From the way Washington politicians in both parties tell it, you may well think that multinational companies favor low-tax jurisdictions when investing overseas. They don't.The idiocy of American political partisanship has not only crushed that country with a Lesser Depression, it has wrecked the world economy. Somehow common sense, pragmatism, collegiality, and reasoned discourse needs to be knocked into the heads of the politicians in Washingon. (I don't want to create the idea of a false equivalence. About 90% of the idiocy is in the ranks of Republican ideologues and 10% in the ranks of Democratic ideologues.)
The multinationals prefer investing in high-tax jurisdictions because it so happens that is where they can earn the highest returns.
Multinational companies then reduce or eliminate those seemingly high taxes by using simple, widely used devices to take profits in low-tax and no-tax jurisdictions.
Such practices create "stateless income," in the words of Edward Kleinbard, whose new scholarship on corporate taxation deserves our attention.
As defined by Kleinbard, stateless income means profits earned in a country other than where the firm is headquartered and subject to tax only in a third country which imposes little or no tax.
Kleinbard shows why stateless income is the most serious threat to the corporate tax base even as Washington politicians blather on about less important corporate tax issues that their remarks show they do not understand.
Ignoring the reality of tax erodes the tax base, distorts economic decisions and through shortsighted policy enriches the few at the expense of the many.
That corporations prefer investing overseas in high tax countries may seem to defy common sense. But much of tax is counterintuitive and requires careful study of a kind that was once much more common on Capitol Hill. Sadly, as partisanship has grown along with reliance on campaign donors, serious thinking about taxes has been supplanted by ideological marketing that has more in common with advertising than serious policy debates.
Since tax is the largest economic activity in the world, it is crucial that we base our policies on facts, not fantasies, if civilization is to endure. Get tax wrong and the damage diminishes markets, distorts investments, destroys private wealth and endangers social stability.
Wednesday, October 5, 2011
Thinking Seriously About Taxes
Here are some bits from a good article by David published by Reuters: