Search Results for : international tax

International Tax Competition and Coordination

The Max Planck Institute for Tax Law and Public Finance has the working paper International Tax Competition and Coordination.

This paper aims to provide a comprehensive survey of the theory of international tax competition. Starting with the standard framework, it visits the non-cooperative equilibrium of tax competition, analyses aspects of partial and regional coordination, repeated interaction, stock-flow-effects, agglomeration effects and time consistency issues in dynamic models. We discuss profit shifting in the Keen-Kanbur model an d then survey frameworks to analyze countries’ bidding for firms, tax rate differentiat ion and preferential tax regimes, the role of information exchange and recent work on tax havens. The paper also discusses approaches that replace the benevolent government assumption b y selfish (Leviathan) governments or by political processes that determine countries’ decis ions on their tax policy in an international context.

I have just started to read this paper. What got me interested was the knowledge of one of the truths mentioned near the beginning of the paper.

It is over the last two decades or so, however, that increased economic integration has made international considerations a central component of tax policy making around the world. Like it or not, national tax policy makers are involved in a game with one another. This class of games is what is meant here by “international tax competition,” and it is the aim of this chapter to take stock of what is known of this game, the outcomes it may lead to, and the ways in which it might be beneficially reshaped.

If you are not a policy wonk, you are probably unaware of this issue, let alone how important it is to how we are governed and taxed. I suspect George W. Bush was told how important this is so that he would pull us out of coordination talks as soon as he came into office. Coordination would have ended the games companies play.

Is A Wealth Tax Practical?

It makes sense to discuss whether a national wealth tax will be able to accomplish its goal. Andrew Yang is worried that there will be a flight of wealthy people out of the USA if a wealth tax is implemented.

YouTube has the video Panel: Yang vs Warren on Wealth Tax.

Sophia Loren and Carlo Ponti may be the most famous example of people who fled their country, Italy, and did not dare to return because of the wealth tax they refused to pay. Forbes has the article Sophia Loren Jailed In 1974 Tax Evasion, Finally Wins Case to catch you up on the details if you don;t know this story.

On the controversy over whether a wealth tax would drive wealthy people out of the USA, there is an important element missing from the discussion. It is not true that there is nothing that can be done about the possibility of the flight of wealthy people. There has been international cooperation among countries to come to agreement on synchronizing tax policy to prevent flight to tax havens. True that George Bush took us out of those discussions, but those discussions can be restarted by a new administration. The candidates ought to address this issue before they lose the debate on Yang’s false premise that nothing can be done.

The wealth tax is just one example of the need for international cooperatioin in solving the problem of wealth and income inequality. This issue is just one of many issues that could stand a good dose of international cooperation. We need a President that can help lead the world into an era of international cooperation. We also need a person to lead us who knows when to stand up for the sovereignty of the USA. Unlike Bill Clinton and Barack Obama who were willing to cede our sovereignty to get trade deals the multinational corporations wanted.

See the conservative National Review article Don’t Overstate the TPP’s Infringement on American Sovereignty.

The expansion of trade agreements into new policy areas has been controversial, but it is now firmly entrenched. Labor, the environment, intellectual property, and other policies have all become core parts of trade deals. As with tariff commitments, these rules are enforceable, which means that if one country believes another is not complying with its obligations, it can bring a complaint.

The loss of sovereignty in such instances is greater than that inherent in tariff commitments, as it affects domestic policymaking more broadly. We need to be careful, however, not to exaggerate the scope of the power of trade agreements and their accompanying institutions.

Of course, this loss of sovereignty is much more severe than this article admits to. I just couldn’t quickly find an article that gave examples of the harm this sort of agreement has already done.

Upon further search, I did find an article. This isn’t the specific example I was thinking of, but perhaps it will do. See the article in The Dreaded New York Times First a Gold Rush, Then the Lawyers.

But when the government of El Salvador, facing mounting public concern over the consequences of mining, failed to grant the company the final permit it needed, Pacific Rim sought to extract a different kind of green: $77 million from the nation’s treasury as compensation for lost profits.

Pacific Rim is suing the Salvadoran government in an international investment court, one of scores of cases in recent years in which frustrated oil, gas and mining investors, using provisions of trade agreements, have sought to recoup losses from mostly developing countries.

Here is an example where cooperation among countries can make things worse. However, if countries cooperate on progressive ideas, I believe they can make things better. It all depends on what the citizens of these countries will allow their governments to do. Participating in politics cannot begin and end at the ballot box. Political vigilance is a full-time necessity.

Sanders and Varoufakis Announce Alliance to Craft ‘Common Blueprint for an International New Deal’

Common Dreams has the article Sanders and Varoufakis Announce Alliance to Craft ‘Common Blueprint for an International New Deal’.

