The world wants U.S. debt and the U.S. needs infrastructure repair. Seems like a natural match unless you’re a Republican or fellow-traveling Democrat.
Must-Read: Narayana Kocherlakota: The World Needs More U.S. Government Debt: “Are government-imposed restrictions holding back the U.S. economy?… …In a way, yes: The federal government is causing great harm by […]
Source: Must-read: Narayana Kocherlakota: “The World Needs More U.S. Government Debt” – Equitable Growth
The 50 biggest US companies, including global brands such Pfizer, Goldman Sachs, Dow Chemical, Chevron, Walmart, IBM, and Procter & Gamble, have stashed more than a trillion dollars offshore and used more than 1,600 subsidiaries in tax havens to avoid billions of dollars in tax each year, according to Oxfam America. In a new report released today ahead of Tax Day, Oxfam outlines how corporate tax dodging costs the US an estimated $100 billion each year, a gap that the average American taxpayer would have to shell out an extra $760 to cover…..
…..The report reveals that the same companies are among the largest beneficiaries of US taxpayer funded support, receiving a staggering $11 trillion in federal loans, loan guarantees and bailout assistance from 2008-2014 even as they avoided hundreds of billions of dollars in taxes over the same period.
Oxfam calculated that during this period, these 50 companies collectively received approximately $27 in loan support for every $1 they paid in federal taxes.“…..
The companies, which made nearly $4 trillion in profits globally between 2008 and 2014, paid an average effective tax rate of just 26.5% – well below the statutory tax rate of 35% in the US and well below the tax rate of an average US worker of 31.5%…..
“For every $1 spent on lobbying, the largest 50 companies received $130 in tax breaks and more than $4,000 in federal loans, loan guarantees and bailouts,”…..
There is a growing sense of tighter financial conditions, particularly to the commercial real estate sector. Late last year the regulators issued a joint statement on Prudent Risk Management for Commercial Real Estate Lending and the latest Senior Loan Officer Opinion Survey (SLOOS) shows that banks tightened their lending standards to commercial real estate meaningfully in 4Q15…. The growing sense of gathering clouds in terms of tightening financial conditions to commercial real estate translates into a more challenging road ahead for US commercial real estate.
Sanders points out: “Three out of the 4 largest financial institutions (JP Morgan Chase, Bank of America and Wells Fargo) are nearly 80 percent bigger than before we bailed them out. Incredibly, the six largest banks in this country issue more than two-thirds of all credit cards and more than 35 percent of all mortgages. They control more than 95 percent of all financial derivatives and hold more than 40 percent of all bank deposits. Their assets are equivalent to nearly 60 percent of our GDP. Enough is enough.”
Buffett’s brand is progressive, and Democrats love to bask in his endorsements. The reality is very different
Timely article given recent article in NY Times (An S.E.C. Settlement With Citigroup That Fails to Name Names) wherein Citi agrees to pay a $180 million settlement plus $726 million in investor compensation and yet the SEC not only doesn’t hold any individual responsible – it doesn’t even name them. Talk about moral hazard.
The sentencing of the trader Tom Hayes for his part in the Libor scandal caused many a sharp intake of breath on London’s Canary Wharf.…
Housing tax breaks for the rich are worth more than housing subsidies for the poor.
Source: This chart shows how federal housing policy benefits the rich more than the poor – Vox
Finally someone gets it. Borrow when rates and debt are low to invest in future growth – duh! Just ask any CEO or anyone for that matter – except politicians and knee-jerk anti-government types (unless they’re the beneficiaries of course.
Liberal Leader Justin Trudeau says a Liberal government won’t balance the books for another three years, but will double spending on infrastructure to jump-start economic growth.
Source: Justin Trudeau says Liberals plan 3 years of deficits to push infrastructure – Politics – CBC News
The EU Open Data Portal provides, via a metadata catalogue, a single point of access to data of the EU institutions, agencies and bodies for anyone to reuse.
Elizabeth Warren’s concerns about trade deals undermining financial regulations get an unexpected confirmation from Canada.
Interesting study that real estate debt has become the center of the financial industry, increasing fragility, and worsening recessions while diverting resources from industry.
In other words, banking today consists primarily of the intermediation of savings to the household sector for the purchase of real estate. The core business model of banks in advanced economies today resembles that of real estate funds: banks are borrowing (short) from the public and capital markets to invest (long) in assets linked to real estate.
