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The Bit That Alex Cobham Misses

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All this glorious stuff about changing the international tax rules. Hmm, so, as Alex Cobham says:

Where once these corporations were a more efficient form for international economic activity, now much of their advantages stem from being able to pay lower tax than domestic competitors.

OK, so, having to pay corporate tax makes a corporation less efficient. This must be true otherwise those who do not pay would not have an advantage over those who do.

Campaigners including my organisation, the Tax Justice Network, are proposing a minimum effective tax rate (METR). This would take the same undertaxed profit currently shifted into low/no-tax jurisdictions, but apportion it simply to the places where the multinationals’ real economic activity – such as sales and employment – takes place, with no bias towards headquarters countries. In the METR system, those profits are taxed at the prevailing statutory rate in the country they’ve been apportioned to – which can be significantly higher than 15%. This would deliver additional revenues overall, and the distribution would be much fairer globally.

With a 15% rate, our proposal would raise around $460bn, versus $275bn in the OECD approach.

So, why do we want to hamstring the efficiency of corporations by that extra $185 billion? Or by the $460 billion, the $275 billion or even by applying corporate taxation at all?

Why are we supposed to praise making the world poorer by making producers less efficient?

Why not instead raise our necessary tax revenues from things that do less damage? They did award a Nobel for optimal tax theory after all – could be useful to follow the precepts, and taxing the normal profits of corporations isn’t a part of it.

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  1. Twill be interesting to see how the various parties sort out who should get the biggest share of the loot.

    I seem to remember the Brits and the Yanks squabbling over this sort of thing about a century ago.
    Something about rubber if I’m correct.

  2. It, the METR brain lapse, is more insidious than first appearance. Because of governments’ propensity to solve any and all tax problems through leveling up there will result a “race to the top” where the only solution to a discrepancy is for one of the parties to raise corporate taxes. Over and over again, without end in sight.

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