Tax Havens Are Turning The U.S. Into An Unequal Aristocracy

To Gabriel Zucman, protégé of rock star French economist Thomas Piketty, the United States is starting to look a lot like Europe in the late 1800s.

“There’s been this great reversal where, in the 19th century, the U.S. was much more equal than Europe, and thought of Europe as being way too unequal,” Zucman, a native Parisian, told The Huffington Post in an interview on Tuesday. “Now, the U.S. is unequal and many people think Europe is too equal.”

The gaping chasm between the super-rich and the rest keeps widening. Now, the 28-year-old assistant professor at University of California, Berkeley hopes his newly-published 116-page book, The Hidden Wealth of Nations, will jolt lawmakers into tackling a key agent of income inequality: tax havens.

Thanks to a confluence of regulatory and geographic advantages, Switzerland positioned itself as the first major tax haven just after World War I, providing shelter to the wealth of European nobles as France and other allies levied heavy taxes to pay off public debt and compensate war victims. Until then, European governments had hardly taxed income generated from stocks and property.

By the outbreak of World War II, the tiny alpine nation made itself even more attractive by passing bank secrecy laws. The legislation purportedly protected the wealth of persecuted Jews. Instead, according to Zucman, Jews made up just 1.5 percent of those with assets in Swiss banks. 

That set the standard for Bermuda, the Virgin Islands and other secretive wealth refuges.

“The substantial revenue that’s lost has to be made up for by taxing middle class people,” Zucman said. 

But the problem isn’t just about rich individuals stashing their assets in offshore accounts.

Despite increased financial scrutiny following the Great Recession, corporate behemoths such as Apple, Starbucks and Microsoft continue to funnel their profits through subsidiaries in countries with favorable tax policies, outrageously slashing their U.S. tax bills. The result, Zucman argues, is that 8 percent of the world's financial wealth is held offshore, resulting in a tax revenue loss of at least $200 billion.

That, Zucman says, is a problem. But he has solutions.

First, he believes the U.S. and other large economies should impose economic sanctions on tax havens, forcing them to make up the difference in lost revenue through trade tariffs.

“The idea is that we need to change the incentives [that enable] tax havens to facilitate tax avoidance and tax evasion,” Zucman said.

Then, countries such as the U.S. should reform their corporate tax policies to geographically bind taxable profits to the location of the sales that generated them. For example, he said that if Microsoft theoretically makes 50 percent of its sales in the U.S., then 50 percent of its global profits should be taxed in the U.S.

“It’s very easy for firms to move profits to Bermuda,” Zucman said. “But they cannot move their customers to Bermuda.”

Still, Zucman said he recognizes that the political appetite for curbing tax havens is weak. None of the current crop of presidential candidates -- ranging from populists (albeit of opposite political ilks) like Bernie Sanders and Donald Trump to establishment candidates like Hillary Clinton and Jeb Bush -- has produced any concrete plan to overhaul the tax system, he said.

Zucman fears the risk of inaction.

“There is a tipping point above which inequality becomes detrimental to growth and dangerous to society,” he said. “Nobody knows whether we are far or close from this tipping point, but it is there and it is coming.”

Also on HuffPost:

Shell To Cease Costly Alaska Arctic Exploration

ANCHORAGE, Alaska (AP) — Royal Dutch Shell will cease exploration in Arctic waters off Alaska's coast following disappointing results from an exploratory well it just completed.

Shell found indications of oil and gas in the well in the Chukchi Sea about 80 miles off Alaska's northwest coast, the company said Monday in a release from The Hague, Netherlands. However, the petroleum was not in quantities sufficient to warrant additional exploration in that portion of the basin, the company said.

"Shell continues to see important exploration potential in the basin, and the area is likely to ultimately be of strategic importance to Alaska and the U.S.," said Marvin Odum, president of Shell USA, in the announcement. "However, this is a clearly disappointing exploration outcome for this part of the basin."

Shell will end exploration off Alaska "for the foreseeable future," the company said.

The decision reflects the results of the exploratory well in the Burger J lease, the high costs associated with Alaska offshore drilling and the challenging and unpredictable federal regulatory environment in offshore Alaska, the company said.

Shell has spent upward of $7 billion on Arctic offshore development in the Chukchi and Beaufort seas.

Monday was Shell's final day to drill this year in petroleum-bearing rock under its federal permit. Regulators required Shell to stop a month before sea ice is expected to re-form in the lease area.

The company reached a depth of 6,800 feet with the exploratory well drilling in about 150 feet of water.

Environmental groups oppose Arctic offshore drilling and say industrial activity and more greenhouse gases will harm polar bears, walrus and ice seals.

Over the summer, protesters in kayaks unsuccessfully tried to block Arctic-bound Shell vessels in Seattle and Portland, Oregon.

 

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Here's The Joke Of A Sustainability Report That VW Put Out Last Year

Now that we know Volkswagen purposefully rigged 11 million vehicles to circumvent environmental rules, releasing an enormous amount of pollutants into the atmosphere, the company’s Sustainability Report from 2014 comes off as a horrible joke.

"It's a jaw-dropper. So unbelievable," Linda Greer, a senior scientist at the Natural Resources Defense Council told The Huffington Post.

In the report, which was reviewed by consulting firm PricewaterhouseCoopers, the automaker details its commitment to the customer, its employees and, of course, to the environment. “Environment” is mentioned 335 times over 156-pages -- an average of twice per page. 

“The Volkswagen Group has a long tradition of resolute commitment to environmental protection.” -- page 86.

“We intend to put our creative powers to good use for the benefit of people and the environment." -- page 14.

As we now know, Volkswagen put its creative powers to use in a far less noble way, devising software to purposefully cheat on emissions tests and secretly installing it its diesel vehicles. On Wednesday, chief executive Martin Winterkorn was forced to quit his job at the world’s largest automaker in the wake of the growing scandal and in anticipation of billions in fines, lawsuits and increasing customer rage. More firings are on deck.

VW’s report follows a long tradition of companies using self-reported data -- sometimes certified by well-paid consulting firms -- to make broad declarations of ethical commitment, used to reassure the public that companies aren't just profit-seeking monsters. These are called “corporate social responsibility” reports, "CSR" is the biz lingo. This is a huge movement; most corporations produce these things. Here’s Coca-Cola’s. And Ikea’s. And Exxon-Mobil’s.

And, of course, not all of these efforts are mere publicity ploys. Some companies take this stuff very seriously, even tying environmental goals to executive pay -- an extremely sigficant matter. But in the wake of the VW scandal, it’s going to be harder for anyone to believe a word in these reports.

“[Volkswagen] will probably severely tarnish this entire movement,” writes Greer in a blog post. She’s written before about the key danger of CSR programs: that they end up as merely shiny promotional efforts that allow businesses to sidestep true responsibility for their endeavors.

"There are some companies doing good things," Greer told HuffPost. "Oftentimes they're just doing it and not necessarily putting it in a report."

Yet many efforts are sideshows. Companies give money to philanthropies, for example, but fail to examine the core parts of their businesses that need attention.

Volkswagen will probably severely tarnish this entire movement. Linda Greer, a senior scientist at the Natural Resources Defense Council.

Greer is working with Target now on cleaning up environmental issues in the retailer's supply chain. She also commends Apple for dealing with pollution issues overseas. "They have a CSR report, but I think they are walking the walk more than just talking the talk," she said of Apple.

VW’s absurd document follows a long tradition. BP is also notorious for the false promise of its environmental slogans. The oil company won plaudits for acknowledging the reality of global warming and for the slogan “Beyond Petroleum” back in 2000. Then, in 2010, BP caused one of the worst oil spills in history. 

By contrast, Exxon Mobil after the Exxon Valdez disaster became “religious about safety standards,” writes Chrystia Freeland for the Washington Post in 2010. Getting the oil out of the ground and moving it around the world without killing anyone or destroying the ocean is a core social responsibility.

