TPT November 2008

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From the AmericaS
November 2008 82 ›
how their vehicle compared with the ideal vehicle, and their overall
satisfaction level.
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
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)