After arguing in a pair of Guardian op-eds last month that a worldwide progressive movement is needed to counter the unifying rightwing “that sprang out of the cesspool of financialized capitalism,” former Greek Finance Minister Yanis Varoufakis announced in Rome on Friday that he and Sen. Bernie Sanders (I-Vt.) plan to officially launch “Progressives International” in the senator’s state on Nov. 30.

This is a very hopeful sign. As the oligarchs frequently point out that if a single country tightens the rules, then international capital will just move to a country where there are friendlier rules (meaning no rules). Only a fairly uniform international set of rules can solve that problem the oligarchs rightfully warn us about.

I have previous posts that talk about how such international cooperation was under way until George W. Bush put a stop to it. See International Tax Competition and Coordination.

Here is a search for all the posts where I may have touched on the subject – Search results for “international tax”

The Bank of International Settlement’s Claudio Borio, Who Warned About the Crisis, Says the World Economy Is About to Get Very Sick

Naked Capitalism has the article The Bank of International Settlement’s Claudio Borio, Who Warned About the Crisis, Says the World Economy Is About to Get Very Sick.

In addition to the inefficiencies brought about by growing inequality, fiscal policy has tended to be biased toward “trickle-down economics” in which the benefits of government spending/taxation decisions “trickle down” to the population as a means of stimulating employment and income gains, as opposed to focusing directly on programs that cover “labor gaps” through direct employment programs such as the Job Guarantee(JG). The virtue of the JG, as the economist Hyman Minsky argued, is that “instead of the demand for low wage workers trickling down from the demand for the high wage workers, [policy orientation] should result in increments of demand for present high wage workers ‘bubbling up’ from the demand for low wage workers.” This can be better achieved via the JG, than, say, tax cuts.

Monetary policy is the wrong tool to use when consumer demand is insufficient. John Maynard Keynes explained that all to the world in the 1930s. It is still true, no matter what monetarists try to fool you with. Tax-cuts and zero (or negative) interest rates are all tools from the monetary toolbox. Fiscal stimulus by government requires spending by government. Collecting less taxes is not the same as fiscal stimulus just as pushing on a string is not as effective as pulling on a string.

20 U.S. companies that paid 0% in taxes

Yahoo has the story 20 U.S. companies that paid 0% in taxes.

It is amazing that these people can see the problem, but pretend not to see the obvious solution.

There needs to be international coordination of tax laws. There are countries that don’t want to play along, and want to offer low taxes for a fee that is large enough to support the small population. The rest of the international community can decide how they want to deal with those countries. No trade agreements or special tariffs for those countries might be some ideas.

It was George W that put a stop to the efforts at coordination. I don’t know if those efforts have been restarted.

For those people who think lowering taxes will increase business investment enough to make a difference, I have to ask “What part of no freakin’ customers do you not understand?” If there are not enough customers to buy stuff, why would any company want to invest in producing more stuff?

The good you do for the dollar when you pay your taxes

PBS is starting to mention MMT.  See the article The good you do for the dollar when you pay your taxes.

Have you ever wondered why the U.S. dollar has value?

It is not because of the gold in Fort Knox. There used to be gold behind the dollar, but not now. President Richard Nixon cut the last ties in 1971, effectively ending the foundation of the Bretton Woods international monetary system.

Rather, the ultimate reason that the U.S. dollar has value, at least in the opinion of some economists, and in my own, is that no one likes being in jail. And dollars are a get-out-of-jail-free card.

April 15, when Uncle Sam collects taxes on our incomes, is right around the corner. We must pay those taxes in dollars, and there are penalties for not paying them, which can include time in prison.

As a proponent of MMT, myself, I should be overjoyed at this.  Ironically, PBS picks the one part of MMT that I think is overplayed.  It is not that there isn’t some truth in this part of MMT. It may be true that this use of money gives it its initial value.  However, once this value is well established, I think it quite likely that there are other factors that help maintain and boost its value.  I think this is important because if the U.S. dollar is ever to lose its pre-eminent position in the world it, will be due to other factors than our use of the dollar as a mechanism for paying taxes.  That said, it will probably be possible to connect the decline in prominence to some aspect of taxation.  It’s all a matter of degree, but that does have policy implications.

The PBS article links to a Washington Post article Modern Monetary Theory, an unconventional take on economic strategy by Dylan Matthews.

Talking about economist James Galbraith, Matthews said the following:

But if Galbraith stood out on the panel, it was because of his offbeat message. Most viewed the budget surplus as opportune: a chance to pay down the national debt, cut taxes, shore up entitlements or pursue new spending programs.

