Unchecking the Box

Matt Yglesias writes about the way a Clinton-era initiative to streamline and update tax rules (commonly called "check the box" for reasons that aren't very interesting) ended up becoming a gigantic loophole that allows American corporations to avoid paying taxes on profits earned overseas:

What happened is that the Clinton administration promulgated a rule that was designed to simplify the classification of different kinds of subsidiaries. Within months of the rule coming out, the career civil servants in the Treasury Department noted that there was potentially a huge tax loophole here.

....As soon as it was noted, an effort was put in place to change it. But a ferocious lobbying battle opened up, with the apologists for tax havens arguing that, basically, it was [other countries'] ox that was getting gored here so Americans shouldn’t care. Over the years, however, that turns out to be wrong. The availability of this loophole is a significant incentive for companies to invest in their overseas subsidiaries and take advantage of the tax shell game. It’s a loophole that nobody ever intended to create, and that should be done away with forthwith.

Whether this is really a big incentive to invest overseas is probably debatable, but it's nonetheless true that it was only an unanticipated side effect of check-the-box that allowed companies to use it to avoid taxes on overseas earnings.  So good for Obama for trying to partially get rid of it.

Except for one thing.  It really is true that America is virtually the last country in the world that tries to tax overseas profits earned by multinational companies in the first place. Everyone else, including all those fine social democrats in western Europe, have long since moved to a seemingly more sensible system in which each country simply taxes its own domestic profits regardless of where parent companies are headquartered.  This avoids all sorts of complications related to double taxation and allocation of expenses and seems to be genuinely more efficient as well.  You can find a pretty good discussion of the basic issues here.

So what's the deal?  Should liberals be in favor of closing this loophole, since it is, after all, a loophole?  Or should we be in favor of not just leaving it alone, but going further and changing our corporate tax law to eliminate taxation of overseas profits entirely?  Or perhaps changing the law, but only as part of a package that makes our corporate tax code more sensible overall?  What's the party line here?

Video: The Story of Stuff

The inconvenient truth about the Inconvenient Truth approach to green pedagogy is that by the time Gore moves past the gloom to What You Can Do, you're too depressed to do more than clutch the nearest stuffed penguin and click on Animal Planet. Not so Annie Leonard's 20-minute Story of Stuff viral kiddie video, an adorable, doomtastic, animated homage to How We're All Killing the Planet (with cuteness and plastic bottles, mainly).

Watch the video below, then pass it on to a teacher you know along with our Waste Not, Want Not special report on the full story of Stuff.

From NYT:

Taxing Carbon - Part 5

I promise this is the last post in this series.  (For a while, anyway.)

But there's one general point about the debate between carbon taxes and cap-and-trade that I want to make directly.  Namely this: it's an unfair fight.

Here's the thing.  Cap-and-trade is a real-world program for reducing pollutants.  We used it successfully with sulfur emissions in the 90s.  Europe is already doing it with carbon.  The northeastern states are doing it with RGGI.  The Waxman-Markey bill is a real piece of legislation that's hundreds of pages long and festooned with a hundred different compromises that will (we hope) allow it to survive the legislative sausage grinder.

And all of these variations of cap-and-trade are complicated.  When you read about them, you're immediately bombarded with jargon: auctions vs. allocations; caps, floors, offsets, and banking; upstream vs. downstream; how the exchange should be set up; how often permits should be sold; etc. etc.  Those are all real-life questions, and in any real-life plan they have to be addressed.  And they're confusing.  And yes, they all provide potential toeholds for special interests to game the system — something we should fight like banshees to keep to a minimum.

Tax advocates have no such worries.  They propose that we simply tax various fuels based on their carbon content, and voila!  We're done.  Simple and easy.

Ironically, though, the only reason they can get away with this is because of the very fact that a tax is a political nonstarter, which means there are no real-world taxes on the table.  But if there were, they'd have all the same questions as a cap-and-trade plan, plus a whole bunch of new ones.  Should it be levied upstream or downstream?  Can it be tax sheltered offshore?  Are you allowed to apply a tax-loss carryforward to your carbon tax levy?  How do you harmonize the tax with other countries?  Can I get a tax credit for reducing carbon emissions?  How are the revenues going to be distributed?  Should midwestern states that rely more on coal-fired plants get treated differently than, say, California?  What would it take to make a carbon tax on foreign oil compatible with WTO rules?

Rhetorically, tax advocates can pretend that none of these questions exist.  They're able to contrast the genuine messiness of a real-world cap-and-trade plan with a Platonic, whiteboard version of a tax plan.

But that's not how it would work.  If cap-and-trade goes down, we're not going to get a tax instead.  And if we do eventually get a tax instead, it's not going to be a clean and simple tax.  It's going to be a thousand-page monster with every paragraph the subject of a slugfest between a dozen different special interests lobbying half a dozen different congressional committees.  That's reality.