So is adhering to environmental regulations, which VW brazenly decided to forgo.

Companies need to start with those simple goals before moving on to marketing materials.

Volkswagen May Never Recover From This Mess

It took Volkswagen years to build its reputation in the United States as a hip, countercultural brand -- so cool that an ad for the company is used in an episode of "Mad Men" to signal the fast-changing advertising landscape.

That carefully cultivated brand quickly lost its magic after the Environmental Protection Agency charged the automaker with purposefully designing software for Volkswagen diesel vehicles that skirted environmental regulations.  

On Wednesday, chief executive Martin Winterkorn announced he would step down from the company in the wake of the scandal. "As CEO I accept responsibility for the irregularities that have been found in diesel engines," he said in a statement. "Volkswagen needs a fresh start -- also in terms of personnel. I am clearing the way for this fresh start with my resignation."

Volkswagen’s brand perception plummeted into negative territory this week -- meaning more people are hearing bad things about the automaker than good things -- for the first time in six years, according to new data from YouGov's BrandIndex, which tracks consumers views on various companies. 

Though automakers have a long history of trying to skirt environmental regulations -- indeed, VW was fined in 1973 for installing cheat devices, notes The New York Times -- the large scale of the issue this time and the brazen failure of the company to live up to its environmentally savvy reputation could be devastating.

"If VW gets its reputation back, it will be clawing up the side of a very high mountain," said Thomas Donaldson, a professor of business ethics at the University of Pennsylvania's Wharton School, referring to the scandal as a "corporate Watergate." When a company openly admits to the buying public -- a group it is trying to build trust with -- that it’s been cheating, that’s difficult to come back from.

The costs to the company may far exceed the approximately $7 billion its set aside to pay for its mistake. So far, its stock price has plummeted. But the big issue is future sales. VW just this year surpassed Toyota as the world’s largest automaker by sales -- but this scandal is clearly going to cost them customers.

"I’ll never entertain another Volkswagen again," said Tom Farmer, who lives in the Seattle area and leases a diesel Jetta partly because of its environmental credentials. He’s counting down the months until his lease runs out, he told The Huffington Post, echoing a chorus of betrayed VW owners.

Kevin Foster loved his 2013 Beetle, his first diesel, so much that he named it Beatrice. "I believe in global warming and I thought I was doing my part to help succeeding generations," Foster, an engineer who lives in northern Tennessee, told HuffPost. "And it has all been a lie."

It’s not clear if the automaker will ever recover its good name. A longtime company insider and the highest-paid CEO in Germany, the 68-year-old Winterkorn is known to be extremely attentive to details; his organization was run in a very top-down, centralized manner.

"I am not aware of any wrongdoing on my part," Winterkorn said during his statement on Wednesday. 

We don’t know if that's true or if he knew about the cheat devices -- but in the end, it did not matter.

"You may not have known about the iceberg, but you still need to be looking for it," Donaldson said.

VW CEO has stepped down to spend more time with his attorneys.

— Dugald Wilson (@DugaldWilson) September 23, 2015

Winterkorn dutifully delivered his apology the day before he stepped down. "I’m very sorry, I’m utterly sorry," he said in a video statement, a stunning acknowledgement that the automaker had knowingly cheated its customers.  

"Manipulation at VW must never happen again," Winterkorn said on Tuesday. "I am endlessly sorry that we betrayed the trust. I apologize profusely to our clients, to the authorities and the entire public for the wrongdoing."

Volkswagen said on Tuesday that as many as 11 million vehicles were installed with the cheat software. The program was engineered to sense when emissions were being tested. When there was no testing going on, emissions of nitrogen oxide were 40 times the legal limit. The chemical leads to smog, which is connected with asthma and other respiratory illnesses, as HuffPost's Jo Confino reported Monday.

For much of 2014, VW officials told regulators that the emissions issues with the diesel cars were just a glitch, according to The Wall Street Journal.

