Thursday, May 16, 2013
Bangladesh and Texas-A Study in Contrasts
Every man holds his property subject to the general right of the community to regulate its use to whatever degree the public welfare may require it.
— Theodore Roosevelt, August 31 Speech at Osawatomie
The difference in the devastation was enormous-so was the difference in the response.
When the nine-story building in Dhaka, Bangladesh, collapsed, 1127 people were killed. When the fertilizer plant in the town of West, Texas, exploded 15 people died. The property damage in both places was extensive. Bangladesh has said what it intends to do to try to prevent such future disasters. So has Texas.
Eight days after the Bangladesh explosion Bangladesh’s prime minister, Sheikh Hasina, told CNN’s Christine Amanpour that there are problems that beset the garment industry in that country (an acknowledgement that seems almost unnecessary given the number of accidents that have taken place there) but said the country was intent on taking steps to improve industry safety there. (In November 112 people were killed in a factory fire in Dhaka.) The prime minister said that a committee had been formed to make sure buildings and workers were safe and said: “This committee will submit the findings to the Cabinet committee and, side by side, we have been trying our best to improve the situation.”
There are thousands of textile factories in Bangladesh and safety has long been a concern and a professed priority for the government although its professions have often been more aspirational than realized. Nonetheless, it is aware of the need to do more than has been done in the past and, as in the past, promises to do better in the future. A hopeful bit of news appeared when on May 14, 2013 it was announced that global retailers had agreed to a plan to help pay for fire safety and building improvements in Bangladesh. Texas offers a different perspective on the problem.
On April 17, 2013, the fertilizer plant in West exploded killing 15 people, injuring close to 200 people and damaging or destroying 150 buildings and homes. By Bangladeshi catastrophe standards it was barely worth reporting on. Nor did the April 17 explosion hold a candle to the Texas fertilizer explosion on April 16, 1947 that occurred while fertilizer was being loaded onto a freighter in Texas City, Texas. In that explosion some 581 people were killed, 3,500 were injured and property damages were in the neighborhood of $100 million. Nonetheless, the explosion in West that occurred almost 66 years to the day after the Texas City explosion was not an explosion to be sneezed at, even applying Texas “bigger is better” standards. What was most remarkable about the West explosion was not the explosion itself but the response of Texas officialdom to it.
According to the New York Times, five days after the explosion Governor Rick Perry was addressing a group of executives of companies he was hoping to lure to Texas because of its low taxes and aversion to regulation. The Dallas Morning News reported that he told those he was wooing, without further explanation, that spending more money on inspections would not have prevented the explosion. He said that he is comfortable with the state’s level of oversight and explained that people “through their elected officials clearly send the message of their comfort with the amount of oversight.” Chuck DeVore, the vice president of policy at the Texas Public Policy Foundation, agreed with the governor. He was quoted in the NYT as saying that the wrong response to such a disaster [West] would be for the state to hire “battalions of government regulators who are deployed into industry and presume to know more about running the factory than the people who own the factory and work there every day. ” Included among those experts, of course, were the people who owned and worked at the West plant every day. As if to prove Mr. DeVore’s point, the Houston Chronicle reports that Texas lawmakers have cut funding to those agencies in charge of workplace safety protections.
Like Bangladesh, Texas is not a stranger to terrible accidents in the work place. The New York Times reports that Texas has more work place casualties than any other state in the country. During each of the past 10 years it has had more than 400 fatalities. Between 2007 and 2012 fires and explosions at its chemical and industrial plants have inflicted as much property damage as explosions in all the other states combined. Texas has no statewide fire code and by statute small communities may not enact their own. Some commentators have said that if a fire code had been in place the West explosion might have been prevented. After the explosion one state legislator introduced a bill that would permit small rural counties to enact fire codes. The sponsor says he has already heard from business owners that such regulations could be financially burdensome.
The families of the West may think the loss of loved ones and the loss of property are financially burdensome. Those kinds of losses, however, do not make Texas a less business friendly state. Regulations do that. Bangladesh is trying to fix the problem that arose because it was too business friendly. Texas doesn’t believe it has a problem. It will remain business friendly.
