Yellen calls for global minimum corporate tax rate
cnn.com
cnn.com
I don't want to sound like some kind of hardcore Austrian fundamentalist, because I'm not. Taxes are fine, but levying them on fictitious non-person entities is just a means of obscuring to voters where the tax burden ultimately lies. All taxes are paid by individuals, either directly, or by corporations raising or lowering the prices they charge and prices they pay, to suppliers, employees, owners, and customers. But this just means who bears the burden is now an opaque function of relative bargaining power and price elasticity of supply and demand.
But that is not what we want from tax rates. We want them to be an open, transparent reflection of democratically passed laws. To that end, it is far better to levy taxes directly on suppliers, employees, owners, and customers of businesses, rather than on the businesses. This would also have the nice side effect of causing businesses to choose where they locate headquarters and factories based on something other than comparative tax rates, reducing an avenue of both dead weight loss and potential corruption.
A personal income tax incentivises the state to surveil the economic activity of individuals and play games with nudging people to do X or Y, and puts the burden of tax filing and the consequences of not reporting (which some people just can't do correctly).
Contrariwise, a corporate income tax can be thought of as a "user fee" for the privilege of the corporate veil and limited liability. If you don't want your mom and pop shop to pay corporate income tax, simple: don't incorporate, and be responsible for your personally responsible for your employees' well being. And thus it becomes a driver of small business growth and a progressive taxation (the beneficiaries of bigcorp profits are going to be disproportionately wealthy). If you can't afford an accountant to keep track of what taxes you owe, don't incorporate. Etc.
Yep, let's leave it to the "experts".
Policy "details" tend to have drastic unforeseen consequences, and our congress-critters tend to defer responsibility of those details to lobbyists.
We the Constituents\People\Voters have a responsibility to do our own thorough research and not allow Congress to figure out the details.
Precision matters and details can make all the difference between a good policy and a destructive policy.
Corporate profit in the US is generally somewhere around $2 trillion per quarter when times are very good. That's including all businesses, from mom & pop to Microsoft, and that includes all profit from global operations (not just domestic operations).
A 50% tax would only pay for just over half the US tax revenue needs (assuming you make the mistake of taxing global profits at 50% as well) and that would probably cripple the US economy. Many of the consequential corporations would attempt to flee (so you'd have to implement some form of government-sponsored slavery to keep people in). A 100% tax would immediately begin to collapse the US economy as businesses would no longer be able to save for any future purpose (including recessions, business problems, unexpected opportunities, and so on) and they would fail rapidly.
The only tax source large enough to support a nation is an income tax on individuals. That's why, for example, no nation in Europe has ever attempted to fund their expensive and well-experimented welfare states in the way you're suggesting. They know it doesn't come close to working.
The US did quite well for a time without income taxes. If I recall correctly, the US even went from a nearly destroyed nation to global empire, building up several colonial territories, and constructing battleships that went around the world, in a time period where there was no personal income tax.
My guess is you'd see a small portion go to employees, a large chunk reinvested into the business, and a large chunk go directly to shareholders. If you managed to alter the structure of taxes so that shareholders paid more for capital gains and dividend income, I feel that's a better outcome than corporate taxes. But lingering doubts of the feasibility of doing so + companies just hoarding cash seem like large problems.
And while I see what you're trying to get at, I think the idea is flawed. Taxed being "open and transparent" are good attributes, but not the reason, for taxes to exist. They exist to fund society.
Corporations and businesses, as entities, utilize public services. They wear roads, they take up land, they pollute. They should be expected to pay their portion of the upkeep to their local area.
I understand the idea of reducing the race to the bottom and city/country gamesmanship for tax evasion... which is what the linked proposal looks to solve AFAIK.
How do you determine the value of goods exchanged and ensure these are equitably taxed?
What happens when you've got a mega-corporation that is both supplier and customer to another business?
What happens if they just decide to exchange goods well below market price and only settle the surplus/deficit of those transactions?
https://www.cbpp.org/research/federal-tax/where-do-federal-t...
