Starbucks paid no taxes in the UK last year

There is a big battle in England over corporate taxes. Last several large companies paid no taxes


The British Broadcasting Corporation has a long story here: Tax: Starbucks in talks with UK's Revenue and Customs.

Starbucks has 700 stores in the UK and sales of 400 million pound (600 million dollars) but paid no UK corporate taxes. Instead transfers all its profit to a "shell" company in the Netherlands as royalties   Microsoft, Google and Amazon all pay abnormally low taxes in the UK.

The article also had a strange quote from chancellor George Osborne saying the UK must remain "Tax competitive"  with other countries to attract corporations. The truth is the United Kingdom would be attractive to starbucks and other coffee sellers regardless of the tax rate.  In a tax reasonable environment, starbucks wants to be in the United Kingdom.

Political leaders are doing a disservice to their country, communities and people by not collecting more taxes from companies like Starbucks 

Senate Bill S. 1346 - Stop Tax Have Abuse Act

Carl Levin, Democratic senator from Michigan, is sponsoring a bill, S1346, to stop the abuse of offshore tax havens by US corporations.  The bill was introduced in July of 2011.  The details are here.

Here is a great detailed review from Citizens for Tax Justice. If you want to understand some of the accounting and legal tricks used to avoid US taxes, this document has plenty.

The bill would increase reporting requirements for offshore entities and treat tax entities managed by US companies as domestic corporations.

It also extends anti-money laundering reporting to off shore tax entities.

It would ban tax consultant contingent fees.

It also support the IRS process of issuing "John Doe" summons for tax information.

You can read the full bill summary here. S1346 Stop Tax Haven Abuse Act.

This bill has a snowballs chance in hell of passing.

Federal government program for low-income poeple

Here is a nice, comprehensive list of federal programs designed to benefit lower-income people.

CRS report federal programs for low-income people.

GOP on reducing poverty

Here are some Republican ideas on reducing poverty at the Republican Study Committee web-site. The web site is here.

The discussion covers two very minor programs: one program is the social work of a ministry in Richmond  VA and the second is in Washington DC that helps children walk safely to school in bad neighborhoods.

That is it. That's all.  Pretty laughable. They are just completely, intellectually absent from the problems of poverty in the US.  It is just incredible.

The lack of any substantial proposal implies that their are no acceptable Republican answers.   If there was private market based solution they would be all over it.  So, let's play devils advocate. Let's assume they have good research people and are genuinely interested in helping poor people, then should have produced some ideas or policies.   Their complete lack of ideas supports the idea that solutions to poverty must come from the government. Poverty cannot be fixed though market mechanisms, it must be handled by government using public funds from taxes.

Since the national Republicans don't have a solution, they ignore the problem.Where is Jack Kemp when you need him ?.

Frontline: Poor kids

FRONTLINE from PBS had a documentary on kids in poverty called Poor Kids.

The show uses interviews with the kids themselves to explain what their lives are like. The kids are in poverty because their parents have lost their jobs.

More detailed information is available at the National Center for Children in Poverty such as 21% of children in the US are in poverty.

The Hostess Mess: What can we learn ?

There was lots of news this week about Hostess Bakeries.  Hostess makes Wonder bread and Hostess Twinkies along with other bakery items. Hostess employed approximately 18,000 workers mostly bakery and route delivery(salesmen) workers. Sales have been declining for many years. The company went bankrupt in 2004 and emerged from bankruptcy in 2009 during which it's workers took pay cuts.  It is current owned by a private equity firm called Ripplewood Partners.

The company said it would close operations without further concessions for the workforce. As of November 21st, 2012, the company said it would sell it's brands and stop operations.

Here is the story from the St. Louis Post-Dispatch on bad management workers relations.
Here is the best story I have found on all of the details around Interstate Bakeries /  Hostess from the DailyNewsFinder.

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Here is how we see the issue.  OK, this is a fantastic, teachable moment for the US in 2012.  But not about union givebacks or job losses.  Instead, it's about straight up bad management and how little power workers have in a tight economy.  It is also about how non-transparent financial reporting by private equity firms is compared to public firms The workers may have had an inkling, but could not accurately judge if the company was in real trouble or management was "lying again".

So, to the Evil Black Economist Blog, it like a simple, "bad" management bankruptcy over a eight year period. The problems were obscured by limited private equity reporting. We will have to wait for all the facts, but it looks like Hostess was not a going concern they way it was structured with huge amounts of debt. And both management and the union were using the company for excessive benefits.  No amount of "good" management would have saved the company. It should have been  liquidated for it's brands and factories years ago. If, I was the owner, I would have been talking to Bimbo for years.

Here are some facts I am looking for in the public bankruptcy filing.
1) Were earnings before interest and taxes positive? growing?
2) Was hostess adding new products? Customers? Increasing prices? or was the company shrinking?
3) What did the cost side look like?  Were commodity prices or wages causing problem? Were management and labor costs similar to the rest of the industry or they overpaid?
4) Why did private equity change leadership so often? (may not be available).

I don't see a lot to support for the political arguments others are reading into the matter.  It is a simple, and sad, bankruptcy where a lot of people get hurt. I challenge everyone to follow-up on the story and really read the chapter 11 filings when they come out.

And now for some personal opinion.

I believe, companies, especially private equity firms, need to be more transparent with their workers (open book accounting) about how the company is doing. So I am calling for regulations to make PE legal entities provide better reporting to their workers and the public.

Second,  he workers need to have some equity in the company.

Robert Balfanz: Education Dropout Predictor

I saw a piece on PBS FRONTLINE about the work of Robert Balfanz a researcher at the Center of Social Organization of Schools at Johns Hopkins University. Dr. Balfanz has done a lot of work on predicting when kids will drop out of high school.

Like us here at the Evil Black Economist Blog, he believes middle school is the key place for determining a kid's life trajectory.

Here is a a long term study of Dropout Trends in the Philadelphia School System.  You can find more of his work on the web.