MRU lectures on development

From Marginal Revolution:

At MRUniversity we just released over 30 new videos on leading thinkers on development. We cover Amartya Sen (who gets three), Bela Belassa, Karl Polanyi, Adam Smith, Paul Romer, William Easterly

 I'm glad to see Polanyi on the list, and right beside Adam Smith, precisely correct (though in their full listing the two are separated by Schumpeter and Gerschenkron, fair enough.  As to Easterly I am not as enthusiastic but I will watch it anyway.  Also on the list: Krugman, Stiglitz, Ostrom, Rodrik, Acemoglu, Banerjee, Collier, more.  Yes, the list is almost wholly male--only Ostrom, Anne Kreuger and Esther Duflo are included and all three are American (ok, Duflo is also French). Nevertheless it looks like a fascinating series.

Tax games? Glencore's self-insurance plan

From the Guardian: Glencore accused of slashing tax bill by using complex insurance deals; Commodity trader's UK profits are being depressed, but company says contracts are not designed to avoid tax.

A leading tax expert has accused Glencore of cutting its UK tax bill by tens of millions of pounds after profits at the commodity trader's London arm were depressed by complex insurance contracts taken out with its own parent. 

...The derivative instruments being employed by Glencore are widely used by companies to insure – or hedge – financial risks. They theoretically guarantee a certain return.
Last year, Glencore UK's derivative trading with other parts of the group totalled $383bn (£267bn), more than twice the yearly budget of the National Health Service. The practice resulted in a $122.8m loss for the London-based business, effectively docking that amount from UK profits and transferring it to the main group based in the low-tax Swiss canton of Zug. 

Richard Murphy, of Tax Research UK, said: "Glencore is insuring itself with itself. If I insure my house for fire with myself and it burns down, I've got to pay myself for the house which has burnt down. That's what Glencore is doing, and the consequences are that the risk is never leaving Glencore; it's still inside the group. That's $383bn worth of trades that, on the face of it, make no sense whatsoever. We don't know, but it is highly likely that the motivation is not genuine insurance and it looks like a significant amount of tax planning takes place within this trading function." 

Murphy said ..."This is totally legal but what we are seeing is a significant change in the way in which multinational corporations are now looking to move their profits around the world.
"All the evidence is that throughout the extractive industries – the mining industry, the oil industry, the gas industry and so on – the way in which people are shifting profits now are derivative financial products." 

Glencore UK's accounts show that its massive turnover of $59.8bn in 2011 resulted in a pre-tax profit of $99.1m, a margin of less than 1%. A tax credit, the result of unrelated employee share awards, took total profits for the year to $115.7m. Had the $122.8m derivatives loss remained in the UK and been added to those profits, it would have attracted taxes of about $32m. 

Glencore insisted that lowering its tax bill was not the purpose of the derivative trades. 

Glencore's Baar-based spokesman said: "The derivative contracts Glencore Energy uses in London with its parent company in Switzerland are effectively tools to help it manage risk.
"They enable risk to be concentrated at the centre, where it can be absorbed due to the size of its capital base. These are standard contracts used by many companies across many industries. This is about managing risk and nothing to do with avoiding tax. Like all major global corporations, we work closely with local tax authorities to ensure that we pay the correct and appropriate amount of tax." 

In 2010, Glencore UK made a profit $186.5m on insuring itself with its parent, although those winnings were virtually all cancelled out by losses on external derivative contracts. ...

Richard Murphy carries the story and responds:

I note what Glencore say but cannot agree. There [sic] argument appears to be London cannot bear the risks of these trades so they have to be moved on but a simple guarantee (or more capital)  would overcome that issue and save the enormous cost of $383 billion of trading. However, those trades do take place which means there must be an economic justification for the cost of doing them, and tax is the only one I can see.  

Call for Papers: Tax and Inequality

And here's another call for papers, from TJN: 

Call for papers for a Research Workshop on

TAX AND INEQUALITY

City University, London, 4^th and 5^th July 2013

The 2013 research workshop co-organised by the Association for Accountancy & Business Affairs,ⁱ City University,ⁱⁱ and the Tax Justice Network,ⁱⁱⁱ  will explore connections between tax justice and inequality.  This opens up possibilities for papers on a wide variety of themes, including taxation of wealth, case studies of innovative tax measures to reduce inequality, how tax expenditures favour particular groups, tax and access to housing, tax and inter-generational wealth distribution.

