hedge fund salaries daimler bribery

Daimler agrees to pay $185m after admitting bribery
offshore bank accounts corporate taxes ge exxon

Top hedge fund managers get a billion $ in one year

How does business do it? How does so much wealth get concentrated into the pockets of so few? We trim, blend, and append four 2010 articles, all appeared April 1st, none are Fool’s Day tricks, from: (1) MarketWatch on hedge funds by Alistair Barr, (2) ProPublica on hedge funds by Marian Wang, (3) BBC on Daimler bribes, and (4) Forbes on taxes by Christopher Helman.

by A. Barr, by M. Wang, by BBC, and by Ch. Helman

The top 25 hedge fund managers got a record $25.33 billion last year as near-zero interest rates and massive government spending revived markets, enabling the $1.6 trillion industry generate its best returns in a decade.

David Tepper of Appaloosa Management topped the list with $4 billion. His main hedge funds jumped 133% and 129%, driven by bets on the stock of banks that got bailouts, including Bank of America.

George Soros, head of Soros Fund Management, took in $3.3 billion last year from a return of 29% in 2009.

Even the industry’s “losers” -- managers whose funds didn’t post gains -- were likely able to take home millions based on a flat fee of 1 or 2 percent of total assets. And that’s still a lot more than the typical recession-time American can say.

JJS: While some say those astronomical salaries were earned, business people must do an awful lot of lobbying of legislators to make such salaries possible. They also find it convenient to pay a lot of bribes to make mass sales possible, too.

German carmaker Daimler has pleaded guilty to corruption and will pay $185m (£121m) fines. The charges relate to US Justice Department and Securities and Exchange Commission investigations into the company's global sales practices. Daimler, the owner of Mercedes-Benz, admitted to paying tens of millions of dollars of bribes to foreign government officials in at least 22 countries over a decade.

The Justice Department said that by using offshore bank accounts, third-party agents, and deceptive pricing practices, Daimler subsidiaries saw foreign bribery as a way of doing business -- especially in somewhat desperate times. The company lost 2.6bn euros ($3.5bn; £2.3bn) last year.

Back in 2008, German industrial group Siemens paid $800m to settle a US investigation into bribes paid to government officials in Argentina, Bangladesh, Iraq and Venezuela.

JJS: With bribery, another cost of business is taxation. The big corporations have ways of making that expense work for them, too.

Some of the world's biggest, most profitable corporations enjoy a far lower tax rate than you do -- that is, if they pay taxes at all.

General Electric last year generated $10.3 billion in pretax income but ended up owing nothing to Uncle Sam. In fact, it got $1.1 billion back.

Avoiding taxes is nothing new for General Electric. In 2008 its effective tax rate was 5.3%; in 2007 it was 15%. The marginal US corporate rate is 35%.

GE's tax return is the largest the IRS deals with each year -- some 24,000 pages if printed out. Its annual report filed with the Securities and Exchange Commission weighs in at more than 700 pages.

While GE makes money, it has a paper division that loses on paper and keeps the overall tax bill so low. Plus, GE parks $84 billion in offshore accounts.

Operating overseas is the biggest reason why multinationals end up with lower tax rates than the rest of us. When you add in state taxes, the US has the highest tax burden among industrialized countries. In contrast, China's rate is 25%; Ireland's is 12.5%. Using overseas subsidiaries, corporations file taxes abroad. They also transfer to them ownership of assets, like patents and software, and license them back to the US parent company in return for handsome royalties (that get taxed at those lower overseas rates).

The oddities among the multinationals are oil companies because many countries where they extract oil levy even higher taxes than the US. ExxonMobil paid more income taxes than any other US company last year, some $15 billion, or 47% of pretax earnings. Exxon's peers Chevron and ConocoPhillips paid out more than half their earnings in income taxes -- even if not to the US.

JJS: Taxists argue for taxing big business, dismissing their political clout. Anti-taxists argue for cutting their taxes, saying business owners would just pass on the higher taxes anyway. Both miss the mark.

Instead of targeting profit, policymakers should target a certain expense -- (no, not bribes, but) spending for land, resources, and government-granted privileges like monopolies on new ideas (patents and copyrights). Everybody, business included, must pay for somewhere to live and work. We also buy goods and services, and not just food and fuel, whose prices reflect the cost of location. So, instead of paying both for location and for government separately, we could direct our spending for location into the public treasury. That is, instead of having to pay taxes on earnings, sales, and buildings, we’d pay our community for land, resources, and privileges like corporate charters (via taxes, fees, and dues).

In this arrangement -- called geonomics -- almost everyone would save (no taxes, just direct what you already pay for location into the public treasury). Those who might not save -- owners of downtowns and oil fields -- at least can afford the land dues and full-market fees for privilege. Furthermore, they could not pass on these expenses by raising their prices. That’s because they have competitors, some of whom will be able to streamline their operation and absorb the charges, and keep their prices down. The cost-cutting companies will attract more customers and thereby keep everyone’s prices low. .


Jeffery J. Smith runs the Forum on Geonomics.

Also see:

Did Big Oil really need relief from royalties?

Mainly because six years of land bubble gone

Who are these guys that banks give fortunes to?

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