Update: also see Anti-Tax, Anti-Regulation Sirens emerge after Brexit.
We have our own particular reasons for disliking Brexit – the recent decision by the UK to leave the European Union. In a pre-Brexit analysis the Tax Justice Network quoted Adam Posen, director of the Peterson Institute for International Economics, who articulated a huge generic concern:
“If you’re anti-regulation fantasists to begin with, you start going down the path, ‘Oh we can become an even more offshore center. We can become the Cayman Islands writ large, or Panama writ large.’ And this frankly is the way I think this also spills over to the rest of the world, is that the UK decides, ‘Hey, regulatory arbitrage, letting AIG financial products run in London, actually destroyed the US financial system, but didn’t hurt us – made us a lot of money. Let us continue down this path. Let us be the ‘race to the bottom’ financial center. And I think this that’s where this going, because they’re not going to have any other option. It’s not good.”
The British-based non governmental body Actionaid has for some time been at or near the forefront of efforts to lobby for progressive reforms to the international tax system for the benefit of developing countries. This week their ‘Tax Justice Policy Adviser,’ Diarmid O’Sullivan, wrote a blog entitled The UK: always the bad guy on anti-tax haven rules? which says, in the first paragraph:
“Poorer countries badly need more tax revenues to pay for public services such as schools and hospitals, but they stand to be among the losers from the UK’s insistence on protecting its “competitive” low-tax regime for companies.”
We’re really delighted to see the c-word in quote marks: it’s an important signal that the writer has seen through the nonsense of so-called ‘competitive’ nation states.
From Citizens for Tax Justice, a blog that’s worth reproducing in full, as yet more useful ammunition to wheel out against those who keep banging on about tax cuts and so-called ‘competitiveness.’
New Research Shows Millionaires Less Mobile than the Rest of Us
A new study (PDF) released today provides the best evidence yet that progressive state income taxes are not leading to any meaningful amount of “tax flight” among top earners.
Stanford University researchers teamed with officials at the Treasury Department to examine every tax return reporting more than $1 million in earnings in at least one year between 1999 and 2011. They found that while 2.9 percent of the general population moves to a different state in a given year, just 2.4 percent of millionaires do so. Even more striking is that for the most “persistent millionaires” (those earning over $1 million in at least 8 years of the researchers’ sample), the migration rate is just 1.9 percent per year. As the researchers explain: “millionaires are not searching for economic opportunity—they have found it.”
The author of today’s FG blog has just had a piece in the Washington Post entitled Five Myths about Tax Havens in which Myth 5 goes like this:
“5. Cutting corporate taxes helps nations compete with tax havens.
Reducing corporate taxes to attract wealth back from tax havens sounds plausible — “Republicans call [tax inversions] the inevitable consequence of a flawed tax system,” Bloomberg View recently observed, “and say the only solution is a full revamp of the tax code, including lowering the corporate rate and limiting taxes on foreign profits.” But it doesn’t work that way. Tax cuts at home don’t persuade corporate bosses to ease up on tax avoidance, and there are always more lucrative shelters abroad.
One our core arguments is that if you shower wealthy people and large corporations with goodies, two things happen.
First, you may help them and you may be able to demonstrate some benefits, somewhere in the economy: such as improved performance for the stock options held by the executives at the multinationals concerned.
Second, though, there is the annoying snag that those benefits entail costs elsewhere in your economy.
Someone has to pay for these goodies! Who will it be?
From The Tax Justice Network, on a presentation by FG contributor John Christensen:
Highlighting a presentation by TJN’s Director John Christensen at the Max Planck Institute in December, and a chapter in a new book by two TJN authors, on the same theme. First, Max Planck, which published the details yesterday:
There’s been a lot of talk for a long time about a threat from globe-trotting HSBC to move its headquarters from London to Hong Kong. It seems there’s been a resolution of the question for now, of sorts. As Bloomberg puts it:
“HSBC Holdings Plc recommitted its future to London, ending 10 months of deliberations over whether to move its headquarters, after securing concessions from the U.K. government on regulation and taxes. The shares rose.”
That’s the Competitiveness Agenda at work, right there. Shower goodies on mobile capital and its owners for fear that they’ll flee elsewhere. More specifically, via Reuters:
Recently we wrote an article entitled The Ideologists of the Competitiveness Agenda, in which we fingered the Big Four firm of accountants as some of the most important vectors for the general idea that countries simply have to ‘compete’ in certain ways: namely, to shower goodies at wealthy people and multinationals, for fear that they’ll relocate elsewhere. As we’ve often argued: that attitude is not just misplaced, but generically harmful.
Now, here’s a recent example of a Big Four firm, PwC, playing the “competitiveness” game, in a
lobbying document report purporting to assess the fiscal regimes for gold mining in four African countries. (Thanks to Mark Zirnsak of Tax Justice Network Australia for pointing this one out.)
Tax treaties are an arcane but important part of the international trade and investment system. When a business from one jurisdiction invests in another, the question then arises as to which jurisdiction gets to tax which bits of the income that the investment generates. So countries have for years signed Double Tax Treaties or Double Tax Agreements (DTAs) with each other, to sort out these and other questions. Since the global treaty system began to emerge (after Austria-Hungary signed one with Prussia in 1899), the core aim of the system’s designers has been to make sure that multinationals don’t get taxed twice on the same income: so-called ‘double taxation’. Countries sign them because they think they will attract (and smooth the flow of) inward investment.
This will make their country more ‘competitive,’ the thinking goes.
All of which may sound like perfectly reasonable ideas. But of course, beneath these reasonable ideas there’s a world of possible mischief.
Recently we posted an article entitled New studies: do ‘competitive’ corporate tax cuts boost growth? – to which the answer was a qualified ‘no.’ Well, now we are delighted to host a guest blog by Prof. Nikolay Anguelov of the Department of Public Policy, University of Massachusetts, Dartmouth, who has produced an important new working paper looking at this question. Entitled “Lowering the Marginal Corporate Tax Rate: Why the Debate?” it provides a range of further evidence and insights. (This article will be permanently stored on a section of our site called The Harms.)