Realist, not conformist analysis of the latest financial, business and political news

If Only Joe Stiglitz Knew Anything About The Economics Of Taxing Apple

Sure, Joe Stiglitz knows a great deal about the taxation of capital and of capital incomes. He’s one – his work here having been largely done with Tony Atkinson – who has aided substantially in defining both how and whether it should be done. However, that doesn’t translate into being knowledgeable about the taxation of corporations. Which is sad really, as that’s what he’s trying to do.

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] In the last few years, globalisation has come under renewed attack. Some of the criticisms may be misplaced but one is spot on: globalisation has enabled large multinationals, such as Apple, Google and Starbucks, to avoid paying tax. Apple has become the poster child for corporate tax avoidance, with its legal claim that a few hundred people working in Ireland were the real source of its profits, and then striking a deal with that country’s government that resulted in its paying a tax amounting to .005% of its profit. Apple, Google, Starbucks and companies like them all claim to be socially responsible, but the first element of social responsibility should be paying your fair share of tax. If everyone avoided and evaded taxes like these companies, society could not function, much less make the public investments that led to the internet, on which Apple and Google depend. [/perfectpullquote]

The error is worse than it seems too.

Stiglitz is, here, stating that those returns to capital must be taxed inside the corporation. But a corporation is simply a group of people banded together to do something. As is a charity, as is a limited partnership, as is a football club.

Assume that we want to tax those returns to capital – I disagree but so what – then what we want to do is tax those returns to capital. Who owns the capital? The shareholders who own the company – just as with the partners who own the partnership. And we’re fine with taxing the partners on their personal income from the partnership. So, why aren’t we OK with doing that with the corporation?

Well, maybe the shareholders don’t pay the corporation tax? The incidence isn’t upon them? But that’s the Stiglitz Atkinson result, that the corporation tax is taxation of the shareholders, that’s what justifies it. If it weren’t taxation of the stockholders then it wouldn’t be justified.

OK, but now Joe’s insisting that we’ve got to tax the company. Which we don’t – we want, as we’ve always wanted to, to tax the rich bastards that own the companies. Corporation tax is only a method of doing this. Moreover, it’s simply a convenient method. We could gain the same result just by taxing the investors instead – recall, the corporation tax is incident upon them already.

Great. So, now corporation tax isn’t a convenient method of taxing the rich bastards because globalism. OK. Let’s go tax the rich bastards directly then.

That is, Stiglitz’s own contributions to the literature are exactly what proves we don’t need to tax at the corporation level at all. So, we don’t need to change the tax system to do so, do we?

All of which is before we consider recent changes to tax law. By, of all people, Donald Trump. Those Apple profits now get taxed in the USA, they don’t sit offshore scotfree any more. So we don’t even need to change corporate taxation, do we?

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5 years ago

And corporation tax is a highly ineffective way of taxing shareholders. Much is paid by consumers and employees because investors only care about after-tax returns.

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