If the U.S. wants to make itself uncompetitive with high corporate tax rates, that is America's problem.
"Ireland's headline 12.5% corporate tax rate — much lower than most industrialized nations — has been key to attracting many multinationals to the country."
After financial markets collapsed in 2008, Ireland was in quite bad shape and requested a 67 billion Euro bailout from the EU. The EU granted it under the condition that Ireland gets their finances in order and imposes austerity measures on its citizens.
No idea why you're getting downvoted. This makes perfect sense. Especially for up and coming economies, they almost need to resort to these schemes. Anything "global" that doesn't take into account details of specific realities is usually a bad idea.
this is a battle to the bottom. Whats to stop India from offering 6.25% corporate tax rate, what will Ireland do next go to 3% tax rate to? only losers with this kind of thinking is the individuals that end up paying more taxes than the multinationals.
Small businesses already don’t have the effective ability to structure their operations to take advantage of multiple domiciles’ different tax policies, because the fixed costs of such structures are high relative to their incomes and the consequential benefit they’d derive.
Such a policy would generally help small businesses who seek to compete against large multi-nationals, even around the edges.
Downvoted a tone-deaf comment which puts together an implicit threat of instantly vaporising thousands of unsuspecting people, and refusing to do business in one sentence - as if there wasn't a massive difference. When someone writes "threat of atomic bombs" they should consider if they mean it.
Why do you think the rest of the EU wouldn’t be on board? Nobody in the EU is happy with Ireland’s corp tax rate. China’s corp tax is 25%, India’s is complicated but around the same (in practice), PRC and India don’t want its rich people and global corps abusing tax shelters either.
Yeh especially when in reality Ireland is open about stuff whereas many other counties do it through the backdoor. Places like the US and UK give huge benefits to companies but many of them are less direct. Write-offs, overlooking offshoring, R&D etc
So, this is why we have things like the European Union. It's to prevent global hegemons from hegemonizing TOO much. Sanction one member, and the other members could retaliate en bloc. Therefore you can't afford to sanction any single member. This means everyone who deals with EU members is forced to play fair game (give or take a lot of give and take; this is politics, after all).
[Of course the other EU members aren't entirely pleased with Irish and Dutch corporate tax rates either, but that's a story for another thread]
because the housing price bubble already hit hard Ireland in the recent past and it's gonna hit again soon if nothing changes.
low corporate taxes have made Ireland a tax heaven, with all the drawbacks you can imagine
Expensive housing, long commutes and stretched public services are making Ireland a less attractive place to live.
And it’s not just younger people who feel aggrieved. People on relatively good incomes, who might have traditionally bought into the status quo, are now priced out and are calling for more radical solutions.
It's not all rainbow and sunshine though. We should strive to work on a global level and not step on eachother with "competitive advantages" like these.
These are only "competitive advantages" because some people high up decided they were legal (and probably gained some personal profit out of it). When starbucks, macdonalds or airbnb pay insanely low taxes in most european countries they're using legal ways to do so, but it doesn't benefits the people, it benefits the corporations.
I personally don't care about the exact percentage of tax we should apply, but we should start by making them pay taxes in the countries the money is made and stop allowing companies to bend the rules so much.
This is like dumping, it's a "competitive advantage" until you decide it's illegal or at least regulated, these things aren't written in stone
Another attempt from the US to control the global economy. Next step, if a country doesn't comply with their global tax rates, it will be labeled enemy and suffer economic sanctions.
The US can only achieve its international monetary proposals by consensus. As the US corporate tax rate is effectively Less than major trading partners, it’s more like the US is shifting its position closer to international norms.
I would love to hear how they intend to enforce such a global minimum tax rate. As well how they would guarantee that no country offers a tax credit or otherwise to lower the numbers.
And then, of course, there's the really common trick of keepin profits on the books near zero for a corporation to avoid taxes altogether. Would they suddenly be taxing income and not profit?
If recent experience with America’s unilateral application of FATCA on the rest of the world, (effectively imposing massive compliance costs on other countries’ banking systems to help them find non-compliant Americans and bring in revenue equal to maybe 1/100th of the worldwide compliance costs) and how literally no country put up resistance to this imposition, I’d say everyone still cares what America has to say!
