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.”

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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.

BMW Says It Hasn't Manipulated Emissions Tests

BERLIN, Sept 24 (Reuters) - BMW said it has not manipulated emissions tests, denying a magazine report saying some of its diesel cars were found to exceed emissions standards.

"There is no difference in the treatment of exhaust emissions whether they are on (test) rollers or on the road," the German luxury-car maker said on Thursday.

German trade magazine Auto Bild said earlier on Thursday that BMW's X3 xDrive 20d model exceeded "Euro 6" emissions limits more than 11-fold in road tests by the International Council on Clean Transportation (ICCT).

"No specific details of the test have yet been provided and therefore we cannot explain these results," BMW said. "We will contact the ICCT and ask for clarification of the test they carried out." (Reporting by Andreas Cremer; Editing by Kirsti Knolle)

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.

Airbnb Wants To Tackle Income Inequality And Climate Change

Airbnb may become the biggest platform for political organizing that Chris Lehane has ever gotten his hands on. 

The home-renting service last week hired the longtime Democratic strategist as its first-ever head of global policy. Lehane previously spent recent years working with billionaire hedge fund manager and environmentalist Tom Steyer to prop up eco-friendly political candidates.

The San Francisco-based Airbnb is Lehane's next big challenge, as he seeks to translate its more than 4o million guests and 1.5 million listings in 34,000 cities into a force for meaningful change.

"The platform is really people for people by people," Lehane told The Huffington Post. "You have a community that is organizing itself and tends to be interested in policy and the world around them."

Tech startups are quickly becoming major forces in local markets. Uber, for example, has used its lobbying might and enormous user base to influence local regulations, allowing it to operate virtually unencumbered by local taxi and livery rules in many places. Tesla Motors has challenged state regulations requiring auto manufacturers to sell cars through dealers, winning the right to vend its vehicles in all but a handful of states.

Airbnb is particularly well-equipped to impact income inequality and climate change, Lehane said.  

The company was founded in San Francisco in 2008, around the time of the financial collapse that led to the Great Recession. By allowing users to list spare rooms online for budget-wary travelers to rent, the service was originally billed as a means of making ends meet. Though the super-rich have begun using it -- the site boasts more than 1,400 listings for castles -- Airbnb has largely stuck to its mission of democratizing the hospitality industry.

Lehane said more than half of hosts currently listing their homes on the site earn middle-class incomes.

"I don't think there's another company that I'm aware of whose inherent product is addressing economic inequality," Lehane said. "Well over 50 percent of users who are hosting are middle class folks who are saying they are hosting to supplement their income." 

By providing shelter to travelers in cities, the service helps reduce the need for more commercial hotels. Hotels accounted for 21 percent of the tourism industry's carbon emissions in 2008, according to the World Economic Forum.

"You have less of a carbon impact because you're using pre-existing housing and making incredibly efficient use of space that already exists," Lehane said of Airbnb.

Of course, there are those who abuse the system.

Nearly three-quarters of Airbnb rentals in New York City last year were illegal, according to a report released last October by Eric Schneiderman, the state's attorney general. Commercial operators -- not cash-strapped individuals -- maintained properties that attracted more than a third of all private reservations, with some landlords running illegal hostels that don't comply with local regulations. Individuals can also rent out their apartment in breach of their lease, potentially leading to complications for both guest and host. 

But an online marketplace such as Airbnb, as long as it remains a transparent platform for users, can become self-policing. 

"You have to create mechanisms to make behavior visible and have a separation of power where parts of the system are checks on the others," Fred Kofman, a philosopher at LinkedIn who studies how business systems work and interact, told HuffPost. "You need awareness, transparency and cross-checking. No single point of control will get the system on the trajectory of self-regulation."

Airbnb attracts users who monitor other listings for shady activity in their cities, Lehane said.

"There's a social contract within the platform -- it really is a people-to-people platform," Lehane said. "People care about where they live, the world they live in. And those people are willing to change to impact their actions."