A New York Times graphic explains how it worked:

How Volkswagen got away with diesel deception http://t.co/WyWLcS8hs5 pic.twitter.com/usWVRiSuer

— The New York Times (@nytimes) September 22, 2015

The device appears to be relatively simple, but the fallout is going to be exceedingly complex. The New York State attorney general, along with his peers in other states, are investigating; the Federal Trade Commission, too, may begin an inquiry. Customers are looking for payback.  

The German government has also launched an investigation into VW, and YouGov found that the company's perception has suffered even more in its home country. 

A task force led by an external investigator is also prepared to look into the case, VW announced Wednesday.  

Still, automakers have proven to be a resilient group. It took Toyota a little more than a year to recover its brand perception after it faced a huge cover-up scandal over cars that suddenly accelerated, killing passengers, said a representative from YouGov. 

In the end, the VW situation may actually be worse than Toyota's, which didn't intentionally design vehicles to fail, Donaldson said.

But buyers have been through this before, and some won't be put off by this scandal -- sticking by a company with a reputation for making safe, quality cars. 

@EmilyRPeck @HuffingtonPost @HuffPostBiz all car makers haven't been honest, VW still a better car than most

— Ruben Marrero (@RGalaga) September 23, 2015

"When a company says to the people it is trying to build trust with that it's been cheating," that's particularly egregious, Donaldson said. "What takes years to cultivate can be destroyed in the blink of an eye."

The Unassuming Engineer Who Exposed Volkswagen

By David Morgan

MORGANTOWN, West Virginia, Sept 22 (Reuters) - Daniel Carder, an unassuming 45-year-old engineer with gray hair and blue jeans, appears an unlikely type to take down one of the world's most powerful companies.

But he and his small research team at West Virginia University may have done exactly that, with a $50,000 study which produced early evidence that Volkswagen AG was cheating on U.S. vehicle emissions tests, setting off a scandal that threatens the German automaker's leadership, reputation and finances.

"The testing we did kind of opened the can of worms," Carder says of his five-member engineering team and the research project that found much higher on-road diesel emission levels for VW vehicles than what U.S. regulators were seeing in tests.

The results of that study, which was paid for by the nonprofit International Council on Clean Transportation (ICCT) in late 2013 and completed in May 2014, were later corroborated by the U.S. Environmental Protection Agency and California Air Resources Board (CARB).

Carder's team - a research professor, two graduate students, a faculty member and himself - performed road tests around Los Angeles and up the West Coast to Seattle that generated results so pronounced that they initially suspected a problem with their own research.

"The first thing you do is beat yourself up and say, 'Did we not do something right?' You always blame yourself," he told Reuters in an interview. "(We) saw huge discrepancies. There was one vehicle with 15 to 35 times the emissions levels and another vehicle with 10 to 20 times the emissions levels."

Despite the discrepancies, a fix shouldn't involve major changes. "It could be something very small," said Carder, who's the interim director of West Virginia University's Center for Alternative Fuels, Engines and Emissions in Morgantown, about 200 miles (320 km) west of Washington in the Appalachian foothills.

"It can simply be a change in the fuel injection strategy. What might be realized is a penalty in fuel economy in order to get these systems more active, to lower the emissions levels."

Carder said he's surprised to see such a hullabaloo now, because his team's findings were made public nearly a year and a half ago.

"We actually presented this data in a public forum and were actually questioned by Volkswagen," said Carder.

The ICCT's research contract to Carder's team was sparked by separate findings by the European Commission's Joint Research Centre, which showed a discrepancy between test results and real world performance in European diesel engines.

The diesel vehicles chosen for the West Virginia study were the VW Passat, the VW Jetta and the BMW X5. Unlike the VW vehicles, Carder said the BMW vehicle "performed very nicely - at, or below, the certification emission levels."

West Virginia University is not new to ground-breaking emissions research, having helped create the first technology to measure vehicle emissions on the road more than 15 years ago.