Start with multilateral agreements, then sanction small jurisdictions that don't comply (e.g. bring the EU, US, Japan, etc on board and negotiate conditions, then impose them on Cayman Islands or Panama).
You seem to think this will be a hard sell to most countries, where in fact 21% is below Corp Tax for most countries with clout. Most of the EU would be on board, China would be on board, all nuclear powers would be on board...
I doubt either China or Russia would be on board, They might though they would properly ignore it and have many exemptions for State Run businesses or or such things
> The thing about this is that we ought to understand both PARC and its East Coast friend Bell Labs as in important respects outgrowth of the high marginal tax rates prevailing in postwar America. These were, lets recall, very high rates.
> Delaware doesn’t tax “intangible assets,” and this encourages companies to move parts of their business to Delaware to avoid taxes in other states. This has led to Delaware being labeled a “tax haven.”
> I thought corporations were taxed on profits and not assets? How do tangible/intangible assets factor into this?
Company transfers intangible asset to subsidiary in Delaware, "trademark or naming rights"[0], its locations elsewhere pay the Delaware subsidiary for the use of those rights, lowering their profits(?), and the Delaware subsidiary doesn't have to pay tax on that income and resulting profit?
That'd make sense if delaware had a low corporate tax rate, but it doesn't[1]. If you wanted to relocate your profits to a low tax jurisdiction, you'd want something like north carolina (2.5%) not delaware (8.7%).
A unilateral global regime is the only complete solution to prevent capital from fleeing to lower-tax locales (e.g. Cayman Islands).
That said, the same incentives for smaller countries to offer lower tax rates will make them unwilling to agree to a global regime. And a global taxation regime would require a degree of international cooperation that has never been seen.
Janet is laying the groundwork for a potential policy which would take decades if not 100 years to come to fruition. She is extremely smart and intentional about her words, as a leader of the Fed.
It won't be cooperation. Either it will requiring buying off those countries or using coercion which could include anything from tariffs, fees, and penalties, or to even locking them out from access to global banking and assistance.
a global tax lets the countries with irresponsible spending to offload their costs to other countries. pure and simple. it will be packaged as something else entirely but it is no different that what happens internally in many countries between different levels of governments (states,cities, territories,etc)
> capital from fleeing to lower-tax locales (e.g. Cayman Islands)
I don't think the problem is the Cayman Islands, although it's the one people think of.
Instead, take a look at the places that the big multinationals choose to put their overseas revenue through. This side of the Atlantic two high on the list would be Luxembourg and Ireland. Then look at the corporation tax rates in those jurisdictions[0].
you act like capital fleeing to lower-tax locales is a problem? that is what is suppose to happen.
this is just a measure for fiscally irresponsible nations (i.e the US) the are advancing the moronic Magical Monetary Theory err, Modern Monetary Theory a check to ensure global competition for capital does not expose their fraud.
I have an issue with Yellen and it has nothing to do with her policies. It is with her use of online notifications via FinCEN. As annoying as Mnuchin was, he didn't send an update readout of the time he farted in a museum or read a treatise on funding random things. She seems to treat the entire ecosystem as her own personal PR team.
An automatic rainbow unicorn pony supply would solve my rainbow unicorn pony shortfall, but that is also make-believe so never mind. This effort certainly will not accomplish the impossible thing they claim it will accomplish. Simultaneously it will cause a lot of problems for society that will make certain well-placed people even more money than they had before they installed the current government, which is the whole point of the show.
International cooperation is a fine thing, in general.
International cooperation led by USA elected officials is usually a terrible thing, for Americans and also for everyone else. I don't know exactly how we're going to get fucked over by this. Based on previous form, it will likely involve exporting particular pro-corporate folly to other nations who unlike USA previously have avoided those particular follies. Also, since they're not exactly hiding the inherent coercion involved, there will likely be sanctions and stupid wars. After all, those are the answer to literally every problem everywhere, according to USA war media. In addition, it's a good bet there will be special pleading for favored and infamously badly-behaved USA mega-corps like Boeing and Wal-Mart.
