Update: Farnsworth’s work has been generating huge media coverage in the UK, because of the role it has played in new Labour Party’s preliminary economic platforms – making it subject to attack from many different people. See Farnsworth’s responses here.
Kevin Farnsworth at York University has been exploring the scale of corporate handouts in the UK. Via The Guardian:
“Taxpayers are handing businesses £93bn a year – a transfer of more than £3,500 from each household in the UK. The total emerges from the first comprehensive account of what Britons give away to companies in grants, subsidies and tax breaks, published exclusively in the Guardian.”
Updated with new IMF data, June 22, 2015; and with Philip Baker comments; June 29, 2015
Update 2: from Reuters, Dec 22, 2015:
“Seven of the biggest investment banks operating in London paid little or no tax in Britain last year, despite reporting billions of dollars in profits, a Reuters analysis of corporate filings shows.”
How tax wars may affect UK small and big business
So-called “competition” between countries on tax (which some of us think is generally better known as “Tax Wars”) is a process that has nothing to do with what people normally understand competition to be. (To get a first sense of the differences, ponder the differences between a failed company and a failed state. Or look at this.)
The process produces a range of harms, which stem from basic operating principles. Capital can shift easily across borders, but workers generally can’t. So governments try to lure mobile capital by cutting taxes on it — then make up for the lost tax revenues by taxing ordinary people and workers more — since it’s far tougher for workers to rip their kids out of school and move when tax rates change.
The end result is that taxes on capital fall, and workers suffer higher taxes. Among other things, this increases inequality.
Here we go again. Look at this latest piece of financial sector lobbying, courtesy of Reuters, which normally strives to be a fair and balanced news organisation.
This requires quite some unpacking. To begin with:
“Britain is prepared to review a tax on banks to head off the threat that large multinational banks like HSBC could leave London’s financial centre and shift their operations overseas, the Sunday Times reported, citing industry sources.
Finance minister George Osborne is to lay the ground for such a review in a speech this week, by saying that the newly-elected Conservative government is committed to maintaining the competitiveness of banks, the paper reported.”
UK tax barrister Jolyon Maugham, who is at a tax conference today, issued these tweets, citing the UK’s returning Financial Secretary to the Treasury, David Gauke:
From a Bloomberg report on a Bill Gates interview:
‘Gates scoffed at comparisons linking taxes and regulation to slower growth. “The idea that there’s some direct connection, that all these innovators are on strike because tax rates are at 35 percent on corporations, that’s just such nonsense.” ‘
“The highest economic growth decade was the 1960s. Income tax rates were 90 percent.”
This is part of a much bigger picture: that low (or high) corporate taxes do nothing to make an economy as a whole more (or less) ‘competitive.’ Read more about all this here.
Cross-posted with the Tax Justice Network.
From the Financial Times, a report on a survey by the Tolley Tax Journal of businesses’ responses to the UK’s policy of savage cuts to the corporate income tax. It’s about the UK, but it has wide international relevance.
“More than six out of 10 respondents thought the cut in the corporate tax rate, by 8 percentage points to 20 per cent, had boosted their own companies’ investment and growth, although for most it only had a marginal impact.”
Update: this post has now been published on Naked Capitalism.
Martin Wolf, the Financial Times’ chief economics commentator and one of the world’s most influential economists, published a book in 2004 called Why Globalization Works: the case for the global market economy. A forceful, heavily researched and uncompromising work, it became for a while a bit of a bible for those pushing for freer trade and further liberalisation of the global economy.
When the global financial crisis hit in 2007, calling into question some of the mainstream economic profession’s most cherished beliefs, Wolf – unlike many economists – seems to have done a serious re-think, and he has found a dramatic and radical new enthusiasm for reining in an out-of-control financial sector, while remaining essentially in favour of free trade. Wolf told us in an email in response to an earlier draft this post:
“I have only changed my mind on finance and even then I was already quite sceptical. I think my chapter on the state was rather good.”
The chapter in question, the subject of this blog, is entitled “Sad About the State”.
One of our inaugural articles on this site was a post in March looking at the causes of the “Celtic Tiger” boom in Ireland. It contained a striking graph and a wealth of analysis suggesting strongly that what caused the boom was, above all, Ireland’s accession to the EU single market, rather than its supposedly ‘competitive’ corporate tax policies. After all, Ireland has been trying to be a tax haven since the 1950s, but it was only in the early 1990s that take-off began (also see this rollicking historical account of how Ireland became a corporate and financial tax haven, or offshore financial centre.)
“The current “race to the bottom” in which tax competition among developing countries takes place to attract corporate and foreign direct investment is having a negative impact on government budgets needed to finance the advancement of women’s rights.
We prefer the more economically literate term ‘tax wars‘ instead of tax ‘competition’, but no matter: there is a clear and powerful argument here. The key point is not that budget cuts affect everyone, including women, but that women are disproportionately affected by tax policies that are substantially the fruit of tax wars. It is not just about how much revenue is raised, either: it is about how revenue is raised. As it notes: