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there's plenty of ways to skin a cat

Kitty Miv, Editor
26 April, 2019

As the unpleasant saying goes, there's plenty of ways to skin a cat. And for governments, there's plenty of ways to cut corporate tax. It's not all about corporate tax rates.

This is a distinct advantage for politicians. For corporate tax cuts are rarely a popular move. Not only this, but corporations can't vote, so you'd think any politician worth his or her salt would be crazy to even consider the idea. Guaranteed voter loser? Maybe. The jury seems to be out over President Donald Trump's tax reform, the centerpiece of which was a massive reduction in the federal corporate tax rate, following a somewhat lackluster showing for the Republicans in last year's mid-term elections.

However, politicians know that like it or not, corporate tax cuts have been a necessary evil in a world where competition for foreign investment dollars is cut-throat. And while tax is far from the only indicator of a jurisdiction's business environment for multinational companies, it's far easier to knock a few percentage points off the headline corporate tax rate than it is to reform a country's labor market. Just ask Emmanuel Macron. And Francois Hollande. And Nikolas Sarkozy. In fact, just about any French president of the last 20 years.

One way of getting away with a corporate tax cut is to distract voters' attention by bundling it up with personal tax giveaways, provided such measures are affordable. Even if they are unaffordable, most western governments are so deep in debt anyway that an extra few billion here or there in tax cuts pales into insignificance.

Sneaky. But there are other more devious ways to hide a corporate tax cut from the general public. You can instead fine tune the machinery of the corporate tax regime to make it go faster. Accelerate the depreciations schedules and allow companies to deduct the cost of their investments much more quickly, or even instantly. Announce these changes in a Budget or tax reform package, and hardly anyone who isn't running a business will bat an eyelid: "accelerated what?" they'll say, or "instant asset who? – can I watch Game of Thrones now?"

Such moves are proving popular: they were in the US Tax Cuts and Jobs Act; Canada improved its asset write-off rules last year; and Australia's 2019 Budget, announced earlier this month included similar, albeit more modest, measures.

Of course, not unusually, I am being perhaps overly cynical about our elected leaders here. Because I think there's also a growing recognition among governments that there is little mileage left in corporate tax cuts, and that there are more intelligent and effective ways of responding to the shift in the competitive landscape brought about by the TCJA. At any rate, with all recent talk about a global minimum corporate tax – including by the US Treasury – perhaps we're close to seeing some sort of truce being called in the corporate tax wars. Perhaps a recognition, as demonstrated by controlled foreign company laws, that corporate tax rates heading into single figures, or thereabouts, are hard to defend. While most of the large economies still have tax rates quite a way above these levels – the global average is still in the low-20s percent – those countries which have already undergone significant corporate tax rate cuts are going to find further reductions harder and harder to justify to the public.

Moving on to something slightly more light-hearted – or, to be more accurate, light-headed – another Australian tax development caught my eye recently. This was the announcement of tax cuts for craft brewers – the third time in less than a year that the Australian Government has announced tax concessions for the brewing industry. Well, it has been a tough few years for governments of both political stripes in Oz, I suppose.

There's also an election to be fought soon. And what better way is there to ingratiate yourself with the electorate than to help cut the price of the nation's favorite tipple? Yes, I know, cynical old me returns!

But there could also be another trend emerging here. It probably went largely unnoticed, but the TCJA included provisions to temporarily extended tax cuts for beverage makers, from brewers, to vintners and distillers. Then, in February 2019, a bipartisan bill was introduced in the Senate that would permanently reduce these taxes.

What's going on here? Why has the beverage industry suddenly acquired so much influence over policy makers? Is it that policy makers are indeed under the influence? Is this a cunning new way to distract us from corporate tax reductions? If so, I'll drink to that.



About the Author


Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net

 

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