ARTS & FARCES internet

The largest US corporations are pushing hard for a repatriation tax holiday, which would cut the income tax from 35 percent to 5.25 percent for one year. This allows these corporations to bring the money back to the US and, in theory, generate billions in tax revenues that would otherwise remain unrealized. David Kocieniewski, writing for the New York Times, reports that “Apple has US$12 billion waiting offshore, Google has US$17 billion, and Microsoft, US$29 billion.”

Former President George W. Bush tried this in 2005 and a total of US$312 billion was repatriated. The problem, Kocieniewski writes, is that “92 percent of that money was returned to shareholders in the form of dividends and stock buybacks, according to a study by the nonpartisan National Bureau of Economic Research.

Here’s an idea: A reverse repatriation tax holiday, raising the corporate income tax from 35 percent to 50 percent, or even 65 percent, for one year starting 1 January 2012. Want to get really creative? Put some teeth behind and close the loopholes in the laws governing what these corporations are allowed to do with the money they repatriate.

Bitcoin (BTC) is an anonymous (or, more accurately, pseudonymous) digital currency created two years ago by Satoshi Nakamoto. The currency currently carries a value higher than the US dollar, Euro, or British pound; each bitcoin is currently worth US$16 US$0.

It’s a partially decentralized currency that allows buying and selling without bank or government oversight, using strong cryptography and an open transaction register to confirm and secure each stage of a transaction.

The problem with digital currencies in general is, as Thomas Lowenthal, writing for Ars Technica, points out, is their non-rivalrous nature. When you spend a physical dollar, you can’t spend it again somewhere else tomorrow. When you spend a bitcoin, you use your private key to cryptographically acknowledge the exchange using the recipient’s public key.

Earlier this week, bitcoin’s profile rose drastically when a long-time user claimed that BTC25,000 was stolen from his computer. As Gavin Andresen, of the bitcoin project, tells Timothy B. Lee writing for Ars Technica, there’s no mechanism for tracking the stolen digital currency and transactions are designed to be irreversible. “Once a transaction hits the network, you can generate other transactions that depend on that transaction. So bitcoin transactions get tangled up fairly quickly.”

As a former civil service employee of the University of Minnesota, somewhere between 4.0-4.75 percent (in pre-tax dollars) of my pay was deducted from my paycheck every two weeks and deposited in the Minnesota State Retirement System (MSRS) during my four-and-a-half years of employment there. It was mandatory. When I was hired in July 2006, the rate was 4 percent and the University “matched” the deduction with 4 percent. When I was laid off in January 2011, the deduction and “match” rates were 4.75 percent. The Minnesota Legislature passed a law in 2006 requiring that the deduction and “match” increase by 0.25 percent each year from 2007-11.

Except the University “match” isn’t mine. The University match isn’t credited to individual accounts; instead it’s used to help pay retiree benefits. So it’s really not a match at all; it’s a guaranteed return for the MSRS pension fund.

Never mind that my manager, like all professional administrative and academic employees, contributed 2.50 percent of her pre-tax salary to a 401(a) retirement plan and received a hefty 13 percent match from the University. Only her University match actually, really went into her personal account every two weeks.

If the University wasn’t set up as a system of castes, using a plantation model it wouldn’t work. I get it; and I knew that when I signed on. But that’s not what this article is about. This is about the smoke and mirrors that is is public employee pension systems, including the one in Minnesota.

Every quarter MSRS sends a print newsletter (.pdf; 6.2MB) extolling what a great job it’s doing investing my (and the University’s money) on my behalf. Well, at least half of what goes in under my name is for my benefit. The newsletter I just received is a doozy. After being told every quarter for the four-and-a-half years I was a University of Minnesota employee that everything was just peachy, I learn that was pretty much total bullshit. But now the storm has passed and thanks to the deft investing skills of the Minnesota State Board of Investment everything is— wait for it—peachy once again. “In simplest terms, MSRS has reduced expenses and increased savings,” writes MSRS Executive Director Dave Bergstrom. “And, this means MSRS is taking the first steps toward financial recovery for the pension plans it administers.”

