OPINION:
The Group of Eight concluded their summit last week with grand promises to pursue “proper tax justice in our world,” in the words of British Prime Minister David Cameron. His Orwellian turn of phrase at first sounds good; who doesn’t like justice? But what “justice” here means is pursuing profitable corporations that seek refuge in business-friendly nations. If implemented, consumers would pay more for just about everything they buy.
There’s a big difference between illegal tax evasion and legal tax avoidance, but politicians conflate the two for more dramatic sound bites. “We have commissioned a new international mechanism that will identify where multinational companies are earning their profits and paying their taxes,” he said, “so we can track and expose those who aren’t paying their fair share.”
“Fair share” is the giveaway. It’s not that companies are failing to pay their legally obligated taxes. What the governments object to is that successful companies like Apple Inc. instruct their army of accountants to use the tax code to ensure the Internal Revenue Service takes away as little as possible from shareholders. That’s just good business. It’s much like the way everyone searches for every legal deduction before mailing in the tax form on April 15.
Smart businesses understand that it’s only good sense to incorporate a company in a low-tax jurisdiction, or deposit profits in Ireland, the Isle of Man or the Cayman Islands, where the governments won’t punish producers and savers. Tax avoiders pay U.S. taxes. Apple, for instance, was called out as a tax scofflaw even though it paid the IRS $6 billion last year. Its CEO, Tim Cook, says it will pay even more this year.
No matter how big the check, the government’s appetite for more can never be satisfied. Governments see Apple only as a tasty source of untapped cash stored in overseas, low-tax jurisdictions. Only fools would readily subject profits earned overseas to the developed world’s highest corporate-tax rate. According to Audit Analytics, a research firm, U.S. corporations keep about $1.9 trillion overseas because they understand that by bringing the money here, they would surrender 39 percent of their profits to the government. This would mean higher prices for consumers and lower returns to shareholders.
Governments try to limit tax competition so tax burdens will stay uniformly high. The G-8 wants to share information to track corporate profits so they can be heavily taxed. The IRS and its European counterparts are intrusive enough already; a grant of expanded powers to undermine privacy by shipping sensitive financial information around the world would be bad for everyone but the bureaucrats.
The fair, simpler way to reduce tax avoidance would be to lower corporate-tax rates. The United States must make tax policy competitive so that companies will have an incentive to bring home profits earned overseas. That can’t happen until the government restrains its insatiable appetite for spending what the rest of us earn.
The Washington Times
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