Connect with us

Features

Janet Yellen Proposes to Revolutionize Corporate Taxation!

Published

on

by Selvam Canagaratna

President Biden is proposing a substantial increase in the rate of corporate taxation as part of his infrastructure plan, bumping the headline rate up from 21 percent to 28 percent. This is actually below where it was before 2017, when the headline rate was 35 percent, but given the number of loopholes in the tax code, very few corporations actually paid full whack back then. If Biden’s idea is passed, the effective rate of US corporate tax will depend on what happens with those loopholes in Congress, which is not yet clear.

More importantly, writes Ryan Cooper, Treasury Secretary Janet Yellen is leading an effort to implement a global minimum corporate tax. This would be one of the most revolutionary economic agreements in history — blowing up the model of tax havens around the world, and drastically shifting the balance of power between corporations and national governments (especially small ones).

The last several decades have seen a race to the bottom in corporate tax rates around the world, as economists Emanuel Saez and Gabriel Zucman describe in their book Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay.

America, for example, used to have very steep taxes on the rich — a 53 percent tax on corporate profits, a 75 percent tax on the biggest inherited estates, and a 94 percent top marginal income tax rate.

Figures from economist Thomas Piketty show similar rates in France, Germany, and Britain in the period after the Second World War. But these have been gradually whittled away over the years through a combination of legal innovation from tax lawyers and accountants, and learned helplessness on the part of governments — especially after the neoliberal turn in the 1980s, when taxes came to be viewed as an economic drag if not legalized theft. In 1980 the average corporate tax rate in Europe was about 45 percent; in 2020 it was about 20 percent. “Looking at most of the great retreats of progressive taxation, we find the same pattern: first, an outburst of tax dodging; then, governments lamenting that taxing the rich has become impossible and slashing their rates,” they write.

Thanks to all the succeeding rounds of tax cuts, today ultra-billionaires pay less in tax than any other group in the US. According to data compiled by Saez and Zucman, people on the Forbes 400 list of the richest people in the country pay just 23 percent of their income in tax, as compared to about 40 percent for the upper-middle class or 28 percent for the very poorest:

It is of course wildly outrageous for the most well-off people to be contributing so little to support the country that makes their wealth possible, and the gigantic concentration of money in so few hands is manifestly corrupting politics around the world. Low corporate taxes are a big reason for this — as you can see with their handy tool, increasing the effective corporate rate to 40 percent would bump up the Forbes 400 tax rate by about 7 percentage points.

But perhaps more insidious still is the politics of tax havens created by all these cuts.

One of the key legal strategies that corporations use to avoid tax is by stashing their money overseas. Google, for instance, books much of its profit in Ireland, where the headline corporate tax rate is 12.5 percent (and in practice lower than that) and Bermuda, where the corporate tax is zero. As Saez and Zucman explain, companies do this basically through trickery. By selling assets that have no market price (above all intellectual property) to foreign subsidiaries for cheap, they can then book profits relating to those assets there and pay little in tax.

In an economic sense, this is tantamount to fraud. There is not anything like the level of business activity that would justify all those profits being “made” in Ireland or Bermuda. They are overwhelmingly profits made elsewhere that are sheltered from tax authorities through accounting gimmicks.

But the ability to book profits in tax havens provides corporations with a powerful weapon against national tax authorities. By moving profits overseas (or threatening to do so), they have induced nations to continually cut their domestic corporate tax rates, inaugurating a race to the bottom as countries struggle to undercut each other.

In 1980, the average corporate rate was 40.11 percent, but today it is just 23.85 percent. There have always been countries that charged little in corporate tax, but as Saez and Zucman demonstrate, before the 1970s they were not used to book fake profits, for fear of a crackdown from the IRS or other tax authorities. But once authorities in rich countries gave up trying to rein in tax cheats, evasive behaviour exploded: Between 1980 and today, the percentage of foreign profits booked by US-based multinational corporations in tax havens has tripled, from less than 20 percent to almost 60 percent. There is no sign of the trend stopping, either — in 2020 alone, nine countries cut their corporate rate.

Now, America is so big and powerful that it could probably destroy tax havens by itself. Biden’s tax plan would double the tax rate US companies pay on their foreign profits, which would strike a substantial blow by itself. But America could also legally forbid the use of tax shelter accounting strategies for American companies, and require that any international company doing business here do the same — forcing them to book British profits in Britain, German profits in Germany, and so on. Any serious multinational must have access to the vast American domestic market, and they would basically have no choice but to comply. In the extreme, the US could apply economic sanctions to tax havens or even threaten them with military force.

But Yellen is pushing a different argument. The corporate tax race to the bottom is a poisonous zero-sum game — the benefits to Ireland or Bermuda must come at the expense of other countries, and erode the global rate of corporate tax over the long term. It follows that it is in the interest of all nations to set up a universal minimum standard so that nobody is tempted to go for beggar-thy-neighbour development strategies. That holds even for Ireland, where the flood of corporate money has badly corrupted national politics, and the average Irish person barely sees any of those fake profits anyway.

