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end of year rush of 'offshore' relocations to avoid Obama tax increases ...
(snip)"Dec. 23 (Bloomberg) -- Tax lawyers are urging private- equity and hedge-fund clients to restructure their partnerships so they can sidestep the higher taxes that President-elect Barack Obama has vowed to impose on their profits.
Obama’s promise to revive a failed 2007 bill forcing executives to pay rates of 35 percent or more instead of the 15 percent capital-gains tax has prompted lawyers to advise the firms to take measures such as setting up offshore entities. That would help circumvent higher taxes on so-called carried- interest profits that executives at the firms typically earn.
The lawyers say they are pressing their clients to act before the year’s end on the assumption that any law or regulatory change won’t apply before 2009.
“If you wait to do it, then to unwind or restructure later will be very difficult and trigger significant tax penalties,” said Mike Kosnitzky, who heads Boies Schiller & Flexner’s tax practice in New York and is advising clients.
Neither Kosnitzky nor other lawyers would disclose the names of their clients. While companies such as Blackstone Group LP and Carlyle Group have led the charge against paying higher taxes, the lawyers say it’s mostly smaller firms they are advising on how to get around the levies.
A tax increase may not have much immediate effect as fund investors struggle to stem losses in the financial crisis. Still, Kosnitzky said future laws could dent returns when markets rebound.
Offshore Entities
The attorneys are advising firms to create offshore companies and to convert carried interest into loans for fund executives. Both methods would make the funds eligible for lower tax rates. They’re also counseling them to restructure the funds to shield executives from a potential increase in Medicare taxes, currently 2.9 percent.
Kosnitzky said he’s helping clients revise their legal structure to use a passive foreign investment company, an overseas entity that follows special tax rules. That would allow fund executives to continue paying capital-gains tax rates on income routed through the unit, under some circumstances. "(snip)
(snip)"Like Doctors, Lawyers
Victor Fleischer, a University of Illinois law professor who has testified to Congress on the taxation of carried interest, said that strategy is commonly used by doctors and law firms to duck the liability. Former Democratic presidential nominee John Edwards, who worked for hedge-fund management company Fortress Investment Group LLC, was criticized for avoiding Medicare taxes using this technique.
Kosnitzky said his method arbitrages tax rules governing a passive foreign investment company to sidestep the anticipated tax increase on carried interest.
Under such an arrangement, he said, carried interest would still qualify for capital-gains tax treatment when it is distributed to fund executives in the U.S. The difficulty, he said, is to avoid running afoul of other international tax rules concerning ownership percentages that could negate the savings and even trigger higher liabilities.
No matter the obstacles, the firms will try to find a way around higher taxes, said Michael Knoll, a University of Pennsylvania law professor and expert on the issue.
“If Congress passes a bill changing the tax treatment of carried interest, the issue will not end there,” said Knoll. “There is simply too much money at stake.” (snip)
thus the truth of the situation is that, no matter what kind of tax increase Obama and the new congress attempt to pass regarding 'rich' individuals, they still leave enough 'loopholes' open such that those 'rich' individuals actually wind up paying a far lower percentage of their incomes in taxes than the 'middle class' !!!
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Re: end of year rush of 'offshore' relocations to avoid Obama tax increases ...
Wonder how many hedge fund owners/partners are on SW?
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Re: end of year rush of 'offshore' relocations to avoid Obama tax increases ...
^^^ well I'm certainly not a major hedge fund player, but a lot of my former US dollar investments are now outside the USA !!!
The larger point, of course, is that Obama's advisers have been feeding him info on future stimulus spending / tax revenues / expanded social program spending etc. based on estimates that assume that the top 1% of American earners (who currently pay a huge 39 percent of total tax revenue dollars) will simply sit still and pay up when Obama increases their taxes. Obviously, these top 1%ers (and the 39 percent of total tax revenue dollars they have provided in the past) are 'front running' potential tax increases by moving assets offshore and beyond Obama's reach before US tax laws can be changed to prevent such movements of capital. As a result, whether or not Obama attempts to increase taxes on the top 1%ers, total US tax revenues coming from the 1%ers are going to be reduced next year. And even if the 1%ers only move 1/4 of their existing assets offshore, this will still represent a TEN PERCENT REDUCTION IN OVERALL US TAX REVENUE DOLLARS !
