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Venezuelan Digital Currency Backed by Oil

 2 min read / 

The Story

Venezuela has announced plans to launch a digital currency, “the petro”, backed by the country’s oil and mineral reserves. The petro aims to help ease the country’s monetary crisis but sceptics claim the proposal has no credibility and will not help those in extreme need.

Why It’s Important


source: tradingeconomics.com

Hyperinflation has eroded the Venezuelan bolivia’s value by 97% this year, making imports incredibly expensive and causing many to abandon trust in the currency. The country’s oil reserves made up 95% of its exports in 2016, while oil and gas extraction accounted for 25% of GDP. Rich supplies of resources provide some initial credibility to the proposal, but President Maduro’s questionable track record when it comes to monetary policy is making many sceptical about the proposal. His currency controls and money printing have only added to the monetary crisis. Maduro has not announced when the digital currency would come into use or any details regarding how the country would create such a system.

Opposition leaders argue the country’s shortages of food and medication are far more pressing and that the digital currency will not address this. The digital currency may provide a more trusted medium of exchange, but it is unlikely to help those in excessive poverty.

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The US Senate Approves the Republican Tax Bill

 2 min read / 

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During the early hours of Saturday morning, the Senate passed the Republicans’ landmark bill in what could become the USA’s first tax overhaul since 1986 and the first legislative success of the Trump presidency. Meanwhile, Democrats have denounced the bill as essentially a handout to the wealthy that will disproportionately squeeze other segments of society.

Mixed Feelings

There is also a strong feeling among many Democrats and Republicans that the bill was hastily drafted and improperly thought through. Democrat senator Chuck Schumer said:

“I have not seen a more regressive piece of legislation, so devoid of rational, so ill-suited for the condition of the country”.

For Trump, however, this is a victory and a step towards making good on some of the policy promises that formed his election manifesto. So far, the Trump presidency has been characterised by racial tensions, a failure to repeal Obamacare and no sign of the infamous border wall being built. Accordingly, the President made his feelings known on Twitter following the Senate’s approval of the tax bill.

The tax bill is not yet in the clear, however. It will now be amalgamated with legislation that has passed through the House of Representatives. This process will commence next week and it is likely that there will be further complaints from Democrat lawmakers.

Meanwhile, business groups, who will be the primary beneficiary of the tabled plan to reduce corporation tax from 35% to 20%, have welcomed the bill’s progress. Jamie Dimon, JPMorgan’s CEO, congratulated the Senate and said that the reforms would “boost [our] economy and benefit American workers.”

Uncertainty Ahead

It is yet unclear what impact the tax cuts will have on the USA’s national budget. Despite Trump’s promise to balance the nation’s books, a congressional watchdog has recently said that Trump’s tax plan will send the deficit soaring and only put slightly more cash in the wallets of millions of ordinary American families across the country.

Keep reading |  2 min read

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How Trump Inadvertently Prompts Discussions of Unlikely Issues

 5 min read / 

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In 1916, in a letter to David Lloyd George’s daughter, Winston Churchill admitted:

“I think a curse should rest on me – because I love this war. I know it’s smashing and shattering the lives of thousands every moment, and yet, I can’t help it, I enjoy every second of it”

Can Trump be considered the moral equivalent of World War One in terms of the mayhem he has wrought upon civilised notions of the way the world should be? Probably not, but the damage he has caused is nonetheless considerable. The juxtaposition of Trump with Churchill seems appropriate because, as the President dismantles so much of what has come to be normative behaviour in civilised society, he is inadvertently promoting a re-examination of the things that America holds dear – in the same way that the world has re-examined its opinion on war in the 100 years since Churchill made his aforementioned remark.

The fact that Trump was elected notwithstanding the revelations in the Access Hollywood tape has likely been responsible for women finally declaring enough to be enough. Would Harvey Weinstein, Kevin Spacey, Louis CK, Matt Lauer have been exposed in a Hillary Clinton administration? The fact that Trump’s tweets are ill-considered, often factually wrong and inflammatory, has promoted a sober discussion of how to deal appropriately with the issues of racism and immigration.

The fact that Trump is actively withdrawing from the theaters of international endeavor – trade, diplomacy and climate change – has led to a careful consideration of why those things might be important to Americans. The fact that Trump shamelessly panders to his base, regardless of collateral damage to broader public opinion, has resulted in a careful review of the stakes involved in tribal loyalty.

