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Democrats Eye a Major Shift in How Corporations Are Taxed



WASHINGTON — At the center of the new climate and tax package that Democrats appear to be on the verge of passing is one of the most significant changes to America’s tax code in decades: a new corporate minimum tax that could reshape how the federal government collects revenue and alter how the nation’s most profitable companies invest in their businesses.

The proposal is one of the last remaining tax increases in the package that Democrats are aiming to pass along party lines in coming days. After months of intraparty disagreement over whether to raise taxes on the wealthy or roll back some of the 2017 Republican tax cuts to fund their agenda, they have settled on a longstanding political ambition to ensure that large and profitable companies pay more than $0 in federal taxes.

To accomplish this, Democrats have recreated a policy that was last employed in the 1980s: trying to capture tax revenue from companies that report a profit to shareholders on their financial statements while bulking up on deductions to whittle down their tax bills.

The re-emergence of the corporate minimum tax, which would apply to what’s known as the “book income” that companies report on their financial statements, has prompted confusion and fierce lobbying resistance since it was announced last month.

Some initially conflated the measure with the 15 percent global minimum tax that Treasury Secretary Janet L. Yellen has been pushing as part of an international tax deal. However, that is a separate proposal, which in the United States remains stalled in Congress, that would apply to the foreign earnings of American multinational companies.

Republicans have also misleadingly tried to seize on the tax increase as evidence that President Biden was ready to break his campaign promises and raise taxes on middle-class workers. And manufacturers have warned that it would impose new costs at a time of rapid inflation.

In a sign of the political power of lobbyists in Washington, by Thursday evening the new tax had already been watered down. At the urging of manufacturers, Senator Kyrsten Sinema of Arizona persuaded her Democratic colleagues to preserve a valuable deduction, known as bonus depreciation, that is associated with purchases of machinery and equipment.

The new 15 percent minimum tax would apply to corporations that report annual income of more than $1 billion to shareholders on their financial statements but use deductions, credits and other preferential tax treatments to reduce their effective tax rates well below the statutory 21 percent. It was originally projected to raise $313 billion in tax revenue over a decade, though the final tally is likely to be $258 billion once the revised bill is finalized.

The new tax could also inject a greater degree of complexity into the tax code, creating challenges in carrying out the law if it is passed.

“In terms of implementation and just bandwidth to deal with the complexity, there’s no doubt that this regime is complex,” said Peter Richman, a senior attorney adviser at the Tax Law Center at New York University’s law school. “This is a big change and the revenue number is large.”

Because of that complexity, the corporate minimum tax has faced substantial skepticism. It is less efficient than simply eliminating deductions or raising the corporate tax rate and could open the door for companies to find new ways to make their income appear lower to reduce their tax bills.

Similar versions of the idea have been floated by Mr. Biden during his presidential campaign and by Senator Elizabeth Warren, Democrat of Massachusetts. They have been promoted as a way to restore fairness to a tax system that has allowed major corporations to dramatically lower their tax bills through deductions and other accounting measures.

According to an early estimate from the nonpartisan Joint Committee on Taxation, the tax would most likely apply to about 150 companies annually, and the bulk of them would be manufacturers. That spurred an outcry from manufacturing companies and Republicans, who have been opposed to any policies that scale back the tax cuts that they enacted five years ago.

Although many Democrats acknowledge that the corporate minimum tax was not their first choice of tax hikes, they have embraced it as a political winner. Senator Ron Wyden of Oregon, the chairman of the Senate Finance Committee, shared Joint Committee on Taxation data on Thursday indicating that in 2019, about 100 to 125 corporations reported financial statement income greater than $1 billion, yet their effective tax rates were lower than 5 percent. The average income reported on financial statements to shareholders was nearly $9 billion, but they paid an average effective tax rate of just 1.1 percent.

“Companies are paying rock-bottom rates while reporting record profits to their shareholders,” Mr. Wyden said.

The Treasury Department had reservations about the minimum tax idea last year because of its complexity. If enacted, Treasury would be responsible for crafting a raft of new regulations and guidance for the new law and for ensuring that the Internal Revenue Service could properly police it.

Michael J. Graetz, a tax law professor at Columbia University, acknowledged that calculating minimum taxes was complicated and that introducing a new tax base would add new challenges from a tax administration perspective, but he said that he did not view those obstacles as disqualifying. He noted that the current system had created opportunities for tax shelters and allowed companies to take losses for tax purposes that do not show up on their financial statements.

“If the problem that Congress is addressing is that companies are reporting high book profits and low taxes, then the only way to align those two is to base taxes on book profits to some extent,” Mr. Graetz, a former deputy assistant secretary for tax policy at the Treasury Department, said.

A similar version of the tax was included in a 1986 tax overhaul and allowed to expire after three years. Skeptics of revisiting such a measure have warned that it could create new problems and opportunities for companies to avoid the minimum tax.

“The evidence from the studies of outcomes around the Tax Reform Act of 1986 suggest that companies responded to such a policy by altering how they report financial accounting income — companies deferred more income into future years,” Michelle Hanlon, an accounting professor at the Sloan School of Management at the Massachusetts Institute of Technology, told the Senate Finance Committee last year. “This behavioral response poses serious risks for financial accounting and the capital markets.”

Other opponents of the new tax have expressed concerns that it would give more control over the U.S. tax base to the Financial Accounting Standards Board, an independent organization that sets accounting rules.

“The potential politicization of the F.A.S.B. will likely lead to lower-quality financial accounting standards and lower-quality financial accounting earnings,” Ms. Hanlon and Jeffrey L. Hoopes, a University of North Carolina professor, wrote in a letter to members of Congress last year that was signed by more than 260 accounting academics.

Business groups have pushed back hard against the proposal and pressured Ms. Sinema to block the tax entirely. The National Association of Manufacturers and Arizona Chamber of Commerce and Industry released on Wednesday a poll of manufacturing workers, managers and advocates in the state that showed a majority opposed the new tax.

“It will make it harder to hire more workers, raise wages and invest in our communities,” said Chad Moutray, the chief economist of the manufacturing association. “Arizona’s manufacturing voters are clearly saying that this tax will hurt our economy.”

Ms. Sinema has expressed opposition to increasing tax rates and had reservations about a proposal to scale back the special tax treatment that hedge fund managers and private equity executives receive for “carried interest.” Democrats scrapped the proposal at her urging.

When an earlier version of a corporate minimum tax was proposed last October, Ms. Sinema issued an approving statement.

“This proposal represents a common sense step toward ensuring that highly profitable corporations — which sometimes can avoid the current corporate tax rate — pay a reasonable minimum corporate tax on their profits, just as everyday Arizonans and Arizona small businesses do,” she said. In announcing that she would back an amended version of the climate and tax bill on Thursday, Ms. Sinema noted that it would “protect advanced manufacturing.”

That won plaudits from business groups on Friday.

“Taxing capital expenditures — investments in new buildings, factories, equipment, etc. — is one of the most economically destructive ways you can raise taxes,” Neil Bradley, chief policy officer of the U.S. Chamber of Commerce, said in a statement. He added, “While we look forward to reviewing the new proposed bill, Senator Sinema deserves credit for recognizing this and fighting for changes.”

Emily Cochrane contributed reporting.

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Whole Foods upsets Maine politicians with decision to stop selling lobster



Whole Foods’ decision to stop selling Maine lobster has been cheered by environmental groups, but made politicians steaming mad.

The high-end grocery giant took lobster from the Gulf of Maine off the menu at hundreds of its stores nationwide, citing a pair of sustainability organizations yanking their support for the US lobster fishing industry.

The organizations, the Marine Stewardship Council and Seafood Watch, said they were concerned about the risks fishing gear posed to the endangered North Atlantic right whales. The whale population is estimated to be around 340.

The decision, revealed last week, has drawn ire from Maine, which boasts the nation’s largest lobster fishing industry.

In a joint statement, Gov. Janet Mills and the state’s four congressional legislators voiced their concern about the impact on local fishermen’s livelihoods and defended the state’s fishermen, saying they’ve been committed to sustainability and protecting right whales.