Other related themes are likely to emerge as the workshop programme develops.

Offers of papers are especially welcome and early submission of an abstract of no longer than 300 words is encouraged.  All submissions will be considered by the organising committeewhich comprises:

• John Christensen (Tax Justice Network)

• Jo Marie Griesgraber (New Rules for Global Finance, Washington)

• Richard Murphy (Tax Research LLP)

• Ronen Palan (City University, London)

• Sol Picciotto (Lancaster University)

• Prem Sikka (Essex University)

This workshop will bring together researchers, academics, journalists, policy staff of civil society organisations, consultants and professionals, elected politicians and/or their researchers, and government or international organisation officials.  The purpose of the workshop is to facilitate research through open-minded debate and discussion, and to generate ideas and proposals to inform and shape the political initiatives and campaigns already under way.

There will be a small charge for attendance at the Workshop. Participants are usually expected to finance their own travel although applications from students and others with limited means for bursary support will be considered. 

You can download a PDF version of this Call for Papers here.

More information about this workshop is available from:  John Christensen, Tax Justice Network, john@taxjustice.net

Call for Papers: Philosophy of International Law

Interesting call for papers, maybe tough for a typical international tax scholar/armchair philosopher to pass peer review, on the other hand I think international tax scholars are increasingly confronting the kinds of questions outlined here.  Details:

The Journal of Philosophy of International Law (JPIL) is a peer-reviewed (and currently an open source Journal) published by ElectronicPublications.Org Ltd—a publisher with no institutional affiliation. The JPIL’s sister publications are the Manchester Journal of International Economic Law and  the Journal of Islamic State Practices in International Law. The JPIL is being re-launched and will be published twice a year (May and November). The Journal has a distinguished Advisory Board and its aim is to provide an established scholarly platform for the philosophy of international law.

The aims of the JPIL are to promote:

• Critical examination of and legal reflection on the foundations of International Law.
• Philosophical analysis and critique of the nature of the international legal order or any aspect thereof.

The areas that might be covered by these aims include, but are not confined to the following:

• Historical enquiry into International Law for philosophical purposes, or intellectual history as related to the foundations and development of International Law.
• Ethical issues in International Law or the uses of International Law for ethical debate.
• Ontological questions of the existence of International Law and the nature of the reality it attempts to regulate, such as states, humanity and world society.
• Epistemological questions of an interdisciplinary nature and enquiry into the limits of disciplinary approaches such as positivism in International Law.

Guidelines for Authors:

The Journal welcomes submissions of articles and reviews for consideration with a view to publication. The normal word length for article contributions is between 4000-8000 words. The normal word length for reviews/commentaries should be 1000 to 1500 words. Submissions (except reviews/commentaries) should include a short abstract of not more than 60 words. The style guide for references is Oxford University Standard for Citation of Legal Authorities (OSCOLA).

Editorial correspondence, including submissions to the Journal, should be made electronically to the Editor-in-Chief: at JPIL-submissions@mail.com, JPIL@electronicpublications.org

HT Jacob Katz Cogan.

Trickle down government...wha??

I'm still scratching my head over this. So...is trickle down nonsense now? Or is it affirmed as solid doctrine, but bad if it involves government? Is it an argument that government should inure to the benefit of the top, whose contributions to society will have the effect of trickling government largesse down to the 47%? Or is it to say that government programs aimed at the top are no good because they will (or will not?) trickle down? I'm stumped.

Expensive to be poor: dental edition

From Propublica, a look at dental treatment for the poor.  First, medicaid pays so little that many dentists won't accept medicaid patients at all; second, when they do accept these patients, they exploit them ruthlessly to extract every possible dollar, either from medicaid or the patients themselves or both.  For those without access to dentists, the Romney plan (emergency room care for all) doesn't appear quite workable:

Not that many dentists actually accept Medicaid. There are some states where the reimbursement rates are so low that even the chains don't go there. Like in Florida, for example, the Medicaid rates are so low there that chains don't really even bother. So children end up going to the emergency room because they have a toothache and there's nothing else they can do. They end up in hospitals to treat a tooth. 

