Sinister Tax and Wealth Re-distribution Strategy.

cute penguin couple - explored Adam Foster via Compfight

Killing two birds with one stone.

Now the target is the auto industry, not penguins, but almost as vulnerable.

The US regulators have discovered a new, almost bottomless pit of tax revenue and a sinister method of wealth distribution that is under the radar of most observers.

Even more cunning is that the very organisations that are being used to harvest this revenue are the worst placed to complain about it.

The tax is so cleverly designed, applied and publicised, that it is guaranteed to meet the approval of the liberal left, anti business crusaders and assorted bunny and tree-huggers.

It is wildly attractive to the less or un-productive members of the economy. Guaranteed to excite those who continually whine about the natural condition of “income inequality” as if it were a cardinal sin.

It is a tax that does not need the approval of voters.

Another bonus for the US regulators is that this tax can be applied to organisations anywhere in the world without needing bi-lateral agreement or even any form of government to government approval.

The system is so cleverly designed that governments of the countries where the affected parties are based are reluctant to protest or even comment on the policy.

Any response they give is likely to damage the interests of their domestic manufacturers and exporters to the USA.

The new tax / redistribution policy first got major attention during the aftermath of the explosion of the BP oil rig Deep Horizon, in the Gulf of Mexico in 2010.

I am not making light of the deaths of workers, the effect on the environment nor the livelihoods of business owners in the region.

Fair compensation for loss and the costs of the clean up should be paid. In the case of this disaster there is some indication that in many cases, grossly unfair compensation was extracted from BP.

There is an argument for some form of punishment when businesses make mistakes and fail to make corrections. That punishment can be financial penalties or fines, lost opportunities, cancellation of leases, contracts, permits or a combination of these.

In the case of the BP disaster, the fines were huge.  Billions of dollars.

Billions more have been collected from banks, and other financial service providers since the recession started in 2008.

Including 16 more banks, some British and Canadian, this week, in connection with the alleged manipulation of the LIBOR. A rate that is set in London UK and not Wall street.

Recently, the regulators, perhaps fearing that further forays into the bank’s reserves might kill the golden goose, have set their sights on the auto industry.

General Motors is starting to squeal under the pressure. They may well have been slow to acknowledge and report problems in some of their vehicles.

Now today, Toyota has been fined $1.2 Billion for failing to adequately respond to reports that some of their vehicles were accelerating spontaneously.

It appears that Toyota will meekly pay up, thereby subsidising the US treasury and diverting profits in the form of dividends from international shareholders to, amongst others, welfare recipients in the USA.

Why will Toyota meekly pay up as the banks have done in the past? Because the long-term cost of the adverse publicity could be higher than the penalty.

This penalty and portrayal of Toyota as another example of evil big business could open the floodgates of compensation-seeking litigation against the company.

Added to the massive fine, the total costs could seriously impact profits and could arguably add to the cost of Toyota vehicles for years.

All public companies are ultimately owned by the share holders. Some of those are institutions with their own shareholders, some are wealthy. Many are not.

Many are relying on dividends from corporations like Toyota, either directly or through pension funds, for their retirement income.

It is ironic that greedy and vindictive prosecutors and revenue agents in the USA can deprive pensioners from Japan to Britain of their incomes and jeopardise their livelihoods.

The authorities claim that this is to protect consumers, that claim has as much validity as local municipalities’ claim that speeding fines are only to prevent speeding not raise revenue.

If laws are broken, punishment is deserved, but it should be relevant and reasonable. Leave the raiding of corporate reserves to the real victims, there are more than enough avaricious lawyers itching to help. They don’t need US regulators to do it for them.

This and similar acts of piracy against foreign investors increases the cost of doing business in the USA. When that cost becomes too high, those investors will look elsewhere.

It also invites retaliation from the, as yet, restrained financial watchdogs in other major economies.

 

peter-wright

3 comments

  1. timgibney says:

    Peter, a very interesting perspective to a very challenging situation. I say that because if an auto company has not done their due diligence when if comes to safety, they should pay heavily for the harm they’ve done to the public. When it comes to investors in these auto companies, they also need to do their homework and check more than the possible return on investment. The challenge for me is that there needs to be a solution that takes all aspects of the situation into the solution. I strongly believe that you can’t improve some people’s lives by tearing others lives down.

  2. eccentricus says:

    I agree Tim that businesses of any type, not just auto makers, should pay a penalty for “the harm they have done to the public.” Not to swell the coffers of a greedy government.

    It is alleged, but as far as I am aware, not yet proven, that the Toyota floor mat / acceleration issue caused 12 deaths. That is tragic, I am not condoning that. If as is alleged there was a cover up, yes that may have been an illegal activity.

    However extracting $1.2 billion from Toyota is to my mind a form of blackmail and far in excess of the old legal standard of “The punishment should fit the crime”.

    There are two more aspects to this subject that I did not cover in my original post:

    The seeming impossibility of law enforcement and regulatory agencies in North America to accept that accidents do happen. Not every misfortune can be attributed to deliberate negligence.

    A typical example of this is when a sober driver who skids off an icy country road while travelling at low speed and causing no injuries, property damage or inconvenience to any other party is fined, perhaps given penalty points.

    That to me smacks of an over aggressive police force and a tactic of government determined to increase its revenues by any means possible.

    Another example, huge fines for small or medium sized businesses because an indifferent or careless worker injured himself. Fines which could well put the company out of business and leave its workforce unemployed.

    None of that should excuse Toyota or any other business for wrongdoing, but it is all part of the same mentality of vindictive law enforcement and wealth confiscation.

    Why should this be worse in North America than other parts of the world and even many countries in Europe with all their welfare state systems?

    I suspect a combination of; too many lawyers chasing too little “real” work, a scalp hunting attitude amongst regulators – a conviction at any cost whether guilty or not. And the oft quoted sense of entitlement attitude amongst those who would sooner take from the successful than make the effort to become successful themselves.

    The system is out of balance, the tail is wagging the dog. It’s no longer government by the people for the people, it has gone a long way down the slippery slope to government of the people by the government for the government.

    That slope ends with governments like those of Stalin, Hitler and Mugabe.

  3. […] I published a post on my contrarian blog in which I suggested that the huge $1.2 Billion fine imposed on Toyota by US regulators was […]

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