TPT November 2008

From the AmericaS

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China and the Arab states of the Persian Gulf, plus the governments of Russia and Venezuela, owning nearly 80 per cent of the world’s $1.71 trillion of government wealth. Autocracies’ assets grew by 60 per cent in the last year to $1.35 trillion, as of the second quarter, while democracies saw their assets plummet 7 per cent to $360 billion during the same period. For the US, this perhaps sounds more troubling than it is, despite the fact that the country has been running a large external deficit for some time. For other governments, autocratic or otherwise, to be holding US debt is a sign of the attractiveness of such investment. But Ms Satow pointed out that America’s dependence on foreign funds ‘can complicate foreign policy’. For example, according to one respondent, the Georgia-Russia confrontation in August was an early instance of significant political tension between the US and one of its biggest creditors. Brad Setser, a fellow in geoeconomics at the Council on Foreign Relations, told the Sun , “As a result of the events in Georgia, Russia may become less willing to finance the US” . Collateral damage . . . › As Wall Street’s troubles deepen, big US investment banks like Morgan Stanley and Merrill Lynch are moving some of their key employees to increasingly influential hubs of finance in Asia, the Middle East, Europe, and Latin America. A parallel trend is funneling jobs from traditional financial centres like New York, as price pressure moves jobs lower down the corporate ladder overseas, especially to India. The relocations enable the banks to strengthen themselves in regions where they had already been building up business, while retaining skilled workers threatened by the waves of layoffs that have claimed 80,000 finance jobs globally. › Apparently the combination of the downturn in housing construction and stepped-up immigration raids have made it harder for Mexican migrants to find jobs in the US and to send money home. According to Mexico’s Central Bank, money sent home by Mexican workers in the US declined by 2.2 per cent in the first half of 2008. Year-end figures are expected to show a continuation of the trend. This is the first sustained decline since the bank began tracking these remittances, in 1995. Dorothy Fabian , Features Editor (USA)

Finance Most US corporations avoid taxes, says a government study

A report issued by the US Government Accountability Office (GAO) on 12 August found that a majority of US corporations do not pay federal income taxes. Although this would be no surprise in the case of corporations taking losses in a given tax year, the study found that over 60 per cent of US corporations with revenue totaling more than $2.5 trillion paid no federal income taxes between 1998 and 2005. The tax returns reviewed by the GAO for that period were filed by small businesses as well as multinational corporations. Antonio Perez of the Epoch Times noted that, while corporations usually aim to report higher earnings to shareholders and Wall Street analysts, income for taxes can be drastically different from net income for financial reporting. He wrote, “The taxable income may be offset by prior period deferrals, various federal tax credits, and other write-downs prohibited by generally accepted US accounting standards.” The study, commissioned by two Democratic senators, was originally intended to investigate tax avoidance in corporate transfer pricing. [This pricing method permits allocation of sales and costs among different divisions of the company and different tax jurisdictions.] But the report did not mention any issues surrounding transfer pricing. For the single year 2005, the GAO found that 25 per cent of all large corporations in the US owed no federal taxes. For purposes of the study a large corporation was defined as a company with more than $250 million in assets. Elsewhere in finance . . . › “There is a new class of financial superpowers, and America is not one of them,” wrote staff reporter Julie Satow, of the New York Sun (19 August). The reference was to research from the Council on Foreign Relations, which showed autocracies such as

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N ovember 2008

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