Tuesday, November 20, 2012

This Means War!

With Black Friday upon us in a couple days, I thought I would discuss something shopping related. Specifically, several countries have decided to go to war with the most powerful organizations on this planet. My money is on Google and friends.

For those who live under a rock (or in West Virginia), it will come as a great surprise that many governments are out of money. They have promised WAY MORE in benefits than they could ever afford and they put those promises on the old credit card. Now the bill is due and they are struggling to find someone to stick with the tab.

This has resulted in things like the French jacking up their upper income tax bracket. Britain is now planning to impose a massive property tax on expensive homes. The EU tried to milk foreign airlines by imposing a carbon tax that applied for the entire flight, not just the portion spent over EU airspace. Obama and the airlines told the EU no, and Europe surrendered. But they haven’t given up. Fees, surcharges, tax rates. . . they’ve all gone up. And yet, revenues keep falling because of the double-dip recovery Europe is going through. So what is a tiny failing country on a tired continent to do? How about taxing multinational companies?

Good luck with that folks. . . you are out of your league.

France fired its first shot by hitting Amazon with a massive $252 million tax bill claiming that Amazon is shipping into France from Luxemburg to avoid French tax. Sacre bleu! Britain is now doing the same thing. The British government also hauled in Starbucks executives to explain how a company that sold around $5 billion in the UK in the past thirteen years could declare that it only made a profit once and paid a grand total of about $10 million in tax. Starbucks blames high rent. Google earned $4 billion in the UK last year alone and has a 33% profit margin, but managed to report a loss in the UK in 2010 and 2011. What a shame. Google apparently routes their profits. . . er, inventories through Bermuda. France hit Google with a one million Euro tax bill. None of these companies intend to pay.

Britain and France are determined to squeeze money out of these companies, but I don’t think they have the brains to do it frankly. Indeed, as outraged as these countries are, what Google and Amazon have done is legal under UK and French law. That’s the funny part. And the only way to change that would be to change their tax laws to prevent it. But the same fools who created the current system will be charged with fixing this loophole so I doubt they have a chance. Not to mention, a change like this would make local businesses unhappy too and that’s bad for votes.

Moreover, if they do make a real change, then this becomes a question of strength and Britain and France need big old Google and powerful Amazon much more than Google and Amazon need tiny Britain or stagnant France.

My guess is there will be some legal changes that amount to nothing. The locals will be placated by the thought they slayed the dragon, and Google and Amazon will pay some token tax. . . which they will promptly get refunded the following year. Alternatively, Google and Amazon will agree to pay more and will impose massive surcharges so they end up making more by imposing the tax than they will lose paying it. Starbucks, which has physical locations, will just jack up their expenses again.

So act as outraged as you like good people of Europe, these companies aren’t paying another cent.

Germany is doing this too, only they decided to toss a little protectionism into the mix. They just passed a bill which will force Google to pay German newspapers every time their search engine links to one of these articles. In other words, if you run a search for “naked Fritz” and you find an article in The Daily Fuhrer about a group of Germans running naked through the streets toward Poland, Germany now wants Google to cough up some payolla to The Daily Fuhrer. Yeah, that’s gonna work.

Let me spin the likely scenario on this one: Germany passes law. Google makes Germany vanish from internet. For all practical purposes, Germany ceases to matter to the rest of the world. Sales of German goods collapse. Germany begs Google for forgiveness. . . but Google doesn’t forgive, nor does it forget. Polish Army caught unaware by invasion of naked Germans.

The moral to the story is that right now, only two countries are truly capable of standing up to multinational companies: the United States and China. Our markets are so large that these companies need us. Everyone else can pretty much go f* themselves, they are little more than an irritant beneath Goliath’s imported sneakers.

Is this a good thing? No. But it is the reality. . . and something seems wrong with that.


Commander Max said...

Let them tax multinational corporations, like it will make a difference.

They will still go on about sophisticated they are.

Joel Farnham said...

This is interesting. Heinlein postulated that eventually corporations would control the world. In his book, Friday, it is stated that it is impossible for a country to go to war against a corporation. Too many people rely on them and what country can destroy a corporation? I mean the target would be a mail deposit box.

Robert Asprin went a step further with Cold Cash War.

The basic concept is nation-states no longer are in control. Corporations are.

Tennessee Jed said...

Johathon, Jonathon, Jonathon. (more later)

Patriot said...