There was a famous case in Maryland where a 10-year-old boy had a toothache and it was abscessed and he ended up dying because he didn't have a dentist.

But for those lucky enough to find a dentist who will take them on, the situation seems only marginally better: instead of dying, you get this:

We looked at two of the larger [dental] chains, and found evidence that these companies were putting pressure on their dentists to produce at certain revenue targets, thus encouraging them to do procedures that may have been unnecessary.

... One of the chains focused on kids on Medicaid, and the reimbursement rates for Medicaid are pretty low. So in order to get a lot of revenue from these patients they were doing things like taking x-rays that were not needed, or putting stainless steel crowns instead of fillings on their teeth. They could make twice as much money from Medicaid on these crowns versus just putting a filling on a tooth. Kids were getting treatments that they really didn't need.

...We had one example of an 87-year-old woman who had already been to the dentist and she went in to have two teeth pulled, thinking it would be cheaper at [New York-based] Aspen Dental. Instead they looked at her mouth and they came up with a treatment plan that was going to cost $8,000. They convinced her though hard-sell tactics to borrow that money through a credit card, and something like $2,000 of that was just to clean her teeth. (Aspen Dental's response is here.)

How do these dentists sleep at night?  Well, they have big loans to pay off, you see:

These days, when dentists get out of dental school, they often owe anywhere between $200,000 and $300,000 dollars. Dental school is actually more expensive than medical school. So they come out with these huge debts, in a lot of cases they can't really afford to start their own practice. 

These dental chains hire people, a lot of the time right out of dental school, and they pay fairly decent salaries and they have a bonus system where the more work you do on a patient the more you get paid. That's true for a private dentist as well, but the difference is that these companies are owned by private equity firms, and they're managed in a different way. You have people who are not dentists coming up with a business plan that's based on metrics. They try to get new patients in who haven't been to the dentist in a while, and they've already calculated how much revenue the average new patient should generate. 

If you happen to go in and you don't really have anything wrong with your mouth and you're a new patient you're not fitting the model. That creates pressure for the dentists to find things that are 'wrong.'

The report goes on to show that the problems are mostly undetected because there is insufficient oversight.  A scholar who works on corruption in governance once told me that the recipe for corruption is greed plus opportunity.  You can't stop greed, he said--that's human nature.  But society has got to find ways to curb opportunity.  That's after all one of the main reasons to form a society at all--namely, to curb the human animal's propensity to exploit and destroy one another for personal gain.  For more on this issue, you can watch "Dollars and Dentists" at PBS.

"IRS Rules" is Wrong!

One of my, if not my biggest, pet peeves with popular press reporting on taxes is when reporters blame "IRS Rules" for some perceived tax abuse.  For example, today's New York Times (also linked on TaxProf) claims that the difference in tax treatment between a partnership interest and a fee from a corporation is one such rule.

I thought the Internal Revenue Code provided for a separate tax on corporations and for partnerships to be treated as flow-through entities, which is why carried interest is taxed differently than fees paid by a corporation.  Or maybe the Supreme Court? Or the Circuit Courts?  Even Treasury Regulations don't come directly out of the IRS.  The IRS does an incredible amount of work administering the tax laws of the largest economy in the world, and there really are rules published by the IRS that can have substantive effect , but the IRS does not (and cannot) make these more fundamental structural legal choices.

Why care so much?  Because the use of "IRS rules" gives the impression that somehow there is a shadowy underworld of bureaucrats conspiring with shifty practitioners and taxpayers to avoid or undermine obviously correct tax consequences, rather than face the difficult policy choices inherent in constructing a tax law which involve real and difficult trade-offs.  As someone who struggles with these issues, this concerns me. How is the country supposed to engage in a real policy debate without directly confronting these difficult policy choices?    Perhaps not all is lost, though - the Times editorial board seems to be able to get it right.

More personally, however, I suppose I am just tired of explaining to people that the IRS had nothing to do with why Bain can form entities in the Cayman Islands and defer paying taxes.  Oh well.