Posts Tagged ‘taxation’
“He said that there was death and taxes, and taxes was worse, because at least death didn’t happen to you every year”*…
There are lots of questions that surround taxation: how much? on what? for what? Scott Galloway (@profgalloway) explores a couple of others: how efficient? how fair?
* Terry Pratchett
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As we ruminate on returns, we might recall that it was on this date in 1920 that the U.S. Supreme Court decided a case on the constitutionality of the income tax for the second and last time (so far). The Income tax had been authorized by the Sixteenth Amendment in 1913, and created later that year via the Revenue Act of 1913. In 1915 stockholders filed a brief in the U.S. Supreme Court, which arguing that the Sixteenth Amendment covers “many taxes other than on income”; in 1920, the Court affirmed the constitutionality of an income tax. Then came a second suit…
The United States Supreme Court last decided a federal income tax case on constitutional grounds in 1920, a century ago. The case was Eisner v. Macomber , and the issue was whether Congress had the power under the Sixteenth Amendment to include stock dividends in the tax base. The Court answered “no” because “income” in the Sixteenth Amendment meant “the gain derived from capital, from labor, or from both combined.” A stock dividend was not “income” because it did not increase the wealth of the shareholder.
Macomber was never formally overruled, and it is sometimes still cited by academics and practitioners for the proposition that the Constitution requires that income be “realized” to be subject to tax. However, in Glenshaw Glass , the Court held in the context of treble antitrust damages that the Macomber definition of income for constitutional purposes “was not meant to provide a touchstone to all future gross income questions” and that a better definition encompassed all “instances of undeniable accessions to wealth, clearly realized, and over which the taxpayers have complete dominion.”
In the century that has passed since Macomber , the Court has never held that a federal income tax statute was unconstitutional. This behavior of the Court constitutes a remarkable example of American tax exceptionalism, because in most other countries income tax laws are subject to constitutional review and are frequently ruled unconstitutional…
Reuven Avi-Yonah, “Should U.S. Tax Law Be Constitutionalized? Centennial Reflections on Eisner v. Macomber (1920)“
“We do not inherit the earth from our ancestors, we borrow it from our children”*…
… and the interest rate on that loan is rising.
There’s much discussion of what’s causing the sudden-feeling spike in prices that we’re experiencing: pandemic disruptions, nativist and protectionist policies, the over-taxing of over-optimized supply chains, and others. But Robinson Meyer argues that there’s another issue, an underlying cause, that’s not getting the attention it deserves… one that will likely be even harder to address…
Over the past year, U.S. consumer prices have risen 7 percent, their fastest rate in nearly four decades, frustrating households and tanking President Joe Biden’s approval rating. And no wonder. High inflation corrodes the basic machinery of the economy, unsettling consumers, troubling companies, and preventing everyone from making sturdy plans for the future…
For years, scientists and economists have warned that climate change could cause massive shortages of major commodities, such as wine, chocolate, and cereals. Financial regulators have cautioned against a “disorderly transition,” in which the world commits only haphazardly to leaving fossil fuels, so it does not invest enough in their zero-carbon replacements. In an economy as prosperous and powerful as America’s, those problems are likely to show up—at least at first—not as empty grocery shelves or bankrupt gas stations but as price increases.
That phenomenon, long hypothesized, may be starting to actually arrive. Over the past year, unprecedented weather disasters have caused the price of key commodities to spike, and a volatile oil-and-gas market has allowed Russia and Saudi Arabia to exert geopolitical force.
“This climate-change risk to the supply chain—it’s actually real. It is happening now,” Mohamed Kande, the U.S. and global advisory leader at the accounting firm PwC, told me.
…
How to respond to these problems? The U.S. government has one tool to slow down the great chase of inflation: Leash up its dollars. By raising the rate at which the federal government lends money to banks, the Federal Reserve makes it more expensive for businesses or consumers to take out loans themselves. This brings demand in the economy more in line with supply. It is like the king in our thought experiment deciding to buy back some of his gold coins.
But wait—is it always appropriate to focus on dollars? What if the problem was caused by too few goods? Worse, what if the economy lost the ability to produce goods over time, throwing off the dollars-to-goods ratio? Then what was once an adequate number of dollars will, through no fault of its own, become too many...
… if the climate scars on supply continue to grow, does the Federal Reserve have the right tools to manage? Stinson Dean, the lumber trader, is doubtful. “Raising interest rates will blunt demand for housing—no doubt. But if you blunt demand enough to bring lumber prices down, you’re destroying the economy,” Dean told me. “For us to have lower lumber prices, we can only build a million homes a year. Do you really want to do that?
“Raising rates,” he said, “doesn’t grow more trees.” Nor does it grow more coffee, end a drought, or bring certainty to the energy transition. And if our new era of climate-driven inflation takes hold, America will need more than higher interest rates to bring balance to supply and demand.
A provocative look at the tangled roots of our inflation, suggesting that “The World Isn’t Ready for Climate-Change-Driven Inflation,” from @yayitsrob in @TheAtlantic. Eminently worth reading in full. Via @sentiers.
