The World's First Trillionaire

[TimG]

So the rational reason for paying workers more is that it creates more demand for goods and services.

Except those workers will not buy the goods and services they are paid to provide if it is cheaper to buy the same/better quality goods from foreign sources. This means that the companies that provide these goods and services will go out of business and the wages will go to zero.

The downward pressure on wages exists as long as people are free to choose to buy goods and services from whoever they please. The only way to stop that is to pass laws that take away the choice of Canadians to purchase foreign products and services - a policy which has zero chance of being accepted by Canadians no matter what theoretical justification you may think exists.

Edited July 22, 2014 by TimG

[dre]

Except those workers will not buy the goods and services they are paid to provide if it is cheaper to buy the same/better quality goods from foreign sources. This means that the companies that provide these goods and services will go out of business and the wages will go to zero.

The only way to stop that is to pass laws that take away the choice of Canadians to purchase foreign products and services - a policy which has zero chance of being accepted by Canadians no matter what theoretical justification you may think exists.

Not sure where youre getting that. There is lukewarm support for these free trade agreements at best, and most Canadians believe there SHOULD be some restrictions to benefit our economy. Only about 1/3 of Canadians even believe NAFTA is better off... never mind expanded trade with sweatshop states.

A quarter of a century later, Canadians remain split on whether the Free Trade Agreement (FTA) with the United States has made them better or worse off. But they are keen to sign new ones with Europe and the Pacific region.

A new survey from Nanos Research shows 33 per cent of Canadians believe the FTA with the United States has left the country better off, while 26 per cent believe we are worse off. Another 16 per cent say it has had no impact whatsoever.

Canadians are even more skeptical when it comes to the North American Free Trade Agreement (NAFTA) which includes Mexico, as only 28 per cent say it has left Canada better off.

[TimG]

Not sure where youre getting that. There is lukewarm support for these free trade agreements at best, and most Canadians believe there SHOULD be some restrictions to benefit our economy.

Who is talking free trade agreements? The wage pressure comes from the fact that we allow imports at all. Getting rid of imports is like a massive tax increase on the middle class that will leave people much worse off. And that is does not even touch on the personal liberty issues that would come with outlawing purchases from amazon.com or ebay.

I understand that some people think they can pick and choose - i.e. protect the industries that they depend on for income while remaining free to buy whatever they want from anywhere. But such poorly thought out opinions are not something that can be used for policy decisions.

Edited July 22, 2014 by TimG

[dre]

I have

Who is talking free trade agreements? The wage pressure comes from the fact that we allow imports at all. Getting rid of imports is like a massive tax increase on the middle class that will leave people much worse off. And that is does not even touch on the personal liberty issues that would come with outlawing purchases from amazon.com or ebay.

I understand that some people think they can pick and choose - i.e. protect the industries that they depend on for income while remaining free to buy whatever they want from anywhere. But such poorly thought out opinions are not something that can be used for policy decisions.

Free trade agreements, and trade liberalization in general are what has resulted in a lot of import restrictions being removed, and tarrifs being removed or reduced. You claimed that people would never tolerate these things, but its just not true. Theyve tolerated them for decades, they tolerate them now, and they would tolerate them in the future.

Not sure who your comment about "getting rid of imports" or "outlawing amazon" was directed to. That nonsense definately doesnt apply to anything I posted. Some imports are good... some imports though represent price dumping which can have a distabilizing effect on an economy.

And some trade partners dont play fair... China for example has had a policy of printing gigantic ammounts of yuan and using them to buy western treasuries. This keeps the chinese currency artificially low, and western currencies artificially high which puts our domestic producers at a disadvantage.

Getting rid of imports is like a massive tax increase on the middle class that will leave people much worse off

So are policies that reduce wages. This whole trade-off we have been sold... the "reduced wages in exchange for cheap goods" is pretty much suicide, because people only spend a certain percentage of their income on non-durables. The result is that wages are growing slower than aggregate prices and as the article i linked you to explained THAT is what is threatening the middle class... inflation and price instability. And its going to result in higher taxes to, because we see inflation of 5-8 percent in things like healthcare that the government buys on our behalf.

[TimG]

Not sure who your comment about "getting rid of imports" or "outlawing amazon" was directed to. That nonsense definately doesnt apply to anything I posted.

It is the logical consequence of the policies you advocate whether you want to acknowledge it or not because you can't eliminate the wage pressure than comes from lower cost goods and services unless you prevent consumers from purchasing these goods. This means banning (or at least heavily taxing) cross border purchases by consumers. You probably understand that such a move would not be popular so you opt for trickery where highly visible imports are allowed but the imports where the costs are hidden are blocked (under the silly claim that some imports are "good" but others are "bad"). Such an approach would still increase the downward pressure on wages while increasing costs for Canadians.

And some trade partners dont play fair... China for example has had a policy of printing gigantic ammounts of yuan and using them to buy western treasuries. This keeps the chinese currency artificially low, and western currencies artificially high which puts our domestic producers at a disadvantage.

And by buying all that currency US interest rates are kept lower than they would otherwise be. That said, the playing field has to be level and actions directed at countries which attempt to rig the market in their favor are justified.

The result is that wages are growing slower than aggregate prices and as the article i linked you to explained THAT is what is threatening the middle class... inflation and price instability. And its going to result in higher taxes to, because we see inflation of 5-8 percent in things like healthcare that the government buys on our behalf.

Guess what - that is life in the global economy where wealth is being distributed more evenly across the world. There is nothing any country can do about other than focus on things that allow their population to be extremely productive and therefore be able to justify higher wages. Trade restrictions only make things worse by reducing productivity and income levels in the long term. Edited July 25, 2014 by TimG

[kimmy]

Reserves only put an upper limit on the money supply. The money supply in use constantly changes as people borrow money/payback loans. More importantly, banks are still creating new money without having to get it from capital holders.

Every institution in a fractional reserve system works close to its reserve limit, so the money supply actually fluctuates very little. The institutions still have to get capital out of capital holders to make it happen. (Remember "Mortgage Backed Securities"?)

I don't actually disagree. I was simply pointing out that a fiat banking system is something that helps remedy the situation by making capital available to more people at a lower cost that it would be in a system with a fixed money supply.

It's a great facilitator for borrowing and lending, but it does nothing to remedy the situation we're talking about. Making it easier for people to borrow and expanding the amount of debt people can carry may not be such a great thing for the average citizen. The direct effect of giving more people access to mortgages was the housing bubble. The direct effect of expanding access to student loans has been skyrocketing tuition fees.

Our fractional reserve system accelerates the pace at which the super-rich can increase their wealth. If our monetary system provided a remedy to the expanding power of capital, as you suggest, the rich wouldn't stand for it. But they're pretty darned pleased with the way it works.

It is good that you understand the nature of the system and that you do benefit from the inevitable inequality in it (at a global scale) and any policy changes are self serving as opposed to altruistic. I also see the need for balance and am interested in changes that provide it. The question becomes: what balance? Punitive taxes on designated "evil" people seems ham handed and counter productive because it won't bring in that much money. Funding for education and healthcare? Yes - but not a blank check because it is too easy for money allocated to end up increasing worker benefits without improving service. More corporate taxes? That just leads to the US situation where profits are kept overseas or, in the worst case, encourages large corporations to relocate and only punishes the small home grow businesses we want to encourage (i.e. the next RIM).

What else? I don't see any answers because every possible policy comes with so many disadvantages. What would you change?

Well that's the $64 dollar question, isn't it.

For starters I wish people would stop electing politicians who are working against their interests, like that butthole who keeps proposing that the Capital Gains tax be reduced to zero, or that other butthole who kept saying "let's get rid of these job-killing regulations!" and promising to repeal the estate tax.

I also think that improving the tax code to eliminate a lot of the tax deductions that advantage the rich without any particular benefit to the public at large would be a good idea. Likewise, crack down on those who shuffle their money out of the country to avoid taxation. Likewise, corporations who use various kinds of hijinks to get out of paying taxes. Countries like Ireland and Holland that help companies scam the tax system in other countries should be pressured to get their shit together or face economic sanction. I also think that tax breaks and grants to corporations should be linked to actual job creation. Perhaps government contracts should also be tied to jobs.

In regard to taxes punishing the businesses we want to encourage... businesses only start paying taxes when they're profitable.

That's not all the thoughts I have, but it's all the time I have right now. I will get back to this later.

-k

[bush_cheney2004]

....For starters I wish people would stop electing politicians who are working against their interests, like that butthole who keeps proposing that the Capital Gains tax be reduced to zero, or that other butthole who kept saying "let's get rid of these job-killing regulations!" and promising to repeal the estate tax.

Interesting, as Canadians can't/didn't elect either of those "buttholes", and Americans rejected one in a presidential election. Another prime example of definicum americanis, even if erroneous.

Edited July 27, 2014 by bush_cheney2004

[TimG]

Every institution in a fractional reserve system works close to its reserve limit, so the money supply actually fluctuates very little.

Not true: http://en.wikipedia.org/wiki/Money_supply

US M2 supply has increased 5x in 30 years - much faster than inflation.

I am sure Canadian M2 follows a similar path.

It's a great facilitator for borrowing and lending, but it does nothing to remedy the situation we're talking about. Making it easier for people to borrow and expanding the amount of debt people can carry may not be such a great thing for the average citizen. The direct effect of giving more people access to mortgages was the housing bubble. The direct effect of expanding access to student loans has been skyrocketing tuition fees.

