Positively un-American tax dodges

by Allan Sloan , Fortune Magazine

Bigtime companies are moving their “headquarters” overseas to dodge billions in taxes … that means the rest of us pay their share.

Ah, July! What a great month for those of us who celebrate American exceptionalism. There’s the lead-up to the Fourth, countrywide Independence Day celebrations including my town’s local Revolutionary War reenactment and fireworks, the enjoyable days of high summer, and, for the fortunate, the prospect of some time at the beach.

Sorry, but this year, July isn’t going to work for me. That’s because of a new kind of American corporate exceptionalism: companies that have decided to desert our country to avoid paying taxes but expect to keep receiving the full array of benefits that being American confers, and that everyone else is paying for.

Yes, leaving the country–a process that tax techies call inversion–is perfectly legal. A company does this by reincorporating in a place like Ireland, where the corporate tax rate is 12.5%, compared with 35% in the U.S. Inversion also makes it easier to divert what would normally be U.S. earnings to foreign, lower-tax locales. But being legal isn’t the same as being right. If a few companies invert, it’s irritating but no big deal for our society. But mass inversion is a whole other thing, and that’s where we’re heading.

We’ve also got a second, related problem, which I call the “never-heres.” They include formerly private companies like Accenture ACN , a consulting firm that was spun off from Arthur Andersen, and disc-drive maker Seagate STX , which began as a U.S. company, went private in a 2000 buyout and was moved to the Cayman Islands, went public in 2002, then moved to Ireland from the Caymans in 2010. Firms like these can duck lots of U.S. taxes without being accused of having deserted our country because technically they were never here. So far, by Fortune’s count, some 60 U.S. companies have chosen the never-here or the inversion route, and others are lining up to leave.

All of this threatens to undermine our tax base, with projected losses in the billions. It also threatens to undermine the American public’s already shrinking respect for big corporations.

Inverters, of course, have a different view of things. It goes something like this: The U.S. tax rate is too high, and uncompetitive. Unlike many other countries, the U.S. taxes all profits worldwide, not just those earned here. A domicile abroad can offer a more competitive corporate tax rate. Fiduciary duty to shareholders requires that companies maximize returns.

My answer: Fight to fix the tax code, but don’t desert the country. And I define “fiduciary duty” as the obligation to produce the best long-term results for shareholders, not “get the stock price up today.” Undermining the finances of the federal government by inverting helps undermine our economy. And that’s a bad thing, in the long run, for companies that do business in America.

Finally, there’s reputational risk. I wouldn’t be surprised to see someone in Washington call public hearings and ask CEOs of inverters and would-be inverters why they think it’s okay for them to remain U.S. citizens while their companies renounce citizenship. Imagine the reaction! And the punitive legislation it could spark.


WATCH: Inversion: How some major U.S. companies are dodging taxes

Fortune contacted every company on our list of tax avoiders and asked why they incorporated overseas. Four of them–Carnival CCL , Garmin GRMN , Invesco IVZ , and XL XL –said they were never U.S. companies. In other words, they are never-heres. Five more–Actavis ACT , Allegion ALLE , Eaton ETN , Ingersoll Rand IR , and Perrigo PRGO –said they inverted mainly for strategic purposes. The tenth, Nabors NBR , refused to respond to our multiple requests.

Companies that have gone the inversion or never-here route but that act American include household names like Garmin, Michael Kors KORS , Carnival, and Nielsen NLSN . Pfizer PFE , the giant pharmaceutical company, tried to invert this spring, but the deal fell through. Medtronic MDT , the big medical-device company, is trying to invert, of which more later. Walgreen WAG is talking about inverting too–it’s easier to boost earnings by playing tax games than by fixing the way you run your stores.

Then there’s the “Can you believe this?” factor. Carnival, a Panama-based company with headquarters in Miami, was happy to have the U.S. Coast Guard, for which it doesn’t pay its fair share, help rescue its burning Carnival Triumph. (It later reimbursed Uncle Sam.) Alexander Cutler, chief executive of Eaton, a Cleveland company that he inverted to Ireland, told the City Club of Cleveland, without a trace of irony, that to fix our nation’s budget problems, we need to close “those loopholes in the tax system.” Inversions, I guess, aren’t loopholes.

Before we proceed, a brief confessional rant: The spectacle of American corporations deserting our country to dodge taxes while expecting to get the same benefits that good corporate citizens get makes me deeply angry. It’s the same way that I felt when idiots and incompetents in Washington brought us to the brink of defaulting on our national debt in the summer of 2011, the last time that I wrote anything angry at remotely this length. (See “American Idiots.”) Except that this is worse.

Inverters don’t hesitate to take advantage of the great things that make America America: our deep financial markets, our democracy and rule of law, our military might, our intellectual and physical infrastructure, our national research programs, all the terrific places our country offers for employees and their families to live. But inverters do hesitate–totally–when it’s time to ante up their fair share of financial support of our system.

Inverting a company, which is done in the name of “shareholder value”–a euphemism for a higher stock price–is way more offensive to me than even the most disgusting (albeit not illegal) tax games that companies like Apple AAPL and GE GE play to siphon earnings out of the U.S. At least those companies remain American. It may be for technical reasons that I won’t bore you with–but I don’t care. What matters is the result. Apple and GE remain American. Inverters are deserters.