It also removes the incentive to mess around with stock buybacks, which is good because the extra liquidity can be put to better use within the company.
For very small companies (such as my own) it would also remove the bureaucracy involved in saving profits from one fiscal year to the next.
This would be regressive, though. Why not tax the individual via a progressive cap gains tax?
> It also removes the incentive to mess around with stock buybacks, which is good because the extra liquidity can be put to better use within the company.
If a company can't think of a good use for their profits, do we really want to force them to keep the money within the organization? This seems like a recipe for bloated budgets and bigger Christmas parties, but I'm not sure that we could expect much benefit otherwise.
How would it be regressive? According to Wikipedia[0], most corporate tax rates are proportional (i.e. "flat"). Just replace that with an equivalent rate on payout of dividends. Capital gains tax for the recipient is an entirely separate question.
> If a company can't think of a good use for their profits, do we really want to force them to keep the money within the organization?
In such situations they can pay dividends of course, which are taxed in my proposal. The point is that there is no point in buying back stocks instead of paying dividends.
[0] https://en.wikipedia.org/wiki/Corporate_tax#International_co...
My dividends are already being taxed as income. I agree with you, but good luck trying to convince Big Gov that they need to eliminate a revenue stream without picking up a new one.
In business, if you find yourself in a "race to the bottom" on price it typically means your product has become a commodity. The antidote to commodification is strong branding. Instead of trying to collude on tax rates like some kind of financial mafioso, somebody in Washington needs to figure out how to rescue the brand of the United States in order to reverse this trend.
I'm not in favour of the corporate tax, I would rather have a high progressive consumption tax, a progressive inheritance tax, and a land value tax. (yes I recognize this will never happen...) That said, tax arbitrage across borders is the same kind of global coordination problem as climate policy across borders.
Accepting a race to the bottom and resigning to a climate catastrophe are not solutions; we need countries who want to fix these problems to band together and create carrots and sticks to incentivize misbehaving countries to join in.
For instance, you could have a country change what it considers to be “profit” so that you’re paying $2 on $100 of revenue, whereas in the neighboring country you’d be paying $6. Same nominal tax rate, different effective tax rates.
There are even more ways to play this: “Sure, we tax you at the required 20%, but you can then direct how those funds are used to reduce costs you’d otherwise have to pay directly.”
And this happens a ton— see the WTO and “effective” but not nominal tariffs.
In answer: if we do discard the assumptions of game theory and we imagine nobody would ever think to “cheat,” it could work. But in reality it wouldn’t be just that some countries have huge advantages in some industries— they would have huge advantages in every industry. People and companies looking to maximize their opportunities would flee to the country with the lowest effective (nominal doesn’t matter) tax rate which could also guarantee their safety.
This is actually part of how the US ended up burying the Soviet Union/eastern Bloc with economic productivity— we kept poaching all their best engineers, scientists, mathematicians, and entrepreneurs.
VAT seems to be sufficiently fair, workable, and enforceable. People don't like it, but nobody likes taxes.
The US feds can't do VAT though. It took the 16th amendment to allow the feds to collect income tax from people; it carves out an exception to the Article 1 requirement that all taxes be apportioned among the states by population.
This corporate alternative minimum tax idea seems to be a way to stay within the bounds of the 16th amendment and still collect business taxes.
None of it matters at all unless the tax-audit authorities get more teeth than they now have. Business-tax compliance in the US could easily go down Greece's path, where you're a chump unless you cheat.
If you had build the most successful retail business, in 1900 you would own the market in your town; in 1950 in your country; in 2020 you'd own the world (or a big part of it). The opportunity is just a lot bigger now than 50 years ago and that trickles down.
Also technology enables goods and services to be produced from everywhere; that means countries compete globally. Many 0.1%ers had to overcome global competition to make the money they're making. In addition, more and more of them can do it from anywhere (def true for entrepreneurs starting fully remote startups, for instance).
