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The Death Of Corporation Tax

Jeremy Hetherington-Gore Unleashed
28 October, 2007

Last week saw the remarkable spectacle of a US Democrat proposing to reduce corporation tax by 5%. OK, the US rate is much higher than most; and OK, Representative Rangel has to offer the Republicans an inducement to have any chance of getting his bill through Congress.

But what we're really seeing here is another step on the road towards the inevitable death of corporation tax itself. And it's no coincidence that in the same week the OECD reported on the spread of R&D tax credits worldwide.

The reason that governments get away with taxing individuals at penal rates is because their targets are tethered to the ground of their home countries and can't get away (even now, only a very small percentage of people become tax exiles). The reason that governments can't - any longer - get away with taxing companies is because globalization has freed them from dependence on any one country. And that's not only true of multinationals; it's true of any company that can 'offshore' or 'outsource' its supply lines and/or its distribution network.

The relative freedom of movement that companies have acquired means that countries have to compete to attract them. For the most part, left-wing political movements, with their labour-based supporters, can't or won't recognize this, which blinds them to the need to use tax as a carrot rather than a stick.

Sooner or later, though, even the Social Democratic regimes have bow to the power of the market, and the last twenty years has seen a not-so-gradual move towards lower corporation tax rates. In the 1970s they were close to 50% in many countries; now the highest rates to be found are in the mid-30s, and the average is in the high twenties.

Despite an overall tend towards higher taxation, the complete elimination of corporation tax is now just a matter of time. 10 years? No. 20 years? Maybe. 30 years? Definitely!

You read it here first.


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Jeremy Hetherington-Gore Unleashed

Jeremy tackles the difficult issues head on!

 

 

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