Even though I understand inversion intellectually, I have trouble dealing with it emotionally. Maybe it’s because of my background: I’m the grandson of immigrants, and I’m profoundly grateful that this country took my family in. Watching companies walk out just to cut their taxes turns my stomach.

Okay, rant over.

The current poster child for inversion outrage is Medtronic Inc., the multinational Minnesota medical-device company that once exuded a cleaner-than-clean image but now proposes to move its nominal headquarters to Ireland by paying a fat premium price to purchase Covidien COV , itself a faux-Irish firm that is run from Massachusetts except for income-taxpaying purposes. For that, it’s based in Dublin. That’s where the new Medtronic PLC would be based, while its real headquarters would remain on Medtronic Parkway in Minneapolis. Of course, the company is unlikely to return any of the $484 million worth of contracts the federal government says it has awarded Medtronic over the past five years.

If the Medtronic deal goes through, which seems likely, it will open the floodgates. Congress could close them, as we’ll see–but that would require our representatives and senators to get their act together. Good luck with that.

Now let’s have a look at some of the more interesting aspects of the proposed Medtronic-Covidien marriage. I’m not trying to pick on Medtronic–but its decision to become the biggest company to invert makes it fair journalistic game.

Medtronic is one of those U.S. companies with a ton of cash offshore: something like $14 billion. That’s money on which U.S. income tax hasn’t been paid. Medtronic told me it would have to pay $3.5 billion to $4.2 billion to the IRS if it brought that money into the U.S.: That’s the difference between the 35% U.S. tax rate and the 5% to 10% it has paid to other countries. Among other things, inverting would let Medtronic PLC use offshore cash to pay dividends without subjecting the money to U.S. corporate tax.

I especially love a little-noticed multimillion-dollar goody that Medtronic is giving its board members and top executives. Years ago, in order to discourage inversions, Congress imposed a 15% excise tax on the value of options and restricted stock owned by top officers and board members of inverting companies. Guess what? Medtronic says it’s going to give the affected people enough money to pay the tax.

We’re talking major money–major money that I’m glad to say isn’t tax-deductible to Medtronic. The company wouldn’t tell me how much this would cost its stockholders. So I did my own back-of-the-envelope math, starting with chief executive Omar Ishrak. Using numbers from Medtronic’s 2014 proxy statement and adjusting for its stock price when I was writing this, I figure that his options and restricted shares are worth at least $40 million, and the “equity incentive plan awards” that he might get are worth another $23 million. Allow for the fact that Medtronic will “gross up” Ishrak et al. by giving them enough money to cover both the excise tax and the tax due on their excise tax subsidy, and you end up with $7.1 million to $11.2 million just for Ishrak. And something more than $60 million for Medtronic as a whole.

Why does Medtronic feel the need to shell out this money? The company’s answer: “Medtronic has agreed to indemnify directors and executive officers for such excise tax because they should not be discouraged from taking actions that they believe are in the best interests of Medtronic and its shareholders.”

But you know what, folks? These people are fiduciaries, who are legally required to put shareholders’ interests ahead of their own. If they believe that inverting is the right thing to do (which, it should be obvious by now, I don’t) they ought to pay any expenses they incur out of their own pockets, not the shareholders’. It’s not as if these people lack the means to pay–the directors get $220,000 a year (and up) in cash and stock for a part-time job, and Ishrak gets a typical hefty CEO package.

One more thing: Normally, a company’s shareholders don’t have to pay capital gains tax if their firm makes an acquisition. But because this is an inversion, Medtronic shareholders will be treated as if they’ve sold their shares and will owe taxes on their gains. However, the deal won’t give them any cash with which to pay the tab.

The company asked me to mention that its executives and directors, like other holders, will be subject to gains tax on shares that they own outright, and Medtronic won’t compensate them for it. Okay. Consider it mentioned.

Second, the company contends that this deal will be so good for shareholders that it will more than offset their tax cost triggered by the board’s decision to invert. Well, we’ll see.

A major barrier to inversion used to be that companies moving offshore were kicked out of the Standard & Poor’s 500 index. Given that more than 10% (by my estimate) of the S&P 500 stocks are owned by indexers, getting tossed out of the index–or being added to it–makes a big, short-term difference in share price. In 2008 and 2009, S&P, which has a few never-heres, tossed nine companies off the 500 for inverting. But four years ago, S&P changed course, for business reasons. Companies were angry at being excluded, and index investors wanted to own some of the excluded companies. Moreover, S&P feared that a competitor would set up a more inclusive, rival index.

So in June 2010, S&P changed its definition of American. Now all it takes to be in the S&P 500 is to trade on a U.S. market, be considered a U.S. filer by the Securities and Exchange Commission, and have a plurality of business and/or assets in the U.S.

The result: S&P now has 28 non-American companies in the 500.

How much money are we talking about inverters sucking out of the U.S. Treasury? There’s no number available for the tax revenue losses caused by inverters and never-heres so far. But it’s clearly in the billions. Congress’s Joint Committee on Taxation projects that failing to limit inversions will cost the Treasury an additional $19.5 billion over 10 years–a number that seems way low, given the looming stampede. But even $19.5 billion–$ 2billion a year–is a lot, if you look at it the right way. It’s enough to cover what Uncle Sam spends on programs to help homeless veterans and to conduct research to create better prosthetic arms and legs for our wounded warriors.

