Corporate bailout demands – scamming the taxpayer
TruePublica Editor: The article below is an extract from a much longer piece by the Tax Justice Network. It focuses on the enormous bailouts being showered upon the United States, but Britain’s biggest corporations and listed companies will soon be in the UK queue and are no different. Take one example. Richard Branson’s Virgin Atlantic is to ask the British taxpayer for a bailout. Not only is Branson a tax-dodger – (he’s done a prison sentence for tax-dodging) caught up in the Panama Papers as one of its most notable cases along with other such characters as Formula One billionaire Bernie Ecclestone, but Virgin Atlantic wouldn’t be owned by British tax-paying entities if it was up to him. Over the last ten years, VA hasn’t made any money, in fact, it has lost about £277m overall in that time. As for ownership. American owned Delta Airlines owns 49 per cent and a desperate deal with Air-France KLM for another 31 per cent fell through just a few months ago leaving Richard Branson with a company haemorrhaging money. It wasn’t the coronavirus that put Virgin Atlantic on its knees, its own management can claim that accolade and are using the virus crisis purely opportunistically. Frankly, it would be a travesty of justice and downright immoral to even consider Branson’s demands. There will be more of this as the economy craters and the taxpayer needs to know who is deserving and who is not – who is worth saving and who is not. Branson, reportedly worth something like five thousand million US dollars ($5bn) is not one of them.
We shouldn’t forget a fact rarely reported anywhere in the mainstream media. The Office of National Statistics (ONS) was able to demonstrate in 2014 that the poorest fifth of the UK population paid 37.8 per cent of their income in tax compared with 34.8 per cent for the richest fifth. By 2017-18 the ONS reported that “The poorest fifth of households paid the most, as a proportion of their disposable income, on indirect taxes – 29.7% compared with 14.6% paid by the richest fifth of households.” The fact is, over time, the poor are paying the same on less and the wealthy are paying less and less on more.
This lovely nugget of information is hidden from society to protect the narrative that the wealthiest create money by their entrepreneurial spirit and pay the most to back society. It’s not true. In any bailout, the interests of the taxpayer must come first.
By Nick Shaxon – Imagine a large multinational has been aggressively shovelling profits offshore for years, lobbying for and getting tax cuts and state subsidies, buying back its own stock, paying its employees peanuts while delivering its bosses exorbitant compensation. If a company has spent the better part of the past decade enriching its owners and executives, should it get a bailout?
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The scale of what’s been happening is shocking. The largest 500 U.S. multinationals, for instance, spent over $1.5 trillion in 2018 and 2019 just buying back their own stock, to boost their share prices and their executive stock rewards. On top of that, they paid out nearly a trillion more in dividends. This has sucked colossal productive investment out of the real economy, and mostly into the pockets of the wealthiest 10 percent of Americans. They monopolised, extracting wealth from consumers, workers, and many others. Then, after gorging on a gigantic job-killing corporate tax cut in 2017 (“I don’t think we’re ever going to lose money again,” an airline boss gushed that year), US corporations alone continued to shift $300 billion in profits offshore each year to dodge tax (and other rules of civilised society.) Luxury cruise lines have been registering offshore to escape taxes and regulations, then sailing on amid pandemic on their own ships. They took huge risks with borrowed money, juicing profits and bosses’ bonuses, and the risks now fall on society’s shoulders. And on, and on.
Do we bail these people out? Do we “foam the runway” for crime-soaked banks if they face collapse? Justice says ‘no.’ But if the consequences of letting these firms collapse is worse still, how do we proceed?
On balance, a company whose collapse will cause social catastrophe should likely be saved. But no blank cheque. Instead, there must be powerful conditions. Here are a few: some of which must continue long after this shock has passed.
- A HARD crackdown on tax havens, and more resources for tax authorities.
- Implement huge – maybe 50-75 per cent annual — “excess profit taxes” as our last blog on this argued, targeting only highly profitable firms, and sparing fragile firms. The tax haven crackdown will help stem leaks.
- Tax wealth. Hefty wealth taxes, land value taxes, capital gains taxes, and more, with only modest reliefs where appropriate and truly needed. This was in the air before Coronavirus: time to make good.
- Nationalise failing firms, or take large stakes in them, where necessary. Buy their stock cheaply now, take control, clean house, and when market conditions normalise, sell many (but not all) of them back, at a profit. This happened after the global financial crisis. Here’s more.