Housing price rises are the primary way wealth is distributed in society today. Without access to loans property ownership would be restricted to the super-wealthy (that said, we need restrictions on foreign buyers of real estate even though it will hurt economic growth because property prices in some cities are disconnected from economic reality because of all of the foreign money being parked in real estate).

Expanding student loans is a problem only in the US because they provide endless supply with no restrictions on the universities. In Canada, universities can't simply jack up rates because they want more profit so there is not real student loan problem.

For starters I wish people would stop electing politicians who are working against their interests...

US examples are not that relevant in Canada.

I also think that improving the tax code to eliminate a lot of the tax deductions that advantage the rich without any particular benefit to the public at large would be a good idea.

Again, in Canada, these are few to non-existent. The biggest tax loophole are international corporations that can play games with transfer pricing and debt but my understanding is the Conservatives are quite keen to get rid of these loopholes but it is not easy to do without undermining legitimate business activities.

I also think that tax breaks and grants to corporations should be linked to actual job creation. Perhaps government contracts should also be tied to jobs.

This would just make government even more expensive because contracts would be used to subsidize work that does not really need to be done. Edited July 27, 2014 by TimG

[kimmy]

Not true: http://en.wikipedia.org/wiki/Money_supply

US M2 supply has increased 5x in 30 years - much faster than inflation.

I am sure Canadian M2 follows a similar path.

I'll have to look into this further. Conventional thinking would say that lending institutions will operate close to the reserve ratio simply because if they don't, they're not making as much money as they could be.

Housing price rises are the primary way wealth is distributed in society today. Without access to loans property ownership would be restricted to the super-wealthy (that said, we need restrictions on foreign buyers of real estate even though it will hurt economic growth because property prices in some cities are disconnected from economic reality because of all of the foreign money being parked in real estate).

The premise that perpetually rising housing prices are the way to distribute wealth is (to borrow a word from Jason Kenney) shambolic. It's a Ponzi scheme.

Expanding student loans is a problem only in the US because they provide endless supply with no restrictions on the universities. In Canada, universities can't simply jack up rates because they want more profit so there is not real student loan problem.

Canadian universities have increased tuition as fast as the law will let them, as the government decreases its share of the cost of post secondary. Increased student borrowing is the only way this can continue.

US examples are not that relevant in Canada.

US examples, but very relevant in Canada.

Unless you have a very short or very selective memory, you'll recall that "let's get rid of these job-killing regulations!" and "let's reduce the capital gains tax!" were key planks of the Conservative platform, at least up to the meltdown of 2008 when those ideas became electoral kryptonite and were scrubbed from the Conservative dictionary.

And there are plenty of Canadians who'll vote for those slogans once they're brought back out of retirement, too. People like yourself, for example. I don't think there's anybody on the forum who's spilled more ink advocating for deregulation than yourself. How do you feel about capital gains taxes? I recall that there are some here on the MLW who think cutting capital gains taxes is a great idea. How about the estate tax?

So while those particular buttholes are American, the ideas they were touting were mainstream politics here in Canada up until a few years back, and they could well return, and they'll have their supporters when they do.

Also, I'm curious as to why you suddenly want to limit the scope of the discussion to Canada. A couple of posts back you were all fired up about thinking beyond arbitrary lines on the map. We working-class slobs in Canada face pretty much the same challenges as our counterparts in the United States and other advanced economies, which is that the rules are heavily tilted in favor of the capital class. And in less advanced countries, things will be even more tilted.

Again, in Canada, these are few to non-existent. The biggest tax loophole are international corporations that can play games with transfer pricing and debt but my understanding is the Conservatives are quite keen to get rid of these loopholes but it is not easy to do without undermining legitimate business activities.

False. Erroneous. American examples might get far more press (for reasons that aren't very flattering to Canadian media) but Canadian corporations of all sizes certainly do avoid taxes by (for example) setting up corporate offices in Barbados.

Are you familiar with Petro-Canada's vast oil interests in Barbados? Are you aware of Loblaw's immense grocery operations in Barbados? Me neither... but they (and a thousand other Canadian companies) dodge taxes by having corporate offices in Barbados and reporting earnings there that they should be reporting here.

CBC did some undercover reporting last year where they had investigators go around to various tax advisors posing as businessmen or wealthy individuals. They found a myriad of opportunities for rich-guys to hide their money from the CRA. They even put up an interactive website so that lowly slobs like me could play tax shell games at home.

This would just make government even more expensive because contracts would be used to subsidize work that does not really need to be done.

Regarding contracts: if the work has to be done, then it should be done by Canadian employees instead of foreigners. Saving tax money by hiring government contracts outside the country is a false economy.

And regarding tax breaks and grants being tied to employment in Canada

-k

[TimG]

The premise that perpetually rising housing prices are the way to distribute wealth is (to borrow a word from Jason Kenney) shambolic. It's a Ponzi scheme.

It is not about rising prices - it about having an asset can be leveraged. Economists have studied this and concluded that a property ownership is very much connected to the growth of a middle class:

Every developed nation in the world at one time went through the transformation from predominantly informal, extralegal ownership to a formal, unified legal property system. In the West we've forgotten that creating this system is also what allowed people everywhere to leverage property into wealth. This persuasive book will revolutionize our understanding of capital and point the way to a major transformation of the world economy.

http://www.amazon.ca/The-Mystery-Capital-Capitalism-Everywhere/dp/0465016154

Canadian universities have increased tuition as fast as the law will let them, as the government decreases its share of the cost of post secondary. Increased student borrowing is the only way this can continue.

Students should pay something for university - the government needs to provide enough funding to keep this manageable.

I don't think there's anybody on the forum who's spilled more ink advocating for deregulation than yourself.

Regulation can quickly get out of control and people who think that every problem needs to be solved with regulation are simply wrong. That said, regulation is one of the most important functions of government and the only real debate is about whether individual regulations are overkill and we should just leave it to individuals to make choices. For example, I heard on the radio that the garbage police in Nova Scotia check if people are composting their kitchen waste! Can you honestly say that such regulation are necessary for a civil society?

How do you feel about capital gains taxes? I recall that there are some here on the MLW who think cutting capital gains taxes is a great idea. How about the estate tax?

I am open to changes to capital gains tax rates as part of a broader reform of government spending. I am against if it is just a stop gap designed to delay reform. Same goes for increasing tax rates on the rich.

Also, I'm curious as to why you suddenly want to limit the scope of the discussion to Canada.

Because Canadian policy is the only thing that we can actually influence. My reference to the globe was to point out the logical inconsistencies in your arguments.

False. Erroneous. American examples might get far more press (for reasons that aren't very flattering to Canadian media) but Canadian corporations of all sizes certainly do avoid taxes by (for example) setting up corporate offices in Barbados.

I run a business and I know a fair amount about what tax deductions are available. I can say your own opinion is not based on any reality that I am aware of. For the most part corporations only get them when they spend money and it generally makes no sense to spend money to save taxes. You can save taxes by locating offshore when your sales come from Canada if you set up some scheme where the parent loans money to Canadian corp which results in interest payments which reduce profit of the Canadian corp to zero. But the government is trying to close this loop hole.

Here is some more information on this alledged loophole:

http://www.mondaq.com/canada/x/62580/tax+treaties/Barbados+International+Business+Corporations

It is also important that the IBC not carry on any business in Canada, as any profits from this would be subject to Canadian income tax. The IBC should not have employees in Canada, nor should it solicit orders or offer anything for sale in Canada through an employee or agent.

Finally, the IBC must not be regarded as a mere agent of its Canadian shareholder or as a sham. The IBC must have substance in order to prevent the Canada Revenue Agency from looking through its corporate structure and levelling Canadian tax upon it. The IBC must perform legitimate business functions in Barbados, and be regarded as an IBC in both form and substance

Notice the last paragraph - the CRA takes the attitude that if the intent of a corporate structure is to evade taxes then whatever loop hole you thought you were using becomes illegal.

They found a myriad of opportunities for rich-guys to hide their money from the CRA. They even put up an interactive website so that lowly slobs like me could play tax shell games at home.

And how many were legal? I had a handyman insist on getting paid cash because he wanted to hide income from revenue Canada. I suspect more tax dollars are lost due to the underground economy than are lost due to a small number of rich people playing illegal games with international corporations.

Regarding contracts: if the work has to be done, then it should be done by Canadian employees instead of foreigners. Saving tax money by hiring government contracts outside the country is a false economy.

It is a false economy to increase the cost of getting work done by placing requirements on where the work is done. Edited July 30, 2014 by TimG

[kimmy]

Oops, just noticed that I didn't finish my last post. What I was going to say:

And regarding tax breaks and grants being tied to employment in Canada: since the rationale presented to the public for providing grants and tax breaks for corporations has always been that it will create jobs in Canada, it should be a no-brainer to link tax breaks and other government largesse to actual jobs created.

It is not about rising prices - it about having an asset can be leveraged. Economists have studied this and concluded that a property ownership is very much connected to the growth of a middle class:

http://www.amazon.ca/The-Mystery-Capital-Capitalism-Everywhere/dp/0465016154

So hypothetically we could be talking about any asset that would presumably hold its value and that a lender would accept as collateral? The choice of housing is because it's something most people buy sooner or later anyway, as opposed to the assumption that housing will grow in value?

Students should pay something for university - the government needs to provide enough funding to keep this manageable.

I certainly agree, but why are tuition fees rising so rapidly? Granted this has not exploded to the extent it has in the US, but even here they're rising much faster than income.

