Bloomberg Businessweek, Hedge Funds, and Forest Labs' Taxes
Has Bloomberg News been changed by the inclusion of Businessweek? Or has Businessweek been changed by its new Bloomberg ownership?
Either way, it's not looking like a particularly healthy development for those who appreciated Bloomberg's traditional "Just the facts, ma'am" approach.
We already noted a Bloomberg Businessweek article written by a former Mother Jones contributor that began by observing, "Before Lloyd Blankfein of Goldman Sachs took his place, Richard S. Fuld Jr.'s angry face was the universal symbol of Wall Street greed."
The most recent Businessweek issue brings two more examples. The first is an article on hedge funds that reports, "there is a growing concern that by ignoring hedge funds, and to a lesser degree private equity and venture capital firms, which are also largely unregulated, Congress may be setting a path for the next economic disaster."
Look at all the tricks the reporter uses in that single sentence. First, the "there is" construction. He doesn't say who is concerned. Next, the "may" construction. These unnamed people with growing concern aren't even so strongly concerned that he could write Congress "is" setting a path for the next economic disaster. It's just a "may." And there's no explanation of how the failure of a hedge fund could cause an economic "disaster." Plenty of hedge funds have failed without causing any such disaster, and any disaster scenario would probably involve a fund that was using a lot of leverage provided by a more highly regulated bank.
The only two people mentioned in the article to substantiate the claim about "growing concern" are an operative of the AFL-CIO (which has "growing concern" about everything from its own dwindling ranks to Bloomberg News's non-union workforce to rich people of the non-hedge-fund variety, though that doesn't necessarily make the claims correct or newsworthy) and a Republican congressman whose main point seems to be that we need less regulation of banks, not more regulation of hedge funds.
The Bloomberg article's "bottom line" is that "If hedge funds get light regulatory treatment from Congress they will end up with a huge competitive advantage over commercial banks." But banks have funding advantages, such as FDIC-guaranteed deposits and access to the Fed's discount window that hedge funds do not have. In the recent crisis, the banks (which got in trouble despite being more highly regulated than hedge funds in the first place) were rescued by TARP and the FDIC's Temporary Liquidity Guarantee Program, while the hedge funds holding GM and Chrysler bonds took haircuts. The banks have plenty of advantages over hedge funds in the currently "light" regulatory environment, if it's even accurate to call a regulatory environment "light" in which hedge fund managers are subjected to absurdly expansive document requests such as the one detailed here.
The second example from the latest Businessweek is an article headlined "Forest Laboratories' Globe-Trotting Profits."
The article is about how a pharmaceutical company uses overseas affiliates to reduce its American tax bill. It reports, "With each tablet Forest buys from its Irish subsidiary, it shifts profits to Ireland, where corporate income is taxed at rates of 10 percent to 12.5 percent, compared with 35 percent in the U.S."
The article says, "In February the Obama Administration, which faces a projected budget deficit of $1.5 trillion this year, said it would target some transfer-pricing techniques as part of a crackdown intended to raise $12 billion a year over the coming decade. That's one-fifth of the estimated $60 billion in U.S. tax revenue lost to transfer pricing each year, according to a study by Kimberly A. Clausing, an economics professor at Reed College in Portland, Ore. By 2009, U.S. companies amassed at least $1 trillion in foreign profits not taxed in the U.S., according to data compiled by Bloomberg."
The article quotes the director of the international tax program at the University of Michigan Law School, Reuven Avi-Yonah, as saying, "If multinationals cannot be prevented from shifting profits to low-tax jurisdictions, then it becomes impossible to maintain the domestic corporate tax base."
The barely-left-unstated assumption of the article is that the money somehow rightfully belongs to the American government rather than the company. That's the implication of the formulation "U.S. tax revenue lost to transfer pricing."
Nowhere in the article is there any consideration of the possibility that America might best address this issue by lowering its corporate tax rate to that of Ireland rather than by pursuing an IRS or legislative crackdown on "transfer pricing."
A version of this article runs on the Bloomberg News Web site as well as on the Businessweek site, with no label to differentiate it from any other Bloomberg News content.
That version of the Bloomberg article is even worse than the one on the Businessweek site. It notes that "The lost revenue could pay the federal government's share of health coverage for more than 10 million uninsured Americans." The assumption is that the federal government would use the money for this purpose rather than, say, for bridges to nowhere or earmarks to benefit campaign contributors to congressmen. Nor is there any discussion of how Forest Labs or its owners would use the money if the government didn't take it away from them in taxes.
That version of the article also quotes a critic of the practice, Martin Sullivan, who the wire identifies as "Martin Sullivan, a tax economist who formerly worked for the Treasury Department and Arthur Andersen LLP" and who is "now a contributing editor to the trade publication Tax Notes." Of course, as we've documented here exhaustively, Tax Notes is a "non-profit" organization that doesn't pay any corporate income tax at all (and that even benefited from a $15.5 million tax-exempt bond issue for its new headquarters. Using the platform of Tax Notes to complain about Forest Laboratories not paying corporate income taxes is just unbelievable.
At a certain point, you begin to wonder if the customers paying for Bloomberg terminals notice stuff like this, or care. If Mayor Bloomberg isn't careful his company's reputation is going to be eroded while he's busy running the city of New York.
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