Tag Archive for taxes

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

The Impossible Dream of Fair Taxes and Income Equality.

TaxesCreative Commons License Tax Credits via Compfight

The liberal left, assorted groups of anti-capitalists and genuinely concerned, but frequently misguided, do-gooders are clamouring for the heads-of-state attending the G8 conference in Ireland to Do Something about evil corporations not paying their “Fair Share” of taxes.

What hypocrisy.

As sure as night follows day, there are some corporations (and individuals) who have in the past, do now and will continue to, evade taxes, which is illegal. Although their tactics may be understandable given the oppressive and punitive tax systems in many countries, if it is against the law and if they get caught, they should not expect any sympathy.

Tax avoidance however is entirely legal and part of the duty of responsible corporate officers in their objective of running businesses at a profit. If that includes exploiting loopholes created by government incentives to encourage investment, how can they be criticised.

If that involves the creation of holding companies and taking advantage of offshore domiciles for business registration, as long as it is legal, what is the problem?

Those squealing for “corporations” to be punished should remember that those same corporations, are owned either publicly, or privately, by people. People who breathe oxygen and bleed red blood just like those who are doing the squealing.

Unlike the majority of those complaining however, the owners of corporations have generally exerted some effort to be productive in life and not merely demanded their share of the taxes paid by those same productive people as do the entitlement afflicted whiners.

Other than those employed by various levels of government or quasi government institutions – all paid by the taxpayer – sources of income are profits from businesses, returns on investments, self employment or salaries and wages from employment by corporations large or small.

Pensions paid to retired workers from both the public and private sectors are largely funded by dividends or interest paid to pension funds by the corporations in which they have purchased shares or bonds.

I have long argued that the only morally and ethically fair form of taxation is a standard rate on all expenditure in the form of a sales or value added tax. This ensures that the wealthy will pay more tax in absolute terms because they will spend more. It would also encourage a higher level of savings than would a flat rate on incomes.

As moral or fair as that may be, I am cynical enough to realise that it would not fly. It is quite all right for people with low or no incomes to demand that “the rich” pay their fair share of taxes. The top 5% of North American taxpayers already pay 54% of all taxes, not much “fair” about that.

In parallel to the clamour about evil corporations and taxes, is the whining about “income inequality”. The media are largely to blame for this one. Anyone with a very basic knowledge of the English language, economics and politics, knows that in a democratic, free enterprise society, incomes can never be equal. The correct term is “income disparity”. Although correct, it is not dramatic enough for biased headlines, it does not stir up enough resentment.

Income Equality could only exist in a pure communist system, we all know how wildly successful that system is. Cuba and North Korea being the last pathetic examples. Even in the original cradles of communism, the former USSR and China, some were more equal than others with disparity of incomes and standards glaringly obvious.

Yes, great disparity in income levels does lead to resentment, we should be concerned about it. But trying to re-distribute wealth from the productive to the unproductive is not the answer. That causes those who can to depart for greener pastures with their wealth and reduces those who cannot to the lowest common denominator.

Regrettably the rise of social media has allowed these myths to be propelled around the world with greater speed and reach than ever before.

There is one certainty about the attack on corporate and individual’s legal tax reduction strategies. It is that investments will be taken away from countries with punitive tax laws and moved to those with either more favourable or less rigidly enforced tax laws. Jobs will move with them.

That is human nature, we all want to protect what we have worked for, except of course those that feel entitled to steal from the productive.

 

peter wright