Regulation can quickly get out of control and people who think that every problem needs to be solved with regulation are simply wrong. That said, regulation is one of the most important functions of government and the only real debate is about whether individual regulations are overkill and we should just leave it to individuals to make choices. For example, I heard on the radio that the garbage police in Nova Scotia check if people are composting their kitchen waste! Can you honestly say that such regulation are necessary for a civil society?

Do you think that when folks like Romney get on stage and start talking about how they're going to get rid of job killing regulations, that they're talking about kitchen waste or spotted owls? He'd probably like people to think that's the kind of regulations he'd get rid of, but what he's actually talking about is getting rid of Frank-Dodd and other regulation of the financial industry.

I am open to changes to capital gains tax rates as part of a broader reform of government spending. I am against if it is just a stop gap designed to delay reform. Same goes for increasing tax rates on the rich.

What makes you think that spending is the problem? In the 1990s Paul Martin balanced the budget by attacking the spending side, cutting transfers to the provinces and leaving the provinces to hack money out of education and healthcare, and public employees at federal and provincial levels were laid off left and right. And they had many years of surpluses. And along comes Harper and decides it's time for tax cuts, and we've had deficits since.

Now, I realize that the economic collapse in 2008 was a big factor in falling revenue for a time, and that temporary spending on economic stimulus was likewise a factor in the deficits, but even since then we have had a structural deficit. Has the Harper government been that sloppy about increasing structural spending, or have the tax cuts been the real problem in our turn from surplus to deficit? If spending's the problem, what are they spending it on? Certainly not education...

To me it looks like the spending problem had already been fixed earlier, and that the problem is now on the revenue side, not the spending side. Here's your big chance to convince me I'm wrong.

Because Canadian policy is the only thing that we can actually influence. My reference to the globe was to point out the logical inconsistencies in your arguments.

I'm all for helping third-worlders, but not at the expense of creating more poverty here in Canada. If we can create jobs for Filipinos by buying their t-shirts, that's awesome. But if we're creating jobs for Filipinos by bringing them to Canada and stacking them 10-deep in a crappy apartment so that they can pour double-doubles at minimum wage, then that's not so awesome.

I don't believe Canadian policy should be designed to create global equality by reducing the standard of living for Canadian workers to 3rd-world levels.

I run a business and I know a fair amount about what tax deductions are available. I can say your own opinion is not based on any reality that I am aware of. For the most part corporations only get them when they spend money and it generally makes no sense to spend money to save taxes. You can save taxes by locating offshore when your sales come from Canada if you set up some scheme where the parent loans money to Canadian corp which results in interest payments which reduce profit of the Canadian corp to zero. But the government is trying to close this loop hole.

Here is some more information on this alledged loophole:
http://www.mondaq.com/canada/x/62580/tax+treaties/Barbados+International+Business+Corporations

Notice the last paragraph - the CRA takes the attitude that if the intent of a corporate structure is to evade taxes then whatever loop hole you thought you were using becomes illegal.

Well that last bit is just happy-poop. It might sound good, but they can't enforce it.

As for the rest, like I said: the CBC did some interesting investigative reporting last year on the subject of how rich people and corporations avoid taxes. They got all kinds of interesting advice from tax advisors (many of them former CRA people, noitch) who showed them all kinds of loopholes. Maybe you need to find your business a better accountant?

And how many were legal? I had a handyman insist on getting paid cash because he wanted to hide income from revenue Canada. I suspect more tax dollars are lost due to the underground economy than are lost due to a small number of rich people playing illegal games with international corporations.

I'm skeptical. And, if you have very limited resources to chase cheats, what's a better return on your investment?

It is a false economy to increase the cost of getting work done by placing requirements on where the work is done.

No, the kind of thinking you're describing is what the English would call "penny-wise, pound-foolish." Money that stays in the country gets spent again and again and gets taxed again and again. But spend that money outside the country, and it's gone. It's out of the economy. You're not getting tax revenue from it later. And you're going to spend more money later on social assistance for Canadian workers who don't have jobs because their company's contract got offshored.

Mark Cuban was talking last week about companies that dodge US taxes by moving abroad. He said he wasn't going to own their stock. Someone told him that he should support it because it's increasing shareholder value. His response was that the supposed increase in shareholder value comes out of peoples' tax dollars anyway, because the costs don't leave the system.

Now, maybe if that was coming from some dirty hippy like me, it would be easy to dismiss. But coming from a guy with The Cube's business credentials, it should merit some sober reflection.

-k

[TimG]

And regarding tax breaks and grants being tied to employment in Canada: since the rationale presented to the public for providing grants and tax breaks for corporations has always been that it will create jobs in Canada, it should be a no-brainer to link tax breaks and other government largesse to actual jobs created.

This is muddled thinking because it implies that the government is entitled to 100% tax rate on profits and anything less than that is somehow government "largess". I simply don't accept that framing - people/companies are entitled to 100% of their income minus what the government needs to fund itself. Tax reductions are not a "gift" from government. That said, if you were referring to specific tax credits like the movie production tax credit or the r&d tax credit then the government already agrees with you because the tax breaks are tied to the amount spent on labour in Canada so what is the issue?

So hypothetically we could be talking about any asset that would presumably hold its value and that a lender would accept as collateral? The choice of housing is because it's something most people buy sooner or later anyway, as opposed to the assumption that housing will grow in value?

Yes and the banking system allows a larger number of people to be able to build up these assets over the course of their life.

I certainly agree, but why are tuition fees rising so rapidly? Granted this has not exploded to the extent it has in the US, but even here they're rising much faster than income.

Government finances are under stress and students have the less effective lobby.

Do you think that when folks like Romney get on stage and start talking about how they're going to get rid of job killing regulations, that they're talking about kitchen waste or spotted owls? He'd probably like people to think that's the kind of regulations he'd get rid of, but what he's actually talking about is getting rid of Frank-Dodd and other regulation of the financial industry.

What's with the obsession with failed US presidential candidates? The general point I made is not wrong: just because we can regulate something that does not mean we should. The successful US presidential candidate has probably caused more harm with his brain-dead health insurance regulations than Romney would have caused with deregulation.

What makes you think that spending is the problem? In the 1990s Paul Martin balanced the budget by attacking the spending side, cutting transfers to the provinces and leaving the provinces to hack money out of education and healthcare, and public employees at federal and provincial levels were laid off left and right. And they had many years of surpluses. And along comes Harper and decides it's time for tax cuts, and we've had deficits since.

You have a bad case of selective memory. Martin also cut taxes including capital gains taxes which I am sure you would have railed against if Harper had done it. The recent deficits were a result of the downturn. If the economy had dived shortly after one of Martin big tax cuts people would have whined about the 'lost revenue' but Martin was lucky. If Martin had survived his deficits would likely have even been larger given the love of spending he seemed to have acquired once he was in charge.

That said, the spending problem comes from the basic rule of government: "needs" will always expand to consume all available revenue. Increase the revenue and the "needs" will expand. For example, free day care and free drugs are popular demands that are being ignored simply because the government does not have the money. If governments suddenly decided that raising taxes was a good thing then we see the new money diverted to new initiatives which would, in turn, require even more tax increases.

In short: responsible government requires governments that are short of cash. i.e. governments that are forced to set priorities and make choices. governments that are forced to find efficiencies rather than raise taxes. This thinking still requires balance because government does do useful things that need funding so the extremes of some of the tea party types in the US are counter productive but the existence of extremists don't mean the general premise is wrong.

As for the rest, like I said: the CBC did some interesting investigative reporting last year on the subject of how rich people and corporations avoid taxes. They got all kinds of interesting advice from tax advisors (many of them former CRA people, noitch) who showed them all kinds of loopholes. Maybe you need to find your business a better accountant?

I would like to see this show but I am skeptical. Given my experience tax loop holes fall into three categories:

1) Illegal

2) Legal but replace money paid in taxes with money paid on something else (i.e. money is still gone)

3) Legal but requires investment in a risky asset

The value of "tax loop holes" are less than what many people assume.

I'm skeptical. And, if you have very limited resources to chase cheats, what's a better return on your investment?

You are ranting about unnamed "tax loop holes" that the rich unfairly benefit from. I pointed out that the existing CRA rules are very broad and many of these loopholes are technically illegal. Now you move the goal posts and claim that lack of enforcement is the problem. What exactly do you expect governments to do? Follow the US lead and bully non-US financial institutions into reporting on Americans and to treat millions of middle class Americans living abroad as tax evaders which are required pay thousands every year to show that they owe nothing?

No, the kind of thinking you're describing is what the English would call "penny-wise, pound-foolish."

Which is a better use of government money:

Hire large crews of people to dig ditches with shovels at minimum wage?

For a lower amount hire a small crew of people higher paid people to dig ditches with imported dirt moving equipment?

For me the second is the obvious choice but you seem to think that the number of jobs in Canada should be the only criteria. It makes no sense. Governments must get the best value for their money.

Edited August 3, 2014 by TimG

[kimmy]

This is muddled thinking because it implies that the government is entitled to 100% tax rate on profits and anything less than that is somehow government "largess"

Nonsense. It implies nothing of the sort. I have no idea how you could have obtained that conclusion from what I wrote.

I simply don't accept that framing - people/companies are entitled to 100% of their income minus what the government needs to fund itself. Tax reductions are not a "gift" from government.

Canada is a club and we all pay membership dues. Anybody who's getting discounted membership is getting a gift. We give these gifts for 2 main reasons: to assist people with reduced ability to pay, or to encourage behavior that's of benefit to the club at large.

We have a basic personal exemption and lower marginal tax-rates for individuals with lesser ability to pay. We offer tax credits for things like raising children and tuition fees and charitable donations, because they benefit the larger society.