- Put unemployed people back to work in a climate-friendly Green New Deal.
- Ban stock buybacks. Not that long ago, they were illegal in many countries, as market manipulation. Do it NOW. Also temporarily curb or ban dividends, to preserve fragile corporations. Make them pay idled workers, pay taxes, shore up bank capital, or invest, instead.
- Ban all new mergers. Creeping monopolisation, along with the rise of tax havens, have been among the major contributors to falling productivity, rising inequality and rising populism in many countries.
- Many sorts of other ‘unthinkable’ actions are now rapidly becoming palatable: capital controls (especially to protect poorer countries;) selective price controls (to protect the poorest in society;) massive new transparency and public oversight and accountability of bailouts; beefed-up criminal sanctions for financial and tax haven miscreants; curbs on excess executive pay; and revisit the concept of limited liability letting bad actors take the cream and shift risks and costs onto others’ shoulders.
These opportunities, and more, must now be grasped. But now, about those trillions sitting offshore . . .
How to squeeze the tax havens
After the global financial crisis, world leaders came under pressure from angry populations to finally do something about tax havens. And they did, up to a point. The OECD, the club of rich countries that appointed itself as the standard-setter for these tasks, created the most important of several initiatives. These can be divided into two (somewhat overlapping) areas: corporate tax haven activity, which is costing world governments some $5-600 billion a year, while that involving wealthy individuals, which may be costing $200 billion just in lost income taxes: there are plenty of other costs too. If you include the role that tax havens have played in driving a global race to the bottom to cut tax rates, the sums lost are far greater.
And there has been progress in both areas. Each, now, in turn.
For individual wealth, they put in place the Common Reporting Standard (CRS), a set of rules by which countries shared information about each others’ citizens financial assets, to pull back the veil of secrecy. It is leaky, of course, but widely accepted and far better than what went before: the OECD reckoned last year the moves had cut bank deposits by 25 percent or so. Our latest financial secrecy index published in February 2020 calculated that the global “pot” of financial secrecy had fallen by seven percent since the last index in 2018. That’s an improvement, but there’s far to go.
On corporate wealth, the OECD has been trying to patch up a broken, century-old system that isn’t fit for the modern age. Progress has been patchy, and glacial. But last year it finally admitted that the system cannot be patched up, and that new ideas are needed.
- One approach to tackling corporate tax avoidance is Country By Country Reporting, a transparency measure we first proposed in 2003 (though it’s an older idea.) Timid, partial versions are now being rolled out, across the world. Push now for full disclosure by all companies and make sure lower-income countries get the data they need.
- Unitary tax. This, if properly implemented, could decisively reach into tax havens and allow countries to tax offshore wealth. Currently, countries treat each multinational as a loose collection of separate entities. A large multinational typically has hundreds and even thousands of subsidiaries and affiliates scattered across the world. Each country then taxes the profits of each affiliate in its jurisdiction. Guess what – multinationals then shovel their profits into tax havens, where they pay no tax, and shift the costs into the high-tax countries, to cut their tax bills. Unitary tax starts from a different principle. You take the multinational’s total global profits, then allocate it to each country where it does business, using a formula based on the sales, capital and employees in each place. Each country then taxes its share at whatever rate it likes. If the multinational had a one-person booking office in zero-tax Bermuda, it wouldn’t matter: because only a miniscule portion of the global income would be allocated there to be taxed at zero percent. The system has many complexities, of course, but it’s a far better starting point than the current international system. The OECD for years ferociously resisted our (and others’) calls for unitary tax with formula allocation: last year the dam broke and it (and other world leaders) finally accepted it as a possible principle for international tax. Now the door’s open, the time has come to push hard.
- Worldwide tax. Many tax systems operate on a ‘territorial’ principle, where they only tax the domestic income of the local affiliates of multinationals (they do this in the hope of tempting multinationals to set up low-tax holding companies there, doing business elsewhere without paying tax on them. This has typically brought few benefits to ‘territorial’ countries, except to accountants). The alternative is “worldwide” taxation, where countries tax the entire global income of the local affiliate. Most tax systems are a mix of both: the Trump administration in 2017 shifted the U.S. tax system from a worldwide system towards a territorial one, with harmful effects. While we are waiting for unitary tax, countries must shift decisively towards worldwide taxation.
There are ways to protect our economies from tax dodging and to tap into offshore wealth at the same time, much of which is there to avoid due tax liabilities if we wanted to do so.