“This is not sustainable, either politically or economically,” Zucman told The Week. “A high global minimum tax would address the issue — and ultimately allow the world to reconcile globalization with tax justice.” The rate of the minimum tax is still being discussed, but if set at a reasonable level, it would be a huge blow against corporate power. In effect, nations would regain a great deal of economic sovereignty — allowing them to choose corporate policies based on what they think is best, rather than being forced to follow the herd and prostrate themselves before the corporate elite.

It is an interesting question as to why Democratic establishment types like Biden and Yellen are pushing this kind of fairly aggressive policy. The complete failure of the Trump corporate tax cuts to perform as promised probably has something to do with it. According to neoliberal economic theory, such cuts should spark investment because companies will get to keep a greater share of the revenues resulting from that investment. That did not happen because of inequality — the mass of American consumers did not have the money to buy the products that new investment would have produced and corporations were already sitting on record hoards of cash. Corporate investment is only surging now thanks to all the money put into ordinary people’s pockets through the various pandemic rescue packages, which has spiked demand for all sorts of things.

At any rate, it remains to be seen whether Biden’s tax plan can get through Congress. But Yellen could still accomplish a great deal without that happening. If a critical mass of countries can agree to stand together against big corporations, politics around the world would take a sharp turn for the better. Ultimately, corporations depend utterly on state laws and structures to exist at all. It’s only fair to make them pay their fair share.



Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Features

Save the Last Dance for me

Published

on

By Capt Elmo Jayawardena

elmojay1@gmail.com

A few months ago, I was in Hong Kong, visiting a well-known charity organisation called Crossroads. It was to seek assistance for a project in Sri Lanka. Crossroads has an enormous warehouse filled to the brim with anything and everything; ready to be sent to places where people in need plead.

The store surroundings looked familiar. Then I realised I was standing where the old Kai Tak airport was, now pastured and replaced by the glamour of the new Hong Kong International Airport.

Yes, I have been here before, many a time at that, bringing jet aeroplanes into land on runway 13, turning at the famous Chequered Board at 600 feet and pointing at the short runway besieged by the sea. The final turn and approach was made between sky-scrapers that stood on either side, like sentinels, and one could spot the flat residents’ laundry hanging outside their windows.

The Chequered Board was fixed to the mountainside, big board with orange and yellow squares, clearly to say “Turn now, beyond this is damnation”.

That was Kai Tak, surrounded by hills, minimum length to stop, and the weather gods playing their fancy games so often that we, mere mortals who flew the machines were nothing but puppets on a string.

But we managed; day in and day out to put our aeroplanes down and brake like crazy to make sure we didn’t overrun and tip into the water.

When the skies were friendly, it was a thrill to land at Kai Tak. The runway usually was direction 130 (runway 13) and the wind rolled from the East, nice and steady and we came past Green Island and saw the Chequered Board in front to tell us we have to change direction lest we too got pasted like the Chequered Board on the same mountain. Then came the turn, low and precise to make the final approach, the laundry run, to fly between the buildings and place the wheels precisely at the touch down point to avoid going swimming.

Every time a pilot landed in Hong Kong in the olden days, there was that gleam in the eye. I’ve seen it a hundred times in my co-pilots and I’ve felt the same whenever I made the approach; the accomplishment of doing something right where the demand was high, which sent the adrenalin into overdrive.

The typhoon time was another story. The winds sheared, gusted, backed and veered and the rain swept across the field, diminishing visibility. Dark grey clouds hung low, covering the mountains and the Chequered Board was hardly visible. We went in by the leading lights, which were very powerful strobes that throbbed, giving us a path to follow to take us to the laundry lane. All this was with the wind playing wild symphony and the rain pattering down like machinegun fire. Most times, lining up on the runway for the short final run was almost impossible and that is where the pilot’s skill mattered, kicking rudders and wagging wings like a mad man playing drums just so that the aeroplane landed and stopped all within that little wet and slippery runway with the sea awaiting with open jaws for a luckless pilot’s mistake.

I remember my last flight to Kai Tak, in June 1998. I left home determined to do the landing. Most days, I would let the co-pilot fly, I’ve seen a lot of this airfield and the younger pilots were always grateful for a swing at Hong Kong. But this was my final flight to Kai Tak and I saved the last dance for me, just like the The Drifters sang.

The co-pilot was young and he mentioned he had never landed in Hong Kong. It was a hard call on me. I could not let this young man go and run through a flying career having never landed in Kai Tak. Maybe, years later his first-officer would ask about the infamous Kai Tak approach and my friend would have to answer that he had never done it.

