"'In this world nothing can be said to be certain, except death and taxes."
- Benjamin Franklin * In a letter to Jean-Baptiste Leroy (1789)
Death and taxes. The “two evils” linked as much for their predictability as the fact that, regardless of your persuasion, it is pretty easy to lump them both under the category of “bad.” Things were simpler back in Franklin's day. If you spend any time on his material, he is to optimism as Mark Twain is to cynicism. For Franklin, who was so critical to the formation of this nation and its values, optimism ruled.
But, stepping back from my own premise for a minute, I think we benefit from looking at Franklin's twins in a slightly different light. First, let's think about death. Many of the major religions are formulated around the idea that assuming you perform your role properly on earth, things get better after death. George Carlin did this topic better than I ever could, so look up his routines about Catholic School on youtube. The fact that Carlin was able to make death so funny is a small positive, in and of itself.
Aside from the theological, we can also probably conjure up situations were death is not such a bad thing. Unfortunately, most of us have seen a situation where the suffering is so great that death is a preferred, or even an elegant solution. We've all also probably experienced the flash of hubris when karma kicks in and we hear that some sociopath is no longer wasting oxygen meant for the productive people. Death? Not always so bad.
Which leaves us with taxes, which is where I wanted to head anyway.
The First Tea Party
“Taxation without representation.” It might be the first great American political slogan. The phrase appeared in the propaganda printed by the original Tea Party - the merchants and tradesmen who famously dumped tea into Boston Harbor. It was one the great acts of defiance that let Mother England know that this set of colonies might not roll as neatly into the Commonwealth as other newly acquired territories.
While part of the reason the legend sticks is because it has the very Christo-Americano theme of “David versus Goliath,” with the upstart Americans telling the queen they weren't going to act like serfs for her; the fact is that Tea Partiers weren't really little guys at all. The merchants who organized that effort and those that later showed up as the Declaration of Independence and Constitution were drafted actually comprised some of the richest, most successful traders in the world. They knew they were onto something and they really couldn't see how sharing it was a good plan - with the Queen, or anyone else for that matter.
But if you think the headline here is “Newsflash - Rich Guys Don't Like Taxes,” you need to keep reading. It's actually a little different than that.
This Land Is Your Land, This Land Is My Land
Part of the idealistic world view held by classical conservatives like Ben Franklin, or the more modern neo-Conservatives or “right-leaning” voters, is the concept of the nation-state. Land and geography were key features in accumulating wealth, power and prestige. American's importance certainly grew as we acquired more space. In fact, in the tradition of all the great Empires, we also have branched out with territories and military installations sprinkled in every corner of the globe.
When the founders staked out our map, they established new boundaries. Just like princes, ranchers and land barons for centuries, it was critical that we established these boundaries. They girded our economic activity and we developed cute sayings to describe our preference for this model. “Good fences make good neighbors” was one of my grandpa's favorites.
From one standpoint, this model worked out well. We have flags. We have holidays. We have anthems and we have armies. There is a lot of pride in the nation-state. I have to admit I am waving flags all holiday long. But the thing is, when we are talking about these borders, they were often set up for the same reasons we did: Economic reasons. Local morals and values. And, in the idealistic days of Franklin, this actually worked pretty much as planned. You drew a fence, worked inside of it; and sometimes traded across it.
But it's the trading that provides the real secret here. As each of the countries had their own “tea party rebellion,” they set up their own tax codes, based on how they felt the public / private partnership ought to work between the government and business. And then they commenced to trade until a funny thing happened on the way to the bank.
Some of the guys - the more observant ones - realized they when they moved goods and money in one direction across borders (i.e., tax codes), sometimes money just “appeared.” If you moved things in the opposite direction, sometimes it disappeared. It was actually pretty predictable and easy to do, especially if no one else was really looking at the transactions this way. Or, better yet, if you held political power and helped set the rules on your side of the fence. That's like playing bridge, but you get to select most of the cards in your own hand.
Moving money across borders was a way to get rich. So, the more borders, the better.
First Person Accounts
The best and worst job I ever had was as Director of International Business Development with the BP/ Castrol group. I worked in the Industrial Chemicals area. Because of the period of time in which I was with that company, I mainly handled matters related to Castrol's purchase by BP and subsequent spin offs of all their specialty chemical groups. It was fun. It was a drag. And it was eye opening.
It was in these types of transactions that I first began to understand how global business really works and how individuals and corporations are able to amass the kind of wealth that gets you into Fortune and Forbes. For instance, when we sold one large division to a holding company, I was stunned at the detailed plan to refinance assets, reassign ownership of intellectual property, place large quantities of inventory on the ocean “in transit” - so it really wasn't really clear who owned it when the transaction went down. The net of it was that the holding company was able to create about $250 million in value, including $150 million in cash released, by playing the tax rate / interest rate game on an $800 million transaction. And we were not their biggest purchase that year.
