Taxes

International Attempts to Raise Corporate Taxes Hurt Everybody

Corporations provide an easy political target for tax-hungry politicians, but the burden of corporate taxes falls on ordinary citizens.

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Money
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If Greece's ongoing fiscal quagmire demonstrates anything, it's that Europe's largest welfare states live in denial. Even as the bills from decades of profligate spending came due, Greeks took to the streets, not to demand a new path but to insist on continuing the status quo. Even their European creditors, in calling for tax hikes instead of strictly pro-growth reforms, would perpetuate the tax-and-spend cycle. It thus comes as no surprise that these same nations are leading the charge through the Organisation for Economic Co-operation and Development to raise corporate tax rates globally.

This isn't the first effort by the OECD to undermine tax competition and coerce low-tax nations to change their tax policies for the benefit of irresponsible high-tax nations. Since 1998, acting on behalf of European high-tax nations, the OECD has sought to prop up bad tax policy and create an international tax cartel, largely with an indirect form of tax harmonization made possible by destroying financial privacy laws.

Now the OECD is targeting multinationals and has launched a new scheme to boost tax burdens on business. The underlying assumption behind the base erosion and profit shifting, or BEPS, project is that governments aren't seizing enough revenue from multinational companies. The OECD makes the case, as it did with individuals, that it is illegitimate for businesses to legally shift economic activity to jurisdictions that have more favorable tax laws.

Its solution is to force those companies that wisely structured their operations to benefit from low-tax jurisdictions to declare more income in high-tax nations. In other words, they want to harmonize rules and ensure that corporations pay the same regardless of where they choose to locate their business activities.

The expected outcome of BEPS is a higher overall tax burden on economic producers. The OECD insists the project is necessary because nations aren't collecting what they need under the current competitive system, yet its own reports acknowledge that corporate tax collection hasn't declined as a percentage of its members' gross domestic products over the long run.

Besides, corporate taxes rank among the most destructive to economic growth, making the OECD's efforts largely self-defeating. Removing the ability of companies to mitigate the damage of ill-conceived taxes will only enhance their destructive power. Far from filling government coffers in order to continue funding massive redistributive welfare regimes, BEPS will strangle global economic output and erode tax bases even further.

Reducing the size of bloated governments would be a better idea, but as with both Greece and its creditors, the obvious eludes the OECD.

Sadly, the OECD is also rolling out information collection systems that could make the National Security Agency blush. So-called country-by-country reporting will require companies to hand over far more information than they currently release, including proprietary data related to their competitive positions. As any current or former federal employee can attest, there's almost no chance this information can be kept confidential and out of the hands of competitors or hackers.

It's also hard to take seriously OECD claims that reported information will be used only to observe trends and assess where there is the greatest risk of tax evasion. The far likelier outcome is that it provides a blueprint for squeezing more tax dollars from corporations, particularly U.S.-owned businesses that reinvest offshore to avoid the excessive 35 percent tax rate they would face if they brought earnings back to the United States.

Corporations provide an easy political target for tax-hungry politicians, but the burden of corporate taxes falls on ordinary citizens. Employees, shareholders, and investors will bear the brunt of the OECD's corporate tax grab, all because European politicians refuse to accept responsibility for building bigger governments than their economies can sustain.

© Copyright 2015 by Creators Syndicate Inc.

NEXT: No, American Taxpayers Shouldn't 'Compensate' Israel for the Iran Deal

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  1. Since the US has some of the highest corporate taxes in the world, this perhaps shouldn’t bee a concern for us in practice. Ironically, as in other economic areas, the US is far more progressive than many of the supposedly progressive nations of Europe.

    1. I’ve been working in finance for the past 3 years, and I assure you that I have never seen a business pay the full 35% federal tax rate. Ever.

      I’m not saying that corporate taxes should be higher. I’m just saying that on average, I see most corporations pay around 15% to 20% of their pre-tax profit to the federal government.

      There are plenty of ways to get around paying the full federal tax rate…

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  3. I wonder how the US got the OECD to carry this water for them. The US has been busy trying to make everyone pay taxes in the US without regard to where it was earned. (If you are a slave at home, you are a slave everywhere you know.)

    This will help provide a tracking database to make it easier for the IRS to track down runaway slaves (individual and corporate) and give the OECD the opportunity to copy the “success” of the IRS in tracking their own runaways.

    1. I like how you think.

  4. It’s a horrible idea in practice that plays well to the economically illiterate. Therefore, it is a lock to pass.

  5. Whenever anybody argues for spending more money on welfare programs, you simply have to point out that the U.S. government easily spends $900 billion dollars annually on anti-poverty programs at the local, state, and federal levels not including Medicare, Social Security, and unemployment benefits.

