Thursday, February 9, 2017

Taxing Oil, Gas and Minerals Across Borders Poses Challenges for Developing Nations [feedly]


https://blog-imfdirect.imf.org/2017/02/09/taxing-oil-gas-and-minerals-across-borders-poses-challenges-for-developing-nations/
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Taxing Oil, Gas and Minerals Across Borders Poses Challenges for Developing Nations
// iMFdirect – The IMF Blog

By Philip Daniel, Michael Keen, Artur Swistak, and Victor Thuronyi

Seventy percent of the world's poorest people live in countries rich in oil, natural gas or minerals, making effective taxation of these extractive industries critical to alleviating poverty and achieving sustained growth. But national borders make that task much harder, opening possibilities for tax avoidance by multinationals and raising tough jurisdictional issues when resource deposits cross frontiers.

Familiar problems, but much larger

The countries with the most resources are commonly not those that most use them. So it's no surprise that some of the world's first multinationals were extractive companies, such as Standard Oil or Royal Dutch Shell, or that multinationals account for the vast bulk of government revenue from the sector (except where state companies predominate). All the techniques of tax avoidance associated with multinational activities—the subject of the G20-OECD project on Base Erosion and Profit Shifting (BEPS)—arise in the extractive industries. But while the problems there are similar to those found in other sectors, they are often on a larger scale—and with some distinctive twists.



Take, for instance, problems in applying the "arm's length principle" to the "transfer" prices that multinationals use to allocate taxable profit across the countries where they operate. Under the arm's length principle, transfer prices should be the same as those that would have been set by unrelated parties.

You might think that figuring out such prices would be easier in the extractive industries than in many others. Sometimes, as with oil, active commodity markets do indeed provide good starting points for transfer pricing. And hard-to-price intangibles (patents, branding, and so on) generally play a smaller role than they do in, say, the pharmaceutical industry.

But significant problems do arise in the extractive industries. For some resources (such as bromine, a mineral used in dyes and flame retardants, and its compounds) there are no regularly reported market prices. And the high tax rates applied in the sector can provide especially strong incentives to manipulate transfer prices; so too can the need to arrive at valuations not only for taxes on profits, but also for the royalties (charges on the value of production) commonplace in the extractive industries.

These and other technical challenges are addressed in a new book, International Taxation and the Extractive Industries, which draws on the advice that the IMF provides to its member countries. One issue that the book explores gives a flavor of the challenges that, while not unique to the extractive industries, loom especially large there. This is the very nerdy topic of "indirect transfers of interest," meaning the use of a chain of companies to realize capital gains in a country where they will be lightly taxed, rather than where the asset that generates the gain is located. The sums involved can be huge: in Mauritania, for example, a potential gain of $4 billion on a gold transaction wasn't taxed there.

Pipelines, railroads and borders

Geography presents some distinctive problems. Bringing resources to market can involve building infrastructure that spans national borders, such as a pipeline or railroad linking a mine to a port in a neighboring country. The book looks at the international law involved, and in particular at the difficulties of applying the arm's length principle. As one chapter argues, the range of possible outcomes when trying to apply it is so large as to undermine the credibility of the principle itself.

Resource deposits that cross borders pose problems for coordination between countries—and a risk of conflict. The book looks at the various types of "unitization agreements" that can be reached when countries have agreed sea boundaries, and at experience with joint development zones when they do not.

The book addresses many other questions. To give just one example, how can the impact of international tax arrangements on incentives to invest in the extractive industries be assessed? We can't claim that the book is a page-turner. But we do hope it will help those—whether in government, civil society, business or academia—who have to navigate these issues, which are as important as they are hard.

