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Can Britain Become A Tax Haven Post Brexit?

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Can Britain Become A Tax Haven Post Brexit?

There are many reasons that the United Kingdom is the capital and center of world trade and finance.

It started out with the British Empire choosing and implementing conditions that favored this from hundreds of years ago. 

History is written by the winners, and in this case, the time zones, date lines, main ports, and centers of commerce were indeed mapped out and formed by the British Empire. 

All made with the sole purpose of making trade and commercial deals as favorable as possible for the great map making an empire building nation.

Greenwich Mean Time (GMT) was established in 1675. 

In that year, the Royal Observatory was built in an endeavor to assist mariners (think trade) to determine longitude at sea. 

This became a standard reference time that was slowly stretched out across the country and eventually, the rest of the world. 

It is the Alpha point of all other time zones.

All traders in London agree that the convenience of being able to clock what is happening in the Asian markets at breakfast, segue to the Wall Street markets at lunch, and finish the day with a look back before bedtime, at the Asian markets again, cannot be overemphasized.

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This is maybe what Britain has in mind, as it takes steps to plan its way out of the European Union after the Brexit referendum. 

Politicians in Westminster are now looking for a way to continue its dominance as the center of global capital – just as it has done for centuries.

One of these ideas that is gaining traction in the corridors of power is – to turn the post-Brexit United Kingdom into a tax haven.

This is not an altogether unexpected possibility. 

Current non-sovereign jurisdictions that are commonly labeled tax havens in proximity are:

  • Jersey (U.K.)
  • Isle of Man (U.K.)
  • British Overseas Territories (Bermuda, British Virgin Islands, Cayman Islands).

The corporate tax rates seen on a global scale that the British government is predicting for the next few years are indeed impressive. 

The graph below places the United Kingdom at the top of the list.

tax-haven-1

In the aftermath of the June 23 Brexit vote results, Prime Minister David Cameron, soon to announce his resignation, and his cabinet called for the cutting of all top corporate tax rates from 20% down to 15%. 

Theresa May, the Prime Minister’s successor, has not touched on that proposal since she took office this month on July 13.

The scrapping of corporate tax altogether is being called for by some pro-Brexit (Cameron supporting) members of Parliament. 

More than a few economists expect the proposal to be revisited, or at the very least it must be used as a bargaining chip to win more favorable terms from a still disgruntled the European Union.

Throughout Europe, finance ministers view tax competition as a worrying prospect. 

With this in mind, European leaders recently agreed to plan on curtailing tax loopholes – they can cost an approximately estimated $100 billion per annum in lost revenue for countries.

With a quick example to illustrate the point:  the graphic below clearly shows that if there is a significant discrepancy between tax rates in countries, it results in a decided unfair advantage for the company in the lower corporate tax bracket.  

tax-haven-2

The EU has sanctioned the following countries with permissive and conciliatory tax codes:

  • Ireland
  • Luxembourg
  • The Netherlands

This has facilitated multinationals like Starbucks, Microsoft, and Apple to sidestep tax bills and shift profits.

The concern is that to gain more cooperation from the EU, Britain may be induced to offer lower rates and more tax breaks. 

This will lead to a knock on effect of making the rest of Europe within the EU less competitive.

It might be a humbling experience for Britain to be able to observe the tax haven economic development tactics that are being used by the British Overseas Territories listed above. 

The benefits of this are even more clearly seen closer to home in Ireland, which recently announced record GDP growth and had a corporate tax rate set at 12.5%.

These entirely orthodox strategies have been credited with resuscitating the Irish economy and helping the country build a technology and pharmaceutical sector. 

Some U.S. multinational companies, such as Medtronic, have merged with some local Irish enterprises in an apparent inversion. 

This resulted in the official headquarters of the company and some of its assets, moving to Ireland.

Economists are quick to warn that these tactics may not work for Britain. 

Steep tax cuts are more cost effective for the economies of small countries. 

In countries with underdeveloped business sectors, any losses of tax revenue are offset by new development.

This is clearly not a description that fits a post-Brexit Britain.

Britain is still the hub of global financial services, however. 

Britain is now free to change any taxes that are affecting that all-important sector, now that it has shaken loose of the restraints placed on the country by the European Union. 

In return, the EU could put restrictions on its markets in retaliation. 

EU countries could discriminate against any U.K attempts to become a tax haven following on from that.

