Relevant and even prescient commentary on news, politics and the economy.

Gigantic journalistic investigation into tax havens

by Kenneth Thomas

Gigantic journalistic investigation into tax havens

While Mitt Romney may be fading from view in the wake of his defeat on November 6, the issue of tax havens is definitely not following suit.

Via the Tax Justice Network, I’ve just learned of a massive, multi-national joint investigation into secrecy jurisdictions by three very heavy hitters, the Guardian, BBC Panorama, and the U.S.-based International Consortium of Investigative Journalists (ICIJ). Though they are starting out with the United Kingdom and the seriously understudied situation in the British Virgin Islands, ICIJ has announced that this is just the start of a multi-year investigative project and that there are “many more countries to come in the next 12 months.” Further, according to ICIJ, the investigation involves literally “dozens of jurisdictions and in collaboration with dozens of media partners and freelance journalists around the world” (emphasis in original).

As I write this, the first and second articles (Nov. 25 and 26) in the Guardian’s series rank number two and number one in the “most viewed” articles in the last 24 hours. One of the most amazing articles discusses the use of “nominee” directors, people who pretend to be a company or foundation’s directors in order to hide the true ownership from authorities. Incredibly, these nominee directors frequently do not know the companies they are supposedly responsible for; they just know that they are getting paid for the use of their names. Be sure to check out the BBC undercover film linked from this Guardian article.

The tremendous scope of the journalistic investigation begs the question: where is government on this? Part of the answer is that government is way behind the curve. In 1999, the British government claimed to have stamped out a nominee sham colorfully named the “Sark Lark,” for the tiny Channel Island of Sark where the nominees lived. However, it turns out that the perpetrators of the Sark Lark have simply moved all over the world to continue their scam; the BBC caught up with one former Sark resident in Mauritius.

The other part of the answer is that much of these activities are, in the immortal title of David Cay Johnston’s book, “perfectly legal.” It appears that in many cases governments do not make the effort to sift the illegal from the legal activities.

But let’s not forget: tax havens cost the middle class worldwide hundreds of billions of dollars in tax revenue that they have to make up. The evidence is mounting that they are a central piece of the world financial system. Fundamental reform is necessary and a massive journalistic effort like this one will help produce the outrage to make it possible. I’m looking forward to more fruits of this investigation.

cross posted with Middle Class Political Economist

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Felix Salmon comments on media bias

Felix Salmon comments on media bias at Seeking Alpha:

But let’s not kid ourselves that there’s any particular reason why global stocks are falling. And especially, let’s not try to invent some spurious reason for the fall, be it broad and inchoate (“global economy fears”) or weirdly specific (“Federal Reserve pessimism”).

As a general rule, if you see “fears” or “pessimism” in a market-report headline, that’s code for “the market fell and we don’t know why”, or alternatively “the market is volatile and yet we feel the need to impose some spurious causality onto it”.

This kind of thing matters — because when news organizations run enormous headlines about intraday movements in the stock market, that’s likely to panic the population as a whole. They think that they should care about such things because if it wasn’t important, the media wouldn’t be shouting about it so loudly. And they internalize other fallacious bits of journalistic laziness as well: like the idea that the direction of the stock market is a good proxy for the future health of the economy, or the idea that rising stocks are always a good thing and falling stocks are always a bad thing.

Or, most invidiously, the idea that the most interesting and important time period when looking at the stock market is one day…

I’m not going to try to read any great narrative into this chart. But if you want to explain stocks to the broad population, this is the sort of thing you should be showing them. Rather than useless and irrelevant news about what happened to stock prices this morning.

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More than an election message

George Lakoff offers his take on some of the mistakes Democrats are making currently in their overall message to the nation compared to the Republicans, with the backdrop and rulings from Rush Limbaugh on proper behavior for the Republican political leadership:

Why conservative lies_spread_and what progressives can do to fight them

Fit matters. The brain is a “best-fit” system. The better a new frame “fits” existing frames, the more effective it will be; that is, the more people will think, and make decisions, using that frame

For important domains of thought, like morality, religion, and politics, it is commonplace for people to have two inconsistent frame systems that inhibit each other… When you can shift back and forth on an issue, you are bi-conceptual on that issue. That is, you can frame the issue in two ways, using inconsistent higher-level frame systems.

