Thread on taxes paid by US multinationals, for perspective on magnitudes👇

Even post-TCJA (Tax Cut & Jobs Act of 2017), we didn't see a shift in profits away from tax havens.

28% of 2018 profits were generated in tax havens, similar to 2017.

(IRS yet to release 2019 data)

65% of foreign profits were generated in tax havens, incl. Caribbean, Ireland, Singapore, Netherlands, Switzerland, Puerto Rico (favored by pharma).

And it hardly changed between 2017 & 2018.

Note this is up from ~25% in mid-1990s. via @M_C_Klein.…

Some numbers -

US Profits ~ $1.2 tr
Taxes paid ~ $213 bil
Implied rate ~ 18%

So even prior to TCJA, firms were paying nowhere close to top US rate of 35%.

And implied rate collapsed post-TCJA.

US profits ~ $1.5 tr
Taxes paid ~ $141 bil
Implied rate ~ 9%

Outside US -

Tax Havens
Profits ~ $554 bil
Taxes ~ $20 bil (4% implied rate)

All Other
Profits ~ $288 bil
Taxes ~ $90 bil (31%)

Tax Havens
Profits ~ $725 bil
Taxes ~ $26 bil (4%)

All Other
Profits ~ $391 bil
Taxes ~ $95 bil (24%)

Firms continued to use tax havens post-TCJA, with an effective tax rate of ~ 4%.

Offshore tax haven profits were ~ 3.5% of GDP in 2018, vs 2.8% in 2017.

It could be that these areas are ultra-productive (with large profit margins), or ...

its simply tax-shifting.

TCJA taxes offshore profits at 10.5% (global minimum tax rate on intangibles, or GILTI).

Which can be lowered if a firm has significant tangible assets (e.g. factories) abroad.

As @Brad_Setser noted, this incentivized moving production offshore.…

Case in point: Pharma

The pharmaceutical trade deficit is up ~$50 bil since TCJA passed (through Feb '21).

Imports are up almost $55 bil.

These imports are mostly coming from Ireland/Switzerland, as the game got easier after TCJA.

Not sure how easy it is to have a common global minimum corporate tax, as @SecYellen and G20 want.

But the proposal to apply a minimum tax on a country-by-country basis (instead of current GILTI) probably more realistic, as Congress can just do it.…

Eg. Say a firm earns $100 bil in Bermuda (w/ 0% tax rate).

They could move a factory to Germany that generates $100 bil profits, on which they pay $21 mil taxes (21% rate).

So global average rate is 10.5%, meeting current GILTI requirement.…

But, if the minimum is applied on a country-by-country basis, the firm would have to pay $10.5 million on $100 mil profits generated in Bermuda.

No more averaging of GILTI taxes.

Minimum rate could even be raised to 15-21% (GILTI already set to go up to 13.125% in 2026).

Rough back of envelope calc -

Assume $1 billion in tax haven profits now, and increasing 5% a year.

A new 15% minimum rate would raise ~ $1.5tr over 10 years (capturing the difference between current 4% effective rate & the new rate).

Insofar as raising revenue matters.

But as @nosunkcosts points out, this is actual populism.

The group of losers here is small and concentrated, i.e. companies that shift profits to the tax havens like the Caribbean Islands, Ireland, Netherlands, Switzerland, Singapore, etc.

With respect to raising the corporate tax rate to 28%, I'm with @NewRiverInvest in that it would simply result in a lot more games being played, w/ accounting firms gaining.

Keep as is, or increase to 25%. This is looking pretty likely already.


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More from @sonusvarghese

2 Jan
2020 saw a huge turnaround within the S&P 500 index after the vaccine news broke on 11/9/20.

Stocks that fared the worst through 11/9/20 saw the largest increases post-vax (on average, through year-end).

Sector attributions below 👇

1/ Image
Tech/Cons. Dis/Comm. made up all the returns until 11/6 with Financials/Energy dragging.

Post-vax news, Financials was the biggest contributor, though Tech was still #2.

Energy continued to dragged!

2/ Image
Big reason for Tech continuing to shine post-vax was $AAPL - the top contributor to S&P 500 returns pre- & post 11/9/20.

But large shifts below.

Pre-vax, #2-5 was $AMZN $MSFT $GOOG $NVDA & all others had net negative contribution.

