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  • Jul 13, 2014
  • Updated: 1:39pm
CommentInsight & Opinion

Abolishing corporate tax would send wrong message

Kevin Rafferty says scrapping corporate tax is neither fair nor workable

PUBLISHED : Saturday, 01 June, 2013, 12:00am
UPDATED : Saturday, 01 June, 2013, 1:36am

Apple's chief executive, Tim Cook, did not cower when he testified before the US Congress. He came out fighting and boldly told his senator inquisitors: "We pay all the taxes we owe, every single dollar."

Maverick Senator Rand Paul leapt to the company's defence and declared that the senate committee "should apologise to Apple", which he called, "one of America's greatest success stories".

What kind of message would it send to unemployed America and the world?

Some economists and commentators say that the grilling of Cook shows it is time to abolish income tax on companies. Some do so for ideological reasons - that companies create jobs and economic growth, and should not be penalised or discouraged by taxes from doing so. Other critics assert that there are practical grounds for abolishing corporate tax, either because it is an inefficient way of raising revenue or that international companies will always be able to avoid or evade the short reach and limited imagination of national tax authorities.

Apple, Google, Amazon, Microsoft, Starbucks and a growing list of powerful multinational companies seem determined to disprove the old axiom that only two things are inevitable, death and taxes; while conquering death is still remote, defeating taxes has become standard art.

Apple has invested huge sums in time, money and tax lawyers to diminish its tax burden and it now has more than US$100 billion sitting offshore. Over the past three years, it paid just 2 per cent in taxes on US$74 billion in overseas income.

But Apple is only one among many companies that have piled up dollars offshore. The offshore profits of 83 US-based companies now total US$1.46 trillion. According to Bloomberg, the untaxed offshore sums have increased by US$183 billion, or 14.4 per cent, in the past year.

So why not bow to the inevitable and accept that it is too difficult to match or catch the big multinationals and not charge them any corporate tax? The Adam Smith Institute - which has hijacked "the free market" and forgotten the high moral precepts that Smith taught - has long advocated scrapping corporation tax.

Edward Alden, writing on the Renewing America blog of the influential Council on Foreign Relations, declared that, "there are some things that the government should not be trying to do even if the reasons for doing so are obviously good ones. And one of those things is taxing corporations."

He noted that the government's tax take has been steadily falling as corporations rake in record profits. Corporate tax payments in the US have slumped from more than 5 per cent of gross domestic product in the 1950s to less than 2 per cent today. In 2011, corporate taxes were still the third-largest source of federal revenue but added up to less than 8 per cent, against 47 per cent from personal tax and 36 per cent from payroll tax.

Alden concludes that "the only sensible solution" is to abolish corporate tax, and make up for it by increasing tax on capital gains. Other economists have suggested a nationwide value-added tax or a carbon tax.

Does Alden or any advocate of abolition believe the government could make up for corporate tax with other taxes? A carbon tax? You must be joking. Would Republicans vote for higher taxes on dividends to make up for losses on corporate tax? And, anyway, the sums don't add up. If the tax code is broken, fix it, simplify it, but make the big corporations pay and share in the common wealth.

The real argument for corporate tax is both moral and political - that giant companies must be seen to be sharing the common burden. What kind of message would it send to unemployed America and the world if the US created a tax-free haven for the already arrogant multinational corporations?

Kevin Rafferty is a professor at the Institute for Academic Initiatives, Osaka University

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