Electric car manufacturer Tesla has started work on a huge new battery factory in Reno, Nevada, but don’t let that fool you. Reno may not end up with the factory and the 6,500 jobs it is expected to create.
Tesla started building in Reno, even though its new “Gigafactory” may not actually be completed there.
On a recent earnings call, CEO Elon Musk said he might start similar construction on one or two other sites. The company is also looking at locations in Arizona, California, New Mexico and Texas.
“Before we actually go to the next stage of pouring a lot of concrete though, we want to make sure we have things sorted out at the sort of state level, that the incentives are there that makes sense,” Musk said, adding “on the Nevada side, at this point the ball is on the court of the governor and the state legislature.”
Tesla wants the eventual host state to chip in 10 percent of the factory’s $4-to-$5 billion price tag. While it negotiates, the car maker says it’s worth construction costs to get the factory up and running as soon as possible.
"Any potentially duplicative investments are minor compared to the revenue that could be lost if the launch of Model 3 were affected by any delays at our primary Gigafactory site," the company wrote in its recent investor letter.
“It’s pretty unusual for them to be actually starting construction on a site,” says Tim Bartik, an economist for the W.E. Upjohn Institute for Employment Research, though he says shopping around for a good deal from states is common.
Still, states should approach these types of deals with caution.
“People should realize that incentives are not a free lunch,” says Bartik. “They do involve costly resources.”
Local officials need to analyze what kind of wages the company will pay or the types of suppliers it might work with.
“Until recently, most states weren’t doing this kind of analysis,” says Josh Goodman, with the Pew Charitable Trusts Economic Development Tax Incentives Project. “Sometimes, they might do the analysis on a program that was getting attention because there was a lot of problems there.”
But many of states are wising up, Goodman says, passing laws and requiring periodic reviews of their incentives to be sure they are actually good deals for the state.
Graphic by Shea Huffman/Marketplace
Pharmacy company Walgreens announced it is not going to invert after all.
Corporate inversion is the practice of one company merging with another that's based abroad to avoid taxes or gain access to assets held abroad. At least 47 U.S. corporations have reincorporated overseas in the past decade, more than during the past 20 years combined, according to the Congressional Research Service.
Walgreens first began to buy up British firm Alliance Boots two years ago, purchasing a 45 percent stake in the company and laying out plans to purchase the remaining 55 percent in 2015. At some point, Walgreens considered the possibility of converting the deal to buy Alliance Boots into a deal to invert via Alliance Boots.
“We had to look at whether the structure of the deal would allow for an inversion,” says spokesman Michael Polzin, and that structure proved unworkable. “We’d have to rip up that deal and come up with a new deal.”
There’s a special provision in U.S. tax law that says the inversion doesn’t count – that is, the newly formed company won’t be considered a foreign company, and won’t get tax benefits – if the shareholders from the U.S. side of the inversion own 80 percent or more of the newly formed company’s shares going forward.
“Walgreens would’ve had to renegotiate the deal with Boots in order to make sure that Boots’s shareholders ended up with at least 20 percent of the combined merged entity’s stock and that would’ve been difficult to accomplish,” says Dick Harvey, distinguished professor of practice at Villanova School of Law and Graduate Tax Program.
Walgreens is also different from many other companies in that people know it well, and its brand has accumulated significant consumer good will.
“This is a 100-year-old pharmacy in the United States, with a very long and storied legacy and it’s something the consumer is familiar with,” says Ross Muken, senior managing director and partner at ISI Group. “If [pharmaceutical and medical device companies] AbbVie or Covidien leave the United States, no one knows those brands as a consumer. But most people will know Walgreens.”
Consumers could be turned off if the Walgreens they knew skipped town for tax reasons. If consumers didn’t make the connection, an aggressive ad campaign by a competitor could easily help convince them.
There are about eight corporate inversions pending, Harvey says, but he estimates there could be 50 to 100 more in the next year or two. Politicians and government officials are already taking aim at corporate inverters.
“My attitude is, I don’t care if it’s legal, it’s wrong,” President Barack Obama told an audience at Los Angeles Trade-Technical College in a speech July 24. “I propose closing this unpatriotic tax loophole for good."
Uncle Sam is a customer Walgreens would rather not antagonize — it gets between a quarter and a third of its business from the government through Medicare and Medicaid, says Muken. But most companies considering an inversion don’t have these concerns.