By contrast, nonmortgage bank lending to companies for investment purposes and nonsecured lending to households have remained stable over the 20th century in relation to GDP. Nearly all of the increase in the size of the financial sectors in Western economies since 1913 stems from a boom in mortgage lending to households and has little to do with the financing of the business sector.
An interesting paper by Eric Toder of the Urban-Brookings Tax Policy Center and Alan D. Viard of the American Enterprise Institute on replacement of the corporate tax with a shareholder oriented accrual tax program. (Via Martin A. Sullivan at The Tax Analysts Blog.)
The second option, which could be adopted unilaterally by the United States, would replace the corporate income tax with increased taxation of shareholders. American shareholders of publicly traded companies would be taxed on both dividends and capital gains at ordinary income tax rates and capital gains would be taxed upon accrual. The option would ensure that American shareholders in both U.S. and foreign based multinational corporations pay tax on their worldwide income, while improving incentives for both domestic and foreign corporations to invest in the United States and increasing the competitiveness of U.S.- resident MNCs. It would also curtail a host of closed-economy distortions, including the current system’s biases against corporate equity‐financed investment, dividend payments, the sale of appreciated assets, and specific industries and types of capital. But it would face a number of design challenges and would reduce federal revenue. It would also confront severe political obstacles because it would be perceived as a giveaway to corporations, it would tax accrued gains that many shareholders do not consider to be income, and it would require other tax increases or spending cuts.
Major Surgery Needed: A Call for Structural Reform of the U.S. Corporate Income Tax
Worker productivity is up but worker share of profits is at an all time low.
Workers aren’t earning less because they’re slacking off — just the opposite. Their productivity increased 8 percent between 2007 and 2012 while their wages actually fell, a trend that has been going on since at least 1979. And they’ve been speeding up since the recession, increasing their productivity last summer at the fastest pace since 2009.
The productivity has helped out corporations. They saw record high profits last year, rising to $1.68 trillion, and they have been rising steadily for some time, more than fully recovering what they lost to the financial crisis. Yet workers are getting little of that money. Profits have risen nearly 20 times faster than workers’ incomes since 2008, and on the whole workers have seen a lost decade of stagnant wage growth.
Workers Get Lowest Share Of Corporate Income Since 1950 | ThinkProgress.
Since Adam Smith, capitalist economists (for the most part) have agreed that government (or other social institutions) should fill the gaps that the private sector can not address or would not do so as efficiently and/or effectively as the public sector. The Ex-Im Bank is a government agency that provides credit support to U.S. exporters. A major beneficiary is Boeing – airplanes being one of the U.S.’s largest export industry. Supporters argue that the Ex-Im Bank supports jobs, economic growth, helps the U.S. trade balance, and actually generates a profit to the Treasury while doing so.
While critics are correct that the program may create trade distortions, other countries have similar programs so a unilateral disarmament by the U.S. wouldn’t level the playing field but simply tilt in more in favor of non-U.S. producers such as Airbus.
In addition part of the Ex-Im Bank’s role is to help small companies enter the international market and I would argue that there is a gradient between trade promotion and trade distortion.
Legitimate criticisms include one by Delta that the U.S. government is providing a subsidy via Boeing/Ex-Im Bank to foreign airlines who then have a competitive advantage over U.S. airlines causing economic harm (including job losses) in that industry. Thus the impact of the Ex-Im Bank needs to be measured not just on the primary effects but also on the secondary effects. An also interesting issues is raised in the Comments section of the Bernstein column by Roger Anderson who points out that in recent years Boeing has had a negative federal income tax rate while competitor General Dynamics has paid at a 29% tax rate. So just how large is the real subsidy of Boeing and is it fair to its U.S. competitors?
So will Congress address this complicated issue with the intelligent nuanced analysis that it deserves? Probably not. Joe Nocera of the NY Times reports on Rep. Hensarling’s view of the Ex-Im Bank:
Representative Jeb Hensarling, a Republican from Texas who is chairman of the House Financial Services Committee, gave a speech to the Heritage Foundation. Hensarling is a Tea Party favorite. His core view is that better government is less government, and that there is nothing government can do that the private sector can’t do better.