Corporations with reduced ability to pay also pay less tax. In terms of corporate behaviour we'd like to encourage, we tend to look at primarily employing people or engaging in activities that benefit the country. We'll subsidize operation of this railroad line or construction of this pipeline or research into this medical condition or environmental problem, because the importance to the country goes beyond the raw economic incentives.

And I'm not opposed to providing tax gifts to either individuals or corporations providing they're actually doing something that benefits the country. In the past decade the corporate tax rate has been cut in half, not for any specific activity, but based on the assumption that it would create jobs. Has it? Have we gotten our money's worth?

What if instead of cutting the corporate tax rate, we had left the corporate tax rate the same but cut payroll taxes and provided tax credits for each employee?

Government finances are under stress and students have the less effective lobby.

Let's get back to this thought in a moment.

What's with the obsession with failed US presidential candidates?

Because he's the most brazen, shameless public spokesman for this kind of thinking.

The general point I made is not wrong: just because we can regulate something that does not mean we should.

But in the case of the financial system, we tried the non-regulation thing and the results were a complete disaster.

The successful US presidential candidate has probably caused more harm with his brain-dead health insurance regulations than Romney would have caused with deregulation.

Is that based on any actual analysis, or is just the opinion of the cranks down at townhall.com?

You have a bad case of selective memory. Martin also cut taxes including capital gains taxes which I am sure you would have railed against if Harper had done it. The recent deficits were a result of the downturn. If the economy had dived shortly after one of Martin big tax cuts people would have whined about the 'lost revenue' but Martin was lucky. If Martin had survived his deficits would likely have even been larger given the love of spending he seemed to have acquired once he was in charge.

That said, the spending problem comes from the basic rule of government: "needs" will always expand to consume all available revenue. Increase the revenue and the "needs" will expand. For example, free day care and free drugs are popular demands that are being ignored simply because the government does not have the money. If governments suddenly decided that raising taxes was a good thing then we see the new money diverted to new initiatives which would, in turn, require even more tax increases.

In short: responsible government requires governments that are short of cash. i.e. governments that are forced to set priorities and make choices. governments that are forced to find efficiencies rather than raise taxes. This thinking still requires balance because government does do useful things that need funding so the extremes of some of the tea party types in the US are counter productive but the existence of extremists don't mean the general premise is wrong.

So earlier you said you wouldn't object to higher capital gains taxes or tax increases for the higher tax brackets once the "spending problem" is addressed, and now you're saying that the government can never actually be finished addressing the "spending problem". Is that about the size of it? You'll support tax increases after February 30, basically?

We're already in the situation you describe: not enough money to spend on things we'd like to do, money being cut from things we need to do, and decisions about priorities are apparently being made based on who has the most effective lobby. This is good? This is how you think things should be?

I would like to see this show but I am skeptical. Given my experience tax loop holes fall into three categories:

1) Illegal

2) Legal but replace money paid in taxes with money paid on something else (i.e. money is still gone)

3) Legal but requires investment in a risky asset

The value of "tax loop holes" are less than what many people assume.

Here's one, in an article from the Certified Public Accountants of Canada magazine:

http://www.cpacanada.ca/en/cpamagazine/Articles/a-corporate-tax-to-grind

Cameco, a Canadian uranium company with revenues of $2.3 billion a year, has a subsidiary company in Switzerland. Cameco has a long term contract to sell this subsidiary company uranium at the price of $10/pound. Their Swiss subsidiary sells it on the world market at the going rate of about $140/pound, and the profit is taxed in Switzerland at a tax-haven rate.

Here's some of the CBC reporting on this issue.

http://www.cbc.ca/news/canada/tax-evasion-sophisticated-scam-revealed-by-cbc-hidden-camera-1.1874067

http://www.upi.com/Top_News/World-News/2013/10/02/CBC-investigation-finds-officials-advising-to-avoid-taxes-offshore/UPI-91351380753446/

You are ranting about unnamed "tax loop holes" that the rich unfairly benefit from. I pointed out that the existing CRA rules are very broad and many of these loopholes are technically illegal. Now you move the goal posts and claim that lack of enforcement is the problem. What exactly do you expect governments to do? Follow the US lead and bully non-US financial institutions into reporting on Americans and to treat millions of middle class Americans living abroad as tax evaders which are required pay thousands every year to show that they owe nothing?

Oh. Going after wealthy tax dodgers is just another assault on the middle class?

I'm not moving the goalposts. Availability of legal loopholes, lack of enforcement, and the inability of the laws and courts to keep pace with ever-advancing accounting shenanigans are all facets of the same basic problem. It's easy for the rich and the corporations to dodge social responsibility.

Which is a better use of government money:

Hire large crews of people to dig ditches with shovels at minimum wage?

For a lower amount hire a small crew of people higher paid people to dig ditches with imported dirt moving equipment?

For me the second is the obvious choice but you seem to think that the number of jobs in Canada should be the only criteria. It makes no sense. Governments must get the best value for their money.

Well you've managed to concoct a pretty ridiculous example to make your point. Allow me to present a more reasonable one. The Canadian government is taking bids for some aircraft maintenance. A firm in Vancouver makes a bid for $1 million for the contract, and a firm just across the border in Bellingham bids $900,000.

I assume your view is that the chance for the government to save $100,000 is all that matters?

-k

[TimG]

Canada is a club and we all pay membership dues. Anybody who's getting discounted membership is getting a gift.

You claim that you never asserted that you believe that 100% of profits belong to the government but then you simply repeat your assertion?! I guess you could pluck a random number below 100% and claim that taxes below kimmy's magic number are a "gift" but there is no rational logic behind it. It is just a number you picked at random because it suits your prejudices. It certainly has no more merit than my magic number which would likely be lower.

Instead of repeating your magic number why don't you present a rational argument for why corporate taxes should be at any given level - an argument with more substance that 'they used to be higher' so they can be raised again.

So earlier you said you wouldn't object to higher capital gains taxes or tax increases for the higher tax brackets once the "spending problem" is addressed, and now you're saying that the government can never actually be finished addressing the "spending problem". Is that about the size of it? You'll support tax increases after February 30, basically?

I was too abstract before. I will support tax increases when and only when they are combined with structural reforms that reduce future spending demands. For example, converting public service pensions into a private run pension fund where the beneficiaries are entitled to any surplus and responsible for any deficit (i.e. future deficits are not a problem for taxpayers). Another structural reform would introduce co-payments fees into the health system.

Basically, if someone is proposing the status quo + tax increases then I will not support it because it will only be a matter of time before they come back asking for more.

Cameco, a Canadian uranium company with revenues of $2.3 billion a year, has a subsidiary company in Switzerland. Cameco has a long term contract to sell this subsidiary company uranium at the price of $10/pound. Their Swiss subsidiary sells it on the world market at the going rate of about $140/pound, and the profit is taxed in Switzerland at a tax-haven rate.

In one of my earlier posts I specifically mention transfer pricing as a way to reduce taxes and pointed out that the Conservatives are trying to find ways to eliminate it. The problem is it is not easy to do without interfering with legitimate business activities.

As for the other "tax dodgers" in the CBC report: they are doing things which are already illegal but it is very hard to catch. What do you expect the government to do about it? Turn the country into a police state?

Oh. Going after wealthy tax dodgers is just another assault on the middle class?

That is EXACTLY how it ended up in the US case. Millions of Americans living abroad are getting screwed because of laws designed to go after wealthy tax dodgers are being applied to them. You seem to think that it is possible to only target the people that you think deserve it without catching many innocents in the net. It does not work that way. That is why in a free society we have to tolerate a certain amount of law breaking when the social cost of eliminating would be too high.

Well you've managed to concoct a pretty ridiculous example to make your point.

The problem is my example was not excluded by your original suggestion that jobs in Canada are the primary criteria. Feel free to restate your desired rules in a way that would mean my ridiculous example would never be favored by your rules. In my opinion contracts should be awarded on a "value for money" basis that looks at cost, technical risk, warranties and where the work is taking place. It could mean the Canadian supplier in your example would be preferred if it was equally competent. But a price differential of 30% or more or a large differential in technical competence would not be enough to favor the Canadian supplier. Edited August 5, 2014 by TimG

[kimmy]

You claim that you never asserted that you believe that 100% of profits belong to the government but then you simply repeat your assertion?! I guess you could pluck a random number below 100% and claim that taxes below kimmy's magic number are a "gift" but there is no rational logic behind it. It is just a number you picked at random because it suits your prejudices. It certainly has no more merit than my magic number which would likely be lower.

How you concluded that I'm saying the government has a claim on 100% of profits is simply beyond me. You said it's "implied", but you must be working from a pretty messed up definition of "implied" if you think anything I wrote "implies" that the government is entitled to 100% of profits. It's such a goofy assertion that I still can't get over it.

Tax deductions are indeed a gift. The government has a right to levy taxes. The method and rate varies. If you're allowed to pay lower taxes than your neighbor for some reason-- Tim donated to charities, Tim is caring for his sick grandmother, Tim is paying tuition for his kid, whatever-- you've received a gift from the government. Sometimes government generosity is warranted. It makes sense for the government to give tax breaks for people to pursue things that help society as a whole-- caring for dependents, obtaining education, and so on. When we're being generous to businesses and corporations, we should definitely be sure that society as a whole is receiving some benefit from it.

Instead of repeating your magic number why don't you present a rational argument for why corporate taxes should be at any given level - an argument with more substance that 'they used to be higher' so they can be raised again.

