VAT simply says---the global corporations will pay no tax nor will those global 1% ---so 99% of US and global citizens will pay LOTS AND LOTS OF TAXES. TRUMP is installing VAT without using that phrase because he is PRETENDING to be a right wing conservative----
It was BUSH that coined the phrase REPATRIATION TAX with a goal of ending the 20th century corporate tax policy of earnings by overseas US corporations needed to be taxed. TRUMP as BUSH is simply using this phrase REPATRIATION TAX as a method of handing a CARROT to the 5% PLAYERS shareholders. Remember our discussion last week where US wages are being deregulated from being cash wages to stock options/bonuses ----with a goal of changing cash wages to BED AND A MEAL. That is to where those 5% PLAYERS THINKING THEY ARE WINNERS are going.
TERRITORIAL TAX is a good name for this VAT TAX. Since the US is MOVING FORWARD to being a COLONIAL ENTITY and not a sovereign nation---we become that TERRITORY-----on the NORTH AMERICAN continent. This is why we call Baltimore, MD USA now Bloomberg Foreign Economic Zone 2 North America------TERRITORIAL TAX symbolizes colonial taxation to be enforced by multi-national corporations inside US Foreign Economic Zones. This is TRUMP----OBAMA simply tried to directly install VAT----
ALL THIS NATIONAL MEDIA AND FAR-RIGHT WING GLOBAL BANKING 1% THINK TANK DISCUSSION ON REPATRIATION TAX IS HIDING THE GORILLA -IN-THE-ROOM TAX ISSUE.
This TERRITORIAL TAX ----which will become that VAT TAX-----will indeed tax all our first world, developed nation wages in cash----and turn them towards workers handing their salaries over as TAXES.
“Territorial Tax” Is a Zero Rate on U.S. Multinationals’ Foreign Profits, Threatens U.S. Revenues and Wages
Under a “territorial” tax system, U.S.-based multinational corporations wouldn’t pay U.S. corporate taxes on their foreign profits. That is, they would face a zero U.S. corporate tax rate, and such a massive, permanent tax advantage for foreign profits over domestic profits would not help the U.S. economy. It would create a powerful incentive for companies to shift profits and investments overseas, could harm many U.S. businesses and workers, and would likely increase deficits. Corporate tax reform should focus on tax policy changes that would help create jobs, reduce deficits, and raise incomes, especially for workers whose incomes have been close to stagnant while corporate profits have soared — rather than on the largely unsupported claims of U.S.-based multinationals that they are “uncompetitive” with foreign-based corporations and need a large tax cut on their foreign profits. Responsible international tax reform would reduce corporate tax avoidance and the current tax advantage that foreign profits already enjoy, and there are a number of sound ways to do that. A territorial tax moves in the opposite direction.
“Territorial” Means “Zero”
The current tax system taxes U.S.-based multinationals on a so-called “worldwide” basis, meaning that they owe U.S. tax on the income they generate both at home and in other countries. The statutory corporate rate on both U.S. and foreign profits is 35 percent, but extensive tax breaks reduce companies’ actual tax rates far below that. Also, U.S.-based multinationals get a credit for the foreign taxes they pay on their foreign income so they aren’t taxed twice on the same income.
Unlike a pure worldwide tax system, the U.S. tax code doesn’t tax foreign profits in the year they are earned. Instead, foreign profits do not face U.S. taxes until companies “repatriate” them — that is, declare those profits as having been brought back to the United States. This means that multinationals can keep foreign profits overseas to defer U.S. tax indefinitely.
A territorial tax would exempt U.S. multinationals from tax on their foreign profits. (They would still face U.S. corporate taxes on their domestic profits.) President Trump and Republican congressional leaders have proposed a territorial tax, with a domestic corporate tax rate of 20 percent (see chart).
Powerful Incentive to Shift Profits Offshore
U.S.-based multinationals already have a strong incentive to artificially report having earned their profits offshore in order to defer paying U.S. taxes. The incentive is especially strong for multinationals to declare their profits as having been earned in zero-tax or low-tax “tax haven” countries, where the corporation would pay little or no tax to the foreign government, either. Permanently exempting U.S. multinationals’ foreign profits from tax would increase that incentive. The tax avoidance savings that corporations would reap would favor profitable U.S. multinationals, especially those in industries that can easily move profits overseas, such as pharmaceuticals and software.
Risks Shifting Investment Offshore and Lowering U.S. Wages
If a lower U.S. tax rate on foreign profits encourages U.S. corporations to move investments offshore, it could hurt U.S. workers’ wages and productivity. As Congressional Research Service tax economist Jane Gravelle testified before Congress, “[Moving to a territorial system] would make foreign investment more attractive. That would cause investment to flow abroad, and that would reduce the capital which workers in the United States have, so it should reduce wages.”
Anti-Abuse Rules Unlikely to Mitigate Revenue Loss
Adopting a territorial system would lose revenue over the long run because firms would shift profits overseas (both by changing where they report the profits on paper and by moving investments offshore) that they would otherwise report in the United States and on which they would pay U.S. tax. A territorial system without strong rules to mitigate these losses could cost roughly $130 billion over ten years, compared to the current system and tax rates, Treasury estimates. Tax experts are quite skeptical that policymakers could craft effective anti-avoidance rules. As noted international tax expert Stephen Shay has warned, “Those of us who have been doing this business for 30 years on the legal side” would find ways to avoid a territorial tax, and “When [lawmakers] don’t fully understand that and the companies come in and say it won't happen, I'm here to tell you it will happen.”
