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It’s strange that you recognize new stable equilibriums emerging as unanticipated consequences of global capital liberalization but you advocate for trying to m

by rsj_hn 5y ago

It’s strange that you recognize new stable equilibriums emerging as unanticipated consequences of global capital liberalization but you advocate for trying to maintain a new unstable equilibrium instead of thinking about viable strategies that may work. As a piece of advice, if your solution requires 100% compliance by random nations in order for you to tax your own citizens/corporations, then your solution is squarely in the “hopes and dreams” bucket and I’d think at this point we had enough of that. Instead, ask yourself why you can move funds so easily across borders and decide whether allowing these capital flows is a good idea or not. The inevitable cost of allowing them is tax arbitrage but it’s not close to the biggest cost - financial instability, trade deficits, a shrinking middle class and deindustrialization are much bigger costs, and are equally inevitable once you allow these cross border capital flows.

saurik 5y ago
Restricting the money flow in and out of a country is something we like to ding China for, and is a big reason why cryptocurrencies have become very popular there; maybe the unstable equilibrium is merely the mechanism we use to tax corporations.
- rsj_hn 5y ago
  > Restricting the money flow in and out of a country That's not what's going on here. In a fiat money world, money doesn't move out of a country, it is held in correspondent accounts. E.g. there is a bank account here with your name on it. When you think you are moving your money, you sell that bank account to foreigner, and now their name is on it. They sell a bank account in their native country to you. No money has moved in the course of this transaction, rather you have entered into an ongoing financial relationship in a foreign nation without being subject to that nations laws (beyond a bare minimum of requirements) or tax obligations. That is what "unfettered cross border capital flows refers to". It is not so much something that needs to be stopped as something that needs to be actively allowed, because you need an entire system of international investor rights and banks with pairwise correspondent accounts in both nations to make such an arrangement work. There is a massive infrastructure needed to support this illusion that you can "move" money from one country to another with the click of a link. And this system didn't exist even 30 years ago, it's a new system. The question is whether the benefits outweigh the costs. If you allow this you are going to have lots of problems with tax evasion. But I'm not sure what the real upside is here. The only purpose of these foreign capital inflows is to finance trade deficits, and that doesn't seem to be in our interest, either. Moreover, what we dinged China for is not preventing capital outflows but preventing capital inflows, and we rightly pointed out that this forces trade surpluses, which is kinda the point (see my comment about "only purpose"). So of course China, which is interested in running surpluses rather than deficits, is going to block inflows. The question is why do we allow them? Thus we are back to the unstable equilibrium of trying to get everyone to agree to maintain this vast international system but promise not to try to tweak it to their advantage. Well, China has pretty clearly demonstrated that it's not going to play along -- neither is Korea or Taiwan, for that matter, so why are we still pretending the unstable equilibrium -- this dream of converting a world with sovereign fiat currencies into one that looks like the old specie flow model -- is a thing that can exist? The only reason is because for a lot of influential people, these capital inflows are highly profitable -- e.g. for those who can skim a little off the top. Just like Bermuda's tax laws are beneficial to financial advisors and bank staff in Bermuda. But let's not let this minority set the overall national policy: yes, these capital inflows benefit the US financial sector, as US banks can now charge fees to customers all over the world who want to maintain accounts in the U.S, but they do not benefit the US economy nor the US tax base.
visualradio 5y ago
Well there are many types of capital. Fixed capital attached to land doesn't readily flow across borders unless owners spend money to disassemble and salvage it. Financial capital isn't really capital as banks can create money on security of fictitious capital without finding existing deposits for borrowers to purchase speculative assets which do not convey ownership of any fixed capital. Allowing cross-border flows of floating capital such as machines and commodity inputs and outputs should not be problematic if all new legal tender is initially placed into circulation through public local loans issued on security of the replacement cost of industrial fixed capital physically attached to domestic soil. Conveyance of state enforced privilege such as deeds, titles, patents can also only be recorded between domestic residents and domestically chartered corporations liable for corporate tax. While these privileges provide security for capital investment they are not really capital themselves. Allowing foreign investors to purchase shares of domestic corporations does not seem overly problematic as long any deeds, titles, patents held by corporations are directly taxed and there are some distributive offsets and deductions for domestic residents.
qdog 5y ago
This is a specific issue of US based companies hiding 'offshore' revenues that likely do not qualify as truly offshore. Also holding profits in foreign countries in an effort to outlast IRS rules to be able to 'repatriate' funds at a lower tax rate, or even somehow show a loss in the US. The perfect is the enemy of the good enough, we cannot craft a perfect tax solution, but we can make it better.