Post-vax, #2-5 was $DIS $JPM $BAC $BRK.

end/ Image
Read 7 tweets
27 Nov 20
The 2020 stock market recovery should not be surprising given the V-shaped recovery in corporate profits, which are now higher than they were at the end of 2019 (h/t @lhamtil).

Thread on what drove this, using sectoral balances & Levy-Kalecki 👇

Levy-Kalecki profit equation recap:

Corporate Profits =
+ Dividends
- Household Saving
- Government Saving
+ Current Account Surplus

Business investment & current account surpluses are profit sources.

Household & government savings subtract from profits.

I used BEA's NIPA tables to compare corporate profits (collected directly) vs calculation using the profit equation.

Not a perfect match as the first chart shows.

But you get an exact match by subtracting a discrepancy term (from BEA) to account for data collection errors.

Read 10 tweets
25 Nov 20
Disposable income fell 0.7% in October but still remains 2% above pre-crisis trend.

Employee compensation growth slowed to +0.7%, & remains 4% below trend.

Proprietors' income rose +1.2% in October (due to CARES Act assistance to farmers) and now 5% above trend.

1/ Image
So far disposable income has remained above trend, in sharp contrast to what happened in 2008-2009.

Question is whether that continues, especially if fiscal aid is not coming.

2/ Image
Personal consumption also slowing

Oct: 0.5%
Sep: 1.2%
Aug: 1.2%
Jul: 1.5%
Jun: 6.5%

Slowdown not surprising but PC is still 4% below pre-crisis trend. At current growth rate, it'll take 3 yrs to catch up to prior trend.

Services is 7% below trend (4.5 yrs to catch up!).

3/ Image
Read 4 tweets
24 Aug 20
On the topic of the stock market vs the real economy, there's lot of information once you disaggregate the "stock market", as @NathanTankus pointed out.

Here's avg YTD returns for S&P 500 companies disaggregated by sales growth

Sales >20% y/y: +23% ytd
Sales <-20% y/y: -24%

Another simple disaggregation is by market cap.

Again, a wide dispersion, which wasn't the case back in February.

Avg. YTD returns for Market Cap > $200 Bil
As of 2/19: +8%
As of 8/21: +19%

Avg. YTD returns for Market Cap < $25 Bil
As of 2/19: +0.5%
As of 8/21: -14%

Here's the distribution of YTD returns of S&P 500 companies, as of 8/21/20 compared to 2/19/20.

Percent of companies with YTD returns < -25% -
As of 2/19: 0%
As of 8/21: 25%

Percent of companies with YTD returns > 10% -
As of 2/19: 2%
As of 8/21: 13%

Read 5 tweets
13 Mar 20
This is the 10th bear market for the S&P 500 (price index) since 1950.

Few notes on the nine previous ones 👇

1956-1957 Bear Market: -21.5%

Start: Aug 6 1956
Bottom: Oct 22 1957
Recovery: Sep 24 1958

- 15 months to bottom
- 11 months for recovery

Amid the "Eisenhower Recession" of 1957-'58 that lasted 8 months

1961-1962 Bear Market: -28%

Start: Dec 13 1961
Bottom: Jun 26 1962
Recovery: Sep 3 1963

- 7 months to bottom
- 14 months for recovery

Amid Flash Crash of 1961-'62: The "Kennedy Slide".

Market came close to the bottom again during the Cuban Missile Crisis in Oct 1962.

Read 14 tweets
12 Mar 20
Stocks plunged again, but are we close to the end?

Suffice to say I have no idea.

It hasn't paid to be alarmist over the past 10 years i.e. every drawdown was a "buy the dip" opportunity.

But it is useful to look at the other side of the coin: Bear markets.

Thread 👇

Large sustained bear markets, like 2007-2009 or 2000-2002, don't go down in straight lines.

Very frequently, there are reversals, with sharp gains.

Which makes it look like the worst is over.

Then markets fall again, and the cycle repeats. Until final capitulation.

2007-2009 bear market:

S&P 500 fell -57% from its peak in Oct '07 & lasted 17 months.

Yet it didn't become an "official" bear market (-20% drop) until Jul '08.

Until then, there were 3 periods with gains of more than 5% from lows. Including a 12% gain from Mar-May '08.

Read 16 tweets

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