Report in Syria: Suspected chemical substance dropped from planes. Lebanon believe that a war will break out within six weeks involving Lebanon, Syria and possibly, Iran.

Two people were killed and 20 others were injured in northwestern Syrian province of Idlib Tuesday after warplanes dropped bags containing “strange substances,” Al-Jazeera reported, saying the suspicious material was apparently chemical weapons.

Videos uploaded by the Qatari news network show casualties having difficulties breathing treated in makeshift hospitals. One video showed a healthcare professional drawing attention to the white foam coming out of an injured man’s mouth.

According to the report, sources in Lebanon believe that a war will break out within six weeks, involving Lebanon, Syria and possibly, Iran.

http://www.ynetnews.com/articles/0,7340,L-4374213,00.html

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Report in Syria: Suspected chemical substance dropped from planes. Lebanon believe that a war will break out within six weeks involving Lebanon, Syria and possibly, Iran.

Do You Believe China"s GDP Numbers?

Do you believe growth figures in China? What about the US, Canada, or Germany?

Actually, there is no reason to believe any GDP numbers. A recent email from Michael Pettis at China Financial Markets explains.

From Pettis ….

Last year China’s official growth rate was 7.8%, above the 7.5% target but the lowest number in many years and far lower than the more than 10% growth rates China had generated for the past two decades.

But even with the lower growth numbers throughout the year economists were puzzled by evidence that the economy was in fact growing more slowly than the official numbers suggested. Energy consumption in China, for example, usually grows more quickly than GDP, but surprisingly, in 2012 energy usage grew by only 5.5%, well below the official growth rate of 7.8%. Other indicators also indicated that growth may have been lower than the official numbers suggested.

While some of the sell-side economists still insist that China’s growth remained high and healthy enough, in fact among independent economists who specialize in the Chinese economy, both among Chinese and foreign economists there has been growing skepticism. A consensus is developing that China grew by less that 7.8% in 2012. For example Stephen Green at Standard Chartered, one of my favorites of the sell-side economists, refigured his numbers and guesses that instead of 9.3% for 2011 and 7.8% for 2012 (the official numbers), actual growth might have been 7.2% for 2011 and 5.5% for 2012. Other economists are suggesting even lower numbers, closer to zero.

I don’t have my own estimates because it seems to me that all of these attempts to measure economic growth are actually measuring economic activity, which may itself overstate growth. If you spend $ 100 million each on two separate bridges, one of which is actively used and the other rarely used, the official measures will have them contributing the same amount to GDP, even though the former creates real value and the latter does not. In either case if you then adjust the overall GDP numbers downwards by examining electricity usage, cement consumption, and so on, as the likes of Stephen Green do, you may end up with a more accurate estimate of economic activity, but you still treat the two bridges as contributing the same amount.

It isn’t until you write down the debt associated with the second bridge that you end up with a more meaningful measure of GDP. Of course this makes the whole process very confusing and it is hard to compare different estimates. It isn’t always clear how these estimates are reached, but as far as I can tell nearly all, if not all, of the downward revisions provided by various skeptical economists are still measures of economic activity, and do not include estimates for debt write-down associated with unnecessary investment.

We Know What To Do

There have been so many articles in the Chinese and foreign press about problems in the banking system that I won’t bother going through the topic much more except to note that Beijing cannot tolerate rapid credit growth and it cannot tolerate slow GDP growth. The problem is that it can only choose both or neither. There are no other options.

As credit concerns continue to rise, expect Beijing eventually to bite the bullet and stamp down on debt, in which case expect GDP growth rates to drop much, much more, in fact to well below anything we saw in 2012. The question is not whether this will happen, but when. Once Beijing is confident enough about its grip over vested interests and the consensus has developed within the leadership, growth rates will drop very sharply.

So this is probably why former Premier Wen is warning about the difficulty China faces in reforming the economy – a warning that he and Premier Li have made many times before but never more shrilly.

I have said often enough that we will be able to judge how resolute Beijing is and how capable of overcoming vested interests by how quickly credit growth is constrained and, with it, GPD growth. I expect to see high GDP growth (close to 8%) in the first half of the year but, if Beijing is able to move quickly, I expect growth to slow significantly in the second half.

If GDP growth does not slow, I will be worried about how long it takes the new leadership to get their arms around the problem that they clearly recognize (although perhaps still underestimate). The signals so far are good. Growth may be slowing even quicker than I had originally anticipated.

Does Cyprus matter?

I can’t really finish this newsletter without noting the astonishing events in Cyprus, especially since everyone in the world has already mentioned them. The concern most commentators have expressed is that by going after depositors the EU may have paved the way for bank runs in the rest of peripheral Europe. Quite a few analysts warned that we will begin to see this happen fairly soon.

I agree, but see it a little differently. The Cyprus proposal will probably have little impact on deposits now, but it will have an impact on memory. Depositors in the peripheral countries will remember what happened in Cyprus and it will affect their future confidence in the credibility of deposit guarantees.

We can imagine the “Cyprus effect” as a point on the credibility curve at which there is a sudden discontinuous or non-linear jump. As a country’s credibility declines, the deterioration in credibility was never likely to be smooth and linear because the process is self-reinforcing, but now we have added a sharp discontinuity. At some point of lower credibility, depositors, remembering Cyprus, will suddenly and sharply speed up their deposit withdrawal. And even if the original Cyprus plan is modified to protect small depositors, it probably won’t matter. The cat has already been let out of the bag.

Instead of embedding countercyclical mechanisms we have just embedded a big, fat, highly pro-cyclical pump into the credibility curve. It won’t matter so much now, but as things deteriorate, it will matter at some point, and of course always at the worst possible time.

Problem In The Definition

I italicized the key point. By definition, government spending contributes to GDP. No products have to be produced. Economic benefits are unnecessary.

Pettis used an example of governments building worthless bridges. Previously I have noted that if the government hired people to spit at the moon it would add to GDP. And that is an inherent problem with the definition.

In France, government spending accounts to 56% of GDP. How much of that spending is wasteful? How much government spending in the US is wasted?

Consider how Davis-Bacon and prevailing wage laws affect the answer. In the case of roads repairs, if the private market could do as good a repair job for 1/3 less, then the answer is 33.3%. But what about projects that should not be done at all?

Spending can even be net-negative as is the case in bombing countries for no reason. What did the US accomplish in Vietnam or Iraq? Even bridges to nowhere have more economic benefit.

While everyone is ready and willing to consider that China overstates its GDP, too few point the same finger at the US for the same reason.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com

Mike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Mish’s Global Economic Trend Analysis

Do You Believe China"s GDP Numbers?

Abolish The Income Tax: You Won’t Believe Who Is Getting Away With Paying Zero Taxes While The Middle Class Gets Hammered

The federal income tax is a bad joke and it needs to be abolished.  All over the nation, hard working American families are being absolutely crushed by oppressive levels of taxation, and our politicians are constantly coming up with new ways to extract money from all of us every single year.  Meanwhile, many ultra-wealthy Americans and many of the most profitable corporations in the country pay little to nothing in taxes.  In fact, as you will see below, there are dozens of very prominent corporations that make billions of dollars in profits and yet don’t pay a dime in taxes.  Tax avoidance has become a multi-billion dollar industry in the United States.  Those that have the resources to “play the game” use shell companies, offshore tax havens and the thousands of loopholes in our tax code to minimize their tax burdens as much as possible.  Meanwhile, the rest of us get absolutely hammered.  This is fundamentally unfair.  The federal income tax system is irreversibly broken at this point, and it is time to abolish it.  If you think that the federal income tax system can be “fixed”, then you probably have never studied it.  Our tax code is nearly 4 million words long and it is absolutely riddled with thousands of loopholes that favor big corporations and the ultra-wealthy.  We should come up with a better, fairer way to fund the government.  The United States once prospered greatly without a federal income tax, and it could do so again.

Many people simply do not believe that it is possible for corporations inside the United States to make billions of dollars in profits each year and not pay a dime in income taxes.

Well, according to a report put out by Public Campaign, that is exactly what is happening.  Posted below are numbers that come directly from their report.  30 large corporations are listed, and 29 of them had a tax burden for 2008 through 2010 that was less than zero even though they all made enormous profits.  And all 30 of them spent more on lobbying than they did on taxes.