One of the other things that was interesting in that process was that when we reincorporated our new corporate entity after the sale, we did so on the Isle of Jersey, which is a tax haven - meaning it has no tax treaties with other sovereign nations. Basically, this means that me and the other senior managers who were employed by this company had huge loopholes available to us that would allow us to pay little, if any tax on the monies “earned” there. And as good as it was for the individuals, it was even better for the bottom line of our corporation.
Fast-forward to today and I want you to look at a couple of things when you assess this issue of taxes and borders. First, Mitt Romney has admitted to have a number of banking arrangements in the Cayman Islands - another island tax haven. He claims to have reported and paid tax on all income that flowed through the Caymans. I have a couple of possible descriptors for this behavior. One possibility is that his explanation is true. If this is the case, the word I would use is “lonely,” because he is the only guy doing it. In fact, I asked my Jersey bank once for some documents I needed for tax and he laughed at me.
The other possibility is that perhaps Mitt hasn't paid all the taxes on the money. And this is where we get into core and fundamental issues of equity and fairness that permeate the 2012 election cycle. Like I said, though, if it is good for individuals, it is better for corporations. Sometime I want you to look up where Halliburton is headquartered. They are like the modern day “ACME of Evil,” and they are not an American based company.
That should raise far more questions than it does.
Taking Advantage of Our Idealism
This is actually where the story simplifies. Our modern conservatives are idealists. They like the idea of America having fought to protect our borders and waive the flag as proudly as anyone. I love a good country song as much as the next guy and it is clear that a large portion of our citizens feel just as strongly about this as they ever have. In fact, they'd really like to see things roll back a little bit, to when those things meant a little bit more. Me too. Our main difference is our level of confidence in that potential outcome.
The problem is that while we are working in our city, in our county, in our state and in our country (four borders right there, if you are counting) there are people whose worldview sits above all of that. Borders are opportunities to make money while no one is watching. If good fences make good neighbors, high tariffs make for ripe pickings for an international trader - especially if you don't have to worry about silly things like goods and services and just move money around.
The problem with borders is they represent an old worldview. And it is one that is killing the very middle class that helped establish and protect those borders to begin with. Look at your pay stub and your tax bill. Look at the cost of your basic necessities. You are working harder, making less and probably a little bit antsy right now if you are like most of my friends.
I Call Bull$#@&
One thing I would like to put to bed is that the two mainstream parties are either “for” or “against” taxes. At pretty much every level of government, taxes have shifted, morphed and grown into a complicated system that is regressive, even on its best days.
When it comes to the government, its operations and our money, taxes are honestly less of an issue than the growing reliance on fees. Fees like those for access to public lands, permits, licensing, etc, are the same at all income levels. We often find that in “public” utilities there are flat fees that represent a much larger portion of the bill for a low-income person.
Basically, I don't listen when a politician says they are against new taxes. It probably means they are “pro fee,” which means they think poor people should pay more for everything. Your mileage might vary on this, but I can't agree with that idea.
The other issue that no one really talks about is what I will term a “stealth” tax system and that is the processing fees that go with electronic commerce, be it online payments, ATM transactions or debit / credit purchases. Many times these fees are hidden from the customer and borne by the business. Ask a merchant what they think of these fees and their effect on profitability. It's a deal with the devil. You have to take these products to maximize revenue, but it comes at an increasingly high cost.
This same strategy applies directly to the consumer. For instance, if I make my car payment over the phone, I talk to a young lady who takes my details and types into a computer. If I am lucky, she'll flirt a little bit. And it's free. But if I log onto their website and make the same payment - no girl, no flirting, same computer - it costs me a $5 processing fee. The only sense that makes is “business sense,” which is beginning to rival “military intelligence” as an oxymoron.
Basically, fees are a problem. They are parasites that prey on honest economic activity. It's a problem, but the practices are so entrenched now they don't even try to hide them.
Here's the kicker on this. I recently was a party in a class action suit against a bank, based on how they handled fees for commercial customers. The settlement included $35 for each instance of this practice. With 85 documented cases, I was expecting a nice little check. The problem was the fine print that said “$35 per infraction, until the settlement pool is exhausted.” I got my check about six weeks ago for $24.85. That's how long it took them to run out of money. Ah, justice.
The End Game
While Franklin first described our mood toward taxes in the 1700's, it was actually a more modern invention that can give us a better idea of what is happening here. Everybody has played Monopoly one of the truly great board games and a tabletop lesson in capitalism if there ever was one.
But, everyone who has played Monopoly knows there isn't a version where everyone wins. In fact, it is pretty efficient in weeding it down to one winner each and every time. The thing is with Monopoly, once you see the inevitable result, it isn't unusual for the players involved to agree to fold the game, move on to another one, or clean up. It's simply no fun to see one guy rake in all the money and it is harder to clean up if you don't have everyone's help.
Unfortunately, that doesn't seem to be what's happening here. Instead, the players that are winning seem bound and determined to play this game to the end. You might only have Baltic Avenue, but if you think that house is safe, think again. Death, taxes and winner take all?
You just wonder what a good hippie like Ben Franklin would think about all that.
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Jul 12, 2012
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