International Economics: IB Economics

An interesting article about the Irish government's 13 billion euro windfall, as Apple are forced to pay tax to them. It gives a bit of insight into recent Irish economic history and, I think, a clever reading of the narrative that surrounds public spending. 

"Economic downturns in Ireland are inevitably framed as morality plays in which the wicked (ordinary people) are punished for their greed (wanting functional public services). The message is clear: nice things cannot happen here." The same is true in the UK.

Another call for a wealth tax, with the Tax Justice Network calling for a Spanish style wealth tax on the richest 0.5% of households, claiming that it could raise $1.5 trillion.

The problem is that wealth taxes rarely raise the forecast revenues, are often relatively easy to avoid, and some argue that they reduce the incentive to work - although I've never been convinced by this at anything other than the extreme margin. 

So, wealth taxes have appeal, but they're not the panacea that some would claim. 

Political leaders at G20 are meeting in Brazil and one topic of conversation is the notion of a global minimum tax rate for the super-rich. Whilst this will play well with Guardian readers, my gut instinct is "Good luck with that".

The super-rich are hypermobile, and will always find ways of tax avoidance, and besides, it's also the case that there's an incentive for economies to want to welcome them, so the prospect of agreement on a global minimum tax rate looks a distant one. 

The Tax Justice Network highlights tax avoidance on a grand scale, arguing that MNCs are cheating governments out of billions of dollars of tax revenue via the use of tax havens. Are we happy with this sort of arrangement? 

Far be it from me to suggest that the publication of this article is in any way linked to the current political hoo-ha in the UK about the tax status of the Chancellor's wife, but the Guardian flags up a group of rich Americans who want to pay more tax. 

Rarely in economics do turkeys vote for Christmas but in this case, a number of the super-rich, notably Abigail Disney, argue in favour of a wealth tax and increasing the amount that they pay. It is genuinely interesting to hear their arguments - and just nice to see people actually wanting to pay their fair share of tax rather than seeking to avoid it. 

Thomas Piketty has a fairly punchy assessment of how we might go about tightening sanctions on Russia, starting with the super-rich, and an equally damning assessment of why we haven't done this already. 

He argues that the extent to which oligarchs have assets overseas makes tackling them relatively straightforward, but that wider measures, such as an international financial registry are being opposed because it runs contrary to the self-interest of the global elite.

If we all knew how little income tax the super-rich paid, we might think about readying the pitchforks!

A nice little boost for Irish government finances with Google agree to settle its outstanding tax bill, including some backdated tax payments - to the tune of £183m. Not an inconsiderable sum. 

Serves them right! But it's probably still less than they should probably be paying. 

This Guardian piece looks at the implications of the newly agree global minimum corporation tax rate (15%) for the Irish economy, with most of the tech giants having their European HQs there.

However, despite the move meaning that the tax rate will go from 12.5% to 15%, most people don't expect it to have much of an effect, not least because most of these companies have an effective tax rate that's quite a lot lower. 

The OECD global minimum corporate tax rate has been agreed; 136 countries will now have a minimum rate of 15%, including one or two who at first resisted - notably Ireland, Hungary and Estonia.

Ostensibly a good thing, but the devil is in the detail. What will happen to global tax revenues from MNCs? And what are the implications for individual economies? I will reserve judgment for now.

And yet, is everything what it seems? The head of Tax Watch argues that the headlines about the global minimum tax rate are designed to disguise the fact that tech firms are still going to be able to repatriate their profits. 

Why on earth do you think that the US is backing the current scheme? He argues that in return for agreement on this, the UK and other EU countries that have proposed digital sales taxes are, effectively, being bought off. How cynical of him.

Whilst the headline is eyecatching, the devil, as always is in the detail. 130 countries have signed up to the minimum global corporate tax rate but with a number of notable exceptions, such as Ireland, Hungary and Estonia.

Is the agreement going to completely end tax avoidance? I doubt it...

And again, it seems that Maureen Tkacik has a similar perspective to me regarding tax avoidance and the ProPublica leak. 

This is a fine article, looking at the implications of last week's agreement on a minimum global corporate tax rate. Political economist, Mark Blyth, argues that for all the rhetoric, it will be interesting to see the reality of the situation and whether or not it marks an end to industrial scale tax avoidance. 

