| 22 July 2007
The CATO Institute criticizes the US Treasury for failing to cut its high corporate
tax rate, but the better question is why have corporate tax at all?
CATO quotes a recent survey by KPMG showing that the average corporate tax
rate in the EU has fallen from 38% in 1996 to 24% in 2007, and that the process
is continuing, there and elsewhere. Yet the US holds out with a 40% total corporate
tax in most states.
As companies and their capital become more footloose during the unstoppable
process of financial globalization, there is increasing pressure on countries
to compete for the investment and jobs (and the income taxes) that companies
bring with them. There seems to be no chance that countries will agree to hold
the line at any given level, other than zero, given that many of them already
have very low rates.
The lower that rates go (in some countries) the more companies based elsewhere
will strain every nerve to take advantage of the lower rates, and the more absurd
will seem the contortions that Treasuries go through to keep their precious
revenues.
No-one calculates the cost of corporate tax collection, as far as I know, but
it must be huge. The US Congress seems to spend much of its time railing against
offshore, and inventing ever more restrictive laws to prevent companies from
taking advantage of low tax rates on offer elsewhere. The US courts are full
of corporate executives, accountants and lawyers on trial for 'abusive' tax
sheltering. Across the world, legions of tax collectors battle to apply transfer
pricing and CFC (Controlled Foreign Corporation) rules, with matching court
structures. And there is the enormous interlocking spider's web of Double Tax
Avoidance Treaties (partly aimed at personal investment, it is true) which has
to be maintained and administered.
That's just on the regulatory side. In companies themselves, finance departments
have tax minimization as one of their major preoccupations, and engage in an
intricate dance with their auditors and the tax authorities which often ends
up, again, in the courts.
In the EU, the prickly subject of State Aid is almost entirely driven by corporate
tax concerns; Brussels and member states argue interminably over what is and
isn't a legitimate tax break, and the European Court of Justice often has to
pick up the pieces. Almost all governments world-wide set up and administer
tax-privileged free-trade zones.
So the list goes on. With a universal zero rate of corporation tax the whole
of this wasteful apparatus could be swept away, with a probable bonus to productivity
of several percentage points.
You have been reading an entry on the following blog:
Jeremy Hetherington-Gore Unleashed
Jeremy tackles the difficult issues head on!
Contact: jeremy@lowtax.net
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