Sexual Assault and Tax Reform

Susan Collins, one of the senators for Maine, was asked at a recent Christian Science Monitor Breakfast whether, if Roy Moore were elected to fill the Alabama Senate seat vacated by Jeff Sessions, he should be unseated by the Senate. She stressed, firstly, that she protested his candidacy even before the allegations of sexual assault. She went on to say that the question of whether the Senate would have the right to unseat him if he were to be elected by the people of Alabama, accusations of sexual assault notwithstanding, was a very difficult one.

She is right. A trial in the court of public opinion has a different standard and different procedures from a trial in the justice system. An election is perhaps the most exacting kind of public opinion trial. An acquittal by the voters does not preclude future legal proceedings, but, while it is clear that NBC is within its rights to fire Matt Lauer, it is less clear that the US Senate or House of Representatives has the right to unseat Moore – if elected – or, respectively, John Conyers as Nancy Pelosi has urged.

Tax reform is currently top of mind in DC and, as this article is written, the Senate is close to passage of its bill. As it stands, neither Moore not Conyers will be voting for tax reform: Moore because the vote will likely pre-date his election; Conyers because he is a Democrat and votes for the bill that is presented to both Houses of Congress, after it has been to conference committee to sort out the differences between House and Senate versions, are expected to proceed along party lines.

Hypocrisy and Principle

Fitness to serve and uphold the values for which representatives are elected are both called into question by the context in which the current tax reform legislation is proceeding.

Mitch McConnell, Senate Majority leader made it clear in an interview in May 2017 that he believed any tax overhaul could not add to the growing budget deficit. Steve Mnuchin, Treasury Secretary, claimed the proposed tax reforms, which include a reduction in the corporate tax rate from 35% to 20% would pay for themselves.

The Joint Committee on Taxation was asked to conduct a macroeconomic analysis of the impact of the Senate Tax Cuts and Jobs Act bill – the so-called dynamic scoring report that would validate Mnuchin’s statements. The report revealed approximately $458bn of savings due to economic growth. That left a deficit increase over the next ten years of $1trn.

The report leaves the Republican party with the uncomfortable choice of passing a bill that contradicts its stated, fiscally prudent governing principle of not increasing the deficit or failing to pass tax reform, which, it is assumed, would have dire electoral consequences in 2018.In the court of public opinion as it stands in 2017, hypocrisy and lack of principle may prevail.

Conclusion

Churchill was a little ashamed of enjoying World War One. Should one be equally ashamed while watching the unravelling of the hypocrisies of the elite-world order? Perhaps, but there is a decent chance that, as public officials (Mike Flynn, for example) are convicted of lying in the service of their president and the unwinding of male privilege rolls through the power venues of Hollywood and Washington DC, hypocrisy and abandonment of principle may extract a price and the Republican Party may find that it has made a profound mistake.

Keep reading |  5 min read

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Taxation and Morality: What Underpins the US Tax System?

 7 min read / 

taxation morality

Governments need money to fix the roads; to keep airports running; to keep bridges safe; to pay the armed forces; to maintain fire departments and police departments; to maintain a clean and secure water supply and to provide a social safety net for the old, infirm or less fortunate.

The common good, as described by Professor Esther Reed in her contribution to a 2014 document on Taxation and Morality, is humanity’s shared project of living together. It is less about the specifics and substance of what that common good is than an understanding that the common good is a communal endeavour and a recognition that people exist in relation to each other.

The tragedy of the commons is often cited in support of a capitalist model. The fact that everyone acting rationally in their own self-interest can destroy a shared resource should more properly be understood not as a reason to extol the pursuit of private property and self-interest without regard for the need of others, but rather as a reason to derive a better understanding of the common good.

Politics and the Common Good

Agreement on what the common good is quickly becoming a question of politics. There would be no requirement for taxation without government spending. In the Big Picture – a site referenced before in these articles – a team brought together by Steve Ballmer, former CEO of Microsoft, pulls together the financial picture of the USA and gives insights to federal, state and local finances.

Government spending is an expression of the things a society holds important as part of the common good. Government spending represents the accumulation of priorities established by both (in the case of the United States) political parties. It is something that citizens on both sides of the political divide have had a share in creating.