Rep. Sandy Levin (D-Mich.) and his brother, Sen. Carl Levin (D-Mich.), have introduced legislation that would stop Medtronic in its tracks by making inversions harder. Under current law, adopted in 2004 as an inversion stopper, a U.S. company can invert only if it is doing significant business in its new domicile and shareholders of the foreign company it buys to do the inversion own at least 20% of the combined firm.

The Levins propose to require that foreign-firm shareholders own at least 50% of the combined company for it to be able to invert and also that the company’s management change. This would really slow down inversions–but the chances of Congress passing the Levin legislation are somewhere between slim and none.

Conventional wisdom holds that companies are inverting now because they’ve despaired of getting clean-cut reform that would widen the tax base and lower rates. But John Buckley, former chief Democratic tax counsel for the House Ways and Means Committee, has a different view. Buckley thinks that we’re seeing an inversion wave not because there’s no prospect of tax reform but because there is a prospect of reform. If reform comes, he says, there will be winners and losers–and it’s the likely losers-to-be that are inverting. “Even minimal tax reform would hurt a lot of these companies badly,” he says.

For example, Buckley says, a company that inverts before reform takes effect will be able to suck income out of the U.S. to lower-tax locales much more easily than if it were still a U.S. company. “A revenue-neutral tax reform requires there to be winners and losers,” Buckley says. “But by inverting, the companies that would be losers are taking themselves out of the equation … They’re taking advantage of both U.S. individual taxpayers and other corporations.”

If you’re a typical CEO who has read this far, about now you’re shaking your head and thinking, “What a jerk! Just cut my tax rate and I’ll stay.” To which I say, “I wouldn’t bet on it.” In the widely hailed 1986 tax reform act, Congress cut the corporate rate to 34% (now 35%) from 46%, and closed some loopholes. Corporate America was happy–for awhile. Now, with Ireland at 12.5% and Britain at 20% (or less, if you make a deal), 35% is intolerable. Let’s say we cut the rate to 25%, the wished-for number I hear bandied about. Other countries are lower, and could go lower still in order to lure our companies. Is Corporate America willing to pay any corporate rate above zero? I wonder.

So what do we need? I’ll offer you a bipartisan solution–no, I’m not kidding. For starters, we need to tighten inversion rules as proposed by Sandy and Carl Levin, who are both bigtime Democrats. That would buy time to erect a more rational corporate tax structure than we have now–bolstered, I hope, by input from tough-minded tax techies.

We also need loophole tighteners along the lines of proposals in the Republican-sponsored, dead-on-arrival Tax Reform Act of 2014. One part would have imposed a tax of 8.75% a year on cash and cash equivalents held offshore, and 3.5% a year on other retained offshore earnings.

Another thing we need to do–which the SEC or the Financial Accounting Standards Board could do in a heartbeat, but won’t–is require publicly traded U.S. companies and U.S. subsidiaries of publicly traded foreign companies to disclose two numbers from the tax returns they file with the IRS: their U.S. taxable income for a given year, and how much income tax they owed. This would take perhaps one person-hour a year per company.

That way we would know what firms actually pay instead of having to guess at it. Then we could compare and contrast companies’ income tax payments.

What we don’t need is another one-time “tax holiday,” like the one being proposed by Sen. Harry Reid (D-Nev.), to let companies pay 9.5% rather than 35% to bring earnings held offshore into the U.S. It would be the second time in a decade we’ve done that, and would signal tax avoiders that they should keep sending tons of money offshore, then wait for a tax holiday–presumably not on the Fourth of July–to bring it back.

Until–and unless–we somehow get our act together on corporate tax reform, companies will keep leaving our country. Those that try to do the right thing and act like good American corporate citizens will come under increasing pressure to invert, if only to fend off possible attacks by corporate pirates–I’m sorry, “activist investors”–who see inversion as a way to get a quick uptick in their targets’ stock price.

Now, two brief rays of sunshine: one in England, one here.

Starbucks SBUX , embarrassed by a 2012 Reuters exposé showing that it paid little or no taxes in England despite telling shareholders it made big profits there, has recently apologized and now makes substantial British tax payments. And eBay EBAY , God bless it, decided to bring $9 billion of offshore cash into the U.S. and pay taxes on it.

So I’m feeling a bit better about July than when I started writing this. In any event, a happy summer to you and yours.

Global Elites Getting Nervous About Skyrocketing Inequality...

...But Won't Spare a Nickel to Fix It

December 2013 | Alternet

Global elites are getting a bit antsy these days.

A new study by the World Economic Forum based on a survey of 1,592 leaders from academia, business, government, and the non-profit world suggests that all is not cheery at the top. It seems that elites believe that the second biggest problem facing Planet Earth in 2014 is widening income disparities (unrest in the Middle East and North Africa is their top worry). When it comes to economic issues, elites and ordinary folks are often at odds, but according to a recent Pew survey , they converge on identifying the gap between rich and poor as a major flaw in the system.

What’s clear is that the schemes elites have supported, from austerity policies to financial predation, are driving inequality to such extreme levels that everybody is now talking about it. The Pope is talking about it . Robert Reich made a movie about it. All over the world, people having been protesting and rioting in rolling demonstrations about it. An ugly resurgence of fascist elements in Europe is capitalizing on it. Even folks like Larry Summers, who promoted policies that stoke inequality, are publicly lamenting it.