We don't have enough revenue to do the things we as a nation have decided are important-- funding our military, funding education, paying interest on public debt, prosecuting tax cheats, for example-- and taxes should go up. Since corporations have benefited from drastic tax reductions recently, reversing some of these tax reductions is the obvious place to start.

I was too abstract before. I will support tax increases when and only when they are combined with structural reforms that reduce future spending demands. For example, converting public service pensions into a private run pension fund where the beneficiaries are entitled to any surplus and responsible for any deficit (i.e. future deficits are not a problem for taxpayers). Another structural reform would introduce co-payments fees into the health system.

Basically, if someone is proposing the status quo + tax increases then I will not support it because it will only be a matter of time before they come back asking for more.

In one of my earlier posts I specifically mention transfer pricing as a way to reduce taxes and pointed out that the Conservatives are trying to find ways to eliminate it. The problem is it is not easy to do without interfering with legitimate business activities.

As for the other "tax dodgers" in the CBC report: they are doing things which are already illegal but it is very hard to catch. What do you expect the government to do about it? Turn the country into a police state?

I'd suggest a good starting point might be giving the CRA adequate staff and implementing extremely serious financial penalties would be good starting points. Cameco Uranium is clearly not concerned about going to court with CRA over this; they appear to view losing the court case as an acceptable business risk. The penalties should be severe enough to make it an unacceptable business risk.

I actually support what you're suggesting in regard to public pension plans, but I disagree with the idea that we can't move forward on anything until everything Tim (or anybody else) objects to has been resolved.

In regard to the Conservatives trying to deal with this particular tax loophole: can you point me at anything I can read on what they're proposing?

That is EXACTLY how it ended up in the US case. Millions of Americans living abroad are screwed because of laws designed to go after wealthy tax dodgers are being applied to them. You seem to think that it is possible to only target the people that you think deserve it without catching many innocents in the net. It does not work that way. That is why in a free society we have to tolerate a certain amount of law breaking when the social cost of eliminating would be too high.

I've seen a couple of different articles recently about how pursuing wealthy tax dodgers is actually bad for the little guy; most of it involved whining about class warfare and tortured logic about how rich-guys would react if their tax havens were taken away. It came across as ideologically driven pro-rich-guy propaganda. I think one was at WSJ, and the other was at Townhall. Neither mentioned the issue you've raised, though. Given that there's now people trying to spin things to undermine public support for anti-tax evasion measures, I have to take what you're saying with a grain of salt.

But yes, I'm pretty sure that there must be a way to attack tax-dodgers without harrassing people trying to make a living abroad.

The problem is my example was not excluded by your original suggestion that jobs in Canada are the primary criteria. Feel free to restate your desired rules in a way that would mean my ridiculous example would never be favored by your rules. In my opinion contracts should be awarded on a "value for money" basis that looks at cost, technical risk, warranties and where the work is taking place. It could mean the Canadian supplier in your example would be preferred if it was equally competent. But price differential of 30% or more or a large different in technical competence would not be enough to favor the Canadian supplier.

I don't think I stated any rules. And I don't think I suggested that the sheer number of Canadians employed was the only important criterion. I suggested that trying to save a few bucks by offshoring work is a false economy. It's not a question of a construction contractor vs a work-gang of hobos with shovels, it's a question of a Canadian contractor vs a foreign one. If there's no Canadian supplier who can provide the required services, or if the cost differential is too high, then there's no choice in the matter. But when there is choice, then strong consideration should be given to the benefits of keeping contracts within Canada.

-k

[TimG]

Tax deductions are indeed a gift.

When it comes to corporations the majority of tax deductions reflect the costs of doing business and are no "gift" - they represent the only fair way of assessing profits. i.e. a company can have $1 billion in sales per year but if they spend $1 billion on materials, labour and capital equipment then the company has no profits that can be taxed.

You may be confusing tax deductions with tax credits such as the movie production tax credit which pay the corporation money even if there are no profits. Tax credits are indeed a "gift" but they are always justified as promoting the public good. If you have specific tax credits that you think are unjustified then you should point them out - but generalized rants about "tax deductions" simply show that you don't understand the system you are complaining about.

We don't have enough revenue to do the things we as a nation have decided are important-- funding our military, funding education, paying interest on public debt, prosecuting tax cheats, for example-- and taxes should go up. Since corporations have benefited from drastic tax reductions recently, reversing some of these tax reductions is the obvious place to start.

We also have structural problems which increase the spending demands on the tax payer. These structural problems always have powerful vested interests that will oppose change and combining such reforms with tax increases is a good way to mute opposition. Simply increasing taxes without tackling these structural reforms simply ensures the structural reforms will never happen. So yes: we do need to wait for these reforms before we can raise taxes. OTOH, I am also opposed to any additional tax reductions as long as deficits exist.

I'd suggest a good starting point might be giving the CRA adequate staff and implementing extremely serious financial penalties would be good starting points. Cameco Uranium is clearly not concerned about going to court with CRA over this; they appear to view losing the court case as an acceptable business risk. The penalties should be severe enough to make it an unacceptable business risk.

I don't disagree but often the cost of enforcing regulations exceeds the revenue brought in but when it comes to stuff like this ensuring that people have confidence in the system is important.

In regard to the Conservatives trying to deal with this particular tax loophole: can you point me at anything I can read on what they're proposing?

I found this more general statement on Flaherty's legacy which points out that the Conservatives have been aggressively closing tax loopholes even as they reduce overall rates. The article I read about the problems with stopping transfer pricing was several years ago and I can't find it right now.

http://www.theglobeandmail.com/report-on-business/economy/economy-lab/jim-flahertys-corporate-tax-overhaul-made-canada-competitive/article17590384/

Mr. Flaherty pursued “fiscal integrity” or “loophole closing” with almost religious fervour. In his 2013 budget, he included an unusual item – a pamphlet that touted more than 75 measures introduced since 2006 aimed at “improving integrity and closing tax loopholes.” This shouldn’t be a big surprise from the minister who was willing to take the heat of closing down income funds almost a decade ago – which was politically risky, but good tax policy. These efforts have not only made the Canadian system more competitive, they have also enhanced the economic neutrality of the corporate tax system. Economic neutrality – or minimizing the extent to which tax considerations skew economic decision making – has traditionally been a key component of tax policy making in Canada.

Given that there's now people trying to spin things to undermine public support for anti-tax evasion measures, I have to take what you're saying with a grain of salt.

I suggest you do more research - a lot of middle class dual citizens are facing thousands of dollars in accounting fees or taxes on tax free accounts: http://americansabroad.org/

It is a real issue causing real pain. The US is reducing some of the burden but that was only after intense lobbying on the part of affected Americans. However, reducing the burden often means creating loop holes which people can use to illegally evade taxes.

If there's no Canadian supplier who can provide the required services, or if the cost differential is too high, then there's no choice in the matter. But when there is choice, then strong consideration should be given to the benefits of keeping contracts within Canada.

I don't disagree. Edited August 6, 2014 by TimG

[kimmy]

Apologies for not getting back to this sooner. Responding to this thread takes more time and effort than most of the stuff going on on the forum, so it's not something I usually have time for on week-nights.

When it comes to corporations the majority of tax deductions reflect the costs of doing business and are no "gift" - they represent the only fair way of assessing profits. i.e. a company can have $1 billion in sales per year but if they spend $1 billion on materials, labour and capital equipment then the company has no profits that can be taxed.

You may be confusing tax deductions with tax credits such as the movie production tax credit which pay the corporation money even if there are no profits. Tax credits are indeed a "gift" but they are always justified as promoting the public good. If you have specific tax credits that you think are unjustified then you should point them out - but generalized rants about "tax deductions" simply show that you don't understand the system you are complaining about.

I do understand the difference between credits and deductions, and I have been intermixing the two carelessly.

In regard to the "costs of doing business", I suspect those are often inflated and abused. Personally in my experience with small businessmen-- and I know a few-- I see the company credit card being whipped out to pay for drinks that aren't exactly "business meetings" and the company truck being used to haul around a boat and ATVs and snowmobiles that certainly aren't being used for business purposes. I doubt that the giant corporations that do business in Canada are inherently more honest, and I suspect they have a far broader array of opportunities and accounting expertise at their disposal when it comes to turning profits into expenses. There are large corporations in Canada and elsewhere that pay almost non-existent tax, and they can't all be losing money every year.

I don't know what tricks they are using to do so. If I did know how to do it, I would have a much more lucrative career.

The CMA article I linked earlier mentions Starbucks has been operating for 14 years in the UK with revenues of over 3 billion pounds, and has paid a grand total of 8.6 million pounds in that time, including no tax at all in the past 3 years. How? Are they buying their coffee beans for $140/pound from a wholly-owned Swiss holdings company? Paying millions of pounds to "management companies" based in the Cayman Islands? I don't know. I do know it's wrong.

We also have structural problems which increase the spending demands on the tax payer. These structural problems always have powerful vested interests that will oppose change and combining such reforms with tax increases is a good way to mute opposition. Simply increasing taxes without tackling these structural reforms simply ensures the structural reforms will never happen. So yes: we do need to wait for these reforms before we can raise taxes. OTOH, I am also opposed to any additional tax reductions as long as deficits exist.

I don't disagree but often the cost of enforcing regulations exceeds the revenue brought in but when it comes to stuff like this ensuring that people have confidence in the system is important.

One of the articles I looked at in the past week mentioned that when the CRA does do audits, they find "mistakes" about 44% of the time and that the amount they recover is in the hundreds of millions of dollars. There might be a point of diminishing returns when hiring more auditors wouldn't be generate a financial return, but I don't see a reason to assume we're there yet. One of the recurring comments in a number of these articles involving offshore scams is that the CRA just doesn't have enough resources to investigate all these files.