He viewed it as a danger: If the government is running a surplus, money is accruing in government coffers rather than in the hands of ordinary people and companies, where it might be spent and help the economy.

“I said economists used to understand that the running of a surplus was fiscal (economic) drag,” he said, “and with 250 economists, they giggled.”

The article goes on to discuss competing theories of economics.  However, the author of the article, Dylan Matthews, never really shows a deep understanding of the topic being covered.

In discussing the arguments against MMT, Matthews never seems to understand the full significance of what Galbraith said about the fiscal drag.  In some situations, recognized by MMT proponents, the economy needs some  fiscal drag.  By recognizing that a surplus is a fiscal drag, the MMT proponents have identified exactly the tool to use when drag is what is needed.  This identifying of the proper tool to use is the opposite of saying MMT policy prescriptions will cause hyperinflation that will have no remedy.  Matthews never seems to figure this out.

In picking quotes from MMT theorists to rebut the MMT critics, Matthews chooses the least effective arguments that MMTers use.

G-20 backs plan to curb tax avoidance by large corporations

The Boston Globe has the story G-20 backs plan to curb tax avoidance by large corporations.

The world’s richest economies for the first time endorsed a blueprint Friday to curb widely used tax avoidance strategies that allow some multinational corporations to pay only a pittance in income taxes.

I have been realizing for quite some time that the solution to the race to the bottom of international companies meeting their tax obligations must come at an international level.  No single country, even one with the large economy of the United States, can solve this problem.  We might have come to this solution many years ago had not George Bush put a stop to the efforts by our country to work with other countries to solve these problems.  What a difference a President makes.

If you cannot get to The Boston Globe article through their pay wall, there is a hint to what is in this article on The Boston Globe free site, in the article G20 finance ministers aim for more growth.

Stashing profits offshore may soon get tougher for companies, thanks to an ambitious plan released Friday by the finance chiefs of leading world economies aimed at forcing multinationals to pay more taxes.


Will Obama Offer Massive Corporate Tax Cuts to Make “Fiscal Cliff” Deal?

The Real News Network has the interview Will Obama Offer Massive Corporate Tax Cuts to Make “Fiscal Cliff” Deal?

But the offshoring of all activities in addition to intellectual property would be—manufacturing, sales, marketing—that would really make a big hole in the U.S. tax system, especially for small business, which can’t take advantage of these international games.

So if you are worried about small business, maybe you should be less concerned about regulation and more concerned about huge tax breaks for big business that gives them an unfair tax advantage.

The bottom line is the Obama administration has been very, I would say, disappointing on this particular front, the corporate income taxation. They seem to be on the brink of giving away the store.

It seems that there is no end to the number of scams to screw the middle-class. The negotiation on the Fiscal Bump is all about finding one that the middle-class won’t detect.

In the interview there is mention of the movie We’re Not Broke.

Stimulus Tax Cuts Did Spur Growth and Create Jobs

The article Stimulus Tax Cuts Did Spur Growth and Create Jobs starts with the following:

There is a serious debate over the impact of President Obama’s stimulus. Stanford Economics Professor John Taylor, who served as Under Secretary of the Treasury for International Affairs under President Bush, recently released a draft paper that purports to show that the tax cuts that were part of this stimulus had no effect on consumption. The Center for Economic and Policy Research (CEPR) is releasing a paper today that challenges Professor Taylor’s analysis.

If you are a professional economist, maybe you want to click on the link above to read more.

Otherwise, I recommend the article as a good sedative to be read at bedtime.  I could pretty much understand what was being said, but  I also do have a little background in computer modelling and a teeny-tiny understanding of statistics.   I would be willing to bet that for most voters, this will need to be translated into everyday English before they can get too excited about it.  I am not sure “excitement” is really the right word.

Both Greenspan and David Stockman call for repeal of all Bush II tax cuts

Greenspan Calls for Repeal of All the Bush Tax Cuts, 7 August 2010, New York Times.

At the beginning of the George W. Bush Presidency, then Federal Reserve Chairman Alan Greenspan implicitly endorsed tax cuts.

While Mr. Greenspan did not endorse a specific approach, his broad support for the tax cuts nearly a decade ago was pivotal in securing one of the Bush administration’s top domestic policy goals and in providing political cover for members of Congress.

Now, in response to accusations of political expediency, Mr. Greenspan says his approach has been consistent: supporting tax cuts when surpluses loomed, and endorsing revenue increases now that deficits are the leading worry. He also says his earlier endorsement of tax cuts was made with important caveats that were later ignored by policy makers and the public.

To begin with, he says he believed the tax cuts in 2001 were primarily needed to avoid the economic distortions caused by “surpluses as far as the eye could see,” as many economists at the time projected.

