Trump Towers, a few years ago

“Kids we need to need to plan.”

“What’s up?”

“It’s about depreciation.”

You love depreciation!

“I do, but at some point it’s going to catch up with us.”

“What do you mean?”

“Well you know how the tax code allows us to keep two separate sets of books, one for the banks and another for the IRS?”

“You’ve said that before, but I’ve never really understood how it works.”

“Well the banks value our properties at their current worth, and the IRS looks at the value of the properties at cost minus depreciation. That difference means that we can borrow against the full value of the properties, and write-off the interest and the depreciation against income for tax purposes. If we keep buying properties and writing off the depreciation plus the interest, we don’t pay tax on the difference in the values, until we sell them.”

“Well that’s simple then. Don’t sell them!”

“It also happens when I die!”

“What happens then?”

“The IRS takes all the depreciation written off over the years as income.”

“How much does it come to?”

“A lot!”

“So we’ll just sell a few of the properties to pay the taxes.”

“After you pay off the mortgages, there still won’t be enough cash.”

“So what do we do?”

“We need to change the tax code, especially the part that covers estate duty.”

“The politicians will never agree to that! Not even the Republicans.”

“There are a number of politicians who are very concerned about the complexity of the tax code. The person at the head of that queue is Paul Ryan. Even The Economist says that the tax code needs reform. We just need to make sure that the estate duty is done away with, or at least significantly reduced.”

“And how are you going to convince them to do that?”

“I’m going to become the next President!”

More at:
26 U.S. Code § 6103 – Confidentiality and disclosure of returns and return information
Donald Trump’s Deep Love Of Tax Depreciation – An Affair To Remember
Donald Trump’s Possible $0 Tax Bill – That’s Why People Do Commercial Real Estate Development
Fixing the Broken Tax Code
Fixing the tax sieve
How Donald Trump Uses the Tax Code in Ways You Can’t
Ok, so where are the tax returns
Simpler, fairer, possible
Trump owes us his tax returns now more than ever
What is Depreciation, and Why Was it Mentioned in Sunday Night’s Debate?

Getting team India to win again – fiscal consolidation

Revenue
The fiscal deficit, the amount by which the Indian government’s expenditures has exceeded it’s revenues is 5.5% of GDP over the last 5 years. Over that same period the revenues have averaged 9.6%, so the fiscal deficit as a proportion of the revenues is 57%.Expenditure

In 2012-2013 India’s subsidies ballooned to almost ₹2.6 trillion (2.5% of GDP), almost 30% of government expenditure. The government’s decision to steadily reduce the fuel subsidy, at 40% of the total subsidy bill, was overdue, and will help the government towards it’s aim of fiscal consolidation. With 250 million Indians living on less than $1.25 per day, the food subsidy is sensible, but widespread corruption results in food not reaching the intended beneficiaries. Subsidies

India is allowing it’s demographic dividend to lapse. Young Indians are not getting the education required for them to compete against the youth from the other Asian tigers. The government is aware of this. It introduced an act in 2009 giving the right of education to every child, 50 years after the constitution said it should. But the fiscal deficit divides intent from achievement. There are 230 million Indian children aged between 6 and 14. There are not enough schools and teachers, or the money to pay for them.

Increasing taxes is also a challenge. The super wealthy are already taking advantage of the agreement with Mauritius, and the proximity of Singapore and Dubai to minimize their taxes. The nightmare that is India’s bureaucracy is already chasing away foreign investment, without adding punitive taxes to the list of disincentives. Taxes on tourists are so punitive that India ranks alongside little Switzerland for revenue earned from its visitors. Indirect taxes hurt the poor.

The government was relying on growth to save the day, and now that hope is disappearing fast.

In anticipation the 2014 election no-one is expecting a solution soon.

But India needs a plan – now!

More at:
Getting team India to win again
Getting team India to win again – poverty
Getting team India to win again – infrastructure
Getting team India to win again – The 1991 financial crisis
Getting team India to win again – the plan
A billion brains
A passage to Mayfair
A price worth paying
A tale of two villages
Asian Development Outlook 2013 pg190
Can India become a great power?
Cash, with strings
Made outside India
The Right of Children to Free and Compulsory Education Act, 2009
What a waste
Will India Be The First BRIC Fallen Angel?

Tourism in India


Taj Mahal
The Taj Mahal is India’s premiere tourist destination. As one would hope, there are rigorous security checks at the entrances. But, if the officials responsible for the security don’t understand that they are manhandling one of India’s most vital assets, they are doing their country a disservice.

It was disconcerting to watch their handling of an American teacher. The teacher was carrying a paper cut-out doll, a well known children’s character, often photographed with the world’s leading landmarks, and shown to young students in foreign countries, who are then tasked with identifying the landmark, and writing about it.

