Welcome to the weekly roundup of great articles, facts and figures. These are the weekly finds that made our eyes pop.
How Corporate Tax Holidays Shifts Jobs Overseas
- A tax holiday enacted in 2004 failed to produce the promised economic benefits. The evidence shows that firms mostly used the repatriated earnings not to invest in U.S. jobs or growth but for purposes that Congress sought to prohibit, such as repurchasing their own stock and paying bigger dividends to their shareholders. Moreover, many firms actually laid off large numbers of U.S. workers even as they reaped multi-billion-dollar benefits from the tax holiday and passed them on to shareholders.
- Repeating the tax holiday would increase incentives to shift income overseas. If Congress enacts a second tax holiday, rational corporate executives will conclude that more tax holidays are likely in the future. That will make corporations more inclined to shift income into tax havens and less likely to make investments in the United States. That’s why Congress, in enacting the 2004 tax holiday, explicitly warned that it should be a one-time-only event and should not be repeated.
- The claim that a tax holiday would increase domestic investment by freeing multinationals from cash restraints is extremely dubious. U.S. non-financial corporations currently have $1.9 trillion in cash and other liquid assets, the highest level as a share of total corporate assets since 1959. The ten companies lobbying hardest for a new tax holiday alone have at least $47 billion in cash and other liquid assets that could be used for domestic investments — without triggering additional tax liability.
- Some of the biggest beneficiaries of a tax holiday would be firms that have aggressively shifted income overseas. Companies in the technology and pharmaceutical industries have been particularly aggressive in shifting income abroad because they rely on intellectual property, which is relatively easy to shift to other countries as a tax avoidance strategy. Half of all repatriations from the 2004 tax holiday came from companies in these two sectors alone. The same corporations and sectors would stand to benefit disproportionately — and enormously — from a second tax holiday.
Newsweek Exposes the Real Minimum Wages, 0.25¢/hr.
I'm so glad someone in the major press took this on. Newsweek posted job ads on online job bidding sites, where the lowest bid gets the job. Newsweek found Americans are being forced to work for as low as 25¢/hr. There are tons of these online sites, forcing workers to bid on short projects. Where is the DOL or EEOA on some of these sites? Yes, Virginia, these online bidding sites are circumventing minimum wage laws and forcing Americans to compete against super low wage countries to get any money at all.
Super Rich Got Richer From Economic Armageddon
Naked Capitalism says it all with Quelle Surprise, overviewing a new report on how the rich got richer from the financial crisis.
Mortgage Rejection Rates - 26.8%
The Wall Street Journal has an overview on mortgage rejection rates. No duh, add the requirement of 20% down, 36% of income to mortgage payments, the destruction of the U.S. middle class and magically few can afford to buy a house. The dark red map color means rejection rates of over 40%. Click this link for the interactive map.
How to Allow Greece to Default Without the Default
We mentioned big banks, through their EU and ECB counterweights are trying to figure out how to let Greece default without the actual default classification. Reuters has the latest:
European banks and insurers moved closer on Friday to a voluntary rollover of their Greek government debt holdings, hoping to get around rating agencies' reservations and avoid a Greek default.
National finance officials are discussing with banks and insurers a proposal to replace existing Greek debt with a different type of bond in a deal they hope will persuade credit rating agencies to refrain from declaring Athens in default of its obligations.
TBTF Banks Need to Cough Up
We're finally seeing a little action on raising capital requirements to too big to fail financial institutions:
The chief oversight group of the Basel Committee on Banking Supervision proposed that the world’s largest and most complex banks would need to hold a reserve of high-quality capital of between 1 and 2.5 percent of their assets to cope with any unforeseen losses. That would be on top of their proposed minimum capital levels for all banks, currently set at 7 percent of assets.
Cost of Raising a Child
Wall Street 24/7 shows us no one can afford kids these days.
It cost $25,299 to raise a child from birth to age 18 in 1960. The amount rose to $226,920 last year. This may be one of the many reasons Americans are having fewer children these days.
Adjusted for inflation, the 1960 sum equals about $192,497 compared to $235,996 in 2010, about a 22% increase. Neither number paints a complete picture. Median household income rose 25% between 1960 and 2010. The cost of raising a child is, in comparison to income over the 50-year period, up very modestly.
Obama, Politics, Strategic Reserve and Gas Prices
Here Comes the Double Dip
Economist Shilling is predicting a double dip recession for 2012. Well, technically not a double dip, since GDP growth has gone on past the definition, but a new recession. For us regular folks on the ground, I don't believe the 2001 recession stopped for most of us. When will business cycle people weight more the disappearing U.S. middle class for cycle dating? Regardless, the infamous sun will come up tomorrow mantra is starting to be challenged.