Case for Territorial Taxation Is Weak
Proponents often argue that a territorial system would improve U.S. firms’ “competitiveness.” But these claims have little to do with overall U.S. job creation or wages for ordinary workers, and are not supported by the evidence:
- Evidence that U.S. multinationals are at a competitive disadvantage is thin. Territorial tax proponents claim that U.S.-based companies are at a disadvantage overseas because they, unlike companies based in territorial-tax countries, face corporate taxes on profits earned outside the country. But many of the large multinationals that have lobbied for a territorial tax — such as Google, Apple, and Pfizer — are posting record profits and valuations.
- Nor are U.S. multinationals more highly taxed on their worldwide income than corporations with headquarters in other developed countries. U.S. multinationals’ average tax rates worldwide are similar to the average tax rates that corporations headquartered in other “Group of Seven” countries face.
- A zero tax rate on foreign profits would make U.S. domestic and small businesses less competitive relative to large U.S. multinationals. Large U.S. multinationals can pay tax lawyers millions in fees to find ways to report U.S. profits as being offshore in order to get the zero tax rate on “foreign” profits under a territorial system. That would give them a huge tax advantage over U.S. businesses — including small businesses — that don’t have foreign operations and can’t orchestrate complex tax avoidance maneuvers.
- Keeping corporate headquarters in the United States for tax purposes doesn’t mean many ordinary workers would benefit. Claims that cutting U.S. companies’ worldwide tax rate would encourage more firms to locate or keep their tax residence in the United States and thereby increase the number of high-quality jobs at U.S. corporate headquarters are dubious. Currently, whether or not companies can claim U.S. tax residence doesn’t depend on where they locate their management operations. Even if territorial tax rules were crafted so multinationals had to locate their management operations here to claim U.S. tax residence and qualify for the U.S. territorial tax (under which profits they booked abroad were exempt from U.S. tax), that likely wouldn’t have a large impact on U.S. jobs. That’s because, for many firms, the quality of the U.S. infrastructure, workforce, and legal system may be a more important factor than taxes in corporate decisions on where to place company headquarters.
- Meanwhile, even if a zero U.S. tax rate on multinationals’ foreign profits did increase the number of jobs at U.S. corporate headquarters, it could come at the cost of jobs for other workers if multinationals moved investment offshore to get the zero U.S. tax rate on foreign profits. Not every worker can be a CEO or manager or provide services to corporate headquarters.
- Finally, there’s little evidence that encouraging multinationals to expand overseas would create jobs in the United States. Some proponents argue that a territorial system would expand investment in the United States even if it also encouraged U.S.-based multinationals to invest more offshore, citing a study that finds U.S. multinationals’ investment abroad correlates with their investment in the United States. But that study does not show that firms’ overseas investment causes them to expand their domestic investment: a rise in foreign demand could cause both U.S. and foreign investment to grow at the same time. And the study itself notes that some earlier studies found that increased overseas investment by multinationals is linked to less investment in the United States.
Here in Baltimore we have already been existing under this ZERO TAX RATE these few decades as global Wall Street Baltimore Development, Greater Baltimore Committee, and global hedge fund Johns Hopkins installed these OLD WORLD MERCHANTS OF VENICE EAST INDIA MULTI-NATIONAL CORPORATIONS' tax structure without being told. Baltimore is that sucking global corporation and yes it kills any ability to have a local REAL small business economy-----we have PATRONAGE ONLY local economy as a CARROT to 5% players but that too is going away.
This kills 99% of US WE THE PEOPLE and our ability to be in any economic activity-----but as well, our global labor pool 99% who are being encouraged to start small businesses will go under the bus as well. Just because US Foreign Economic Zones will be filled with Chinese et al global corporate campuses and global factories---does not mean our 99% immigrant citizens will get that PATRONAGE to create small businesses.
PATRONAGE ECONOMIES ARE ONLY NEEDED WHEN GLOBAL BANKING 1% NEED TO HAVE 5% PLAYERS-----MOVING FORWARD ENDS THE NEED FOR THOSE 5% PLAYERS black, white, and brown citizens.
Most US citizens know these few decades of CLINTON/BUSH/OBAMA global corporations have not paid taxes at all---and have been great big tax welfare queens.
'A zero tax rate on foreign profits would make U.S. domestic and small businesses less competitive relative to large U.S. multinationals'.
Since the major shareholders in what used to be US corporations are now foreign national global 1% or foreign nations-----it is indeed those global 1% getting that repatriation tax as STOCK DIVIDEND. Our US 5% players may get a one-time-bonus but the bulk of REPATRIATION TAXES from global corporations operating overseas goes to those global 1% partners.
THIS IS WHERE THE TERM 'TRANSITION TAX' comes into play-----this is what far-right wing global banking 1% Clinton neo-liberals are posing.
MADE IN CHINA MADE IN AMERICA has Trump feeding his global 1% BFFs revenue that should have fueled our US city recovery from US corporations going overseas----all while he PRETENDS to be helping his right wing conservative voter base-----
Trump Tax Plan Could Give $70 Billion Windfall to Foreign Investors
The White House says its tax plan would boost American workers. It might benefit foreign investors a whole lot faster.