All in all. the deck was stacked against me, there is something called professional courtesy and out went my last dance, “Son, you take it to Hong Kong”.

The weather was bad, the winds were howling, and we went in. The young man turned at 600 feet and the aircraft was bucking and jumping and he hung in there like a rodeo kid but that wasn’t enough.

With 300 feet to go we were pointing at mountains and the field was almost below us and then I took over and went around to the safety of the sky.

One thing I never did in an aeroplane is if I ever took over from a co-pilot, I never gave it back. I flew it and landed it – that was the golden rule, the safe approach.

The rodeo kid and I were now loitering in the sky to await our turn to make the next run. Then it hit me like a thunderbolt, same co-pilot, years later would be a Captain and when his co-pilot asked him about Kai Tak and how it was to fly in he would have to say “I got one chance and I blew it, couldn’t make the field and the Captain had to take over.”

There was no way I could crucify this young man’s soul, make him poor as gutter water in a field where professional prestige mattered most.

‘Son you take it in, go and land this aeroplane.”

That’s precisely what he did. He waltzed with the wind and came through the clouds and turned at the Chequered Board and flew down the laundry lane and lined up the big 747 on the short runway to land as smooth as Mr. Neil did on the moon.

Then I saw the glitter in his eye – Last dance or no dance, I wouldn’t have traded anything for that look. That’s what flying was all about.

It is possible that my rodeo-kid friend would read what I write and remember. It was all between him and me and the old Kai Tak Airport.

He, I am sure by now, is a Captain. I like to think that he too would at times give away his turn to dance just to see the gleam in a fledgling’s eyes. That should be the legacy.

If not, what would we be worth as professional pilots?

Continue Reading

Features

MICHELANGELO OF ITALY and BARANA OF SRI LANKA

Published

on

BY Sampath Fernando

“Every block of stone has a statue inside and it is the task of the sculptor to discover it.” –

Michelangelo (AD 1475-1564). And he discovered THE DAVID inside a rock of marble around AD 1501-1504.

Barana, the Sri Lankan sculptor, performed a similar act in the 5th Century AD. He was supposed to have accomplished this around 455-477 AD during the reign of King Dhatusena. Avukana is a standing statue of the Buddha near Kekirawa in the North Central province of Sri Lanka. The statue, which has a height of more than 40 feet (12 m), was carved out of a large granite rock face.

 

BARANA, THE SCULPTOR

There are enough historical records about Michelangelo and his paintings and sculpture. Barana was virtually unknown. My speculation is that he was employed by the king, not for his artistry but merely for his skills to get a Buddha statue sculptured. In ancient Sri Lanka, kings were well known for creating Buddha statues and Stupas (dome shaped buildings to preserve relics).

Whatever the reason both Barana and Michelangelo deserve great honour from us. Why? It is amazing the genius of both of them, how they produced such wonderful work of art without the aid of modern cameras and computers, electromechanical drills etc. Also, how did the Romans carve their tall fluted columns which are perfectly proportioned. The magnificence of ancient Egyptian pyramids goes without saying.

 

SPIRITUAL ASPECTS

Michelangelo later in life developed a belief in Spiritualism, for which he was condemned by Pope Paul IV. The fundamental tenet of Spiritualism is that the path to God can be found not exclusively through the Church, but through direct communication with God. I speculate than Barana was a devout Buddhist. Buddhism being the only organised religion at the time. As mentioned earlier the kings spent lot of wealth and employed skilled artists to honour the Buddha.

 

THE PERFECT BUDDHA STATUE

Carved out of the living rock with supreme assurance, Avukana Buddha is a magnificent image. His expression is serene and from his curled hair sprouts the flame called siraspata signifying the power of supreme enlightenment. Although the statue is large and stands straight up with feet firmly planted on the lotus stone pedestal, the body retains a graceful quality enhanced by beautifully flowing drapery clinging to the body.

 

THE TALLEST BUDDHA STATUE IN THE WORLD

The magnificent free-standing (still attached to the original massive rock) statue carved out of a single rock is the tallest Buddha statue in existence today. Following the destruction of similar but much larger statues at Bamiyan in Afghanistan, the Avukana Buddha has gained even greater significance in the Buddhist World.

 

MY PERSONAL EXPERIENCE

My parents were devout Buddhists and school holidays were combined with a family pilgrimage. So, I was taken to Avukana statue with my two brothers and the two sisters to worship the Buddha. I was only about 10 years old. As I reached my adulthood I began to look up to Buddha for his philosophy.

As an octogenarian, I visited the site on 7 December 2019 and venerated Barana for giving us such a marvellous image of art. A combination of philosophy and art!

“I am still learning” said Michelangelo at the age of 87. I can say the same thing now, seven years ahead.

 

(The writer taught Applied Physics at The University of Arts London (UAL) and retired as a professor.)