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Re: end of year rush of 'offshore' relocations to avoid Obama tax increases ...
Sure makes it hard to plan when they do that retroactive tax law thing.
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Re: end of year rush of 'offshore' relocations to avoid Obama tax increases ...
Quote:
Originally Posted by
threlayer
Sure makes it hard to plan when they do that retroactive tax law thing.
Another part of the constitution scratched out these days.
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Re: end of year rush of 'offshore' relocations to avoid Obama tax increases ...
Wow, the patriotism and love of country never ceases to amaze me. I bet they all had yellow ribbon stickers on their cars and offered up statements like "support the troops" when in public.
I hope all who have taken steps to evade taxes are taxed double in the name of every dead American soldier who ever fought to protect our nation. If they refuse to pay, prison seems appropriate.
Disgusting. >:(
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Re: end of year rush of 'offshore' relocations to avoid Obama tax increases ...
^^^ that's not going to happen Paris ... because in point of fact the majority of 1%ers who take advantage of tax shelters / offshore / anonymous investment opportunities to 'minimize' their tax liabilities ( and the financial institutions that profit by facilitating such activities) are a major funding source for democratic party candidates ... the very same democratic politicians who are giving 'lip service' to the idea of increasing taxes on the 1%ers.
The 'tin foil hat' crowd would tell you that both the democratic politicians who have publicly advocated tax increases on the 1%ers, and the 1%ers themselves, are in tacit agreement that no such 'official' tax increases will ever really materialize thanks to the continued existance of 'loopholes', of gov't sanctioned tax-favored investments, of lax/limited offshore tax enforcement by the IRS etc. After all, the vast majority of US senators and congress members are 1%ers themselves !!!
However, such publicly advocated 'official' tax increases on the 1%ers are politically necessary in order to justify tax increases on the 5%ers, 10%ers and 20%ers. The unspoken difference, of course, is that it is typically only the 1%ers who can afford the minimum buy-in price of tax favored investments or clear the $1 million in assets hurdle to be considered as 'qualified investors' for private / offshore banking / hedge fund investing which in turn allows them to side-step the 'official' tax rates. The 5%ers, 10%ers and 20%ers, who are typically unable to afford such options, wind up actually having to pay the 'official' tax rates.
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Sure makes it hard to plan when they do that retroactive tax law thing
Well, Bill Clinton pioneered the retroactive tax increase thing. However, as a matter of practicality, it is too late in the calendar year for any retroactive tax increase to be enacted for 2008 income without risking a 'tax revolt'. 2009 income, however, is an entirely different story. It is entirely possible that a tax increase could be approved by congress in the spring of 2009 that is retroactive back to January first. THIS is why the tax advisors to the 'uber-rich' are so adamant about their clients moving assets outside of the USA before the end of december 2008.
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Re: end of year rush of 'offshore' relocations to avoid Obama tax increases ...
Quote:
Originally Posted by
Melonie
thus the truth of the situation is that, no matter what kind of tax increase Obama and the new congress attempt to pass regarding 'rich' individuals, they still leave enough 'loopholes' open such that those 'rich' individuals actually wind up paying a far lower percentage of their incomes in taxes than the 'middle class' !!!
So are you still planning to have been moved out of the country by mid Jan? Less than a month to go :party:
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Re: end of year rush of 'offshore' relocations to avoid Obama tax increases ...
"Rats leaving the sinking ship."
I fail to see why you blame this on Democrat candidates' supporters. Likely they are Republicans, who saw that Bush 'ruined' McCain's chances, and so they left their party (opportunistically) just to be on the 'wining' side again, so they could continue their 'influence.' After all, it is 'true to form.'
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Re: end of year rush of 'offshore' relocations to avoid Obama tax increases ...
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So are you still planning to have been moved out of the country by mid Jan? Less than a month to go
as long as you asked ...
Because a few 'offshore' things are still up in the air in regard to finalization, and because I need to complete several 'domestic' transactions after the first of the year, I'm looking at starting a 'very extended foreign vacation' right around January 10th.