Oct 28, 2017 10:40 AM EDT
Trump's Proposed Tax Plan Makes These 5 Stocks Big Winners
The White House says its tax plan would boost American workers. It might benefit foreign investors a whole lot faster.
The tax proposal put forth by Trump administration officials and Congressional Republican leaders could translate to a $70-billion-a-year tax cut for foreign investors, according to a new analysis from the Tax Policy Center. The report comes a week after the White House released an estimate its plan could boost household incomes by $4,000 annually, a claim that has been disputed by many economists.
The nine-page framework GOP leaders -- the so-called "Big Six" -- unveiled in September calls for cutting the corporate tax rate to 20% from 35%, which would reduce corporate taxes by an average of $200 billion a year, or about $2 trillion over 10 years.
Estimating foreign investors hold about 35% of U.S. corporate stock, that means they would save $70 billion annually on taxes in the short term, explained Steve Rosenthal, senior fellow at the Urban-Brookings Tax Policy Center and author of the analysis.
"The windfall to foreigners from lowering U.S. corporate income tax rates from 35 percent to 20 percent is exceptionally large," Rosenthal, a veteran tax attorney, wrote.
That $70 billion is three times the $23 billion in annual savings the Tax Policy Center has estimated middle-income families would save annually under the GOP's incomplete tax framework.A White House spokeswoman declined to comment on the analysis.
Rosenthal arrives at his estimate that foreigners own 35% of U.S. stock using Federal Reserve reports on foreign portfolio stock and foreign direct investments. He takes only the corporate reduction into account, leaving aside the likely repatriation tax holiday and other likely tax changes.
"Shareholders will be the principal beneficiaries of the corporate tax cuts, and since foreign investors are big shareholders, they stand to benefit significantly," said Mark Zandi, chief economist at Moody's Analytics in an email.
Nobel Prize-winner and liberal economist Paul Krugman in a New York Times op-ed on Wednesday said Rosenthal's observation is one everyone "somehow missed" in examining the White House tax plan. "This observation should transform discussion of the whole issue, at least among economists, although my cynical guess is that Republican-leaning academics will ignore it," he wrote.
There are ways corporate taxes could be reformed to limit the size of the windfall to foreigners, such as keeping the current 35% rate but adopting full corporate tax integration with a deduction on dividends paid to shareholders. Senate Finance Committee Chairman Orrin Hatch (R-UT) has been an advocate of such a measure.
But it's easier to enact tax cuts than it is tax reform, as Republicans are quickly learning. President Donald Trump on Monday tweeted there would be no change to the amount American workers can save on their 401(k) retirement accounts, killing an idea the GOP was considering as a revenue raiser. They've already scrapped the border adjustment tax, which taxes imports and exempts exports, which would have accounted for $1 trillion in revenue.
"Everyone agrees that a corporate rate cut creates benefits for shareholders, especially in the short term. Many shareholders are foreigners. Thus, a corporate rate cut will create benefits for foreigners," said Scott Greenberg, senior analyst at the Tax Foundation. But that doesn't mean workers couldn't see a boost as well.
"It's not mutually exclusive to say workers benefit and shareholders benefit," he said. "The question isn't where people keep their money, the question is if additional investment in the United States is more profitable on an after-tax basis."
The White House last week released an analysis making the case its corporate tax cuts will boost household incomes by $4,000 to $9,000 annually. Many economists panned the report. Jared Bernstein, chief economist to former Vice President Joe Biden, slammed it as "non-credible, trickle-down fairy dust." Former Treasury Secretary Larry Summers called it "absurd."
The Wall Street Journal editorial board on Monday evening released an op-ed arguing that tax cuts will help workers. It seemed to hedge on the Trump administration's $4,000 mark, citing other estimates that tax cuts would translate to $1,000 to $3,500 in boosted income.
Rosenthal in an email to TheStreet said cutting corporate taxes to raise wages is a "dubious proposition" but emphasized that another big question is the timeline. Shareholders will benefit from tax cuts now. Workers, well, eventually.
"If it would occur, when? I think we measure the time in decades, not years," he said. "Remember the Big Six plan would cut taxes for corporate investments that already have been made, which is a windfall to existing investors, including foreign shareholders. Perhaps the tax cut also will benefit future shareholders (and, arguably, future workers), but that's not what we ought to count on today."
If our US corporations now enfolded into OLD WORLD MERCHANTS OF VENICE GLOBAL 1% multi-national corporations sell products manufactured overseas in Foreign Economic Zones-----they simply don't intend to sell them to the US-----since our 99% of WE THE PEOPLE will be too poor to buy products------we are those overseas sweat shop global corporate campus workers only having time to work 15-18 hours a day for a bed and a meal. NO PRODUCTS MANUFACTURED BY WHAT MAY LOOK LIKE US CORPORATIONS WILL BE COMING TO US ---so no TRANSITION TAX will occur.
The only CONSUMERS in Foreign Economic Zones are the global corporate campuses and global factories-----the citizens do not own small businesses that are not PATRONAGE BUSINESSES-----none being MANUFACTURERS OF PRODUCTS.
What the TRANSITION TAX will become is this--------the costs of foreign corporations expanding their corporations into US Foreign Economic Zones will get a TAX BREAK -----much like our US IMPORT/EXPORT BANK that handed Federal tax money to help US corporations expand overseas.
