4 ms·

The conventional argument is that capital is a more mobile tax base relative to labour. It's probably not true in all cases, but it seems mostly true. 'Wealth'

by spangry 10y ago

The conventional argument is that capital is a more mobile tax base relative to labour. It's probably not true in all cases, but it seems mostly true. 'Wealth' can also be a remarkably difficult thing to measure, and a fairly easy thing to hide (as you note). As for progressive taxation, I've never heard a clear justification from, well, anyone. Maybe it just seems obvious to everyone (I'm not being sarcastic here; this is a genuine oddity that has bugged me for ages). In my opinion, progressive taxation is justified because people probably experience diminishing marginal utility with respect to wealth. Which is just a fancy way of saying: an extra dollar of wealth means much less to a millionaire than it does to someone who is starving and homeless. So society probably makes a net utility gain by taking a dollar from the millionaire and giving it to the starving homeless guy. Following from this are second order considerations like: how many dollars can be taken from millionaires before they decide to put forth less productive effort, and we all end up worse off? It becomes a constrained optimisation problem and a question of degrees, although people seem hell-bent on treating it as a question of absolutes.

tomp 10y ago
Good points. Re: capital is mobile. Just because that's true right now doesn't mean we shouldn't try to fix it. E.g. By strongly penalising tax avoidance, forbiding tax havens or enforcing transparency, by stopping free trade and implementing fair trade instead (where companies/countries would have tariffs imposed to offset any gains they get from less strict environmental/employment regulation abroad), or even implementing worldwide income (and dividend) tax like the US. I mean, there still are things that rich Western countries can offer even to wealthy people, like freedom, security, cultural diversity, ... so chances are the wealthy would stay here even if they had to pay bigger taxes. Currently, of course, this doesn't matter because they can just move their capital away even if they physically live here, but as I suggested above, we could (should?) fix that.
- spangry 10y ago
  Sorry I got to this late. You raise a good point, and have basically nailed the crux of the issue. Just for background, I've worked as a tax policy analyst for about half my career, advising Australia's federal executive government. After quite a bit of thought (going on a few years now), my conclusions are roughly the same as yours. Our options are either: 1) Give up on corporate tax and shift the tax burden on to less mobile bases (e.g. land, consumption). This scenario seems to be slowly playing out across the developed world (perhaps a bit faster in Ireland's case...) 2) Engineer some kind of grand international agreement on corporate tax rates, kinda the Bretton Woods system for tax. This would be necessary because there's such a strong incentive for countries to 'undercut' each others' corporate tax rates (to attract foreign capital investment, tax havens being the extreme example of this). Such an agreement would require: a specific (but not too specific) agreement on minimum corporate tax rates, the participation of countries representing most of the world's production output, and provisions that levy punitive tariffs on non-complying, and non-participating, countries that go below the minimum rate. Even up until recently, I've thought (2) to be basically impossible. But in the past few days I've begun to think maybe I was wrong to rule this out completely. In a strange way, Trump's presidency might be the golden (and possibly only) opportunity for this. He seems to be just the right amount of crazy to do it. I couldn't imagine an 'establishment' president going near something like this. And I think only the US could lead such a process, maybe with some quietly pre-agreed support from China. Given the capital flight China is currently plagued with, their precarious public finances and their main central banker publicly stating support for some kind of international agreement on capital controls (I believe he actually invoked Bretton Woods), it seems like a few stars are aligning. I don't want to give you false hope here. I still think (2) is very difficult and unlikely. It would have to be 'sold' to government skillfully. Perhaps our 'automated future' is the narrative to go with. Something like: As labour is replaced by algos/robots, then by definition production becomes more capital intensive. So more and more of the gains from production and trade accrue to a fairly small group of capital owners. It's conceivable that, in the not too distant future, some of these mega-corporations will have revenues/net incomes that rival that of even large, first-world governments. At this point, they will be an existential threat to liberal democracy as they will have the means to field a sizeable 'private security force'. Not to mention the immense soft-power they will wield when they control most of the world's means of production. So, although this may all sound crazy, it would be unwise and dangerous to allow things to reach a stage where liberal democracy is in peril. Therefore, we must tax corporations/capital in a way that leaves them nowhere to run (i.e. via an enforced international agreement on rates). Also, a fair chunk of this revenue will be redistributed to workers (perhaps it may even be enough to fund basic income), so it's good populist policy that a populist leader like Trump is well suited to selling (although he'll face significant opposition from those suckling on the corporate teat i.e. mostly everyone, including the 'mainstream' media). Note: I'm not really keen on emotive arguments like the above, but I think some version of the above is what it would take to sell a radical proposal like an international agreement on corporate tax rates.
  - tomp 10y ago
    Thanks for your reply, I hope (2) succeeds! Although I think it's concievable that it's done unilateraly, by a sufficiently big market (e.g. the EU). Although ironically the EU currently seems a lot less open to any kind of change than the US (but let's see until end of march, what the election outcomes will be...). Edit: anyways, if you ever have any updates, interesting articles/discussion points, or need supporters for your politics, let me know!

