Progressive Breakfast for August 27

Morning Message

Obamacare’s “Secret Trick” Could Cure CEO Pay Excesses

In one of its lesser-known provisions, the Affordable Care Act limited tax breaks health insurers could claim for executive compensation. While that may sound arcane, the implications could be profound and far-reaching.

Burger-Doughnut Combo’s Nasty Taste

Burger King avoids an inversion penalty with this one weird trick. Bloomberg News: “The group of investors who control Burger King Worldwide Inc. (BKW) are using an unusual strategy to avoid the tax penalty that normally applies to shareholders of companies that shift their legal address out of the U.S. … Rather than take shares in the new combined Canadian company, 3G Capital, an investment fund with offices in New York and Rio de Janeiro, will swap its majority stake in Burger King for interests in a related Canadian partnership that can be converted into stock. … The move enables the group of investors to avoid the so-called Helen of Troy regulations, a 1996 rule crafted by the U.S. Treasury Department to discourage inversions…”

Tax inversions often don’t make business sense. Christian Science Monitor report: “… some evidence suggests that inversion isn’t automatically a winning strategy. … First, America’s official top tax rate of 35 percent shouldn’t be confused with the effective tax rate that corporations actually pay. … According to a recent Reuters analysis, companies that have done inversions over the past three decades haven’t shown any edge in stock-market performance.”

TaxVox critiques sales-based corporate tax idea as an antidote to corporate inversions. “Under such a system, called single sales factor apportionment, a multinational would report income for all its worldwide entities and be taxed on a share of its total worldwide profits. But the tax would be apportioned by the percentage of the firm’s worldwide sales that occur in an individual country. … [B]ecause it would no longer base taxation on the residence of a business, inversions would no longer be an effective way for firms to avoid taxes.”

FLASHBACK: OurFuture.org was among the first to highlight this alternative corporate tax idea.

The Fed and the Fight for Full Employment

AP highlights economists who agree unemployment is too high but fear Fed Chair Janet Yellen won’t move fast enough on inflation. “The latest Associated Press survey of economists finds that most fear the Fed will wait too long to raise interest rates and thereby risk stoking inflation or creating asset bubbles. … Most economists accept that there’s still “significant” slack in the job market … Still, they’re concerned that Janet Yellen’s Fed won’t raise rates soon enough.”

Naked Capitalism deconstructs Fed Chair Janet Yellen on unemployment and the unemployed. Lambert Strether reacts to a Real News Network interview on Yellen’s appearance at the Jackson Hole economic summit: “I would have liked to see some table pounding and shouting about pseudo-scientific constructs like the “Natural Rate of Unemployment” — what’s “natural” about it? — or a heartfelt plea for a well-funded study to find out how the permanently disemployed actually eat, and find shelter, and stay alive — System D? — or even a dim recognition that regulating the economy by throwing people out of work is just as barbaric and inhumane as the medieval remedy of bloodletting.”

More evidence “the stimulus” worked. From a paper by Sylvain Leduc and Dan Wilson highlighted by The Big Picture: “Using an approach that compares differences across states between 2008 and 2011, we show that states increased their highway spending more than dollar-for-dollar in answer to the federal stimulus authorized by the American Recovery and Reinvestment Act. Without these extra funds, we estimate that national spending on highways would have declined roughly 20% between 2008 and 2011, on par with the decline in state tax revenues.”

Labor Day perspective from Harold Meyerson: It’s ‘owner take all’. “Like Thomas Piketty, [William] Lazonick, a professor at the University of Massachusetts at Lowell, is that rare economist who actually performs empirical research. What he has uncovered is a shift in corporate conduct that transformed the U.S. economy — for the worse. From the end of World War II through the late 1970s, he writes, major U.S. corporations retained most of their earnings and reinvested them in business expansions, new or improved technologies, worker training and pay increases. Beginning in the early ’80s, however, they have devoted a steadily higher share of their profits to shareholders.”

Breakfast Sides

Bonuses are making up a bigger and bigger percentage of companies’ payrolls. The Washington Post: “The human resources consulting firm Aon Hewitt is releasing its annual U.S. Salary Increase Survey on Wednesday, which reveals that performance-based annual bonuses made up 12.7 percent of payroll in 2014. That’s the highest ratio companies have paid out of their budgets toward bonuses since the firm began keeping records 35 years ago.”

Louisiana Gov. Bobby Jindal sues federal government over “common core” standards. “When the state education board adopted the standards in 2010, Jindal supported them, saying they would help students to better prepare for college and careers. He reversed course earlier this year, however, and now says he opposes the standards because they are an effort by the Obama administration to meddle in state education policy. … Turning to federal court represents a new tactic in Jindal’s efforts to undermine Louisiana’s use of the standards.”

Looking for gender equality? You’re generally more likely to find it in a “blue” state, one survey concludes. “WalletHub crunched statistics to see how various states measure up against each other. … In the final rankings, states in the Northeast, Southwest, and upper Midwest seemed to fare best, with states in the Rocky Mountains and Great Plans lagging behind. Hawaii came out at No. 1, followed by New York, Maryland, Maine, and Nevada. Indiana, Texas, Idaho, Utah, and Wyoming took the last five places (Wyoming was 50th in the rankings).”