Whole Foods cited a pair of sustainability organizations yanking their support for the nation’s lobster fishing industry in their decision to stop selling the crustacean.
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“The Marine Stewardship Council, with retailers following suit, wrongly and blindly decided to follow the recommendations of misguided environmental groups rather than science,” the politicians said.

Whole Foods said that it is “committed to working with suppliers, fisheries, and environmental advocacy groups as [the situation] develops.”

With Post wires.

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How to leave Twitter but keep your followers



Thanks to Elon Musk’s rather erratic approach to free speech, employee relations, subscriptions, parodies and disinformation, a lot of people have taken to Twitter to declare that they are leaving Twitter. They will find it hard.

This is not because Twitter is addictive; for most people it is not. It’s because Twitter gives them something they can’t get anywhere else — a set of connections with other users and the ability to reach them and be reached by them. If you could only get to one supermarket, you wouldn’t describe it as “addictive”. You’d describe it as a local monopoly.

Like many, I have departed for pastures new, namely Mastodon (you can find me on Mastodon’s EconTwitter server). But I’m sure I’ll still be tweeting, because I have nearly 200,000 people following me on Twitter. It’s an annoyance; it would be much better if I could bring them all with me to Mastodon. It’s an outrageous failure of public policy that I can’t.

To see this more clearly, imagine that I decided I didn’t want to stick with my mobile phone provider. After minimal paperwork, I could move to a different network. My friends wouldn’t even know I’d done it; I could keep the same phone and the same phone number.

Even if that weren’t true, my mobile phone is already vastly superior to Twitter in another respect: I can phone people whose phones are connected to different networks. It’s completely seamless; they may be on EE or Vodafone or O2, and it just doesn’t matter. A world in which you could only call people who used the same phone network as you would be the proverbial pain in the backside. It would also be, quite likely, a world in which the largest one or two networks became dominant — and in which many people felt obliged to carry two phones. Which, for social media power users who scurry between Facebook, Twitter, Instagram, TikTok and LinkedIn, might sound familiar.

The difference here is that the phone networks are interoperable in a way that Twitter simply isn’t. Not just the phone networks, either: Apple and Google make software that will read and write Microsoft Word files; you don’t need an Outlook account to send email to your Outlook friends and a separate Gmail account for your Gmail friends; I can send you a bank transfer even if your bank is different from mine.

Sometimes (as with email) this interoperability is by design. Sometimes (as with banks and mobile phones) it has been strengthened by regulatory rules. Sometimes it is a matter of competitive compatibility: Apple decided to make software that would play nicely with Microsoft Office, and Microsoft couldn’t do much to stop them.

As Rebecca Giblin and Cory Doctorow explain in their new book Chokepoint Capitalism, there is no technical reason why such portability cannot extend to the likes of Twitter and Facebook. A short essay written by Doctorow for the Electronic Frontier Foundation sketches out what it might look like.

First, you sign up for an alternative — a Mastodon server, perhaps. You give it your Twitter password. Twitter checks that you’re happy to allow the connection and that it’s not some hacker; then it notifies your friends that you’ve moved to Mastodon and asks if they’re happy for their tweets to be forwarded to you or not. (If you’d moved to the crazy town of Truth Social or Parler instead, they might refuse.)

Why did you move to a new service? Any number of reasons. Maybe the blue ticks are free over there, or the ads don’t rely on creepy surveillance, or you have more control over the kinds of things you see. Maybe the content moderation is more muscular. Or maybe the content moderation is nonexistent, and that’s what you’d prefer.

The point is, if Facebook and Twitter were interoperable with rivals, it would be easy to move and to bring your digital network with you. If your friends preferred the old social networks, they could happily stay there while still being able to reach you. And the whole arrangement would self-evidently encourage new competitors to enter the market, while pushing established players to raise their game.

