High & Low Finance: Ideas to Help Workers Afford to Retire

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Capital Ideas: Who Will Crack the Code?

In Singapore, Coca-Cola recently opened a plant with the capacity to produce the underlying ingredient for 18 billion cans of soda a year. In Cork, Ireland, PepsiCo has located its “worldwide concentrate headquarters,” which until 2007 had been in New York. More than half of all PepsiCo soda sold around the world starts, as concentrate, in Ireland.

What Ireland and Singapore share is a low corporate tax rate. And because soda is such a simple product, with so much of its financial value stemming from the concentrate, Coke and Pepsi can reduce their overall tax rates by manufacturing it in low-tax countries.

Partly as a result, the industry paid a combined corporate income tax rate — spanning federal, state, local and foreign taxes — of only 19.2 percent over the past six years, according to an analysis for The New York Times by the financial research group S&P Capital IQ. The average rate for the companies in the Standard & Poor 500 was 29.1 percent.

The soda industry’s success at legally avoiding taxes shows why so many economists and tax experts believe the United States corporate-tax code is terribly flawed. It includes a notoriously high statutory rate that causes companies to devote resources to avoiding taxes. But it has so many loopholes that the effective corporate tax rate in the United States is slightly lower than the average for rich countries.

The decline in corporate-tax collection in recent decades has contributed to budget deficits. It has also aggravated income inequality: a company’s shareholders ultimately pay its taxes, and with a smaller tax bill, shareholders, who tend to be much more affluent than the average American, see their wealth increase.

“It’s clearly a broken system,” said Michelle Hanlon, an accounting professor at M.I.T.

Corporate taxes burst into the spotlight last week, with the release of a Senate committee report on Apple’s tactics to reduce its tax payments. More quietly, but perhaps more significantly, the House Ways and Means Committee has begun work on a potential overhaul of the tax code. Edward D. Kleinbard, a tax expert and former Democratic Congressional aide, said he had been impressed so far by the seriousness of the committee’s work.

The effort has a long way to go, but if it succeeds, both liberal and conservative tax experts hope it will reduce the statutory rate while also eliminating tax breaks. The net effect could be to close the gap between companies that pay relatively little in taxes and those that pay much more. The market, rather than the tax code, would then play a bigger role in determining companies’ success and failure.

Many voters, meanwhile, want to see companies paying higher taxes. In a Gallup poll last month, 66 percent of respondents said that corporations paid “too little” in taxes, compared with 61 percent who said the same about upper-income people, and 19 percent who said the same about lower-income people.

Low-tax companies are often large, global companies with the ability to use accounting maneuvers to shift earnings around the world. Having intangible assets (like a computer algorithm) or portable ones (like soda concentrate and pharmaceutical ingredients) can also help.

Carnival, the cruise-ship company, paid a minuscule 0.6 percent of its earnings in taxes over the past five years, according to Capital IQ. Starwood Hotels and Resorts, which owns the St. Regis, Sheraton, and W chains, paid 8 percent.

Amazon.com paid 6 percent; Boeing, 7 percent; Apple, 14 percent; General Electric, 16 percent; Google, 17 percent; eBay, Eli Lilly and Raytheon, 19 percent; and FedEx, 23 percent.

Individual executives also matter. The most creative can “play a significant role” in reducing taxes, according to a published study by the accounting professors Scott D. Dyreng, Edward L. Maydew and Ms. Hanlon. They built a database of 908 top executives who switched companies and identified some who were successful at holding down taxes wherever they went.

The professors did not name names. But a few executives — like John Samuels, head of the General Electric tax department — are famously shrewd.

Some companies with low tax rates, including Coca-Cola, have recently started a lobbying group called the LIFT America Coalition. Their main goal is to protect their advantages, if not bring down their taxes further. Other companies, like General Electric, are also major donors to Representative Dave Camp, Republican of Michigan and chairman of the Ways and Means Committee, and to Senator Max Baucus, the Montana Democrat who is chairman of the Senate Finance Committee.

