believe. After all, a database of officer-involved shootings would be an enormously useful thing to have for the police, in order to draw lessons about best practices. But, an even more important use is for the public to use the data to provide better visibility and accountability for police operations. And the latter reason, I strongly suspect, is precisely why the police don’t want such a database. The police interest in coming up with best practices is far outweighed by their interest in preventing increased transparency.

The attitude of the police seems to be that of Colonel Jessup in “A Few Good Men”:

I have neither the time nor the inclination to explain myself to a man who rises and sleeps under the blanket of the very freedom that I provide, and then questions the manner in which I provide it.

But, here’s the thing: The very essence of a free society is the open ability to question the manner of how those we entrust to defend us provide that defense. It’s what prevents us from becoming a police state. I would argue that we’re already on the cusp of becoming one.


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