Stiglitz on globalization: the MNEs bought the law they wanted; it’s time to take it back
by Linda Beale
Stiglitz on globalization: the MNEs bought the law they wanted; it’s time to take it back
Joseph Stiglitz has a new read-worthy article. Globalization isn’t just about profits; it’s about taxes, too, The Guardian (May 27, 2013).
As he notes towards the conclusion of the piece, the big MNEs aren’t simply “applying the law as they find it” in order to minimize their taxes legally. They were instrumental in making the law what it is today.
To say that Apple or Google simply took advantage of the current system is to let them off the hook too easily: the system didn’t just come into being on its own. It was shaped from the start by lobbyists from large multinationals.
So what hope is there to fix the mess? First, Stiglitz reminds us of the way American MNEs avoid paying taxes to support the very public goods that made their riches possible.
It’s no surprise that a company with the resources and ingenuity of Apple would do what it could to avoid paying as much tax as it could within the law. While the supreme court, in its Citizens United case seems to have said that corporations are people, with all the rights attendant thereto, this legal fiction didn’t endow corporations with a sense of moral responsibility; and they have the Plastic Man capacity to be everywhere and nowhere at the same time – to be everywhere when it comes to selling their products, and nowhere when it comes to reporting the profits derived from those sales.
Apple, like Google, has benefited enormously from what the US and other western governments provide: highly educated workers trained in universities that are supported both directly by government and indirectly (through generous charitable deductions). The basic research on which their products rest was paid for by taxpayer-supported developments – the internet, without which they couldn’t exist. Their prosperity depends in part on our legal system – including strong enforcement of intellectual property rights; they asked (and got) government to force countries around the world to adopt our standards, in some cases, at great costs to the lives and development of those in emerging markets and developing countries. Yes, they brought genius and organisational skills, for which they justly receive kudos. But while Newton was at least modest enough to note that he stood on the shoulders of giants, these titans of industry have no compunction about being free riders, taking generously from the benefits afforded by our system, but not willing to contribute commensurately. …
It is not even true that higher corporate tax rates would necessarily significantly decrease investment. As Apple has shown, it can finance anything it wants to with debt – including paying dividends, another ploy to avoid paying their fair share of taxes. But interest payments are tax deductible – which means that to the extent that investment is debt-financed, the cost of capital and returns are both changed commensurately, with no adverse effect on investment.
Then he goes on to discuss what globalization really means and why it is time for the international community to band together to exact reasonable taxes from these global enterprises who use us to make profits but desert us when it comes to supporting continuing innovation.
It is time the international community faced the reality: we have an unmanageable, unfair, distortionary global tax regime. It is a tax system that is pivotal in creating the increasing inequality that marks most advanced countries today – with America standing out in the forefront and the UK not far behind. It is the starving of the public sector which has been pivotal in America no longer being the land of opportunity – with a child’s life prospects more dependent on the income and education of its parents than in other advanced countries.
Globalisation has made us increasingly interdependent. These international corporations are the big beneficiaries of globalisation – it is not, for instance, the average American worker and those in many other countries, who, partly under the pressure from globalisation, has seen his income fully adjusted for inflation, including the lowering of prices that globalisation has brought about, fall year after year, to the point where a fulltime male worker in the US has an income lower than four decades ago. Our multinationals have learned how to exploit globalisation in every sense of the term – including exploiting the tax loopholes that allow them to evade their global social responsibilities.
He has some specific suggestions about how to undo the mess that the MNEs’ successful lobbying has gotten us into. He suggests two actions that could work:
- The US could lead the way with a “global minimum tax regime” in which a corporation would be taxed on its net worldwide profits (treating corporate profits taxes paid to other regimes as a deduction, up to some cap) at a rate of about 30%; and
- Countries would cooperate to deal with tax havens.
We’ve already begun to see some of Step 2 as the US stepped up its attempts to identify US taxpayers with hidden offshore bank accounts, leading to a crackdown in Europe as well and the first signs that banking secrecy jurisdictions like Switzerland will open up to information sharing practices. We need to continue to work on those tax havens–Singapore, Caymans, Bermuda, Ireland, Netherlands–and the rules they have in place that make it possible for Apple to claim stateless income (to use Ed Kleinbard’s term).
Step 1 will be much harder in this political climate. Most of the radical right is intent on cutting taxes, in the ‘starve the beast’ mode of thinking that got us to debt ceiling fights, sequesters, pushes to “curb” earned benefits like Social Security and Medicare. Legislators are particularly prone to listen to well-heeled corporate lobbyists who argue that if they would just reduce taxes on big corporations, all the tax avoidance gimmickry would go away. That’s pretty clearly not so–tax cuts just lead to demands for more tax cuts, as the “one time” repatriation provision in 2004 clearly demonstrated. Max Baucus is also one of the “cut rates/broaden base” crowd that will pretend that the broadened base won’t be shrunk again within a year or two even while rates go lower and lower. Dave Camp belongs in that camp as well. So getting Congress to consider deeply the possibility of a global minimum corporate tax regime won’t be easy. But hey, nothing is these days, so let’s get started. Letter campaign, anyone?
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