We already have corporations in the US that effectively pay a negative tax rate. The Laffer Curve isn’t going to fix that so long as there are tax havens out there in the world (like Ireland) that allow them to get away with paying zero or less taxes. Reforming the tax code is a wonderful sentiment, but, hey, let’s say we actually manage to reform it, close the loopholes, and moved the rate down to only 15% of their record-breaking profits? If Ireland offers them to have a 3% rate, would they actually repatriate their earnings to the US? I don’t think so, especially since said reform requires more political will than we have available right now, meaning that this statement falls strictly within the Nirvana Fallacy–the rejection of a realistic solution in favor of an idealized but impractical solution.
Being snarky, the Laffer Curve only applies in an idealized infinite plane of uniform density (along with the concept that it is used to justify, “trickle down economics”), because the Curve assumes that the taxpayer does not have abilities to shuffle the earnings around to other places, as well as assuming that individuals (whether corporate persons or actual people) will reinvest their capital into the economy, rather than just sit on it.
More specifically, the idea of the “Curve” is that there is a point where tax revenue is maximized, using the rather simplistic premise that “at tax rates zero and 100%, no income is collected; ergo, somewhere in-between, tax rates are maximized.” Putting aside the rather absurd and rather strawman-type concept of a 100% tax rate, However, interestingly, the rates are never set to the point where actual analysis would indicate that government income is maximized, but is instead just used to justify tax cuts. There’s a reason why it’s been called voodoo economics.
yawn And I got zero sleep last night, so I’m going to sign off here on this.
This seems to be a very common misunderstanding, but Apple has not been taking advantage of Ireland in this situation. Indeed Ireland actively wooed Apple and others with the promise of low taxes. You see taxes are just one way that a country benefits from companies making money on its land. For example, the company employees people (who pay taxes), it buys stuff from other companies, it builds stuff(which employees people), it makes the place look more attractive to other companies, etc etc etc. Generally, everyone wants the worlds best and most successful companies to base themselves on their soil and attractive tax arrangements are the most common coin of barter to get these companies to choose you rather than somewhere already massively successful like New York, London etc.
There is however a general consensus that a race to the bottom bidding war on ever lower corporate tax is not really in the global interest. So, large trading blocks like the US, EU etc tend to disincentivise this sort of behavior is any way they can. Ireland is part of the EU and so is exposed to the potential that the the central governing bodies of the trade union say that it is not allowed to do this sort of thing any more. That is what has happened here.
It’s the same reason that various cities, states, and countries actively court Hollywood studios to come and film there by giving big tax breaks to film productions. It employs locals, helps the local economy, and gives a huge PR boost to help tourism (and other productions) come their way.
If the UK told their Commonwealth countries like Canada or Australia that they had to collect back taxes from huge film productions that’d come there, they wouldn’t be very happy about how this would affect future film projects.
There is literally no chance at all that the Irish people are going to get this sum equivalent to the entire income tax take in a year, two and a half years of corporation tax, one and a third sales tax, the health system etc. etc.
What we are going to get is more austerity. Lots more austerity.
The Laffer Curve isn’t going to fix that so long as there are tax havens out there in the world (like Ireland) that allow them to get away with paying zero or less taxes.
This is simply not true, it’s up to the US to make the correct laws to tax it’s own companies. These are US companies, and the earnings they’re paying tax on in europe (in accordance with the law) should really be mostly paid back in the US, they couldn’t afford to do that though, given the actual corporate tax rate, and so are using every legal means to get out of it. It’s up to the US politicians, in cooperation with europe and elsewhere to work out the correct laws to get them paying tax where they should be paying it. The way to fix it isn’t to harmonise tax rates across the world, it’s simply not possible to do that, it’s a complete non-starter, it’s never even going to happen in the EU.
Sorry but this line of argument is simply crazy: it is not the lower rate of corporate tax in Ireland which is at issue here 12.5% isn’t it? It is shovelling funds through a front in Ireland to avoid paying tax at all which is the issue here. This is not a “sensible low tax high return” fantasy. It is a brass plate operation which has been found to be illegal.
Apple are not paying 12.5% rather than 35%, they are paying a miniscule fraction of that. and anyway most of this money should be paid not in the US but in other countries who are getting defrauded by the cavalier behaviour of successive Irish regimes.
Sorry but this line of argument is simply crazy: it is not the lower rate of corporate tax in Ireland which is at issue here 12.5% isn’t it? It is shovelling funds through a front in Ireland to avoid paying tax at all which is the issue here. This is not a “sensible low tax high return” fantasy. It is a brass plate operation which has been found to be illegal.
The european court has just now found it to be illegal; it will be challenged, and I suspect it will be found to be legal again.
And I know it’s not about the lower rate of corporation tax in Ireland, when I’ve been talking about that I’ve merely been disabusing people of the notion that Ireland has long been a tax haven because of its low corporation tax rates, which as you say is a separate issue to these more complex avoidances systems, and talking about how reform of the US corporate tax rules should be a part of fixing this issue.
I think everyone realises the current system can’t go on as it is, and there are lots of negotiations going on to find a compromise that keeps everyone happy (especially one that allows small countries like Ireland to keep sovereign control of their tax affairs). There have been some changes made already in the UK, more are likely in the coming years.
I don’t know if you’re correct in saying most of the money should not be paid in the US, I know a lot is properly owed in the UK and other places, but I thought most should be back in the US. I could be wrong though, do you know any good links with the specifics of how it breaks down?
If I were the EU and had just forced Eire (or any member country) to reverse a policy decision and take a ton of money from a deserving company, I would see to it that the action would not be wasted, save under very advantageous conditions.
In an interview for an Irish newspaper, Tim Cook today declared they’ll repatriate money to the US. So:
The US now owe the EU a big favour, to the tune of $40bn.
It would have been cheaper to pay $15bn to the EU and stick with Ireland, but clearly Apple doesn’t give two shits about Cork and all that other teary-eyed crap in their original press release. If they can’t have their tax haven, might as well stay home, right? At least those $40bn will buy some influence where it matters.
Well, yes and no. They practically abused a bit of Irish law, but they asked if that was ok and the Irish government said “yeah sure, as long as you stick around and hire locals”. Now the EU is pointing out the abuse and stating that ignoring it was not ok.
Not true at all. Ireland bent over backwards to bring Apple and other big businesses to the country. They courted Apple by offering low tax rates; Apple didn’t “abuse the law”. Ireland is refusing the money and insisting they want nothing to do with this EU ruling.
But this is not about low tax rates, it’s about whether money should be taxed at all when the state does not know where the money is going and how it will be treated henceforth. This is how they got such a low effective tax rate, by not taxing money that Irish authorities didn’t know (or rather, didn’t want to know) where it was going. This is not commonly allowed - or do you think any Irish grocer has a fictitious company not located in Ireland nor elsewhere, where he redirects profits? Of course not.
It is when the Irish government says it is. Apple isn’t on the hook here. The Irish government is. These are Ireland’s rules; Apple’s doing what Ireland offered them. That’s why Ireland is incredibly angry about the ruling as opposed to saying “oh hey, billions of euro, awesome!” and Apple is outright rejecting it.
Well, that’s the point of the argument. The Irish government can say things, and the EU can say other things, and there are European courts to go through, etc etc. The initial evidence looks pretty bad for Apple and Irish authorities though, and historically speaking, when the Commission tries to enforce something, it’s because they know they will win.
Sure… it’s why GA gives film production companies big tax breaks… but that means that there is a heavier tax burden on the rest of us. I think it’s in part a question of whether individuals or corporations should bear heavier tax bills.