Andrew.....While your comments above are absolutely spot on, what will happen is what always happens.....(Nation) States impose "tax" on corporation due to corp not paying their "fair share." Corporation increases cost of tax on to consumer (say $.02) per transaction. Hardly noticeable in the grand scheme of things. Consumer pays "tax" ....... Corporation pays increased "tax" to nation/state......nation/state tax "revenue" from said corp increases. Politicians win....corp wins.....suckers don't even notice pennies increase in "fees" "shipping"...call it whatever you want.......Voila!! Ain't free market capitalism tres magnifique!?

tryanmax said...

Patriot, even so, if that is how things shake out, that is probably a better method of taxation anyway, a small amount on every transaction. It's basically how companies themselves make their money. What governments have never learned to do is live in the margin as Google, Amazon, or Starbucks have.

Tennessee Jed said...

The whole Amazon thing is kind of interesting. In Tennessee (greenest state in the land of the free,) Amazon has negotiated with the state to start divulging online purchases for the 9.2% sales tax in exchange for jobs (e.g. distribution facilities.) Couple of thoughts here. Tarriffs helped hasten and worsen the great depression. Free marketer that I am, I'm not a fan of Wall Street. Big Finance is in bed with big government. While I am grateful for the retirement my investments provided, I do believe that stock price manipulation for speculators has caused many business leaders to abandon long term strategic thinking for keeping stock analysts happy.

AndrewPrice said...

Max, What I find so laughable is both the outrage.... "how dare you do what we allowed you to do, you didn't do what we really wanted" and the level of impotence here from sovereign governments.

AndrewPrice said...

Joel, The flaw in that analysis is that corporations need the permission of the government to exist. Otherwise, the governments can just ban them from commerce and seize their assets and there's nothing the corporation can do about it.

I think the real point here is that a war is coming against foreign commerce. We've even seen it inside the country with California trying to tax companies from other states. Where this all eventually ends up is a good question.

AndrewPrice said...

Jed, Jonathan?

T-Rav said...

Hey, at least these soak-the-rich socialistic policies are improving France's credit rating....ohhhh.

AndrewPrice said...

Patriot, Very true. If these companies do ultimately pay, all they will do is pass it on, so they just make the corporations into another form of tax collector for the government. Corporations don't pay taxes... consumers pay taxes.

Moreover, it's a hidden tax because it will just disappear into the price and the consumers won't know it's there.

I think there are several lessons here. The first is that these countries created a crooked tax scheme that allows companies to do this in the first place. Our is the same. The way the income tax is set up in most countries allows you do play strange games like this where you can shift around profits, etc. They either need to stop trying to help their friends and play protectionist through the tax code or they need to accept that these companies will always find way around their tax bills.

The second is that if consumers were smart, they would push for an end to the income tax so that companies stopped playing these games and instead increased the sale tax -- which is highly visible... which is why governments don't want it.

AndrewPrice said...

T-Rav, TOTALLY BY COINCIDENCE, things aren't going well in France.... it has nothing to do with their confiscatory policies.

AndrewPrice said...

tryanmax, That is ultimately the problem. Governments spend first and look for income second.

Things like this, however, highlight how silly the entire system is. The income tax is subject to major abuse and gamesmanship, both by big companies and by governments. It ends up hidden just like a VAT and more importantly, consumers direct their anger at the companies rather than the government. We need an open tax law which labels all the tax that is being paid on everything. I think people would be shocked.

AndrewPrice said...

Jed, I am a free marketer, but I don't see Big Business as free market by any stretch. They use government influence to buy regulations to shut down or slow competitors and to force consumers to buy their products, they use government to guarantee their risks, and they use subsidies to jack up their profits. They are highly destructive of competition. They are constantly caught colluding with the other bigs and often with the approval of government. They get changes to the legal code to protect themselves from dangerous practices. And then they hide their worst cronyist practices behind the label of free markets.

As for Wall Street, the market is rigged at this point and I do mean that. Over half of all stocks are owned by 1% of investors. The huge investment banks are constantly getting caught manipulating stocks and yet never get more than a token fine. They are allowed to engage in practices that have nothing to do with what a stock market should be doing -- like "microtrades" which are nothing more than sheer profit taking. There is no free market there.

Tennessee Jed said...

Andrew - at the end of Rollerball, when Jame Caan has killed all the other players and is taking a victory lap, the crowds discontinue chanting the name of the corporate city/state sponsors (Houston, Houston) and start chanting his name. ;)

AndrewPrice said...