Interoperability will often work best with some regulatory muscle behind it, and one approach (not the only one) is to legislate to establish a broad defence for the interoperators. If I, as a Twitter user, wish to sign up for a new interoperating service that uses my password to send my posts from Mastodon to Twitter, and pulls tweets from Twitter to Mastodon for me to view, then Twitter is not allowed to ban me or sue the interoperating service for doing so.

A world of interoperable social media would be unnerving to some. It might boost struggling rightwing platforms such as Parler and Truth Social. It would certainly make it much more difficult for social media companies to act as arbiters of what sort of speech is unacceptable. But it was never a good idea to give social media companies monopoly power over what can and cannot be said. And it was an even worse idea to let them put obstacles in the way of users who wish to bring their friends with them when they leave.

Tim Harford’s new book is “How to Make the World Add Up

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Six years in Ankara: why I love the Turkish capital



“What’s the best thing about Ankara?” goes a well-worn joke in Turkey about the nation’s capital. “The journey back to Istanbul.”

I have been told this roughly once a day since moving here six years ago, almost exclusively by people from Istanbul who like to sneer at what they think is a boring, artificial, bureaucratic city. But as I prepare to leave Turkey after seven years in the country, it is Ankara that I will miss the most.

My husband and I moved here in 2016 after a year in Istanbul. Straight away, I fell in love with the city centre neighbourhoods that people lovingly refer to as “old Ankara”: places such as Kavaklıdere, Ayrancı and our own neighbourhood of Gaziosmanpaşa that date back to the 1950s and 1960s.

Strolling through the quiet residential streets, I enjoy spotting Modernist metalwork balconies and the Battenberg effect of lines of houses daubed in pastel colours — especially the salmony hue that I have come to think of as “Ankara pink”.

The climate is perfect: cold and crisp in winter, hot and dry in summer. But the most beautiful time of year is May, when pungent lilac fills the air and the local “aunties” — as the older women of the neighbourhood are affectionately known — emerge from hibernation to begin a summer of taking their afternoon tea in their front gardens.

There is a real sense of community. I have accrued much joy over the years from being called Abla (big sister) by the young people here, or being told hoş geldin (welcome home) from neighbours who have noticed I’ve been away.

Ankara’s old city: the collectivism and solidarity of Turkish society is ‘eye-opening and beguiling for someone like me who grew up in the individualistic west,’ says PItel

This might all sound absurdly quaint. But it speaks of the paradoxes of my time in Turkey. The past seven years have been a time of profound political and economic turmoil and, at times, even violence. But, despite everything, I have had a deeply enriching time here, and have found it a wonderful place to live.

Part of that is, I think, thanks to Ankara, and our treasured neighbourhood, which has served as a refuge from the unforgiving news agenda. This city of around 5mn had a population in the tens of thousands when it was made the nation’s capital in 1923 by Mustafa Kemal Atatürk, the military commander who founded the modern Turkish republic out of the ashes of the Ottoman empire. Although it has expanded massively over the past 99 years, it has managed to remain friendly, down-to-earth and liveable.

It is a cliché to say that Turkish people are warm. Hospitality towards visitors does not always translate into acceptance of foreigners. But the collectivism of Turkish society — and all the love and solidarity, questions and obligations that come with it — is eye-opening and beguiling for someone like me who grew up in the individualistic west.

Our connections deepened after our daughter was born in March last year. She became a local celebrity and, thanks to her, we built new networks of friends. People in Turkey are so kind to children — and their tired parents. Rather than being made to feel like an imposition for taking a baby to a café or restaurant, it is more likely that a waiter will take your child from your arms and whisk them off to meet the entire staff.

Pitel’s favourite ‘esnaf lokantası’, or tradesman’s canteen
Pitel’s favourite ‘esnaf lokantası’, or tradesman’s canteen

It would be remiss not to mention the food. Over the years, I have slowly built up a mental map of Ankara’s best esnaf lokantaları: tradesman’s canteens serving up homestyle stews and casseroles.

At weekends, it is a point of principle to have at least one full Turkish breakfast of olives, cucumber, cheeses and menemen: eggs scrambled together with tomato and pepper. A favourite Sunday activity is to walk up to a small café near Ankara’s old kale (fortress) and then work off a large breakfast with a browse through the antique shops or a trip to the nearby art gallery Cer Modern.

