Reuters blog archive
The European Union, as we exclusively reported yesterday, has agreed on a framework for sanctions against Russia, including travel restrictions and asset freezes, which goes further than many expected. The list of targeted individuals is still being worked on but will be ready for the bloc’s foreign ministers to look at on Monday.
Angela Merkel will speak to the German Bundestag about the standoff with Russia. Merkel has been cautious about imposing anything too tough as she tries to convince Vladimir Putin to agree to a "contact group" that would reopen communications between Moscow and Kiev. But yesterday she said measures would be imposed next week – after a Crimean referendum on joining Russia which the West says is illegal - unless diplomatic progress is made.
There is no sign of Vladimir Putin coming to the negotiating table and no question of western force being deployed. In Washington, Ukrainian Prime Minister Arseny Yatseniuk said his government was ready to negotiate over Moscow's concerns for the rights of ethnic Russians in Crimea – a possible diplomatic avenue? The U.N. Security Council will discuss the crisis in an open meeting later.
Russia's intervention in Crimea has focused minds in the EU on ending decades of dependence on Russian gas by developing its own energy supplies and pushing for greater access to U.S. resources. That will come up at next week’s summit of the bloc’s leaders. It’s clearly a long-term project but could be a hammer blow to the Russian economy if it succeeds.
from Felix Salmon:
Back in January 2010, Barack Obama — flanked by Tim Geithner, Larry Summers, and Peter Orszag — unveiled a new tax on big banks, or a “financial crisis responsibility fee”, as he liked to call it. Of course, this being Washington, the initiative never got off the ground, and was largely forgotten — until now:
The biggest U.S. banks and insurance companies would have to pay a quarterly 3.5 basis-point tax on assets exceeding $500 billion under a plan to be unveiled this week by the top Republican tax writer in Congress.
from Felix Salmon:
David Sirota has a very important scoop today: the PBS series “Pension Peril” has secretly* been funded by John Arnold, a billionaire powerbroker with an aggressively anti-pensions political agenda. This looks very bad for PBS — but it’s also bad for Arnold, who generally gets glowing press, and who would seem to have no good reason to have insisted on secrecy when writing the $3.5 million check that made the series possible.
The PBS series in question seems to fall uncritically into line with the beliefs of Arnold and other Very Serious People — that pension liabilities are a huge problem, and that the only way to fix them is to reduce the amount that pensioners get paid. But of course it’s not nearly as simple as that.
This afternoon, French President Francois Hollande will expand upon his New Year announcement that French companies who agree to hire more workers could pay lower labour taxes in return and find themselves less tied up in red tape. Unemployment is running near to 12 percent and Hollande’s vow to get it falling by the end of 2013 fell short.
Unfortunately, the announcement has been eclipsed by his threat of legal action after a French magazine reported he was having an affair with an actress. France tends to overlook its politicians’ peccadilloes but with the economy in a hole, Hollande risks facing the charge that he should be focusing squarely on that.
from Anatole Kaletsky:
While the world is transfixed by the U.S. budget paralysis, fiscal policies have been moving in several other countries, most notably in Japan and Britain, with lessons for Washington and for other governments all over the world.
Let's start with the bad news: Shinzo Abe’s decision to increase consumption taxes from 5 to 8 percent next April. This massive tax hike, to be followed by another increase in 2015, threatens to strangle Japan’s consumer-led growth from next year onwards, since Abe looks unlikely to offset this massive fiscal tightening with stimulative measures that would maintain consumers’ spending power. Even if Abe delivers on his vague promise to compensate with business tax reductions, these will only aggravate the over-investment and corporate cash hoarding that have long distorted the Japanese economy. Meanwhile, the government’s willingness to risk economic recovery in the cause of fiscal discipline implies that those of us who believed Abe was making an unconditional commitment to do whatever it takes to achieve economic recovery were simply wrong. Now that the forces of budgetary austerity have reasserted themselves, Japan’s probability of ending its decades of stagnation is much reduced.
from Felix Salmon:
I have a piece up at Architect Magazine on Cooper Union, and the real (if slim) possibility that it will lose the tax break from which most of its current income flows. Cooper Union will get $18 million this year in "tax equivalency payments" stemming from its ownership of the land under the Chrysler Building -- money which would normally flow to New York City in the form of property taxes, but instead gets diverted to Cooper Union for its own uses. Do the math, and that works out to about $18,200 per enrolled student -- a much greater subsidy than New York City provides to any of the students being educated at its own colleges.
