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Govt. Pays Taxes to Corporations: Why??

By Shlomo Maital

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     Once corporations paid taxes to governments. It made sense. Companies benefit from services and infrastructure, so they should pay taxes, like everyone.

       But then, countries discovered they could play a win-lose game by offering corporations tax breaks (like Ireland’s 12.5% corporation tax) to lure them to come. We win, you (other countries, e.g. U.S.) lose.   Soon many countries were offering such tax breaks. And corporations grabbed every one. Legally. It is almost true that governments now pay taxes to corporations.

       Writing in the Oct. 5 New York Times (“Dealbook”), Russ Sorkin cites a study just released, that found that “73 per cent of Fortune 500 companies” (that is, 365 of them!) maintained “subsidiaries in offshore tax havens”. Apple alone holds $214.9 billion abroad and would owe $65.4 billion in taxes if it brought that money back to the U.S.

       The study shows how companies set up small subsidiaries, small enough to avoid reporting offshore profits; “27 companies reported 16,389 total subsidiaries (!) and 2,836 tax haven subsidiaries to the Federal Reserve – but only a small fraction of those were reported to the Securities Exchange Commission”.

         A furor arose over Donald Trump’s failure to pay income tax. But compared to the legal tax avoidance of companies sending money offshore, it’s a drop in the bucket.

         America could use a big dose of capital investment. But the money that could pay for it is sheltered abroad. How much? 58 Fortune 500 companies alone would owe $212 b. in federal taxes, if they were taxed properly.

         My questions: Who created these loopholes in America’s tax law? And why can’t legislators fix them?   Are Republicans so enamored by wealth that they approve this? Are Democrats so helpless they can’t take on tax reform?

             The Europe Union is trying to collect $14.5 b. in taxes from Apple. Apple CEO Tim Cook calls this effort “total political crap”.  

             The place to start is simply to require transparency. Nobody really knows how much money is sheltered abroad. Start by making companies report offshore holdings. And then – figure out how to make them pay taxes on them, no matter where they are.    

      

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Nothing is Rotten in Denmark

By Shlomo Maital

Little Mermaid Copenhagen: The Little Mermaid

   Shakespeare’s famous line, “something is rotten in the state of Denmark”, from Hamlet, needs amendment. These days, very little is rotten there, and other countries can learn much from it. But are they?   Paul Krugman’s latest New York Times column doubts it.

   What is Denmark’s story? It is a welfare state with enormous social benefits, that takes care of its children, homeless, ill people, and others.   It pays for it with heavy taxes, also on the wealthy, but at the same time maintains a vibrant economy. Here is how Krugman, a Nobel Laureate in Economics, decribes it:

   Denmark maintains a welfare state — a set of government programs designed to provide economic security — that is beyond the wildest dreams of American liberals. Denmark provides universal health care; college education is free, and students receive a stipend; day care is heavily subsidized. Overall, working-age families receive more than three times as much aid, as a share of G.D.P., as their U.S. counterparts. To pay for these programs, Denmark collects a lot of taxes. The top income tax rate is 60.3 percent; there’s also a 25 percent national sales tax. Overall, Denmark’s tax take is almost half of national income, compared with 25 percent in the United States. Describe these policies to any American conservative, and he would predict ruin. Surely those generous benefits must destroy the incentive to work, while those high taxes drive job creators into hiding or exile. Strange to say, however, Denmark doesn’t look like a set from “Mad Max.” On the contrary, it’s a prosperous nation that does quite well on job creation. In fact, adults in their prime working years are substantially more likely to be employed in Denmark than they are in America. Labor productivity in Denmark is roughly the same as it is here, although G.D.P. per capita is lower, mainly because the Danes take a lot more vacation.   Nor are the Danes melancholy: Denmark ranks at or near the top on international comparisons of “life satisfaction.”

 

   How many times does this have to be said? A nation CAN take care of its people – its unemployed, jobless, skill-less, college students, children, sick, mentally ill – while paying for it through taxes (not deficits), and maintain a happy growing economy. The rich? They will pay taxes and not change their behavior on jot.   There is no reason for any political system to pander to the rich, even though they use their funds to buy political influence.

   Nothing is rotten in Denmark. Is anybody watching and listening?   American conservatives? The last word goes to Krugman:

   It’s hard to imagine a better refutation of anti-tax, anti-government economic doctrine, which insists that a system like Denmark’s would be completely unworkable.

 

 

 

 

 

 

Blog entries written by Prof. Shlomo Maital

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