And leaving aside the question of revenue brought back in, deterrence should be a major consideration. A high probability of getting caught is crucial to creating an effective deterrent. The other aspect of an effective deterrent is to have devastating consequences to being caught.

If you're on the board of directors and you're talking about trying this holding company in Barbados scheme, you shouldn't be approaching this with an outlook that it's an "acceptable business risk". You should be thinking "if this doesn't work, the shareholders will have our heads" or "we might end up in jail". If the consequences are such that it's "an acceptable business risk", then the consequences just aren't severe enough.

I found this more general statement on Flaherty's legacy which points out that the Conservatives have been aggressively closing tax loopholes even as they reduce overall rates. The article I read about the problems with stopping transfer pricing was several years ago and I can't find it right now.

http://www.theglobeandmail.com/report-on-business/economy/economy-lab/jim-flahertys-corporate-tax-overhaul-made-canada-competitive/article17590384/

Whatever he might have done doesn't appear to be adequate.

I suggest you do more research - a lot of middle class dual citizens are facing thousands of dollars in accounting fees or taxes on tax free accounts: http://americansabroad.org/

It is a real issue causing real pain. The US is reducing some of the burden but that was only after intense lobbying on the part of affected Americans. However, reducing the burden often means creating loop holes which people can use to illegally evade taxes.

A lobby-group's website isn't really the best place to get an unbiased reading on the extent of the problem.

I don't think that the inconvenience to a small group is reason enough to justify giving up on pursuing the vast amounts of money lost to tax evaders using overseas tax havens. And just because in this instance it was implemented in a clumsy way doesn't mean that the idea itself is bad.

-k

[TimG]

In regard to the "costs of doing business", I suspect those are often inflated and abused. Personally in my experience with small businessmen-- and I know a few-- I see the company credit card being whipped out to pay for drinks that aren't exactly "business meetings" and the company truck being used to haul around a boat and ATVs and snowmobiles that certainly aren't being used for business purposes.

First, meals are only 50% deductible in Canada so any company that allows a significant number of "business meals" will have a large tax bill to pay even if they have no profits. Second, the CRA requires detailed logs for company vehicles and only the percentage of the miles used for business purposes are deductible. You have no way to know from your anecdotes if the people are lying to the CRA or if they are properly accounting for personal use. You cannot claim widespread abuse based on such anecdotes. Personally, I think the "pay by cash" trade is a much bigger problem than personal use of corporate vehicles.

Lastly, your "abuses" require that the money be spent - i.e. the money is gone and can't be used for other purposes (like paying the owners). This means the scope for abuse is pretty small since all businesses need to generate a profit to keep going.

The CMA article I linked earlier mentions Starbucks has been operating for 14 years in the UK with revenues of over 3 billion pounds, and has paid a grand total of 8.6 million pounds in that time, including no tax at all in the past 3 years. How?

Companies need capital to get started (open stores, hire employees, etc). If this capital is loaned rather than invested then the interest paid on the debt is tax deductible but the receiver of the interest payment is expected to pay taxes (meaning no taxes are evaded - just shifted). It is very common for local subsidiaries of large corporations to get loans from their parent which is paid back. This would explain the low tax bill in the UK. The trouble is there are perfectly legitimate reasons for structuring companies like this and simply outlawing the practice is not a viable option. It also means that you cannot claim something is "wrong" based only on the numbers you provided.

BTW: if someone works in Quebec but live in Ontario because the taxes are lower do you think they are evading taxes? if not then why is it wrong for companies to do the same thing? if yes, why aren't you calling for a crackdown on all of the cross border tax evaders living in Ottawa?

Whatever he might have done doesn't appear to be adequate.

The plural of "anecdote" is not data. I don't question that abuses exist but my research into the topic suggests that the major source of lost revenue comes from untaxed criminal activities. Do you have any evidence that these problems represent a significant loss of revenue? (as it stands today Canada collects $40-80 billion per year in corporate taxes, however, this excludes the $200 billion or so in dividends which are taxed at the corporate and individual level when they are received by the owners).

I don't think that the inconvenience to a small group is reason enough to justify giving up on pursuing the vast amounts of money lost to tax evaders using overseas tax havens. And just because in this instance it was implemented in a clumsy way doesn't mean that the idea itself is bad.

http://www.thestar.com/business/personal_finance/2014/02/11/us_tax_returns_required_for_dual_citizens_roseman.html

She checked with accountants, who said theyd charge $350 to $500 a year to file tax returns each year and $50 for the Reports of Foreign Bank and Financial Accounts (FBAR).

To get up to date, she has to file tax forms for three previous years and FBAR forms for six previous years. This is part of an IRS streamlined compliance program that took effect in 2012.

As well as accountants fees, she expects to pay bank fees to get access to many years of monthly statements to see how much interest was collected. Not knowing she needed them, she may have thrown them out.

Surely, were not the only family faced with this predicament, she says. Since my daughter cant afford any of this, I will be faced with doubling my expenses to pay for her paperwork.

I think forcing people to spend $500+ on accounting fees every year to show that they don't owe taxes is abusive. If we want a free society then we must accept that there will be some rule breakers who get away with it because the loss of liberties required to catch such rule breakers is too high. This does not mean we should not be talking constantly about where we draw the line but it is does mean we will never have a society where some people cannot get away with evading taxes. Edited August 10, 2014 by TimG

[kimmy]

First, meals are only 50% deductible in Canada so any company that allows a significant number of "business meals" will have a large tax bill to pay even if they have no profits. Second, the CRA requires detailed logs for company vehicles and only the percentage of the miles used for business purposes are deductible. You have no way to know from your anecdotes if the people are lying to the CRA or if they are properly accounting for personal use. You cannot claim widespread abuse based on such anecdotes. Personally, I think the "pay by cash" trade is a much bigger problem than personal use of corporate vehicles.

I wasn't attempting to point out an exhaustive list of loopholes. I was pointing out that "costs of doing business" is a term that encompasses more than just the basic costs of building your widgets, and subject to abuse. Suncor has an army of accountants looking for ways to make the "costs of doing business" appear as high as possible without actually spending money on anything.

Companies need capital to get started (open stores, hire employees, etc). If this capital is loaned rather than invested then the interest paid on the debt is tax deductible but the receiver of the interest payment is expected to pay taxes (meaning no taxes are evaded - just shifted). It is very common for local subsidiaries of large corporations to get loans from their parent which is paid back. This would explain the low tax bill in the UK. The trouble is there are perfectly legitimate reasons for structuring companies like this and simply outlawing the practice is not a viable option. It also means that you cannot claim something is "wrong" based only on the numbers you provided.

If a company is still paying financing costs for opening a few hundred store locations after 12 years and 3 billion British pounds in revenue, it seems likely that there's shenanigans involved. Perhaps they borrowed money at 140% interest from the same hypothetical Swiss holdings company that hypothetically sells them their coffee at $140/lb.

There's not enough information to claim that any law is being broken, but there's information enough to concluded that legal or not, it's absurd.

BTW: if someone works in Quebec but live in Ontario because the taxes are lower do you think they are evading taxes? if not then why is it wrong for companies to do the same thing? if yes, why aren't you calling for a crackdown on all of the cross border tax evaders living in Ottawa?

The Ontario resident in question is still paying most of his taxes to the federal government, and Quebec is going to get the difference made up in the form of transfer payments anyway. Whichever side of the river he lives on, his taxes are ultimately paying to assure a standard of living in Canada. If he gets hurt in a traffic accident, he's getting cared for in a hospital that his own tax dollars are helping pay for, whichever side of the river he got hurt on.

On the other hand we've got these big companies that do business in Canada, take advantage of stable Canadian law and order and infrastructure and education system, but don't pay a fair share of operating those things because they have a phone booth on the Cayman Islands that's supposedly their head office.

I don't think the comparison is accurate.

The plural of "anecdote" is not data. I don't question that abuses exist but my research into the topic suggests that the major source of lost revenue comes from untaxed criminal activities. Do you have any evidence that these problems represent a significant loss of revenue? (as it stands today Canada collects $40-80 billion per year in corporate taxes, however, this excludes the $200 billion or so in dividends which are taxed at the corporate and individual level when they are received by the owners).

If you're right that there's nothing we can do about companies avoiding Canadian taxes, then that's a good argument for increasing taxes on dividends. If dividends are how we're supposed to get the tax money that these corporations aren't paying, then there's no reason for dividends to be taxed at a much lower rate then other forms of income, is there? I gather that the rational for this low tax rate is supposed to be that profits are already supposed to be taxed once, but we apparently can't ensure that actually happens.

I think forcing people to spend $500+ on accounting fees every year to show that they don't owe taxes is abusive. If we want a free society then we must accept that there will be some rule breakers who get away with it because the loss of liberties required to catch such rule breakers is too high. This does not mean we should not be talking constantly about where we draw the line but it is does mean we will never have a society where some people cannot get away with evading taxes.

Well, as you said above, the plural of anecdote is not data. This sad old lady apparently has to pay $350-$500 to do her taxes... but what if she did them herself instead? Doing your taxes is something each of us has to live with, one of the costs of living in our society. Sorry.

The amount of money that vanishes out of Canada to offshore tax havens each year is in the billions, and in the United States one expects the cost is proportionately larger. At a time when budgets are under extreme pressure, I don't think it's realistic to expect the IRS to overlook vast sums of money being heisted out of the country just because Sheila in Toronto has to pay an accountant once a year.