ON the other end of the corporate-tax spectrum are smaller companies and those whose businesses tend to be tied down, less easily moved than Coca-Cola syrup or technological know-how. The retailers Best Buy, CVS, the Gap and Whole Foods each paid a combined rate of between 35 percent and 40 percent over the past five years. Wal-Mart paid 31 percent. Oil companies also pay relatively high rates, with Exxon Mobil at 37 percent.

To many economists, a fairer system would not lavish billions of dollars of tax breaks on only some industries for reasons that are almost accidental. “No one likes the current system,” Donald Marron, a former official in the George W. Bush administration who is now at the Tax Policy Center in Washington, said, speaking for his fellow economists if not for corporate executives.

Why, for example, should the government tax a retailer that sells soda at a much higher rate than a company that makes soda? Public-health experts note that the soft-drink industry is an especially odd candidate for taxpayer generosity, given its central role in increasing obesity and health costs.

Mr. Kleinbard, a law professor at the University of Southern California, says the only kind of overhaul that can get through Congress is one that reduces the headline corporate tax rate, from its current 35 percent to between 25 and 28 percent. In exchange, Congress would also most likely force companies to pay more taxes on their overseas profits.

Business lobbyists like the LIFT coalition are pushing for the opposite: lower overseas taxes. They say that Washington puts American companies at a disadvantage by trying (if often failing) to tax their overseas operations on top of the taxes that foreign governments collect. Instead, many companies want a so-called territorial system, in which only the local government imposes a tax.

The weakness in such a system, of course, is that some countries allow companies to operate almost tax-free. And in a globalized economy, many companies have figured out how to put much of their operations in those countries. Thus Ireland has become the world’s cola maker.

One compromise being discussed in Congress is a version of the territorial system — but with a minimum tax for any overseas operations. If companies were not paying at least that minimum to a foreign government, they would have to pay the difference to Washington.

So many companies are paying such low tax rates that even a modest minimum tax may result in a tax increase. Doubtless, though, the companies and their lobbyists will do the work to figure out how any proposed overhaul will affect them. If Congress is really going to reverse the long slide in corporate tax collection, it will have to make enemies along the way.

David Leonhardt is the Washington bureau chief of The New York Times. Kitty Bennett contributed reporting.

Capital Ideas: The Idled Young Americans

THE idle young European, stranded without work by the Continent’s dysfunction, is one of the global economy’s stock characters. Yet it might be time to add another, even more common protagonist: the idle young American.

For all of Europe’s troubles — a left-right combination of sclerotic labor markets and austerity — the United States has quietly surpassed much of Europe in the percentage of young adults without jobs. It’s not just Europe, either. Over the last 12 years, the United States has gone from having the highest share of employed 25- to 34-year-olds among large, wealthy economies to having among the lowest.

The grim shift — “a historic turnaround,” says Robert A. Moffitt, a Johns Hopkins University economist — stems from two underappreciated aspects of our long economic slump. First, it has exacted the harshest toll on the young — even harsher than on people in their 50s and 60s, who have also suffered. And while the American economy has come back more robustly than some of its global rivals in terms of overall production, the recovery has been strangely light on new jobs, even after Friday’s better-than-expected unemployment report. American companies are doing more with less.

“This still is a very big puzzle,” said Lawrence F. Katz, a Harvard professor who was chief economist at the Labor Department during the Clinton administration. He called the severe downturn in jobs “the million-dollar question” for the economy.

Employers are particularly reluctant to add new workers — and have been for much of the last 12 years. Layoffs have been subdued, with the exception of the worst months of the financial crisis, but so has the creation of jobs, and no one depends on new jobs as much as younger workers do. For them, the Great Recession grinds on.

For many people with jobs and nest eggs, the economy is finally moving in the right direction, albeit a long way from booming. Average wages are no longer trailing inflation. Stocks have soared since their 2009 nadir, and home prices are increasing again. But little of that helps younger adults trying to get a foothold in the economy. Many of them are on the outside of the recovery looking in.

The net worth of households headed by people 44 and younger has dropped more over the past decade than the net worth of middle-aged and elderly households, according to the Federal Reserve. According to the Labor Department, workers 25 to 34 years old are the only age group with lower average wages in early 2013 than in 2000.