The more the language of frame is repeated, the stronger the frame gets, along with the system the frame is in. And the weaker the frames of the contradictory system gets. The stronger high-level frames are, the more effective frames that fit them will be. And the less effective frames that contradict them will be.

Frames are conceptual; they are the elements of thought. Most thought is unconscious. Words activate frames. We are rarely conscious of the frames that are activated by the words we hear. Yet those frames are there in our brain circuitry, and more we hear the words, the stronger the frames get, even though we aren’t aware of it.

Framing is the establishment of permanent (or long-term) high-level frames and systems of frames with the brains of voters…

An important part of framing is the establishment of prototypes: social stereotypes, prototypes (typical case, ideals, nightmares, salient exemplars). Stereotypes are used in automatic reasoning and decision-making.

This messaging system has existed and has been extended and strengthened over many years. Democrats have a few of these elements, but they are relatively ineffective, since they tend to view messaging as short-term and issue-based, rather than long-term and morally based. Democrats tend not to understand how framing works, and often confuse framing (which is deep, long-term, systematic, morality-based, and conceptual) with messaging (which is shallow, short-term, ad hoc, policy-based, and linguistic).


Democrats have a few of these elements, but they are relatively ineffective, since they tend to view messaging as short-term and issue-based, rather than long-term and morally based. Democrats tend not to understand how framing works, and often confuse framing (which is deep, long-term, systematic, morality-based, and conceptual) with messaging (which is shallow, short-term, ad hoc, policy-based, and linguistic).

The “evidence” comes from polls and focus groups that test the normal “mainstream” language and logic, versus language and logic that is not “mainstream.” This is, naturally, conservative language and logic, because the conservative messaging system has systematically made it that way patiently over years. The pollsters therefore report that the “mainstream” of Americans prefer the conservative language and logic, and the policies that go with them. The pollsters then suggest moving to right to go to where the public is. They then construct and test messages that move enough to right to satisfy the “mainstream.” They also construct “good arguments.” If the “good arguments” activate the conservative worldview, the conservative position will just get stronger in the brains of the voters.


To work long-term, progressive messaging must be sincere and direct, must reflect progressive moral values, and must be repeated. Progressive framing is about saying what you believe, telling the truth, and activating the progressive worldview already present in the minds of those who are partly conservative and partly progressive.

Framing is, of course, about policy, more than about messaging. What you say should go hand-in-hand with what you think and do.

And, of course, the best messaging requires an excellent communications system, or it won’t be heard. Progressives have the money to build such a system. The question is whether they understand the desperate need for such a system, and whether they have the will to build it.

Of course the comments on the post settled nothing. The post is long on intellectual type of thought and short on examples. But it is instructive to note that the energy behind a belief is not something that ebbs and flows simply by vote counts, it is something enduring demanding resources and effort on a daily basis by bearing witness in big and small ways.

And the confusion between ‘frame’ and ‘message’ is constantly displayed in comments when it comes to political messaging…especially in a forced two party system.

To illustrate, allowing the labels ‘pro-life’ and ‘pro-choice’ to define the abortion issue was a major mistake from my point of view. ‘Anti-choice’ keeps the label to the issue and does not allow ‘pro-life’ groups kudos for things not included in their agenda.

Lakoff uses the immigration debate as an illustration, but I wish he would develop better stories. The use of the term ‘illegals’ is a pejorative, but even Mitt Romney trusted illegals to come into his house in MA to take advantage of their work ethic. Americans often invite illegals into their homes and even leave them to walk around unattended, and ask them to care for their children, or cook their meals. There are some bad apples, but crime is down despite this invasion.

More to come.

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WMD? YMMV.

In the news over the past couple of days, I have heard the concealed explosives of the Undiebomber described as “weapons of mass destruction.”

To me, this didn’t sound quite right — in fact, it sounded like a naming convention the Bush administration might have used.

