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Monday, July 28, 2014

Paul Krugman: Corporate Artful Dodgers

Congress should do something about "ever-more-aggressive corporate tax avoidance":

Corporate Artful Dodgers, by Paul Krugman, Commentary, NY Times: In recent decisions, the conservative majority on the Supreme Court has made clear its view that corporations are people, with all the attendant rights. ...
There is, however, one big difference between corporate persons and the likes of you and me: On current trends, we’re heading toward a world in which only the human people pay taxes.
We’re not quite there yet: The federal government still gets a tenth of its revenue from corporate profits taxation. But it used to get a lot more — a third of revenue came from profits taxes in the early 1950s... Part of the decline since then reflects a fall in the tax rate, but mainly it reflects ever-more-aggressive corporate tax avoidance — avoidance that politicians have done little to prevent.
Which brings us to the tax-avoidance strategy du jour: “inversion.” This refers to a legal maneuver in which a company declares that its U.S. operations are owned by its foreign subsidiary, not the other way around, and uses this role reversal to shift reported profits out of American jurisdiction to someplace with a lower tax rate.
The most important thing to understand about inversion is that it does not in any meaningful sense involve American business “moving overseas.” ... All they’re doing is dodging taxes on those profits.
And Congress could crack down on this tax dodge...
Opponents of a crackdown on inversion typically argue that instead of closing loopholes we should reform the whole system by which we tax profits, and maybe stop taxing profits altogether. They also tend to argue that taxing corporate profits hurts investment and job creation. But these are very bad arguments against ending the practice of inversion. ...
As for reforming the system: Yes, that would be a good idea. But..., there are big debates about the shape of reform, debates that would take years to resolve... Why let corporations avoid paying their fair share for years, while we wait for the logjam to break?
Finally, none of this has anything to do with investment and job creation. If and when Walgreen changes its “citizenship,” it will get to keep more of its profits — but it will have no incentive to invest those extra profits in its U.S. operations.
So this should be easy. By all means let’s have a debate about how and how much to tax profits. Meanwhile, however, let’s close this outrageous loophole.

    Posted by on Monday, July 28, 2014 at 12:24 AM in Economics, Politics, Taxes | Permalink  Comments (66)

          


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