Taken from http://www.nytimes.com/2014/10/20/opinion/ireland-still-addicted-to-tax-breaks.html The Irish government decided last week to get rid of a tax loophole that has helped big multinational companies like Apple and Google avoid paying billions in taxes to any government at all. But hold the champagne: Ireland could well replace one problematic tax policy with another, leaving aggressive tax avoidance pretty
Eurozone Design Failures by Paul de Grauwe I analyze the nature of the design failures of the Eurozone. I argue first that the endogenous dynamics of booms and busts that are endemic in capitalism continued to work at the national level in the Eurozone and that the monetary union in no way disciplined these into a
These referendum results show a steady decline in support for the European Union and the political, social and economic direction it has taken and directed member-states to follow. As the global economy continues to stagnate and the ‘recovery’ falters more austerity is to come as the EU and the US drive home their agenda for
There has been much debate about could we have burnt the big bondholders, and if so why didnt we, who was this protecting and who made the ultimate call on it. Below is a revealing and insightful quote from Ray McSharry, former Minister for Finance, former EU Commissioner, Bank of Ireland Board member and close
Politicaleconomy.ie is delighted to have interviewed US communist and political economy blogger Zoltan Zigedy. Full text of the interview is available here Interview with Zoltan Politicaleconomy.ie interview with Zoltan Zigedy http://zzs-blg.blogspot.ie/ 1 – A crisis erupted with the collapse of Lehman Brothers in 2008 but this had been brewing for some time. Can you briefly
Taken from http://www.nytimes.com/2014/10/20/opinion/ireland-still-addicted-to-tax-breaks.html
The Irish government decided last week to get rid of a tax loophole that has helped big multinational companies like Apple and Google avoid paying billions in taxes to any government at all. But hold the champagne: Ireland could well replace one problematic tax policy with another, leaving aggressive tax avoidance pretty much intact.
On Oct. 14, Ireland’s finance minister, Michael Noonan, said the country would get rid of the “double Irish” — a provision that allows companies doing business in the country to avoid taxes by making royalty payments to an affiliated firm that is registered in Ireland but has its tax home in another country, often a tax haven like Bermuda that has no corporate income taxes. The provision will disappear for new companies in January, but businesses already using it can continue to do so until 2020.
Still, Ireland, which for years used policies like the double Irish to attract multinational businesses, appears uninterested in true reform. It will create a new provision known as the Knowledge Development Box that will allow technology, pharmaceutical and other companies that make money from patented products and services to pay a discounted tax rate. Officials haven’t said much about what kinds of profits will qualify for the lower rate or what it will be. Experts expect it to be lower than the already low standard corporate tax rate of 12.5 percent.
Ireland is not alone in trying to lure tech companies with very low tax rates. Since last year, Britain has been phasing in what it calls the Patent Box. By 2017, the country will have just a 10 percent tax on profits from “patented inventions and certain other innovations.” That will be less than half its standard corporate tax rate of 22 percent.
There are numerous problems with such policies. For starters, they leave one group of businesses — those that are not fortunate enough to make money with the help of patented products — at a significant disadvantage. Is it fair to have a much higher tax on the profits of, say, a modestly profitable restaurant business than on a highly prosperous technology giant?
These tax policies also create a dangerous race to the bottom, with each nation trying to outdo the others in tax giveaways. If left unchecked, this could make it impossible for any nation to tax profits from a fast-growing part of the economy. Governments, of course, must still pay for public services, so they will have to levy higher taxes on individuals, which will fall most heavily on the middle class and the poor.
It is particularly depressing that countries like Britain and Ireland are engaging in such beggar-thy-neighbor policies given their public commitments in international forums to behave differently. For instance, the Group of 20, of which Britain is a member and at which Ireland is represented through the European Union, has made ending tax avoidance a priority. If even G-20 countries cannot resist the temptation to create giant loopholes, how can the international community ever hope to persuade other nations that are tax havens to change? Getting countries to cooperate with one another on tax policy is beginning to seem like a far-fetched idea.
Eurozone Design Failures by Paul de Grauwe
I analyze the nature of the design failures of the Eurozone. I argue first that the endogenous dynamics of booms and busts that are endemic in capitalism continued to work at the national level in the Eurozone and that the monetary union in no way disciplined these into a union-wide dynamics. On the contrary the monetary union probably exacerbated these national booms and busts. Second, the existing stabilizers that existed at the national level prior to the start of the union were stripped away from the memberstates without being transposed at the monetary union level. This left the member states “naked” and fragile, unable to deal with the coming national disturbances. I study the way these failures can be overcome. This leads me to stress the role of the ECB as a lender of last resort and the need to make macroeconomic policies more symmetric so as to avoid a deflationary bias in the Eurozone. I conclude with some thoughts on political unification, and the dangers of unification without democratic legitimacy.
Below are a number of graphs from this report that show how Ireland’s ‘debt’ crisis results directly from the perverse nature of the Irish economy’s role as conduit for US and European capital and the subsequent socialisation of private debt.
These referendum results show a steady decline in support for the European Union and the political, social and economic direction it has taken and directed member-states to follow.
As the global economy continues to stagnate and the ‘recovery’ falters more austerity is to come as the EU and the US drive home their agenda for big business and the wealthy.
Progressives in Ireland have to challenge the EU and not just ambulance chase on issues in Ireland. For this we need a principled movement not caught up in short term electoral opportunism.
TTIP represents the challenge of the day and public awareness must be raised on this issue. Unions must be won over to campaign and standing up against TTIP and the EU/US elites. ISDS, while being the most offensive part of the TTIP negotiations, is not the only concern.
A broad alliance is growing around the TTIP Information Network www.ttip.ie this needs to be built on and expanded as does the progressive union positions that are being taken.
There has been much debate about could we have burnt the big bondholders, and if so why didnt we, who was this protecting and who made the ultimate call on it.
Below is a revealing and insightful quote from Ray McSharry, former Minister for Finance, former EU Commissioner, Bank of Ireland Board member and close friend of then Minister for Finance Brian Lenihan.
“Brian [Lenihan] had been keen to burn the big bondholders and we discussed this on a number of occasions. One morning I got a call about a quarter past eight and it was Brian. He told me that he was able to burn the bondholders and he was very happy because the European Central Bank President, Jean-Claude Trichet, had toldhim he could do it.
‘This would have improved Ireland’s position significantly and it was going to be a big story, but later that day a now despondent Brian rang me back. He said Trichet had changed his mind because he realised that the main casualty if the bondholders were burnt would be big German and French banks. This was a disgraceful decision because the ECB is supposed to represent the interests of Europe generally, but they were clearly under the sway of the German and French banks. Even today, I still would not have much confidence in the ECB and until Europe gets a totally independent entity to defend its currency, the euro will remain a fragile currency.”—Ray MacSharry, former minister for finance and member of the EU Commission
Extract taken from Murphy, O’Rourke and Whelan (eds.) in Brian Lenihan, in Calm and in Crisis (Merrion Press, 2014).
Politicaleconomy.ie is delighted to have interviewed US communist and political economy blogger Zoltan Zigedy.
Full text of the interview is available here Interview with Zoltan
Politicaleconomy.ie interview with Zoltan Zigedy
1 – A crisis erupted with the collapse of Lehman Brothers in 2008 but this had been brewing for some time. Can you briefly explain how you view the crisis?
Economists and pundits alike– caught watching an event unfold that simply could not happen– portray the 2007-2008 collapse as a singular event, an accident brought on by an unlikely coincidence of human failings. Of course that perspective masks the inherent, systemic flaws of the capitalist system.
The seeds of the current crisis were planted many decades earlier. The intense global competition resulting from the post-war revival of the European and Asian economies, replete with new technologies, engaging new principles of industrial organization, and flooding global markets with innovative products, placed enormous pressure on the rate of profit. The implicit Cold War labor contract– support US, NATO, and SEATO policies, maintain labor peace, and receive compensation at least in step with productivity and costs of living– pressured capitalist profits from below.
The stagnation of the 1970′s resulted.