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I fail to see why you blame this on Democrat candidates' supporters
I didn't invent the statistics. For example, 'Trial Lawyers' are the most solid block of contributors / supporters for democratic candidates. 'Trial Lawyers' are also constitute a large block of hedge fund investors that are taking advantage of offshore investments and carried interest loans to avoid US tax liabilities !!! Also, very few partner investors in solar energy, wind farms, ethanol and other 'green energy production tax credit' investments come from outside the 'LearJet Liberal' circle - in other words most staunch republican supporters are still investors in oil.
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Re: end of year rush of 'offshore' relocations to avoid Obama tax increases ...
Meh, rich people getting advice from almost-as-rich tax lawyers to facilitate the lawful avoidance of tax. Nothing new there. Hell, my father's been giving that sort of advice since 1973.
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Re: end of year rush of 'offshore' relocations to avoid Obama tax increases ...
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Originally Posted by
flickad
Meh, rich people getting advice from almost-as-rich tax lawyers to facilitate the lawful avoidance of tax. Nothing new there. Hell, my father's been giving that sort of advice since 1973.
Oh absolutely true. The only thing that is arguably 'new', in the US at least, is that the newly elected president and mainstream media are attempting to create the impression that they will actually increase taxes on the rich while actually reducing taxes on the middle class. Arguably, after real world factors are applied (i.e. the lawful avoidance of tax by those that can afford to do so, the increases in state and local taxes etc.), the opposite will actually occur.
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Re: end of year rush of 'offshore' relocations to avoid Obama tax increases ...
Smart people are paid well for finding such loopholes; it's been going on forever. Politicians, however, try to make stupid laws that stop that and they eventually fail to do so.
Unless they are (some) Republicans :), and then they try to make laws that help the rich get richer, and sometimes that fails too.
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Re: end of year rush of 'offshore' relocations to avoid Obama tax increases ...
^^^ arguably, both republicans and democrats advocate policies that make the 'rich' richer. However, it is also arguable that the republican policies tend to make middle class and working class Americans 'richer' as well, via expansion of businesses and resulting creation of new jobs. On the other hand, the typical democratic means of making the 'rich' richer i.e. California's muni bonds now paying 6.67% interest (that's 6.67% free of federal state and local income taxes, providing one can afford the $50k per bond minimum buy-in) that are necessary to continue funding the gov't's social welfare programs and funding gov't worker paychecks, arguably doesn't expand any businesses or create any jobs other than expanding gov't itself. It does however expand the future indebtedness of the state and it's remaining residents who actually pay taxes.
The other argument which is more relevant to this thread is that Democrat advocacy of higher business and personal income tax rates serves as a strong incentive for the most productive people ( i.e. those most affected by higher business and personal income tax rates) to relocate themselves, their businesses, their assets etc. outside the high tax jurisdiction. This has been true of the state of California for the past several years, and is now arguably becoming true for the USA as a whole. Based on historical examples, this migration tends to leave behind the established uber rich (who have shielded themselves against actually having to pay higher tax rates), the working poor (whose incomes are low enough that they pay little tax regardless of the tax rate), and the non-working poor (who pay no taxes whatsoever). However, this migration tends to prompt the loss of entrepreneurs, skilled workers etc. with associated long term effects on the jurisdiction's economic make-up.
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Re: end of year rush of 'offshore' relocations to avoid Obama tax increases ...
Lets look at the taxes coming out of the democrats here lately. Hmmm. Higher gas taxes. Higher parking fees. Higher vehicle ticket fines. Taxes on soft drinks - satellite tv - state parks - auto registration... the list goes on.
This doesn't sound like a middle class tax cut to me. It doesn't sound like they are socking it to the rich like they like their sound bites to read.
No. Earmarks are going to become "stimulus" packages. Debt will increase to insure "services" are provided.
This is going to be more of the same with more taxes.
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Re: end of year rush of 'offshore' relocations to avoid Obama tax increases ...
Wealthy people avoiding taxes to the greatest extent possible, and using all available means to do so has been going on forever. It happens in every country too. None of us wants to pay a penny more than we are legally required to pay. To suggest that there will be a huge boost in this sort of thing because of Obama seems like hyperbole to me.
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Re: end of year rush of 'offshore' relocations to avoid Obama tax increases ...
Well,it all depends on just what taxes are raised and lowered, and we haven't seen the last of that yet, eg higher marginal rates, inheritance taxes, corporate taxes, dividend/capital gain taxes, etc. They can be very innovative when the people that want the money for their goald are also making the rules. (I don't want to include any more because someone might be listening to my ideas. :) or :( as the case may be
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Re: end of year rush of 'offshore' relocations to avoid Obama tax increases ...