The problems start with a lack of jobs. In 2011, the most recent year for which international comparisons exist, 26.2 percent of Americans between ages 25 and 34 were not working. That includes those for whom unemployment is a choice (those in graduate school, for example, or taking care of children) and those for whom it is not (the officially unemployed or those who are out of work and no longer looking). The share was 20.2 percent in Canada, 20.5 percent in Germany, 21 percent in Japan, 21.6 percent in Britain and 22 percent in France.

The European economy has deteriorated over the last two years, and the American economy has strengthened modestly. But the job growth here has been fast enough merely to keep pace with population growth, which suggests that this country still lags in the employment of young adults. In 2000, by contrast, the United States led Germany, Britain, France, Canada and Japan — as well as Australia, Russia and Sweden — in such employment rates. The nation now trails them all. Older American workers have also lost relative ground, but not as much.

As Mr. Katz, Mr. Moffitt and others note, an explanation of the root causes remains elusive. But there are obvious suspects, and each probably plays a role.

The United States, for example, has lost its once-large lead in producing college graduates, and education remains the most successful jobs strategy in a globalized, technology-heavy economy. It is no accident that the most educated places in the country, like Boston, Minneapolis, Washington and Austin, Tex., have high employment rates while the least educated, including many in the South and inland California, have low ones. The official unemployment rate for 25- to 34-year-old college graduates remains just 3.3 percent.

Beyond education, the nation has also been less aggressive than some others in using counseling and retraining to help the jobless find work. To take one small example, a recent study in France by the renowned M.I.T. economist Esther Duflo and four colleagues found that placement programs for unemployed workers helped not only the workers but the economy too. The counseled workers were more likely to find work, and they did not simply take jobs from other candidates. Overall employment rose more quickly in the regions with job counseling.

Other research notes that the United States has expanded parental leave and part-time work less than other countries — and, perhaps relatedly, employment rates among women here have slipped.

Whatever role these trends are playing, they do not appear to fully explain the employment decline. It is too big and too widespread. Existing companies are not adding jobs at the same rate they once did, and new companies are not forming as quickly.

What might help? Easing the parts of the regulatory thicket without societal benefits. Providing public financing for the sorts of early-stage scientific research and physical infrastructure that the private sector often finds unprofitable. Long term, nothing is likely to matter more than improving educational attainment, from preschool through college (which may have started already).

Many business executives and economists also point to immigration policy. Done right, an overhaul could make a difference, many say, by allowing more highly skilled immigrants to enter the country and by making life easier for those immigrants already here. Historically, immigrants have started more than their share of new companies.

Perhaps the most remarkable aspect of the jobs slump is that the Americans in their 20s and 30s who have been most affected by it remain decidedly upbeat. They are much more hopeful than older generations, polls show, that the country’s future will be better than its past.

Based on what younger adults have been through, that resilience is impressive. It’s probably necessary, too. The jobs slump will not end without a large dose of optimism.

David Leonhardt is the Washington bureau chief of The New York Times.

Corner Office: Francesca Zambello: Glimmerglass Festival’s Director, on Making Ideas Work

Q. Do you remember the first time you were in a leadership role?

A. I started a theater company at Colgate because I didn’t like the university theater company. I found it was too regimented and too formal. I raised the money. I got the people. This is what I’ve been doing my whole career. It’s just that the productions get bigger and bigger.

Q. When did your interest in the theater take hold?

A. I’m in the family business. My mother is an actress. My father started as an actor. So many of their friends were people in the theater. If my parents were working, I was backstage watching. Of course, I started to mimic them, but I was most interested in the stage manager. From about age 5, I loved to sit with that person as they would say, “Move this here, move that there.” When I was still a child I started a theater company in my basement with kids from around the neighborhood. So the directing gene, which is a leadership gene, started early on.

Q. What were some early leadership lessons for you?

A. When you’re in your 20s and have that leadership gene, the bad thing is that you don’t know when to shut up. You think you know all the answers, but you don’t. What you learn later is when to just listen to everybody else. I’m finding that all those adages about being humble and listening are truer and truer as I get older. Creativity cannot explode if you do not have the ability to step back, take in what everybody else says and then fuse it with your own ideas.