So, the TRANSITION TAX will end up being a tax on the 99% of WE THE PEOPLE that will go to subsidize foreign corporations moving into US Foreign Economic Zones.
Shared economy: Many more Americans are participating, but why?
The first major study of the impact and scope of the shared economy found 72 percent of Americans have used at least one of these services.
99% WE THE PEOPLE must remember, as our wages decline----as robotics and artificial intelligence takes all job categories----we are being pushed into having NO ACCESS TO CASH---NO MONEY so we cannot be CONSUMERS. If we are not consuming----but rather working on global corporate campus for a bed and a meal-----there will be NO PRODUCTS SOLD in US cities deemed Foreign Economic Zones----so no TRANSITION TAX OR REPATRIATION TAX as described below.
Transition Tax will be a tax subsidy to incoming global foreign corporations.
'The zone's location and the Lao government's generous tax incentives are attracting manufacturers to build production facilities there'.
Any corporate tax reform that alters the tax treatment of future overseas profits will likely include a one-time transition tax on existing foreign profits as part of the shift to the new tax system. A transition tax or “toll charge” would clean the slate of existing tax liabilities. Such a tax would be mandatory: multinationals would have to pay U.S. taxes on existing foreign profits whether they repatriate them or not. To achieve this, transition taxes would deem all foreign profits to have been repatriated and thus subject to the transition tax rate. (Most proposals would allow the companies to pay the tax over a period of years.) Future overseas profits would then be taxed under the new rules agreed to as part of tax reform'.
As we said yesterday---it is that $20 trillion national, state, and local US Treasury and state/local municipal bond debt that will be the TRANSITION TAX that pays foreign corporations to move to US Foreign Economic Zones. China was sold $2 trillion in US Treasury bonds ---not because the US needed the money---but it was a down-payment to encourage Chinese corporations and global 1% and their 2% to expand into US cities deemed FOREIGN ECONOMIC ZONES.
Remember, that $20 trillion in US Treasury bond debt is all of 99% WE THE PEOPLE'S public trusts, retirements, pensions, social programs----THAT IS THE TAX BASE PAYING THIS 'TRANSITION TAX'.
Our dollar, China's $2 trillion problem
By Colin Barr
February 10, 2011
Could the United States and China be even more co-dependent than we thought?
On Wednesday Fed chief Ben Bernanke became the first American official in recent memory to admit just how deep a hole we have dug ourselves with our biggest creditor.
Bernanke said China holds at least $2 trillion of U.S. government bonds. That is more than double the widely cited official figure, which is published monthly by Treasury.
As staggering as Bernanke’s number is, his coming clean comes as a relief. As ugly as our debt problem is, it creates problems for China too — what to do with all that paper?
And maybe, just maybe, the more facts that are out there, the better decisions policymakers will eventually make. Emphasis on eventually.
“The monthly Treasury series is wildly inaccurate, but it’s good that someone’s finally willing to say so with the doors open,” said Derek Scissors of the Heritage Foundation. “Perhaps with a reasonable figure available, we can see more clearly the implications of China’s dependence on the dollar.”
Officials in the two countries have been trading jabs lately over each other’s unpopular policies. Both have been easy with money in a bid to spur growth, but Bernanke has taken a beating in China and elsewhere for the recent spike in global food inflation.
For its part, China has spent years holding down the value of its currency to boost exports – a program that is drastically out of favor here with unemployment at 9%.
The dollars it has purchased in pursuing that policy now expose it to big risks: Scissors notes that China stands to lose hundreds of billions of dollars on its Treasury purchases should the yuan appreciate significantly, as U.S. policymakers would like.
Of course, there is also the question of just how the U.S. will pay off on all its promises. Testifying before the House Budget Committee, Bernanke said in response to a question from Rep. Tom McClintock that China holds as much as a quarter of outstanding U.S. government debt – “more than $2 trillion” of Treasury securities.
The comment drew a double-take from McClintock, a California Republican. Apparently referring to the latest official count released by Treasury, McClintock asserted that China’s holdings amounted to around 9.5% of outstanding U.S. government bonds.
McClintock is apparently referring to the latest official count, publicized monthly in Treasury’s major foreign holders table. Those figures, from November, show that China owns $896 billion of Treasurys.
Both McClintock’s and Bernanke’s figures foot fairly well with the $9 trillion of Treasury debt outstanding at the end of the third quarter, according to the Fed’s Flow of Funds report.
But Bernanke’s figure is far more revealing, in that it sheds light on the true size of China’s stake in keeping the U.S. economy rolling. It is in line with the estimate made by China watchers such as Scissors, who says Chinese holdings of Treasury and agency debt – that issued by the mortgage investors Fannie Mae and Freddie Mac – likely range between $2 trillion and $2.5 trillion.
Why do the Chinese hold so many U.S. bonds? It’s not because they like us, sad to say. The huge Treasury hoard is a function of China’s huge trade surplus – Scissors estimates China’s 2010 balance of payments surplus at $471 billion, or $39 billion a month – and the lack of an alternative to the dollar.
“There is no unified European bond market, and Japan is closed to large Chinese purchases,” he writes. “The only market large enough to absorb such huge surpluses is American bonds.”