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To suggest that there will be a huge boost in this sort of thing because of Obama seems like hyperbole to me.
Well, the core issue behind my original post is the 'fear' that once Obama and a heavily democratic majority take the reins next month, they may quickly enact laws which will restrict the ability of 'rich' Americans to move their assets offshore in the future. One such plan has already been kicked around Washington ... i.e. the charging of quasi-capital gains tax on assets being moved out of the country (even if those assets are not actually 'sold' to realize a capital gain). There is also historical precedent for gov't 'acquisition' of certain assets ... i.e. FDR having ruled that personal ownership of gold was illegal, thus forcing the 'sale' of all privately owned gold to the gov't at a gov't dictated 'official' price (which was well below 'world market' price).
Thus a 'use it or lose it' mentality is being promoted by the tax attorneys to 'use it' before the end of 2008, because you may 'lose it' in 2009. Again this isn't about imminent tax increases. It is about the ability to sidestep / minimize the impact of future tax increases. And Obama as well as prominent democrats have both been pretty clear about their future taxation plans for the 'rich' ... even though the shock of the recession has potentially postponed their timetable.
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Lets look at the taxes coming out of the democrats here lately. Hmmm. Higher gas taxes. Higher parking fees. Higher vehicle ticket fines. Taxes on soft drinks - satellite tv - state parks - auto registration... the list goes on.
This doesn't sound like a middle class tax cut to me. It doesn't sound like they are socking it to the rich like they like their sound bites to read.
Actually, these 'fee' based tax increases that heavily affect the middle class, along with another huge middle class tax increase via unfunded gov't mandates being passed down to higher property taxes, will provide a strong incentive for a future effort to increase tax rates on the rich as an issue of 'fairness'. If democrats fail to do this, they will be extremely vulnerable in the 2010 election as a result of breaking a 'key' promise to the middle class voters that made their 2008 election victories possible. The 'tin foil hat' crowd is of the opinion that while such tax increases on the rich may not be enacted in 2009 (under cover of the recession), there will be no choice but to enact them in 2010.
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Re: end of year rush of 'offshore' relocations to avoid Obama tax increases ...
Gold in 1933 was confiscated by the govt with remuneration of $20.67 per troy ounce (12 troy ounces per pound; it was illegal to hold any gold except jewelry, coins, industrial use (eg catalysts) etc. in limited amounts. After this confiscation, then was backed by the govt at $35 per troy ounce until about 1973, when the US went off the gold standard. One problem set up by sticking to a gold standard (and not accumulating more gold and not making more paper money available) is that is deflationary. As population increases and people/industry becomes more efficient, there is the same backed value as there was in previous times to be distributed among them. That was a traditional approach limitation that was recognized during the Depression. Then along comes John Maynard Keynes with his expansionist theories that were pretty widely accepted by the Gove (Rosevelt I'm guessing). But only a huge increase in funding brought about by the war proved effective enough. Without that war, probably no one knows what would happened. Kinda sad when you think about it.
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Re: end of year rush of 'offshore' relocations to avoid Obama tax increases ...
Quote:
Originally Posted by
Melonie
^^^ arguably, both republicans and democrats advocate policies that make the 'rich' richer. However, it is also arguable that the republican policies tend to make middle class and working class Americans 'richer' as well, via expansion of businesses and resulting creation of new jobs.
Do you have any concept of reality? Where have you been for the past eight years? and the eight years before that?
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Re: end of year rush of 'offshore' relocations to avoid Obama tax increases ...
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Gold in 1933 was confiscated by the govt with remuneration of $20.67 per troy ounce (12 troy ounces per pound; it was illegal to hold any gold except jewelry, coins, industrial use (eg catalysts) etc. in limited amounts. After this confiscation, then was backed by the govt at $35 per troy ounce
which proves my point rather well ... i.e. that Americans who were able to get their gold out of the country before the FDR directive took effect avoided being forced to take a gov't directed loss of $14.33 per ounce (or 41%) on their gold holdings !!!
