Originally published at: Pluralistic: 15 Jun 2021 – Pluralistic: Daily links from Cory Doctorow
Today's links
- Taxes are for the little people: If your eyes glaze over at "carried interest loophole," wait'll you hear about "fee waivers."
- This day in history: 2001, 2006, 2011, 2016, 2020
- Colophon: Recent publications, upcoming/recent appearances, current writing projects, current reading
Taxes are for the little people (permalink)
If you wanna do crimes, make them incredibly complicated and technical. Like the hustlers that came into the bookstore I worked at and spun these long-ass stories about why they needed money for a Greyhound ticket home.
Those guys shoulda studied the private equity sector.
Private equity's playbook is to borrow giant sums by putting up other peoples' companies as collateral (yes, really). Then they use that money to buy the company they mortgaged, and pay themselves a huge dividend.
Then they sell off the company's assets and pay themselves even more money. That leaves the company in a state of precarity – assets they once owned, like their buildings, they now rent. If the rent goes up, they have to find the money to cover it.
All of this forms a pretense for mass layoffs, defaulting on pension obligations, lowering product quality, stiffing suppliers and borrowing more money. If the company doesn't go bust, the PE looters can flip it to another PE company, that does it again.
Whenever you see something really terrible happening to a business that once offered useful products and services and paid decent wages, it's a safe bet that PE is behind it. Toys R Us, Sears, your local hospital – and that memestock favorite, AMC.
https://pluralistic.net/2020/04/12/mammon-worshippers/#silver-lake-partners
Private equity goons make their money in two ways: the first is by pocketing 20% of these special dividends and other extractive policies that hollow out business.
This is money at PE managers get paid for spending their investors' money. It's a wage, in other words.
But thanks to the "carried interest" loophole (a hangover from 16th-century sea captains that has nothing to do with "interest" on loans), they get to treat these wages as "capital gains" and pay far less tax on them.
The fact that we give preferential tax treatment to capital gains (money derived from gambling), while taxing wages (money derived from doing useful work) at higher rates really tells you everything you need to know about our economic priorities.
https://pluralistic.net/2021/04/29/writers-must-be-paid/#carried-interest
The carried interest loophole lets PE crooks treat their salaries as capital gains, are taxed at a much lower rate than the wages of the workers whose lives they're destroying.
On top of the 20% profit-share that PE bosses get every year, they also pocket a 2% "management fee" for all the "value" they add to the companies they've taken over.
This is definitely a wage. The 20% profit-share at least has an element of risk, but that 2% is guaranteed.
But PE bosses have spent more than a decade booking that 2% wage as a capital gain, using a tax-fraud tactic called "fee waivers." The details of how a fee waiver don't matter because it's all bullshit, like the tale of the needful Greyhound ticket.
All that matters is that a legal fiction allows people earning eight- or nine-figure salaries to treat all of those wages as capital gains and pay lower rates of tax on them than the janitors who clean their toilets or the workers whose jobs they will annihilate.
Now, the IRS knows all about this. Whistleblowers came forward in 2011 to warn them about it. The Treasury even struck a committee to come up with new rules to fix it.
But Obama failed to make those rules stick, and then Trump put a former tax-cheat enabler in charge of redrafting them. The cheater-friendly rules became law on Jan 5, and handed PE bosses hundreds of millions in savings every year.
https://www.nytimes.com/2021/06/12/business/private-equity-taxes.html
The New York Times report on "fee waivers" goes through the rulemaking history, the technical details of the scam, and the gutting of the IRS, which can no longer afford to audit rich people and now makes its quotas by preferentially auditing low earners who can't afford lawyers.
But former securities lawyer Jerri-Lynn Scofield's breakdown of the Times piece on Naked Capitalism really connects the dots:
As Scofield and Yves Smith point out, if Biden wanted to do one thing for tax justice, he could abolish preferential treatment for capital gains. If we want a society of makers and doers instead of owners and gamblers, we shouldn't penalize wages and reward rents.
There's an especial urgency to this right now. As the PE bosses themselves admit, they went on a buying spree during the pandemic (they call it "saving American businesses"). Larger and larger swathes of the productive economy are going into the PE meat-grinder.