Carder belonged to a 15-member West Virginia University team that pioneered portable emissions testing as part of a 1998 settlement between the U.S. Justice Department and several heavy duty diesel engine makers including Caterpillar Inc and Cummins Engine Co.

The manufacturers agreed to pay $83.4 million in civil penalties after federal officials found evidence that they were selling heavy duty diesel engines equipped with "defeat devices" that allowed the engines to meet EPA emission standards during testing but disabled the emission control system during normal highway driving.

When the news about Volkswagen broke last Friday, Carder heard from some of the heavy diesel engine manufacturers that were part of the consent decree.

"They saw what had happened and called to say: 'Good job, you guys,'" Carder said. "Some folks said: 'How did they not learn from our mistakes 15 years ago?'"

Regarding his role in unearthing the current scandal, Carder said there was no particular sense of excitement when his team confirmed that the higher VW emission results were real and not a consequence of faulty measurements.

"There's no incentive for us to pass or fail," he said. "Obviously, we don't want to see something spewing emissions and polluting the environment. But we really have no horse in the race, as they say." (Editing by Soyoung Kim and John Pickering)

Fed Keeps Interest Rate Steady, Giving Leeway To Job Market

The Federal Reserve announced on Thursday that it is keeping its benchmark interest rate at or near zero, maintaining a policy that is likely to allow the job market to improve further

The Fed’s federal funds rate -- the interest rate the Fed charges for banks to lend to one another overnight -- will remain at target rate of 0.0-0.25 percent, where it has been since December 2008 at the height of the financial crisis. The Federal Open Market Committee (FOMC), the central bank body charged with adjusting key rates, will have its next chance to adjust the influential interest rate when it meets again on Oct. 27 and 28.

By leaving the key interest rate untouched, the Fed is deliberately maintaining economic demand by preserving the current low cost of credit for consumers and businesses. If the Fed had raised rates, it could lower demand for goods and services, which in turn would reduce demand for workers and slow job growth. Fewer available jobs means less competition for workers, limiting wage growth.

The FOMC did not base its decision primarily on concerns about the health of the job market, however.

Instead, it was clear from the FOMC statement and Fed Chair Janet Yellen's subsequent press conference that the Fed's primary concern is lower-than-expected inflation as a result of the drop in oil prices and recent volatility in world markets, rather than worries about the job market. 

“Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term,” the FOMC said.

Speaking at a press conference in Washington after the announcement, Yellen said the economic performance of China and other emerging market nations "bears close watching." Fears about the effects of a weakening Chinese economy on U.S. companies were a major factor in recent stock market declines. 

Yellen also cited the appreciation of the dollar against other currencies as a cause for lower-than-desirable inflation in the short-term. 

Even before the swings in the stock market in August, inflation had been way under the Fed’s 2 percent target. As of July, the Fed’s preferred inflation measure showed prices, excluding energy and food, had risen 1.2 percent in the previous 12 months. But Fed officials aim to pre-empt 2-percent inflation so that the central bank does not have to ratchet up rates too rapidly when inflation becomes an actual concern.

"I don't think it is good policy to then slam on the brakes" by raising rates dramatically, Yellen said, since that risks harming the economy.

Yellen said that the majority of FOMC members continue to believe that the factors depressing inflation will recede enough in the coming months to merit a rate hike before the end of 2015. And the Fed is confident in the health of the job market overall.

“The labor market continued to improve, with solid job gains and declining unemployment,” the FOMC statement said. But Yellen also noted that more jobs would "serve" the Fed's inflation goal by boosting prices.

The Fed chair added that in her view, the high rates of involuntary part-time employment and the number of people who have given up looking for work show that "the official unemployment rate understates the degree of slack" in the job market -- an economic term meaning that there are still too few available jobs for job seekers. 

