Yves here. C regulars will cringe at the “taxes fund spending” remarks in this video, sine in economies like the US and UK that issue their own currencies, spending precedes taxation and the real role of taxation is to create incentives and disincentives, as well as to control inflation. But our legal conventions are based on the gold standard era, not on monetary operations for a fiat currency issuer.
I’m surprised that Alex Cobham of Tax Justice Network did not mention that multinationals have persuaded policymakers to give “tax holidays” as they did in the US in 2004, allowing them to repatriate profits that had been booked offshore. Mind you, this had nothing to do with the location of cash (which is typically sitting in banks in New York) or the ability to spend. Yet the tech giants and pharmaceutical companies pressing for the 2004 tax holiday argued they needed the waiver so they could invest. When they got the break, they used the profits to pay dividends and higher executive bonuses.
Originally published at Tax Justice Network
im Worstall, a British commentator who has launched a number of vitriolic and personalised public attacks on TJN and TJN staff members in the the past, has been in debate with TJN’s Research Director, Alex Cobham, on the subject of corporate tax. (For a flavour of the extraordinary level of vitriol, see this.)
Anyway, here’s the debate.
Make your own minds up about who came off Worst.
On the much-debated subject of tax incidence, Worstall knows (because, as he states, he reads TJN’s outputs assiduously) that the nonpartisan U.S. Congressional Budget Office has highlighted studies that either find “capital bears the majority of the corporate tax burden” or that “even in an open economy, capital could bear virtually the entire tax burden and that the open-economy assumption is not sufficient to shift the burden of the corporate tax from capital to labor.” (And he might like to answer the question of who the ‘workers’ are in a hedge fund or a shell company.)
As this 2012 CBO paper put it in the conclusion:
“At the end of the searching, I find some evidence that suggests that corporate taxation may lower wages, but the preponderance of evidence does not suggest any wage effects from corporate taxation.
. . .I close with a political economy point, mentioned by Lawrence Summers at a Hamilton Project forum in 2007. He noted that it was indeed possible that corporate stockholders and managers who resist the corporate tax are not really acting in their own interests because they do not understand corporate tax incidence, since corporate taxes will ultimately be borne by their workers. But it seems far more plausible that they have calculated their interests correctly.”
See much more on this question of tax incidence here.
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The good thing is with TPP soon multi-nationals after skipping on taxation will be able to sue us for breach of contract we never signed.
I think US states and cities will be sued by Grand Caymen PO Boxes.
Similar to the IRS assessing a tax on you based on “imputed” income … money you never received.
Nice post Yves! It was quite an informative discussion. People like Worstall are useful in such a discussion to pinpoint the technical details whereas people like Alex are useful to point out what exactly is right or wrong with that particular detail.
I really wish the discussion would change to ‘taxes being used for expenditure’ to the actual uses of taxes.
I still want to see a total revamp of corporate taxation. Make the tax rate on any given corporation based on the differential between top exec compensation and average worker pay in a given company (including temps so cannot game system that way). Corporate tax is minimized (say 15%) when the difference between average worker pay and highest paid exec is NO MORE than 60x. If it goes above 60x but less than 100x then the rate goes to 25%. If above 100x then the rate goes to 36%. Companies would still be free to overpay their useless CEOs but they will pay for it in taxes. No writeoffs for corporations that pay top exec >100x average worker pay.
You could also make it commensurate on minimizing outsourcing/off-shoring. If more than 20% (say) of the workforce is off-shored, then rate goes to 36%. No write-offs.
So in order for companies to keep their taxes minimized, they will have to pay their CEOs less and/or workers MORE AND keep 80% of workforce domestic.
I heard a story on NPR the other day that one of the things the Clinton administration did was add a corporate tax for excessive executive pay. The net result was that companies just paid executives in stock options instead of income.
It might be simpler and less gameable to simply set the corporate tax rate high, but make wages within a certain window (targeted at some “middle class” ideal, say, arbitrarily, 45-90k USD a year) deductible. Such a system could even be calibrated to save companies money on taxes by giving employees raises, which cuts out the redistributive middle man of tax and spend – just jump straight to spend.
I’ve been personally involved in U.S. Fortune 100 firms choices of locations for operations, and the overwhelming determinate has been TAX avoidance . . . it’s not sufficiently recognized that major shifts of employment have occurred (with U.S. jobs moving overseas) due to the quest for minimal Federal taxation.