politics: the state

Cross-posted at Reports from the Economic Front.

How do corporations escape paying taxes?  Businessweek recently ran a story on Google that helps to explain how they do it.

The story begins by noting that: “Google has made $11.1 billion overseas since 2007.  It paid just 2.4 percent in taxes.  And that’s legal.”   This is pretty incredible because Google does business in many advanced capitalist countries with high tax rates.  For example, “The corporate tax rate in the U.K., Google’s second-largest market after the U.S., is 28 percent.”

While the article focuses on Google, and how it avoids paying taxes, it made clear that most of the leading high-technology companies use remarkably similar techniques to achieve similar results.

Ok, so how does Google do it?  Google’s office in Ireland is the center of the company’s international operations.  In 2009 it “was credited with 88 percent of the search juggernaut’s $12.5 billion in sales outside the U.S.”  But Google doesn’t pay taxes on that amount, because most of the profits went to Bermuda, where there is no corporate income tax.

So, how did Google get its profits to Bermuda?  Businessweek explains:

Google’s profits travel to the island’s white sands via a convoluted route known to tax lawyers as the “Double Irish” and the “Dutch Sandwich.” In Google’s case, it generally works like this: When a company in Europe, the Middle East, or Africa purchases a search ad through Google, it sends the money to Google Ireland. The Irish government taxes corporate profits at 12.5 percent, but Google mostly escapes that tax because its earnings don’t stay in the Dublin office, which reported a pretax profit of less than 1 percent of revenues in 2008.

Irish law makes it difficult for Google to send the money directly to Bermuda without incurring a large tax hit, so the payment makes a brief detour through the Netherlands, since Ireland doesn’t tax certain payments to companies in other European Union states. Once the money is in the Netherlands, Google can take advantage of generous Dutch tax laws. Its subsidiary there, Google Netherlands Holdings, is just a shell (it has no employees) and passes on about 99.8 percent of what it collects to Bermuda. (The subsidiary managed in Bermuda is technically an Irish company, hence the “Double Irish” nickname.)

This set-up (as Businessweek describes it) also helps Google lower its tax bill in the U.S.  Google Ireland licenses its search and advertizing technology from Google’s headquarters in Mountain View, California.  Obviously this technology is worth a lot—but Google headquarters keeps the licensing fee to Google Ireland low.  Doing so means that Google headquarters can minimize its U.S. earnings and thus its tax obligations to the U.S. government.  And of course, Google Ireland knows how to move its profits around to minimize its tax liabilities.

Not surprisingly, corporations are always eager to learn from each other.  Thus, “Facebook is preparing a structure similar to Google’s that will send earnings from Ireland to the Cayman Islands, according to company filings and a person familiar with the arrangement.”  Microsoft already has one in place.

According to one study cited by Businessweek (done by Kimberly A Clausing, an economics professor at Reed College), these kinds of profit shifting arrangements cost the U.S. government as much as $60 billion a year.  And of course Ireland also loses plenty.  Too bad that the governments of Ireland and the U.S. are suffering from large federal deficits and under immense pressure to slash spending.   Collateral damage I guess to the profit-making drive.

What is being done to change this apparently legal racket?  According to Businessweek:

The government has made halting steps to change the rules that let multinationals shift income overseas. In 2009 the Treasury Dept. proposed levying taxes on certain payments between U.S. companies’ foreign subsidiaries, potentially including Google’s transfers from Ireland to Bermuda. The idea was dropped after Congress and Treasury officials were lobbied by companies including General Electric, Hewlett-Packard, and Starbucks, according to federal disclosures compiled by the nonprofit Center for Responsive Politics. In February the Obama Administration proposed measures to curb companies’ ability to shift profits offshore, but they’ve largely stalled.

A nice cozy system, isn’t it.

In this 11-minute video, Dalton Conley interviews Victor Rios about the youth control complex.  He argues the that punishing arm of the state (the prison system) and the nurturing arm of the state (the education system) work together to criminalize, stigmatize, and punish young inner city boys and men.

Rios’ ideas apply very well to the treatment of Latarian Milton, the 7-year-old boy who was charged with grand theft auto for taking his grandmother’s car for a joy ride.

Lisa Wade, PhD is an Associate Professor at Tulane University. She is the author of American Hookup, a book about college sexual culture; a textbook about gender; and a forthcoming introductory text: Terrible Magnificent Sociology. You can follow her on Twitter and Instagram.

Dolores R. sent us a photo from Olvera St. in downtown Los Angeles. Olvera Street is a historic site/tourist attraction that commemorates a pueblo founded in 1781.  Some call it the birthplace of Los Angeles.

The photo is of a sign pleading with visitors to behave.  It is written in both Spanish and English but, as Dolores observes, the message in each language is slightly different (translation below).

Dolores explains:

Translation is mostly the same, with the exception of the part regarding the plants. The English says, “Do not touch plants.”

The Spanish version says (literal translation), “Abstain from touching anything, cutting or etching names in the cactus.”

Thoughts?

See also our post documenting differences in the English and Spanish versions of a Kaiser pamphlet for new moms (hint: only one of them emphasizes sterilization).

Lisa Wade, PhD is an Associate Professor at Tulane University. She is the author of American Hookup, a book about college sexual culture; a textbook about gender; and a forthcoming introductory text: Terrible Magnificent Sociology. You can follow her on Twitter and Instagram.

Today Californians vote as to whether to legalize marijuana.  Chris Uggen at Public Criminology explains:

This measure (1) legalizes various marijuana-related activities, (2) allows local governments to regulate these activities, (3) permits local governments to impose and collect marijuana-related fees and taxes, and (4) authorizes various criminal and civil penalties.