Theater is one of the most collaborative art forms, and you have to be able to absorb everything that people tell you. That’s not any different from really good businesses. When I go into meetings with successful business people, I’m always amazed at how much they’re able to just sit there and absorb things and then make a really good decision.

Q. What are some memorable lessons that you’ve learned from mentors?

A. I worked for a French director for a number of years as an associate. The most important thing he ever taught me was that if you don’t make sure the show is right in a small room, it will never be right in a big space, on a big stage.

Q. That would also seem to true for a lot of different fields.

A. Exactly. It’s all about that detail in the beginning — detail and honest, creative work. I have a lot of respect for many business people, because the reason they’re successful is they were creative. They had a vision, which is why I don’t think that’s any different than what I do. A lot of people know how to crank it out. A lot of people know how to copy others. Not a lot of people have an original idea. Having original ideas is what makes you successful, if you know how to implement them. It’s a rare thing because some people have the ideas and other people have the mechanics, but they can’t do both.

Q. Other broad insights you’ve gained over the course of your career?

A. You have to learn how to fail. You have to understand that in any position where you’re at the top, you will fail, and if you don’t fail, you’re probably not that good. So you have to learn how to cope with that. The more you get knocked down, the more you learn how to pick yourself up. It’s like a boxer. In your 20s, you’ll feel devastated when somebody fires you. I’ve been fired a number of times in my life and then rehired by a better company or given a better job. In a way, one of the things I respect the most about businesses is that when they fire somebody, they’re gone the next day. One of the problems you sometimes see in the arts is that they fire leaders but it drags on.

Q. What advice do you give people starting out in their careers — not just in the theater, but in any career?

A. Don’t do something to make money. I think a lot of people who are really wealthy probably didn’t start out saying, “I’m doing this to make a lot of money.” When you’re starting something, I really believe you have to have that passion. There has to be a burn, like a shark going after blood.

Q. What are some things you’re looking for when you’re interviewing people?

A. I think good manners matter a lot. If two people are similar but somebody’s manners are a bit better, I’ll hire that person. It might be that they show up five minutes early for something. Or they stand up when someone important comes in the room. Some of those are old-fashioned things, but manners don’t cost anything. I’m also interested in how people dress. I’m in a visual profession. I don’t think that guys have to wear ties and girls have to wear dresses. I think people have to be neat. A lot of times people aren’t neat.

Q. Tell me about the interview questions you ask.

A. I ask people how hard they’re willing to work — “If I ask you to stay here until midnight tonight and help work on this situation, do you feel comfortable doing that?”

I also feel that with anybody I hire, I want to make sure they are going to reflect my principles.

Q. And what are your principles?

A. Being moral. Being responsible. I think the arts are integrated with social ideas. We must use the arts as a tool to make people live better and to think about their situation, to think about the human condition, about what they can do for others around them, for themselves. I think that much of the arts speak to those basic moral issues. I also need to know whether this person can get along with a range of people and not crack up in a bad situation.

Q. How do you get a sense of that from an interview?

A. I ask questions that catch people off guard, like: What was the most frightening thing you ever encountered in your life? What was the best thing you ever did for somebody else? That’s one of my best questions. You see what’s inside them.

H.P.’s Misstep Shows Risk in the Push for Big Ideas

The ill-fated marriage of the companies is a lesson for H.P. and other older technology giants as they throw billions at supposedly game-changing acquisitions, trying to gain a foothold in the future.

In that future, smartphones and tablets, connected to cloud-computing data centers, are the essential tools of work and play. Companies rent software over the air, rather than buying it with expensive maintenance contracts.

And vast streams of data are continually analyzed to find new patterns and make predictions about consumer behavior and product design. Autonomy, for instance, makes software that can analyze marketing patterns and advise a company on matters like where it should increase marketing resources.