Capital found a solution: mount an all-out war on workers and their wages. The slash and burn Thatcher and Reagan axis restored profitability (and the celebration of its rewards) by feverishly jacking up the rate of exploitation.
The collapse of Eastern European socialism added new markets and cheap labor to the favorable conditions for profit-making. Not surprisingly, the loss of a real-world beacon of socialism proved profoundly demoralizing to the labor movement. Many Western Marxists turned to navel-gazing or the “rethinking” of the socialist project.
Without filling in the details, the hyper-accumulation of this triumphalist era stretched the bounds of available productive and safe investment opportunities. Thus, began the explosion of financial exotica (and financial “profits”!) to absorb the glut. On the investment side, this took the form of venture capital and dot.com initial public offerings at the end of the 1990′s; risky speculation inflated an enormous bubble of virtual value and unsecured debt. As we know, that ended badly.
Since 2001, capital has sought to rally and sustain profitability. The collapse of 2007-2008 shows that it is not possible without speculative brinksmanship and courtship of hazard. That seems to me to still be the case.
2 – There is some debate amongst Marxists about the development of capitalism post WW11 and the traditional understanding of the declining rate of profits versus financialisation and super-profit/under-consumptionist theories. Are these theories conflicting or can we reconcile the declining rate of profit with financialisation and monopolisation and concentration of wealth?
A. Post-war Marxists, both in the socialist countries and in the West, fell under the influence of Keynes, locating the principal contradiction of capitalism in the stagnant (or declining) purchasing power of the working class (underconsumptionism). This was a convenient and appealing explanation for crisis, but, unfortunately, it doesn’t fit the facts, misrepresents the accumulation process, and encourages a turn towards social democracy.
Marxist economists were unjustifiably impressed with the “success” of pump priming in stemming the seemingly unstoppable economic collapse of the Great Depression. While, what came to be called “Keynesian” policy may have slowed, even stopped the bleeding, it didn’t heal the wound. But many Marxists reasoned– mistakenly– that if force-feeding consumption halted further collapse, then the crisis was caused by insufficient consumption.
Neither the Great Depression nor the current crisis were preceded by any consumption shock, an event, if it had occurred, that would have given some credence to an underconsumptionist explanation of crisis. On the other hand, the crises did cause a shock to consumption, a major factor in amplifying and extending the course of crisis. So the facts would seem to suggest that the underconsumptionists actually conflate cause with effect.
The relatively long post-war period without a major systemic crisis (1945-1972) further seduced far too many Marxists into acknowledging the success of Keynesian policy prescriptions. By crediting the perceived stability of the capitalist system to the welfare state support of consumption, they concluded that failing consumption was the demonstrated explanation of capitalist crisis. The severe and lengthy decade of stagflation that followed should have cast some doubt on that too easy conclusion.
B. The 2007-2008 crash spawned a renewed and welcome interest in the tendency-of-the-falling-rate-of-profit explanation of systemic capitalist crisis. Outside of the Marxist mainstream, Henryk Grossman and Paul Mattick, were often-isolated voices supporting this explanation which drew largely from Marx’s account in volume III of Capital. While we owe them much for keeping this theory out of the dustbin, they developed it in a mechanical, formalistic way alien to Marx’s method. And the new generation of advocates, largely academic Marxists, have unfortunately followed this road. They fail to understand that tendency laws– like the tendency of the falling rate of profit– are not logical demonstrations, but descriptions of social and economic forces that shape the course of a social structure’s (in this case, capitalism’s) trajectory.
The great value of the rate-of-profit explanation is that it locates the cause of crisis at the main spring of the capitalist production process: accumulation. It insists that the ultimate cause of malfunction must and will be found in the ultimate element that powers capitalism as an economic system: profit.
In my view, a robust explanation of capitalist systemic crisis can only emerge by beginning with the crucial role of the rate of profit, the determinant that keeps the capitalist class in the reproduction game or, as the system stumbles, out of the game and on to the side lines. I believe that a comprehensive contemporary explanation of the nature of capitalist crisis is yet to appear, though I have offered modest sketches in my writing.