There is a chance that the measure will pass; Gallup polls of U.S. opinion show that support for legalization has grown over time:

What will happen if California becomes the first state to legalize marijuana is the stuff of speculation or, more generously, modeling.  Uggen points to the work of scholars employed at the RAND Drug Policy Research Center (Beau Kilmer, Jonathan P. Caulkins, Rosalie Liccardo Pacula, Robert J. MacCoun, and Peter H. Reuter).  According to their models:

(1) the pretax retail price of marijuana will substantially decline, likely by more than 80 percent. The price the consumers face will depend heavily on taxes, the structure of the regulatory regime, and how taxes and regulations are enforced;

(2) consumption will increase, but it is unclear how much, because we know neither the shape of the demand curve nor the level of tax evasion (which reduces revenues and prices that consumers face);

(3) tax revenues could be dramatically lower or higher than the $1.4 billion estimate provided by the California Board of Equalization (BOE); for example, uncertainty about the federal response to California legalization can swing estimates in either direction;

(4) previous studies find that the annual costs of enforcing marijuana laws in California range from around $200 million to nearly $1.9 billion; our estimates show that the costs are probably less than $300 million; and

(5) there is considerable uncertainty about the impact of legalizing marijuana in California on public budgets and consumption, with even minor changes in assumptions leading to major differences in outcomes.

In other words, it’s really hard to tell what the consequences of legalizing marijuana will be!  Uggen urges caution.

Lisa Wade, PhD is an Associate Professor at Tulane University. She is the author of American Hookup, a book about college sexual culture; a textbook about gender; and a forthcoming introductory text: Terrible Magnificent Sociology. You can follow her on Twitter and Instagram.

On this day in 1911, suffragettes in California squeaked out a victory, making the state the sixth to give women the vote and doubling the number of female voters in the U.S.  See David Dismore’s great summary at Ms.

Campaign poster reproduction (c. 1896-1910, from David Dismore’s collection):

The New York Times reports:

Lisa Wade, PhD is an Associate Professor at Tulane University. She is the author of American Hookup, a book about college sexual culture; a textbook about gender; and a forthcoming introductory text: Terrible Magnificent Sociology. You can follow her on Twitter and Instagram.

This week the U.S. Census Bureau reported that the American poverty rate has reached 14.3%, the highest it has been in 15 years:

Children are over-represented among the poor; among those  less than 18-years-old, the poverty rate is 20.7%:

The Census report suggests that the poverty rate would be even higher if it weren’t for an increase in non-nuclear family households.  Over the last two years, an additional 11.6 percent of households now include non-family or family members from three generations or more.  Consider this data from Philip Cohen’s Family Inequality blog (and notice that the near poor are more likely to be living with a grandparent than the poor, who may not have this option):

So, the economic recession is correlated with an increase in poverty, but what does “poverty” really mean?   The New York Times reports that in 2009 it meant a pretax income of $10,830 for a single person with no dependents and less than twice that, $22,050, for a family of four.

Trying to imagine keeping a roof over my head, sufficient food in my belly, and clothes on my back on that amount of money is difficult.  But even if this was possible, human beings  need more than food, shelter, and clothes.  Try to imagine, with this amount of money, maintaining friendships and romantic partnerships, nurturing your children’s emotional health and educational potential, having pride and comfort in your home and personal appearance, finding the resources to invest in your own human capital, or giving yourself a modicum of leisure.  Poor people are human too and these numbers only begin to scratch the surface of the kind of deprivation many Americans suffer every day.

Images borrowed from Graphic Sociology.

Lisa Wade, PhD is an Associate Professor at Tulane University. She is the author of American Hookup, a book about college sexual culture; a textbook about gender; and a forthcoming introductory text: Terrible Magnificent Sociology. You can follow her on Twitter and Instagram.

One in every 31 American adults is under control of the correctional system.   The U.S. imprisonment rate is astronomical; it is six times that of many European countries.  This rather new reality is directly the product of the American war on drugs initiated by Reagan in the ’80s.

The Pew Center on the United States reports that the 1.4 million strong state prison population dropped in 2009, the first decrease since 1972.

Professor Chris Uggen, at Public Criminology, summarizes the causes identified by the report:

Pew attributes the drop to greater diversion of low-level offenders and probation and parole violators from prison; stronger community supervision and re-entry programs; and, a quicker release of low-risk inmates who complete risk reduction programs. State budget problems have likely played an important role in accelerating each of these trends.

The decrease is certainly better than an increase, but Uggen notes that it is quite small.  The prison population dropped by only 0.4%, or 5,739 inmates.  Further, the decrease in the state prison population was outpaced by the increase in the federal prison population, which went up by 6, 838 inmates.  Even so, Uggen argues, this is significant: “…any change in direction is meaningful after four decades of unabated growth.”

Lisa Wade, PhD is an Associate Professor at Tulane University. She is the author of American Hookup, a book about college sexual culture; a textbook about gender; and a forthcoming introductory text: Terrible Magnificent Sociology. You can follow her on Twitter and Instagram.

Dmitriy T.M. sent in an interesting discussion of tax collection in Pakistan by the New York Times.   The narrator argues that rich Pakistanis, among others, do not pay taxes, forcing the government to rely on foreign aid.  Essentially, then, it is argued, “[t]he American taxpayer is subsidizing the Pakistani rich.”   Since the politicians are rich themselves, and happily evading taxes, there is little will to change the system.

One solution? Send in a team of transgender people to embarass homeowners into paying their property taxes, of course!

Lisa Wade, PhD is an Associate Professor at Tulane University. She is the author of American Hookup, a book about college sexual culture; a textbook about gender; and a forthcoming introductory text: Terrible Magnificent Sociology. You can follow her on Twitter and Instagram.