If you're going to compare cap-and-trade to a tax, honest advocates need to compare apples to apples.  We need to hear what a real-life carbon tax bill would be like.  And we should have a few dozen tax experts in the room to laugh at us while all this is going on.  The fact is, cap-and-trade isn't as complicated as it seems, and a tax isn't as simple as it seems.  In the end, though, despite the admitted complexities of cap-and-trade, at least it wouldn't be embedded within an existing 100,000-page corporate tax code.  A tax would be.  I'd keep that firmly in mind whenever you hear about how simple and clean a carbon tax would be.

POSTSCRIPT: Rasmussen reported today that only 24% of voters have any idea what "cap-and-trade" even means.  That doesn't surprise me.  When I set out to write my cap-and-trade piece for the magazine a few months ago, I originally planned to write about the debate between cap-and-trade and carbon taxes.  Very quickly, though, I realized that even among plugged-in people, very few of them really knew what cap-and-trade was or how it worked.  So I switched gears and decided to write a straight ahead cap-and-trade primer instead.  If you're part of the still-confused 76%, my piece is here.

Blue Whales Reconnect Ancient Paths

The planet’s largest animal may be returning to prewhaling feeding grounds. This according to a new paper in Marine Mammal Science documenting the first known migration of blue whales from California to British Columbia and the Gulf of Alaska since the end of commercial whaling (sort of) in 1965.
 
Researchers have seen blues whales off British Columbia and the Gulf of Alaska 15 times since 1997. Four of the whales have been previously identified off the coast of California—proving at least some whales are pioneering a return to historical migration patterns.

Blue whales were severely overhunted during commercial whaling in the early 1900’s. The International Whaling Commission enacted a worldwide moratorium (sort of) on commercial whaling in 1966. Since then, blue whales off southern California have recovered slightly. Those farther north never have.  
 
No one knows why the whales seem to be spreading northward now. But the ocean is changing and krill—the primary food of blue whales—might be shifting north too.
 
Blue whales are the largest animal ever to live on Earth, reaching 100 feet and perhaps 100 tons—far larger than any of the dinosaurs. They were hunted nearly to extinction globally and are still listed as endangered under the US Endangered Species Act and the IUCN Red List. The global population is estimated at only 5,000 to 12,000 animals today. Perhaps 2,000 of these live off the west coast of the US and Canada.

Too bad Japan, Iceland, Norway, Canada, Greenland, the US, Russia, the Faroe Islands, a few Caribbean island nations, and Indonesia still hunt whales in one way or another: bloodlust watered down with euphemism and anachronism gussied up as science.


 

Chart of the Day - 5.11.2009

The basic argument in favor of financial engineering is that it allocates risk more effectively and thereby increases capital formation.  Which is good.  Or would be, anyway, if that's what happened.  Via Ezra, however, Adam Posen and Marc Hinterschweiger take a look at the growth of credit derivatives over the past decade and conclude that it didn't:

Clearly, growth in new financial products has outpaced fixed capital formation both globally and in the United States by a large margin. This has been especially true since 2006, when investment stagnated, but derivatives continued to grow at a rapid rate. There only seems to be a weak link, if any, between the growth of the newest complex — and now proven dangerous if not toxic — financial products and real corporate investment.

I would just add one other observation to this: the latest and greatest conservative argument for repealing the estate tax is that it would promote capital formation.  Without an estate tax, rich people will be motivated to earn more money instead of frivolously spending it, and heirs will get nice big chunks of capital to invest in America.  As usual with right-wing economic theorizing, it's sort of vaguely plausible sounding, and the conservatives pushing it have some nice charts along with a bunch of equations filled with Greek letters to back them up.  But then, so did the Wall Street rocket scientists, didn't they?  In the event, though, that turned out to be a self-serving argument.  Even trillions of dollars in derivatives didn't have a noticeable effect.

So then, what are the odds that a change in the estate tax amounting to a few billion dollars will have a serious effect on capital formation either?  Slim.  And what are the odds that this is just another self-serving argument?  That's an exercise for the reader.

The Gospel According to Twitter

What, you thought godless liberals were the only ones maniacally tweeting away?

Lord, no; Twitter's evangelical wing is just starting to flap. From online mega church Streaming Faith's e-newsletter:

Pastors John Voelz and David McDonald of Westwinds Community Church decided to spend the past two weeks educating their congregation on how to use Twitter to spread the gospel of Jesus Christ on Sunday morning by allowing them to actually log on during service and send out "tweets"....Now more than ever before, we as believers have brand new opportunities to share the Gospel of Jesus Christ like never before when we leverage these sites appropriately...This is the church's finest hour to build influence with those who we once considered to be outside of our reach.