C. “Financialization” is not an explanation of the crisis. Instead, it is too often merely a characterization (like its sibling, “globalization”), a handy descriptor of an aspect of the current crisis. No one would accept “atomization” as a worthy explanation of what happens in an atomic reaction. Nor should we accept “financialization” as more than a neologism useful in indicating that some kind of financial shenanigans played a role in the present crisis. My own view is that “speculation” and “risk taking” better capture the financial dimensions of the ongoing crisis for those needy of a concise handle.
When pressed to unpack financialization to reveal an explanatory theory, its advocates reference familiar developments: deregulation, the growth of financial institutions, their penetration of non-financial corporations, their development of new and and exotic schemes and instruments, etc. But these developments, in most cases, have been unfolding since Lenin’s time. Moreover, there is no obvious link between these developments and the onset of economic crisis. That link is easily provided by declining profitability, however. One need look no further than Countrywide, Washington Mutual, Merrill Lynch, and Lehmann Brothers to see how speculation and risk-taking eviscerate profits and generate an economic retreat and panic.
Can there be a synthesis of three contestants for a Marxist theory of crisis?
I think not. But there are aspects of each that should inform a Marxist theory of crisis. No adequate Marxist theory can fail to address financial innovation and the peculiar status of financial profit; it must pay particular attention to the amplifying effect of debt. And the one-sided class struggle plays an undeniably important role by generating hyper-exploitation, the consequent super-accumulation, and the resulting abundant capital in search of the elusive return. That said the tendency for capitalism to generate downward pressure on the rate of return remains the centerpiece of any adequate theory of capitalist crisis.
3 – We hear much being made of a US recovery but you describe it as ‘slug-like motion’, what is the real state of the US economy today?
The US economy is in the doldrums. It lacks momentum to escape the doldrums, and it remains precariously afloat. It remains afloat because willingly or unwillingly the rest of the world accepts a part of its burden. The PRChina continues to purchase enormous quantities of US debt, along with Japan. It remains afloat because the rest of the world has yet to challenge the dollar as the global means of exchange, allowing it to weaken or strengthen according to the needs of the US economy. It remains afloat because the US sets the rules of trade, commerce, and exchange to its own benefit. That’s the reward for imperial domination.
Domestically, the US economy is on the life support system that economists call “the wealth effect”. That is, economic activity is founded on the subjective sense of well-being fostered by stock market increases and increases in the value of homes. Both increases today have little or no connection to market realities. Of course, the wealth effect only applies to those owning homes and financial assets.
The rest rely on stagnant wages and benefits and assuming debt (household income is at the same level as 1990). Capital continues to wring every drop of value from US workers. A comrade recently computed that the starting wage of an autoworker at a unionized (UAW) shop, adjusted for inflation, is commensurate with that of a Ford worker in 1914, a moment when Henry Ford “generously” raised the wages of the workers so that they could buy his Model T’s.
Going forward, the prognosis is no better than continuing stagnation. A shock, possibly reverberating from the EU, Brazil, China, or Japan, could yet rock this shaky stability. Moreover, there are many signs that pre-collapse financial practices are again stretching the bounds of rationality.
4 – You have compared the period we are in to the 1930’s and have challenged the notion that the New Deal investment brought about a recovery pointing to the role WW2 played instead. Do you see war is a policy tool being used today and what are you concerns about this?
William Z Foster, a US Communist writing early in the Cold War period, developed the idea of military Keynesianism. The value of his work– minimized and neglected because of intellectual anti-Communism– was to expose the connection between militarism and government economic policy. For the US ruling class, the idea of “pump priming”, fiscal intervention through the public sector, was much more appealing if it were rendered through spending on open ended contracts with military corporations and armaments rather than spending on human welfare. The former gave government revenue to corporations, the latter some alms to the people.
That same ruling class drew important lessons from the thirties and forties: the most complete recovery from the Great Depression was accomplished swiftly by Hitlerite German militarism. And the US economy only began to recover vitality with the military buildup leading to US entry into World War II.
