Tag Archives: income tax

The long shadow of the Panama Papers

For the last few days, world news has been abuzz about the world’s as of yet largest leak of private information, which are now being called the “Panama Papers.” Publicized by a German newspaper a year after being given them, the information is from a Panama-based investment firm specialized in offshore and otherwise tax evasive practices. Major names around the world have been listed as having engaged in hypocritical and at times criminal financial transactions designed typically to avoid paying the full tax cost owed to various countries and localities.

One of the central figures in the leak was Iceland’s former Prime Minister Sigmundur Davíð Gunnlaugsson, who resigned on Sunday. Elected as a reformer who largely delivered on promises to turn Iceland’s economy back around, the revelation that he had profited from the financial reforms he oversaw through an undeclared and indirect investment essentially invalidated his political legitimacy.

2016-04-05_1414.pngCountries in which heads of state, high ranking public officials, or close associates have been named in the current leak.

Although uniquely duplicitous and corrupt, his place in the broader story of the Panama Papers actually speaks to a broader worry. His gains from Iceland’s economic restructuring weren’t just undisclosed, they were also untaxed. There’s a palpable failure of an Iceland-like series of new restrictions and standards on banks to address the ability of him and other Icelanders to strategically engage in capital flight. With Iceland facing warnings from international financial institutions over the costs of their response to the global crisis, this isn’t a trivial matter. It’s a shortfall in the millions if not billions globally, which in a political climate of widespread austerity has been felt worldwide by the classes who don’t have hidden bank accounts.

Outside of the Sanders-Clinton fight eating up US leftists’ attention, this is one of the system problems the “Warren Wing” has been hinting with growing volume. In the wake of anemic banking reforms, Elizabeth Warren’s individual focus has shifted somewhat towards addressing capital flight, even if just rhetorically. That’s just about the only ideological contingent in the US that can talk about this easily – for civil libertarians currently defending encryption this is an example of the public costs that high tech and high price secrecy can incur, for the more corporate friendly this only demonstrates the shady ethics of the economic order they defend, and for domestically-focused social democrat factions this represents the international scale of the problem which they often don’t acknowledge.

With a Democratic primary debate barely more than a week away, this is precisely the issue that both of them can and should be pressed on. Let’s see if CNN’s Wolf Blitzer brings it up.

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How wrong is the Heritage Foundation? Let us count the ways…

The Washington Post is usually not the best newspaper, but it’s not above some surprises. Last Monday, they printed an excellent rebuttal to the report co-authored by the obviously racist Jason Richwine, which really digs deep into three major intellectual failings in their report on the “cost” to granting undocumented immigrants amnesty and full citizenship. I don’t have the time today to do a proper post, so I’ll let this be a let-me-link-you that’s hopefully enlightening about exactly how wrong the Heritage Foundation’s report was.

To begin with, it’s not exactly a measurement of the cost of changing the millions of undocumented people’s statuses, so much as the larger macroeconomic effect. As a result, it has to at least roughly model the current economic circumstances in order to compare them with a hypothetical future where amnesty and citizenship have been granted to the vast majority of currently undocumented people. Except they make some questionable decisions about how to approximate both the current and that potential economy.

Starting with our world – they effectively pretend that the most regressive aspects of our tax system don’t exist. According to the Washington Post the study omits the “mortgage interest tax deduction, the charitable deduction, the employer health-care tax exclusion, the preferential treatment of capital and dividend income” among other “massive benefits” to primarily wealthy individuals. In short, they’re biasing their comparison by making it seem as though a disproportionate portion of public benefits in the US are paid for by the most wealthy in the United States.

That might seem irrelevant, but given how they presume much lower use of public resources by people who are currently undocumented, meaning that the wealthy who typically have legal residency statuses are presented as effectively covering the poor, but only those that also aren’t undocumented. In short, they’re creating the impression that our current fiscal conditions are much healthier than they actually are – with fewer people deprived of basic services or needs (by arbitrarily deciding that undocumented people don’t currently count) and more people contributed their personal reserves of wealth to public benefit (through a more progressive taxation system than we actually have).

(Unfortunately this is what’s actually happened over the past few decades, from here.)

