Clausing, Saez and Zucman on corporation tax

There’s a new paper out from Kimberley Clausing, Emmanuel Saez and Gabriel Zucman on the corporation tax. It’s a quite lovely example of entirely missing the point.

Ending Corporate Tax Avoidance and Tax Competition: A Plan to Collect the Tax Deficit of Multinationals

A tax deficit is some amount of tax payment less than the trio think should be squeezed out of a company. The plan is that each country tax the profits of companies based in their jurisdiction. If business done elsewhere by that company charges less then the HQ company should be charged the difference. The difference between that home tax rate and that other, lower taxing, one.

This is akin to the British tax system up to just a few years ago. As and when profits were brought back to pay to investors as a dividend and the like UK corporate income tax was charged upon said profits minus whatever foreign tax had already been paid. The same was true of the American system. So it’s not entirely a radical suggestion.

However, what it is as a suggestion is remarkable in its ability to miss the point. They complain that the modern world has increased tax competition. This has lowered the rate of tax that corporations are forced to pay. They wish to reverse this while missing that this is rather the point.

Economically speaking corporate taxation - except that of resource rents - is a bad idea. It’s a tax upon investment and we like investment because it makes the future world richer. As we know we get less of what we tax so taxing corporations makes that future poorer - less investment.

Taxing corporations is politically most convenient. For everyone thinks yep, the company is paying. Yet we know this isn’t so - each and every tax empties the pockets of some live individual. Finding which one is known as the study of tax incidence. Corporate taxation could hit either the investors or perhaps the workers in that taxing jurisdiction. As is turns out, the smaller and poorer the economy the more it hits the workers and the less the capitalists.

Their demand is therefore that taxation should rise upon the poorer workers in the developing countries. This is not a good idea and thus the joy with which the sensible - or perhaps just aware - among us have regarded tax competition and the lowering of corporate taxation rates.

Recent years have seen corporate taxation rates fall which is a good thing. This paper debates who to raise those rates again - which is rather missing the point, isn’t it? That the competition and the lower rates are a good thing in themselves.