Economist 4/8/16

  1. On April 4th Jack Lew, the treasury secretary, announced a renewed crackdown on “inversions”, takeovers that allow American firms to switch their nationality to that of the firm they are buying, in order to escape America’s tax net.Two days later Pfizer, a pharmaceutical firm, cancelled its $160 billion purchase of Allergan. It would have been the third-biggest takeover in history and was premised on shifting Pfizer’s tax-domicile to Dublin.The backdrop is that America’s headline corporate-tax rate is far too high. It stands at 39%. That is roughly the same as it was in the late 1980s, but since then other rich countries have slashed their tax rates, to an average of 25%.The actual tax paid by all corporations was 33% of their domestic pre-tax profits in 2015.The 50 largest listed firms in America paid global cash tax equivalent to just 24% of their pre-tax profits in 2015. Apple paid a rate of just 18% and Pfizer 27%.
  2. The American taxman claims a right to grab a share of their global profits, unlike most European authorities, which aim to tax only the local profits of global firms. Partly by exploiting myriad loopholes: there is a reason why America Inc spends $3 billion a year lobbying politicians.Firms shift where they book profits to countries with lower tax rates, and hope that the American tax authorities do not make up the difference.. They decline to repatriate foreign profits back to America (these are taxed only when they cross the border). At the end of 2015 the accumulated profits of big American firms stranded overseas reached an awe-inspiring $2 trillion. Apple has $92 billion parked abroad. Pfizer has $80 billion.Since 2012 there have been 20-odd inversions. Allergan is itself the mutant product of two prior deals.
  3. University of Sierra Leone is the oldest institute of higher education in the whole of sub-Saharan Africa.It was once dubbed the “Athens of west Africa” and a magnet for students across the continent, its decay over the years stands as a metaphor for the small west African nation’s strained post-independence history.Sierra Leone suffers from an acute shortage of qualified academics: fewer than 30 professors, according to one count. Professor Abdullah puts the number of professors at Fourah Bay College at seven, catering to over 7,000 students. The vast majority of lecturers have only bachelors or masters degrees.Students are angry, too.The university’s problems date back decades. The economic crisis of the 1980s meant that, like universities elsewhere across Africa, Fourah Bay College’s public subsidy was slashed. Academics began to leave, precipitating a brain drain that accelerated dramatically in the 1990s during the country’s civil war, when the campus was looted by rebels.Sierra Leone’s higher-education system was dealt a heavy blow by the Ebola outbreak. For several months in 2014 and early 2015 all its universities were closed.
  4. The 26th annual Airline Quality Rating of American carriers was released on Monday, and for the fourth straight year Virgin America came out on top. That same day, it announced that it had agreed to a takeover by Alaska Airlines, to form the country’s fifth biggest carrier.It was the only airline with less than one mishandled bag per 1,000 passengers in 2015; less than half that of the second-place airline, JetBlue. It had fewer delayed flights and customer complaints than most of the 13 airlines ranked, and it had the third-fewest involuntarily denied boardings (bumped passengers to you or me): 0.12 per 10,000, versus an industry average of 0.76.Alaska fares quite well among the country’s airlines. Overall, it came fifth in the ranking. It also had the fewest complaints of any airline, just 0.5 per 100,000 passengers. Virgin America actually had the fifth-worse complaint rate, although at 1.66 complaints per 100,000 passengers it was nowhere near as bad as Frontier (7.86) or Spirit (11.73).
  5. FACEBOOK has defied even optimists’ projections of how big the 12-year-old firm could one day become. Today the company’s flagship social network claims 1.6 billion users, around a billion of whom log on each day. Facebook has attracted and engaged so many users by engineering features that are highly addictive and relevant to their lives, so people keep coming back for more hits (otherwise known as updates).Americans spend 30% of their mobile internet time on Facebook, compared to around 11% on Google search and YouTube combined.The amount of data Facebook collects on users has helped it become the world’s second-largest advertising company on mobile devices. Last year it claimed 19% of the $70 billion people spent on mobile advertising globally, compared to Twitter’s paltry 2.5%.
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