OLYMPUS DIGITAL CAMERA

This cut-out, according to the over-zealous official, was disallowed according to statute determined by the national assembly. The teacher’s efforts to appeal to logic were in met with disdain. So, she gave up on diplomacy, and explained to the senior officer that the official list of disallowed items at the gate did not include anything that could, even in the broadest terms, include the paper doll. The doll got in, but no-one won.

That experience was not unique among the tourists.

In contrast, a local youth carrying a hockey stick, apparently the weapon of choice among the young men in Agra, was allowed in without question.

India really needs its tourists.

Looking at the national statistics makes that clear. The country has a population of 1.22 billion people. More than 150 times as many as tiny Switzerland. Both countries earn the same amount from tourism – $16.6 billion. But India needs its tourist a lot more. Switzerland is running an international trade surplus of $66.5 billion, while fighting against an appreciating Swiss Franc. India runs a deficit of $80.15 billion and the Rupee is in decline.

The tourist in India soon realizes that the government is heavily reliant on visitors for its revenue. Every bill at hotels and restaurants contains a plethora of taxes, usually adding more than a third to the cost of the meal.

Government expenditures at 14.4% of GDP vastly overshadow the revenue (8.8%). It desperately needs the money because its not anywhere close to balancing the books.

Taxing tourists also acts as a disincentive, but with so few alternatives, one would expect an effort to treat guests well. Apparently not.

More at:
India tourism statistics at a glance
India tourism statistics
CIA World Factbook – Switzerland
CIA World Factbook – India

Let the games begin

With the appointment of Paul Ryan as his running mate, Mitt Romney has confirmed his intention to focus on the state of America’s economy as a primary issue in the run up to the election. That’s a good thing.

In probability the Republican’s candidate will continue to blame the incumbent for the current state of affairs and promise that he will do much better. He’s already said as much.

What positive effect can a politician’s policies have on an economy?

Efficient government is key. And that’s where the disagreement will start – at least after the blame game’s ended.

Functional overlap
One issue that rarely gets raised is the level of duplication that exists across agencies – sometimes within agencies. For example there are 16 fiefs covering the intelligence responsibility. These agencies duplicate efforts, each trying to outdo the other, instead of sharing critical information. The details of the issues were set out in a Washington Post exposure following a two year investigation.

The challenge of fixing this is the responsibility of the Director of National Intelligence. This position has had a regular change of incumbents who, undermined by a lack of authority, struggle to fulfill the mandate.

Costly tax code
An unnecessarily complex tax code, with thousands of tax breaks that favor interest groups, exacerbates wealth inequality, and costs the country hundreds of billions in breaks and incentives, administrative overhead, and expert advice for tax payers.

Congress
The belief that congressional oversight provides democratic control over the President’s powers is a myth. When dominant party in the house is not the same as the President’s the country sinks into a morass of partisan bickering.

It would preferable for America to adopt a system of referenda, with proper controls and balances to avoid California’s mistakes, to enact significant legislative changes.

Direct involvement demands that electors understand the implications of important decisions. Rather than having partisan commentary, public debates between experts educates voters, and permits them to make decisions that are informed.

Dream on.

More at:
Seeking a new spy-in-chief
A bad job
Shirtsleeve time
What’s your security clearance?
A hidden world, growing beyond control
Another fine mess

Retreat from the cliff part 2

Tax breaks and subsidies are intended to drive people towards financial decisions that work in the best interest of the economy.

Isn’t capitalism supposed to be able to do that on it’s own? Apparently not.

America’s tax code is so complex that few tax payers are willing to submit their returns unaided.

Not only is it costly for the tax payer, it’s also costly for the government. The breaks and subsidies cost $1.1 trillion according to a recent estimate.

There is no question that some of the tax breaks work. However, the majority are the result of successful lobbying to the benefit of specific interest groups.

So which ones to get rid of?

Let’s start with all of them. Specify a time-frame, say nine months, for the interested citizens to motivate why the breaks and/or subsidies should be reinstated. On D-day, those subsidies and breaks without a reprieve stop.

Who gets priority in the decision making? Affordability should determine that. Businesses that would go broke; businesses that have invested huge amounts of money, and would lose that money; the poor.

That should get rid of quite a few like the ethanol subsidy. It only took 33 years to get rid of that one.

Parts of this idea have already been raised in the run-up to the presidential election. They have not got much attention. That’s a pity.

More at:
The high price of tax breaks Not so easy
Taking from the 19%, giving to the 1% Mitt’s maths
Charity and taxation Sweetened charity
Barack Obama and the economy The choice
Visas for entrepreneurs Where creators are welcome