by spangry 10y ago

tomp 10y ago

Good points. Re: capital is mobile. Just because that's true right now doesn't mean we shouldn't try to fix it. E.g. By strongly penalising tax avoidance, forbiding tax havens or enforcing transparency, by stopping free trade and implementing fair trade instead (where companies/countries would have tariffs imposed to offset any gains they get from less strict environmental/employment regulation abroad), or even implementing worldwide income (and dividend) tax like the US. I mean, there still are things that rich Western countries can offer even to wealthy people, like freedom, security, cultural diversity, ... so chances are the wealthy would stay here even if they had to pay bigger taxes. Currently, of course, this doesn't matter because they can just move their capital away even if they physically live here, but as I suggested above, we could (should?) fix that.

spangry 10y ago
Sorry I got to this late. You raise a good point, and have basically nailed the crux of the issue. Just for background, I've worked as a tax policy analyst for about half my career, advising Australia's federal executive government. After quite a bit of thought (going on a few years now), my conclusions are roughly the same as yours. Our options are either: 1) Give up on corporate tax and shift the tax burden on to less mobile bases (e.g. land, consumption). This scenario seems to be slowly playing out across the developed world (perhaps a bit faster in Ireland's case...) 2) Engineer some kind of grand international agreement on corporate tax rates, kinda the Bretton Woods system for tax. This would be necessary because there's such a strong incentive for countries to 'undercut' each others' corporate tax rates (to attract foreign capital investment, tax havens being the extreme example of this). Such an agreement would require: a specific (but not too specific) agreement on minimum corporate tax rates, the participation of countries representing most of the world's production output, and provisions that levy punitive tariffs on non-complying, and non-participating, countries that go below the minimum rate. Even up until recently, I've thought (2) to be basically impossible. But in the past few days I've begun to think maybe I was wrong to rule this out completely. In a strange way, Trump's presidency might be the golden (and possibly only) opportunity for this. He seems to be just the right amount of crazy to do it. I couldn't imagine an 'establishment' president going near something like this. And I think only the US could lead such a process, maybe with some quietly pre-agreed support from China. Given the capital flight China is currently plagued with, their precarious public finances and their main central banker publicly stating support for some kind of international agreement on capital controls (I believe he actually invoked Bretton Woods), it seems like a few stars are aligning. I don't want to give you false hope here. I still think (2) is very difficult and unlikely. It would have to be 'sold' to government skillfully. Perhaps our 'automated future' is the narrative to go with. Something like: As labour is replaced by algos/robots, then by definition production becomes more capital intensive. So more and more of the gains from production and trade accrue to a fairly small group of capital owners. It's conceivable that, in the not too distant future, some of these mega-corporations will have revenues/net incomes that rival that of even large, first-world governments. At this point, they will be an existential threat to liberal democracy as they will have the means to field a sizeable 'private security force'. Not to mention the immense soft-power they will wield when they control most of the world's means of production. So, although this may all sound crazy, it would be unwise and dangerous to allow things to reach a stage where liberal democracy is in peril. Therefore, we must tax corporations/capital in a way that leaves them nowhere to run (i.e. via an enforced international agreement on rates). Also, a fair chunk of this revenue will be redistributed to workers (perhaps it may even be enough to fund basic income), so it's good populist policy that a populist leader like Trump is well suited to selling (although he'll face significant opposition from those suckling on the corporate teat i.e. mostly everyone, including the 'mainstream' media). Note: I'm not really keen on emotive arguments like the above, but I think some version of the above is what it would take to sell a radical proposal like an international agreement on corporate tax rates.
- tomp 10y ago
  Thanks for your reply, I hope (2) succeeds! Although I think it's concievable that it's done unilateraly, by a sufficiently big market (e.g. the EU). Although ironically the EU currently seems a lot less open to any kind of change than the US (but let's see until end of march, what the election outcomes will be...). Edit: anyways, if you ever have any updates, interesting articles/discussion points, or need supporters for your politics, let me know!