The numbers that you are about to see are for 2008, 2009 and 2010 combined.  For “taxes paid”, please note that for 29 of the corporations a negative number is given.  That means that the net tax liability for 2008 through 2010 was actually less than zero.

After seeing these numbers, is there anyone out there that is still willing to claim that our tax system is “fair”?…

General Electric
U.S. Profits: $ 10,460,000,000
Taxes Paid: ‐$ 4,737,000,000

PG&E Corp.
U.S. Profits: $ 4,855,000,000
Taxes Paid: ‐$ 1,027,000,000

Verizon Communications
U.S. Profits: $ 32,518,000,000
­Taxes Paid: ‐$ 951,000,000

Wells Fargo
U.S. Profits: $ 49,370,000,000
­Taxes Paid: ‐$ 681,000,000

American Electric Power
U.S. Profits: $ 5,899,000,000
­Taxes Paid: ‐$ 545,000,000

Pepco Holdings
U.S. Profits: $ 882,000,000
­Taxes Paid: ‐$ 508,000,000

Computer Sciences
U.S. Profits: $ 1,666,000,000
Taxes Paid: ‐$ 305,000,000

CenterPoint Energy
U.S. Profits: $ 1,931,000,000
Taxes Paid: ‐$ 284,000,000

NiSource
U.S. Profits: $ 1,385,000,000
­Taxes Paid: ‐$ 227,000,000

Duke Energy
U.S. Profits: $ 5,475,000,000
­Taxes Paid: ‐$ 216,000,000

Boeing
U.S. Profits: $ 9,735,000,000
Taxes Paid: ‐$ 178,000,000

NextEra Energy
U.S. Profits: $ 6,403,000,000
­Taxes Paid: ‐$ 139,000,000

Consolidated Edison
U.S. Profits: $ 4,263,000,000
­Taxes Paid: ‐$ 127,000,000

Paccar
U.S. Profits: $ 365,000,000
­Taxes Paid: ‐$ 112,000,000

Integrys Energy Group
U.S. Profits: $ 818,000,000
Taxes Paid: ‐$ 92,000,000

Wisconsin Energy
U.S. Profits: $ 1,725,000,000
Taxes Paid: ‐$ 85,000,000

DuPont
U.S. Profits: $ 2,124,000,000
Taxes Paid: ‐$ 72,000,000

Baxter International
U.S. Profits: $ 926,000,000
­Taxes Paid: ‐$ 66,000,000

Tenet Healthcare
U.S. Profits: $ 415,000,000
Taxes Paid: ‐$ 48,000,000

Ryder System
U.S. Profits: $ 627,000,000
­Taxes Paid: ‐$ 46,000,000

El Paso
U.S. Profits: $ 4,105,000,000
­Taxes Paid: ‐$ 41,000,000

Honeywell International
U.S. Profits: $ 4,903,000,000
­Taxes Paid: ‐$ 34,000,000

CMS Energy
U.S. Profits: $ 1,292,000,000
­Taxes Paid: ‐$ 29,000,000

Con-­way
U.S. Profits: $ 286,000,000
Taxes Paid: ‐$ 26,000,000

Navistar International
U.S. Profits: $ 896,000,000
­Taxes Paid: ‐$ 18,000,000

DTE Energy
U.S. Profits: $ 2,551,000,000
­Taxes Paid: ‐$ 17,000,000

Interpublic Group
U.S. Profits: $ 571,000,000
­Taxes Paid: ‐$ 15,000,000

Mattel
U.S. Profits: $ 1,020,000,000
­Taxes Paid: ‐$ 9,000,000

Corning
U.S. Profits: $ 1,977,000,000
­Taxes Paid: ‐$ 4,000,000

FedEx
U.S. Profits: $ 4,247,000,000
Taxes Paid: $ 37,000,000 (a rate of less than 1%)

Total
U.S. Profits: $ 163,691,000,000
­Taxes Paid: ‐$ 10,602,000,000

Just look at that combined total again.

Those 30 companies had combined profits of more than 163 billion dollars during those three years, and yet the combined net tax liability of those companies was negative 10.6 billion dollars.

