Buhari: Anti-corruption help better than foreign aid, for Nigeria

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Nigeria Pulse — “Buhari: President says Nigeria doesn’t need foreign aid”:

President Muhammadu Buhari has appealed to the United States to help Nigeria by plugging all the loopholes that had been used by government officials to steal the country’s assets rather than help with foreign aids.

According to Mallam Garba Shehu, Senior Special Assistant to President Buhari on Publicity, “Buhari did not go to the US with a begging bowl. We don’t need foreign aid, he told everyone, so long as the world powers can help us plug all the loopholes that had been used to steal our assets.”

 
A novel approach, maybe; I don’t know how extensively this suggestion of substituting banking reform for development aid has been pitched before. And it’s quite correct that the West’s blind eye toward revenue embezzlement and asset theft schemes (using Western companies and finance networks) is a major scourge on African development in general:

Hundreds of Western multinational firms involved in concession trading in Africa are registered in traditional tax havens, such as the Cayman Islands, the British Virgin Islands and Bermuda.

Or they are associated with shell companies registered in the United Kingdom, or are directed via financial entities in Switzerland and the United States.
[…]
If the most powerful industrial countries take steps to curb tax evasion and the use of opaque holding companies by multinational resource extraction firms and by their African business partners (often in government positions) it would do much to benefit African citizens.
[…]
Court actions in France and U.S. Senate investigations have brought to light vast luxury investments held in France and the U.S. in the names of some African leaders and members of their families.

More importantly, Western governments could start to force banking institutions to implement existing “know your customer” rules. These would compel African leaders to demonstrate how they obtained their fortunes and on what basis the cash is rightly their own.

 
But I fear Buhari’s appeal is unlikely to be effective on a significant scale, given how little we’ve done against tax avoidance, accounting games, and financial network loopholes that severely hurt us too (albeit at a smaller proportion). If we won’t fix something for ourselves, the odds are sadly even lower that we will fix it anyone else — even for Africa’s largest economy.

Labour propose tax avoidance crackdown, Tories balk

Despite recent backlash from big business and finance firms and lobbies, Labour are pushing ahead with a leftward shift to crack down on corporate abuses, according to The Financial Times. In addition to charging that Conservatives have “totally failed” to take sufficient action on tax avoidance loopholes generally, Labour wants to target British tax havens:

On Friday [February 6, 2015], Ed Miliband, Labour’s leader, announced plans to put the UK’s offshore financial centres on a tax haven blacklist if they did not comply with a new transparency measures. But the plan was attacked as unworkable by [Chancellor] Osborne, who seized on it as further evidence that the Labour leader was “unfit to be prime minister”.

 
Grand_Cayman_IslandWell, I don’t know about that, Mr. Osborne, but it seems like trying to do something about the problem of offshore UK/crown tax havens (full story➚) is better than doing nothing. This is, after all, creating a lot of problems for other countries (see previous link), and British governments have repeatedly pledged to the international community to rein them in — and has singularly failed to do so.

It will be interesting to see if Labour are willing to hold fast to their new position on corporate abuses — fully reasonable and sufficiently moderated positions, in my view — until the May elections or if they bend to pressure to be blindly (and fearfully) “pro-business,” as they arguably were in much of the “New Labour” years.

I say “interesting,” because I have a strong suspicion that the outcome of the internal Labour debate — between its working-class/progressive base and its City of London finance types — could prefigure the coming 2016 debates (if we have any) in the U.S. Democratic Party about whether to run on “middle class economics” or in Wall Street’s pocket.

There are certainly a lot of very clear parallels here, given the similarly outsized roles “The City” and Wall Street have taken on in both countries’ economies and politics, along with the controversial transformations of the New Democrats and New Labour led by Bill Clinton and Tony Blair respectively in the 1990s. While it may have worked in the short run, it has caused a great deal of problems for both parties in the longer run.