To check whether this was just me, I first stopped in at Wikipedia, where I found:

A weapon of mass destruction (WMD) is a weapon that can kill large numbers of humans and/or cause great damage to man-made structures (e.g. buildings), natural structures (e.g. mountains), or the biosphere in general. The scope and application of the term has evolved and been disputed, often signifying more politically than technically. Coined in reference to aerial bombing with chemical explosives, it has come to distinguish large-scale weaponry of other technologies, such as chemical, biological, radiological, or nuclear. This differentiates the term from more technnical ones such as chemical, biological, radiological, and nuclear weapons (CRBN).

Now, knocking down an airplane with an explosive is a major act of destruction, but does it qualify as deployment of a WMD? I wouldn’t think so.

Taking down four planes, two enormous buildings and part of a third building is a huge act of destruction, but there aren’t any WMDs involved there either, unless you count the two towers themselves, the dust from which has yielded distinctly WMD-like effects.

So who then made the decision to call the PETN, as destructive as it undoubtedly is, a WMD, and up the terrorism ante from failed airplane bomber to a wielder of thunderbolts?

I found a December 25th CNN article comparing Richard Reid (another plane bomb failure, eight years ago) to Abdulmutallab, and using the term WMD. Checking further using Google News, I found this graph:

It looks like my intuition is right and the WMD usage was indeed a Bush hangover, though the term itself originated years previous to the run-up to the Iraq war.

Perhaps the media should be more careful, since WMDs are generally held to be biological, chemical or nuclear weapons, not common items like PETN, used in small caliber ammunition, land mines and shells, and as the explosive core of detonation cord.

A better phrase might be “weapon.” Or, for extreme cases, “big weapon.”

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Kornhauser’s Tax Literacy Project–about time

edited 072909 to correct link for giving online, by Linda Beale

One of my big gripes (in case you haven’t noticed) is the ease with which ordinary Americans can be fooled about tax issues by organizations, often ones with greedy purposes of furthering their own interests in lower taxes for themselves, that publish misleading or downright untruthful information and just keep repeating it. This has been a special problem with estate taxes, which hit only the very wealthiest amongst us and for a relatively small amount even for the large estates. It is also true of income taxes in general, the way flat taxes would work, the rationales for the corporate tax and many other key tax policies. Lobbyists frame the issues with inflammatory language, and most are too unknowing about the way tax really works to recognize the ruse for what it is.

Here are two of my pet peeves. (Many tax practitioners–and lots of tax academics–disagree with me on these.) Some of the worst phrases that have furthered the cause of cutting taxes for the wealthy so that the majority of Americans can either pay higher taxes themselves or do without the kinds of things that governments, not private enterprises, do best are “death taxes” and “double taxation” .

Much of the estate that is taxed when a decendent passes it along to his heirs as an unearned windfall has never been taxed at all during the decedent’s lifetime, in the case of wealthy people with mostly financial assets. If there is not a good-sized bite out of the estate upon the transfer to beneficiaries, there’ll be very little contribution to taxes from an agglomeration of wealth that has benefited enormously from the US legal system. And the heirs won’t have any taxes to pay either–they’ll just keep holding or will have a stepped up basis when they sell. All that is is a system for perpetuating or creating oligarchy–letting the wealthy become a ruling class with all the money and all the power without contributing anything much to help pay for the system that made all the wealth possible in the first place.