Bergstrom attributes the remarkable turnaround to two factors: The Minnesota Legislature agreed to lower MSRS’s future liabilities (this would be the “reduced expenses” to which Bergstrom refers). And an investment return of 15.2 percent (this would be the “increased savings” to which Bergstrom refers) between 1 July 2009 and 30 June 2010.

And those “reduced expenses” and lowered “future liabilities” aren’t at all what you and I think they are. Reducing expenses to you and me means that if we’re spending US$500 on internet connectivity each month and reduce it to US$250 each month, we’ll see reduced expenses over the next year of US$3,000 or 50 percent. That’s not what “reduced expenses” means in the case of MSRS. In 2010, the Minnesota Legislature agreed to a shell game proposed by MSRS.

One has to start by saying Facebook and Goldman Sachs simply and completely deserve each other. If it takes you more than a nanosecond to realize why, move along; there’s nothing for you here.

Thanks to a US$500 million cash infusion from Goldman Sachs, Facebook now enjoys a market value of close to US$50 billion without even being on the market. Goldman’s US$500 million investment gives it a stake of less than one percent in Facebook. Giving a wide berth to any initial public offering (IPO), Facebook avoids government regulation and market volatility and remains under the thumb of company co-founder and chief executive Mark Zuckerberg, as Miguel Helft, writing for the New York Times, notes.

What this does for the investor class is eliminate their ability to participate in any Facebook market offering—unless they’re a Goldman client. And those clients will have to put up a minimum of US$2 million and wouldn’t be able to sell the shares until 2013. But US regulations require a company with more than 500 investors to disclose financial results. The Goldman investment is designed specifically to avoid that regulation through so-called secondary markets.

The US Securities and Exchange Commission (SEC) is investigating private company trading like this and has Facebook, Twitter, LinkedIn, and Zynga in its sights. As Dan Gillmor, writing for Salon, notes, “Opacity is a growing issue. A thriving shadow marketplace has emerged for big startups that haven’t done IPOs, so big that the Securities and Exchange Commission is, at least in that space, looking into the wheeling and dealing. For good reason: Many if not most of the investors in these markets have no idea what the true financial picture may be of the shares they’re buying.”

As a result of Goldman’s end-run around the SEC regulations on behalf of Facebook we don’t know how much revenue Facebook generates. Or how many shareholders it has. Maybe it’s not for nothing that Facebook is banned at Goldman.

Prior to the last eight-and-a-half years, I spent 30 years self-employed. When I wasn’t working on my own projects, I contracted for project work with entities from solo practitioners to small businesses to the Fortune 100. Truth be told, I actually preferred contracting as opposed to full-time employment. There were meetings, of course, but not the soul-crushing ones that are part of full-time organizational life. The big trade-off is benefits: As an employee, it’s nice to have employer-paid insurance—health, life, disability—vacations, paid sick time, retirement, and half of the Social Security and Medicare tax bills. As a freelancer, it’s nice to have the freedom.

According to Motoko Rich, writing for the New York Times, we’re all contractors now. “We’re in a period where uncertainty seems to be going on forever,” Massachusetts Institute of Technology economist David Autor tells Rich. “So this period of temporary employment seems to be going on forever.” In November 2010, US Labor Department records indicate a full 80 percent of the 50,000 jobs added by the private sector were temporary jobs. For all of 2010, 26.2 percent of the 1.17 million private sector jobs, or 307,000, were temporary, contract, or freelance work. This is more than double the percentage of temporary positions as the comparable period after the 1990s recession (10.9 percent).

Rich writes that “the economy could be moving toward a higher reliance on temporary workers over the long term.” With 15 million people currently unemployed in the US, competition for those 307,000 temporary positions is as intense as that for permanent jobs.