 


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Puzder hearing scheduled—now senators have an opportunity to show where they stand [feedly]


http://www.epi.org/blog/puzder-hearing-scheduled-now-senators-have-an-opportunity-to-show-where-they-stand/
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Puzder hearing scheduled—now senators have an opportunity to show where they stand
// Economic Policy Institute Blog

President Trump's nominee for Secretary of Labor, Andrew Puzder, has a new date for his confirmation hearing—February 16, a week from tomorrow. This marks the fifth time the Senate Committee on Health, Education, Labor, and Pensions (HELP) will attempt to consider Puzder's nomination. While much speculation surrounds the repeated delays, today's announcement makes one thing clear—President Trump and Senate Republicans are doubling down on a nominee whose policy positions are bad for U.S. workers. Now, senators will have an opportunity to show where they stand.

When HELP Committee members finally get a chance to question Puzder on his positions and plans for the Labor Department, they should demand that he explain his views on minimum wage. Puzder has claimed that increasing the minimum wage costs jobs; senators should ask him how he explains that California has a higher minimum wage than the federal minimum wage yet has seen faster economic growth—including in the restaurant industry—than the country as a whole. Senators should ask Puzder if he knows how many Americans were killed at work before the Occupational Safety and Health Act was enacted in 1970. Does he know how many workers are killed each year now, in an economy twice as big? Still far too many, but fewer than before—demonstrating the importance of meaningful workplace safety standards. Finally, senators should demand that he explain his own company's record of wage and hour and OSHA violations.

President Trump's insistence on advancing Puzder as his nominee for labor secretary reveals that his agenda is to pursue an economy that works great for corporate owners and those at top, but does not work for low-and middle- income families. After decades of wage stagnation and weakened worker protections, we need a labor secretary who will advocate for a strong minimum wage and meaningful worker protections. The Senate now has a chance to demand that workers get a secretary who will guard their rights and advance an agenda that works for them. We will see if they agree that America's workers deserve better than Mr. Puzder.


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Sanders on Dems

Wednesday, February 8, 2017

The U.S. Tax Code Actually Doesn’t 'Soak the Rich' [feedly]

The U.S. Tax Code Actually Doesn't 'Soak the Rich'
http://economistsview.typepad.com/economistsview/2017/02/the-us-tax-code-actually-doesnt-soak-the-rich.html

Nick Buffie at the CEPR:

The U.S. Tax Code Actually Doesn't "Soak the Rich" : In 2012, Republican presidential candidate Mitt Romney famously commented that 47 percent of Americans were "dependent on government" because they didn't pay any federal income taxes. He went on to explain that his job was "not to worry about those people."
Journalists and other public figures often claim that only the rich pay taxes, supporting this with the argument that the rich pay the vast majority of federal income taxes. However, federal income taxes are just one part of the broader tax code. When we consider other types of federal taxes as well as state and local taxes, it becomes clear that the overall tax code isn't extremely progressive – in other words, it doesn't "soak the rich," and it certainly doesn't let the poor off the hook. ...
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DAPL Doesn’t Make Economic Sense [feedly]


The arguments in this article are popular on left blogs right now. But anyone who reads it carefully should observe the large hole in the logic of applying gross  (predicted??) externality costs to a particular project's economic feasibility in a particular market. Oil spills on the ocean of oil sourced by a pipeline  Also, what is the projected risk of the DAPL pipeline? "We crunched the numbers" doesn't quite do it, given the ideological assumptions.


The "economics" in the piece first serve and are dependent upon a set of ideological positions opposed to ANY fossil fuel growth. Real fossil fuel usage and growth -- under the most optimistic projections, assuming the most rapid likely development of alternative energy  -- will remain the largest global source of energy for decades. So a "put all the oil companies out of business" will fail as public policy barring effective nationalization. Even nationalization begs many questions about the impact on government of its control over all energy, including the power to turn it off, or on. It can be a curse as well as a blessing, as recent history illustrates.

I predict Trump will offer the Sioux reservation some $$ before he runs it through.

Pay the losers in these matters is actually the right policy, as it is with trade, automation, and all other structural adjustments required in the face of constant change -- a global feature that will not slow down either in human or environmental domains. The payment must be big enough to turn the losers into winners. And it must be big enough to reflect a principle of equity in the distribution of wealth. That would be a very large payment to the Sioux nation, one of the most impoverished communities in the US.

