Tag: cronyism

More Companies Escaping America’s Masochistic Corporate Tax System

Last August, I shared a list of companies that “re-domiciled” in other nations so they could escape America’s punitive “worldwide” tax system.

This past April, I augmented that list with some commentary about whether Walgreen’s might become a Swiss-based company.

And in May, I pontificated about Pfizer’s effort to re-domicile in the United Kingdom.

Well, to paraphrase what Ronald Reagan said to Jimmy Carter in the 1980 presidential debate, here we go again.

Here’s the opening few sentences from a report in the Wall Street Journal.

Medtronic Inc.’s agreement on Sunday to buy rival medical-device maker Covidien COV PLC for $42.9 billion is the latest in a wave of recent moves designed—at least in part—to sidestep U.S. corporate taxes. Covidien’s U.S. headquarters are in Mansfield, Mass., where many of its executives are based. But officially it is domiciled in Ireland, which is known for having a relatively low tax rate: The main corporate rate in Ireland is 12.5%. In the U.S., home to Medtronic, the 35% tax rate is among the world’s highest. Such so-called “tax inversion” deals have become increasingly popular, especially among health-care companies, many of which have ample cash abroad that would be taxed should they bring it back to the U.S.

It’s not just Medtronic. Here are some passages from a story by Tax Analysts.

Teva Pharmaceuticals Inc. agreed to buy U.S. pharmaceutical company Labrys Biologics Inc. Teva, an Israeli-headquartered company, had an effective tax rate of 4 percent in 2013. In yet another pharma deal, Swiss company Roche has agreed to acquire U.S. company Genia Technologies Inc. Corporations are also taking other steps to shift valuable assets and businesses out of the U.S. On Tuesday the U.K. company Vodafone announced plans to move its center for product innovation and development from Silicon Valley to the U.K. The move likely means that revenue from intangibles developed in the future by the research and development center would be taxable primarily in the U.K., and not the U.S.

So how should we interpret these moves?

It’s a Very Merry Christmas for Washington Insiders

Last year, while writing about the corrupt and self-serving behavior at the IRS, I came up with a theorem that explains day-to-day behavior in Washington.

Simply stated, government is a racket that benefits the D.C. political elite by taking money from average people in America

I realize this is an unhappy topic to be discussing during the Christmas season, but the American people need to realize that they are being pillaged by the insiders that control Washington and live fat and easy lives at our expense.

If you don’t believe me, check out this map showing that 10 of the 15 richest counties in America are the ones surrounding our nation’s imperial capital.

Who would have guessed that the wages of sin are so high?

D.C., itself, isn’t on the list. But that doesn’t mean there aren’t a lot of people living large inside the District.

Politicians and Their Friends

The Sunday Washington Post has a lengthy story on Terry McAuliffe’s highly successful “business” career. McAuliffe, of course, is the longtime Democratic fundraiser and “first friendof Bill Clinton who is now the Democratic nominee for governor of Virginia.

How did a lifelong political operative make many millions for himself? The Post reviews:

The pitches to potential investors in a new electric-car company have been unabashed about its promise: It will enjoy “billions” in government subsidies and tax credits, will rise to a dominant position in the U.S. electric-car industry and, perhaps most critically, has a politically connected founder with the savvy to make it all happen….

The prospectus, along with other documents reviewed by The Post, shows how GreenTech fits into a pattern of investments in which McAuliffe has used government programs, political connections and access to wealthy investors of both parties in pursuit of big profits for himself.

That formula has made McAuliffe a millionaire many times over, paving the way for a long list of business ventures, including his law firm, from which he resigned in the 1990s after profiting — along with his partners — from fees paid by domestic and foreign clients seeking results from the federal government.

A review of McAuliffe’s business history shows him often coming out ahead personally, even if some investments fail or become embroiled in controversy.

Or as McAuliffe told the New York Times:

”I’ve met all of my business contacts through politics. It’s all interrelated,” he said. When he meets a new business contact, he went on, ”then I raise money from them.”

And how did Bill Clinton meet his very good friend? Was it in high school? College? At Oxford? The local Kiwanis Club? No, President Clinton was down in the dumps after his electoral thumping in 1994 and needed to get in gear for his reelection campaign. Harold Ickes, “his politically astute deputy chief of staff,” urged him to meet McAuliffe, who had been a fundraiser for President Carter, when he was 23 years old, and Dick Gephardt. McAuliffe quickly recommended renting out the Lincoln Bedroom, and that worked so well that they became fast friends, maybe even “best friends.”

