By Rachel Goldfarb, originally published on Next New Deal

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Digital Divide Exacerbates US Inequality (Financial Times)

David Crow quotes Roosevelt Institute Fellow Susan Crawford on how the digital divide contributes to inequality in light of new data on broadband access throughout the country. There are still 31 million households in the US without a home or mobile broadband subscription.

Susan Crawford, who served as Mr Obama's special assistant for technology and innovation in 2009, warned: "we are creating two Americas where the wealthy have access . . . while others are left on a bike path, unable to join in the social and economic benefits that the internet brings".

It had been thought that the rural make-up of much of the US was the main factor in a national broadband subscription rate that is just 73.4 per cent, behind other developed nations such as the UK and Germany, which have rates of 88 per cent. About 67 per cent of households in rural areas have broadband internet service, compared to 75 per cent of urban households.


But the new Census Bureau statistics show a huge disparity among US cities and towns, with a gap of 65 percentage points between those with the highest and lowest subscription rates.

Follow below the fold for more.



BERLIN - We are witnessing profound changes in the way that the world economy works. As a result of the growing pace and intensity of globalization and digitization, more and more economic processes have an international dimension. As a consequence, an increasing number of businesses are adapting their structures to domestic and foreign legal systems and taxation laws.

Thanks to technical advances in the digital economy, companies can serve markets without having to be physically present in them. At the same time, sources of income have become more mobile: There is an increasing focus on intangible assets and mobile investment income that can easily be "optimized" from a tax point of view and transferred abroad.

Tax legislation has not kept pace with these developments. Most of the tax-allocation principles that apply today date back to a time when doing business internationally primarily meant transporting goods across a border to a neighboring country. But rules that were devised for this in the 1920s and 1930s are no longer suitable for today's international integration of economic processes and corporate structures. They need to be adapted to the economic reality of digital services.

In the absence of workable rules, states are losing revenue that they urgently need in order to fulfill their responsibilities. At the same time, the issue of fair taxation is becoming more and more pressing, because the number of taxpayers who make an adequate contribution to financing public goods and services is decreasing.

The resulting tensions between national fiscal sovereignty and the borderless scope of today's business activities can be resolved only through international dialogue and uniform global standards. Within the European Union, permitting groups of states to forge ahead with joint solutions to issues that can be addressed only multilaterally has worked well in the past. If such measures prove successful, other states follow.

This approach can also serve as a global governance model for resolving international problems. In today's world, even large states cannot establish and enforce international frameworks on their own. Groups of countries still can. This has been demonstrated in the context of financial-market regulation; it is starting to become clear with regard to the regulatory framework for the digital economy; and it is now being confirmed in the area of taxation.

The Seventh Meeting of the Global Forum on Transparency and Exchange of Information for Tax Purposes took place in Berlin this week, bringing together representatives from 122 countries and jurisdictions, as well as the EU. A joint agreement on the automatic exchange of information on financial accounts was signed on Wednesday.

The joint agreement was originally an initiative by Germany, France, Italy, the United Kingdom, and Spain. Roughly 50 early-adopter countries and territories decided to take part, while other countries have indicated their willingness to join.

The agreement is based on the Common Reporting Standard, which was developed by the OECD. Under the CRS, tax authorities receive information from banks and other financial service providers and automatically share it with tax authorities in other countries. In the future, virtually all of the information connected to a bank account will be reported to the tax authorities of the account holder's country, including the account holder's name, balance, interest and dividend income, and capital gains.

Various measures are in place to ensure that banks can identify the beneficial owner and notify the relevant tax authorities accordingly. The CRS thus expands the scope of global, cross-border cooperation among national tax authorities. In this way, we can establish a regulatory framework for the age of globalization.

The automatic exchange of information is a pragmatic and effective response to the perceived lack of global governance regarding international tax issues. By making taxation fairer, governments will have a positive impact on people's acceptance of their tax regimes.

