Thursday, October 21, 2010

How Google gets a 2.4% tax rate

Bloomberg:

Google Inc. cut its taxes by $3.1 billion in the last three years using a technique that moves most of its foreign profits through Ireland and the Netherlands to Bermuda.

Google’s income shifting -- involving strategies known to lawyers as the “Double Irish” and the “Dutch Sandwich” -- helped reduce its overseas tax rate to 2.4 percent, the lowest of the top five U.S. technology companies by market capitalization, according to regulatory filings in six countries.

“It’s remarkable that Google’s effective rate is that low,” said Martin A. Sullivan, a tax economist who formerly worked for the U.S. Treasury Department. “We know this company operates throughout the world mostly in high-tax countries where the average corporate rate is well over 20 percent.”

The U.S. corporate income-tax rate is 35 percent. In the U.K., Google’s second-biggest market by revenue, it’s 28 percent.

Google, the owner of the world’s most popular search engine, uses a strategy that has gained favor among such companies as Facebook Inc. and Microsoft Corp. The method takes advantage of Irish tax law to legally shuttle profits into and out of subsidiaries there, largely escaping the country’s 12.5 percent income tax. (See an interactive graphic on Google’s tax strategy here.)

The earnings wind up in island havens that levy no corporate income taxes at all. Companies that use the Double Irish arrangement avoid taxes at home and abroad as the U.S. government struggles to close a projected $1.4 trillion budget gap and European Union countries face a collective projected deficit of 868 billion euros.

[...]Such income shifting costs the U.S. government as much as $60 billion in annual revenue, according to Kimberly A. Clausing, an economics professor at Reed College in Portland, Oregon.

[...]Google’s transfer pricing contributed to international tax benefits that boosted its earnings by 26 percent last year, company filings show. Based on a rough analysis, if the company paid taxes at the 35 percent rate on all its earnings, its share price might be reduced by about $100, said Clayton Moran, an analyst at Benchmark Co. in Boca Raton, Florida.
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Friday, October 15, 2010

Rationale for separation of powers

I couldn't help thinking how the rationale for this is similar (the same) as for the free market.

Federalist Paper 51 (James Madison):

The great security against a gradual concentration of the several powers in the same department, consists in giving to those who administer each department the necessary constitutional means and personal motives to resist encroachments of the others. The provision for defense must in this, as in all other cases, be made commensurate to the danger of attack. Ambition must be made to counteract ambition. The interest of the man must be connected with the constitutional rights of the place.
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Saturday, October 9, 2010

How CBO budget projections are skewed toward government growth

The reason for this is because the CBO doesn't use dynamic scoring.

Wall Street Journal:

Most intriguingly, Mr. Boehner suggested that “we ought to start at square one and give serious consideration to revisiting, and perhaps rewriting, the 1974 Budget Act.” Now he’s getting somewhere. That law, passed over the veto of a Watergate-weakened Richard Nixon, further rigged the budget process to abet spending. It killed the President’s impoundment power not to spend money, and it established the annual “budget baseline” that makes spending increases automatic. Thus even a reduction in the amount of spending increase in a program becomes a budget “cut” that special interests can attack. Mr. Boehner should consult Budget ranking Member Paul Ryan and former Member Chris Cox for reform ideas.

The larger insight here is that Democrats have organized Congress and written its rules to aid and abet their policy priorities. During their last time in the majority, Republicans didn’t do enough to rewrite those rules to assist their ostensible goal of limiting government power and reducing spending and taxes. They shouldn’t make the same mistake again.

In addition to rewriting the Budget Act, Republicans need to assert control over the scoring conventions at the Congressional Budget Office that typically underestimate spending—see ObamaCare. Ditto for the rules at the Joint Tax Committee that underestimate the impact of tax changes on taxpayer behavior and economic growth.
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Monday, October 4, 2010

Even Roosevelt wasn't a fan of public sector unions

Click through for some more interesting union facts.

National Affairs:

To the extent that people thought about it, most politicians, labor leaders, economists, and judges opposed collective bargaining in the public sector. Even President Franklin Roosevelt, a friend of private-sector unionism, drew a line when it came to government workers: "Meticulous attention," the president insisted in 1937, "should be paid to the special relations and obligations of public servants to the public itself and to the Government....The process of collective bargaining, as usually understood, cannot be transplanted into the public service." The reason? F.D.R. believed that "[a] strike of public employees manifests nothing less than an intent on their part to obstruct the operations of government until their demands are satisfied. Such action looking toward the paralysis of government by those who have sworn to support it is unthinkable and intolerable." Roosevelt was hardly alone in holding these views, even among the champions of organized labor. Indeed, the first president of the AFL-CIO, George Meany, believed it was "impossible to bargain collectively with the government."
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