After the fall of the Soviet Union, there was much talk of a “peace dividend” and a radical reduction of military spending in the US.
It didn’t happen– a fact that surely demonstrates that militarism is inextricably embedded in US economic policy since there was no and could be no serious threat to US security in the immediate aftermath of the Cold War.
Nonetheless, the lap dog media machine has been conjuring up new enemies in order to keep the US public from objecting to militarism. Interestingly, one can observe public opinion shift from skepticism to consent over the course of the constant monopoly media war campaigns.
In part, the bizarre anti-Russian campaign, the demonizing of Putin, is only rational in the framework of an economic explanation of militarism. The US expects to spend over a trillion dollars during the next three decades modernizing its nuclear weapons program. This can solely be justified to the public by inventing threats from a nuclear power. Nuclear weapons are not necessary against men in sandals with AK-47s, rocket propelled grenades, and improvised explosive devices. But Russia has nuclear weapons.
The liberal magazine, The Nation, recently documented the financial ties between retired military leaders and the armaments industry. The same ex-admirals and generals exposed in the article are omnipresent in the US media, posturing as experts on foreign policy while sounding the call for confrontation and aggression. They serve as the transmission belt of militarism to the public and the governing bodies.
It is no mystery why we live under the constant threat of violence and war.
5 – How do you define the system globally? There is much talk of neo-liberalism and finance capitalism or financialised capitalism but how do you best understand it?
It is easy to fall into the trap of taking a snapshot of the global capitalist system and drawing hasty conclusions, of announcing a new stage, a new trend, a new era… Certainly that makes for a provocative, but quickly outdated, article or book or garners appearances on talk radio shows. Over the last several decades we’ve been treated to new intellectually fashionable buzz words such as “neo-liberalism”, “globalization” or “financialization”, portentous theories like the decline of the nation-state, and sheer nonsense like Hardt and Negri’s Empire. Fortunately, they, and their ilk, only distract; they seldom persist.
Rather than take that tantalizing bait, I will note some important trends. The last three decades have been marked by significant changes in the international division of labor. A veritable revolution in logistics along with political changes in Eastern Europe and the PRChina integrated new armies of workers into the global capitalist system. Together, these developments ushered in a shift of manufacturing to far flung, low wage areas. Accompanying this shift has been the rise of finance, insurance, real estate and services in those countries experiencing a decline in manufacturing. This new division of labor fostered a dramatic growth in the global rate of profit, a level of profitability that has now run its course.
Labor markets in previously low wage areas are now tightening while the crisis and unemployment have slammed workers’ compensation in the formerly high wage countries. Global wage convergence is the ultimate, predictable outcome of labor market competition without restraint or protection.
Those workers from formerly extreme low wage areas (PRC, India, Brazil, etc.) who have had a taste of a better life, now and want more.
Those workers who have been devastated in the vise of international competition and crisis-induced unemployment want to restore and improve their standard of living.
Standing in the way of winning these demands is a still resilient, resourceful capitalist system; and frequently standing in the way of fighting for these demands are complacent institutions and leaders– union leaders, politicians, and political parties– that are ill-serving workers in the twenty-first century.
Fanciful expressions and speculative theories only obscure the fact that the logic of capitalism and imperialism, capital’s international manifestation, still rule in the twenty-first century.
6 – Globally, the system is objectively in crisis on many fronts , yet in the ‘west’ it’s politically and cultural hegemony remains unchallenged in any serious way. Is it still a case of progress will likely come from the periphery within Imperialism?
Unquestionably, the struggle against imperialism, particularly in the Middle East and in Latin America, has occupied center stage and has posed more of a challenge to ruling elites than has the anti-capitalist struggles in the West. Even more disappointing is the absence in the West of a formidable anti-imperialist movement– an anti-war, anti-interventionist movement– in solidarity with Middle Eastern and Latin American anti-imperialism. This is not a particularly noble chapter in the history of the Western left.
Any thoroughly objective assessment of capitalism today will reveal stark vulnerabilities. It will challenge the sustainability of the shaky global economy, question the viability of the corrupted, undemocratic political system, and abhor the vulgarity and nihilism of bourgeois culture.