Moreover, in both countries, the center-left parties find themselves quickly abandoned by their respective financial districts for the conservatives — the natural home of Big Finance — when the winds change. Meanwhile, the under-served natural economic base of Labour and the Democrats drifts angrily, staying home on election day or seeking solace in fringe parties.

There is, of course, one other linkage of interest here. The tax evasion/avoidance problem — combined with various recent banking scandals — have given a new meaning to the phrase “special relationship” between the United States and the United Kingdom, given how often City and Wall Street firms seem to be tangled up in it together.

Wealthy populism and the real history of the Boston Tea Party

In light of our recent articles on European populism and comparing anti-democratic mass demonstrations in Thailand to the U.S. tea party movement, I was thinking about the latter group once again. I was also double-checking the history of the East India Company for research and stumbled into the realization that the “tea party” part of the name might be more accurate than previously believed.

The common version of the story is that it was a protest against high taxes from Britain — on tea among other things — without representation in parliament. Obviously, this would not be an accurate analogue to anything in the modern United States because the people protesting are represented in the elected legislative body of the national government.

There’s also usually a claim that the colonists were being “forced” by the government to purchase tea from a monopoly. And maybe you could make a case that government policies today are creating de facto monopolies for certain companies (like internet service providers) — mostly through lax regulation. But they generally haven’t been protesting that angle. It’s always been about the original “Taxed Enough Already” (TEA) claim.

So back to the history: in fact, the inciting factor provoking the riot was not some act of increased “taxation without representation” but actually that the British government lowered the tax burden, by allowing the EIC to import tea directly into cities like Boston, without going through British home customs first. Yes the government was still making the EIC the monopoly licensed tea importer, but middle-class colonists had been blatantly ignoring that restriction anyway, in light of the previously high prices on taxed tea imports. Instead, they had been illegally buying tax-exempt tea from Dutch wholesalers brought in by American smugglers.

Those smugglers had become very wealthy, especially in Boston. The problem was that their business only survived by virtue of multiply-taxed East India Company tea being way more expensive than the competing non-British tea. People weren’t buying Dutch tea as a political statement (before the Boston Tea Party), but to get a deal. As soon as EIC became the cheapest tea in the game (not through unfair subsidies, just tax cuts!), everyone was more than willing to purchase legal British tea (including customs duties). And the wealthy business interests running the illegal tea were not happy with being priced out of the market.

Thus, the original Boston Tea Party is less a cry of freedom and more a story of a bunch of rich guys rallying a populist mob to halt the enforcement of government regulation on their illegal business activities and to protest the cutting of taxes that affected average people because tax-avoiding smuggling was how they had become rich. All they had to do was drop some vague buzzwords like “liberty” and rights” to make the case that the money consumers were spending on tea should be going into their own pockets instead of into the royal treasury (which was paying for all the colonial defenses, the debt from the French & Indian War, etc).

So to recap, this current conservative populist “movement” named itself after a protest against policies that benefited common people but negatively impacted wealthy business interests led by flagrant tax evaders. That seems pretty apt actually.

It’s too bad that wealthy interests are so often and so easily able to rabble-rouse disaffected and struggling middle class people to rally against their own interests on behalf of the rich.

Flag of the British East India Company, 1707-1801.

Flag of the British East India Company, 1707-1801.

Pfizer: Screw America, we want tax havens!

I just read NYT DealBook’s new article from Monday on the awful attempted Pfizer takeover of AstraZeneca: “Pfizer Proposes a Marriage With AstraZeneca, Easing Taxes in a Move to Britain”

On Monday, Pfizer proposed a $99 billion acquisition of its British rival AstraZeneca that would allow it to reincorporate in Britain. Doing so would allow Pfizer to escape the United States corporate tax rate and tap into a mountain of cash trapped overseas, saving it billions of dollars each year and making the company more competitive with other global drug makers.

A deal — which would be the biggest in the drug industry in more than a decade — may ultimately not be done. AstraZeneca said on Monday that it had rebuffed Pfizer, after first turning down the company in January.