These forces threaten older businesses, like H.P.’s traditional personal computer and data storage products. Other companies, like Oracle, Microsoft and Cisco, also face pressure. They are all trying to buy the future — and have the cash to do it.

In July, Microsoft decided to pay $1.2 billion for Yammer, which makes a Facebook-like social media product for the office. Oracle recently paid over $3.4 billion for two small cloud computing companies that provide software for human resources and sales management. Last Sunday, the computer networking giant Cisco agreed to pay $1.2 billion in cash for Meraki, a company that manages the free wireless service at Starbucks and other businesses.

There are lots more such deals, from these companies as well as I.B.M., SAP and others.

The pace of change is so fast that Google, so recently seen as an upstart and a giant killer, in 2011 paid $12.5 billion for Motorola Mobility to supercharge its Android smartphone business, which competes with Apple. Earlier this year, Facebook spent $750 million on Instagram so it wouldn’t miss the next thing in social media.

But identifying the next big thing can be difficult, said Jeffrey Sonnenfeld, a professor of management at Yale University. Likely as not, he said, deals like the one for Autonomy have “maybe a 40 percent success, 60 percent failure rate.”

He added, “The odds are against you succeeding, but the odds are also worth taking.”

The real hazard, he said, is in the way companies describe these acquisitions as “natural, inevitable victories.” They should be seen, he said, as “an investment, like in research and development.”

The pace of acquisitions hardly matches the level seen during the late ’90s Internet bubble, when Cisco paid $9.6 billion for three networking companies that former officials said yielded almost no benefit. In 2002, AOL Time Warner wrote down $54 billion in good will related to its troubled merger. Several telecommunications equipment makers and service providers also had multibillion-dollar write-downs.

But there are also notable successes.

EMC, a maker of data storage equipment, paid $625 million in 2003 for VMWare, which makes some of the critical technology in cloud computing. Today, after taking some of the company public, EMC’s stake is worth about $30 billion. VMWare recently took a gamble of its own, buying a next-generation networking company, Nicira, that had virtually no revenue, for $1.26 billion.

Microsoft, which also paid $8.5 billion for Skype in 2011, said Yammer was being integrated into SharePoint, Microsoft’s successful collaboration software, and will be included in its premium version of Office communications and productivity software at no cost. It did not say whether, or how, Yammer would be profitable on its own, however.

The real issue with Autonomy may be less its questionable sales than its core technology, said Leslie Owens, who follows data analysis software at Forrester Research.

“H.P. thought it was an entirely new platform, but Autonomy’s clients said it wasn’t as good as Google’s corporate search product,” she said.

Autonomy, which was founded 16 years ago, “was based on using powerful algorithms,” she said, but the software was not attuned “to new kinds of search signals, like what your friends are doing, what people like you are doing, what other data you might draw off on.” Over time those new methods attracted customers.

In a demonstration of the Autonomy product last month, H.P. appeared to have addressed some of those issues, but others remained. An application to help figure out what to pay for Web ads initially failed to work, then delivered results that appeared similar to those of several other search products.

“We remain 100 percent committed to Autonomy and its industry-leading technology,” H.P. said in a statement. “The company’s products are cutting-edge and provide many customers with unique solutions.”

In an interview Tuesday, Meg Whitman, the chief executive of H.P., indicated that the company also had strong hopes for its security software, most of which it got from other acquisitions.

H.P. has accused Autonomy of improperly accounting for much of its sales in the years before H.P. bought the company last year. It took a $5 billion noncash charge related to the purchase price.

Ms. Whitman gave Autonomy tepid support.

“It’s very disappointing,” she said of the write-down. “We’ve integrated the technology into a couple of places; we will integrate it into more.”

Capital Ideas: Obamanomics: A Counterhistory

WORKING out of cramped, bare offices in a downtown building here in Washington, President-elect Obama’s economic team spent the final weeks of 2008 trying to assess how bad the economy was. It was during those weeks, according to several members of the team, when they first discussed academic research by the economists Carmen M. Reinhart and Kenneth S. Rogoff that would soon become well known.