-k

[TimG]

I was pointing out that "costs of doing business" is a term that encompasses more than just the basic costs of building your widgets, and subject to abuse. Suncor has an army of accountants looking for ways to make the "costs of doing business" appear as high as possible without actually spending money on anything.

This is simply not true. With a few exceptions everything a company spends money on is a legitimate cost of doing business. You cannot manipulate the books to make it look like your are spending more than your are actually spending without engaging in accounting fraud no matter how many accountants you have. If you are handing out rich perks to your owner/employees then that is a taxable benefit for the employee but it is still a legitimate business expense. The only thing you can do is play games with transfers between corporations registered in different jurisdictions but these games are often based on completely legitimate business practices and cannot be easily labelled as tax evasion.

For example, Apple is a US company that does R&D in the US, manufactures in China and sells globally. Every country where Apple sells phones feels it is entitled to a piece of Apple's profits for the portion of the profits that are made in the country. The trouble comes up when you try to figure out what is a "fair" portion of the profit to give to each country. i.e. how much should Apple US charge Apple Canada for the phones it sells? If it charges too little the US government complains that Apple US is evading taxes. If it charges too much the Canadian government complains that Apple Canada is evading taxes. To make matters worse - only Apple has enough understanding of its business to be able to calculate the fair division and that gives Apple a huge amount of flexibility to divide its profits in a way that maximizes its profits. There is little governments can do about this except go after the most flagrant abuses.

If a company is still paying financing costs for opening a few hundred store locations after 12 years and 3 billion British pounds in revenue, it seems likely that there's shenanigans involved.

Mortgages are 25 years in duration. Why would intra-company loans be any less duration? There is no prima facie evidence that anything untoward is going on even though they could be abusing the rules. It would required a detailed audit of their books to find out one way or the other.

If dividends are how we're supposed to get the tax money that these corporations aren't paying, then there's no reason for dividends to be taxed at a much lower rate then other forms of income, is there?

Actually there is. The tax system is designed so if someone sets up a corporation and pays themselves dividends they will end up with exactly the same tax bill if they paid themselves wages because money paid out in dividends is taxed before it leaves the corporation but wages are not. If you get rid of the dividend tax credit you create a tax preference for paying income out as salary instead of dividends (meaning the actual tax revenue increases will be much lower as companies change behavior). One of the objectives of a good tax system is neutrality - i.e. you don't want businesses to make choices simply for tax reasons unless the tax policy was put in place to specifically favor the choice. So we do need the dividend tax credit.

Well, as you said above, the plural of anecdote is not data. This sad old lady apparently has to pay $350-$500 to do her taxes... but what if she did them herself instead? Doing your taxes is something each of us has to live with, one of the costs of living in our society. Sorry.

The $350-500 range is consistent with information from a wide number of sources so it is not anecdote. I gave you the article because it had more explanatory text than a price list from an accountant.

The cost of a paying a professional to submit a basic return in Canada is $50 or so - that is a reasonable cost (especially when the value of things like the GST credit are factored in). $350-500 is unreasonable and ends up being an extremely regressive tax on low income people. It is also not reasonable to expect everyone to do their own taxes. The cost of getting professionals to prepare the return is an important consideration when it comes to determining the fairness of the tax system. If professionals cost too much then there is a problem with the tax system.

Edited August 19, 2014 by TimG

[kimmy]

This is simply not true. With a few exceptions everything a company spends money on is a legitimate cost of doing business. You cannot manipulate the books to make it look like your are spending more than your are actually spending without engaging in accounting fraud no matter how many accountants you have. If you are handing out rich perks to your owner/employees then that is a taxable benefit for the employee but it is still a legitimate business expense. The only thing you can do is play games with transfers between corporations registered in different jurisdictions but these games are often based on completely legitimate business practices and cannot be easily labelled as tax evasion.

In an ideal world, that's how accounting would work. But it's not an ideal world.

One good thing that came from Mitt Romney's run for the presidency is that we got to look into his financial past. On his personal finances, we learned about things like the "charitable remainder unitrust" (which Mitt uses to claim very large charitable donations without actually donating much money), as well as what an awesome advantage it is if you can get paid in capital gains instead of wages. On the corporate side, we learned about the "Son of B.O.S.S." scam, which Romney oversaw at Marriott when he sat on the Board of Directors as head of the Audit Committee.

The IRS was able to put an end to Son of BOSS, but not before billions of tax dollars were lost to companies like Marriott. Only CPAs can really understand it, but it apparently involves shorting yourself on bonds, creating a partnership with a subsidiary of yourself, using the money from your short sale buy into the partnership, ending the partnership, and when you have to make up the short sale, it's a "loss" that you can claim on your taxes. Or could claim, up until the IRS put an end to it after about 10 years of such shenanigans. Son of BOSS was invented by the friendly folks at KPMG, one of the "Big Four" of the management accounting world.

Another of the "Big Four", Ernst & Young, is involved in another tax controversy going on in the UK over tax evasion. They invented a scheme called "Project Sussex" for one of their clients, Greene King (a chain of breweries and pubs and restaurants that's a big deal in the UK apparently) to perform, in the words of the government lawyer prosecuting the case: "transactions ... structured in the curious way ... in order to attempt to take advantage of a perceived loophole in the loan relationships legislation so as to achieve a tax mismatch within the Greene King group."

And at this point you're probably saying "yeah but the regulators caught up to Son of BOSS and Project Sussex!" Well, yeah. That's why I can write about them: they've already been found and challenged. What else is out there that the tax investigators don't even know about yet? What else is out there that they know about but can't do anything about?

One that falls into the latter category is the "Double Irish Dutch Sandwich" that Google and others are using. This one involves exploiting loopholes in the tax codes of Ireland and Holland, plus using a tax haven like Bermuda. Money is shuffled around between the three countries in a circuit of transactions that exploits peculiarities in the laws of each country, with the result that Google's global tax rate is under 5%.

If your yardstick is "could there be a legitimate reason for structuring their business this way?" then the answer depends on your definition of "reasonable". There's only one reason to structure their business this way: to avoid paying tax. Whether that's a "legitimate" reason is kind of irrelevant. If there were no tax loopholes to exploit, it is obvious that no company would bother with this ridiculous series of accounting shenanigans, but it turns out that many very successful companies are doing exactly that.

Mortgages are 25 years in duration. Why would intra-company loans be any less duration? There is no prima facie evidence that anything untoward is going on even though they could be abusing the rules. It would required a detailed audit of their books to find out one way or the other.

Well, it turns out that Reuters has done some investigation on the subject. Starbucks continually moans that doing business in England is hard and they can't turn a profit... but in conference calls with investors, they're delighted with the success of their English operations.

Here's why the English operation can't turn a profit:

-paying higher-than-industry-average royalties for use of the Starbucks and name and trademarks to the rights-holder. The rights-holder being Starbucks of Seattle? No, silly, the rights-holder being Starbucks of Amsterdam, obviously. 6% of gross sales goes straight to Holland in the form of royalties payments.

-intercompany loans, as you suspected. Starbucks' UK operations are financed by borrowing from the International Bank of Starbucks, at an intercompany loan rate of LIBOR + 4%. Do you pay LIBOR + 4% to borrow money? I don't pay LIBOR +4% on my mortgage or line of credit. Unemployed hobos don't even pay LIBOR + 4% on their subprime mortgages.

-buying coffee from their Swiss subsidiary, as I suspected. No word on whether it costs $140/lb, though. 84% of Starbucks' revenue goes to Switzerland, where it's taxed at 5%, to pay for coffee beans and other raw materials. Add that to the 6% royalties payments, and fully 90% of Starbucks' UK revenue is leaving the country.

Why can't Starbucks UK turn a profit? Because they've found ways to shift so much money to Starbucks operations in Switzerland and Holland that they can report a loss every year.

Interestingly, Starbucks has opted to voluntarily decline some of their tax deductions and pay a total of $20 million pounds in tax for 2013 and 2014. Why? Did they discover a conscience? Well, it turns out that this issue turned into a public relations nightmare for Starbucks and resulted in a popular boycott of Starbucks. Britons opted to take their business across the street to Costas, a domestic coffee chain that pays taxes and doesn't have international tax shelters.

If would be cool if that caught on. Unfortunately, we can't really stage a popular boycott of our tax dodging uranium mine.

Actually there is. The tax system is designed so if someone sets up a corporation and pays themselves dividends they will end up with exactly the same tax bill if they paid themselves wages because money paid out in dividends is taxed before it leaves the corporation but wages are not. If you get rid of the dividend tax credit you create a tax preference for paying income out as salary instead of dividends (meaning the actual tax revenue increases will be much lower as companies change behavior). One of the objectives of a good tax system is neutrality - i.e. you don't want businesses to make choices simply for tax reasons unless the tax policy was put in place to specifically favor the choice. So we do need the dividend tax credit.

And yet a guy like our old friend Mitt, who let us see his tax records a couple of years ago, pays far less than he would if he were payed in income, largely because he can collect it in the form of capital gains that are taxed at a much lower rate. Mitt had to leave tax deductions on the table so that he could bring his tax bill up to the 13% effective rate that he claimed he paid most years.

The cost of a paying a professional to submit a basic return in Canada is $50 or so - that is a reasonable cost (especially when the value of things like the GST credit are factored in). $350-500 is unreasonable and ends up being an extremely regressive tax on low income people. It is also not reasonable to expect everyone to do their own taxes. The cost of getting professionals to prepare the return is an important consideration when it comes to determining the fairness of the tax system. If professionals cost too much then there is a problem with the tax system.

