Friday, June 13, 2014

Pragmatism 101

More of my Political Pragmatism series:

Senator Elizabeth Warren of Massachusetts has introduced a bill that seeks to allow those with pre-2010 student loans to refinance them at interest rates that are about half what they have now, going from in excess of 7% to 3.86%, the rate set by Congress several years ago for federal student loans.

Many economists, bankers, and others are now saying the average student loan....over $25K each, totaling $1.2 TRILLION hampering economic growth.  And everyone agrees (or at least pays lip service) that an educated workforce is vital to our national health, now and even more so in the future.

Sen. Warren's bill died in the Senate when it failed to secure enough votes to stop a threatened Republican filibuster.  The sugar in the gas tank?  It was to be paid for with a higher tax on those making over $1M per year.

Meanwhile Bloomberg Business News reported this:  *stay with me here*

Using a tax shelter known as the "Double Irish" the most profitable tech company in America (the world?), Apple, is paying only a 2% tax rate on one of it's shadow companies that declares 60% of Apple's total profits.   

This subsidiary buys (on paper) all iPhones made in China, immediately sells them to another Apple subsidiary based in (low-tax) Singapore, then books the difference as Apples' profit.  Ireland's already-low 12.5% tax rate is massaged by their tax lawyers and eventually becomes a miniscule 2% rate (thanks to Irish tax loopholes, hence the "Double Irish").  This saves them BILLIONS of dollars in US taxes.

I don't blame Apple for doing this.  I blame an international system that ALLOWS it to happen.  Take this, multiply it by all the other international companies who are using smoke and mirrors to dodge their taxes, too, and you can imagine how much money we're leaving on the table.  

I know, I know....Businesses don't PAY taxes, they COLLECT taxes.  But as it is, consumers are paying the tax (in the price of their iPhone), but instead of it going to the treasury, it's going back to Apple's shareholders.

The liberal position:  Business is greedy.  The conservative position:  Taxes are too high.  Neither side can see past their own short term talking points.

My pragmatic position:  If we put an end to all these tax dodge shell games and just had a realistic modest corporate tax rate that could actually be collected, we would have the money to subsidize worthwhile things like reduced student loan rates.  

This would likely lead to a better educated, more competitive workforce, and some of those brainiacs just might be the ones to invent Apple's next iGizmo, making Apple and its shareholders even MORE money.

We used to call this "priming the pump".  Sometimes you've gotta spend a little more up front to make a lot more later on.  Win / win!

I know my example is overly simplistic, but the concept is sound.  Why can't anyone look a bit farther into the future and see it?



  1. Well yeah business is greedy. The problem to me is these stupid analysts on Wall Street who pick some arbitrary earnings target and if the company doesn't make that then PANIC! and start dumping the stock. Even though Apple makes huge profits it's not enough for these analysts and such who want increasing profits because (duh) they make money off the stock trades.

    You remember that scene in "It's a Wonderful Life" when there's the run on George's bank at the start of the Depression? And the first people want all their balances right then even if it ruins the company. Finally he tells people if they'll just take what they need to get by then everyone can get by and the bank can survive. But of course one old lady still demands her whole balance. That old lady would be Wall Street types, always wanting it all and not caring who it hurts when really if we all settled for just enough profit to keep companies going there'd be less need for cutting corners and dodging taxes.

  2. Lower rates and less loop-holes YES! That is what Reagan did when he cut the top rates from 90% for income over $100,000. Lots of business expenses and personal expenses were eliminated from deductions, but I am sure new loop holes have been added. Of course when ever you take away a loop-hole someone will be unfairly burdened (that is the origin of most loop-holes, to right an unjust situation, but of course lawyers and accountants figure out how to take advantage in ways never intended.) Perhaps a straight flat tax...graduated of course, for business and personal with the ability to file for special exceptions on a case by case basis.

    1. Special exceptions on a case by case basis would create a massive amount of paperwork. Plus then all a rich guy has to do is slip an agent a few bucks to approve a bunch of exceptions.

  3. For clarification, the Apple subsidiary mentioned is "based" in Ireland for tax purposes. It is common for many multi-national companies to have similar set ups in other low-tax locations such as Luxembourg, the Cayman Islands, Singapore, etc.

    1. It's also why so many companies like GM incorporated in Delaware.

  4. How is it you armchair economists can figure it out and Congress can't? Oh wait... maybe because Congress is a bunch of intractable partisans and we the people be damned? Kudos to Elizabeth Warren for trying.

  5. Your idea IS sound, and reasonable. Taxes are at an all time low no matter what the Tea Party says and our infrastructure is crumbling. We need more taxes, but mostly we need to close all the corporate loopholes.

  6. I know we'd be helping the economy more if we weren't paying off Mike's student loans :)