If USA politicians actually wanted international standards of corporate taxation, they would copy what works from EU and also from other well-run modern states. Instead they claim to want those other nations to copy our dismal shit system.
This is not necessary. They only have to tax the parent company at 21% and any of it's subsidiaries. If on the other hand a company buys services from its subsidiaries located abroad, then impose a customs tax of 21% for any imports / exports.
I think this is good idea and thinking far into the future. With corporations constantly paying an lower tax rate than individuals and being able to move HQ to countries that offer a bigger tax break is leading to corporate taxes being deferred to the individuals. Prisoner's dilemma. This I hope will break that cycle and corporations can finally pay their fair share of the taxes.
And where does that money go then, corporations are not taking holidays in Caribbean or buying million dollar condos. Who are you actually redistributing the wealth from.
This is a necessary move for USA as it intends to raise tax rates to pay for the Big Spend,
but also
it's a long time coming to get the "global" community aligned on tackling multi-national corporations. Tax evasion and egregious avoidance has been too easy for multi-nationals for too long - and just a few simple measures between "western" countries will make a huge difference.
Add onto this a win for the Trade Unions in Amazon and we might see Picketty get proven wrong and G > R
It is peculiar to me how people view what a company does (accepting mutually consensual payments in return for valuable life-improving products and services) as 'exploitative', while taxes, which are in economic terms what's called rent seeking, happen to be some universal good.
It seems you've managed to get things completely reversed.
That's a strange worldview, corporations are typically seen as adding to the value of a society. They generally become profitable by providing people a better alternative than a competitor.
I as an individual add value to society. I generally become profitable by providing other people a better alternative labor/services than competing humans.
Can I also get zero income tax rate? Can I also get the freedom of movement to move to tax havens and hide my existence and income in a web of different identities?
This is the only way to stop tax evasion and a race to the bottom, with devastating consequences to people to the tune of hundreds of billions of dollars lost per year.
The question is how to do this. The only way I see is unilateral action by the biggest markets: the EU and the US (plus Japan, Australia, NZ, Canada), to say "you cannot access our market if you stash your profits in a tax haven".
It is both. Corporations benefit from the existence of a well-functioning society that gives them invaluable tools to survive and thrive (they wouldn't exist without it). Why should they not contribute anything back?
The company needs a profit margin of x. If you place a tax of y on the company, that margin, simplistically, is now x+y.
The company can increase the prices on its goods by y, which means everyone now pays y more (so, the government is now making the corporation collect the tax). Or it can absorb the cost of the tax, which would hurt it’s operating margin to survive, a small amount maybe could be done, but after a while they simply raise the price and pass y along to the populace.
It is a stealth tax, pure and simple. If you want the more pernicious suggestion, the tax is a poor persons sales tax disguised as populace claptrap to make the electorate like they are sticking it to the big fat cats in corporations.
> The company needs a profit margin of x. If you place a tax of y on the company, that margin, simplistically, is now x+y.
Not really, this only happens for perfectly inelastic goods. We can use the price elasticity of demand and price elasticity of supply to determine what amount of the tax burden will fall on buyers and sellers [1]. We can even show that for perfectly elastic goods, the tax burden will fall entirely on the sellers.
Kinda of, but investor (especially in private companies) absolutely set the level of margin they require from the corporation
the CEO's job is hit that margin with in reason, and if not develop a plan to hit that margin
If the company is unable to hit the target long enough that is when companies shut down, so sure you can say "that is only true with perfectly inelastic goods but you fail to understand that moving your capital to other things is always an option
If a company sells X goods and can only ever get a investor return of 1% on their capital no investor is going to say in that business, they will sell off the company assets and take their investment to greener pastures. Same is true if the investors demand a 8-10% return and are only ever getting 5% on their investment, the will divest from the company and move on
Yes, I agree that there will be pressure on managers from investors, and they will try to recover their margins in several ways, but if they try to recover it from price increases beyond what the tax incidence suggests, their margins should be lower - and not higher, so they are unlikely to do that.
Now, the other effect you suggested is interesting, there are firms that exit the market because the margins are unable to give the returns that investors expect. However, this is factored in the supply curve, particularly in the long-run supply curve, so the microeconomic model still stands.