In the United States, currently, expenditures exceed revenues collected and the government must borrow to fund the gap. Taxation is how revenues are collected. If the common good has a moral underpinning – there are both secular and religious arguments that say it does – then there is a moral basis for taxation and, necessarily, a moral argument that evading or avoiding tax is immoral.

Is Legality the Right Standard?

Arguments have been made that taxation is unconstitutional. Brushaber vs. Union Pacific Railroad squashed this argument. Evading tax – consciously ignoring the rules requiring a particular tax result – is both criminal and immoral. The grey area is tax avoidance. A common reaction to the publication of the Panama Papers and Paradise Papers is to ask what is wrong with engaging in legal planning to avoid taxes that would otherwise be payable?

Legality is not always an acceptable answer to questions of morality. Slavery and child labour were once legal. They were never morally acceptable. Asserting compliance with a complex web of rules governing taxation in jurisdictions that overlap and interlock in sometimes incoherent ways cannot be a sufficient answer to questions of corporate social responsibility (CSR). Milton Friedman’s quote:

“There is one and only one social responsibility of business–to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud”

is relevant and often cited in discussions of what constitutes CSR. Friedman’s quotes can be a rich source of discussion, but the words can be parsed in different ways. Staying within the ‘rules of the game’ requires an understanding of the rules and, of course, what the game is.

If ‘the game’ is the business of producing profits for shareholders, that begs the question of what the profits are for. Those who argue that the common good is a lofty goal beyond the responsibility of corporate decision-making may have been overtaken by evolving norms of CSR.

Tim Cook, CEO of Apple wrote an op-ed in the Wall Street Journal on November 3 2013 where he urged passage of the Employment Nondiscrimination Act. He claimed that:

Apple’s antidiscrimination policy goes beyond the legal protections U.S. workers currently enjoy under federal law, most notably because we prohibit discrimination against Apple’s gay, lesbian, bisexual and transgender employees. A bill now before the U.S. Senate would update those employment laws, at long last, to protect workers against discrimination based on sexual orientation and gender identity.”

While claiming to hold Apple to a higher standard than that imposed by law in this area, Cook has a slightly different approach to taxation. His standard is that Apple pays every dollar of taxes owed under current law in the US and in the jurisdictions in which it operates. Perhaps – though the recent release of the Paradise Papers makes that unclear. Apple’s effective tax rate, depending on how the calculation is done, is between 15-24%, far short of the 35% marginal rate of corporate tax.  Holding the company to a higher standard in nondiscrimination than the standard of minimum legal compliance in tax law appear inconsistent.

Regardless of whether Cook is aware of the choices he is making in the area of taxation, moral choices are being made as a matter of CSR. The definition of what comprises the common good has entered the realm of corporate decision-making. It is a threshold once crossed that cannot be retraced.

Tax Reform in the United States

How does this relate to tax reform in the United States? The reasons why tax reform triggers such passionate widespread coverage is precisely because taxation is a moral issue. The burden is clear and, because the burden must be shared, the issue of how that burden is shared goes to matters of fairness.

If the reduction in the corporate tax rate to 20% is made permanent, but the reductions in personal taxation and the adjustment of bands of taxation sunset after ten years in order to comply with the parliamentary procedure of Reconciliation and the Byrd Rule, that seems unfair. If the forgiven tuition of post-graduate students becomes taxable but the carried interest loophole remains, that seems unfair.

The constraints for passage of tax reform are a product of the current hyper-partisan state of politics. Because no-one expects that both parties in the Senate will be able to work together for tax reform; and because Senate Republicans are – probably correctly – convinced that if they do not pass tax reform this year, they will suffer electorally in the 2018 elections, tax reform must be able to pass with a simple majority. Reconciliation first requires a budget resolution to have been passed. This has been done already and permits a 10-year deficit not exceeding $1.5trn. Providing a tax bill is not scored by the Joint Committee on Taxation to exceed this deficit, it may be passed with a simple majority. Whether this procedure has been complied with can be objected to as a procedural matter. The matter is ultimately decided by the Senate Parliamentarian.

Conclusion

The moral underpinnings of taxation are clear. Whether current tax reform proposals conform to a broadly held understanding of the common good is not clear. Frustratingly, it is not even apparent that this is the criterion for approving tax reform. That appears to have much more to do with the pragmatic calculations of electoral survival. Congress would seem to be engaged in its own version of the tragedy of the commons – the shared resource, in this case, being the United States’ economy.

Keep reading |  7 min read

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