The global elites are sittting on piles of obscene wealth, but they also have two big problems:

1. Soft demand: When people are too poor to buy goods and services, businesses suffer and the whole economy lags.
2. Prospects of increasing social unrest: When people are so squeezed that they think they have nothing to lose by taking to the streets, the wealthy have to hide behind barricades.

The global situation is crazy and probably unstable, and the 0.01 percent knows it. The question is, what are they prepared to do about it?

Not much — not yet, anyway. You can peruse the top mainstream newspapers to get a sense of how most elites feel about the growing gap between haves and have-nots. Lately there’s been quite a bit of handwringing and an uptick of articles on subjects directly related to inequality, but precious few signs that any substantial changes are on the horizon.

Case in point: Just after Thanksgiving, New York Times readers found a moving article  in the business section detailing the plight of unfortunate retail workers who don’t get paid enough to make ends meet. The author noted the hardship of food stamp cuts and described a situation so bad that companies had set up food drives for low-wage workers and dispensed tips on how to apply for public assistance (independent websites like AlterNet had been all over this story for weeks).

For a human touch, the NYT author quoted a depressed mom who works at Sears selling toys that she could never afford to buy for her own children. The author duly noted that Americans support raising the minimum wage by an overwhelming majority, but in typical mainstream media fashion, took a stance of faux neutrality and provided the opinions of two mainstream economists who disagreed on whether raising minimum wage was a good idea or not. Overall, the article seemed cautiously in favor of something that American voters overwhelmingly say they want.

Conclusion: Some elites might be willing to raise the minimum wage just a bit.

But a couple of weeks earlier, the Washington Post ran a widely reviled editorial on Social Security that showed the limits of elite concern. The vast majority of Americans, aware of an oncoming train wreck of a retirement crisis, are against cuts to Social Security, but the editorial board at the Post made it clear that elites are not on their side and laid out various specious arguments, including an irrational appeal to deficit hysteria (the deficit is actually decreasing ), to bolster its antisocial perspective. Elizabeth Warren, increasingly a thorn in the side of greedy elites, blasted the Post.

Conclusion: Elites are not really willing to pay taxes, and financiers wish to charge more fees on private retirement accounts, ergo Social Security must be cut. (Erskine Bowles and Alan Simpson, the co-chairs of Obama’s Deficit Commission, are the standard-bearers for this line, along with their backer, Wall Street billionaire Pete Peterson.)

You can also look to top establishment politicians for insight into just how much elites are willing to do to solve the inequality problem.

For instance, there’s the little matter of a giant loophole in the tax code that favors the rich. The “carried interest” loophole allows financiers like hedge fund managers, venture capitalists and partners in real estate investment trusts to pay a lower tax rate on their profits than working people pay on their earnings. It’s an unjust handout to the wealthy, and again, the American people are clear on how they feel about the tax code : the rich don’t pay their fair share.

The GOP is vehemently against closing the loophole. But despite the fact that Democrats raged against it last year to defeat Mitt Romney, it is Dems themselves who are standing in the way of getting anything done. As the Boston Globe noted in a recent article, Democrats are worried that “crusading against the ‘carried interest’ loophole at this stage would inflame an important source of campaign contributions for Democrats.”

Back when he was in the Senate, John Kerry did an elaborate dance around the issue, using his influential post on the Senate Finance Committee to seed skepticism and parrot industry warnings of dire “unintended consequences’’ and unnamed risks to the economy if the loophole were closed, even while voting in favor of the change. With Kerry now at the helm of the State Department, a host of other prominent Democrats, including President Obama and Senator Chuck Schumer, have been quietly working to see that nothing much will be done.

Conclusion: Filling campaign coffers is more important than dealing with grossly unfair policies that contribute to dangerous inequality.

So there you have it. Global elites know that they have a vital interest in solving the problem of inequality, but few are willing to pay a dime or accept substantive changes to our economic system in order to solve it.

Perhaps the megarich will simply take shelter in armed and gated communities and continue to thumb their noses at the 99 percent until a mass movement rises to stop them. But many have a vague recollection of what happened in the French Revolution. At a certain point, the barricades don’t hold.

The Fed, Apple, and Trickle-Down Economics: A Story for May Day

by robert reich


The Fed’s policy of keeping interest rates near zero is another form of trickle-down economics.

For evidence, look no further than Apple’s decision to borrow a whopping $17 billion and turn it over to its investors in the form of dividends and stock buy-backs.

Apple is already sitting on $145 billion. But with interest rates so low, it’s cheaper to borrow. This also lets Apple avoid U.S. taxes on its cash horde socked away overseas where taxes are lower.

Other big companies are doing much the same on a smaller scale.

Who gains from all this? The richest 10 percent of Americans who own 90 percent of all shares of stock.

But little or nothing is trickling down. The average American can’t borrow at nearly the low rates Apple or any other big company can. Most Americans no longer have a credit rating that allows them to borrow much of anything.

It would be one thing if Apple and other giant companies were borrowing in order to expand operations and create new jobs. But that’s not what’s going on. Apple, remember, is still sitting on $145 billion.

The reason big companies aren’t creating more jobs is consumers aren’t buying enough to justify the expansion. And government is cutting back on spending.

Big corporations are borrowing simply in order to push stock prices up and reward their investors.