In the city’s wealthier districts, there is also a vibrant scene of independent and alternative coffee shops. For a night out with friends, few places beat Afitap, a buzzing meyhane where I have spent many happy hours eating creative renditions of Turkish meze and washing it down with plenty of rakı: Turkey’s aniseed-flavoured national drink.

For all I love about Ankara, I cannot sugarcoat the political backdrop of the past seven years. When we first arrived in Turkey, in 2015, suicide bombings were so frequent that people would seek circuitous routes through the city to avoid busy areas where they might be blown up. An attack that killed six people two weeks ago in the heart of Istanbul was an alarming echo of that era.

‘Pitel describes the colour of some buildings as ‘Ankara pink’
Pitel describes the colour of some buildings as ‘Ankara pink’

In 2016, a violent coup attempt left 250 people dead, some mown down by tanks on Ankara’s streets. In its aftermath, President Recep Tayyip Erdoğan embarked on a ruthless crackdown that cast a dark cloud over the whole country.

Today, as well as facing restrictions on freedom of speech and assembly, millions of people are struggling to get by due to a collapse in the lira and annual inflation of more than 85 per cent.

I am acutely aware that, as someone paid in foreign currency, I have been largely sheltered from these savage economic conditions. My middle-class Turkish friends, meanwhile, have seen their purchasing power dramatically curtailed. The country’s poorest are increasingly facing poverty and hunger.

And yet, I find it remarkable how little the economic hardship is publicly visible. There is still almost no homelessness and little street begging — something that I think can be attributed to the strong family support networks that continue to prop up society even as it is pushed to breaking point. I continue to feel safe travelling not just around Ankara but across Turkey, often alone.

The view from the city’s old fortress
The view from Ankara’s old fortress

That is not to say that the capital is without its gritty or more edgy sides. There is a strong streak of leftwing and anti-establishment politics. A night in the stands at Ankaragücü, the city’s fiercely supported Super Lig football team, is not for the faint-hearted. In winter, in some of the most deprived districts, the air catches in your throat due to the coal still widely used by the poor to heat their homes.

Ezhel, the 31-year-old Ankaralı who has become Turkey’s most famous rapper, sums up his hometown in his 2017 song “Taste of My City” as “soot, rust, dirt, coal, plastic, garbage, tire, fumes, weed”.

While I would choose different desc­riptors, it is hard to describe Ankara as a whole as beautiful. Thoughtless development is rife. The elegant Art Deco train station, built in 1937, now sits in the shadow of a high-speed rail station that looks like a cross between a spaceship and a cruise ship. It is impossible to find aesthetic value in the Eskişehir Road, the main artery of the modern-day city lined with endless shopping malls.

This is the unattractive side of Ankara seen by daytrippers who are whisked in and out for a programme of meetings before rushing back to Istanbul, London, Berlin or Washington. They miss all the charm and verve of life here.

I love the ingenious taxi system. With thousands of push-buttons mounted on trees and lampposts across the city linked to taxi ranks, there is no need for Uber in Ankara: simply press the button and a taxi will be with you in minutes.

No Uber needed: just press the button and a taxi will arrive
No Uber needed: just press the button and a taxi will arrive

There is a vigorous trade in gossip thanks to the droves of politicians, diplomats, lobbyists and journalists living here. And the city embraces the Turkish spirit of spontaneity that allows you to set up a meeting, for business or pleasure, as little as an hour in advance. In Ankara, you can make it there on time. That is not something that can be said for Istanbul. With its population of 16mn and its unbearable traffic, the city has become increasingly unliveable.

I have long believed that it’s unnecessary to come down in favour of one or the other of Turkey’s two big cities. Each has its virtues and its flaws. I will forever love visiting Istanbul for work, tourism or fun. But it is always a joy and a relief to return to my adopted hometown. Let the Istanbullular enjoy the journey back to their sprawling megacity after coming to visit the capital. We Ankaralılar are happy to have the place to ourselves.

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