Thursday, May 9, 2013
Corporations, Humans and Taxes
When there is an income tax, the just man will pay more and the unjust less on the same amount of income.— Plato, The Republic
The question for people who live and work abroad is whether they can turn themselves into corporations. Corporations are, as lawyers have known for years, and as the now famous case of Citizens United reminded us, (even though it did so by being misread by many commentators) people just like the people who live in the house next door. Since corporations are people and have the same rights as people, the question people of the flesh and blood kind ask is why human persons are not entitled to the same tax benefits as Congress gives corporation persons.
American citizens are taxed on their worldwide income, irrespective of where in the world it is earned. An American who works all year in France is taxed by the United States on every penny of earned income in France just as if the American had earned that money working in the United States. (The Internal Revenue Code in fact provides for a foreign earned income exclusion that permits U.S. citizens working abroad to exclude from income up to $92,500 in foreign earnings and, in addition, they can deduct certain housing amounts they receive while working abroad. Everything in excess of those permitted exclusions, however, is taxed the same as if the citizen were working in the United States.) Recent news caused persons working abroad to realize that their kind of persons are treated grossly different from corporate kinds of persons and that would seem to be a clear violation of the Equal Protection clause of the United States Constitution.
The equal treatment for tax purposes came into focus because of recent news about the practice of large United States corporations of diverting billions of dollars of work into foreign subsidiaries. Those transfers protect the earnings of those subsidiaries from U.S. taxes unless the parent company repatriates the earnings into the United States. So long as the earnings are held abroad they are not taxed. The amount that the U.S. corporation persons may exclude is not the $92,500 that human persons may exclude. It is all of the earnings of the subsidiary. Those amounts are often in the billions. If that rule were applied to human persons they would not owe income tax if they spent their earnings outside the United States.
A Wall Street Journal article described in some detail how many U.S. corporations take advantage of this tax law. According to the WSJ, in 2012 60 large U.S. corporations parked $166 billion overseas thus enabling them to protect 40% of their profits from U.S. taxes. The only time those profits will be taxed by the IRS is if the company brings those earnings into the United States. Among the companies surveyed, the WSJ reported that Abbott Laboratories has $40 billion in untaxed overseas earnings, Honeywell International Inc. has $11.6 billion, Microsoft Corp. has $60.8 billion and Apple has $100 billion. That report came at the same time it was announced that Apple planned to buy back $50 billion of stock from shareholders. Since Apple has $100 billion parked overseas it would be easy for Apple to use those funds to effect the buyback. Repatriating those funds, however, would cost it approximately $9.2 billion in taxes that it would prefer not to pay. Therefore, it has issued a $17 billion bond offering with a relatively low interest rate. The $308 million interest it pays on those bonds will be deducted by it on its tax returns giving it approximately a $100 million income tax deduction. In addition to enjoying the tax deduction, it avoids the $9.2 billion it would have had to pay had it repatriated funds in order to effect the buyback.
It does not take a tax scholar to realize that the deal corporate persons get on money they earn abroad is much better than the deal human persons get. If corporate persons got the same deal as human persons then corporations that had earnings abroad in a given year of $1 billion, would have to pay tax on $999,907,500 instead of on $1 billion. The difference would save the companies more than $3000 in taxes, a somewhat less favorable result than saving $9.2 billion. .
There will undoubtedly be the occasional scholar who will remind the writer that a subsidiary of a corporation is not the same as the corporation itself and, therefore, the foregoing analysis is flawed. The commentator may also observe that in fact Citizens United did not arrive at its conclusion by addressing “personhood” and, therefore, this entire commentary is meaningless. The proper response to the first criticism is if the subsidiary is simply an offspring of the parent corporation then the rule should be that any children of U.S. citizens working abroad should be given the benefit of the tax treatment that is accorded the subsidiary of corporations. That is, of course, a silly distinction and one that no court, except perhaps the United States Supreme Court, would accept. The proper response to the second criticism is “and your point is?”
Thursday, May 2, 2013
McCain et al vs. The U.S. Constitution
Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof. . . .