It’s a sump pump with the Fed on one end buying up bonds to keep interest rates low, and shareholders on the other end raking in the returns.

Get it? Easy money from the Fed can’t get the economy out of first gear when the rest of government is in reverse.

Trickle-down economics is the first cousin of austerity economics. Austerity is nuts when so many millions are out of work. And as we’ve learned before, trickle-down is a fraud. Nothing ever trickles down.

America's Staggering Wealth Divide

One of the Most Unequal Countries in the World

Inequality in America is even worse than it seems, with personal debt papering over the true state of affairs.

December 3, 2012  |  AlterNet  |  By Paul Bucheit

 

Most people associate inequality with the income gap. As distorted as the distribution of income may be, our wealth distribution is even more extreme. Americans are beginning to realize that years of preferential tax treatment for the rich, under the guise of "supply-side job creation" nonsense, have bloated the fortunes of the super-rich to a level that would make Rockefeller and Carnegie envious.

1. We're close to being the most unequal country in the world.

Among countries with at least a quarter-million adults, only Russia, Ukraine, and Lebanon are more unequal, according to the most recent figures ] from Credit Suisse Research .

An earlier report  by the same research team had indicated that Denmark and Switzerland were more unequal than the United States. While Switzerland is still high in the new data listing, ranking 18th, Denmark is actually rather equal relative to other countries, and received its dubious earlier position due to its own accurate reporting of household debt, as will be noted in Fact 5 below.

2. Wealth accumulation has been rigged for the rich.

The richest quintile of Americans owns 93% of non-home wealth. For Americans with incomes over $10 million, nearly half of their income comes from capital gains and dividends, on most of which they pay only a 15% tax. From 2002 to 2007, two-thirds  of all income went to the richest 1%. Then, in the first year after the recession, a startling 93% of all new income went to the richest 1%.

Massive wealth holdings have accumulated for the richest Americans not only because of their appropriation of income, but also because of their manipulation of the tax code. The 15% capital gains tax is their proudest accomplishment. Other ploys include carried interest, performance-related pay, stock options, and deferred compensation.

The imaginary 'work' of financial gain gets taxed at a much lower rate than real work. Through the years, as the rich have fattened up on stocks and other financial assets, the stock market has grown three times faster than the GDP. Yet American workers have not benefited from their own productivity. Their wages have flatlined  while the fruits of their labor have gone to investors.

3. As tax rates have gone down, income for the rich has gone up.

A Business Insider chart depicts the remarkable - yet reasonable - negative correlation between tax rates and the wealth of the super-rich. Over the past hundred years, every time tax rates have been decreased, the income percentage of the richest .01% has increased, and vice versa. Other  sources  confirm that changes in the tax rate have little to do with economic growth, and that the top tax rate can - and should - be much higher, up to 83%.

The Reagan-era myth of "higher taxes, less revenue" has been debunked. It's enough to convince any thinking American outside of Congress that our budget problems are rooted in an extraordinary degree of tax avoidance at the top.

4. "We should all cheer for the stock market" is a big scam.

The mainstream media would have us believe that the whole country depends on a rising stock market. But the lowest-earning three-fifths of Americans -- 60% of the population -- own just .2%  (one-fifth of one percent) of all wealth outside the home.

The Heritage Foundation and the American Enterprise Institute claim that wealth inequality has remained steady over the past century, even in the last 30 years. Both organizations cite a paper by Kopczuk and Saez , which shows that the share of wealth owned by the top 1% has decreased from the early 1900s to the early 2000s, possibly because the "democratization of stock ownership...now spreads stock market gains and losses much more widely than in the past."

While it's true that the percentages of net worth and financial wealth for the top 1% barely budged from 1983 to 2007, the percentages for the rest of the richest 5% increased by almost 20%. And the percentages for the poorest 80% of the population DECREASED by almost 20%.

In other words, the share of wealth owned by the top 1% leveled off because the "democratization of stock ownership" spread the wealth among just 5% of the population, those earning an average of $500,000 per year. A few people -- 5 out of 100 -- got very rich, but everyone else lost ground.

5. Debt has masked wealth inequality for 30 years

The authors of the Global Wealth Report  state: "Rising household debt...began around 1975. Before this date, the ratio of household debt to annual disposable income within countries remained fairly stable over time and rarely rose above 75%." Today, Americans are burdened with over $11 trillion  in consumer debt, including mortgages, student loans, and credit card liabilities. As the very rich have accumulated income and wealth, the middle class has kept up appearances by taking out loans.

However, that's only half the story. Private debt appears to be more manageable when public debt is low. Denmark has the highest household debt to wealth ratio in the world, but its government debt amounts to just 3% of the financial wealth of Danish households. The U.S. is at 32%. And our government debt as a percentage of GDP is 103%, one of the highest percentages in the world.

Conclusion: Where is all the wealth coming from?

According to the authors of the Global Wealth Report , the world's wealth has doubled in ten years, from $113 trillion to $223 trillion, and is expected to reach $330 trillion by 2017.

The UN definition of wealth  includes (1) natural capital: land, forests, fossil fuels, and minerals; (2) physical capital: buildings and infrastructure; and (3) human capital: the population's education and skills.

We need to add a 4th category: the magical creation of wealth by the financial industry.

A Not-So-Simple, Pretty Funny Question for the 73% of White Evangelicals Who Will Apparently Be Voting for Romney

A question that deserves an answer before election day.