This great success in the fight against international tax evasion would have been unthinkable only a few years ago. Now it is important to continue the efforts of the OECD and the G-20 in the area of corporate taxation. We need to make sure that creative tax planning in the form of profit-shifting and artificial profit reduction is no longer a lucrative business model.

A "beggar-thy-neighbor" taxation policy, by which one country pursues tax policies at the expense of others, is just as dangerous as beggar-thy-neighbor monetary policies based on competitive currency devaluation. It leads to misallocations - and will ultimately reduce prosperity around the world.

That is why we need to agree on uniform international standards in order to achieve fair international tax competition. The progress achieved in Berlin on the automatic exchange of tax information shows that, by working together, we can realize this goal.



Gubernatorial candidate Tom Wolf has proposed a progressive income tax for Pennsylvania, which is no real surprise. The language of political campaigns is the language of taxing the rich. In this, Wolf is no different from many others seeking office this November.

But there are several things you will not hear him or any candidate say, and these things are important for Pennsylvanians to know as they contemplate what kind of taxation they want.

First, rich people already pay more income tax than the poor in Pennsylvania. Someone who earns $10,000 pays $307. Someone who earns $100,000 pays $3,070. The whole point of our current flat tax is for the rich to pay more than the poor. A progressive tax just further magnifies the extra the rich pay.

But the question of who pays how much focuses on the here and now. A progressive tax also plants the seeds for much future economic pain. The more progressive our tax system, the more Pennsylvania will rely on an ever smaller number of people for the bulk of its revenues. The smaller the number of people the state relies on for tax revenues, the more our tax revenues will fluctuate as those peoples fortunes rise and fall. California is a warning. Californias state tax code has become so progressive that all it takes is a handful of Silicon Valley billionaires deciding to move across the border into Nevada to throw the state into a fiscal crisis. This is not to say that the rich should not pay their fair share. Rather, asking them to pay more than their fair share merely encourages them to look for the door.

A progressive tax also sends a dangerous message to would-be entrepreneurs: If you fail, you and your investors must bear the pain of bankruptcy. But, if you succeed, you and your investors must pay higher taxes. This lose-lose scenario simply encourages entrepreneurs also to look for the door -- taking with them not just their wallets, but the jobs they create.

Finally, a progressive tax is the tumbling pebble that releases the avalanche of ever-growing government spending and deficits. A progressive tax divides voters into "net payers" and "net receivers" -- those who pay more in taxes than they receive in government benefits, and those who receive more than they pay. The more progressive the tax system, the greater is the number of net receivers. The greater the number of net receivers, the greater is the political pressure to increase spending and taxation even further. For an example, look no further than the federal government. At the federal level, about 50 percent of voters receive more benefits from the federal government than they pay in taxes. Those voters directly benefit from electing politicians who will expand government spending. It is the proverbial two wolves and a sheep voting on whats for dinner.

Unfortunately, progressive taxes are political gold for politicians. Initially, a progressive income tax will generate more tax revenue. But this is only because it takes people time to respond. As successful entrepreneurs wise up and leave for more hospitable climes, our tax revenues will decline, and politicians will then have to lean even more heavily on the remaining rich, accelerating the entrepreneurial exodus. Of course, by the time this happens, todays political candidates will have moved on, leaving the fiscal and economic mess for someone else to clean up.

Antony Davies is associate professor of economics at Duquesne University. James R. Harrigan is director of academic programs at Strata in Logan, Utah.



The New Jersey Division of Taxation (Division) is trying to help taxpayers resolve unpaid tax liabilities for tax periods 2005 through 2013. Through November17, 2014, the Division is offering taxpayers that pay all tax and interest for the applicable periods a waiver of most penalties (but not penalties related to the 2009 amnesty) and any costs of collection or recovery fees. Notably, this is not an amnesty like those conducted in 2002 and 2009. It is not statutorily mandated and no penalties may be imposed for non-participation. Because the initiative is not statutorily mandated, the Division is not offering something it could not offer at any other time. However, the Divisions offer to waive most penalties may be a good chance for many taxpayers to resolve issue and move on and is worth considering.