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Do you have any concept of reality? Where have you been for the past eight years?
looking at the actual overall economic statistics rather than the ones 'cherry picked' by mainstream media ...
also remembering that Bush's early economic policy was burdened both by a Clinton era recession in 2000 as well as the huge economic shock of the 9/11 attacks.
also remembering that for 2007 and 2008, democratic majorities in congress managed to enact new policies which arguably had a large negative effect on 'working class' americans over GWB's objections ... i.e. ethanol mandates, increase in the US minimum wage etc. ... as well as 'stall' GWB policies that would have had a positive effect on 'working class' Americans ... i.e. making the 2003 income tax cuts permanent, making the AMT fix permanent etc.
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Re: end of year rush of 'offshore' relocations to avoid Obama tax increases ...
Quote:
Originally Posted by
Melonie
also remembering that Bush's early economic policy was burdened both by a Clinton era recession in 2000 as well as the huge economic shock of the 9/11 attacks.
There was no Clinton era recession. Below are some snibbets from the following: . This country is going to be in a big mess until we're all able as a people to get away from the right-wing lies, fabrications and distortions of reality.
Even before President George W. Bush took office in January 2001, his surrogates began to suggest that the Bush administration was inheriting an economic recession from the Clinton administration. Over the last three and a half years, the media has been awash in false references to Bush "inheriting a recession" from Clinton.
In March 2001, the U.S. economy went into recession for the first time in ten years, according to the (NBER.) NBER -- the private, nonpartisan organization whose business cycle announcements have long been considered the definitive word on the topic -- announced its determination on November 26, 2001:
The NBER's Business Cycle Dating Committee has determined that a peak in business activity occurred in the U.S. economy in March 2001. A peak marks the end of an expansion and the beginning of a recession. The determination of a peak date in March is thus a determination that the expansion that began in March 1991 ended in March 2001 and a recession began. The expansion lasted exactly 10 years, the longest in the NBER's chronology.
NBER's president, Martin Feldstein, was a Bush campaign adviser who has long been close to the Bush family, as the National Review's Lawrence Kudlow recently noted
In short, NBER is widely respected, long recognized as the arbiter of recessions, and is headed by a Bush ally; so if NBER says the recession began in March 2001, the recession began in March 2001.
Sixty-two percent of Americans think the recession began under Clinton; a plurality says it is "definitely true." Only 16 percent are certain of the fact that the recession began on Bush's watch. How can so few Americans know who was president when the most recent recession began?
The answer is simple: Conservatives have waged a successful three-and-a-half year media campaign to convince the public that the recession began under Clinton. The effort began before Bush took office; Vice President-elect Dick Cheney kicked it off with a December 3, 2000, appearance on NBC's Meet the Press:
CHENEY: There's growing evidence out there, Tim, that the economy is slowing down. We're seeing it in automobile sales and a lot of other areas, earnings falling off for corporations, and we may well be on the front edge of a recession here. ...
RUSSERT: Do you think we're on the front edge of a recession?
CHENEY: I think so. ...
Two days later, FOX News Channel political contributor and former House Speaker Newt Gingrich carried Cheney's line forward on FOX, saying, "[T]here's a danger he's going to inherit a recession." On December 14, 2000, former House Majority Leader Dick Armey told CNN, "[W]hen I listen to and talk to my fellow economists, they're predicting almost with a uniform voice that this new president may inherit a recession." Gingrich continued the onslaught on the December 18, declaring on FOX, "I think there is a very severe danger of a recession. And I think that the Bush-Cheney administration should be planning on having inherited a recession as the farewell gift from Clinton." By the time President-elect Bush and President Clinton held a brief joint media availability on December 19, the suggestion that Bush would "inherit a recession" had already taken hold, resulting in questions from a reporter to both Bush and Clinton:
REPORTER: Mr. President-elect, talking about the economy, about problems with the economy, are you going to inherit a recession from President Clinton? And, President Clinton, what are your thoughts about that?
On December 21, Philadelphia Daily News columnist Sandy Grady wrote of the Bush camp's claims that a recession was already underway:
Strange, the noisy alarms by Bush & Co. about a recession. Dubya, noting California brownouts, talks of "an energy crisis bringing on a downturn." One of his economists spoke fearfully of "softness in the economy, auto sales, signs of worry." There's spin behind their gloom: "Hey, it's Clinton's fault, not ours, if the 2001 economy goes south." So Bush was visibly uncomfortable and Clinton bemused at the first press question to Dubya: "Are you going to inherit a recession from Clinton?"