While many businesses wait for comprehensive tax reform, which may or may not materialize, the treasury department announced it would try to close some inversion loop holes on its own. Harvey says this is unlikely to deter many firms.
“There are two or three main benefits from an inversion – and treasury might be able to address one or two of them but there will be other benefits, that could result in businesses inverting even if treasury takes action," Harvey says.
Those benefits include gaining access to assets held abroad, and stripping out earnings from the United States.
For most firms considering an inversion, he says, those temptations are too good to resist.
Wednesday is day two of a three-day ceasefire between the Israeli Army and Palestinian fighters in Gaza. In Egypt, indirect talks have proceeded between Israeli and Palestinian officials, aimed at extending the ceasefire and opening up Gaza's borders to trade and people.
Israel has largely sealed the borders it shares with Gaza since 2007, when Hamas took over. Recently, the military-led government in Egypt severely restricted its border with Gaza, shutting down the smuggling of goods, people and weapons through a large network of tunnels there.
As the ceasefire began on Tuesday, Palestinian deputy economy minister Taysir Amro estimated the direct damage from Israeli bombing and ground incursions at $4 billion to $6 billion. At least 10,000 homes and 140 schools are believed to be destroyed or damaged; Gaza’s power plant is heavily damaged, as is water treatment and other public infrastructure. Norway is reportedly organizing an international donor’s conference in September to begin the process of raising funds to restore services and rebuild.
“Even if you bring in $5 billion, $6 billion, $8 billion or $9 billion, all that will do is replace what they had, put them where they were,” said Shibley Telhami, a political scientist at the University of Maryland and author of “The World Through Arab Eyes.”
“We know that where they were was an awful place," he says. "Some people were calling it an ‘open prison.’”
"There's no economy in Gaza"
Since 2007, when Hamas seized power from the Palestinian Authority in Gaza after winning an election there, Israel has kept all but a trickle of humanitarian supplies and people from crossing the border. Except for what has been smuggled through tunnels from Egypt, virtually no building supplies are allowed in by Israel for Gazans to use — Israel says these could be used for military purposes. And virtually no produce or furniture or other goods go out to sell in the West Bank, Israel, or farther afield.
“There’s no economy in Gaza — you can’t export from the Gaza strip,” said Khaled Elgindy, senior fellow at the Center for Middle East Policy at the Brookings Institution, who has served as an adviser to Palestinian negotiators in Ramallah.
Elgindy says there is little in the way of industry, agriculture or services in Gaza that could bring capital into the economy. So most development — in fact most consumption — comes from international aid, which 70 percent of residents receive. The unemployment rate is at least 40 percent, according to the World Bank. GDP has been falling in recent years.
Gaza’s "real" GDP growth, according to World Bank. (Source: World Bank)
What would have to happen to get economic development going in Gaza? The experts interviewed for this story said the first prerequisite is more open borders — for supplies coming in, goods for export going out and people (foreign visitors, expatriate family members and workers) going in both directions.
Second, they said Palestinians need more control of key infrastructure and economic relationships with immediate neighbors and potential trading partners.
“It would make a huge difference, in terms of normalizing Gaza, to have a seaport,” said Elgindy. The airport should also be rebuilt and opened to international flights, he said.
Telhami said if Palestinians controlled their own seacoast and airspace, and could clean up the beaches: “Gaza does have a waterfront. In good times, if they ever come, it could be turned into a relatively inexpensive vacation spot.”
Fishing has been severely limited by Israel, which controls the waters off the coast; Telhami said that industry could expand as well, supplying fish to the West Bank.
Leila Hilal, senior fellow at the New America Foundation, said Gaza has human capital that could drive economic development.
“Gazans are very enterprising, they’ve been surviving under total isolation,” said Hilal, adding that the population of Gaza is young, educated and urban. She said the Palestinian diaspora could potentially help — providing expertise, export markets and investment dollars.
But, she said, a political opening in the peace process with Israel, and significant progress in opening borders and normalizing the ability of Gazans to travel and trade freely, would have to come first.
Remember that picture that was floating around the internet a while ago?
The one a monkey had taken of herself using a camera it had liberated from a British wildlife photographer. It was basically a monkey-selfie.
Anyway, The Telegraph reported today that Wikipedia has declined the photographer's requests to stop distributing the picture without his permission because the site says the monkey pushed the shutter button and so it owns the copyright.