Ms. Reinhart and Mr. Rogoff were about to publish a book based on earlier academic papers, arguing that financial crises led to slumps that were longer and deeper than other recessions. Almost inevitably, the economists wrote, policy makers battling a crisis made the mistake of thinking that their crisis would not be as bad as previous ones. The wry title of the book is “This Time Is Different.”

In my interviews with Obama advisers during that time, they emphasized that they knew the history and were determined to avoid repeating it. Yet of course they did repeat it. After successfully preventing another depression, in 2009, they have spent much of the last three years underestimating the economy’s weakness. That weakness, in turn, has become Mr. Obama’s biggest vulnerability, helping cost Democrats control of the House in 2010 and endangering his accomplishments elsewhere.

Entire books and countless articles have taken Mr. Obama to task on the economy, and administration officials have a rebuttal that makes a couple of important points. The Federal Reserve and many private-sector economists were also too optimistic, Obama aides note. And they argue that the Senate would not have passed a much larger stimulus in 2009, given Republican opposition, regardless of the White House’s wishes.

But from these reasonable points, the Obama team then jumps to a larger and more dubious conclusion: that their failure to grasp the severity of the slump has had no real consequences. Even if they had seen the slow recovery coming, they say, they couldn’t have done much about it. When Mr. Obama has been asked about his biggest mistake, he talks about messaging, not policy.

“The mistake of my first term — couple of years — was thinking that this job was just about getting the policy right,” he has said. “The nature of this office is also to tell a story to the American people that gives them a sense of unity and purpose and optimism, especially during tough times.”

We can never know for sure what the past four years would have been like if the administration and the Fed had been more worried about the economy. But my reading of the evidence — and some former Obama aides agree — points strongly to the idea that the misjudging of the downturn did affect policy and ultimately the economy.

Mr. Obama’s biggest mistake as president has not been the story he told the country about the economy. It’s the story he and his advisers told themselves.

The notion of insurance is useful here. Suggesting that Mr. Obama and his aides should have bucked the consensus forecast and decided that a long slump was the most likely outcome smacks of 20/20 hindsight. Yet that wasn’t their only option. They also could have decided that there was a substantial risk of a weak recovery and looked for ways to take out insurance.

By late 2008, the full depth of the crisis was not clear, but enough of it was. A few prominent liberal economists were publicly predicting a long slump, as was Mr. Rogoff, a Republican. The Obama team openly compared its transition to Franklin D. Roosevelt’s and, in private, discussed the Reinhart-Rogoff work.

So why didn’t that work do more to affect the team’s decisions?

There are two main answers. First, the situation was unlike anything any living policy maker had previously experienced, and it was deteriorating quickly. Although officials talked about the Depression, they struggled to treat the downturn as fundamentally different from a big, relatively brief recession.

“The numbers got ramped up,” one former White House official told me, referring to the planned size of the stimulus in late 2008. “But the basic frame did not get altered.” In particular, the administration did not imagine that the economy would still need major help well beyond 2009 and that Congress would not comply.

The second problem was that Mr. Obama and his advisers believed — correctly — that they and the Fed were already responding more aggressively than governments had in past crises. Even before the election, President George W. Bush signed the financial bailout, a decidedly un-Hooveresque policy. The Fed began flooding the economy with money. The Obama administration pushed for the stimulus and, with the Fed, conducted successful stress tests on banks.

Whatever the political debate over these measures, the economic evidence suggests they made a large difference. Analyses by the Congressional Budget Office and other nonpartisan economists have come to this conclusion. Europe, which was less aggressive, has fared worse. And the chronology of the crisis tells the same story.

In 2008 and early 2009, the global economy was deteriorating even more rapidly than in 1929, according to research by Barry Eichengreen and Kevin H. O’Rourke. Global stock prices and trade dropped more sharply. But the policy response this time was vastly different, and by the spring of 2009 — just as the measures were taking effect — the economy stabilized.

In this success came the seeds of future failures. Knowing in late 2008 how much policy help was on the way, Mr. Obama and his economic advisers decided that the disturbing pattern of financial crises was not directly relevant. “In a way, they fell into a ‘This Time Is Different’ trap,” another former White House official said.