Still, the goal of replacing capitalism with a profoundly more just and democratic system appears far off. Some have given up on the task, retreating to incrementalism or accommodation, believing unrealistically that we can gradually or surreptitiously undermine capitalism. Still others have visions of nineteenth century utopias, cooperative communities coexisting with monopoly capital. Free market theocracy has bred a generation disposed to worship the gods of individualism and spontaneity as instantiated on the left by anarchism. In short, left politics in the West churn in a cauldron of wildly idealistic and misguided ideology.
Of course this is frustrating, especially for students of history and the workers’ movement.
Disillusionment and confusion are not new to the socialist project. One-third of the Communist Manifesto is devoted to exposing the dead-end roads and far-fetched ideologies that Marx and Engels contested in their time.
Lenin scathingly recorded the dismal condition of the Russian left after the failed 1905 revolution. Should we be surprised, after the history-altering dismantling of European socialism nearly twenty-five years ago, that much of the Western left has yet to find its bearings?
And yet, as Lenin’s example shows so well, it is precisely when there is widespread political disarray that Marxism (and Leninism) are so desperately needed to bring clarity and unity to the anti-capitalism struggle.
I think we are in such a moment.
Article from the excellent political economy blogger Zoltan Zigedy
There is a growing campaign in the US backed by US President Obama to restrict the increasing use of tax havens like Ireland by US TNC’s. The campaign is gathering traction as the administration seeks popular issues ahead of the next elections. This issue may also feature in the ongoing TTIP negotiations between the US and EU.
Below is a recent article from the NYT that give a sense of the issue.
White House Weighs Actions to Deter Overseas Tax Flight
WASHINGTON — The Obama administration is weighing plans to circumvent Congress and act on its own to curtail tax benefits for United States companies that relocate overseas to lower their tax bills, seeking to stanch a recent wave of so-called corporate inversions, Treasury Secretary Jacob J. Lew said on Tuesday.
Treasury Department officials are rushing to assemble an array of options that would essentially wipe out the economic incentive for the deals, Mr. Lew said. No final decision has been made.
“The question is, Can we do enough that it will materially change the economics of inversions so that companies will make different decisions?” Mr. Lew said in an interview. “The things we are looking at look to me like they could very materially change the economics of inversions.”
The action comes in the face of a recent increase in United States companies reaching deals to reorganize overseas, creating an explosive political issue that Mr. Obama has called a lack of “economic patriotism.” Investment banks have been counseling companies to pursue such transactions because of the potential tax benefits. Two large United States pharmaceutical companies — the drug giant AbbVie, based in Illinois, and the generic manufacturer Mylan, based in Pennsylvania — agreed to such deals last month. The Walgreen Company, owner of the drugstore chain, considered using an inversion but was unable to follow through.
“Time is of the essence,” Mr. Lew said. “We are looking at a very long list of possible ways to address the issue.”
It would be the latest move by the Obama administration to use its authority to act where Congress will not. A provision in the president’s budget would have effectively banned inversions, and Democratic lawmakers have introduced legislation to halt or suspend them. Still, while some Republicans say they want to address the issue, there has been little bipartisan agreement on how to do so.
While Mr. Lew said legislation was the “best solution” to addressing the issue, the recent flood of inversions has persuaded Mr. Obama’s team that a quicker response may be necessary. A Bloomberg analysis estimated American companies are parking as much as $2 trillion in cash overseas.
“If Congress doesn’t act, we can’t wait for months or years to go by and just watch companies make decisions as if nothing will change,” Mr. Lew said. Josh Earnest, the White House press secretary, told reporters on Tuesday that Congress should “take action on this quickly,” sidestepping questions on whether the administration would act unilaterally if Congress did not.
Mr. Lew said his “goal is actually to change what’s happening out there.”
“Putting companies on notice is, I think, part of it,” he said.