Greenspan seems to have feared that the projected surpluses would lead to the reduction of US Federal debt to zero.

That, in turn, caused the central bank to worry that one of its primary levers for the conduct of monetary policy — the purchase and sale of Treasury securities — would no longer be available.

“I was against deficits, but I was also equally against surpluses,” Mr. Greenspan said.


Mr. Greenspan is calling for the complete repeal of the 2001 and 2003 tax cuts, brushing aside the arguments of Republicans and even a few Democrats that doing so could threaten the already shaky economic recovery.

“I’m in favor of tax cuts, but not with borrowed money,” Mr. Greenspan, 84, said Friday in a telephone interview. “Our choices right now are not between good and better; they’re between bad and worse. The problem we now face is the most extraordinary financial crisis that I have ever seen or read about.”

This appears to be quite a shift for the Republican libertarian Greenspan.


David Stockman–Bush Tax Cuts Will Make U.S. Bankrupt, 7 August 2010, NPR-All Thinks Considered. Stockman interview with Guy Raz.

The Stockman NPR  interview aired on the same day that the above Greenspan article was published.  Both men are trumpeting the same song.

RAZ: In the early 1980s, Stockman became a kind of Washington wunderkind, the vanguard of a new type of economic thinking, supply side, deregulation, low taxes to stimulate growth.
As the White House budget director, Stockman was an architect of what would come to be known as Reagonomics. But a few years into the job, he became disillusioned.
Mr. STOCKMAN: The military budget got out of control and the tax cuts went to special interests as much as they did to the broad public.
RAZ: And he noticed a problem. The government wasn’t collecting enough money to cover its costs and he started telling that to Reagan.
Mr. STOCKMAN: As time passed, he was less and less enthusiastic about what I had to say.
RAZ: So, in 1985, Stockman left. Now these days, he’s still a conservative and still a Republican, but he doesn’t think his party is taking a responsible position on taxes any longer. At the end of this year, the Bush era tax cuts are set to expire. Republicans want them renewed, Democrats want to keep the tax cuts for the middle class but not for the wealthiest 2 percent of Americans.
Now, Stockman says they’re both wrong and he says extending either of those cuts is tantamount to the government declaring bankruptcy.
Mr. STOCKMAN: We’ve had a rolling referendum on what we want in government and what we don’t ever since the first Reagan spending cut program, which I was part of in 1981. And it seems pretty clear to me that by 2010, we’ve decided a lot of things that caused (sic!) a lot of money, the American people won. I might not agree with that, but apparently they do.
So we’re spending $3.8 trillion in defense, non-defense, entitlements, everything else, and we’re taking in only 2.2 trillion. So we got a massive gap, you have to pay your bills. You can’t keep borrowing from the rest of the world at that magnitude year after year after year. So, in light of all of those facts, I say we can’t afford the Bush tax cuts.

Raz and Stockman make implicit reference to the so-called Laffer Curve.

RAZ: You seem to suggest that many of our economic troubles are the result of Republican economic policies over the past few decades. You are a Republican. You are a conservative. Why do you think Republicans are largely to blame?
Mr. STOCKMAN: Because the Republicans abandoned their old-time fiscal religion in favor of two theories, which I think are now proving to be both wrong and highly counterproductive and damaging.
One was monetarism, which said let the dollar float on the international markets. Let 12 men and women at the Fed decide whether to raise or lower interest rates and use the Fed to try to run this massive economy. What they’ve done instead is run the printing press, they’ve flooded the world with dollars. The whole monetarist policy has been a mistake.
The second thing was the perversion of supply side. Yes, there was a good idea that in certain circumstances, lower tax rates will encourage economic activity and savings. But when you make it a religion, when you make it a catechism and you say you cut taxes no matter what the circumstance, what the season, what the condition, then I think the whole idea has been perverted.
By getting off track over the last 30 years, the Republican Party has basically given out (sic!) its historic view that the key thing was financial discipline, financial responsibility and that we had to live within our means. Today, we have two free lunch parties, and as a result, we’re borrowing ourselves into grave danger with each passing month and year.
RAZ: Now, Republicans, David Stockman, in the Senate led by, obviously, the Minority Leader Mitch McConnell, they say they’re simply following, you know, the Reagan philosophy of supply-side economics, a policy that you pushed. Do you think they’re being disingenuous?
Mr. STOCKMAN: Utterly disingenuous. I find it unconscionable that the Republican leadership faced with a 1.5 trillion deficit could possibly believe that good public policy is to maintain tax cuts for the top 2 percent of the population who, after all, have benefited enormously from this phony boom we’ve had over the last 10 years as a result of the casino on Wall Street.

[Bold typeface added by me.]