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Posts in the ‘The Wages of Virtual Sin’ Category

Signs of emerging virtual feudalism

Tuesday, October 22nd, 2013

“You load sixteen tons, what do you get
Another day older and deeper in debt
Saint Peter don’t you call me ’cause I can’t go
I owe my soul to the company store”
From the lyrics of Sixteen Tons, popularized by Tennessee Ernie Ford

“Former President Jimmy Carter said Monday [October 7, 2013] that the income gap in the United States has increased to the point where members of the middle class resemble the Americans who lived in poverty when he occupied the White House.”

Read more:
Carter: Middle class today resembles past’s poor


“Magnetar Capital LLC, investigated by the Securities and Exchange Commission for its housing bets leading up to the property crash, acquired a rental business in January with about 1,900 properties [in Huber Heights, Ohio]. In April, its management company applied for the largest cut to property tax assessments in the county’s history. The move could curb funding for public schools, the police and fire departments and services to the disabled, said Montgomery County Auditor Karl Keith.

Private-equity firms and hedge funds have bought as many as 200,000 homes across the U.S., typically in areas hardest hit by the housing crash, to profit from soaring demand for rentals. What makes Magnetar’s investment unique so far is its focus, buying one in 11 homes in the Ohio suburb, magnifying its influence over the residents and the town’s finances.”

Read More:
Magnetar Goes Long Ohio Town While Shorting Its Tax Base


Also read:
Bodies Double as Cash Machines With U.S. Income Lagging: Economy

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Addendum to Transfer Pricing

Wednesday, July 14th, 2010

Just the tip of an offshore rig.

“Transocean, shifted its headquarters for tax purposes to the Cayman Islands from Houston, though a vast majority of its executives still work in Houston. [T]hen, in 2008, for tax purposes, it moved its headquarters again, this time to Switzerland from the Cayman Islands.”

Like transfer pricing, shifting corporate headquarters is part of the game of tax avoidance by multinational companies.

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Transfer Pricing

Friday, June 11th, 2010

Transfer pricing is an accounting practice employed by multinational companies to minimize their global tax obligation (see discussion of this topic in Virtual Organization). A company can book profits in low tax countries and claim expenses in high tax countries. Suppose, for example, a car manufacturer has plants in the US and Mexico and that the US tax rate is higher than that of Mexico. The US plant could buy some components from its sister plant in Mexico, paying a price (set by accountants at headquarters) above its own cost of production. This ploy would have the effect of reducing profits in the US (a high tax venue) and raising them in Mexico (a low tax venue) without changing the overall revenue of the company. The benefit is a lower tax bill. Thus, the company gets the best of both tax worlds with a simple accounting trick.

This practice is not new. Barnet and Muller documented it in Global Reach, nearly forty years ago. The current financial crisis is responsible for renewed interest in transfer pricing, because governments are desperately seeking to increase tax revenues. The New York Times reports that “the charity Christian Aid, which is concerned with the effect [of transfer pricing] on developing countries, estimated that governments lose $160 billion a year when companies working across borders misapply the rules” (NYT, Jan. 4, 2010). According to Bloomberg news “Transfer pricing lets companies such as Forest, Oracle Corp., Eli Lilly & Co. and Pfizer Inc., legally avoid some income taxes by converting sales in one country to profits in another — on paper only, and often in places where they have few employees or actual sales” (bloomberg.com, May 13, 2010).

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Fighting the Debt Farmers

Tuesday, April 27th, 2010

Since posting the piece on “Debt Farming” I have come across a New York Times article reporting on one person’s effort to take on the debt farmers. Steven Katz, an accountant in suburban Tuscon, Arizona, having been burned himself, advises others on how to deal with debt collectors.

Like the character Howard Beale in the 1976 movie “Network”, Mr. Katz says in effect “I’m as mad as hell, and I’m not going to take this anymore!” Maybe his efforts will spawn a movement that goads Congress into enacting legislation that curtails the abuses of debt farming.

“The bill collectors, when they call, make you feel like the only option you have is to lay down and play dead. That’s not true,” said Mr. Katz said, who does not charge for his advice. “Nothing validates this more than getting a check.”

Call this movement revenge of the (alleged) deadbeats. Even as collectors try to recoup debts from millions of Americans struggling to pay their bills, a small but growing number of lawyers and consumers are fighting back against what they describe as harassment, unscrupulous practices — and, most important to their litigiousness, violations of the Fair Debt Collection Practices Act.

from NYTimes 4/23/2010, by Andrew Martin

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Wednesday, March 3rd, 2010

The sale of debt obligations to ‘debt farmers’ is a particularly insidious practice of present day business. Portfolios of unpaid and disputed bills from phone, credit card, utility companies or retailers are routinely sold to specialized firms for pennies on the dollar. This may be a very profitable operation for the purchaser if the firm is able to realize even a fraction of the outstanding debt.

If, for example, ABC Farmers, Inc. pays as much as twenty cents on the dollar, the firm will make a gross profit of 20% by collecting on two out five of the outstanding bills. The more ABC collects, the greater its profit. Expenses are quite modest since all that is needed for this debt collection business is a computer for producing and emailing statements, a phone for calling ‘customers’ and a bank account for accepting payments. Also helpful is the tenacity of a pitbull in the collecting process.

This type of ‘farming’ is reminiscent of tax farming in the Roman Empire. An ancient tax farmer made an advance payment to the state in exchange for the privilege of collecting taxes within a given territory. The more the taxes collected, the more the profit. Once the ‘contract’ was let, the state effectively washed its hands of the matter. Much the same conditions hold for debt collection today.

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