The United Kingdom’s strategy could change from a tax based one to a regulatory one taking all these constraints into consideration.

Britain is not in a position to be able to tempt multinational corporations into relocating their headquarters to London. 

In the past, corporate tax cuts resulted in remarkably few jobs being created for the population even if they did cause a rise in the base average GDP.

According to the opinions held by some prominent political economists, when the United Kingdom leave the European Union altogether, the real criteria will be with loosening the currently hyper-tight environment, financial and labor regulations and an unsafe tax haven.

 

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Economy

Wall Street Gave Campaign Donations

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Biden Received $74M, Trump Received $18M

Despite enjoying one of the best bull runs in history, the market is looking forward to a new sheriff.  According to the Center for Responsive Politics, Biden is the chosen one. Wall Street gave campaign donations to Democrat Joe Biden $74 Million, while incumbent President Donald Trump got $18 million. This included contributions since 2019 and until the first two weeks of October.

RELATED: Trump and Biden War Over Social Security

Biden’s Wall Street Supporters

Joe Biden’s campaign is about to amass $1 billion in the remaining days before the election. Among the Democratic nominee’s supporters is former Goldman Sachs President Harvey Schwartz. He gave $100,000 this October to the Biden Action Fund and other various party fundraisers.

During the 3rd quarter, Wall Street investors lined up to support the Dems. Beginning last week, Biden, the DNC, and other committees received over $330 million. In comparison, Trump and the GOP received a total of $220 million.

Bigger than Obama, Smaller than Hillary’s

Biden’s Wall Street donations are larger than the total of Obama’s two runs for president. It falls short of Hillary Clinton’s $87 million hauls in her doomed 2016 run.

As early as January, the Biden campaign approached Wall Street hotshots for support. These included Evercore founder Roger Altman and investor Blair Effron, Blackstone CEO Jonathan Gray, former Citigroup exec Ray McGuire, Centerbridge Partners co-founder Mark Gallogly, and former U.S. Ambassador to France Jane Hartley. A lot of them hosted fundraising events or donated money.

Biden also got big money from supporters from Paloma Partners and Renaissance Technologies. Renaissance’s founder Jim Simons donated $7 million to two super Biden PACs way back in March.  He added over $350,000 to the Biden Action Fund in June. Henry Laufer, Renaissance’s chief scientist, gave $625,000 in June to the American Bridge PAC. Meanwhile, Paloma Partners founder Donald Sussman gave $9 million to Biden’s super PACs. An added $20 million from other hedge funds and private equity firms rounded off the total.

Most Ever Spent by the Industry for an Election

This year, the investment community gave $625 million in contributions for election campaigns. This covers not only the presidential elections but also congressional and senate contests. It stands on record as the most ever spent by the finance and investment industry.

From the total, $370 million went to super PACs and groups allowed to raise infinite funds.

Democrats got the lion’s share at 63% while the GOP got 37%. $161 million went straight to Dem candidates, while $94 million went to Republicans. Compare it to 2016, where the GOP received half of Wall Street’s money.

Funding for the Dems remained high despite talks of pushbacks to big business. There is opposition within the camp in naming business leaders to the Biden cabinet. Progressives are vocal about not wanting their candidate to cozy up to the big business.

Jeff Hauser of the Revolving Door Project researched potential Biden Cabinet selections.  He is “cautiously optimistic” that Wall Street’s funding can influence future appointees. Hauser does believe that the sector’s contributions can help open doors to the Biden White House. He voiced concerns about “conventional thinkers within the Biden world.” These people might insist on paying “deference to the source of that $75 million.” 

Meanwhile in the White House

For Donald Trump, Wall Street isn’t as enamored if you look at the numbers. He received a paltry $20 million during his initial run for president. Four years later, donations to his cause are $2 million less. Analysts noted that many previous finance backers held back on the reelection campaign. These include people who gave millions during Trump’s 2017 inaugural.

Records show that previous supporters helped Republican Senate or House candidates instead. The market’s support for Trump waned due to his coronavirus response. Anonymous sources noted that investors backed off despite Trump’s tax and regulation cuts. Since they think Trump is about to lose, these leaders don’t want to invest in him further.

Trump donor Dan Eberhart said “Wall Street is watching the same polls as everyone else. They can see the direction the campaign is going and they are starting to alter their strategy.” He added that “It’s about risk management. If they can’t beat Biden, they know they are going to have to join him.”

Watch this as CNBC breaks down Wall Street campaign donations during the 2020 election:

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With its contributions, Wall Street implied a decision to support Joe Biden. Should he eke a win, Wall Street will definitely look for returns on its investment. They should remember that this man won over progressives like Senators Elizabeth Warren and Bernie Sanders, who aren’t exactly priority invites to ring the stock exchange opening bell. How do you think this will pay off for big money? Let us know what you think by sharing your thoughts in the comment section below.

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Business

Stocks Post Its Worst Day in A Month

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Economy and disease as an economic pandemic fear and coronavirus fears or virus Outbreak and Stock market selling as a sick financial health business recession-Stocks Worst Day-ss-featured

Wall Street took a beating Monday as stocks posted its worst day in a month. Rising coronavirus cases and a fading stimulus relief led investors to sell-off.

RELATED: A Stock Market Rally On New Stimulus Bill Could Be ‘Short-Lived’

The Dow Jones Industrial Average closed 2.3% lower. It fell down 935 points during the day before settling 650 points lower. All Dow stocks closed in the red except Apple, which eked out a .01% gain. It was the Dow’s worst day since September 3.

Meanwhile, the S&P 500 closed for the day at 1.9%, marking its worst day since late September. The tech-heavy Nasdaq Composite, which bounced back from its lows in the morning, finished lower at 1.6%.

While all sectors across the board experienced losses, some got crushed more. These include energy, industrials, and financials.

Higher Cases of Coronavirus

With eight days remaining before the elections, investors are starting to get jittery. Despite lots of talks, Congress has yet to approve a stimulus package. Cases of coronavirus are jumping in all states, and it recently hit a daily high average of 68,767 last Sunday.

Meanwhile, big tech companies are set to report earnings later this week. This lot includes Microsoft, Apple, Google, Facebook, and Twitter.  Fawad Razaqzada of Think Markets noted that the reports can inject further volatility. In the note, Think Markets believed that “on a more macro level, ongoing US stalemate over US fiscal stimulus and the rapidly spreading Covid-19 is going to determine the direction for the wider markets.”

Tom Lee, head of research at Fundstrat Global Advisors, thinks Covid is a big influence over the market. He said “It’s almost as important as the Fed right now. Covid is suppressing the economy, and it’s essentially offsetting easy money. If we didn’t have Covid, people would be going out and spending money. It’s acting as a huge headwind.”

No Relief in Sight

Brad McMillan, CIO of Commonwealth Financial Network, thinks the reality hit investors hard. He told CNN business: “I think a big difference this time around [is]…there’s been a tremendous amount of hope baked into the market for quite a while, and we saw some things over this weekend that hit those assumptions hard.” The negotiations for a new relief package is gone at least until after the elections. Senate Majority Leader Mitch McConnel adjourned the Senate after confirming new Chief Justice Amy Coney Barrett. They will resume their session on November 9, or six days after the elections.

Without a clear stimulus plan, the US economy could start to double-dip. And if the rise in coronavirus cases continues, the business will shut down again. This nightmare scenario is haunting the market at present. Steven Wieting, the chief strategist at Citi Private Bank, sees dimmer prospects. “The ability to fight the virus further right now is very much in question, and it’s a political question.” Wieting believes that Washington could take months before anything gets done. This made investors tentative.

Tom Lee added that “We have a lot of things to be anxious about in the next couple of weeks. That’s why this is a pre-election market. But post-election, I think a lot of things that make people nervous turn into a tailwind. The post-election stimulus is a when not an if. Even if it’s a mixed Congress, I think there’s still some common ground. It’s just the scope that’s different. It would be a smaller package.”

Eight Days Remaining

The final eight days before the elections usually brings good vibes for Wall Street. This year, the bulls will need some extra running following Monday’s selloff spree.

Sam Stovall, chief investment strategist history, observed this bull phenomenon. Since 1944, the S&P 500 rose on average 2.5% in the eight days before elections. The index is up 17 out of 19 times, or 89%. The biggest rise came during the recent financial crisis, with the S&P 500 roaring back 18.5% in a bear market rally. That year, Democrat Barack Obama won over the GOP’s John McCain. The market sunk back to new lows after the election. It bottomed out four months later. The first decline in 1968 (-0.8%), happened as Richard Nixon won over Democrat Hubert Humphrey. The other was in 1988 when Republican George H.W. Bush won against the Dems’ Michael Dukakis.

Wall Street needs to get its act together with eight days remaining. A short, decisive victory by either party can help uplift America’s image. And with all the drama removed, maybe the market can go back to its winning ways.

Watch this as Stocks fall sharply at open amid Covid-19 resurgence:

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Business

US Housing Sales Boom Will Last Until 2021

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Redfin CEO Glenn Kelman told CNBC on Thursday that he sees the US housing sales boom will last until 2021. Total US Home sales increased 9.4% in September, surpassing estimates. Meanwhile, median prices went up 15% year over year. This is according to data provided by the National Association of Realtors.

RELATED: Biden Is Latest Dem to Support Ridiculous Free Housing Proposal

Shares of Redfin, a real estate brokerage firm, were higher by 1% Thursday to $45.60. The stock more than doubled during this year. It now has a market cap of $4.5 billion. 

Why do people buy houses during a recession? 

During this time when the economy is reeling and jobs are tight, people buy homes. Why? There are a couple of reasons.

The bigger acceptance for remote work freed many people from living in the city. The opportunity to leave cramped apartments and expensive city living. The pandemic gave enough reason for workers to pack up and head for greener pastures. Next, interest rates are going down hard. From 3.7%, 30-year mortgage rates are now 2.9%, the lowest rates ever. Despite higher prices, people know this is the best time to buy on the cheap. 

The intent is there. The pandemic allowed you to work anywhere. And interest rates allow you to pay the lowest interest rates. People are taking the plunge and buying. So what’s the problem? We’re running out of houses to buy. 

Demand coming from the rich 

Rich professionals who can work from home are the reason for the uptick in housing demand. Kelman said that many remote workers moved from major cities to distant suburbs. Kelman said these workers began “taking a permanent vacation where they’re working from those homes.”

People are taking advantage of low-interest rates to snap up homes. Kelman noted that “part of what is fueling this boom is that the economy has just split into two and rich people are able to access capital almost for free.” The opportunity to buy homes for cheap may be too much to resist. “Of course, they’re going to use that money to buy homes,” he added.  

Meanwhile, there’s another group of people who would like to buy but can’t. Kleman said:  “There’s just another group of Americans who are still struggling, who can’t access the credit because we’ve raised credit standards, and you have high unemployment. I just think those two trends, at some point, have to collide.” 

Kelman foresees demand to continue until 2021 at least. Many undecided buyers will buckle down next year and take the plunge. He said: “There’s no way it can last forever. This level of demand is absolutely insane. I would expect it to last into 2021, at least.” Why 2021? “There are so many people now who have decided they’re not going to be able to buy a home by year-end,” he said. Kelman expects them to buy next year, “as their kids shift school districts. I do think we’re going to see this for some time.”

Shrinking inventory of houses for sale

With homes fast disappearing from the market, higher purchase prices are coming back. Based on data from the National Association of Realtors data, only 2.7 months’ supply of houses is available last month. This represents the lowest level since 1982 when the NAR began tracking data. 

Kleman expects supply to increase after the elections. Uncertainty will decrease after voters elect a new president. Listing and selling a home can take months to process. That’s why sellers have a lower risk tolerance than buyers. “Buyers, when they see a house they love, they pounce,” he said. “I think the sellers are just looking long term in the economy and still feeling some anxiety. Many of them are going to put their homes on the market in January and February.”

Demand won’t last forever  

The Wall Street Journal’s Justin Lahart thinks not everybody can live outside the big cities. A remote job in a vacation spot may pose difficulties for some. Winter conditions may also make some remote workers rethink their strategy. He also believes that the housing boom now made people buy houses sooner than later. He thinks many of the workers who moved to the suburbs would’ve done so in a few years. When the pandemic subsides, a smaller group might follow the exodus out of big cities. 

The number of people who can afford houses will shrink as well. Many workers’ careers derailed during the year. Many millennials got burned during the financial crisis in the early 2000s. Now, a new career-threatening crisis is in full swing. The post-coronavirus landscape may depend on how well the economy rebounds. We’ll have next year to find out.

Watch this as CNBC reports on the US housing sales boom. Redfin CEO Says “people are buying vacation homes, then taking a permanent vacation:

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Are you house hunting right now, or have you already bought a house this year? Why are you doing so? Let us know why buying a home is a good idea right now. Share your thoughts in the comments section below.

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