Similarly, the phrase “double taxation” is used to make people think that taxing corporations is unfair. But the decision about whether we tax entities or not is a reasonable one for societies to make. We made it a long time ago–deciding that we should treat corporations as taxpayers and thst we should tax capitalist owners of corporations on the income they are paid out of their corporate ownership as well. It is one of the most progressive parts of the federal income tax when it works, and it makes a lot of sense from a democratic egalitarianism perspective. Corporations can horde money and have enormous power because of their ability to lobby for their own benefit. Look at the way Big Pharm and Big Insurance has gotten Max Baucus in their pocket–putting money in his, and getting out of that a watered down health bill that doesn’t do half of what we should be doing to move towards a single payer, single provider system like the most advanced countries already have. The presupposition behind the term “double tax” is that you are overtaxing and that you are taxing somebody that shouldn’t be taxed. Yet corporations get to deduct salaries and purchases paid for with their own stock, which doesn’t cost them a thing to issue. Corporations get basis in property transferred to them by shareholders in exchange for issues of corporate stock, even though that stock does not represent an after-tax investment by the corporation. So the taxable income of a typical corporation is generally much less than the corporation’s actual economic income, and in addition to these provisions that are basic to the way the corporate tax is set up there are lots of provisions for reducing corporate tax–too fast depreciation, deferral of income through matching rules coming from court opinions where judges have been unduly influenced by financial accounting (the seventh circuit, in particular), depletion allowances and myriad other tax expenditure items favoring corporations, etc. Since Reagan, there has been a huge push by the same economic thinkers that brought us our current Great Recession to undo the US classical corporate tax system. It’s really a push for giving more money back to the wealthy and cutting the size of government. (Of course, the push for lower corporate taxes, more uneconomic credits like the R&D credit, etc., and the push for zero taxation of corporate dividends have been coordinated and have the same effect of huge reductions in taxes on the wealthy.) But it’s all argued in the name of economic efficiency–a theory without basis in reality that is probably more to blame for the greed that dominates today’s society and the consolidation of huge megafirms–Big Pharm, Big Oil, Big Banks, Big multinationals in general–than anything else. And strangely, no one makes the same “horrid double tax” arguments about the maid being taxed on her salary paid out of already-taxed compensation income of her lawyer-employer…

Of course, even for those who don’t pay much attention to the various organizations that are peddling particular views of tax issues and haven’t been particularly swayed by the push for repeal of the”death tax” or repeal of “double taxation”, there is a huge gap in information that isn’t filled in by the media. Most schools, for example, don’t teach much of anything about the tax system in the basic civics course. Most students don’t take a finance course in college, much less a course that teaches the basics of tax law. In fact, most law schools don’t even require that their graduates have a basic course in federal income tax law before graduating. (That is a major problem, I think, since almost every legal issue has tax consequences, one way or another, that a competent attorney should be aware of.) As a result, we are frighteningly ignorant, as a society, about how tax works, why it works that way, and what other possibilities there are. And as a consequence of that ignorance, it is all too easy for citizens to be in the dark about the consequences of tax legislation under discussions, for lobbyists to influence members of Congress to vote in their favor on bills (the public won’t know the difference), and for members of Congress to fail to fully inform their constituents about the tax issues they are voting on (or even, in far too many cases, for the members of Congress to understand, as when a certain person from Colorado supported windfalls in the agricultural bill based on his apparent failure to understand the difference between gross income (revenues without business or other deductions) and adjusted gross income (revenues with business deductions taken into account)).

So I’m glad to see Marjorie Kornhauser’s project take off. Maybe others won’t agree with me on these pet peeves, but if we have better educated citizens who have more basic knowledge about taxes and how they work, it won’t be so easy to bamboozle them into voting against their interest to support tax cuts for the wealthy and service cuts for everybody else while the boondoggles for the big corporations just keep pouring out (like an agreement that the government can’t use its bargaining power to get cheaper drugs, or that Big Pharm can prevent generics being sold for 12 years and other crap that is getting put into the “health reform” bill that is becoming, like so much else these days, a corporate giveaway).

What’s her project? It’s called The Tax Literacy Project–”a non-partisan effort to informally educate the public about taxes through popular methods such as web-based games and other internet activities.

Want to help? Donations are being accepted. What follows is the appeal, direct from Kornhauser and the ASU Foundation.

Money from Taxes Helps Every Person Every Day!

But polls show most of us do not understand anything about our taxes.

Why should we bother learning about taxes? Because:

Tax ignorance costs each of us money. Many of us pay more tax than we actually owe.

Because tax ignorance makes it hard to discuss and enact sound tax policies, we are not able to raise money in the fairest and most efficient manner possible.

Why do we need taxes?

Taxes support democracy. They fund government services and goods such as court systems and national defense that protect your life, your property, and your constitutional rights.

Taxes support economic growth. Governments use taxes to encourage economic growth in numerous ways such as maintaining a stable currency, enacting and enforcing laws that protect both workers and employers (their lives and proeprty), and helping to build and maintain large and dependable energy, transportation and communication systems.