October 31, 2012  |  

 

According to polls 73 percent of WHITE evangelicals will be voting for Mitt Romney.

If the polls are correct here’s the question I'd like to ask evangelicals using their own style of language/concerns/theological thinking as applied to their choice:

What’s the explanation for the fact that white American Evangelicals made the allegedly philandering lying ignorant braggart, lapsed Roman Catholic, Dinesh D'Souza,
their anti-Obama hero, but are embracing a pro-choice Mormon bishop who promoted abortion and Planned Parenthood in MA, and are working to elect that same  job-destroying tax-avoiding lying flip-flopping-tell-anyone-anything-they-want-to-hear Swiss bank account collecting draft dodger running with a disciple of the God-hating, Jesus-mocking hater-of-the-poor Ayn Rand, for their presidential candidate and look the other way as a crazed ultra-Zionist many Israeli Jews fear billionaire casino owner who is being investigated for allegedly making billions off the dirtiest Chinese gambling Communist Party-controlled outfit in the world funds the enterprise, at the very same time as Franklin Graham sold his ailing father Billy’s soul and denied core evangelical theology by taking Mormonism off the Billy Graham organization’s list of cults in order to help the Mormon pagan-ritual-performing, Trinity-denying, casino-money-grubbing billionaire-coddling, earth-destroying global-warming denying Mormon bishop win respectability for his dead-Jews-baptizing-polygamy-rooted-reality-denying-interplanetary Masonic lodge-embracing faith in an election against Obama, who is none of those things?

Go figure.

The Bain Files: Inside Mitt Romney’s Tax-Dodging Cayman Schemes

John Cook - Gawker

 

Mitt Romney's $250 million fortune is largely a black hole: Aside from the meager and vague disclosures he has filed under federal and Massachusetts laws, and the two years of partial tax returns (one filed and another provisional) he has released, there is almost no data on precisely what his vast holdings consist of, or what vehicles he has used to escape taxes on his income. Gawker has obtained a massive cache of confidential financial documents that shed a great deal of light on those finances, and on the tax-dodging tricks available to the hyper-rich that he has used to keep his effective tax rate at roughly 13% over the last decade.

Today, we are publishing more than 950 pages of internal audits, financial statements, and private investor letters for 21 cryptically named entities in which Romney had invested—at minimum—more than $10 million as of 2011 (that number is based on the low end of ranges he has disclosed—the true number is almost certainly significantly higher). Almost all of them are affiliated with Bain Capital, the secretive private equity firm Romney co-founded in 1984 and ran until his departure in 1999 (or 2002, depending on whom you ask). Many of them are offshore funds based in the Cayman Islands. Together, they reveal the mind-numbing, maze-like, and deeply opaque complexity with which Romney has handled his wealth, the exotic tax-avoidance schemes available only to the preposterously wealthy that benefit him, the unlikely (for a right-wing religious Mormon) places that his money has ended up, and the deeply hypocritical distance between his own criticisms of Obama's fiscal approach and his money managers' embrace of those same policies. They also show that some of the investments that Romney has always described as part of his retirement package at Bain weren't made until years after he left the company.

Bain isn't a company so much as an intricate suite of steadily proliferating inter-related holding companies and limited partnerships, some based in Delaware and others in the Cayman Islands, Luxembourg, and elsewhere, designed to collectively house roughly $66 billion in wealth in its many crevices and chambers. When Romney left in 1999, he and his wife retained significant investments in many of those Bain vehicles—he claims they are "passive investments" and that they are managed in a blind trust (though the trustee isn't blind enough to meet federal standards of independence). But aside from disparate snippets of information contained in his federal and Massachusetts financial disclosure forms, his 2010 tax returns, and SEC filings, the nature of those investments has been obfuscated by design.

When he disclosed his finances to the U.S. Office of Government Ethics in 2007, Romney took care to publish the underlying holdings of many funds he invested with—after disclosing his $1 million-plus stake in "GS 2002 Exchange Place Fund LP," for instance, he listed six pages of individual equities the fund held, from Panera Bread Co. to Tribune Co. But when it came to the Bain investments, he simply listed the value of his investments in odd-sounding entities like "Sankaty High Yield Partners II LP" with no indication of what was inside. In an accompanying note, he claimed that he had tried and failed to get the information: "The filer has requested information about the underlying holdings of these funds and values and income amounts for these underlying holdings. However, the fund managers have informed the filer in writing that this information is confidential and proprietary, and has declined to provide such information."

That information—for Sankaty and 20 other funds—is now available here, in the form of 48 documents totaling more than 950 pages. They consist predominantly of confidential internal audited financial statements from 2008, 2009, and 2010, as well as investor letters from the same period, for Bain entities that Romney has previously disclosed owning an interest it.

Owing to the time frame—during and after the catastrophic economic meltdown of 2008—some of the investments show substantial losses. One limited partnership had even entered into liquidation as of October 2008 after failing to meet certain payments owed to partners. Others show astronomical gains.

The documents are exceedingly complicated. We don't pretend to be qualified to decode them in full, which is why we are posting them here for readers to help evaluate—please leave your thoughts in the discussion below. We asked an attorney who specializes in complex offshore corporate transactions, including ones involving Cayman Island entities, to review them and help us understand them. (We also asked the Romney campaign. It hasn't responded yet.) The full set can be read here.

