Anti-tax, anti-regulation sirens already emerging after Brexit

The race to the bottom: a clear winner

The race to the bottom: the UK forges ahead

Just before the Brexit vote we quoted Adam Posen, President of the Peterson Institute for International Economics, about what might happen in a post-Brexit Britain:

“If you’re anti-regulation fantasists to begin with, you start going down the path, ‘Oh we can become an even more offshore center. We can become the Cayman Islands writ large, or Panama writ large.’ And this frankly is the way I think this also spills over to the rest of the world, is that the UK decides, ‘Hey, regulatory arbitrage, letting AIG financial products run in London, actually destroyed the US financial system, but didn’t hurt us – made us a lot of money. Let us continue down this path. Let us be the ‘race to the bottom’ financial center. And I think this that’s where this going, because they’re not going to have any other option. It’s not good.”

And this is already being played out. Take a look, just for example, at this quote from Chris Cummings of the extremely peculiar and powerful TheCityUK (and by extension the City of London Corporation), illustrating Posen’s point very exactly:

“It is vital that action is taken to reinforce the global competitiveness of the UK as a place in which and from which to do business. This will help to mitigate the risk of prolonged uncertainty while a new relationship with the EU is negotiated.”

Or calls from London’s mayor to turn London into a mini-state, which would have appalling race-to-the-bottom effects.

And we noted yesterday that this applies to tax, particularly corporate as well as financial regulation.

The fools’ gold of corporate tax cuts

The Financial Times this morning is running a headline Brexit: George Osborne to slash corporate tax rate:

“In his first interview since Britain voted for Brexit, Mr Osborne said he wanted a leading role in shaping Britain’s new economic destiny, laying out plans to build a “super competitive economy” with low business taxes and a global focus.”

Or, in the area of taxing rich individuals, take a look at this Financial Times story:

“Brexit could lead to the scrapping of tax rises for wealthy foreigners living in the UK . . . some people may benefit from the need to shore up the UK’s appeal to mobile investors, as well as greater freedom over the design of tax incentives.

And former World Trade Organisation boss Pascal Lamy, kind of uses the more menacing language of tax wars:

“The UK is already activating one of the weapons in this negotiation, which is tax dumping, tax competition.”

As we have pointed out many times in the past: corporate tax cuts, particularly in the current climate, are the worst kind of stimulus. They reduce economic growth – for several reasons, including these:

a) Corporate tax cuts don’t attract useful investment! This Chancellor, George Osborne, has already cut the corporate tax rate, again and again, over this parliament and the last. As we’ve identified, his government’s own advance assessments, and those of the independent Office of Budget Responsibility, have predicted zero impact on the tax base – that is, no new investment or at least no profit from any new investment that is made. This is consistent with analysis from the US Joint Tax Committee, that profits are only really shifted in response to much more dramatic cuts: you have to get the rate down to 5% or even 1% to compete with the big boys of Luxembourg or Ireland for profits shifted in from elsewhere. Real investment, meanwhile, is driven by fundamentals like infrastructure, labour skills and (yes) market access – tax rates just aren’t a primary concern.

b) Corporations are sitting on cash piles: profits are high but they aren’t investing, because demand isn’t there. Tax away some of those useless cash piles, spend it, and increase demand, thus increasing investment – and growth. Corporate tax cuts are like pushing on a string: if they aren’t investing their cash piles, why would corporate tax cuts help?

c) The lower corporate taxes go relative to income taxes, the more rich people convert their income into corporate forms, to escape relatively higher income taxes. This is a pure, inequality-boosting redistribution – and as the IMF and many others remind us, higher inequality means lower economic growth.

d) The ‘incidence’ of corporate taxes falls largely on capital owners/shareholders: and many of those shareholders are foreigners: over 50 percent in the case of the FTSE 100 firms. The leakage from corporate tax cuts is tremendous. Not only is there this ‘external’ leakage to other countries: but there is upwards leakage too, from ordinary taxpayers to a relatively much wealthier group: corporate shareholders.

e) When they say ‘competitive’ they mean showering goodies on large players, at the expense of smaller, less mobile local players. This hurts the small and boosts the large: increasing monopoly – with the counter-intuitive result that ‘competitive’ tax policies reduce competition. With all the market-harming, inequality-boosting results.

f)  Doing this provokes others to follow suit, in a continuous process of ‘tax wars.’

The list does not stop here: also read

It follows from all this that an increase corporate taxes will boost economic growth. Corporate tax hikes are the one component of austerity that is painless: it’s corporate tax cuts that deliver the pain.  

Those who have advocated for tax cuts before – and even KPMG, for goodness’ sakes, one of the top lobbyists for corporate tax cuts – don’t think this is a good idea.


Related Posts

UN must defend target to curtail multinational companies’ tax abuse

Photo by Luca Santori, Creative Commons LicenseThe Tax Justice Network, The Independent Commission for the Reform of International Corporate Taxation, and the Global Alliance for Tax Justice call on the UN Secretary General to make sure the commitment to action on tax abuses by multinational companies remains part of the new UN Sustainable Development Goals.

READ MORE →

The BVI: Responsible for worldwide tax losses of $37.5 billion a year

BVI report blogAn extraordinary report by consultants Capital Economics, for BVI Finance, claims that the British Virgin Islands are responsible for $1.5 trillion of assets invested around the world, and that these result in 2.2 million jobs and $15 billion in tax revenue. A better approximation would be that the BVI imposes global tax losses of $37.5 […]

READ MORE →

Event: Making Tax Work for Women in the UK and Globally

Invitation_ Tax and Gender eventOn Wednesday 28th June 2017 at 16.30 our very own Liz Nelson will be speaking at an event in London that aims to bring together gender and tax justice advocates to highlight the need for coherent and gender-responsive fiscal policies to safeguard the rights of women and girls both in the UK and globally. The […]

READ MORE →

Historic event on women, human rights and tax justice in Bogota

BogotaLast week civil society organisations, researchers, labour union activists and policy makers met in Bogota, Colombia to explore how tax justice issues can ensure governments, multinational corporations and others meet their obligations to women in order to secure their full range of human rights. The Women’s Rights and Tax Justice conference opened with a conversation […]

READ MORE →

The Offshore Wrapper: the Panama Papers, one year on

Photos from the Protest outside PwC 1 Embankment Place, part of the Global week of action for tax justiceWelcome to the Offshore Wrapper – your weekly update from TJN.  Happy Paniversary! This week it’s been one year since the Panama Papers were leaked, and a number of organisations around the world have been marking the occasion though the global week of action for tax justice. In London, activists from the TJN and the […]

READ MORE →

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to Top