* Native American proverb
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As we dig deeper, we might send carefully calculated birthday greetings to Frank Plumpton Ramsey; he was born on this date in 1903. A philosopher, mathematician, and economist, he made major contributions to all three fields before his death (at the age of 26) on this date in 1930.
While he is probably best remembered as a mathematician and logician and as Wittgenstein’s friend and translator, he wrote three paper in economics: on subjective probability and utility (a response to Keynes, 1926), on optimal taxation (1927, described by Joseph E. Stiglitz as “a landmark in the economics of public finance”), and optimal economic growth (1928; hailed by Keynes as “”one of the most remarkable contributions to mathematical economics ever made”). The economist Paul Samuelson described them in 1970 as “three great legacies – legacies that were for the most part mere by-products of his major interest in the foundations of mathematics and knowledge.”
For more on Ramsey and his thought, see “One of the Great Intellects of His Time,” “The Man Who Thought Too Fast,” and Ramsey’s entry in the Stanford Encyclopedia of Philosophy.
“An imbalance between rich and poor is the oldest and most fatal ailment of all republics”*…
In a stark sign of the economic inequality that has marked the pandemic recession and recovery, Americans as a whole are now earning the same amount in wages and salaries that they did before the virus struck — even with nearly 9 million fewer people working.
The turnaround in total wages underscores how disproportionately America’s job losses have afflicted workers in lower-income occupations rather than in higher-paying industries, where employees have actually gained jobs as well as income since early last year.
In February 2020, Americans earned $9.66 trillion in wages and salaries, at a seasonally adjusted annual rate, according to the Commerce Department data. By April, after the virus had flattened the U.S. economy, that figure had shrunk by 10%. It then gradually recovered before reaching $9.67 trillion in December, the latest period for which data is available.
Those dollar figures include only wages and salaries that people earned from jobs. They don’t include money that tens of millions of Americans have received from unemployment benefits or the Social Security and other aid that goes to many other households. The figures also don’t include investment income…
The figures document that the vanished earnings from 8.9 million Americans who have lost jobs to the pandemic remain less than the combined salaries of new hires and the pay raises that the 150 million Americans who have kept their jobs have received.
The job cuts resulting from the pandemic recession have fallen heavily on lower-income workers across the service sector— from restaurants and hotels to retail stores and entertainment venues. By contrast, tens of millions of higher-income Americans, especially those able to work from home, have managed to keep or acquire jobs and continue to receive pay increases.
“We’ve never seen anything like that before,” said Richard Deitz, a senior economist at the Federal Reserve Bank of New York, referring to the concentration of job losses. “It’s a totally different kind of downturn than we’ve experienced in modern times.”
The figures also underscore the unusually accelerated nature of this recession. As a whole, both the job losses that struck early last spring and the initial rebound in hiring that followed have happened much faster than they did in previous recessions and recoveries. After the Great Recession, for example, it took nearly 2 1/2 years for wages and salaries to regain their pre-recession levels…
One reason why the job losses have had relatively little impact on the nation’s total pay is that so many of the affected employees worked part time. The average work week in the industry that includes hotels, restaurants and bars is just below 26 hours. That’s the shortest such figure among 13 major industries tracked by the government. The next shortest is retail, at about 31 hours. The average for all industries is nearly 35 hours.
The recovery in wages and salaries helps explain why some states haven’t suffered as sharp a drop in tax revenue as many had feared. That is especially true for states that rely on progressive taxes that fall more heavily on the rich. California, for example, said last month that it has a $15 billion budget surplus. Yet many cities are still struggling, and local transit agencies, such as New York City’s subway, have been hammered by the pandemic.
The wage and salary data also helps explain the steady gains in the stock market, which have been led by high-tech companies whose products are being heavily purchased and used by higher-income Americans, such as Apple iPads, Peloton bikes, or Amazon’s online shopping.
This week, the New York Fed released research that underscored how focused the job losses have been. For people making less than $30,000 a year, employment has fallen 14% as of December. For those earning more than $85,000, it has actually risen slightly. For those in-between, employment has fallen 4%…
Some companies have cut wages in this recession, but on the whole the many millions of Americans fortunate enough to keep their jobs have generally received pay raises at largely pre-recession rates. Some of those income gains likely reflect cost-of-living raises; the Commerce Department’s wage and salary data isn’t adjusted for inflation…
Truman Bewley, a retired Yale University economist who wrote a book about the concept of sticky wages, said that most companies have a key core of workers they rely on through hard times and are reluctant to cut pay for them.
And there’s another reason, Bewley said, why many companies cut jobs instead of pay. While researching his book, he said a factory manager told him why his company did so: “It gets the misery out the door.”
More at: “Sign of inequality: US salaries recover even as jobs haven’t.”
See also “More Than 33 Million Americans Have Filed for Unemployment During Coronavirus Pandemic.” source of the image above.