Jed, I'm ashamed I didn't put that together! That's one of my favorite movies!! LOL!

Tennessee Jed said...

And lest we forget, those corporate titans have bought and paid for those favorable rules with generous under the table campaign contributions to both parties. While I generally agree that the government governs best that governs least, I believe strongly in enforcement of anti-trust and restraint of trade actions. And if we get caught up in the tariff game as we did in the 30's (popular with big labor, natch) I expect it will have a very negative impact on an economy that is reeling to begin with.

AndrewPrice said...

Jed, I agree on all points. A tariff war will only make everyone more poor... but that won't stop anyone.

And I too am a fan of anti-trust and anti-competitiveness laws. You can't have a free market when people are allowed to use the legal system to control the market. I wish the Republicans would start to understand this. Just because a company is big does not mean it got their because of the market nor does it mean it should be protected.

Which is not to say the Democrats are any better. The Republicans are just stupid and defend any business. The Democrats are corrupt and defend contributors.

Tennessee Jed said...

agree, although I suspect the art of helping those that contribute to the campaign has not entirely been lost on the R's as well as the D's.

AndrewPrice said...

Oh, definitely. They are both corrupt. BUT I think the Democrats are worse.

For one thing, they are more cynical about this. The Republicans generally are up front about helping big business and they genuinely believe their policies will make things better. So their corruption is basically limited to helping their friends more than other businesses.

The Democrats, on the other hand, claim to hate business and every law they pass they claim is meant to help the little guy by putting the boot to business. But the reality is that with rare exceptions, those laws are just giveaways to their friends.

Moreover, whereas the Republicans generally try to give business more freedom to help their friends prosper, the Democrats generally try to take away freedom to make their friends' competitors suffer. This to me, is the real key. Republican corruption is about favoring donors. Democratic corruption is about harming non-donors.

K said...

Governments spend first and look for income second.

Because "Hey Taxpayers! Give me more money so I can pass it on to my special constituency!"
is a poor re-election strategy.

T-Rav said...

In fairness to the Dems, some of their biggest contributors are trial lawyers, unions, and other groups which are very different from businesses, such as not doing anything at all to strengthen the economy. So maybe some of the donkeys look in the mirror and tell themselves they're really not about business.

AndrewPrice said...

K, Very true... that's not the most effective strategy to win over the voters. LOL!

AndrewPrice said...

T-Rav, I think the Democrats just lack shame. I think they genuinely don't care about lying about everything they believe or intend to do.

Patriot said...

Andrew....It's the same b.s. we hear whenever one of the more noxious dems get on tv and are hit with an opposing viewpoint that totally discredits the points that they are trying to make. They will say something off base to get the conversation off topic and then continue on with the same talking points as if what was said to contradict their point was irrelevant.

Repub talking head: "No Debbie, you totally read that wrong. The actual number was 55, not 65."
Dem talking head: "That is totally incorrect you right wing mouth breathing slug. You're a racist and tool for even thinking that. Am I correct George?"
MSM Host: "Absolutely enlightened one. I really have no idea what this radical tea-bagger is implying!"

So, commentaramarians......How the heck do we fight that idiocy?

AndrewPrice said...

Patriot, So true. Unfortunately, I don't know if there is a solution. As long as conservatives continue to go on those shows and lend them the credibility of being able to act as moderator, nothing will change.

Also, conservatives need to learn that they aren't in a debating society. Politics and interviews are warfare and no points are awarded for being nice.

Individualist said...


What you are talking about in heinlien is a staple of the Cyberpunk genre but there is a little twist.

In the Cyberpunk scenario the Corporations become very powerful and in bed with the government. The government helps them to be monopolies. The governments then crash unable to pay their bills and in the resulting anarchy Corporations are the only stable institutions.

The corps then solidify themselves in enclaves and their employees become corporate citizens and are issued an employee number. The corps become nation states unto themselves like the Vatican.

The governments that arise are then pawns of the megacorps and everyone who wants to be anyone wants a SIN (System Identification Number). With a SIN you can sign up for benefits and welfare which the corps handle themselves. Outside the Megacorps enclave in the Urban Sprawl are the SINless. People not in the system.

In Cyberpunk motiff what happens is Corps become the government after the democracies collapse and you have Rule by the Stockholders. Taking the latin word Mensarius for financier I gues this would be a Mensaracracy.

Post a Comment