What is "not reasonable" is expecting the IRS to overlook billions of dollars of tax evasion because some sad old lady in Toronto doesn't want to hire an accountant. I believe that the large majority of Americans living outside the United States are doing so because they're employed in well-paying occupations that should allow them to easily hire an accountant if they wish to.

You know, circumstances change, and sometimes people have to change with them. I know old-people who can't spend winters in Arizona anymore because the cost of medical insurance has gotten too high. Maybe if living abroad is becoming too expensive for Ms Sheila, she should head on home. Life's rough. There's lots of housing available a short drive away in Detroit, super-cheap. Good value!

-k

[Bonam]

What is "not reasonable" is expecting the IRS to overlook billions of dollars of tax evasion because some sad old lady in Toronto doesn't want to hire an accountant.

-k

Which is in any case a ridiculous idea, since it would be trivially easy to craft laws so as to target large corporations while not targeting individuals of relatively modest means. I wonder if there's any way a government regulator can tell the difference between a multi-billion dollar corporation and a private citizen with an AGI less than 250k, for example?

[Argus]

One of the articles I looked at in the past week mentioned that when the CRA does do audits, they find "mistakes" about 44% of the time and that the amount they recover is in the hundreds of millions of dollars. There might be a point of diminishing returns when hiring more auditors wouldn't be generate a financial return, but I don't see a reason to assume we're there yet.

Not by a hell of a long shot. I was on the phone to the manager of Refunds and Set offs, a couple of years back discussing efforts to combat fraud. She mentioned a certain program which they had had in place which returned $50 for every $1 spent on it. It's budget was slashed, however. And that was BEFORE the big budget cuts hit CRA.

Remember CRA has to operate within a budget set by the government. And it doesn't get any money back from any of the programs it operates. Such programs make money for the Treasury, but they cost money to CRA to operate.

I can tell you that's its programs which investigate tax fraud are miniscule, and have very little teeth. Give you an exmple. I once looked over a bunch of fraudulent returns. These were ID fraud. I noticed a number of cheques were going to the same address so I googled it. It was a store in Toronto. So did we call them up? Nope. Did we go to see them and ask a few awkward questions? Nope. We don't have people for that. Did we inform the RCMP? Nope. They don't have enough people for that.

CRA doesn't actually know how much tax fraud there is. Most of us figured that the big payouts were coming from those with GST accounts, though. But the people who looked over the GST program don't have enough time to do much in the way of verification or investigation. In the US, the IRS estimates they could be losing up to $21 billion a year in tax fraud. And they have more robust systems in place to detect and investigate than we do.

Edited August 23, 2014 by Argus

[TimG]

And at this point you're probably saying "yeah but the regulators caught up to Son of BOSS and Project Sussex!" Well, yeah. That's why I can write about them: they've already been found and challenged. What else is out there that the tax investigators don't even know about yet? What else is out there that they know about but can't do anything about?

I am not sure what your point it. Tax agencies have to be constantly on the look out for loop holes that can be exploited and governments have to close them. The fact that loop holes existed and were closed is simply an example of how this continuous process is working as it should. For the last 8 years the Conservatives have worked to close many loop holes (including the income trust loop hole which caused them a lot of grief). I am not sure what else a government can do.

If your yardstick is "could there be a legitimate reason for structuring their business this way?" then the answer depends on your definition of "reasonable". There's only one reason to structure their business this way: to avoid paying tax.

So what? Tax regulations are often written to encourage people and companies to change their behavior to save taxes. i.e. if the government wants companies to invest in "green" technology it changes the rules to allow companies to save taxes if they invest in "green" technology. How can you then complain when companies make choices which the government did not intend? It is exactly the same process. The only question that matters is whether any laws were broken and in this case it appears that this is not the case.

Now the US may not be happy when other countries collect tax revenue that they think they are entitled to but that is like Apple complaining that Samsung is taking customers that they are entitled to. Countries compete in various ways and countries with more favorable tax regimes are going to attract global corporations. Why do you think it should be any other way? Would you pay twice as much for an identical product just because it was made in Canada? Why do you expect international companies to act irrationally?

Here's why the English operation can't turn a profit:

Thanks for the concrete information.

paying higher-than-industry-average royalties for use of the Starbucks and name and trademarks to the rights-holder. The rights-holder being Starbucks of Seattle? No, silly, the rights-holder being Starbucks of Amsterdam, obviously. 6% of gross sales goes straight to Holland in the form of royalties payments.

Intellectual property has no "market value" that can be assessed because there is too much variation. i.e. the claim that it is 'higher-than-average' does not mean much and is really just spin by the article writer (I assume they are using typical non-exclusive franchising rights but in this case Starbucks UK has exclusive rights in the UK which generally comes at a premium). Also why should a global company like Starbucks be required to keep its intellectual property in the US? Why shouldn't it be entitled to move those assets to a country of its choice? The problem here is you seem to assume that a government who is motivated could pass laws that would make such transactions illegal. I don't see how - not without trying to micromanage businesses and we don't want governments doing that.

Unemployed hobos don't even pay LIBOR + 4% on their subprime mortgages.

LIBOR is not the prime rate - it is the inter-bank lending rate which is about 1.25% in Canada today. My unsecured line of credit is 6.25 or 5 points above the inter-bank rate. LIBOR + 4% is an extremely reasonable rate for these kinds of loans.

buying coffee from their Swiss subsidiary, as I suspected. No word on whether it costs $140/lb, though. 84% of Starbucks' revenue goes to Switzerland, where it's taxed at 5%, to pay for coffee beans and other raw materials. Add that to the 6% royalties payments, and fully 90% of Starbucks' UK revenue is leaving the country.

Now you are speculating. You have no data on whether the cost of goods is out of line - you just assume. Also we are talking about a product which is heavily marked up as it is so any price which is less than what they sell it for is perfectly reasonable even if it is much higher than what it costs to buy from the suppliers.

I understand your frustration because from your perspective it looks like an injustice is occurring. But there is little governments can do when dealing with corporations that have legitimate global businesses.

And yet a guy like our old friend Mitt, who let us see his tax records a couple of years ago, pays far less than he would if he were payed in income, largely because he can collect it in the form of capital gains that are taxed at a much lower rate.

We were talking dividends - not capital gains. It is different discussion. When it comes to dividends the dividend tax credit makes sense and does not result in any lost revenue for governments because every cent paid in dividends is taxed at the corporate level.

I believe that the large majority of Americans living outside the United States are doing so because they're employed in well-paying occupations that should allow them to easily hire an accountant if they wish to.

There are million or so middle class Canadians who happened to be born in the US or had a US parent. These people are discovering that despite the fact that they have never lived in the US they now are obligated to pay hundreds of dollars in filing fees every year or find themselves banned from travelling to the US. This is abusive and an example of how overzealous pursuit of "tax evaders" can cause injustice on its own. Edited August 24, 2014 by TimG

[kimmy]

I am not sure what your point it.

My point is that despite your insistence to the contrary, "the cost of doing business" can and does include losses and expenses that are completely fictional.

Now the US may not be happy when other countries collect tax revenue that they think they are entitled to but that is like Apple complaining that Samsung is taking customers that they are entitled to. Countries compete in various ways and countries with more favorable tax regimes are going to attract global corporations. Why do you think it should be any other way? Would you pay twice as much for an identical product just because it was made in Canada? Why do you expect international companies to act irrationally?

Bermuda can offer a 1% tax rate, or a 0.1% tax rate if they want, because they don't have any people. They're smaller than Medicine Hat. Compared to a real country-- Canada, America, Great Britain for example-- their expenses are virtually non-existent. Collecting even a tiny sliver of tax on Google's IP patents pays their bills. How is it possible to "compete" with that? Create a true libertarian paradise where the government doesn't spend anything on anything? If it's to be "competition" with countries like Bermuda or Ireland or the Netherlands, then maybe economic sanctions and tariffs should be an equalizer we could look at.

Apple might not like it when people buy Samsung Galaxies instead of iPhones, but Apple doesn't (yet) have an army and law enforcement to maintain, or social programs or education or healthcare to maintain.

How many engineers and programmers does Bermuda contribute to Apple and Google? The intellectual property might be owned in Bermuda, but it's created in America, by the education system that Google and Apple aren't paying to support anymore. They are freeloaders. If their companies were really built on Bermuda intellectual property, Apple's flagship product would be the CoconutPhone, and their market cap would be about fifty dollars.

You really don't see a problem here?

I understand your frustration because from your perspective it looks like an injustice is occurring. But there is little governments can do when dealing with corporations that have legitimate global businesses.

Is it "legitimate global business" that these companies with $15 billion (Starbucks), $16 billion (Google), $30 billion (Apple), of revenue each year all have their offices in broom-closets on an island of 60,000 people?

We're in a situation where we have to cut funding to education and healthcare and old age security and social programs... and if the reason we have to make these cuts is because companies are sending all their money to Bermuda, that's really shitty.

If you recall how we got on this argument about tax dodges for rich guys and corporations, we were discussing how the value of labor is being eroded while people who already have wealth have great advantages in accumulating even more wealth.

And everything you've written here for the past month-- "we can't really do anything about corporate taxes because..." , "we can't really go after people who offshore their money, because..." , "we can't really do anything about these international business arrangements, because..." -- just emphasizes the point. Apparently we really can't stop Starbucks from reporting a financial loss each year. Apparently we can't get folks like Mitt Romney to pay more than 13% effective tax rate. Apparently we can't go after people who've stashed tens of billions of dollars outside the country.

Apparently labor is the only thing that the government is able to actually tax effectively.

-k