by rsj_hn 5y ago

saurik 5y ago

Restricting the money flow in and out of a country is something we like to ding China for, and is a big reason why cryptocurrencies have become very popular there; maybe the unstable equilibrium is merely the mechanism we use to tax corporations.

rsj_hn 5y ago
> Restricting the money flow in and out of a country That's not what's going on here. In a fiat money world, money doesn't move out of a country, it is held in correspondent accounts. E.g. there is a bank account here with your name on it. When you think you are moving your money, you sell that bank account to foreigner, and now their name is on it. They sell a bank account in their native country to you. No money has moved in the course of this transaction, rather you have entered into an ongoing financial relationship in a foreign nation without being subject to that nations laws (beyond a bare minimum of requirements) or tax obligations. That is what "unfettered cross border capital flows refers to". It is not so much something that needs to be stopped as something that needs to be actively allowed, because you need an entire system of international investor rights and banks with pairwise correspondent accounts in both nations to make such an arrangement work. There is a massive infrastructure needed to support this illusion that you can "move" money from one country to another with the click of a link. And this system didn't exist even 30 years ago, it's a new system. The question is whether the benefits outweigh the costs. If you allow this you are going to have lots of problems with tax evasion. But I'm not sure what the real upside is here. The only purpose of these foreign capital inflows is to finance trade deficits, and that doesn't seem to be in our interest, either. Moreover, what we dinged China for is not preventing capital outflows but preventing capital inflows, and we rightly pointed out that this forces trade surpluses, which is kinda the point (see my comment about "only purpose"). So of course China, which is interested in running surpluses rather than deficits, is going to block inflows. The question is why do we allow them? Thus we are back to the unstable equilibrium of trying to get everyone to agree to maintain this vast international system but promise not to try to tweak it to their advantage. Well, China has pretty clearly demonstrated that it's not going to play along -- neither is Korea or Taiwan, for that matter, so why are we still pretending the unstable equilibrium -- this dream of converting a world with sovereign fiat currencies into one that looks like the old specie flow model -- is a thing that can exist? The only reason is because for a lot of influential people, these capital inflows are highly profitable -- e.g. for those who can skim a little off the top. Just like Bermuda's tax laws are beneficial to financial advisors and bank staff in Bermuda. But let's not let this minority set the overall national policy: yes, these capital inflows benefit the US financial sector, as US banks can now charge fees to customers all over the world who want to maintain accounts in the U.S, but they do not benefit the US economy nor the US tax base.

visualradio 5y ago

Well there are many types of capital. Fixed capital attached to land doesn't readily flow across borders unless owners spend money to disassemble and salvage it. Financial capital isn't really capital as banks can create money on security of fictitious capital without finding existing deposits for borrowers to purchase speculative assets which do not convey ownership of any fixed capital. Allowing cross-border flows of floating capital such as machines and commodity inputs and outputs should not be problematic if all new legal tender is initially placed into circulation through public local loans issued on security of the replacement cost of industrial fixed capital physically attached to domestic soil. Conveyance of state enforced privilege such as deeds, titles, patents can also only be recorded between domestic residents and domestically chartered corporations liable for corporate tax. While these privileges provide security for capital investment they are not really capital themselves. Allowing foreign investors to purchase shares of domestic corporations does not seem overly problematic as long any deeds, titles, patents held by corporations are directly taxed and there are some distributive offsets and deductions for domestic residents.

qdog 5y ago

This is a specific issue of US based companies hiding 'offshore' revenues that likely do not qualify as truly offshore. Also holding profits in foreign countries in an effort to outlast IRS rules to be able to 'repatriate' funds at a lower tax rate, or even somehow show a loss in the US. The perfect is the enemy of the good enough, we cannot craft a perfect tax solution, but we can make it better.