Scissors has been questioning the official Treasury tally for some time. He has noted, for instance, that China’s official Treasury holdings remained static over the past year – ranging between $846 billion and $929 billion – even as the country ran its massive surplus. How is that possible?
Scissors contends it did so in part by purchasing Treasurys through other countries. Over the past year, Treasury’s tally of Treasurys held in the U.K. – including in the tax havens of the Channel Islands – has surged by $355 billion.
Those sorts of purchases will only continue till China changes its ways — which isn’t going to happen tomorrow, not with a national leadership change set for next year.
“China will not break the yuan’s peg to the dollar until it can resolve the matter of soaring dollar holdings, and that can be done only through financial reform,” Scissors writes.
The TRANSITION TAX was sold by far-right global banking 1% Clinton/Obama neo-liberals as JOBS, JOBS, JOBS in our US cities but it is the BUILD AMERICA BONDS that created a junk-bond status for our US Treasury and yes, foreign nations and their global 1% are the biggest holders of BUILD AMERICA BONDS.
While TRUMP pretends to MAKE AMERICA great again PRETENDING to his right wing conservative voters to be CUTTING TAXES-----both are MOVING FORWARD the same ONE WORLD ONE TAX UNITED NATIONS tax policies for all FOREIGN ECONOMIC ZONES.
The FEDERAL IMPORT/EXPORT BANK subsidized the expansion of US corporations overseas -----and now global banking 1% are subsidizing global foreign corporations to COME TO NORTH AMERICA to build global corporate campuses.
'Senators Rob Portman (R-OH) and Chuck Schumer (D-NY) also proposed in 2015 a framework for international tax reform and endorsed the broad transition tax approach in President Obama and Chairman Camp’s frameworks'
This is of course what a CHUCK SCHUMER supports as a far-right wing global banking 1% neo-liberal----and PORTMAN of OHIO that far-right wing Bush neo-cons.
Build America Bonds - BABs
DEFINITION of 'Build America Bonds - BABs'
Taxable municipal bonds that feature tax credits and/or federal subsidies for bondholders and state and local government bond issuers. Build America Bonds (BABs) were introduced in 2009 as part of President Obama's American Recovery and Reinvestment Act to create jobs and stimulate the economy. BABs attempt to achieve this by lowering the cost of borrowing for state and local governments in financing new projects.
BREAKING DOWN 'Build America Bonds - BABs'In general, there are two distinct types of BABs: tax credit bonds and direct payment bonds. Tax credit bonds offer a 35% federal subsidy of the interest paid to bondholders, while direct payment bonds offer a similar subsidy in the form of a tax credit paid to the bondholder.
We wanted to leave this post without formatting just to show the tricks our Federal government---here is the US TREASURY are doing to make it harder and harder for US citizens to share information on public policy. We are constantly having to spend literally hours formatting these posts to US government agencies regarding policy.
PLEASE GOGGLE THIS PAGE AND SEE WHAT OUR US FED/US TREASURY IS SELLING AS TRANSITION TAX BUILDING FUNDS FOR OUR US CITIES.
Here is BARRON'S ASIA-------HAWKING those US Treasury bonds as BUILD AMERICA to our Asian national governments and global 1% -----and of course they are tied to our US city infrastructure projects--- there are those PUBLIC K-12 SCHOOLS---TEXAS AS BALTIMORE tied our public schools to junk-bonded US Treasury bond fraud.
This is tied to the PIMCO MUNI-BOND FRAUDS we discuss often------we want to make sure our US citizens educate broadly to see the connections to all these tax policies.
Randall W. Forsyth
Updated Aug. 10, 2010 12:01 a.m. ET
WITH BOND YIELDS AT RECORD LOWS, income investors are looking far and wide for higher returns. But some of the best, low-risk returns can be found close to home.
Build America Bonds have been around for more than a year but BABs rarely have been as cheap—that is high-yielding—relative to corporate securities. Indeed, some triple-A-rated BABs are yielding more than triple-B corporate debt obligations.
BABs are taxable municipal securities on which the federal government pays the state and local issuers a subsidy of 35%. That is in lieu of granting tax exemption on the interest paid on traditional munis. There also have been other taxable munis issued by states and localities under various programs, which matter mainly to the issuer, not the investor.
But owing to negative publicity about state and local finances and uncertainties about the continuation of the BABs program, all taxable municipals have lagged corporate bonds' heady recent rally.
For instance, Hallettsville, Tex., Independent School District recently issued taxable muni bonds backed by the Texas Permanent School Fund, one of the strongest municipal credits in the nation with top triple-A ratings. They yielded 5.53% in 2027, some 270 basis points (2.7 percentage points) over the Treasury 10-year note, the closest active maturity.
By comparison, Ken Woods, head of Asset Preservation Advisors, points out that in the corporate market, Orange & Rockland Utilities, a unit of Consolidated Edison (ticker: ED), privately placed bonds due in 2040 at a 5.50% yield, a lower absolute yield and a much narrower spread versus comparable Treasuries of 150 basis points. These corporate bonds are rated on Baa1 by Moody's Investors Service and single-A by Standard & Poor's—middling investment-grade ratings and a far cry from triple-A.
That's not a unique instance. For example, Wellpoint (WLP) Monday priced 30-year bonds, also rated Baa1 and single-A by Moody's and S&P at 5.875%, or 187.5 basis points over the Treasury long bond; Hess (HES) sold bonds rated Baa2 and triple-B, due in 2041, at 5.62%, or a spread of 160 basis points; and Corning (GLW) sold Baa1/triple-B-plus debt due in 2040 at 5.71%, or 175 basis points over Treasuries. These are all considerably longer in maturity than the Texas school district bonds and significantly lower rating, but only a trivial extra margin in yield.
While these medium-grade corporate bonds yield nearly the same as top-grade taxable munis, corporates carry much higher default risk. The 10-year cumulative default rate on triple-B-rated municipal debt has been a mere 0.16%, which compares with 0.05% on triple-A-rated corporates, according to Moody's. The default rate on triple-B corporates was 4.85%--more than 30 times the default rate on comparably rated municipals.
The higher yields on BABs reflect their lesser liquidity and amount outstanding, factors that make them less attractive to big institutional investors such as pension funds and insurance companies, the traditional stalwarts of the corporate bond market. In addition, the BABs program will expire at the end of the year without Congressional action, which also would make these taxable munis relatively scarce in the marketplace, and thus less liquid.
Woods, of Asset Preservation in Atlanta, says investors with $1 million can assemble a diversified portfolio of BABs with a 10-year average maturity yielding 5%. In addition, investors who buy federally taxable munis from issuers in their own state typically avoid their state's income tax on the interest.
For the rest of us with a little less to spare, there are alternatives.
The Eaton Vance Build America Bond Fund (EBABX) is available, though it carries a sales load of up to 4.75% and an expense ratio of 0.95%. A more economical option is the PowerShares Build America Bond exchange-traded fund (BAB), with a 0.28% expense ratio. The ETF's yield based on its most recent distribution was 5.62%--higher than the 4.74% yield on the iShares iBoxx $ Investment Grade Corporate ETF (LQD), which closed at a five-year high price Monday.
A still higher-yielding alternative is a leveraged closed-end fund, the Nuveen Build America Bond Fund (NBB), which yields 7.02% based on its most recent distribution. Friday, it closed at a small, 2.56% premium to its net-asset value. The leverage increases both the return and the risk, however. The fund will get competition shortly from a competing closed-end fund, the BlackRock Build America Bond Trust, which will be launched this month.
In a world where yields on Treasury, mortgage and corporate debt have collapsed to once-unthinkable levels, BABs offer a rare combination of higher yields while improving credit quality.
WITH VALUE SCARCE in much of the bond world. Jerry Paul, chief investment officer of Essential Investment Partners in Denver, offers a way to tap the vaunted expertise of Pimco—at a discount, right on the New York Stock Exchange.
Shareholders of Montgomery Street Securities Income Fund (MTS) recently approved turning over the management reins to Pimco, the powerful asset manager headed by Bond King and Barron's Roundtable member Bill Gross. MTS, a venerable closed-end fund that dates back to 1973, differs from most of Pimco's open-end funds, which typically are sold with a sales load, and its closed-end funds, which usually command significant premiums to the NAVs, in that it's relatively cheap,
Montgomery Street Securities Income Fund trades at discount of 5%, so you get you pay 95 cents for $1.00 of assets. By contrast, the Pimco Total Return A (PTTAX) shares are sold with a 3.75% maximum load, which means you'll pay $1.00 for 96.25 cents of assets. MTS also charges a 0.76% expense ratio, less than Pimco Total Return's a 0.90% expense ratio. Virtually any closed-end fund with "Pimco" in its name commands fat premiums, up to the incredible 54% on the Pimco High Income Fund (PHK.)
Paul reckons that MTS may resemble Harbor Bond Fund (HABDX), a bargain fund that is subadvised by Pimco and sports similar, five-star performance ratings to the flagship Pimco Total Return fund, but sells directly with no load and has a relatively low 0.57% net expense ratio.
He also opines that Pimco will ramp up the relatively restrained leverage of 4.57% on Montgomery Street's portfolio to pump up its return. Meantime, Paul figures collecting a 5.4% yield ain't bad. Not surprisingly, Paul's clients have MTS in their portfolios.
If 99% WE THE PEOPLE only listen to national media our the propaganda captured NGO'S pretending to be revolutionary are selling we all will indeed be YAHOOS.
OBAMA'S Transition TAX came at the same time US FED and US Treasury began these BUILD AMERICA BONDS---and this is what made our US Treasury bond debt soar to #20 trillion.
THIS IS THE TRANSITION TAX----AND 99% WE THE PEOPLE AND OUR GLOBAL 99% LABOR POOL ARE PAYING IT---NOT GLOBAL CORPORATIONS.
And yes, it is illegal for elected sovereign politicians to literally sack our US Treasury with debt to hand over to multi-national corporations and global banking 1%. IT IS TREASON---AND A COUP.
This US, state, and local treasury bond debt will be used to build global corporate campuses and global factories no matter foreign or multi-national-------
OUR MARYLAND REPUBLICAN LARRY HOGAN IS PUSHING ALL THIS HARD AS IS OUR DEMOCRATIC BALTIMORE MAYOR PUGH----SAME GLOBAL BANKING 5% PLAYERS black, white, and brown citizens.
Remember the 2008 MOODY'S ET AL STOCK RATING FRAUDS with subprime mortgage loan ratings----they are doing the same these several years with BUILD AMERICA BONDS----pretending US cities are AAA that are close to bankruptcy ----because AAA ratings assure TOP TIER TRANCHE payment while 99% of WE THE PEOPLE investors in bonds LOSE.