    Dividing $900 billion by the poorest 20% of the population (64 million), comes out to just over $14,000 per person. For a family of three, that is $42,000 per year not including Medicare, Social Security, and unemployment benefits. Poverty should theoretically be nonexistent in the U.S. Clearly, if someone wants a social safety net, the problem isn’t spending enough money. It’s how it is spent.

    It’s even crazier if you consider spending on Social Security, which was $850 billion recently. If Social Security and anti-poverty spending were divided among the poorest 33.3% of the population (107 million), that would come out to over $16,300 per person, or just under $49,000 for a family of three in the poorest 33.3%. This isn’t including Medicare and unemployment benefits. Again, anybody who says the U.S. needs to spend more on anti-poverty initiatives is crazy.

    1. Do your numbers exclude/include EITC?

      1. I think they do. However, the figure from Cato a couple years ago was well over $900 billion for anti-poverty spending. It was maybe around $950 billion, so going down to $900 billion allows for a pretty good amount of wiggle room.

    2. Well the Federal Reserve has spent about $13 trillion over the last few years propping up and manipulating asset prices – which primarily affects the richest 5% or less.

      Maybe if libertarians paid a tad bit more attention to exposing and trying to get rid of THAT sort of reverse-Robin-Hood bullshit; then ‘regular folks’ (those whose primary ‘asset’ is their own labor or shelter) might see that libertarians aren’t just tools.

      Otherwise, libertarians (bash the poor because they’re poor) look pretty much like Republicans (bash foreigners because they’re foreigners) or Democrats (bash the rich because they’re rich) – just a bunch of political hacks trying to emotionally fear-monger an issue rather than actually deal with anything rationally.

      1. Career politicians from both parties are the 1%, if you think they are willingly going to slaughter the cash cow to in any way help poor or the middle class, you’ve got another thing coming. Lies.

      2. Libertarians are a powerful bunch. WTF? Libertarians are about the most powerless group of ingrates on the planet. They don’t even talk armed insurrection. They just advocate for being armed.

        1. Yes well perhaps that is because the reverse Robin Hood soundbites that many libertarians seem to advocate as primary policy goals sound so – obscene

    3. By the US government’s own accounting, about half the money spend on social programs is waste and fraud.
      Given our government pattern of minimizing bad news and out-right lying, you know it’s far more.

  6. There is a huge need for corporate tax reform – but the last item on the list should be the marginal rate nonsense.

    Why is debt favored over equity – apart from the cronyist Fed/banking crap?
    Why isn’t there any actual discussion of ‘franking’ or somesuch to avoid the double-taxation of dividends?
    Should profits/rent from cronyist privileges – or govt-granted cartels – or govt contracts – be taxed at a different rate than profits earned in a competitive free market?

    1. You’re trying to bring logic to a logic-free ‘discussion.’

  7. I don’t get it. What does this have to do with Trump’s college rape?

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  9. Either you own your business, or you don’t.
    If you take the risks, you should reap the profits.
    It is far more illegitimate that governments share the profits, while taking no risk.

  10. I’m trying to figure out how a taxable dollar isn’t a fungible item?
    If a tax dollar doesn’t come from a corporation it comes from individuals. If it does come from a corporation they got it from individuals. Either way, if some government wants a dollar, where they got doesn’t matter. It all starts with me giving up a dollar either directly or indirectly. It also means the corporation doesn’t have that dollar either from lost revenue or lost retained earnings. Either way, that dollar isn’t there. There’s no advantage to corporations with a more direct tax scheme except as it may fall on the other corp’s customers instead of theirs.
    The only way it makes any difference is if some corporations cannot pass on tax increases in the form of price increases. It also means that where prices are elastic the individual may not ultimately pay the tax. And that’s what isn’t easily discerned by reading this article; why corporations that say “people pay taxes, not corporations” with one side of their mouth, scream about increased taxes with the other side. It’s not always like they say.

  11. They need the money.

  12. The current tax system incentivizes countries to lower taxes to
    attract businesses away from other countries. The result is to
    increase economic equality. By changing the system we can end that
    dynamic.

    We can also stop large companies from passing taxes along to customers
    by charging tax on a sliding scale.

    http://blogs.reuters.com/great…..g-to-fail/

  13. The current tax system incentivizes countries to lower taxes to
    attract businesses away from other countries. The result is to
    increase economic equality. By changing the system we can end that
    dynamic.

    We can also stop large companies from passing taxes along to customers
    by charging tax on a sliding scale.

    http://blogs.reuters.com/great…..g-to-fail/

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