Loomnie

While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks. Some of us are investment managers who earn billions from our daily labors but are allowed to classify our income as “carried interest,” thereby getting a bargain 15 percent tax rate. Others own stock index futures for 10 minutes and have 60 percent of their gain taxed at 15 percent, as if they’d been long-term investors.

These and other blessings are showered upon us by legislators in Washington who feel compelled to protect us, much as if we were spotted owls or some other endangered species. It’s nice to have friends in high places.

Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.

Here.

The abstract of a paper of the same title:

For the past decade, the U.S. economy has been driven not by industrial investment but by a real estate bubble. Although the United States may seem to be the leading example of industrial capitalism, its economy is no longer based mainly on investing in capital goods to employ labor to produce output to sell at a profit. The largest sector remains real estate, whose cash flow (EBITDA, or earnings before interest, taxes, depreciation, and amortization) accounts for over a quarter of national income. Financially, mortgages account for 70 percent of the U.S. economy’s interest payments, reflecting the fact that real estate is the financial system’s major customer.

As the economy’s largest asset category, real estate generates most of the economy’s capital gains. The gains are the aim of real investors, as the real estate sector normally operates without declaring any profit. Investors agree to pay their net rental income to their mortgage banker, hoping to sell the property at a capital gain (mainly a land-price gain).

The tax system encourages this debt pyramiding. Interest and depreciation absorb most of the cash flow, leaving no income tax due for most of the post-1945 period. States and localities have shifted their tax base off property onto labor via income and sales taxes. Most important, capital gains are taxed at a much lower rate than are current earnings. Investors do not have to pay any capital gains tax at all as long as they invest their gains in the purchase of new property.

This tax favoritism toward real estate—and behind it, toward bankers as mortgage lenders—has spurred a shift in U.S. investment away from industry and toward speculation, mainly in real estate but also in the stock and bond markets. A postindustrial economy is thus largely a financialized economy that carries its debt burden by borrowing against capital gains to pay the interest and taxes falling due.

If you are interested in understanding how industrial capitalism became financial capitalism, the paper is a very good place to start. Of course, you can also read David Harvey’s A Brief History of Neo-liberalism, and his most recent, The Enigma of Capital.

H/T @wonkmonk_

From the BBC: A group of rich Germans has launched a petition calling for the government to make wealthy people pay higher taxes.

The group say they have more money than they need, and the extra revenue could fund economic and social programmes to aid Germany’s economic recovery.

Germany could raise 100bn euros (£91bn) if the richest people paid a 5% wealth tax for two years, they say.

The petition has 44 signatories so far, and will be presented to newly re-elected Chancellor Angela Merkel.

The group say the financial crisis is leading to an increase in unemployment, poverty and social inequality.

Simply donating money to deal with the problems is not enough, they want a change in the whole approach.

“The path out of the crisis must be paved with massive investment in ecology, education and social justice,” they say in the petition.

Those who had “made a fortune through inheritance, hard work, hard-working, successful entrepreneurship, or investment” should contribute by paying more to alleviate the crisis.

The man behind the petition, Dieter Lehmkuhl, told Berlin’s Tagesspiegel that there were 2.2 million people in Germany with a fortune of more than 500,000 euros.

If they all paid the tax for two years, Germany could raise 100bn euros to fund ecological programmes, education and social projects, said the retired doctor and heir to a brewery.

Signatory Peter Vollmer told AFP news agency he was supporting the proposal because he had inherited “a lot of money I do not need”.

He said the tax would be “a viable and socially acceptable way out of the flagrant budget crisis”.

The group held a demonstration in Berlin on Wednesday to draw attention to their plans, throwing fake banknotes into the air.

Mr Vollmer said it was “really strange that so few people came”.

We woke up this morning to learn that the new center-right coalition of Ms Merkel’s CDU and Mr Westerwelle’s FDP have decided to cut taxes.

It is pretty well-known that Zambia is a copper-rich country; it is probably also well-known that the copper industry is currently booming – in the last ten years, the price of copper has risen almost four fold. But that is not felt by the Zambian people. This is attributed to ‘secret deals’ made by the Zambian governement with the mining companies in the early 1990s. The details of the deals are not publicly known, but it is known that the mining companies get generous tax breaks, and that they pay only 0.6 percent of the prize at which the copper is sold on the world market to the Zambian government. The going rate internationally is 3 percent. The corporate tax in Zambia is normally 35 percent of the profit of a company; in the case of the mining companies it is 25 percent. In effect, the mine workers pay more tax than the mining companies.

“With a gun onto our head”
This information is from a BBC programme by Maurice Walsh on taxation. Mr. Walsh interviews Edith Nawakwi, the finance minister when the mining deals were negotiated. Ms. Nawakwi describes the situation under which she assumed the position of finance minister in 1997 as one in which they were losing the equivalent of a million dollars a day from the mining sector. On her first day at work she signed the papers of a loan of 50 million dollars, The money was used to pay the salary of mine workers. Because copper prices were low, and the government was losing money, the IMF and the World Bank ‘advised’ the Zambian government to get rid of the mining companies. The government was obviously in a disadvantaged position during the negotiations that eventually led to the privatisation of the mines.Ms. Nawakwi says:

Here is a country, you have no money, and the only people who can give money are the World Bank and IMF, and the creditors. And your colleagues wil say, Madam, we are not giving you any money. Get rid of your assets which are making you lose moey because you will be saving a million dollars a day if you don’t have that mine. And truly, I want you to understand that whatever has happened to this country, I think the 1990s were the worst. It was like Zambia was really negotiating this agreement with a gun onto our head.

Of mistakes and more mistakes
The main problem was that no provision for a change in the tax regime whenever there was an increase in the international price of copper. When Maurice interviewed a representative of the mine workers, he answered only very few of the questions he was asked. And when the current finance minister, Ng’andu Magande,was asked, he counselled patience, saying, “Copper investors have been investing in the last three four years…. While the prices have been going up, we have not achieved the production levels that we had in the 1980s. So while people might say the copper prices have been going up, the production level has not increased as much as the price, because the investors are still investing.” Hmm… I readily complain about resource curse, but I find it appalling when a government minister does not drive a hard bargain with the mining companies, especially as it is widely known that the price of copper will not stay high forever.

Nigeria?
After listening to this documentary, I was interested in knowing the details of the deals between Nigeria and the oil companies. Actually, this post was written partly because I am interested in finding out exactly how much oil companies pay to Nigeria. I am sure that someone has done – or is still doing – a PhD on the topic. So please, anyone who has any information about the details of the deal between Nigeria and the oil companies should please leave it as a comment. And anyone who is an expert on Zambia should please leave some information that might help us better understand the situation with the mines.

The information on the mines in the post was got from here