Here's what we've found so far:

• Equity Swaps, AIVs, and Mitt Romney's Other Tax-Dodging Tricks
• Mitt Romney's Endless ‘Retirement' Package
• How Mitt Romney Puts His Money Where Obama's Mouth Is
• Derivatives, Short Sales, and Mitt Romney's Other Exotic Financial Instruments
• Mitt Romney Is the National Enquirer's Banker

The Tax Havens of the Super-Rich

Marching Toward Greater Inequality

by SAM PIZZIGATI

 

Are America’s rich getting richer? Certainly. Every official yardstick shows that America’s most affluent are upping their incomes much faster than everyone else.

How fast? Between 1980 and 2010, note economists Emmanuel Saez and Thomas Piketty, incomes for America’s top 1 percent more than doubled after inflation. They now average a little more than $1 million.

The top 0.1 percent saw their incomes more than triple, to $4.9 million, over that same span. And income more than quadrupled for the top 0.01 percent — the richest 16,000 Americans — to nearly $24 million.

And what about the rest of us? After inflation, average incomes for America’s bottom 90 percent actually fell — by 4.8 percent — between 1980 and 2010, from $31,337 to $29,840.

These numbers tell us how much people make. Measuring wealth gauges how much people have. The two, common sense tells us, ought to be related. If incomes are getting much more unequal, then the distribution of our national wealth ought to become much more unequal too.

But that doesn’t seem to be the case. A Congressional Research Service of new Federal Reserve data indicates that the gap between the wealth of America’s most awesomely affluent and everyone else is holding steady.

In 2010, the Fed data show, the top 1 percent held 34.5 percent of the nation’s wealth, almost the same exact share as in 1995, and not that much more than the 30.1 percent share they held in 1989.

These numbers just don’t add up — income is increasingly skewed toward the top, but wealth distribution is holding steady. What can explain this paradox?

Maybe the Federal Reserve isn’t doing a good job of assessing just how much wealth the wealthiest Americans own. Indeed, Fed researchers do acknowledge that they don’t take into account — for privacy reasons — the wealth of anyone listed in the Forbes magazine annual list of America’s 400 richest.

But including these 400 only moves the top 1 percent’s share of America’s wealth up by a bit over a percentage point. It isn’t enough to explain the disconnect between the extraordinary income gains of America’s rich and the modest rise in their share of national wealth.

Maybe the rich are simply living large, wasting their astronomical incomes on caviar, private jets, and other luxuries. But wasteful consumption can’t explain the inequality paradox either. Deep pockets in America’s top 0.01 percent could shell out $5,000 every single day of the year and still have 93 percent of their annual incomes left to spend.

So what in the end can explain the inequality paradox? The London-based Tax Justice Network has an answer. The world’s super rich, the group has just reported, are squirreling away — and concealing — phenomenal quantities of their cash in secret global tax havens.

The Network’s new tax-dodging study “conservatively” computes the total wealth stashed in these havens at $21 trillion. That total could plausibly run as high as $32 trillion.

Americans make up, we know from previous research, almost a third of the global super rich. That would put the American share of unrecorded offshore assets as high as $10 trillion.
Add this $10 trillion to the wealth of America’s top 1 percent and the inequality disconnect between wealth and income largely disappears. Paradox solved.

Now we have to tackle a much bigger challenge: ending the march to ever greater inequality. Shutting down tax havens would make a great place to start.

Global Super Rich Now Hoard $31 Trillion in Tax Havens

Sunday, July 22, 2012 by Common Dreams
Amount far exceeds previous estimates

A new report by the Tax Justice Network released Sunday reveals that between $21 trillion and $31 trillion is currently tucked away in global tax havens by the global super-rich--an amount that far exceeds previous estimates. Through exploiting gaps in global tax rules, the global financial elite are managing to hide "as much as the American and Japanese GDPs put together" from taxation, leaving the world's poor to carry the burden of global debt through harsh austerity measures.

$32 trillion of hidden financial assets in offshore tax havens represents up to to $280 billion in lost income tax revenues, according to the study released to the Guardian's Observer.

The report pools data from the World Bank, International Monetary Fund, United Nations and global central banks.

In the report, The Price of Offshore Revisited, the Tax Justice Network details the ways in which the trillions of dollars are essentially smuggled out of countries into tax free havens such as Switzerland and the Cayman Islands through private banks.

According to the calculations, £6.3tn of assets is owned by only 92,000 people--0.001% of the world's population

"The problem here is that the assets of these countries are held by a small number of wealthy individuals while the debts are shouldered by the ordinary people of these countries through their governments," the report says.

"These estimates reveal a staggering failure: inequality is much, much worse than official statistics show, but politicians are still relying on trickle-down to transfer wealth to poorer people," said John Christensen of the Tax Justice Network. "People on the street have no illusions about how unfair the situation has become."

James Henry, who compiled the report, stated: “[Wealth is] protected by a highly paid, industrious bevy of professional enablers in the private banking, legal, accounting and investment industries taking advantage of the increasingly borderless, frictionless global economy.”

Why Corporate Compliance is a Joke

An Interview With Patrick Burns

by RUSSELL MOKHIBER

 

Patrick Burns says what others know and refuse to acknowledge. Compliance is a joke. Burns is the communications director at Taxpayers Against Fraud.