‒First Amendment to the U.S. Constitution
Readers should not take this to be a primer on what God those contemplating terrible crimes should believe in prior to committing those crimes. Nonetheless, and notwithstanding Constitutional guarantees, they should be aware that in the United States how you are treated after you commit an indescribably evil crime may well depend on what kind of a God, if any, you believe in. Within the last 5 years we have had four horrific criminal acts arranged by people who when first apprehended appeared to have acted alone. Three of those occurred within the last 10 months.
At midnight on July 20, 2102 James Holmes entered a movie theater in Aurora, Colorado dressed all in black and accompanied by four guns and hundreds of rounds of ammunition. He announced his presence by opening fire on those in the crowded theater killing 12 people and injuring 58. In addition to the assault on those in the theater he had rigged his apartment with sophisticated explosives that were designed to kill those who entered the apartment and cause casualties to those in surrounding units. According to an NBC News report of the testimony offered at a January 8, 2013 hearing, there were more than a dozen explosive devices in the apartment loaded with napalm, smokeless powder and live ammunition. Among other things in the apartment was a thermos bottle filled with glycerin suspended over a frying pan filled with potassium permanganate. When combined the two substances would set off a chain reaction. Carpets had been soaked with oil and gasoline. If someone had entered the apartment or played with some toys left in front of the building that were connected to the devices, the explosion would have been triggered. As a boy James attended the Penasquitos Lutheran Church in San Diego, California and his pastor describes him as a proud, intelligent but retiring boy. His attendance at that church suggests he is a Christian. Following his arrest no one suggested that James was a terrorist and should be deprived of his constitutional rights.
On December 14, 2012, Adam Lanza killed 20 children and six members of the staff at Sandy Hook Elementary School in Newtown, Connecticut. Dressed in black and armed with a rifle and many rounds of ammunition he shot his way into the school and began his killing spree. Before going to school he murdered his mother. It was she who had home schooled him. Before he was home schooled he attended St. Rose of Lima Catholic School. Since he killed himself after killing others there was no reason for authorities to comment on his religious affiliation or to describe him as a terrorist.
On April 16, 20076, Seung-Hui Cho killed 32 people and wounded 17 others in a mass shooting at Virginia Tech. Cho was a South Korean citizen but had permanent resident status in the United States. He and his family attended a Christian church in the town in which they lived. After the killing he committed suicide. A note found in his room said: “Thanks to you I died like Jesus Christ, to inspire generations of the weak and defenseless people.” Since he killed himself after killing others there was no reason for authorities to comment on his religious affiliation nor to describe him as a terrorist.
The Boston bombers were every bit as evil and sophisticated as James Holmes and every bit as vicious as the other individuals described above. The two men, Tamerlan Tsarnaev and Dzhokhar Tsarnaev were both legally in the United States. Dzhokhar was a naturalized U.S. citizen and a follower of Islam who reportedly posted links to Islamic websites. His friends described him as not particularly religious and none had seen signs of his being a radical Muslim. None of that affected commentators and politicians. The Muslim connection was quite enough.
Some members of Congress whose allegiance to the U.S. constitution depends completely on what parts of it are being considered, immediately demanded that the constitutional rights of Dzhokhar be suspended and that he not be advised of his right to counsel. Those comments were made long before any connection to known terrorist groups by the two men had been suggested. Senator Lindsay Graham said in a tweet:: “A decision to not read Miranda rights to the suspect was sound and in our national security interests.” Senator John McCain said Dzhokhar should be treated as an enemy combatant so that he could be questioned more aggressively. Senators McCain, Lindsay Graham, Kelly Ayotte and Rep. Pete King said: “The accused perpetrators of these acts were not common criminals attempting to profit from a criminal enterprise, but terrorists trying to injure, maim and kill innocent Americans.” That is the shallow explanation offered by shallow legislators to justify their willingness to set aside an American citizen’s constitutional rights.
Rational observers might observe that none of the killings described above had anything to with the murderers’ interest in making money as McCain et al suggested. The only murderers from those described above that people immediately defined as terrorists were the Boston murderers. It would seem that how some people choose to define depraved hearts depends on what God those depraved hearts worship. Dzhokhar made a bad choice.