Thus far, Streaming Faith's tweets range from the usual church-flavored banality:

White House Boos Sykes 9/11 Joke

Comedian Wanda Sykes is getting some grief for joking about Rush Limbaugh at the White House Correspondents' Dinner on Saturday Night. Sykes, referring to Limbaugh's infamous claim that he hopes Obama fails, suggested that maybe Limbaugh was "the 20th hijacker" on 9/11, and offered that she "hopes his kidneys fail." It took the right wing about 24 hours to figure out that kidney failure means death, and then they switched right into gear. Drudge breathlessly linked to a couple articles taking Sykes to task, asking "What was Obama thinking" for chuckling at the joke, and Fox News quoted unnamed sources calling her "mean-spirited," "hateful" and "disgusting." And today, sadly but perhaps inevitably, the White House just caved. Robert Gibbs made a statement as part of his daily briefing today saying that 9/11 is one of "a lot of topics that are better left for serious reflection rather than comedy." Oh come on, didn't anybody see The Aristocrats? When Gilbert Gottfried did his whole schtick right after 9/11? That was genius.

People are giving Sykes rave reviews for her bit at the dinner, but her languidly-paced softballs about giving the Queen an iPod seemed kind of tame to me, especially compared to Stephen Colbert's head-spinning praise/takedown of George W. Bush back in 2006. I love Wanda, and let's not forget, Openly Gay Comedian Speaks at White House Correspondents Dinner, but her jokes were about 50% throwaways, I thought. More signs of the Obama Comedy-pocalypse, or just her mellow style not really grabbing the audience? Watch the video and decide for yourself after the jump.

In a much-anticipated statement today, Barack Obama announced what is largely a public relations end-run by the health care industry, designed to trim a few scraps off of the nation’s porcine health care budget, while preserving its basic system of medicine for profit.

In a letter to Obama that was released over the weekend, executives from the Advanced Medical Technology Association (the medical device manufacturers lobbying group), the American Hospital Association, the American Medical Association, America’s Health Insurance Plans, and the Pharmaceutical Research and Manufacturers of America, as well as the Service Employees International Union, pledged to “do our part” to reduce health care costs. Their vague, pie-in-the sky promise amounts to just a 1.5 percent reduction in the growth rate of health care spending. Such is the explosion in health care costs that even this miniscule reduction represents a potential $2 trillion saving over 10 years. But there’s no guarantee this figure will be achieved. As the Washington Post points out:

The groups did not spell out yesterday how they plan to reach such a target, and…they offer only a broad pledge, not an outright commitment….In addition, White House officials said, there is no mechanism to ensure that the groups live up to their offer, only the implicit threat of public embarrassment.

“Public embarrassment”? From Big Pharma and the health insurance companies–-two of the most shameless industries in the history of corporate capitalism? In any case, even if the $2 trillion reduction is achieved, it clearly won’t come out of industry profits. The Post reports:

Signers of the letter said that large amounts could be saved by aggressive efforts to prevent obesity, coordinate care, manage chronic illnesses and curtail unnecessary tests and procedures; by standardizing insurance claim forms; and by increasing the use of information technology, like electronic medical records.

So let’s get this straight: Saving all this money depends on getting Americans to eat less? Good luck with that one. And the other brilliant cost-saving measures involve getting doctors to create computer records of all the overpriced drugs they prescribe, and giving patients easier forms to fill out before they get turned down six times by their private insurance companies?

Shakeup in Afghanistan

Robert Gates announced today that he is firing General David McKiernan, our top commander in Afghanistan:

The abruptness of the move was an indication of the gravity of the decision. General McKiernan had served in his current command for only 11 months, while such tours are usually two years or more.

Defense officials said that General McKiernan was being replaced because of what they described as a conventional approach to what has become one of the most complicated military challenges in American history. He is to be replaced by Lt. Gen. Stanley A. McChrystal, a former commander of the Joint Special Operations Command who recently ran all special operations in Iraq.

Presumably, David Petraeus was behind this decision.  Right?  Coincidentally, BruceR, recently back from Afghanistan himself, has a few thoughts about what we're doing right and what we're doing wrong there, and it sounds like he endorses the general idea that we need a more nonconventional approach.  More later on this, I'm sure.

UPDATE: More here from James Joyner.

Pete Sessions Speaks

What's the deal with members of Congress named Sessions?  Via HuffPost, here's Rep. Pete Sessions (R–Tex.) describing Barack Obama's nefarious scheme to destroy capitalism:

In an interview, Mr. Sessions cited rising unemployment in asserting that the administration intended to “diminish employment and diminish stock prices” as part of a “divide and conquer” strategy to consolidate power.

Mr. Sessions, in his seventh term, said Mr. Obama’s agenda was “intended to inflict damage and hardship on the free enterprise system, if not to kill it.” By next fall, he predicted, voters may regain appreciation for the era of Republican governance when “many dreams were achieved,” the size of the economy doubled and employment and financial markets hit record levels.

Every party has goofballs who say stupid things.  But the GOP is apparently trying to get itself into the Guiness Book of World Records or something.  I'd sure like to see a complete transcript of this interview, if only for the entertainment value.