Doug Turetsky, of New York City's State's Independent Budget Office, says that if Cooper is going to start charging tuition, then "the public purpose of the unusual tax breaks now mostly a thing of the past," and New York should start collecting property tax on the Chrysler Building rather than letting Cooper Union use all that money for itself. So far, there's no indication that the attorney general agrees with him; as I say in my piece, the time for the AG to crack down on Cooper was in 2006, rather than now, when the removal of the tax break would mean certain death for the college.
from Lawrence Summers:
No one is satisfied with the U.S. corporate tax system. From one perspective the main problem is that at a time when corporate profits are extraordinarily high relative to GDP, tax collections are very low relative to GDP. And many very successful companies pay little or nothing in taxes at a time when the budget deficit is a major concern and when hundreds of thousands of defense workers are being furloughed and lotteries are being held to determine which children Head Start can no longer afford to help. From another perspective, the main problem is that the United States has a higher corporate tax rate than any other major country and, unlike other countries, it imposes severe taxes on income earned outside its borders. Many argue that this unfairly burdens companies engaged in international competition, discourages the repatriation of profits earned abroad, and--because of the patterns of investment that result--benefits foreign workers at the expense of their counterparts.
These two perspectives on corporate taxes seem to point in opposite directions with respect to reform. The former perspective points towards the desirability of raising revenues by closing loopholes, whereas the latter perspective seems to call for a reduction in corporate tax burdens. Little wonder, then, that corporate tax reform debates are so divisive. Many can get behind the idea of “broadening the base and lowering the rate,” but consensus tends to collapse when the issue becomes the means to broaden the base. Indeed a principal objective of many business-oriented reformers seems to be narrowing the corporate tax base by reducing the taxation of foreign earnings through movement to a territorial system.
from Felix Salmon:
Last week's Munk debate featured one of those strange-bedfellow moments, when Paul Krugman agreed with Art Laffer that the tax rate on capital gains should be the same as the tax rate on income. (In fact, Laffer went one step further than that, saying that even unrealized capital gains should be taxed at the same rate.) Normalizing the capital-gains tax rate so that it's the same as the income-tax rate is an easy way to bring a lot of money into the public fisc -- some $161 billion per year, according to the CBO. So why aren't we doing it?
Evan Soltas does his best to answer that question with his "Defense of the Capital-Gains Loophole". Here's the meat of his argument:
from John Lloyd:
For the giants of Silicon Valley, the fall from freedom’s children to social pariah has been something of a Shakespearean reversal of fortunes. Google, Apple and Facebook might be Lear, Othello and Macbeth in the suddenness and completeness of their fall from a grace that was bequeathed to them by the generations that found their technologies liberating, empowering and even beautiful.
These companies are nothing like the robber barons that were rebuked by the U.S. government a century ago. They are not locking out workers or running sweatshops. On the contrary: They’re hiring people. Led by Facebook founder Mark Zuckerberg’s advocacy group FWD.us, they are agitating for immigration laws to be loosened so they can hire clever Chinese, Indian and other citizens and pay them lots of money. Those lucky enough to get into their now-sprawling campuses gain access to a kind of gold-plated welfare state where choices of delicious food, health centers and dental clinics are theirs for the using.
from Edward Hadas:
Apple is the latest multinational to feel the heat on cross-border tax management. The news that the tech giant used Irish law to lower U.S. tax payments should not have been surprising. After all, “Do no evil” Google had no second thoughts about recording what were essentially British sales as Irish, for the sake of a lower tax rate. It’s hardly likely that Apple, which has cultivated a certain anti-establishment air, would have hesitated.
Indeed, until a few months ago, I don’t think there was a corporate treasurer anywhere who would have taken justice into account when deciding on tax strategy. At most, there might be worries about bad publicity, but the well-established corporate practice of tax dodging had generated little attention.