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

PGL and tax haven report

PGL at Econospeak notes:

Darla Cameron and Jia Lynn Yang want to report on how US multinationals are shifting profits to foreign tax havens but their key statistic is the ratio of US tax expenses to worldwide profits:

A Washington Post analysis of data compiled by Capital IQ found that in the late 1960s and early 1970s, companies in the current Dow 30 routinely cited U.S. federal tax expenses that were up to half of their worldwide profits. Now, most are reporting less than half that amount. The reason? The slow but steady transformation of the American multinational after years of globalization. Companies now enjoy an unprecedented ability to move their capital around the world, and the corporate tax code has not kept up with the changes. Across industries, virtually every major U.S. firm has seen the rate of its tax contributions plummet, at least according to publicly available financial statements.

Let’s consider two very different situations. Company A has mostly US activities but has shifted its intangible assets to a Cayman affiliate. If half of its profits are attributable to intangible assets, then not only has its US tax expenses dropped below 20%, its effective tax rate is also below 20%. Company B does not create much in the way of intangible profits but has half of its activity in high tax Europe. Its effective tax rate – calculated as worldwide tax obligations relative to worldwide income – is still high even though its US taxes are likely less than 20% of worldwide profits. Company A is involved with the kind of transfer pricing manipulation that the press should be complaining about. Company B is not. But this statistic cannot distinguish between the two very different situations.

(Dan here: Examples of special treaties, also needing more than a look,  and such have been noted at Angry Bear here).

Mixed Messages on employment situation

Some other insights on the data in addition to Angry Bear Spencer England:

Mixed Message on the Labor Front

BLS released its Employment Situation Summary for July. The payroll survey showed an increase in employment of $163 thousand but that unemployment rate rose to 8.3%. So what was the deal from the household survey? Actually the labor force participation rate fell from 63.8% to 63.7% so the small rise in the unemployment rate masks the fact that the employment to population rate fell from 58.6% to 58.4%. The household survey indicates that employment dropped by 195 thousand last month. So I’m sure the political hacks will have lots to debate on this news. But one thing is crystal clear – we are still far below full employment. This Administration and the Federal Reserve need to do a lot more in terms of stimulus. Of course the Republicans are proposing even more fiscal austerity. Go figure!
run75441 said…
Truly this is not good news. If U# goes up, Particpation Rate increases because people started looking for work again. What you are saying is U3 went up at the same time Participation Rate dropped (more people quit looking). August 3, 2012 10:20 PM

At Bonndad, New Deal Democrat points to the data suggesting new unemployment claims as a leading indicator is much diminished.

PGL on The Romney Economic Boom

PGL at Econospeak begins an analysis of the economists and economics of election promises of Romney’s economic ‘plan?’:

Jon Ward reports that Glenn Hubbard, Greg Mankiw, and John Taylor joined with Kevin (DOW 36000) Hassett to produce white paper that should be fun reading for us of all:

Mitt Romney’s campaign released a paper by four of its top economic advisers on Thursday to back up its assertion that Romney’s tax reform and fiscal plan would create “millions of jobs,” as an adviser earlier in the day had stated … “The Romney economic program will change the direction of policy to focus on economic growth,” the advisers wrote. “Its pro-growth effects will work in two basic ways: It will speed up the recovery in the short run, and it will create stronger sustainable growth in the long run.” The paper was less actuarial work with raw data and specific numbers, however, and more of an economic philosophy argument based largely on the premise that simply by undoing much of what President Obama has done since taking office, the economy would recover at a faster pace than it has been from the recession that began in late 2008. “By changing course away from the policies of the current administration and ending economic uncertainty, as proposed by the Romney plan, we expect that the current recovery will align with the average gains of similar past recoveries,” the advisers stated. “History shows that a recovery rooted in policies contained in the Romney plan will create about 12 million jobs in the first term of a Romney presidency.”

Past recoveries have relied on monetary expansion. I guess these four have not figured out we currently are in a liquidity trap. The bit about policies that are both good for the short-run and the long-run have been standard talking points from Team Romney for quite a while. To be honest – I still need to read this paper but before I do, let me tick off four such possibilities.

The first two are proposals from the Obama Administration which have been stonewalled by Congressional Republicans: (1) accelerating public investment in infrastructure; and (2) using Federal revenue sharing to insure that state & local governments don’t cut public education. The other two rely on encouraging private investment, which is admittedly still low. We could ask the Federal Reserve to lower interest rates – oh wait, that liquidity trap thing again. Finally, Team Romney is doing its best imitation of Art Laffer saying that tax cuts for high income individuals will somehow encourage investment even as negative real interest rates have not fully succeeded. Isn’t this what the Reagan Administration argued some 30 years ago – which prompted the critique from one of the authors of this white paper that the claim was from “cranks and charlatans”. But let’s also take a read of this white paper and see if there is anything new worth considering.