So there is both value and necessity in having to compete globally to attract the entrepreneurs and highest producers / best talent. Does it mean 0 tax? No. But it does mean you have to have reasonable taxes and offer a good product (security, laws, culture, talent, whatever it may be).
It also means you don't offend your best 'customers' all the time. All this talk about how 0.1% people essentially unfairly stole their way to their success won't want to make anyone pay more or stick around to higher tax place (city/state/country).
As a government you first want to be efficient with tax money; be reasonable with taxes, even if higher than average (but within the competitive ballpark); show appreciation for the people that end up paying most of your taxes; and stop talking about inequality as being exclusively a bad thing and a result of tax policy.
In my mind also, the best antidote to that is not taxes but anti-trust (make sure companies don't unfairly stay dominant) and low interest rates (which has been the case for a while) so that people without capital can borrow at reasonable cost.
Taxing a company doesn't make it less dominant. it can be argued that it makes it more dominant because the cost to compete with the dominant company will be higher if corp taxes are higher.
Wouldn't raising the corporate tax rate further reduce economic growth though, making things worse instead of better?
FWIW I don't think the majority of people reject the idea that we need some amounts of regulation, some amounts of social policy/protection, etc. The argument is how much, but we use bad terms to discuss this and definitions people refuse to agree on nor recognize that others are using different definitions.
I can’t say for certain whether or not this is true but I really don’t think it is. The entire premise of capitalism is that we’re all better off through specialization and trade. It’s the _very_first_thing Adam Smith writes in The Wealth of Nations.
We use the word “inequality” a lot at the moment but I think, in some ways, it’s a bit of a misnomer because the true issue the term “inequality” attempts to describe is that people aren’t getting the “better off” end of the deal that capitalism promises. For a lot of people participating in capitalism there isn’t any action in their set of available actions where they’re economically better off than they were before.
> If you had build the most successful retail business, in 1900 you would own the market in your town; in 1950 in your country; in 2020 you'd own the world (or a big part of it). The opportunity is just a lot bigger now than 50 years ago and that trickles down.
In 1900, thousands would own the markets in their respective towns, in 1950 dozens would own the the markets in their countries, and in 2020 one person would own the entire market. This is not trickling down, this is flooding up.
It's no different than being the big man in your small island culture before the British navy rolls in. If there are no protections in place to preserve you, you will disappear and the Empire will expand.
All taxes do is make the government a business partner of the 'imperialist' entrepreneur. It won't bring back the small town businesses or anything else about the past that you idealize.
A corporate tax rate of 0% but corporate income is passed through to shareholders as personal income seems better in every regard.
While it may sound a bit revolutionary, this is essentially the tax structure Milton Friedman endorsed.
When governments inject money into private banks, it's impossible to deny that capitalism doesn't work without state intervention. Capitalism has been dying since 2008. In my view it started dying after the end of the cold war. An ideology without rival slowly becomes irrelevant because it's unchallenged.
edit: think of it like this - you have the "right" to eat meat. But if I refuse to be friends with people who eat meat and you need my friendship, you can't eat meat.
Or, more realistically, the developed countries will pull any of the dozens of levers to make non-cooperative countries' life miserable.
The news here is that US policy seems to be moving to align with smaller powers, not the reverse.
I presume it would be via some convention which allows tit for tat reciprocity and so on.
> "We're working with G20 nations to agree to a global minimum corporate tax rate that can stop the race to the bottom."
The race to the bottom Yellen refers to is corporations playing one country off another, as in "lower your taxes or we'll move our profits to Ireland." The proposed solution - countries agreeing with each other not to lower the corporate tax rate below some limit - is an example of sovereign nations working together in a way that benefits both sides, not one sovereign nation dictating policy to another.
More generally, this is a variant of a mutual coordination problem in game theory, in which it is everyone's interest for everyone to cooperate, but in each individual's interest to be the only party that doesn't cooperate. Those are notoriously tricky to induce/enforce agreement on, but it has been done.
How fair.