Suggested Discussion Outline

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johnkarls
Posts: 1597
Joined: Fri Jun 29, 2007 8:43 pm

Suggested Discussion Outline

Post by johnkarls »

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---------------------------- Original Message ----------------------------
From: ReadingLiberally-SaltLake@johnkarls.com
To: ReadingLiberallyEmailList@johnkarls.com
Bcc: The Approximately 150 Recipients of Our Weekly E-mail
Subject: Meeting THIS WEDNESDAY Evening Oct 14th –- Donald Trump and Phishing for Phools
Date: Sat, Oct 10, 2015
Time:
Attachments:
(1) RL-b929-SuggestedAnswersToTheSecondShortQuiz
(2) RL-b930-DonaldTrumpBeliefIn$2.5TrillionStuffedInTaxHavenMattresses
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Dear Friends,

Our next meeting is THIS WEDNESday evening, October 14th, at the Salt Lake Public Library (210 East 400 South) in our regular Conference Room C which is on the lower level and accessible by the SPECIAL elevator just inside the EAST entrance.

Please join us for socializing from 6:15 pm > 7:00 pm or, if you prefer, come only from 7:00 pm > 8:55 pm for our formal discussion. We provide coffee/decaf and chocolate-chunk cookies and peanut-butter cookies. Or you could bring your own snack from home or the Salt Lake Roasting Co. branch on the first floor of the library.

[Everyone is welcome to join us afterwards half a block south at Cannella's for drinks to socialize and/or continue the discussion -- everyone is welcome but Dutch treat.]


********************
OUR FOCUS BOOK

[Proposed by June Taylor, U/Utah’s Radiology Research Prof & Long-Time Reading Liberally Regular.]

Our focus will be Phishing for Phools: The Economics of Manipulation and Deception by two Nobel-Prize Economists, George A. Akerlof and Robert J. Shiller (available from Amazon.com for 18.45 + shipping or $14.72 Kindle -- 179 pages sans notes & index).

However, our policy has always been that first-time attendees are not expected to have read the materials.


********************
RSVP’s REQUESTED + FREE FIRST ROUND OF DRINKS FOR NEW ATTENDEES (AND THEIR INVITERS)

Although we have enough RSVP’s to satisfy our minimum quorum, please RSVP if you haven’t done so already and you plan to attend in case the need arises to contact you.

And since we always need new voices, please think hard for at least 60 seconds who, among your friends, neighbors, colleagues, acquaintances, etc., might make a good participant in our meetings. Our policy has always been that first-time attendees are not expected to read the materials.

Please take advantage of Yours Truly who always promises that at our post-meeting celebration at Canellas a half block south of the library, he will buy the first round of drinks for any first-time attendee and for the person who invited her/him.


********************
SKYPE PARTICIPATION

Non-Utah-residents (and residents who are out of town) are invited to participate in our meeting via Skype.

If you would like to do so, please press your reply button and type “request participation via Skype” and we will contact you to make appropriate arrangements.


********************
SUGGESTED DISCUSSION OUTLINE

The Suggested Answers to The Second Short Quiz (a copy of which is attached for your convenience) provides a very good summary of our focus book in the first 13 Q&A’s.

Its final 12 Q&A’s elaborate on the Questions of The First Short Quiz which focused on Donald Trump and his proposed tax plan which includes a proposal --

-- which we have concluded at several of our meetings CAUSED THE ECONOMIC MELTDOWN OF 2008-2012 and

-- which, if implemented by President Trump, WILL CAUSE ANOTHER ECONOMIC MELTDOWN EQUAL TO 2008-2012.

Our meeting Wednesday evening can focus on the book (as summarized in the first 13 Q&A’s of The Second Short Quiz) and/or Donald Trump’s disastrous tax proposal as summarized in the last 12 Q&A’s.

Also helpful in considering Donald Trump’s disastrous tax proposal is the second attachment to this e-mail which is an essay entitled “Donald Trump’s Belief in $ 2.5 Trillion Stuffed In Tax Haven Mattresses” which was posted on www.ReadingLiberally-SaltLake.org and which quotes Donald Trump regarding his naïve belief concerning the tax-haven mattresses and quotes from his official website the disastrous proposal.

Also helpful in considering Donald Trump’s disastrous tax proposal is the First Short Quiz which follows immediately below for your convenience. [In order to avoid making the quizzes too complicated, a long explanation of why the American Jobs Creation (sic) Act of 2004 did not produce an economic meltdown until 2008 was omitted -- however, it is spelled out in detail in the seventh posting under the first section of http://www.ReadingLiberally-SaltLake.org dated 11/14/2012 and entitled “$5 Trillion Reductions in American Payroll > Meltdowns.”]

First Short Quiz

1. Has Donald Trump proposed another economic meltdown equal to 2008???

2. Does Donald Trump really think there is $2.5 TRillion (yes, that’s TRillion with 12 zeros) stuffed in mattresses in the tax-haven subsidiaries of the U.S.-based Multi-National Companies (MNC’s)???

3. Does Donald Trump even realize that he is proposing that the CHUMP American Companies that did NOT export American jobs would be forced to reduce their payrolls and capital expenditures by $2.5 TRillion in order to repay their loans from the tax-haven subsidiaries of the U.S.-based MNC’s that DID export American jobs???

4. In other words --

Is Donald Trump “Phishing” for the “Phools” he believes American voters to be???

OR

Is Donald Trump himself a “Phish” who has been “Phooled” by the slick lobbyists of the U.S.-based MNC’s that have exported American jobs???

5. Have we already seen this movie???

*****
Hint = Please see --

(A) the seventh posting under the first section of http://www.ReadingLiberally-SaltLake.org dated 11/14/2012 and entitled “$5 Trillion Reductions in American Payroll > Meltdowns” and

(B) the third posting under that same first section of http://www.ReadingLiberally-SaltLake.org dated 2/12/2014 and entitled “Renewing 1968 Executive Order 11387 To Halt American Job Exports.”

*****

6. Would it be better to elect Carly Fiorina who at least understands how U.S.-based MNC’s have exported American jobs and what the ramifications of that are???

7. And would it be better to elect Ben Carson who appears to have the common sense not to listen to lobbyists for U.S.-based MNC’s which have exported American jobs -- but instead might be able to perform as a brilliant surgeon who carefully deals with the problems created by the loans to the CHUMP American companies that did NOT export American jobs from the tax-haven subs of the U.S.-based MNC’s that did???


********************

We hope to see all of you on Oct 14th.

Your friend,

John K.

PS -- To un-subscribe, please press "reply" and type "deletion requested."

johnkarls
Posts: 1597
Joined: Fri Jun 29, 2007 8:43 pm

Suggested Answers to the Second Short Quiz

Post by johnkarls »

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Suggested Answers to the Second Short Quiz
Originally posted by johnkarls » Tue Sep 29, 2015 4:56 am


Question 1

What is the origin of the term “phishing”?

Answer 1

According to Akerlof and Shiller (our authors), it came into usage in 1996 to describe the illegal activity on the internet of individuals/organizations impersonating legitimate organizations such as banks, in order to obtain personal information from victims, such as their social security numbers.

Question 2

Have Akerlof and Shiller (our authors) themselves invented the mis-spelling of fools as “phools”?

Answer 2

So it would appear.

Question 3

In considering Adam Smith’s economic theory that free markets provide “an invisible hand” that produces the best outcome, do Akerlof and Shiller make the traditional “ceteris paribus” (“everything else being equal”) assumptions such as free competition, everyone has complete and accurate information, instantaneous adjustments, etc.?

Answer 3

Probably not explicitly, but every good economist always operates on these assumptions at least implicitly.

Question 4

Would governmental regulation (such as anti-trust law to insure free competition, the Food and Drug Administration’s regulation of the safety of new drugs and its policing of the safety of food production) be good examples of how free markets must be supported for “the invisible hand” to work properly?

Answer 4

Of course.

Question 5

Do Akerlof and Shiller indict free markets as being incapable of producing the optimal result because human beings are “phools”?

Answer 5

Yes, this is the reason for their book.

Question 6

Do Akerlof and Shiller claim that “phools” come in two varieties -- “psychological” (which they sub-divide into “emotional” and “cognitive bias” which means misinterpreting reality) and “informational”?

Answer 6

Yes.

Question 7

Aren’t Akerlof and Shiller just pinning new labels on old concepts -- that “cognitive bias” is insanity, “informational” is fraud, and “emotional” as used by them encompasses both addiction and what marketers might call “taste”?

Answer 7

So it would appear.

Question 8

Hasn’t taste been around much longer than Oscar Hammerstein’s “shiny little surrey with the fringe on the top” that featured a team of snow-white horses, yellow wheels, brown upholstery, a genuine-leather dashboard, Isinglass curtains, two bright side lights and, to top it off (pun intended), a fringe made of SILK!!!???

Answer 8

Of course!!! After all, weren’t Adam and Eve “phools” for eating an apple???

Question 9

And haven’t consumers, since time immemorial, consistently “lived beyond their means” -- consciously trying to be as ostentatious as possible, whether in terms of vehicles, housing, clothing, etc., etc.?

Answer 9

It’s called “human nature.”

Question 10

Do Akerlof and Shiller provide us with a zillion vignettes illustrating such “phoolishness” in four categories -- (A) personal financial security, (B) the economy, (C) health, and (D) the quality of government?

Answer 10

Yes.

Question 11

Are Akerlof and Shiller correct that all of us are nothing more than the monkeys in the experiment presenting them with food alternatives, always choosing fruit roll-ups?

Answer 11

What do you think??? Let’s discuss!!!

Question 12

Do Akerlof and Shiller make a convincing case that government should be empowered to prevent us mere monkeys from exercising our free will to choose a “shiny little surrey with a fringe on the top”?

Answer 12

What do you think??? Let’s discuss!!!

After all, bankruptcy law is designed to deal with individuals who cannot control sufficiently their finances. And aren’t Akerlof and Shiller actually making a case for before-the-fact bankruptcy rather than after-the-fact bankruptcy???

For movie buffs, isn’t this reminiscent of a 2002 Tom Cruise movie entitled Minority Report in which a special police unit is able to predict murders and arrest the murderers before they commit their crimes???

Question 13

Do Akerlof and Shiller fail to devote enough attention when it comes to informational “phools” (one of their two categories of “phools”) and the quality of government (one of their four categories of vignettes)?

Answer 13

What do you think??? Let’s discuss!!!