Well the simple answer is that they do contribute something back. Payroll taxes fund social security, medicare, and federal unemployment insurance. And of course they contribute indirectly by paying wages so that people can buy things and we can have an economy.
I am on the side of people wanting to see corporate tax avoidance stopped. But my first reaction on seeing this headline and reading the article is that if a bunch of businesses got together and decided to set rates, we'd accuse them of collusion and call them a cartel; if they were in the US, we'd all be yelling about antitrust.
IMO, trying to set a global minimum corporate income tax is addressing a symptom. I don't know what the real problem is, but "dang it, they reported their income in Ireland!" is definitely not the whole story.
taxes aren't just a way to raise money for federal and local governments, they are also an elegant way which society has to allocate social hatred.
You need a corporate tax because people hate corporations, a wealth tax is being discussed and on the horizon because people hate the wealthy...and so forth
Everyone here seems really in favor of this move. To me it sounds incredibly imperialistic. Why does the USA get to bully the rest of the world into their tax rates?
We clearly have a problem with multinationals leaving the country and not paying taxes. There are plenty of ways to solve that domestically without calling for some globalist tax regime.
What’s more likely: we end up with a more fair tax system, or a tax system written by the USA that looks like the USA?
One minute they're printing fiat currency like there is no tomorrow saying "we need to 'stimulate' the economy" and then the next minute they're all "we need to take the money back to pay for 'things'". Make up your fucking mind.
I want to believe this is a good idea, but I can't shake the feeling that these people can't be trusted in any way. Yellen herself, for all her experience in economics and monetary policy, wasn't considered suitable for her current position until she had been thoroughly bought.
Some countries are trying to attract foreign companies using low tax rate. In return they get many benefits (look how China had developed). What would be the reason for those countries to loose that advantage and go back to being nothing?
To people saying this will end the race to the bottom. It will never end, when every rate is equal then tax rate would magically stop being important and the important number will be:
1) Odds of tax audits
2) Countries with statutes of limitations
3) Lenght of the legal proceedings so you can get to the aforementioned statutes of limitation
4) Median fines imposed for non-compliance etc.
5) Countries with most bribable tax officials
Human nature can't be solved, tragedy of the commons can't be solved either
how would this be an improvement, you just change the set of people who evade taxes.
From people who pay tax experts millions to study really clever ways of doing transfer pricing and income shifting towards people who study the odds of audit and bribe tax officials
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[ 2.9 ms ] story [ 198 ms ] thread"Ireland's headline 12.5% corporate tax rate — much lower than most industrialized nations — has been key to attracting many multinationals to the country."
I mean it's not called federal global minimum corporate tax rate.
The whole EU is full of chery pickers and the fact that we have tax havens within it is disgusting.
https://en.m.wikipedia.org/wiki/Post-2008_Irish_banking_cris...
Such a policy would generally help small businesses who seek to compete against large multi-nationals, even around the edges.
We are tax subsidizing starbucks while local independent shops die, altough the local independent ones are better and healthier for the local economy.
Small businesses generally are taxed more harshly than large multi nationals.
Setting a global minimum is not going to necessarily restrict governments from offering lower rates to smaller businesses.
This discussion is more about avoiding inefficient market distortions.
Sadly, we’ve seen the entirety of the spectrum already.
You can’t sanction Ireland, without sanctioning the EU, also China and India won’t agree to that, so there goes 80% of the people you trade with.
You don't want to apply the global tax rate? Have fun finding liquidity when every financial institution denies you access.
It worked in reducing socialist countries to poverty, it will work in forcing the hand of fiscal paradises.
Or is economical warfare fine only when it's used against the commies?
[Of course the other EU members aren't entirely pleased with Irish and Dutch corporate tax rates either, but that's a story for another thread]
low corporate taxes have made Ireland a tax heaven, with all the drawbacks you can imagine
Expensive housing, long commutes and stretched public services are making Ireland a less attractive place to live.
And it’s not just younger people who feel aggrieved. People on relatively good incomes, who might have traditionally bought into the status quo, are now priced out and are calling for more radical solutions.