Who Owns the U.S. National Debt?
The Biggest Owner Is You!
All of us will have to pay the nation's debt.
Photo: Thomas Barwick/Getty Images
By Kimberly Amadeo
Updated January 24, 2018
The U.S. debt is $20 trillion. Most headlines focus on how much the United States owes China, one of the largest foreign owners. What many people don’t know is that the Social Security Trust Fund, aka your retirement money, owns most of the national debt. How does that work, and what does it mean?
The Debt Is in Two Categories
The U.S. Treasury manages the U.S. debt through its Bureau of the Public Debt.
The debt falls into two broad categories: Intragovernmental Holdings and Debt Held by the Public.
This is the portion of the federal debt owed to 230 other federal agencies. It totals $5.6 trillion, almost 30 percent of the debt. Why would the government owe money to itself? Some agencies, like the Social Security Trust Fund, take in more revenue from taxes than they need. Rather than stick this cash under a giant mattress, these agencies buy U.S. Treasurys with it.
By owning Treasurys, they transfer their excess cash to the general fund, where it is spent. Of course, one day they will redeem their Treasury notes for cash. The federal government will either need to raise taxes or issue more debt to give the agencies the money they will need.
Which agencies own the most Treasurys? Social Security, by a long shot. Here's the detailed breakdown as of December 31, 2016.
- Social Security (Social Security Trust Fund and Federal Disability Insurance Trust Fund) - $2.801 trillion
- Office of Personnel Management Retirement - $888 billion
- Military Retirement Fund - $670 billion
- Medicare (Federal Hospital Insurance Trust Fund, Federal Supplementary Medical Insurance Trust Fund) - $294 billion
- All other retirement funds - $304 billion
- Cash on hand to fund federal government operations - $580 billion.
Debt Held by the Public.
The public holds the rest of the national debt ($14.7 trillion). Foreign governments and investors hold nearly half of it. One-fourth is held by other governmental entities. These include the Federal Reserve, as well as state and local governments. Fifteen percent is held by mutual funds, private pension funds and holders of savings bonds and Treasury notes. The remaining 10 percent is owned by businesses, like banks and insurance companies. It's also held by an assortment of trusts, companies, and investors.
Here's the breakdown of holders of the public debt as of December 2016:
- Foreign - $6.004 trillion
- Federal Reserve - $2.465 trillion
- Mutual funds - $1.671 trillion
- State and local government, including their pension funds - $905 billion
- Private pension funds - $553 billion
- Banks - $663 billion
- Insurance companies - $347 billion
- U.S. savings bonds - $166 billion
- Other (individuals, government-sponsored enterprises, brokers and dealers, bank personal trusts and estates, corporate and non-corporate businesses, and other investors) - $1.662 trillion.
This debt is not only in Treasury bills, notes and bonds but also Treasury Inflation Protected Securities and special state and local government series securities.
As you can see, if you add up the debt held by Social Security and all the retirement and pension funds, nearly half of the U.S. Treasury debt is held in trust for your retirement. If the United States defaults on its debt, foreign investors would be angry, but current and future retirees would be hurt the most.
Why the Federal Reserve Owns Treasurys
As the nation's central bank, the Federal Reserve is in charge of the country's credit. It doesn't have a financial reason to own Treasury notes. So why did it double its holdings between 2007 and 2014?
That's when it ramped up its open market operations by purchasing $2 trillion in Treasurys. This quantitative easing stimulated the economy by keeping interest rates low. It helped the United States escape the grips of the recession.
Did the Fed monetize the debt?
Yes, that's one of the effects. The Fed purchased Treasurys from its member banks, using credit it created out of thin air. It had the same effect as printing money. By keeping interest rates low, the Fed helped the government avoid the high-interest rate penalty it would usually incur for excessive debt.
The Fed ended quantitative easing in October 2014. As a result, interest rates on the benchmark 10-year Treasury note rose from a 200-year low of 1.442 percent in June 2012 to around 2.17 percent by the end of 2014. F
On September 29, 2017, the Federal Open Market Committee said the Fed would begin reducing its Treasury holdings in October. Expect long term interest rates to rise as a result. For more, see FOMC Meeting Statement Summary.
Foreign Ownership of U.S. Debt
In November 2017, China owned $1.2 trillion of U.S. debt. It's the largest foreign holder of U.S. Treasury securities. The second largest holder is Japan at $1.1 trillion. Both Japan and China want to keep the value of the dollar higher than the value of their currencies. That helps keep their exports affordable for the United States, which helps their economies grow. That's why, despite China's occasional threats to sell its holdings, both countries are happy to be America's biggest foreign bankers. China replaced the United Kingdom as the second largest foreign holder on May 31, 2007. That's when it increased its holdings to $699 billion, outpacing the United Kingdom's $640 billion.
Ireland is third, holding $329 billion. The Cayman Islands is fourth, at $269 billion. The Bureau of International Settlements believes it is a front for sovereign wealth funds and hedge funds whose owners don't want to reveal their positions. So are Luxembourg ($218 billion) and Belgium ($115 billion).