Busy - and profitable - day for the EU Commission and the European Court of Justice with the court upholding the earlier decision that Apple had received illegal aid from the Irish government and should instead be paying 13 billion euros in tax. The Irish government argued that the benefits of Apple locating there outweighed the cost of the taxes foregone. 

Could this be a watershed in the history of the tech sector within the EU?  

It seems as though the G20 are moving closer to a global wealth tax with a study by French economist, Gabriel Zucman, suggesting that a tax on the world's 3,000 billionaires "could net up to $250bn (£197bn) a year in extra revenue".

I'll suggest two things - the desire to introduce this tax isn't as high as the G20 want to portray; it won't generate that sort of revenue because it's in the interests of the super-rich to find tax loopholes. 

The EU Tax Observatory report on tax avoidance/evasion and they're of the view that the super-rich need to face wealth taxes rather than income taxes, largely because the latter are too easy to avoid. 

They point to the proliferation of shell companies that exist almost exclusively for the purpose of avoiding tax, and as such, verge on being evasionary. 

'Twas ever this - however, for me the biggest issue is attitudinal. We shouldn't fawn over the super-rich and tax avoidance is something that we should be critical of. 

It's been a while since we heard about this - but despite widespread acclaim for the notion of a minimum global corporate tax rate, it's been postponed until 2024 and there are some who doubt whether it will ever get implemented. 

In the event that it doesn't get introduced, I have to say that it would be one of the great 'smoke and mirrors' bits of policymaking; I suspect most people think that it's already in operation.

It seems that President Biden is targeting the super-rich in his forthcoming Budget, with the introduction of a 'minimum income tax' designed to try and ensure that the effective rate of tax faced by billionaires is higher than that paid by people such as teachers and firefighters. 

The reason that there's such large scale tax avoidance seems to be because the super-rich are able to funnel remuneration in share buy-backs which avoid tax, whereas were they to receive this in income they would be liable for tax. 

Larry Elliott writes about the postponement of Davos but highlights the issues and the hypocrisy that surrounds them. Climate change, tax avoidance and vaccine apartheid remain the issues at the forefront of the global agenda, which generate a lot of fine words, often by those best able to tackle them who then find numerous ways of avoiding tackling them directly. 

It's rumoured that Davos may take place later in the year; however, will there by much appetite for it.

I always ask my sets if they think benefit fraud or tax avoidance are the bigger problem, and, without fail, they always identify the former. 

This is why articles such as this are so important - the scale of tax avoidance is laid bare here, and when confronted with this, I then ask my pupils to reflect on who commits benefit fraud relative to who the tax avoiders are. I hope it makes them think differently about the two issues. 

An insight into the extent to which tax avoidance costs governments money. When thinking about this, I always find it helpful to remember than in the UK at least, tax avoidance costs the government ten times the amount that benefit fraud does. 

Not that you'd think that if you read the Daily Mail.

It seems as thought the Irish are abandoning their 12.5% corporate tax rate and join the OECD's global minimum tax rate, and accept a corporate tax rate of 15%.

However, before you get too excited, the rate is only going to apply to companies earning more than 750 million Euros a year across the globe. One wonders whether we might see a number of leading companies look to split up large businesses to avoid paying a higher rate of tax? 

It looks like the OECD's proposals for a global minimum corporation tax rate of 15% is getting closer, and may even be announced this week. 

It will be interesting to see the reaction of MNCs to this:will they front up and start paying higher rates of tax? Or will they scuttle away to the remaining tax havens? Or have they already evolved new tax avoidance schemes? 

The IMF looks at the notion of a global minimum corporate tax rate of 15%, with government's still permitted to have a higher rate of corporate tax if they wish. 

They see it as the biggest change in the global tax system in century, and an attempt to overcome the notion of profit-shifting, which has prompted a race to the bottom as countries have tried to attract MNCs. 

Not much in the way of economic theory here but a fascinating insight into the nature of the language associated with tax avoidance. It's true that we assume that the super-rich are all engaged in something legal, tax avoidance. And yet, the accounting companies that help them to do this have paid millions of dollars in fines for facilitating under-reporting of the amounts that these people, and their companies, have paid in tax. 

So why the linguistic reluctance to imply that some elements of tax avoidance are, in fact, tax evasion? I would argue that the media fear libel laws...