“What do companies do to people who threaten their profit center – even and maybe especially if the profit center is one based on fraud? They move to isolate, to humiliate and to terminate,” Burns said last week. “And they do it every single time.”

“When I speak to compliance officers, I always ask one question right at the beginning. I raise my hand and say – any companies here ever made a whistleblower employee of the year?”

“Invariably, the room bursts out laughing. It’s treated as the opening of a comedy act when I ask that question.”

“And these are the compliance officers. Then I turn it around on them.”

“I ask them, at the end of this session, to go into their car and turn off the radio and not start the engine. And think for thirty seconds about this question – why was I hired at this company?”

“Was I hired because I am a fierce, tough, brave compliance officer?”

“Or was I hired because they sensed a weakness in me and they thought that I would be a compliant officer? An officer who would be useful to them to ferret out and finger anybody in the company who was actually going to blow the whistle, internally or externally, on massive fraud within the company.”

Does anybody object when you say that?

“They can’t.”

Because what you’re saying is that compliance is a joke?

“I have to say that it really is most of the time.”

Have you come across exceptions?

“No,” Burns said. “The compliance officers are great for the little stealing.”

“The compliance officer at Wal-Mart is there to stop employee theft. It’s to stop someone from bundling up a bunch of frozen meat in the trash bag and throwing it into the trash and then pulling it out thirty minutes later.”

“But some massive bribery scheme in Mexico, importing goods from China that have a made in America label sewed on to them – they won’t pay attention to that.”

“Not paying taxes on what they’re selling, none of that stuff, none of that is going to happen.”

“That is not what a compliance officer is supposed to do. The compliance officer is about twenty levels down within a company. He’s above the rent-a-cop in the lobby, but he’s not much higher than that most of the time.”

“And they are not able to challenge the people in the top executive suites. The never even meet those people most of the time.”

“This idea that a compliance officer is somehow a combination of the Fantastic Four meets the X-men – it’s just not true. It’s a lot closer to Barney Fife with his one bullet.”

And Burns has no illusions about the Justice Department’s war on fraud.

“If you go out to a farm field and you see 2000 pounds bulls standing behind a single strand of hot electric wire,” Burns said. “Those bulls have touched the wire once or twice. And after they touched that wire once or twice and got an immediate serious shock, they never touched it again.”

“That is not the way the Department of Justice works. The Department of Justice will take two, three, five, ten years to work a case.”

“Let me be explicit in what I’m saying here. The GlaxoSmithKline case was settled yesterday for three billion dollars. It’s the largest healthcare fraud case in US history.”

“Whistleblowers went to the company internally. The company did an internal investigation. The compliance officers in the company said – “yes we are indeed doing this fraud.”

“GlaxoSmithKline ran the numbers and decided that doing the fraud and delaying with its interaction with the Department of Justice was a better business plan than fessing up and paying up.”

“So they lawyered up and delayed.”

At the end of eleven years, they paid the three billion dollar fine. But during that time, they’ve collected billions and billions of dollars in profits.”

“Now here’s the perverse part of all of this. During that ten year period, people at GlaxoSmithKline were promoted, they were paid, they got bonuses and they got stock options based on this extravagant fraud scheme that involved nine different drugs, and was a virtual clown car of fraud.”

“All of the profits from this fraud were privatized. Private beach houses were bought. Private careers were made. Private bonuses were cashed. People sent their kids to private schools based on these frauds – this poisoning for profit.”

Burns doesn’t think jailing top corporate executives is likely. He says we need to exclude them from the industries in which they work.

“Putting people in jail we don’t think is very likely,” Burns said.

“The truth of the matter is a criminal prosecution requires a standard of evidence that is beyond a reasonable doubt. Companies will fund a full push back against the Department and there’s a very good chance that they will prevail.”

“The good thing about exclusion is that it can be done administratively.”

“Let me make it as simple as possible here. When you go to a dry cleaner and you put in a shirt or a tie and it comes back stained or ripped, you may get a little miffed. But you’ll talk to them about it, and maybe they’ll promise to never do it again.”

“But the next time you bring in a shirt or a tie and it comes back stained or ripped, you don’t say anything.”

”You just walk away and you never do business with them again.”

“We can do that. The US government is just like you. It is a consumer of goods and services. It can say – we’re done with you. If you continue to hire this person to run this dry cleaner, we will never go to this dry cleaner again.”

“We are not calling for more fines. We want America’s stolen money to be recovered, sure. But we need to disenthrall ourselves from the notion that money alone will change corporate behavior.”

“We also need to disenthrall ourselves that there is a single silver bullet solution. We need to recover America’s stolen billions, but at the same time, we need to make the pain personal within the fraudster companies.”

“That means that people who design frauds, who wink at these frauds, who operationalize these frauds, need to be made unemployed and unemployable.”

“Right now that penalty is only vested upon the whistleblower, the truth teller, the person who stands up to power for the good of all.”

“Being unemployed and unemployable is not something we do to the big fraudsters. We do not send them to jail.”

“We are not going to exclude big companies like Pfizer and Schering Plough and GlaxoSmithKline and McDonnell Douglas.”

“They employ too many people and they’re too central to healthcare and defense in this nation.”

“But if a company is too big to fail, and that may be true, there is no executive that is too big to jail. And certainly there is not an executive too big not to make unemployed and unemployable.”