After the Cayman Islands, the next largest holders are Brazil, Switzerland, the UK, Hong Kong, Taiwan, Saudi Arabia, and India. They each hold between $140 and $265 billion. (Sources: "Treasury Bulletin, Monthly Treasury Statement, Table 6. Schedule D-Investments of Federal Government Accounts in Federal Securities, U.S. Department of the Treasury, December 2016. “Treasury Bulletin, Table OFS-2, Ownership of Federal Securities", U.S. Department of the Treasury, December 2016.)
We will end this week's discussion on tax policy by returning to the first day discussion of FDR AND WOODROW WILSON and those 100 year ago corporate tax policies ----90% corporate taxes with TARIFF laws that many Americans back then hated as GIVE-A-WAYS
While many Americans simply look at national media's articles on TRUMP TAX REFORM they are not looking at the TARIFF REFORMS tied to TRANS PACIFIC TRADE PACT----and ONE WORLD ONE GOVERNANCE for all Foreign Economic Zones including our US cities.
IT WILL BE A TAX ON THE POOR AND 99% OF US WE THE PEOPLE WILL BE THOSE THIRD WORLD POOR!
Why Trump’s trade plan could be a tax on the poor
By Ana Swanson January 13, 2017
President-elect Donald Trump often argues that competition from China has hurt America’s working class. Economists broadly agree — a widely cited paper published last year found that growing imports from China between 1999 and 2011 cost 2.4 million American jobs, with roughly 1 million in manufacturing.
Yet Trump’s proposed plan to get tough on China — which involves tariffs, additional taxes that are placed on imported goods to make American-made products more competitive — could easily hurt America’s working class as well. A study published Thursday by the Council of Economic Advisers, a group of economists appointed by President Obama, demonstrates how tariffs place a heavier burden on poorer people, especially working-class families and single parents.
During the campaign, Trump proposed a 45 percent tariff on Chinese products. In December, a senior member of Trump’s transition team said the administration was mulling a tariff of up to 10 percent on foreign goods across the board to boost U.S. manufacturing, according to CNN.
It’s unclear just how likely these tariffs are to materialize. At times since election, Trump advisers such as Commerce secretary nominee Wilbur Ross have discouraged speculation, calling tariffs a last resort for countries that will not negotiate. Yet Trump has also appointed to his Cabinet vocal China critics such as Peter Navarro, who in the past argued for using tariffs as a “defensive” measure.
If tariffs do go into place, they would likely place a heavier burden on poorer people, as the CEA study suggests. That’s in part because spending on tradable goods — the kind of products that would be taxed under a tariff, such as food and apparel — make up a larger proportion of the overall spending of poorer households, as past economic research shows.
The new study looks at tariffs that are already in place in the United States, collecting more than $33 billion a year. For their analysis, the economists match tariffs collected by U.S. Customs and Border Patrol with 381 categories of goods that people report buying in surveys done by the Bureau of Labor Statistics. Their calculation looks just at final goods, not at the effect of higher tariffs on intermediate inputs.
According to the economists' estimates, the poorest 10 percent to 20 percent of households in the United States currently pay about $95 a year in tariffs, while middle-income households pay $190 and the richest 10 percent pay more than $500.
However, when you take how much rich and poor households earn into account, the difference in costs looks more extreme. In the chart below, the economists show the burden imposed by current tariffs as a percentage of after-tax household income.
The burden is heaviest for those in the bottom 10 percent of American earners: more than 1.5 percent of their after-tax household income. That’s a lot, given that those households are making less than $10,000 a year.
In fact, removing this burden would have a larger impact on poor households than the tax cuts that were passed in 2001 and 2003, the economists say.
If tariffs grew by 10 percentage points across the board, as Trump’s transition team has proposed, the lowest-earning fifth of Americans could pay roughly $300 more per year for household purchases, while middle-income Americans would pay roughly $600-$700 more, the study estimates. That would be a substantial burden in the United States, where the median household income before tax is just a little more than $50,000 a year.
This study was carried out by economists that advise President Obama. However, economists widely agree that tariffs hit America's poorest families the hardest.
The CEA study cites two main reasons for this. For one, poor people spend more of their income on the kind of goods that are affected by tariffs, like clothing, food and furniture.
In addition, in many categories of goods, products on the cheaper end are subject to higher tariffs, the economists say. That’s true for home furnishings, apparel and other household goods, including baby clothes, rubber boots, olive oil, bicycles and bicycle helmets, wine, and caskets.
It’s not exactly clear why this came about, but it could be largely unintentional. Tariffs are negotiated industry by industry, and often different values are a random legacy of many decades of various corporate and government officials battling it out across the negotiating table. That’s why ice hockey gloves are duty free, but ski gloves are taxed at nearly 6 percent and golf gloves at nearly 5 percent, for example.
Still, working families and women especially appear to have lost out in those decades of trade negotiations. When it comes to clothes, including suits, sweaters, sportswear, pants and undergarments, women’s goods are currently subject to far higher tariffs than men’s, the study shows. Men’s suits face a tariff of 14 percent, for example, while women’s suits are taxed at 23 percent. Tampons and diapers are also subject to heavy tariffs.
If Trump's administration imposes a tariff of 10 percent or 45 percent across the board, those distinctions would disappear. But working families may still stand to lose out.
Trump’s contention is that the threat of imposing tariffs will allow the United States to renegotiate trade terms and get a better deal for the working class. That may be the case, but tariffs in themselves could also weigh heavily on their fortunes.