Be assured. If the the pipeline does not satisfy a return, directly or indirectly, to the investors, no oil will be transported and the project will be an economic loss.
 

DAPL Doesn't Make Economic Sense
http://triplecrisis.com/dapl-doesnt-make-economic-sense/

The Dakota Access Pipeline (DAPL) imposes huge environmental and health costs, creates few jobs, and generates little government revenue.

Mark Paul

Mark Paul is a postdoctoral associate at the Samuel DuBois Cook Center on Social Equity at Duke University. He holds a Ph.D. in economics from the University of Massachusetts Amherst.

Last week, Donald Trump signed an executive order to advance approval of the Keystone and Dakota Access oil pipelines. This should come as no surprise, as Trump continues to fill his administration with climate deniers, ranging from the negligent choice of Rick Perry as energy secretary to Scott Pruitt as the new head of the Environmental Protection Agency. Pruitt, a man who stated last year that "scientists continue to disagree" on humans role in climate change may very well take the "Protection" out of the EPA, despite a majority of Americans—including a majority of Republicans—wanting the EPA's power to be maintained or strengthened.

As environmental economists, my colleague Anders Fremstad and I were concerned. We crunched the numbers on the Dakota Access Pipeline (DAPL). The verdict? Annual emissions associated with the oil pumped through the pipeline will impose a $4.6 billion burden on current and future generations.

First and foremost, the debate about DAPL should be about tribal rights and the right to clean water. Under the Obama administration, that seemed to carry some clout. Caving to pressure from protesters and an unprecedented gathering of more than a hundred tribes, Obama did indeed halt the DAPL, if only for a time. Under Trump and his crony capitalism mentality, the fight over the pipeline appears to be about corporate profits over tribal rights. Following Trump's Executive Order to advance the pipeline, the Army Corps of Engineers has been ordered to approve the final easement to allow Energy Transfer Partners to complete the pipeline. The Standing Rock Sioux have vowed to take legal actionagainst the decision.

While the pipeline was originally scheduled to cross the Missouri River closer to Bismarck, authorities decided there was too much risk associated with locating the pipeline near the capital's drinking water. They decided instead to follow the same rationale used by Lawrence Summers, then the chief economist of the World Bank, elucidated in an infamous memo stating "the economic logic of dumping a load of toxic waste in the lowest-wage country is impeccable and we should face up to that." That same logic holds for the low wage counties and towns in the United States. The link between environmental quality and economic inequality is clear—corporations pollute on the poor, the weak, and the vulnerable; in other words, those with the least resources to stand up for their right to a clean and safe environment.

In 1994, President Bill Clinton signed Executive Order 12898, which ordered federal agencies to identify and rectify "disproportionately high and adverse human health or environmental effects of its programs, policies, and activities on minority populations and low-income populations." Despite this landmark victory, pollution patterns and health disparities associated with exposure to environmental hazards by race, ethnicity, and income remain prevalent. Researchers at the Political Economy Research Institute (PERI) released a report identifying the toxic 100 top corporate air and water polluters across the country, finding the 'logic' of dumping on the poor and racial and ethnic minorities persists.

We do not accept this logic, and nor should any branch of the U.S government. As the Federal Water and Pollution Control Act makes clear, water quality should "protect the public health." Period. Clean water and clean air should not be something Americans need to purchase, rather they should be rights guaranteed to all. The Water Protectors know that and are fighting to ensure their right to clean water, a right already enshrined in law, is protected.

The Numbers The Dakota Access Pipeline is a bad deal for America, and should be resisted. Our findings indicate that the burden of pollution associated with oil passing through the pipeline amounts to $4.6 billion a year—a number none of us should accept. This was arrived at using conservative estimates, and numbers provided by Energy Transfer Partners and the EPA.

According to Energy Transfer Partners, the company responsible for the Dakota Access Pipeline, the pipeline will transport 570,000 barrels of Bakken oil a day once the project is fully operational. It turns out, a barrel of oil is not a barrel of oil. Oil from the Bakken oil fields, which is where the pipeline originates is substantially dirtier than average—containing almost a quarter more CO2 per barrel. (A full breakdown of the numbers is available here.)

The CO2 content of the oil matters tremendously. After all, it's the leading GHG contributing to global warming—the largest test we have collectively faced as a species. To think about this in economic terms, we need to take a few more steps. While Energy Transfer Partners hired its own economics firm to provide an economic impact study of the pipeline, they left out crucial information. Substantial negative externalities from burning the fossil fuels transported by the pipeline are not priced into the analysis. While the private profits of the pipeline certainly look good, we are concerned about the greater social costs associated with the pipeline, in particular pollution.

To calculate the cost, we need to think about the cost of CO2 emissions. The EPA. and other federal agencies use the social cost of carbon (SCC) to estimate the climate benefits and costs of rulemaking. The EPA's estimate of the SCC for 2015 is $36 (in 2007 dollars). The SCC is an estimate of the economic damages associated with a small (one metric ton) increase in CO2 emissions in a given year (i.e., the damage caused by an additional ton of carbon dioxide emissions). Applying the SCC to the oil transferred via the pipeline provides the estimated $4.6 billion (2016 dollars) in annual burden from pollution associated with the pipeline. But won't that simply be a burden on future generations? No.

The case for climate policy is frequently made on the grounds of "intragenerational equity"; intragenerational equity is also critical. The immediate net benefits for people living in polluted communities must be taken into consideration. Co-pollutants and co-benefits are necessary to take into account, as the marginal abatement benefits will vary across carbon emissions sources due to the presence of co-pollutants, such as particulate matter, sulfur dioxide, NOx, and air toxins released during the burning of fossil fuels. The U.S. National Academy of Sciences has calculated that premature deaths attributed to co-pollutant emissions from fossil fuel combustion impose a cost of $120 billion a year in the United States, while Taylor and Boyce find that the co-pollutants result in the deaths of thousands per year.

OK, how about the jobs? Trump after all has vowed to bring back jobs—"a lot of jobs." Not so fast. According to Energy Transfer Partners' own estimates, the Dakota Access Pipeline will employ just 40-50 permanent workers along the entire route. Surely those jobs matter for the folks that get them. They'll likely be well-paying jobs with benefits—the types of jobs the economy needs. But with 7.5 million Americans currently unemployed, and millions more underemployed, this won't make a dent. The pollution associated with the pipeline and the risk of contaminated drinking water, on the other hand, will. Putting Americans back to work through the fossil fuel industry simply doesn't make sense. According to research by Professor Robert Pollin at the Political Economy Research Institute, investing in a green-energy economy provides three times more jobs than if the money were invested in the fossil fuel economy. Want jobs? How about a green New Deal?

The financial crisis and ensuing banking bailouts ensured private profits while socializing losses. Trump is bringing the same logic to the table, socializing costs associated with pollution—and not counting them—while privatizing profits from the pipelines. Sure, there will be some tax revenue associated with the pipeline, an estimated $56 million annually in state and local divided between four states, but that pales in comparison to the $4.6 billion in annual burden. The economics don't add up, but let us be clear—the economics shouldn't necessarily come first. People should have a right to clean water and respect of their ancestral lands.


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Larry Summers: Big risks in the hasty rollback of financial regulation [feedly]

Big risks in the hasty rollback of financial regulation
http://larrysummers.com/2017/02/07/resist-changes-in-the-financial-regulatory-framework/

Many business people think it is wonderful that we now have an Administration filled with people from business backgrounds. To a point, I relate. People who have worked primarily in the private sector bring an awareness that others sometimes lack of maintaining business confidence, which as I have often said is the cheapest form of stimulus. And for some government tasks, management experience is much more important than policy experience. That is why Bob Rubin and I worked to install a (Republican) business leader as commissioner of the IRS given its vast IT problems.