Taxes support your daily quality of life. They help you and your family buy a house, breathe clean air, have safe food and drugs, travel safely and efficiently on highways, trains and planes. Taxes help pay for your health care (in the form of tax benefits or direct care) and they pay to educate you and your family. Taxes help you at work (e.g., enforce contracts, provide a safe workplace) and help you at play (e.g., national parks).

Become a part of a solution to the problem of tax ignorance by contributing to the Tax Literacy Project.

What is the Tax Literacy Project?

It is a non-partisan effort to informally educate the public about taxes through popular methods such as web-based games and other internet activities.

Can you support the Tax Literacy Project regardless of your political outlook?

Yes, the Project’s only pupose is to help provide information about tax, not to support any particular type or amount of taxes. No matter what kind of government people want, that government will cost money. Americans must understand how that money can be fairly and efficiently raised.

How can you make a charitable contribution?

Make your donation payable to the Tax Literacy Fund at https://secure.asufoundation.org/giving/online-gift.asp?fid=418 (no appeal code necessary) or Make your check payable to the ASU Foundation and mail to the Sandra Day O’Connor College of Law, Arizona State University, PO Box 877906, Tempe, AZ 85287-7906. Please write Tax Literacy Fund (3000 4788) in the memo line of your check. Thank you in advance for your support.

For more information or to become involved–

Please contact the project director: Marjorie E. Kornhauser, Professor of Law, Sandra Day O’Connor College of Law, Arizona State University, Marjorie.kornhauser@asu.edu, 480.965.0396.

All funds will be deposited with the ASU Foundation, a separate non-profit organization that exists to support ASU. YOur payment may be considered a charitable contribution. Please consult your tax advisor regarding the deductibility of charitable contributions.

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A Look at the Liberal Media: Media Bias?

We’ve all heard that the media is biased. Those who make that argument typically point out (as proof) to the high percentage of reporters are registered Democrats. I’d like to argue that the high percentage of reporters that are registered Democrats is not a sign of bias, and might be just the opposite, in fact.

Here’s the annual growth in real GDP per capita over the length of each administration beginning with Ike.

(Data from the BEA’s NIPA Table 7.1. Note… growth rates calculated from the year before a President took office to his last full year in office. Thus, for Ike, growth rates were calculated from 1952 to 1960. Exceptions were made for incomplete terms… thus growth rates for JFK were calculated from 1960 to 1963, for LBJ from 1963 to 1968, for Nixon from 1968 to 1974, and for Ford from 1974 to 1976. The data and calculations have been uploaded into Google Docs.)

Now, if you think I’m cherrypicking, NIPA table 7.1 has data going back to 1929. Here’s the same graph extended that far. (Note… because the folks who argue media has a liberal bias also like to say that the economy only recovered from the Great Depression as a result of WW2, I’ve broken FDR’s term into two: FDR 1 is the term from 1933 to 1940, and FDR 2 is the term from 1941 to 1945.)

Let’s say these weren’t graphs showing the annualized real GDP per capita growth rates over the length of each President. Let’s tell a different story. When cancer patients are treated with chemotherapy, it kills off production of their white blood cells, and because these cells are used to fight off infection, chemotherapy drains patients and makes them more likely to get infections. Now, say there are two schools of thought for how to deal with this problem, the “red” school of thought and the “blue” school of thought. If the graphs above showed the average change in the number of white blood cells of patients who had undergone either the red or blue program, would your first assumption, on looking at those graphs be: “gee, any reporter who specializes in medical issues who gets cancer and asks his doctor to put him through the blue program must be biased”? Sure, there could be mitigating circumstances, but unless there was some funny business with how the tests were designed or conducted or the data was collected in some odd way, most of us would be more likely to assume if there was something wrong, it would be among those reporters who developed cancer and nevertheless requested the red program to supplement their chemotherapy.

My point… maybe most reporters are not familiar with the numbers. They haven’t seen these graphs. But they are still somewhat close to the action. And they’re better educated about what is going on than the average person. Perhaps if there are more of them that are registered Democrats than registered Republicans, there is a good reason for it.

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