Continue Reading

Features

Identity issues continuing to fuel Mid-East conflict

Published

on

On the face of it, the decades-long Middle-East conflict is all about who controls which plot of land in the chronically conflict-ridden region. For example, the powder keg city of East Jerusalem is claimed by both the Israelis and the Palestinians. On and off, the city erupts in violence on account of its disputed nature and we are just witnessing a new round of such blood-letting. Ownership of real estate seems to be at the heart of the conflict. But there is more than meets the eye in the conflict and land ownership is just one vital aspect of it.

As important as land and issues relating to material well being that grow out of it is religious identity and connected cultural markers that are seen by the Israelis and Palestinians as defining them as ‘nations’. This accounts for the centrality of East Jerusalem to the complex problem which is the Middle East.

In the latter city are places of worship which are seen as being of the utmost sacredness by the groups concerned. For example, the Al-Aqsa Mosque, which is sacred to Islam and therefore the Palestinians, and which came under attack in the current round of violence, is located in East Jerusalem. Likewise, numerous are the sites in East Jerusalem which are sacred to the Jews. The Temple Mount is one such structure which is revered by the Jews. But many of these places of religious worship are revered by almost the entirety of the communities of the region, although some groups proclaim exclusive ownership over them.

It is for the above reasons that pronouncements to the effect that ‘Jerusalem is the undivided capital of Israel’ could be anathema in the ears of a considerable number of Palestinians and many of those of the Islamic faith. Recognizing this statement as true and factual could be tantamount to conceding that all Islamic sacred sites in East Jerusalem should come under the complete control and jurisdiction of the Israelis.

To very many sections professing the Islamic faith in the region, conceding East Jerusalem to Israel would be unthinkable because East Jerusalem is integral to their identity as a people or as a ‘nation’. This is the reason why they would see themselves as fully justified in taking up arms to defend their perceived ownership of East Jerusalem. And ‘native’ places and locations are almost sacred to most communities and ethnic groups because those are the sites where they could practise their religions and cultures. The same line of reasoning holds good for traditional Jews. Since East Jerusalem is home to numerous sites that are sacred to them they would see themselves as justified in possessing the city by even the force of arms.

It is in view of the foregoing that former US President Donald Trump could be said to have destroyed peace prospects in the Middle East to a considerable measure by fully endorsing the position that ‘Jerusalem is the undivided capital of Israel’. By doing so, the former US President legitimised Israel’s complete hold over the city. But the truth is that ownership of the city is bloodily contested and this has been so for decades.

The question could be asked as to why one group should consider it unthinkable and revolting that the other group should exercise controlling power over religious sites that are claimed by it as well. In short, why are these group antagonisms so deep-rooted? We go to the heart of the Middle East conflict with this question.

In fact, the ‘enmity’ could be centuries long. Its roots could lie in the ‘myths of origin’ churned out by hard line sections in both communities. Both Judaism and Islam revere Abraham, seen as the originator of most theistic religions of the Middle East. Abraham is believed to have had two sons of different natures. At the popular level, each of the adversarial groups in the Middle East sees itself as deriving from the ‘better-natured’ of the sons. Like most popular myths, these notions die hard among the more impressionable sections.

However, there is no denying that land and territorial disputes have been keeping the flames of conflict and war ablaze in the Middle East. This is true of today as it was at the turn of the last century, when the British were seen as implanting the Jews in the land of Palestine at the expense of those who were already inhabiting it. That is, the Palestinians of today. The Jews were seen as growing in number in Palestine and they very soon laid claim to a state of their own in Palestine. Thus were sown the early seeds of the conflict which has bedevilled the region to date.

As matters stand, Israel controls to a considerable degree all contested areas in the conflict except the Gaza strip where the militant group Hamas exercises extensive governing control, backed by some staunchly pro-Islamic extra-regional states. At present, the religious unrest in East Jerusalem has invited the military involvement of Hamas, which development has, in turn, triggered off a spiral of violence between the Israeli security forces and Hamas. At the time of writing, the violence has claimed more than 30 lives.

It is highly regrettable that the violence is occurring in the holy month of Ramadan. It is hoped that the international community would intervene to end the violence and make a fresh effort to work out a political solution to the conflict.

A scrutinizing look at Middle East developments over the decades would indicate a close link between land issues and identity questions. These factors could be said to have been mutually-reinforcing. To the extent to which the Palestinians see themselves as being deprived of land and other means of livelihood, to the same degree are they seeing themselves as suffering on account of their religious identity. This trend aggravates religious tensions. Economic issues deriving from land questions trigger a sense of being victimized on account of religious and cultural markers.

Accordingly, US President Joe Biden has his work cut out. If he is serious about bringing peace to the Middle East, he will launch a fresh bid towards evolving the two-state solution. Under this formula there is a possibility of resolving land issues equitably.

 

 

Continue Reading

Trending