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Re: end of year rush of 'offshore' relocations to avoid Obama tax increases ...
Quote:
Originally Posted by
Melonie
which proves my point rather well ... i.e. that Americans who were able to get their gold out of the country before the FDR directive took effect avoided being forced to take a gov't directed loss of $14.33 per ounce (or 41%) on their gold holdings !!!
....
But yet it also proves another thing. Those who hold fixed, standard, non-productive assets may be ill-prepared to move when the economic environment changes. And gold is a non-productive asset, if not a fixed one anymore. It's just a hedge.
From wikipedia:
Mercantilism is an economic theory that holds the prosperity of a nation dependent upon its supply of capital, and that the global volume of trade is "unchangeable." Economic assets or capital, are represented by bullion (gold, silver, and trade value) held by the state, which is best increased through a positive balance of trade with other nations (exports minus imports). Mercantilism suggests that the ruling government should advance these goals by playing a protectionist role in the economy; by encouraging exports and discouraging imports, especially through the use of tariffs.
Mercantilism was the dominant school of thought throughout the early modern period (from the 16th to the 18th century). Domestically, this led to some of the first instances of significant government intervention and control over the economy, and it was during this period that much of the modern capitalist system was established. Internationally, mercantilism encouraged the many European wars of the period and fueled European imperialism. Belief in mercantilism began to fade in the late 18th century, as the arguments of Adam Smith and the other classical economists won out. Today, mercantilism (as a whole) is rejected by economists, though some elements are looked upon favorably by non-economists.
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Re: end of year rush of 'offshore' relocations to avoid Obama tax increases ...
Quote:
Originally Posted by
Melonie
...
also remembering that Bush's early economic policy was burdened both by a Clinton era recession in 2000 as well as the huge economic shock of the 9/11 attacks.
... large negative effect on 'working class' americans over GWB's objections ... i.e. ethanol mandates, increase in the US minimum wage etc. ... as well as 'stall' GWB policies that would have had a positive effect on 'working class' Americans ... i.e. making the 2003 income tax cuts permanent, making the AMT fix permanent etc.
The 'Clinton era' recession was, I presume, the tech bubble bust. Ethanol 'mandates' represent a simplified, failed idea to reduce foreign oil imports with little effect on greenhouse gases. Little thought was given, in the traditional GWBush style, to further effects of that change.
As long as the USA is going to:
- define poverty and have economic policies that use that definition,
- allow low-wage labor markets wherein buyers (employers) have significantly more market power than do sellers (workers),
- allow (or permit) unskilled, foreigh workers to take low-paying jobs that citizens have had,
- allow employers to ride rough-shod over low-paid workers (such as firing for nebulous, undocumented reasons),
then we will need to have some sort of minimum wage policy. Better options are needed for sure, but so far are not available.
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Re: end of year rush of 'offshore' relocations to avoid Obama tax increases ...
Just to clarify, both the ethanol mandates and the minimum wage increase were the direct result of democrats gaining large majorities in the US congress after the 2006 election. The ethanol mandates are inarguably responsible for major increases in the cost of gasoline and food experienced in the subsequent 18 months, and are arguably responsible for accelerating the 'subprime' mortgage crisis by diverting larger and larger amounts of working class family's weekly budgets towards food and energy at the expense of servicing other debts.
The minimum wage increase is inarguably responsible for the outright loss of a significant number of minimum wage and 'near' minimum wage jobs ... as well as for the failure of US businesses that faced rising minimum wage and 'near' minimum wage labor costs at the same time that their energy costs increased greatly.
As for your observation that gold is a 'non-prodictive' asset, just how productive in comparison are US treasury bills and notes that now effectively pay zero percent interest ? Arguably the ONLY 'productive' US dollar denominated 'safe' investment at this moment are 'above market' interest rate CD's issued by distressed financial institutions ( read GMAC, ING etc.) that are fully insured against loss by the FDIC (read US taxpayer). This is yet another 'moral hazard' situation created by the US gov't ... but also carries significant liquidity risk to the depositor. And, inarguably, neither US treasury bills nor US dollar CD's protect the investor against 'purchasing power' loss of the US dollar for the duration of their investment.