June 19, 2024

Economix: Tax Havens and Treasure Hunts

Today's Economist

Nancy Folbre is an economics professor at the University of Massachusetts Amherst.

Our budget deficit would be smaller – and pressure to cut social programs lower – if corporate tax revenues had not declined over time relative to gross domestic product and relative to individual income tax revenues.

Center for Budget and Policy Priorities

Corporate America is a world leader in creative tax minimization. As David Kocieniewski reported in The New York Times, General Electric used some particularly innovative strategies to take advantage of overseas tax havens, including “offshore profit-shifting.”

The Boeing Corporation, a major federal contractor, has had a net rebate in federal taxes over the last three years, and a total tax rate of 4.5 percent over the last five years, though the company points to pension contributions and research credits that have reduced the bill.

In 2008, the Government Accountability Office reported that 83 of the 100 largest publicly traded corporations in the United States had subsidiaries in jurisdictions listed as tax havens; it cautiously emphasized that this did not prove that their decisions to locate there were motivated by tax minimization.

The British journalist Nicholas Shaxson takes a bolder and more aggressive swipe at the issue in a new book, “Treasure Islands,” arguing that the globalization of tax evasion is undermining fiscal and economic stability in developed and developing nations alike.

Mr. Shaxson provides a fascinating narrative that is both analytically compelling and rich in institutional detail. A section of the book’s Web site provides both a concise summary and a specific rebuttal of many assertions of offshoring cheerleaders.

While business destinations like Bermuda and the Jersey Islands play a colorful role in his story, Mr. Shaxson emphasizes the larger lack of transparency and accountability, characterizing both the United States and Britain as major tax havens.

He also outlines specific solutions, including international tax treaties. Some countries have adopted a poetically named General Anti-Avoidance Principle, which closes tax loopholes by stipulating that any act contrary to the spirit of the nation’s tax laws is illegal.

Here in the United States, the public interest group Citizens for Tax Justice proposes specific policy measures that could increase corporate tax revenue without encouraging corporations to shift profits or jobs abroad.

Publicity around these issues has generated a grassroots effort to publicly embarrass corporate tax avoiders. The organization UK Uncut mobilizes protesters by calling attention to cuts in public services that could easily be averted by improved corporate tax enforcement. Similar efforts are getting under way in the United States.

Some economists champion tax havens. In an article in the Journal of Economic Perspectives published last fall (also titled “Treasure Islands”), James R. Hines Jr. of the University of Michigan argued that they contribute to financial market competition, encourage investment in high-tax countries and promote economic growth.

Like many economists, Professor Hines expresses far more confidence in the market than in the state. He worries more about possible overtaxation than about undertaxation of corporate income. He does not engage with such concepts as “tax justice.”

The most vivid character in Robert Louis Stevenson’s beloved adventure story “Treasure Island” was the one-legged sailor Long John Silver. He never described himself and his colleagues as pirates. No, they were “gentlemen of fortune.”

Article source: http://feeds.nytimes.com/click.phdo?i=a53d6d6fab8b9f4777da3217289378c0

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