Government on the Friends and Family Plan

In his stirring speech to the 1984 Democratic National Convention, then-New York governor Mario Cuomo used an extended metaphor of the whole nation as a family. So maybe it should come as no surprise to discover that his son, current New York governor Andrew Cuomo, uses the New York State government as a jobs program for his friends and their families. The Empire State Development Corporation in particular is chock-full of his donors and friends, and their young sons–not to mention Cuomo’s political advisers.

He’s not alone in spending (other people’s) money to help family and friends. The Washington Post reported in December on the family-friendly atmosphere at the Metropolitan Washington Airports Authority:

Meet the Kulle family: mom Helen, daughter Ann Kulle-Helms, son-in-law Douglas Helms, son Albert, daughter-in-law Michele Kulle and Michele’s brother, Jeffrey Thacker.

They all worked for the Metropolitan Washington Airports Authority. All at the same time.

One MWAA board member, 

who has had at least three relatives, including a daughter-in-law, work at the agency, said family members are employed frequently, particularly among board members.

“If you ask a third of those folks, their relatives work there,” he said. “I never thought that we were doing anything wrong.”

“This is a government town and an agency town,” Crawford said. “If there’s a possibility that you can hire a relative … it was the norm.”

New York Is Open for Business, Cuomo Style

Danny Hakim of the New York Times tells us how state government works under Andrew Cuomo, in an in-depth investigation of the Empire State Development Corporation:

New York State’s economic development agency created a new position last June, and then found a candidate to fill it: a young man named Willard Younger, who had just graduated from Colgate University with a degree in classics and religion. He became a special projects associate, at a salary of $45,000 a year, according to state personnel records.

His father, Stephen P. Younger, is a lawyer and power broker in legal circles who was a member of one of Gov. Andrew M. Cuomo’s transition teams. He has also donated $26,000 to Mr. Cuomo’s campaigns over the years, disclosure records show.

The next month, the agency hired 23-year-old Andrew Moelis, a University of Pennsylvania graduate, for another new position, strategic planning associate, at a salary of $75,000 a year.

Shortly before Mr. Moelis’s first day of work, his father, Ron Moelis, a prominent real estate developer, gave $25,000 to Mr. Cuomo’s re-election campaign, according to the records.

Check out the return on investment available to political donations: give $25,000, get $75,000 within a year. I wonder if any of Mr. Moelis’s real estate developments offered such an ROI. As I wrote many years ago in the Wall Street Journal:

Business people know that you have to invest to make money. Businesses invest in factories, labor, research and development, marketing, and all the other processes that bring goods to consumers and, they hope, lead to profits. They also invest in political processes that may yield profits.

If more money can be made by investing in Washington than by drilling another oil well, money will be spent there….

Every dollar spent by the federal government ends up in someone’s pocket as a salary, a transfer payment, a subsidy, a purchase or a loan. But there are other valuable services available, too: regulations that eliminate or hamstring your competitors, for instance, or a tax provision that induces consumers to purchase your product.

But “jobs for the boys” can also be a way to reward political supporters. And if it’s a job for your own boy, so much the better.

Agencies like this can also be very helpful to a politician with larger ambitions:

Empire State has also hired friends of Mr. Cuomo who may help form his political brain trust should he decide to run for president in 2016.

James P. Rubin, a former State Department spokesman, was hired at the agency in 2011 as counselor on competitiveness and international affairs, with a salary of $150,000 a year. Mr. Rubin’s appointment was seen by political consultants as a move by Mr. Cuomo to add a foreign policy hand to his stable.

Empire State hired 49 people in the first 20 months of the Cuomo administration, according to personnel records obtained by The Times. Nearly a third were the governor’s political associates, donors and friends, or their relatives, the records and interviews show.

At least seven of the new hires with connections were placed in newly created positions.

We hear a lot about austerity in government today. We hear that “state and local government coffers [are] empty.” We hear that spending has been “cut to the bone.” I’d say that the Empire State Development Corporation would be a good place to save the New York taxpayers $741.8 million this year.

Free Market Capitalism vs. Cronyism in Russia

Russian philosopher Leonid Nikonov explains the differences between socialism, cronyism, and free market capitalism.  Nikonov is a contributor to The Morality of Capitalism, a new book that is being distributed worldwide by the Atlas Network and the Students for Liberty.  (You can download the introduction to the book here.)  Students can obtain copies of the book here; all others can obtain copies here.)