Unfortunately, just as being able in government does not equip you to step in and run a company—at least not without much help—so also business experience does not equip you to run on your own public policy and political processes.

The concerns of those who worry about business dominated government have been demonstrated all too clearly by the Trump administration's roll-out of plans to scale back financial regulation. There are surely areas where regulation is too burdensome, particularly involving bureaucratization and small banks. But much of what was said by the President and his advisors sounds more like grousing at an East Hampton cocktail party than a serious basis for public policy reform.

The President suggested that it was a problem that many of his good friends could not get as much credit as they wanted. We do not travel in the same social circles, so I am not sure who he means. But if he is saying that real estate developers cannot get all the credit they want, that would seem a good thing. Indeed, I would submit that the financial history of the last 40 years demonstrates that often when real estate operators are thrilled about credit availability, financial crisis is only a few years away.

Gary Cohn, the former number two at Goldman Sachs now heading the NEC, asserts that " we are not going to burden the banks with literally hundreds of billions of dollars of regulatory costs every year". I would challenge him to document that such costs exist today, which feels to me like an "alternative fact". Note that total bank profits last year were about 170 billion so the claim is that without excessive regulation profits would more than double.

There is room for reasonable argument about the fiduciary rule requiring that financial advisors act in the best interest of their clients. I think the case made in the Obama CEA report is very strong but I can see counter arguments. Cohn's analogy that "this is like putting only healthy food on the menu, because unhealthy food tastes good but you still shouldn't eat it because you might die younger" is bizarre. We do after all require food labeling, inspect food processing, and no one is suggesting that financial products be banned, only that the economic interests of advisors be disclosed.

It does not get better. Leaving aside Cohn's statement that "we have all submitted living wills" referring to Goldman Sachs, which was a slip for a policy official, I wonder why an Administration that professes to hate "too-big-to-fail" wants to scale living wills for banks and plans for resolution way back.

And Cohn's argument that since banks are so well capitalized now we do not have to worry much about other aspects needs to reckon with the experience of 2008. Some of the institutions that failed, like Bear Stearns and Lehman Brothers, had capital cushions well above what both the Federal Reserve and Basel required to be labeled as "well-capitalized" in the week before their failures.  Others like Goldman would likely have failed but for the bailout of their counterparties. Evidence on ratios of the market value of equity to assets suggests that even after the recent run-up, banks are operating with historically high levels of operating leverage.

 

 

 

 

 

 

I would rather live with even a very bad knee than let a carpenter operate on me. On the evidence of statements so far by those in the executive branch, the safest posture is to resist changes in the financial regulatory framework until there is proof that they have been thought through carefully. If and when this happens, there will be room to promote the flow of credit, reduce bureaucratic burdens, and make the financial system safer.


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Revoking Trade Deals Will Not Help American Middle Classes [feedly]

Revoking Trade Deals Will Not Help American Middle Classes
http://economistsview.typepad.com/economistsview/2017/02/revoking-trade-deals-will-not-help-american-middle-classes.html

Larry Summers:

Revoking trade deals will not help American middle classes: ...The idea that renegotiating trade agreements will "make America great again" by substantially increasing job creation and economic growth swept Donald Trump into office.
More broadly, the idea that past trade agreements have damaged the American middle class and that the prospective Trans-Pacific Partnership would do further damage is now widely accepted in both major US political parties. ...
The reality is that the impact of trade and globalisation on wages is debatable and could be substantial. But the idea that the US trade agreements of the past generation have impoverished to any significant extent is absurd. ... My judgment is that these effects are considerably smaller than the impacts of technological progress.
A strategy of returning to the protectionism of the past and seeking to thwart the growth of other nations is untenable and would likely lead to a downward spiral in the global economy. The right approach is to maintain openness while finding ways to help workers at home who are displaced by technical progress, trade or other challenges.

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