Hensarling’s speech was about economics, which, of course, meant it was about wasteful government subsidies and “crony capitalism.” He tossed off what he felt were examples of each — the failure of Solyndra; the continued existence of Fannie Mae; the bailouts of Wall Street and the auto industry — before landing on a government organization that he described as being the “poster child of the Washington insider economy and corporate welfare.”
“Its demise,” he went on, “would clearly be one of the few achievable victories for the Main Street competitive economy left in this Congress. I believe it is a defining issue for our party and our movement.
As if there are Mom & Pop stores selling jetliners and jet fighters in the local strip mall.
Cantor and Crony Capitalism | Jared Bernstein | On the Economy.
A new Demos study finds that federally-supported firms, defined as companies that receive 10 percent or more of the yearly revenue from contracting,employ 6.6 million people. Of these workers, 3.5 million of these workers earn wages at or below 150 percent of the poverty line for a family four (disproportionally minorities and women). And they frequently get lousy treatment from their employers.
A 2010 GAO investigation found that the government frequently awards contracts to companies with wage, safety, environmental, immigration and Medicare violations. Meanwhile, according to a Senate Health Education Labor and Pensions Committee report, firms that do federal contracting made up 30 percent of the companies with the largest penalties for health, safety and wage violations between 2007 and 2012.
Sean McElwee | Thoughts on Economics, Current Events and Philosophy.
….Why then did “endanger[ing] the company” become Citi’s controlling officers’ paramount mortgage strategy despite Bowen’s copious, dead-on accurate warnings? Citi’s most senior managers, including former Treasury Secretary Robert Rubin, were personally put on written notice by Bowen that an extraordinary and growing percentage – eventually 80% – of Citi’s purchased mortgages were “toxic” and that it was reselling them through fraudulent “reps and warranties.” Unlike Holder, there is no conceivable dispute that every Citi officer warned by Bowen instantly understood the implications. There is only one logical answer – they knew that the accounting controlling fraud scheme Bowen described was a “sure thing” guaranteed to make them personally wealthy at the expense of Citi’s shareholders (and, absent a federal bailout, Citi’s creditors).
In response to these frauds Holder’s response is to fine the bank (Citi) – and to do nothing to the officers who grew wealthy by looting Citi’s shareholders. The fine, of course, will be paid by Citi’s shareholders – who were one of the primary victims of the controlling officers’ “toxic mortgages” fraud schemes…..
AG Holder – “ U.S. Announces the Indictment of Citigroup’s Senior Officers”.
Yes I confess, I agree with David Stockman.
The central banks of the world are massively and insouciantly pursuing financial instability. That’s the inherent result of the 68 straight months of zero money market rates that have been forced into the global financial system by the Fed and its confederates at the BOJ, ECB and BOE. ZIRP fuels endless carry trades and the harvesting of every manner of profit spread between negligible “funding” costs and positive yields and returns on a wide spectrum of risk assets.
Moreover, this central bank sponsored regime of ZIRP and money market pegging contains a built-in accelerator. As carry trade speculators drive asset prices steadily higher and fixed income spreads steadily thinner—- fear and short interest is driven out of the casino, making buying on the dips ever more profitable and less risky. Indeed, the explicit promise by central banks that the money market rate will remain frozen for the duration and that ample warning of any change in rate policy will be “transparently” announced is the single worst policy imaginable from the point of view of financial stability. It means that the speculator’s worst nightmare—–suddenly going “upside down” due to a sharp spike in funding costs—-is eliminated by central bank writ….
At the present time, for example, 40% of all syndicated loans are being taken down by sub-investment grade issuers. This is materially higher than the 2007 peak, and is accompanied by an even more virulent outbreak of “cov-lite” credit terms. Indeed, upwards of 60% of these junk loans have no protection against debt layering and cash stripping by equity holders—-notwithstanding their nominal “senior” status in the credit structure. The obvious implication, of course, is that the Fed “easy money” is being massively diverted into leveraged gambling and rent stripping by the LBO houses. Three times since 1988 this kind of financial deformation has led to a thundering bust in the junk credit market. Why would monetary central planners, who allegedly watch their so-called “dashboards” like a flock of hawks, think the outcome would be any different this time?…”
The Implosion Is Near: Signs Of The Bubble’s Last Days | Seeking Alpha.