Question 14

After all, didn’t the First Short Quiz demonstrate how either --

(A) Donald Trump is a “phish” who has been “phooled” by the slick lobbyists of U.S.-based Multi-National Companies (“MNC’s”) that have exported American jobs, into believing that the tax-haven subsidiaries of those MNC’s have STUFFED INTO MATTRESSES $2.5 trillion (yes, that’s TRillion with 12 zeros), or

(B) Donald trump himself is “phishing” for the “phools” he believes American voters to be by trying to get them to believe that the MNC’s have STUFFED INTO MATTRESSES $2.5 trillion???

Answer 14

Yes!!!

Question 15

Does the law of criminal fraud and the law of civil fraud provide adequate protection from the “snake oil” being purveyed by Donald Trump?

Answer 15

No (please read the rest of the Q&A’s).

Question 16

Would Donald Trump be able to defend himself from criminal fraud by claiming that he was the “phish” who had been “phooled” rather than the “phisherman” who was intentionally “phooling” the voters?

Answer 16

No (please see Q&A-18).

Question 17

Would such a defense be effective for Donald Trump in a civil lawsuit for fraud?

Answer 17

No (please see Q&A-18).

Question 18

Doesn’t the law, both criminal and civil, provide that “reckless disregard for the truth” is the equivalent of “intent”?

Answer 18

Yes.

Question 19

Do American prosecutors ever prosecute pols for the criminal fraud of which they are often obviously guilty?

Answer 19

Is anyone aware of such a case???

Question 20

Do American prosecutors always seem to confine themselves to prosecuting pols for corruption?

Answer 20

So it would appear!!!

Question 21

Doesn’t the criminal law of corruption, as interpreted by the courts as requiring an explicit “quid pro quo” when it comes to campaign contributions (aka bribes), enable pols to engage in criminal fraud because they know how “the game is played” (i.e., a “wink and a nod” enforced by the knowledge that a pol who has ever crossed a campaign contributor will NEVER AGAIN receive a campaign contribution from anyone)???

Answer 21

Unfortunately!!!

Question 22

Is Donald Trump “judgment proof” when it comes to a civil lawsuit for fraud?

Answer 22

Please see Q&A-23 through Q&A-25.

Question 23

After all, wouldn’t he be “judgment proof” in the traditional sense that he is only worth $11 billion (his claim) and the damages caused by the “snake oil” he is purveying would run into the trillions (yes, that’s TRillions with 12 zeros)?

Answer 23

Yes.

Question 24

However, even if Donald Trump is “judgment proof” in the traditional sense, wouldn’t a civil lawsuit for fraud have the virtue of taking away all his wealth?

Answer 24

What do you think??? Let’s discuss!!!

Question 25

After all, isn’t that what his proposal will do to zillions of innocent Americans?

Answer 25

Unfortunately!!!

Pat
Site Admin
Posts: 169
Joined: Mon Sep 17, 2007 3:11 pm

DonaldTrump’sBeliefIn$2.5TrillionStuffedInTax-HavenMattresse

Post by Pat »

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Trump’s Belief In $2.5 Trillion Stuffed In Tax-Haven Mattresses
Originally posted by Pat » Wed Sep 30, 2015 3:29 pm


---------------------------- Original Message ----------------------------
Subject: Trump’s Tax-Plan Roll-Out & His Belief That There Is $2.5 Trillion Of Cash Stuffed Tax-Haven Mattresses
From: Pat
Date: Tue, September 29, 2015 2:47 pm
To: ReadingLiberally-SaltLake@johnkarls.com
--------------------------------------------------------------------------

Dear John,

You claim in the Suggested Answers to both the First and Second Short Quizzes that Donald Trump’s remarks about his Tax Plan indicates that he believes that U.S.-based Multi-National Companies (MNC’s) have stuffed into mattresses in their tax-haven subsidiaries the $2.5 TRillion (yes, that’s TRillion with 12 zeros) that they have earned from exporting American jobs.

When and where did he make those remarks?

In addition, yesterday Donald Trump rolled out his official tax plan.

Does Trump’s official tax plan continue to indicate such a belief?

Your friend,

Solutions


---------------------------- Original Message ----------------------------
Subject: Re: Trump’s Tax-Plan Roll-Out & His Belief That There Is $2.5 Trillion Of Cash Stuffed Tax-Haven Mattresses
From: ReadingLiberally-SaltLake@johnkarls.com
Date: Wed, September 30, 2015 10:22 am
To: Pat
--------------------------------------------------------------------------

Dear Solutions,

Thank you very much for your e-mail.

The Suggested Answers to both the First and Second Short Quizzes reviewed in detail how the 2008-2012 financial meltdown was caused by The American Jobs Creation (sic) Act which permitted the U.S.-Based Multi-National Companies (MNC’s) that had exported American jobs and captured in their tax-haven subsidiaries the $4 - $5 TRillion (yes, that’s TRillion with 12 zeros) of profit from exporting American jobs -- to suddenly pay that $4 - $5 TRillion as dividends to the MNC’s at a special corporate income tax rate of 5.25%, rather than the regular 35% rate.

The problem, of course, was that the $4 - $5 TRillion HAD NOT BEEN STUFFED INTO MATTRESSES by the tax-haven subsidiaries!!!

As a practical matter, the U.S. tax law had long-since forced the tax-haven subsidiaries to loan the $4 - $5 TRillion to the CHUMP American companies that had NOT exported American jobs.

So The American Jobs Creation (sic) Act caused the tax-haven subsidiaries to immediately demand repayment of the $4 - $5 TRillion from the CHUMP American companies that had NOT exported American jobs.

Which, in turn, forced the CHUMP American companies that had NOT exported American jobs to REDUCE THEIR PAYROLLS and REDUCE THEIR CAPITAL EXPENDITURES by $4 - $5 Trillion so that they could repay the tax-haven subsidiaries.

Throughout the 2008-2012 economic meltdown, newspaper headlines across America screamed about how the CHUMP American companies that had NOT exported American jobs were in desperate need of loans AND COULD NOT OBTAIN THEM!!!

When the CHUMP American companies that had NOT exported American jobs (and the companies that manufactured capital assets for them) were forced to LAYOFF WORKERS EARNING $4 - $5 TRillion, there is no mystery why all of their homes were foreclosed virtually simultaneously!!!

Or why the bottom would have dropped out of the real estate market and why mortgage loans owned by banks and investors through mortgage pools would have tanked -- EVEN IF EVERY ONE OF THOSE MORTGAGES HAD BEEN A STANDARD 20%-DOWN, 30-YEAR, FIXED-RATE MORTGAGE!!!

Blaming the meltdown on sub-prime mortgages indeed!!!

Just a convenient way for the pols to lie about what they caused when they passed The American Jobs Creation (sic) Act!!!

**********
NB: Final passage of the American Jobs Creation (sic) Act in the U.S. Senate was by a vote of 69-17 (one voting “present” and 13 not voting) --

Among the 69 Yea’s were 25 Democrats including Majority Leader Tom Daschle, HILLARY CLINTON, and prospective 2017 Democratic Leader Chuck Schumer!!!

Among the 17 Nay’s were 14 Democrats including JOE BIDEN and Ted Kennedy!!!

**********
Now comes Donald Trump peddling the same old Snake Oil all over again!!!

That all we have to do is pass The American Jobs Creation (sic) Act all over again!!!

BASED ON THE LIE that the tax-haven subsidiaries of the MNC’s that have exported American jobs HAVE STUFFED INTO MATTRESSES trillions of dollars (yes, that’s trillions with 12 zeros), and all we have to do is lower the regular 35% corporate income tax rate on those profits from exporting American jobs AND THE TRILLIONS WILL SUDDENLY BE RELEASED FROM THE MATTRESSES for use in the American economy!!!

You ask where Donald Trump first peddled his Snake Oil???

On CBS’ Face The Nation on 9/13/2015.

The 9/13/2015 transcript for Face The Nation contains the following statement from Donald Trump --

“I want to bring the money back into this country. We have $2.5 trillion, John, out of this country, and the corporations, rightfully, don't bring it back because they have a massive tax to pay, and we have got to make it so they can bring it back. And I will be bringing it back, and we're going to have lot of money pouring into the United States if I get elected. And so we're going to make it possible for them by lowering their tax rate. And we're going to be lowering it for corporations because we want jobs. We want jobs coming back into this country, where you have all of this money, this vast wealth sitting outside of the country because, rightfully, if you were running the company, if I was running the company, you wouldn't bring it back in. We will bringing back trillions of dollars into this country.”

Donald Trump’s 9/28/2015 tax-plan roll-out is not quite so flamboyant as it covers the same point with the following --

“A one-time deemed repatriation of corporate cash held overseas at a significantly discounted 10% tax rate. Since we are making America’s corporate tax rate globally competitive, it is only fair that corporations help make that move fiscally responsible. U.S.-owned corporations have as much as $2.5 trillion IN CASH SITTING OVERSEARS. Some companies have been leaving cash overseas as a tax maneuver. Under this plan, they can bring their cash home and put it to work in America while benefitting from the newly-lowered corporate tax rate that is globally competitive and no longer requires parking cash overseas. Other companies have cash overseas for specific business units or activities. They can leave that cash overseas, but they will still have to pay the one-time repatriation fee.” [Emphasis added.]

**********
Plea To The American New Media

Isn’t there a single member of the American news media who will do her/his job and ask Donald Trump why he thinks the $2.5 TRillion (yes, that’s TRillion with 12 zeros) of profits from exporting American jobs is “IN CASH SITTING OVERSEARS”???

And challenge Donald Trump with the FACT that the $2.5 TRillion has long since been loaned to the CHUMP American companies that have NOT exported American jobs!!!

Accompanied by the question of why Donald Trump thinks that another $2.5 TRillion reduction in payrolls and capital expenditures by the CHUMP American companies that have NOT exported American jobs, would not cause another economic meltdown on the order of the 2008-2012 meltdown!!!

The hour is growing late and the Disciples of the MNC’s (such as Donald Trump) continue to peddle their Snake Oil.

**********
Thank you again for your inquiry.

Your friend,

John K.

Pat
Site Admin
Posts: 169
Joined: Mon Sep 17, 2007 3:11 pm

The 2008 Impact Of The 2004 Amn Jobs Creation (sic) Act

Post by Pat »

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The Suggested Discussion Outline for our 10/10/2015 meeting states with regard to the First and Second Short Quizzes that it incorporates by reference (and that are reproduced above for the convenience of readers of this bulletin board) --

“[In order to avoid making the quizzes too complicated, a long explanation of why the American Jobs Creation (sic) Act of 2004 did not produce an economic meltdown until 2008 was omitted -- however, it is spelled out in detail in the seventh posting under the first section of http://www.ReadingLiberally-SaltLake.org dated 11/14/2012 and entitled “$5 Trillion Reductions in American Payroll > Meltdowns.”]”

For the convenience of readers of this bulletin board, that seventh posting is reproduced below. But also for the convenience of readers of this bulletin board, there is first culled out and reproduced separately the portion of that posting comprising the “long explanation of why the American Jobs Creation (sic) Act of 2004 did not produce an economic meltdown until 2008” --


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Why The American Jobs Creation (sic) Act of 2004 Did Not Produce An Economic Meltdown Until 2008

Originally posted on 11/17/2012 as part of “$5 Trillion Reductions in American Payroll > Meltdowns.”


The former long-time Ernst & Young Senior International Tax Partner (Technical) facilitates a monthly politically-oriented book/study group which for 7 years has recommended policy positions to America’s decision makers and with which I am connected. [He also chaired 1994-1996 the American Bar Association’s International Tax Committee comprising the nation’s top 300 international tax lawyers and featuring 22 working sub-committees.]

He and Ernst & Young and the other “Big Four” CPA Firms designed the structure for U.S.-based multi-national companies (US-MNC’s) to export American jobs while capturing virtually all of their worldwide profits in tax-haven subsidiaries (principally non-resident Singapore subsidiaries) which contracted with factories in such low-wage countries as China to manufacture the US-MNC’s products using the US-MNC’s technology to the US-MNC’s specifications under the US-MNC’s supervision.

Accordingly, virtually all of the worldwide profits of such US-MNC’s were not, by virtue of being captured in a tax-haven subsidiary, subject to U.S. corporate income taxation until such time, if ever, that the profits are repatriated to the US parent corporation as a dividend or a “constructive dividend.” “Constructive dividends” are “investments in U.S. property” which are deemed by Sec. 956 of the Internal Revenue Code to be the functional equivalent of dividends, such as loans to the U.S. parent corporation or investments in U.S. property that is leased to the U.S. parent corporation.

The regular 35% income tax on the profits of the tax-haven subsidiary are not recorded as a “deferred tax liability” under “generally-accepted accounting principles” so long as they are “permanently reinvested” outside the U.S. This test is satisfied with a few brief “boiler plate” paragraphs comprising “pipe dreams” about such things as possible acquisitions and locked away for safekeeping in case an auditor should bother to inquire.

As a practical matter, Sec. 956 of the Internal Revenue Code restricts the US MNC’s that have exported American jobs to have their tax-haven subs loan their accumulated profits from exporting American jobs to UNRELATED American companies that did not export American jobs or, in some cases, invest the profits in U.S. government T-bills.

[US-MNC auditors dutifully recorded that the tax-haven profits were “permanently reinvested” in loans to the US companies that had not exported American jobs and/or in US Government T-bills.]

By 2004, these tax-haven profits had reached the level of $4 TRillion - $5 TRillion. Microsoft alone had more than $1 TRillion in its tax-haven subs, causing its stock analysts, as reported prominently and often in the financial press, to analyze Microsoft as a bank rather than as a software company.

Both the amounts and the character of such investments “stuck out like sore thumbs” in the US MNC’s Form 10-K’s filed each year with the US Securities and Exchange Commission.

At the end of 2004, Congress enacted the so-called American Jobs Creation (sic) Act which permitted the US MNC’s to have their tax-haven subs pay “cash dividends” during the next 12 months of the profits that had piled up over a decade or so from exporting American jobs subject to a special one-time 5.25% corporate income tax rate rather than the normal 35% rate.

As you can appreciate, the American companies that had NOT exported American jobs were not in a position to repay the loans from the tax-haven subs of the US MNC’s within the typically 90-day loan terms.

However, virtually all of the US MNC’s that had exported American jobs decided that it was unwise to involve a Bankruptcy Court and instead dictated stiff terms based on how quickly the American companies that had not exported jobs could reduce their payroll and capital expenditures. The $4 TRillion - $5 TRillion of reductions in American payroll and American capital expenditures largely occurred during 2005-2007.

The requirement in the American Jobs Creation (sic) Act to pay $4 TRillion - $5 TRillion in “cash dividends” during 2005 was satisfied by having the banks of the US MNC’s, for a small fee, book a loan to the tax-haven subs equal to the portion of their loans to the American companies that had not exported jobs that could not be repaid immediately and then book an off-setting loan from the US MNC’s after they had immediately received those same amounts as “cash dividends” from the tax-haven subs. “Cash”, of course, in a modern economy is nothing more than a wire transfer and has no more tangibility than a book entry for a “loan.”

The only other significant requirement in the American Jobs Creation (sic) Act was for the dividends from the tax-haven subsidiaries to be invested in American payroll or capital expenditures. This, of course, did not produce an increase in American payroll or capital expenditures because the dividends were “traced to” or “matched with” the normal level payroll and capital expenditures that the US MNC’s have. And the normal cash flow that would normally have funded the normal level of payroll and capital expenditures was now “freed up” on a tracing/matching basis to redeem stock of the US MNC’s.

The American Jobs Creation (sic) Act of 2004 was the result of lobbying by Price Waterhouse (another of the “Big Four” CPA firms) on behalf, initially, of their US MNC’s, though many non-client US MNC’s joined the group. Price Waterhouse hired Bill Archer, the recently-retired Chairman of the House Ways & Means Committee, to do the actual lobbying.

Bill Archer “sold” the key decision makers in Congress on the argument that earnings in the tax-haven subs would be “brought home” to create American jobs, that the earnings would otherwise remain “offshore,” and that tax revenue (albeit at only a 5.25% rate) could be generated but 5.25% is better than nothing.

The “elephant in the room” that nobody in Congress investigated was whether the $4 TRillion - $5 TRillion was really “offshore” or whether it had already been loaned to the American companies that had not exported jobs to pay for payroll and “bricks and mortar.” And whether “round tripping” the $4 TRillion - $5 TRillion from the American companies that had not exported jobs to the US MNC’s to redeem their stock would actually result in a NET REDUCTION in American payroll and capital expenditures of $4 TRillion - $5 TRillion.

[Cynics might suggest that nobody in Congress wanted to ask the obvious question of whether the $4 TRillion - $5 TRillion was “stuffed in mattresses” located in Singapore because they were more interested in receiving “campaign contributions” from Bill Archer’s clients but it is possible that none of them was smart enough to think of the obvious question.]

The rest is history.

Congress was in such a panic that only days after the House of Representatives re-convened in January 2008, it passed the Economic Stimulus Act of 2008 providing most taxpayers with immediate $300 rebates ($600 for most married couples) and investment incentives for businesses. It passed the Senate a week later and was signed into law on 2/13/2008.


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11/14/12: $5 TRILLION REDUCTIONS IN AMN PAYROLL > MELTDOWNS
Posted by johnkarls » Sat Nov 17, 2012 7:44 am


SIX-DEGREES-OF-SEPARATION E-MAIL CAMPAIGN TO PRINCETON ECONOMICS NOBEL-LAUREATE PROF. AND NY TIMES OP-ED COLUMNIST PAUL KRUGMAN – YOUR HELP DESPERATELY NEEDED TO AVERT ANOTHER ECONOMIC MELTDOWN - ONLY 5 MINUTES NEEDED TO PARTICIPATE

We take great pride in our Six-Degrees-Of-Separation E-mail campaigns to America's decision makers such as President Obama which, with only a few computer keyboard key strokes, can be sent by each of our members (1) to the decision maker, and (2) to all of the member's friends and acquaintances requesting them to do the same in an unending chain.

Accordingly, we also take great pride that each of our recommendations has been approved unanimously at one of our meetings or, at most, received only one dissent (in which case we say there was a "consensus" rather than "unanimity").

The following Six-Degrees-Of-Separation E-mail campaign to Princeton Economics Nobel-Laureate Professor and New York Times OpEd Columnist Paul Krugman on the referenced subject was approved unanimously at our 11/14/2012 meeting.

If you agree with the recommended E-mail to Prof. Krugman that appears below, please --

(1) send the already-prepared e-mail to Prof. Krugman, and

(2) send to all your friends and acquaintances an already-prepared e-mail that comprises everything below the set of asterisks that follows this paragraph -- so that, through no more than six degrees of separation to 100% of the American population, we reach everyone in a cascading chain.


*********************************************
To: All of your friends and acquaintances

Subj: CALL TO ACTION -- SIX-DEGREES-OF-SEPARATION E-MAIL CAMPAIGN TO PRINCETON ECONOMICS NOBEL-LAUREATE PROF. AND NY TIMES OP-ED COLUMNIST PAUL KRUGMAN – YOUR HELP DESPERATELY NEEDED TO AVERT ANOTHER ECONOMIC MELTDOWN - ONLY 5 MINUTES NEEDED TO PARTICIPATE

Dear Friends,

I have been requested to participate in the referenced "call to action" and request that you participate as well.

The campaign is based on the fact that there are NO MORE THAN SIX DEGREES OF SEPARATION between us and 100% of the American electorate.

And that, on important occasions, we can send to all of our friends and acquaintances an already-prepared e-mail (1) for them to send to America's decision maker(s) to influence governmental policy, and (2) for them to send to all of their friends and acquaintances to do the same in an unending chain.

The reasons for the campaign are contained in the already-prepared e-mail to Princeton Economics Nobel-Laureate Professor and New York Times OpEd Columnist Paul Krugman that appears below.

If you agree with the proposal, please --

(1) hit your e-mail forward button and put the e-mail addresses of all your friends and acquaintances into the address section so that, through no more than six degrees of separation to 100% of the American population, we reach everyone in a cascading chain.

(2) send the following e-mail to Prof. Krugman.


*********************************************
To = pkrugman@Princeton.EDU

Subj = Your Help Desperately Needed To Avert Another Economic Meltdown

Message Text =

Princeton Economics Nobel-Laureate Professor and New York Times OpEd Columnist Paul Krugman

Dear Prof. Krugman:

$4 TRillion - $5 TRillion is the amount by which American companies that did not export American jobs are about to be forced, once again, to reduce their payroll and capital expenditures within a 2-3 year time frame.