I wish I could make my taxes look like that.

Another company that is making headlines because of their taxes these days is Facebook.

It turns out that Facebook made more than a billion dollars in 2012 but did not pay a single dime in federal or state income taxes.  The following is from a report that was just released by Citizens for Tax Justice…

Earlier this month, the Facebook Inc. released its first “10-K” annual financial report since going public last year. Hidden in the report’s footnotes is an amazing admission: despite $ 1.1 billion in U.S. profits in 2012, Facebook did not pay even a dime in federal and state income taxes.

Instead, Facebook says it will receive net tax refunds totaling $ 429 million.

According to Businessweek, Facebook has an additional 2 billion dollars in tax credits that it will be able to use in future years…

Facebook says that it anticipates reducing its tax liability in the future by an additional $ 2.17 billion by using further net operating loss carry-forwards that it has banked.

And of course when it comes to abusing the tax system, the big Wall Street banks are some of the worst offenders.  The following is an excerpt from a report put out by the office of U.S. Senator Bernie Sanders…

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Here are just a few examples of how the corporations and Wall Street banks these CEOs work for have significantly harmed our economy and the federal budget:

1. Bank of America CEO Brian Moynihan

Number of Offshore Tax Havens in 2010? 371.

In 2010, Bank of America operated 371 subsidiaries incorporated in offshore tax havens. 204 of these subsidiaries are incorporated in the Cayman Islands, which has a corporate tax rate of 0%.

Amount of federal income taxes Bank of America would have owed if offshore tax havens were eliminated? $ 2.5 billion.

Bank of America has stashed $ 18.5 billion in offshore tax havens to avoid paying U.S. income taxes. Bank of America would owe an estimated $ 2.5 billion in federal income taxes if its use of offshore tax avoidance was eliminated.

Amount of federal income taxes paid in 2010? Zero. $ 1.9 billion tax refund.

Bank of America received a $ 1.9 billion tax refund from the IRS in 2010, even though it made $ 4.4 billion in profits.

Taxpayer Bailout from the Federal Reserve and the Treasury Department? Over $ 1.3 trillion.

During the financial crisis, Bank of America received a total of more than $ 1.3 trillion in virtually zero interest loans from the Federal Reserve and a $ 45 billion bailout from the Treasury Department.

2. JP Morgan Chase CEO James Dimon

Number of Offshore Tax Havens in 2010? 83.

In 2010, JP Morgan Chase operated 83 subsidiaries incorporated in offshore tax havens.

Amount of federal income taxes JP Morgan Chase would have owed if offshore tax havens were eliminated? $ 4.9 billion

JP Morgan Chase has stashed $ 21.8 billion in offshore tax haven countries to avoid payng income taxes. If this practice was outlawed, it would have paid $ 4.9 billion in federal income taxes.

Taxpayer Bailout from the Federal Reserve and the Treasury Department? $ 416 billion

During the financial crisis, JP Morgan Chase received a total of more than $ 391 billion in virtually zero interest loans from the Federal Reserve and a $ 25 billion bailout from the Treasury Department, while Jamie DImon served as a director of the New York Federal Reserve.

3. Goldman Sachs CEO Lloyd Blankfein

Amount of federal income taxes paid in 2008? Zero. $ 278 million tax refund.

In 2008, Goldman Sachs received a $ 278 million refund from the IRS, even though it earned a profit of $ 2.3 billion that year.

Number of offshore tax havens in 2010? 39.

In 2010, Goldman Sachs operated 39 subsidiaries in offshore tax haven countries.

Amount of federal income taxes Goldman Sachs would have owed if offshore tax havens were eliminated? $ 3.32 billion.

Goldman Sachs has stashed $ 20.63 billion in offshore tax haven countries to avoid paying income taxes. If this practice was outlawed, it would have paid $ 3.32 billion in federal income taxes.

Taxpayer Bailout from the Federal Reserve and the Treasury Department? $ 824 billion.

During the financial crisis, Goldman Sachs received a total of $ 814 billion in virtually zero interest loans from the Federal Reserve and a $ 10 billion bailout from the Treasury Department.

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Are you starting to get the picture?