The decision to postpone a rate hike was not unexpected. Some Fed officials have been indicating for weeks that fears about China and other emerging markets that spurred August’s stock market losses were giving them pause about a September rate hike. William Dudley, president of the Federal Reserve Bank of New York, expressed those concerns in remarks he made on Aug. 26, calling a September rate hike “less compelling” than it had been in the weeks prior.

Diane Swonk of Mesirow Financial told HuffPost last month that she predicted that the Fed would wait until December at the earliest to monitor the economic performance of China and other emerging market nations. 

Swonk stood by her prediction on Thursday. “You do want market calm,” Swonk said. “We could easily have that by December,” but it may have to wait even later.

The news will likely reassure anxious investors and prompt stock prices to rise. It guarantees another month without more expensive credit and the dampening effect it would have on trading, however minimal. 

But no one was happier with the Fed's decision than the mostly liberal economists and activists who have been opposed to an interest rate hike long before recent stock market volatility. 

"We hope [Fed] officials continue their pragmatic, data-based approach and allow unemployment to keep moving lower, and only tighten after there is a significant and durable increase in inflation,” said Josh Bivens, research and policy director for the left-leaning Economic Policy Institute, in a statement.

Bivens and others want the Fed to wait until the economy is producing enough jobs to generate wage growth of at least 3.5 percent.

Wages before inflation have gone up 2.2 percent in the past 12 months, despite the relatively low official unemployment rate of 5.1 percent. The official jobless figure does not account those who've given up looking or are involuntarily working part-time, which many economists believe explains why wage growth remains weak. When there are still more job-seeking workers than available jobs, there is less pressure on employers to compete for workers by raising wages.  

“This is a victory for the working families who stepped up with innovative organizing to send the Fed a clear message: Our voices belong in the debate about our economy,” said Ady Barkan, director of the Fed Up campaign, a coalition of progressive groups, in a statement. “With the recovery still far too weak in too many communities, it would have been economically devastating – and immoral – to slow the economy.”  Prior to Thursday's announcement, Fed Up joined with Rep. John Conyers (D-Mich.), Bivens and several dozen activists from across the country in a demonstration against the rate hike outside the downtown Washington offices where Yellen later held her press conference.

Yellen said at the press conference that she welcomed the demonstrators.

"We value hearing the opinions of many different groups and individuals with different perspectives," Yellen said. "But at the end of the day it is the committee's job to come together" to decide appropriate monetary policy.

Tech CEO Who Quit To Be A Better Dad Just Got A New Job

Max Schireson had a nice year as a full-time family man.

He helped plan his eldest daughter's bat mitzvah. He took ski instructor classes with his 15-year-old son. He was the room parent for his younger daughter's class. He spent a weekend away with his wife.

But now the former MongoDB CEO, who resigned from the software heavyweight last August to spend more time with his family, has joined the Massachusetts-based venture capital firm Battery Ventures as an executive in residence.

"I am now ramping up my work life again -- though not to anywhere near the intensity of being CEO," Schireson, 45, wrote in a blog post on Thursday. 

His departure last year garnered attention as Schireson became a rare male executive -- particularly in the productivity-obsessed technology industry -- to admit that his work-life balance was off-kilter. By contrast, top-ranking businesswomen are often unfairly peppered with questions about how they balance work and motherhood. 

In an interview posted on Battery's website, Schireson said the firm would allow him to work with "exciting startups" without sacrificing his newfound work-life balance. 

"I wanted to continue to have a balanced life and this was an opportunity to engage with great companies without committing to an intense, CEO-like management role," he said. "All of these things made an EIR job feel like a good fit."

Besides spending time with his family, he has picked up hobbies. He is learning to play bridge. He goes to the gym. He casually advises friends on starting new companies.

"I like it," Schireson wrote. "Maybe other people could have done all of this while being CEO of a fast-growing company. I know I wasn’t able to."

That isn't to say his attention hasn't been diverted to other things.

"I am still distracted by my phone," he wrote. "Some of the obsessive energy that went into work now goes into learning bridge or solving math problems. I still aspire to go to sleep earlier, eat less, and be more in the moment."