The former long-time Ernst & Young Senior International Tax Partner (Technical) facilitates a monthly politically-oriented book/study group which for 7 years has recommended policy positions to America’s decision makers and with which I am connected. [He also chaired 1994-1996 the American Bar Association’s International Tax Committee comprising the nation’s top 300 international tax lawyers and featuring 22 working sub-committees.]

He and Ernst & Young and the other “Big Four” CPA Firms designed the structure for U.S.-based multi-national companies (US-MNC’s) to export American jobs while capturing virtually all of their worldwide profits in tax-haven subsidiaries (principally non-resident Singapore subsidiaries) which contracted with factories in such low-wage countries as China to manufacture the US-MNC’s products using the US-MNC’s technology to the US-MNC’s specifications under the US-MNC’s supervision.

Accordingly, virtually all of the worldwide profits of such US-MNC’s were not, by virtue of being captured in a tax-haven subsidiary, subject to U.S. corporate income taxation until such time, if ever, that the profits are repatriated to the US parent corporation as a dividend or a “constructive dividend.” “Constructive dividends” are “investments in U.S. property” which are deemed by Sec. 956 of the Internal Revenue Code to be the functional equivalent of dividends, such as loans to the U.S. parent corporation or investments in U.S. property that is leased to the U.S. parent corporation.

The regular 35% income tax on the profits of the tax-haven subsidiary are not recorded as a “deferred tax liability” under “generally-accepted accounting principles” so long as they are “permanently reinvested” outside the U.S. This test is satisfied with a few brief “boiler plate” paragraphs comprising “pipe dreams” about such things as possible acquisitions and locked away for safekeeping in case an auditor should bother to inquire.

As a practical matter, Sec. 956 of the Internal Revenue Code restricts the US MNC’s that have exported American jobs to have their tax-haven subs loan their accumulated profits from exporting American jobs to UNRELATED American companies that did not export American jobs or, in some cases, invest the profits in U.S. government T-bills.

[US-MNC auditors dutifully recorded that the tax-haven profits were “permanently reinvested” in loans to the US companies that had not exported American jobs and/or in US Government T-bills.]

By 2004, these tax-haven profits had reached the level of $4 TRillion - $5 TRillion. Microsoft alone had more than $1 TRillion in its tax-haven subs, causing its stock analysts, as reported prominently and often in the financial press, to analyze Microsoft as a bank rather than as a software company.

Both the amounts and the character of such investments “stuck out like sore thumbs” in the US MNC’s Form 10-K’s filed each year with the US Securities and Exchange Commission.

At the end of 2004, Congress enacted the so-called American Jobs Creation (sic) Act which permitted the US MNC’s to have their tax-haven subs pay “cash dividends” during the next 12 months of the profits that had piled up over a decade or so from exporting American jobs subject to a special one-time 5.25% corporate income tax rate rather than the normal 35% rate.

As you can appreciate, the American companies that had NOT exported American jobs were not in a position to repay the loans from the tax-haven subs of the US MNC’s within the typically 90-day loan terms.

However, virtually all of the US MNC’s that had exported American jobs decided that it was unwise to involve a Bankruptcy Court and instead dictated stiff terms based on how quickly the American companies that had not exported jobs could reduce their payroll and capital expenditures. The $4 TRillion - $5 TRillion of reductions in American payroll and American capital expenditures largely occurred during 2005-2007.

The requirement in the American Jobs Creation (sic) Act to pay $4 TRillion - $5 TRillion in “cash dividends” during 2005 was satisfied by having the banks of the US MNC’s, for a small fee, book a loan to the tax-haven subs equal to the portion of their loans to the American companies that had not exported jobs that could not be repaid immediately and then book an off-setting loan from the US MNC’s after they had immediately received those same amounts as “cash dividends” from the tax-haven subs. “Cash”, of course, in a modern economy is nothing more than a wire transfer and has no more tangibility than a book entry for a “loan.”

The only other significant requirement in the American Jobs Creation (sic) Act was for the dividends from the tax-haven subsidiaries to be invested in American payroll or capital expenditures. This, of course, did not produce an increase in American payroll or capital expenditures because the dividends were “traced to” or “matched with” the normal level payroll and capital expenditures that the US MNC’s have. And the normal cash flow that would normally have funded the normal level of payroll and capital expenditures was now “freed up” on a tracing/matching basis to redeem stock of the US MNC’s.

The American Jobs Creation (sic) Act of 2004 was the result of lobbying by Price Waterhouse (another of the “Big Four” CPA firms) on behalf, initially, of their US MNC’s, though many non-client US MNC’s joined the group. Price Waterhouse hired Bill Archer, the recently-retired Chairman of the House Ways & Means Committee, to do the actual lobbying.

Bill Archer “sold” the key decision makers in Congress on the argument that earnings in the tax-haven subs would be “brought home” to create American jobs, that the earnings would otherwise remain “offshore,” and that tax revenue (albeit at only a 5.25% rate) could be generated but 5.25% is better than nothing.

The “elephant in the room” that nobody in Congress investigated was whether the $4 TRillion - $5 TRillion was really “offshore” or whether it had already been loaned to the American companies that had not exported jobs to pay for payroll and “bricks and mortar.” And whether “round tripping” the $4 TRillion - $5 TRillion from the American companies that had not exported jobs to the US MNC’s to redeem their stock would actually result in a NET REDUCTION in American payroll and capital expenditures of $4 TRillion - $5 TRillion.

[Cynics might suggest that nobody in Congress wanted to ask the obvious question of whether the $4 TRillion - $5 TRillion was “stuffed in mattresses” located in Singapore because they were more interested in receiving “campaign contributions” from Bill Archer’s clients but it is possible that none of them was smart enough to think of the obvious question.]

The rest is history.

Congress was in such a panic that only days after the House of Representatives re-convened in January 2008, it passed the Economic Stimulus Act of 2008 providing most taxpayers with immediate $300 rebates ($600 for most married couples) and investment incentives for businesses. It passed the Senate a week later and was signed into law on 2/13/2008.

*****
THE REASONS FOR NEEDING YOUR HELP

If you log onto http://www.ReadingLiberally-SaltLake.org and scroll down to the “Participants Comments” section for the 5/11/2011 meeting, you will see a long essay entitled “The Plausibility of John Karls’ Challenge to Conventional Wisdom” -- John Karls is the person described in the second paragraph of this e-mail as the former long-time Senior International Tax Partner (Technical) for Ernst & Young and the Chair of the ABA Tax Section’s International Tax Committee 1994-1996 who is spending his retirement skiing Utah and facilitating the book/discussion group there; John majored in economics at the University of Michigan before attending Harvard Law School; the author of the essay is his daughter, Hilary, who majored in economics (and double majored in electrical engineering) at M.I.T.

Hilary posits that it is theoretically possible that the $4 TRillion - $5 TRillion reduction in American payroll and capital expenditures in order to repay the tax-haven subs of the US MNC’s so they could redeem stock might eventually have found its way back, probably through commercial banks, as replacement loans to the American companies that had not exported jobs -- FOR A BIG NOTHING (though not, of course, the “American Jobs Creation (sic)” advertised in the title of the 2004 Act).

John counters that although it would be nice to have PhD students at one’s beck and call to examine the data, it probably isn’t necessary because of all the news-media headlines during the 2008-201? Economic Meltdown reporting how the Federal Reserve was lamenting that commercial banks were NOT making loans to the American companies that had NOT exported jobs and reporting that virtually-all such companies had an acute need for such loans!!!

Could you please make the judgment whether it is necessary to examine the data or whether the news-media headlines are sufficient?

And if you believe that it is necessary to examine the data, could you please assign some of your best students to do so?

*****
THE REASON WHY YOUR HELP IS NEEDED URGENTLY

As you are probably aware, the news media constantly reports that corporations have another $4 TRillion - $5 TRillion that the media unquestioningly contends could be invested in the U.S. but on which the companies are sitting due to uncertainty.

What the news media fails to appreciate is that the $4 TRillion - $5 TRillion is what has piled up since the American Jobs Creation (sic) Act of 2004 in the tax-haven subs of the US MNC’s that have exported jobs.

And which Mitt Romney proposed constantly during the recent Presidential campaign should be exempt (or for which the normal 35% tax should be substantially reduced a la the 2004 legislation).

At the same time, President Obama’s Deficit Reduction (Simpson Bowles) Commission has included in its recommendations that US-based corporations should be taxed on a “territorial basis”!!!

Which means, of course, that since virtually all of the earnings of the US MNC’s that have exported American jobs are captured in off-shore tax haven subs, the profit from exporting jobs will escape US corporate income tax entirely.

But more importantly, for the near term, implies that the $4 TRillion - $5 TRillion that has piled up in the tax-haven subs since the 2004 legislation can also be dividended free of US corporate income tax.

Accordingly, it is important to determine whether the 2008-201? Economic Meltdown was really caused by the $4 TRillion - $5 TRillion of reductions in the payroll and capital expenditures of the American companies that did not export jobs. [And whether the Economic Meltdown would have resulted from those reductions in payroll and capital expenditures even if every American worker who lost a job had at least a 20% equity in her/his home.]

Because America is poised to do the same thing all over again!!!

*****
FOOTNOTE REGARDING INTERNATIONAL COMPETITION

When John Karls (described above) was active in the ABA Tax Section, he authored many articles for the ABA and for several publications on whose editorial boards he served, addressing whether multi-national companies had tax advantages over their competitors resulting from where the MNC and its competitors were headquartered.

It should be noted that European-based multi-national companies are typically exempt from home-country taxation on dividends from foreign subsidiaries.

Accordingly, European-based multi-national competitors of US-based MNC’s have exported European jobs and captured virtually all of their worldwide profits in tax-haven subsidiaries from which the profits can be brought home to the European parent companies immediately on a tax-free basis.

If you believe there is merit in preventing the $4 TRillion - $5 TRillion currently accumulated in the tax-haven subs of the US MNC’s from being dividended in the near future at a zero (or greatly-reduced) US corporate income tax rate (or, indeed, whether there is a lack of merit in the Simpson-Bowles proposal to completely exempt on a going-forward basis the profits from exporting jobs), it would be wise to note the competitive effects and strongly recommend that the US government pressure European governments to tax their MNC’s on their profits from exporting European jobs since they compete against US MNC’s in both American and European finished-goods markets.

*****
Thank you very much for your consideration.

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