Tuesday morning, a group of Democratic senators called on President Obama to act on his own authority. “The coming flood of corporate inversions justifies immediate executive action,” they said in a letter, spearheaded by Senator Richard J. Durbin of Illinois, the No. 2 Democrat, and signed by Elizabeth Warren of Massachusetts and Jack Reed of Rhode Island.
If Treasury pursued unilateral action, there could be at least some retroactive effect because new limits would be placed on the transactions of inverted companies. Inversions could still go through, but depending on when new rules were issued, the tax strategies that made the mergers seem lucrative might be severely limited.
Mr. Lew said last month that he did not think he had power to act alone to stop the practice, but administration officials say they believe they have many more options to limit the kinds of transactions inverted companies typically use.
“They want to do it,” Senator Charles E. Schumer, Democrat of New York, said in an interview last week. “The president really dislikes the inversions, and if they feel they have a strong legal ability to do it, they will.”
With the size and pace of deals accelerating, policy makers have intensified their efforts to find ways of countering the practice, spurred in part by the fact that Walgreen had discussed it as part of a buyout of the British chain Alliance Boots.
Walgreen’s consideration of an inversion “tipped the scales to show that this is a slippery slope of inversion deals continuing and increasing in size and number,” said Nell Geiser, the associate director of retail initiatives at Change to Win, the organized labor-backed consumer advocacy group. She said the company would have faced “extreme consumer backlash” if it had made the move overseas.
It’s also a politically opportune time for the president to focus on the issue, as he works to contrast his economic vision with that of Republicans in advance of the midterm congressional elections.
The president highlighted the issue in a recent speech in Los Angeles in which he questioned the patriotism of companies that inverted for tax purposes.
“I don’t care if it’s legal. It’s wrong,” the president said. “You shouldn’t get to call yourself an American company only when you want a handout from the American taxpayers.”
Just days after the president’s speech, Stephen E. Shay, a former Obama administration Treasury Department official who now teaches at Harvard Law School, suggested in an article in the trade journal Tax Notes that it was within Mr. Obama’s power to act alone.
“I’m really concerned that we are losing a significant portion of our corporate tax base that you’re not going to get back,” Mr. Shay said.
His article referred to a section of the tax code that allows the Treasury secretary to issue rules for determining whether a given financial instrument should be treated as debt or equity. The idea would be to limit the degree to which a foreign parent company could load up a United States subsidiary with debt, which can be deducted for tax purposes, and require that any excess be designated as equity, which is not eligible for deductions.
Mr. Shay also proposed other administrative moves to reduce the use of offshore earnings without paying United States tax.
“They have the authority to go after those two incentives to do the deals under existing law,” Mr. Shay said of Mr. Obama’s team.
A person involved in the deals told Mr. Shay that without those two prospective benefits, 75 percent of the inversions underway would not occur.
Costas Lapavitsas: Reversing privatisation and re-establishing public ownership over key areas of the economy would directly reduce the room for financialisation. It would also provide a broader basis for public investment and the systematic creation of employment.
The structural problems within the UK and other mature economies were brought to the surface during and after the crisis of 2007-9. This paper argues that these problems are inherent to contemporary mature capitalism and have to do, primarily, with financialisation. The exceptional rise of finance in terms of size and penetration across society, the economy and the policy process, is apparent to all. The rise of finance is a sign of a fundamental transformation of mature capitalism within commercial and industrial enterprises, but also banks and perhaps most strikingly, within households.
The period of financialisation, lasting from the 1970s to the present day, has also wrought profound changes to the social structure of contemporary capitalism. It has been a period of extraordinary income inequality, wiping out all of the gains that came in the period following the Second World War. This paper notes that the ability of the rich to extract enormous incomes has been associated with the financial system. Inequality is a characteristic feature of financialisation.
Financialisation has been marked by the ideology of neoliberalism, promoted by universities, think-tanks and a variety of other institutions. Neoliberal ideology ostensibly treats state intervention in the economy with extreme suspicion, but the reality has been very different. The financialisation of mature economies would have been inconceivable without the facilitating and enabling role of the state.
The full paper can be read at http://www.researchonmoneyandfinance.org/images/uncategorized/Lapavitsas_state_finance.pdf