 
This is disgusting. Pfizer, founded in the United States in 1849, is trying to buy one of its biggest global rivals, solely so it can reincorporate in the United Kingdom… with its half a dozen or so offshore tax evasion center crown dependencies and British Overseas Territories. Excuse me, I should say tax “avoidance,” because it’s not evasion if it’s legal.

(And while they’re at it, they would probably jack up global drug prices further through anti-competitive price-fixing by forming a cartel with AstraZeneca.)

5000-dollar-bill-madison-200Predictably, Congressional Republicans are already telling everyone that the problem is U.S. corporate tax rates aren’t low enough, when in reality, we’re trying to compete with literal tropical islands for tax evaders that are nominally outside of UK control. That’s a losing battle. We need to put pressure on the UK to stop stealing revenue from the rest of the developed world, not lower our already low effective corporate tax rate.

According to The Globalist Research Center and TaxFoundation.org:

In terms of the effective corporate tax rate, the United States is actually below the average of the big industrial countries, at about 26%, [while] the [advanced economies] OECD’s 2012 GDP-weighted average was 32%.

 
And here’s an eye-popping fact from DealBook:

At least 50 American companies have completed mergers that allowed them to reincorporate in another country, and nearly half of those deals have taken place in the last two years.

 
Put another way, that’s almost 25 tax avoidance deals in the past two years. Again, that says little about the U.S. corporate tax structure which hasn’t really changed much — and certainly not adversely to corporate America under a Republican House Majority — and everything about the total lack of civic pride our country’s corporations have right now, even though their revenues to the government are what helped build the country into such a good corporate environment for so long.

We definitely do need tax reform in some respects, but mainly to reduce tax avoidance and loopholes, unnecessary corporate tax credits and subsidies, and code inconsistency that arbitrarily allows some industries pay less than others. What we don’t need to do is to chop our tax code down to stay competitive with Guernsey, Jersey, the Isle of Man, Gibraltar, the Cayman Islands, and the British Virgin Islands.

Slovakia: You get a car, you get a car, everybody pays their taxes.

Gotta love clever governance solutions. Slovakia is trying to fight business tax cheats who are pocketing value-added (sales) taxes, which hurts both consumers/manufacturers and the government. The country came very close to requiring a bailout last year because its economy and debt situation was such a mess. So their revenue loss solution was to host a lottery with huge prizes, from almost $14k cash to a new car and more. The only thing you had to do to enter was upload receipts for things you had purchased with VATs on them (almost everything).

The government then checks to see if the business paid up the tax listed on the receipt (and the buyer can report fake tax numbers, too). The consumer is entered to win either way. You can enter over and over by uploading lots of receipts — which is why nearly half a million people have uploaded 60 million receipts since the program began last year.

Tax collection began to increase early in 2013 and rose more sharply after the lottery began. Officials say they collected about $512 million more in 2013 than in 2012. How much of that is a result of the lottery may never be clear.

But Mr. Kazimir said that it was surely a big factor, and that it had cost only about $276,000 to get the lottery going. He said the new influx of complaints had already proved that it was not just small businesses that were cheating: Chain stores have also been caught giving fake receipts.

 
It’s been so successful that Portugal just launched its own lottery this past week.

The lottery project has drawn criticism from some Portuguese opposition politicians who say it is a capitalist tool to turn citizens into tax inspectors.

 
Hell yes it is… and there is nothing wrong with that. Tax evasion is a cancer on democratic societies because it both undermines confidence in the fairness of the taxation system and erodes the government’s ability to invest in infrastructure and provides services, which reduces its credibility. And it’s even worse when that evasion is on value-added taxes that consumers and manufacturers have already had to pay up front, without the government seeing a dime. It’s essentially theft from the people, really.

Arming ordinary citizens with the power to help enforce tax compliance strengthens democracy and governance. Doing it in such a light-handed way is brilliant and virtually painless. The only people who lose are those who are already breaking the law and stealing revenue.

You get a car, you get a car, everybody pays their taxes.
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