Balancing the Budget with Tax Cuts and Defense Spending Increases

PGL at Econospeak points us to

Charles Riley of CNNMoney has a must see graph showing how defense spending under Mitt Romney would compare to the current DOD baseline budget over the next decade. His title notes the spending over the next decade will exceed the baseline budget by more than $2 trillion. I like this:

Romney has proposed a slew of tax cuts, and plans to cap federal spending at 20% of GDP. But in both cases, the Romney campaign hasn’t fully explained how those provisions will be paid for. The lack of detail means that Romney’s claim of moving toward a balanced budget requires a great deal of trust.

But no one should trust Mitt Romney on fiscal matters. No one.

Long term fiscal problems 2007…PGL

Angry Bear PGL wrote this post in 2007 reflecting the shape of politics and media soundbites of this current and constant election campaigning over the current two years to 2012 elections:

In case Mr. Romney hasn’t seen my question. let me restate it. How will you address the long-run fiscal problem, that is, will you raise income taxes or will you impose that backdoor employment tax increase known as “entitlement reform”, which really means cutting Social Security benefits? Until Mr. Romney answer this question clearly let’s not pretend he has a serious position paper on taxes.

The whole post is below the fold. (hat tip Daniel B)

Stephen Dubner says Mr. Romney does and points to a NYTimes oped written by Greg Mankiw as that position paper:

But perhaps the very most interesting thing about the Mankiw piece is the lead: “Do the rich pay their fair share in taxes? This is likely to become a defining question during the presidential campaign.” This is a classic in winking understatement, for Mankiw was not only an advisor to Bush, but is also (as duly noted in the bio on his piece) an advisor to Mitt Romney on Romney’s current campaign. I applaud Mankiw, the Times, and Romney for having the courage to produce what is essentially a position paper on taxation in the pages of the Times. As long as everyone’s cards are on the table, which they are here, I see no harm. But I sure would have liked to see the e-mails back and forth between the Mankiw and the Romney camp as the Times piece was being edited; and it sure will be interesting to see how this trenchant piece of tax commentary plays out in Romney’s campaign. I can just imagine one of his opponents whipping out the Mankiw article a few weeks or months from now and waving it in his face – “So the rich pay too much tax, huh?”

Doesn’t the suggestion that the rich pay too much in taxes imply that the middle class and the working poor pay too little? It does unless one thinks we ought to slash the budgets of things like the Defense Department – which is not going to happen if Mitt Romney has his way. The claim that Mr. Romney was courageous in producing a position paper on taxation is absurd on so many levels. Greg noted one:

No emails. No phone calls. No smoke signals. I am not an employee of the campaign. I am a Harvard professor, expressing my own views, sometimes publicly, sometimes privately to a candidate for President. After listening to a variety of advisers with various perspectives, Romney decides on his own what positions to take.

The other levels on which this statement about Romney’s courage is absurd goes to a couple of critiques of Greg’s “super-compelling” oped both noted by Brad DeLong. While I think Mark Thoma had a more compelling discussion of the fairness issue, my contribution, which Brad was so kind to highlight, goes to the simple arithmetic of the long-run budget constraint that Mr. Romney has yet to address:

And by looking at 2004, he is forgetting that the budget is not exactly in balance. Yes, the General Fund deficit was rather large so current tax obligations do not capture the cost of government as in all those deferred tax bills thanks to the Bush tax “cuts”. But one might try Greg did that the unified deficit is not that large … Greg leaves out the fact that we have a large Social Security surplus, which is the reason why he can argue that the “deficit” is not that large. Implicit in the use of this figure is the proposition that those payroll “contributions” we are making are NOT to become our retirement benefits down the road. As long as we are posing questions for political candidates, let’s pose this one for Mitt Romney (as Greg is one of his advisors): do you intend to slash Social Security benefits in the future as you continue to impose these employment taxes? After all, you want to maintain the Bush tax “cuts” and still have a large defense department.

In case Mr. Romney hasn’t seen my question – let me restate it. How will you address the long-run fiscal problem, that is, will you raise income taxes or will you impose that backdoor employment tax increase known as “entitlement reform”, which really means cutting Social Security benefits? Until Mr. Romney answer this question clearly – let’s not pretend he has a serious position paper on taxes.