The big banks and the big corporations make billions, but they pay nothing or next to nothing.

The rest of us bust our rear ends to try to get ahead, and we get gouged by dozens of different taxes.

Over time, the percentage of the overall tax burden shouldered by corporations has gotten smaller and smaller.

Back in 1950, corporate taxes accounted for about 30 percent of all federal revenue.  In 2012, corporate taxes accounted for less than 7 percent of all federal revenue.

These days, large corporations have become absolute masters at avoiding taxes.  In fact, there are many international tax havens that are doing a booming business in setting up sham headquarters for U.S. corporations.  For example, the city of Zug, Switzerland only has a population of 26,000 people but it is the headquarters for 30,000 companies.

But corporations are not the only ones doing this kind of thing.

The ultra-wealthy have also mastered the art of legally not paying taxes.

As I mentioned in a previous article, it has been reported that the global elite have up to 32 TRILLION dollars stashed in offshore banks around the globe.

With that amount of money, you could pay off the entire U.S. national debt and still have enough money left over to buy every product and service produced in the United States during an entire year.

It is time to admit that our tax system is broken.

Congress has had decades to fix it, and yet the abuses just keep getting worse.

What we are doing is not working.

We need to abolish the income tax.

If you are still not convinced that the federal income tax is an abomination and that we need to abolish it, here are some more shocking facts about our tax system from one of my previous articles about taxes…

1 – The U.S. tax code is now 3.8 million words long.  If you took all of William Shakespeare’s works and collected them together, the entire collection would only be about 900,000 words long.

2 – According to the National Taxpayers Union, U.S. taxpayers spend more than 7.6 billion hours complying with federal tax requirements.  Imagine what our society would look like if all that time was spent on more economically profitable activities.

3 – 75 years ago, the instructions for Form 1040 were two pages long.  Today, they are 189 pages long.

4 – There have been 4,428 changes to the tax code over the last decade.  It is incredibly costly to change tax software, tax manuals and tax instruction booklets for all of those changes.

5 – According to the National Taxpayers Union, the IRS currently has 1,999 different publications, forms, and instruction sheets that you can download from the IRS website.

6 – Our tax system has become so complicated that it is almost impossible to file your taxes correctly.  For example, back in 1998 Money Magazine had 46 different tax professionals complete a tax return for a hypothetical household.  All 46 of them came up with a different result.

7 – In 2009, PC World had five of the most popular tax preparation software websites prepare a tax return for a hypothetical household.  All five of them came up with a different result.

8 – The IRS spends $ 2.45 for every $ 100 that it collects in taxes.

9 – According to The Tax Foundation, the average American has to work until April 17th just to pay federal, state, and local taxes.  Back in 1900, “Tax Freedom Day” came on January 22nd.

10 – When the U.S. government first implemented a personal income tax back in 1913, the vast majority of the population paid a rate of just 1 percent, and the highest marginal tax rate was just 7 percent.

11 – Residents of New Jersey pay $ 1.64 in taxes for every $ 1.00 of federal spending that they get back.

12 – The United States is the only nation on the planet that tries to tax citizens on what they earn in foreign countries.

13 – According to Forbes, the 400 highest earning Americans pay an average federal income tax rate of just 18 percent.

14 – Warren Buffett had an effective tax rate of just 17.4 percent for 2010.

15 – The top 20 percent of all income earners in the United States pay approximately 86 percent of all federal income taxes.

16 – Sadly, as Bill Whittle has shown, you could take every single penny that every American earns above $ 250,000 and it would only fund about 38 percent of the federal budget.

Please share this article with as many people as you can.  We have now entered a time of the year when tens of millions of Americans will be filling out their tax returns, and the pain of going through that process will make people even more receptive than normal to the truth about how broken our system is.

So what do you think?

Do you think that it is fair for the ultra-wealthy and hugely profitable corporations to get away with paying zero taxes while you get hammered?

Do you believe that it is time to abolish the income tax?

Please feel free to post a comment with your thoughts below…

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The Economic Collapse

Abolish The Income Tax: You Won’t Believe Who Is Getting Away With Paying Zero Taxes While The Middle Class Gets Hammered