Those deceptions alone would have probably undermined any meaningful conclusion from the comparison Heritage set up in this study. That said, they don’t leave it there – they also presume that extending legal residency status (and ideally citizenship) to currently undocumented people won’t result in them being able to access hiring paying work or more effectively lobby for better pay (among other economic benefits). The degree of ignorance that shows about how a lack of legal residency status is used to exploit people within the current economy is astounding.

The Washington Post actually points directly to one study, which points to a conservative 15 percent increase in average income and a less cautious estimate of a 25 percent increase, as a counterpoint to this categorical belief that the lots of the currently undocumented won’t be improved by amnesty or at least significant reforms. Between more immigrants reporting their incomes and those immigrants having more income in the first place, there’s a clear reasoning behind why changing their statuses would translate into some growth in the tax pool, which would potentially cover any increase in service use by currently undocumented people.

In essence, this comparison between the current economy and this hypothetical one “wrecked” by immigrants rests on three major misconceptions of how the world actually works. It’s working towards the conclusion that granting immigrants rights and privileges would be ruinous, which it can only support by presenting the status quo as healthier than it actually is and imagining amnesty as simultaneously resulting in a run on public services but no other major economic impact. My hats off to the Washington Post for actually getting into the details to how Heritage lied.

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Good governance is not a lack of governance

If you’ve been party to the on-going discussion in the US about the apparent “fiscal cliff”, you’re primarily aware of two separate takes on the issue. The expiration of numerous tax cuts either signifies an unparalleled shock the still fragile economy or a return to the Clinton era’s tax policies. If you hold to the former, you probably want an uncritical extension of the tax cuts, especially for those at the top out of some misguided faith in Reaganomics. If you hold to the latter, you actually don’t want the opposite of that – of very cautious and deliberate examination of what different plans would extend – but rather total government inaction. That is, those appear to be the options the that media is primarily presenting.

Much as it pains me to say it, but this is largely on the centrist segments of the media, although there’s plenty blame to find for the conservative factions as well. Yes, Fox News has been hyping this since the election and unapologetically demanding that we renew the tax cuts especially for the most wealthy Americans in spite of all the arguments about how now is precisely the time to return to Clinton era tax rates. In short, they’re not arguing anything based on facts. It’s about protecting their faith in inegalitarian wealth distributions as somehow being more efficient, even if that’s contrary to all the evidence.

Unfortunately, the rest of the media has gotten sucked into the vortex of debating those facts. That’s why the clear narrative has been about stressing how tax policy isn’t going to drastically change, and to the extent that it does, it’s not unambiguously negative. The problem is that fiscal cliff is about more than simply tax policy. The Reid Report has excellently covered the tensions going on within the Republican Party because of this issue, but only through coverage of the tax discussion. Charles P. Pierce’s opinion piece on the issue isn’t as factually challenged as much of the Republican analysis of the issue, but it’s still myopically attached to the issue of taxes. The Republican fixation on income taxes policy to the exclusion of all other issues has been unintentionally imported into the political mainstream, and because of it, we’re only looking at half the “fiscal cliff”.

The Congressional Research Service’s report on the “fiscal cliff” isn’t even all that concerned either, as they’ve left discussion of the numerous other expiring tax credits to a final, short section. It’s honestly a horror story of how disastrously mismanaged government in the US has been over the past decades. Education is so chronically underfunded, we simply provide deductions to grade school teachers who purchase supplies for their classes. Investment in cleaner energy sources is so devalued, we simply offer a few tax holidays to wind energy production. Community renewal in the District of Columbia, American Samoa, and other chronically impoverished areas is so politically toxic that the government has simply provided small incentives to private charities and community organizers to help sort out the myriad issues facing those communities. We are suffering from a maddening lack of governance on these and other issues, and now each of those tax credits are set to expire. Even what little good has been done through willful inaction is likely to be reneged.

(The real victims of the fiscal cliff? From here.)

Yes, the argument that we must do everything possible to avoid a return to Clinton-era income taxes is silly, and largely dependent on counterfactual beliefs. But almost every major voice in discussion on this issue is refusing to talk about the rest of tax policy, in spite of their being so much to say. Inaction on the questions those additionally expiring credits raise is precisely the problem that created them as “solutions”. Now, that same cavalier attitude towards governance is legitimizing ignoring them once again.

So far, Lucia Graves seems to be the lone voice in the wilderness on any part of those other expirations.

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