These are only "competitive advantages" because some people high up decided they were legal (and probably gained some personal profit out of it). When starbucks, macdonalds or airbnb pay insanely low taxes in most european countries they're using legal ways to do so, but it doesn't benefits the people, it benefits the corporations.
I personally don't care about the exact percentage of tax we should apply, but we should start by making them pay taxes in the countries the money is made and stop allowing companies to bend the rules so much.
This is like dumping, it's a "competitive advantage" until you decide it's illegal or at least regulated, these things aren't written in stone
And then, of course, there's the really common trick of keepin profits on the books near zero for a corporation to avoid taxes altogether. Would they suddenly be taxing income and not profit?
Taxes is not just a federal thing here.
https://slate.com/business/2012/07/xerox-parc-and-bell-labs-...
> The thing about this is that we ought to understand both PARC and its East Coast friend Bell Labs as in important respects outgrowth of the high marginal tax rates prevailing in postwar America. These were, lets recall, very high rates.
Never mind the international angle, what about the US states and localities offering business tax incentives to attract corporations?
> Delaware doesn’t tax “intangible assets,” and this encourages companies to move parts of their business to Delaware to avoid taxes in other states. This has led to Delaware being labeled a “tax haven.”
See also: https://www.investopedia.com/articles/personal-finance/09251...
Company transfers intangible asset to subsidiary in Delaware, "trademark or naming rights"[0], its locations elsewhere pay the Delaware subsidiary for the use of those rights, lowering their profits(?), and the Delaware subsidiary doesn't have to pay tax on that income and resulting profit?
[0] https://www.theatlantic.com/business/archive/2016/10/dont-bl...
[1] https://taxfoundation.org/state-corporate-income-tax-rates-b...
https://udel.edu/~pollack/Downloaded%20SDP%20articles,%20etc...
> if delaware had a low corporate tax rate
Hard to set the corporation tax rate (for income on intangible assets) any lower than zero.
It would allow income taxes to be commensurately reduced if multinational corporations get taxed more.
If you own a ton of shares in multinationals this would not be good for you but it would be for everyone else.
Cayman Islands can live on the incorporation fees alone.
That said, the same incentives for smaller countries to offer lower tax rates will make them unwilling to agree to a global regime. And a global taxation regime would require a degree of international cooperation that has never been seen.
Janet is laying the groundwork for a potential policy which would take decades if not 100 years to come to fruition. She is extremely smart and intentional about her words, as a leader of the Fed.
a global tax lets the countries with irresponsible spending to offload their costs to other countries. pure and simple. it will be packaged as something else entirely but it is no different that what happens internally in many countries between different levels of governments (states,cities, territories,etc)
I don't think the problem is the Cayman Islands, although it's the one people think of.
Instead, take a look at the places that the big multinationals choose to put their overseas revenue through. This side of the Atlantic two high on the list would be Luxembourg and Ireland. Then look at the corporation tax rates in those jurisdictions[0].
[0] https://ec.europa.eu/jrc/sites/jrcsh/files/jrc104157.pdf
this is just a measure for fiscally irresponsible nations (i.e the US) the are advancing the moronic Magical Monetary Theory err, Modern Monetary Theory a check to ensure global competition for capital does not expose their fraud.
Of course, that is stupid. That loophole is what happens now, and the point of such a treaty would be tariffs or sanctions against non signatories.
International cooperation led by USA elected officials is usually a terrible thing, for Americans and also for everyone else. I don't know exactly how we're going to get fucked over by this. Based on previous form, it will likely involve exporting particular pro-corporate folly to other nations who unlike USA previously have avoided those particular follies. Also, since they're not exactly hiding the inherent coercion involved, there will likely be sanctions and stupid wars. After all, those are the answer to literally every problem everywhere, according to USA war media. In addition, it's a good bet there will be special pleading for favored and infamously badly-behaved USA mega-corps like Boeing and Wal-Mart.
If USA politicians actually wanted international standards of corporate taxation, they would copy what works from EU and also from other well-run modern states. Instead they claim to want those other nations to copy our dismal shit system.