Worse still, the PE industry has revived its most destructive tactic, the "club deal," whereby PE firms collaborate to take out whole economic sectors in one go:
https://pluralistic.net/2021/05/14/billionaire-class-solidarity/#club-deals
We're at an historic crossroads for tax justice. On the one hand, you have the blockbuster Propublica report on leaked IRS files that revealed that the net tax rate paid by America's billionaires is close to zero.
https://pluralistic.net/2021/06/08/leona-helmsley-was-a-pioneer/#eat-the-rich
This has left the Bootlicker-Industrial Complex in the bizarre position of arguing that anyone who suggests someone who amasses billions of dollars should pay more than $0 in tax is a radical socialist (so far, the go-to tactic is to make performative noises about privacy).
At the same time, the G7 has agreed to an historical tax deal that will see businesses taxed at least 15% on the revenue they make in each country, irrespective of the accounting fictions they use to claim that the profits are being earned in the middle of the Irish Sea.
That deal is historical, but the fact that it's being hailed as curbing corporate power reveals just how distorted our discourse about corporate taxes has become.
As Thomas Piketty writes, self-employed people pay 20-50% tax in countries that will tax the world's wealthiest companies a mere 15%: "For SMEs as well as for the working and middle classes, it is impossible to create a subsidiary to relocate its profits to a tax haven."
Piketty, like Gabriel Zucman, says that EU nations should charge multinationals a minimum of 25%, and like Zucman, he reminds us that the G7 deal does nothing to help the poorest countries in the Global South.
https://www.lemonde.fr/blog/piketty/2021/06/15/the-g7-legalizes-the-right-to-defraud/
These countries and the EU have something in common: they aren't "monetarily sovereign" (that is, they don't issue their own currencies and borrow in the currencies they issue).
Sovereign currency issuers (US, UK, Japan, Canada, Australia, etc) don't need to tax in order to pay for programs – first they spend new money into the economy and then they tax it back out again.
https://pluralistic.net/2020/06/10/compton-cowboys/#the-deficit-myth
These countries can run out of stuff to buy in their currency, but they can't run out of the currency itself. Monetarily sovereign countries don't tax to fund their operations.
Rather, they tax to fight inflation (if you spend money into the economy every year but don't take some of it out again through taxation, more and more money will chase the same goods and services and prices will go up).
And just as importantly, monetary sovereigns tax to reduce the spending power – and hence the political power – of the wealthy. The fact that PE bosses had billions of tax-free dollars at their disposal let them spend millions to distort tax policy to legalize fee waivers.
Taxing the money – and hence the power – of wage earners at higher rates than gamblers creates politics that value gambling above work, because gamblers get to spend the winnings they retain on political influence, including campaigns to rig the casino in their favor.
This discredits the whole system, shatters social cohesion and makes it hard to even imagine that we can build a better world – or avert the climate-wracked dystopia on the horizon.
But for Eurozone countries (whose monetary supply is controlled by technocrats at the ECB) and countries of the Global South (whom the IMF has forced into massive debts owed in US dollars, which they can only get by selling their national products), tax is even more urgent.
The US could fund its infrastructure needs just by creating money at the central bank.
EU and post-colonial lands can only fund programs with taxes, so for them, billionaires don't just distort their priorities and corrupt their system – they also starve their societies.
But that doesn't mean that monetary sovereigns can tolerate billionaires and their policy distortions. The UK is monetarily sovereign, in the G7, and its finance minister is briefing to have the City of London's banks exempted from the new tax deal.
Now, the City of London is one of the world's great financial crime-scenes, and its banks are responsible for an appreciable portion of the planet-destabilizing frauds of the past 100 years.
During the Great Financial Crisis AIG used its London subsidiary to commit crimes its US branch couldn't get away with. The City of London was the epicenter of the LIBOR fraud, the Greensill collapse – it's the Zelig of finance crime, the heart of every fraud.
UK Chancellor Rishi Sunak claims banks are already paying high global tax and can't afford to be part of the G7 tax deal. If that was true, it wouldn't change the fact that these banks are too big to jail and anything that shrinks them is a net benefit.
But it's not true.
As the tax justice campaigner Richard Murphy points out, the risk to banks like Barclays adds up to 0.8% of global turnover: "The big deal is that the 15% global minimum tax rate is much too low. Suinak has yet again spectacularly missed the point."
(Image: Joshua Doubek, CC BY-SA)
This day in history (permalink)
#20yrsago Laid-off tech-workers crowd San Francisco homeless shelters https://memex.craphound.com/2001/06/15/laid-off-sysadmins-and-other/
#15yrsago PirateBay hides anti-MPAA taunt in DNS https://web.archive.org/web/20060904114045/http://hackingthemainframe.com/smf/index.php?PHPSESSID=94828ac4e02399d0b8f7586f1bff09fc&action=dlattach;topic=6217.0;id=253
#15yrsago Why Apple is to blame for iTunes DRM https://web.archive.org/web/20060620004534/http://vitanuova.loyalty.org/NewsBruiser-2.6.1/nb.cgi/view/vitanuova/2006/06/15/1
#15yrsago Jim Baen, science fiction publisher, has had a serious stroke http://nielsenhayden.com/makinglight/archives/007658.html#007658
#10yrsago Rotters: YA horror novel about grave-robbing chills, thrills, delights https://memex.craphound.com/2011/06/15/rotters-ya-horror-novel-about-grave-robbing-chills-thrills-delights/
#10yrsago French proposal: any URL to be arbitrarily blacklisted without due process https://www.laquadrature.net/en/2011/06/15/the-entire-internet-under-governmental-censorship-in-france/
#10yrsago Apple patents mobile camera that other people can shut off https://web.archive.org/web/20170226183949/https://www.cnet.com/uk/news/apples-killjoy-patent-may-thwart-illegal-mobile-recording/
#5yrsago The forgotten blockbuster locksport competitions of the mid-Victorian era https://muse.jhu.edu/article/597409/pdf
#1yrago Huge trove of unprotected dating-app data https://pluralistic.net/2020/06/15/raffi-and-jaffee/#kompromat
#1yrago Raffi on radical politics https://pluralistic.net/2020/06/15/raffi-and-jaffee/#raffi
#1yrago Al Jaffee has retired https://pluralistic.net/2020/06/15/raffi-and-jaffee/#what-me-worry
Colophon (permalink)
Currently writing:
- Spill, a Little Brother about short story pipeline protests. Yesterday's progress: 255 words (5732 words total).
- A Little Brother short story about remote invigilation. PLANNING
-
A nonfiction book about excessive buyer-power in the arts, co-written with Rebecca Giblin, "The Shakedown." FINAL EDITS
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A post-GND utopian novel, "The Lost Cause." FINISHED
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A cyberpunk noir thriller novel, "Red Team Blues." FINISHED
Currently reading: Analogia by George Dyson.
Latest podcast: How To Destroy Surveillance Capitalism (Part 06) https://craphound.com/nonficbooks/destroy/2021/05/10/how-to-destroy-surveillance-capitalism-part-06/
Upcoming appearances:
Recent appearances:
- Raging Chicken podcast:
https://rcpress.podbean.com/e/out-dcoup-live-cory-doctorow-on-his-book-how-to-destroy-surveillance-capitalism/ -
Darts and Lasers podcast:
http://www.dartsandletters.ca/2021/06/11/ep24-darts-and-lasers-ft-cory-doctorow-nalo-hopkinson-batya-weinbaum/ -
Nicole Sandler Show:
https://www.youtube.com/watch?v=VcyrQAWTKwk
Latest book:
- "Attack Surface": The third Little Brother novel, a standalone technothriller for adults. The Washington Post called it "a political cyberthriller, vigorous, bold and savvy about the limits of revolution and resistance." Order signed, personalized copies from Dark Delicacies https://www.darkdel.com/store/p1840/Available_Now%3A_Attack_Surface.html
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"How to Destroy Surveillance Capitalism": an anti-monopoly pamphlet analyzing the true harms of surveillance capitalism and proposing a solution. https://onezero.medium.com/how-to-destroy-surveillance-capitalism-8135e6744d59 (print edition: https://bookshop.org/books/how-to-destroy-surveillance-capitalism/9781736205907) (signed copies: https://www.darkdel.com/store/p2024/Available_Now%3A__How_to_Destroy_Surveillance_Capitalism.html)
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"Little Brother/Homeland": A reissue omnibus edition with a new introduction by Edward Snowden: https://us.macmillan.com/books/9781250774583; personalized/signed copies here: https://www.darkdel.com/store/p1750/July%3A__Little_Brother_%26_Homeland.html
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"Poesy the Monster Slayer" a picture book about monsters, bedtime, gender, and kicking ass. Order here: https://us.macmillan.com/books/9781626723627. Get a personalized, signed copy here: https://www.darkdel.com/store/p1562/_Poesy_the_Monster_Slayer.html.
Upcoming books:
- The Shakedown, with Rebecca Giblin, nonfiction/business/politics, Beacon Press 2022
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