And to compare the U.S. to other countries, try this nifty interactive visualization.
* Plutarch
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As we examine equity, we might send foundational birthday greetings to Pierre le Pesant, sieur de Boisguilbert; he was born on this date in 1646. A French lawmaker and a Jansenist, he is best remembered as one of the inventors of the notion of an economic market– he championed free trade in opposition to Colbert‘s mercantilist views (which generated government revenues through duties and tariffs).
But he is also noteworthy as the champion of a single tax on each citizen (in lieu of all tariffs, customs, and other trade-related fees) that in some ways presaged Henry George‘s proposals.
“I like to pay taxes. With them, I buy civilization.”*…
The United States and Britain had a treaty under which they agreed not to tax each other’s companies’ profits. Such double-taxation treaties are foundational to the globalised economy because they ensure that a company that operates in more than one country isn’t taxed twice on the same money… this treaty extended to Britain’s overseas colonies, which exposed a flaw at the heart of this system: if one country undercuts the other on tax rates, companies that base themselves there can dramatically reduce the amount of tax they pay in the other.
Most big countries won’t play this game, because it would destroy their tax bases. The BVI, being small and having a weak economy, had no such considerations because it didn’t have much tax revenue to lose: the new business the islands attracted from relocating companies gained them more in fees than they lost in taxes. Such countries are now understood and referred to as tax havens, but back in the 1970s they were a new phenomenon and businesses were exploring them with relish.
In the 1970s, corporations in the BVI paid 15 per cent tax on their profits, while in the United States they paid 50 per cent. If an American incorporated her business in the Caribbean she could export her dividends and cut her effective tax rate by more than half. All she needed was a local lawyer. And, dating from 1976, when US clients first found him, that lawyer was Michael Riegels…
The extraordinary story of the British ex-pat in the British Virgin Islands who founded the now-global off-shore tax haven “industry,” currently estimated to hold $7-10 trillion in assets (up to 10% of global assets) anonymously and outside the reach of home country authorities: “The Second Career of Michael Riegels.”
*
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As we salt it away, we might recall that it was on this date, the Ides of March, in 44 BCE that Julius Caesar, who was reputedly “born of the knife” (via cesarean section), died by the knife– stabbed to death by Brutus, Casca, and 58 others in the Roman Senate.
In fact, the early history of cesarean section remains shrouded in myth and is of dubious accuracy. Even the origin of “cesarean” has apparently been distorted over time. It is commonly believed to be derived from the surgical birth of Julius Caesar, however this seems unlikely since his mother Aurelia is reputed to have lived to hear of her son’s invasion of Britain. At that time the procedure was performed only when the mother was dead or dying, as an attempt to save the child for a state wishing to increase its population. Roman law under Caesar decreed that all women who were so fated by childbirth must be cut open; hence, cesarean. Other possible Latin origins include the verb “caedare,” meaning to cut, and the term “caesones” that was applied to infants born by postmortem operations. [source]
The Death of Caesar, Jean-Léon Gérôme, 1867
“The Net is the new underlying infrastructure for civilization itself”*…
Most governments have traditionally argued that there are certain critical societal assets that should be built, managed, and controlled by public entities — think streets, airports, fire fighting, parks, policing, tunnels, an army. (And in just about every rich country except this one, access to and/or the provision of health care.) The choice to have, say, a city-owned park reflects two key facts: first, a civic judgment that having green outdoor spaces is important to the city; and second, that free parks open to all are unlikely to be produced by private companies driven by a motive for profit.
When it comes to the Internet we all live on, huge swaths of it are owned, controlled, and operated by private companies — companies like Facebook, Google, Amazon, Apple, Microsoft, and Twitter. In many cases, those companies’ public impacts aren’t in any significant conflict with their private motivations for profit. But in some cases… they are. Is there room for a public infrastructure that can offer an alternative to (or reduce the harm done by) those tech giants?
A diagnosis of the issue with a set of proposed remedies: “Public infrastructure isn’t just bridges and water mains: Here’s an argument for extending the concept to digital spaces.”
This article is based on a piece by Ethan Zuckerman, written for the Knight First Amendment Institute at Columbia, in which he lays out what he calls the case for digital public infrastructure. (He also published a summary of it here.)
Pair with this consideration of another piece of our political/social/economic “infrastructure,” corporate law, and its effects– contract, property, collateral, trust, corporate, and bankruptcy law, an “empire of law”: “How ‘Big Law’ Makes Big Money.”
* Doc Searles
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As we contemplate the commons, we might recall that it was on this date in 1865 that the U.S. government dismantled a monstrous piece of “infrastructure” when Congress passed the Thirteenth Amendment to the United States Constitution and submitted it to the states for ratification.
The amendment abolished slavery with the declaration: “Neither slavery nor involuntary servitude, except as a punishment for crime whereof the party shall have been duly convicted, shall exist within the United States, or any place subject to their jurisdiction.”
Thomas Nast’s engraving, “Emancipation,” 1865
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