This is a necessary move for USA as it intends to raise tax rates to pay for the Big Spend,
but also
it's a long time coming to get the "global" community aligned on tackling multi-national corporations. Tax evasion and egregious avoidance has been too easy for multi-nationals for too long - and just a few simple measures between "western" countries will make a huge difference.
Add onto this a win for the Trade Unions in Amazon and we might see Picketty get proven wrong and G > R
Corporations don't pay taxes. Their customers pay taxes. She knows that. So we can only assume this is an attempt to curb consumption.
Let people flourish in peace. We need liberty to grow as individuals. Otherwise, we're going to end up having only crony corporations and statism.
And the state has democratic control and oversight (ideally at least, much to be improved). Corporations are completely unaccountable.
It seems you've managed to get things completely reversed.
Can I also get zero income tax rate? Can I also get the freedom of movement to move to tax havens and hide my existence and income in a web of different identities?
The question is how to do this. The only way I see is unilateral action by the biggest markets: the EU and the US (plus Japan, Australia, NZ, Canada), to say "you cannot access our market if you stash your profits in a tax haven".
The EU can’t even agree amongst themselves.
It get's harder as scale goes up. Not easier.
>Most economists concluded long ago that it is among the least efficient and least defensible taxes.
https://www.econlib.org/library/Enc/CorporateTaxation.html
We can't have nice things because too many people see economics as a moral issue and not a math problem.
The company needs a profit margin of x. If you place a tax of y on the company, that margin, simplistically, is now x+y.
The company can increase the prices on its goods by y, which means everyone now pays y more (so, the government is now making the corporation collect the tax). Or it can absorb the cost of the tax, which would hurt it’s operating margin to survive, a small amount maybe could be done, but after a while they simply raise the price and pass y along to the populace.
It is a stealth tax, pure and simple. If you want the more pernicious suggestion, the tax is a poor persons sales tax disguised as populace claptrap to make the electorate like they are sticking it to the big fat cats in corporations.
Not really, this only happens for perfectly inelastic goods. We can use the price elasticity of demand and price elasticity of supply to determine what amount of the tax burden will fall on buyers and sellers [1]. We can even show that for perfectly elastic goods, the tax burden will fall entirely on the sellers.
[1] https://en.wikipedia.org/wiki/Tax_incidence
the CEO's job is hit that margin with in reason, and if not develop a plan to hit that margin
If the company is unable to hit the target long enough that is when companies shut down, so sure you can say "that is only true with perfectly inelastic goods but you fail to understand that moving your capital to other things is always an option
If a company sells X goods and can only ever get a investor return of 1% on their capital no investor is going to say in that business, they will sell off the company assets and take their investment to greener pastures. Same is true if the investors demand a 8-10% return and are only ever getting 5% on their investment, the will divest from the company and move on
Now, the other effect you suggested is interesting, there are firms that exit the market because the margins are unable to give the returns that investors expect. However, this is factored in the supply curve, particularly in the long-run supply curve, so the microeconomic model still stands.
I am on the side of people wanting to see corporate tax avoidance stopped. But my first reaction on seeing this headline and reading the article is that if a bunch of businesses got together and decided to set rates, we'd accuse them of collusion and call them a cartel; if they were in the US, we'd all be yelling about antitrust.
IMO, trying to set a global minimum corporate income tax is addressing a symptom. I don't know what the real problem is, but "dang it, they reported their income in Ireland!" is definitely not the whole story.
You need a corporate tax because people hate corporations, a wealth tax is being discussed and on the horizon because people hate the wealthy...and so forth
We clearly have a problem with multinationals leaving the country and not paying taxes. There are plenty of ways to solve that domestically without calling for some globalist tax regime.
What’s more likely: we end up with a more fair tax system, or a tax system written by the USA that looks like the USA?
https://www.forbes.com/sites/joewalsh/2021/01/01/yellen-earn...
1) Odds of tax audits
2) Countries with statutes of limitations
3) Lenght of the legal proceedings so you can get to the aforementioned statutes of limitation
4) Median fines imposed for non-compliance etc.
5) Countries with most bribable tax officials
Human nature can't be solved, tragedy of the commons can't be solved either
From people who pay tax experts millions to study really clever ways of doing transfer pricing and income shifting towards people who study the odds of audit and bribe tax officials