Dogma Driven Policy Making: The Big Myth Surrounding Corporation Tax

Since the 1930s when the idea of a “tax haven” (as we would understand them today) first came into being, taxation policy has broadly been adjusted under the assumption that lower corporation tax rates are how to attract investment into your country.

But do these policies actually have an evidential basis behind them? It would appear not. The broad consensus that corporation tax rates have a correlation with the level of investment (commonly phrased as “the rich people will take their money elsewhere”) appears to be built on utter fallacy. Bogus logic.

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Nor are tax havens an inevitability, it must be said, since the two are always brought up in partnership.

Right wing commentators often like to play down the significance of the “shadow economy” that moves through offshore funds and tax havens, but with the IFS estimating in 1994 that half of cross-border lending is conducted through offshore accounts [1], it is clear that the amount of tax evasion conducted through these accounts makes it a considerable sum of money to ignore.

Although we can’t know the exact amount of assets stored in offshore accounts worldwide, because the definition of a “tax haven” is contested, it is broadly agreed that this figure is in the trillions of pounds [2]. The economist Richard Murphy estimates the figure lost through tax avoidance in the UK at about £25,000,000,000 per annum, and the amount the UK loses to tax evasion at £75,000,000,000 per annum [3]. Although this is hotly contested by HMRC figures, which put it much lower [4] it is almost universally estimated to cost the UK billions of pounds per year.

Between 2000 and 2006, Murphy conducted a study into the top 50 largest UK companies for the British Trade Union Congress, and found that they paid an average of 5% less of their profits in tax than they actually declared [5]. A small amount in percentage figures, but an absolutely staggering sum of money in real terms.

Why should we care though?

Well, to put it quite simply, the fact that companies are getting away with this is nothing short of criminal. That is money which should be going toward infrastructure projects and developing our country so that we can run our public services. Educating the next generation. It should be being invested to keep people fed and to keep our economy growing. Money put in tax havens is not flowing through the British economy, and so is wasted in every sense of its growth potential.

So why did David Cameron water down our Controlled Foreign Company (CFC) rules [6] which allowed us to tax profits which MNCs moved outside our jurisdiction as though they were still on British soil? This is encouraging tax evasion, far from being concerned about it.

And tax evasion has many other consequences beyond just being a theft from the duty which should be paid for access to our society (the taxes pay for the education and wellbeing of the workforce that these companies use, and investment in the markets that they will operate in); NT Naylor has expressed concerns that terrorist groups could be using anonymous offshore accounts and tax havens to protect their funding [7] in the same manner that the CIA have done in covert operations. It is a security concern, in every sense of the word.
An OECD report in 1998 on the harmful nature of tax competition also found that tax havens are eroding the tax basis of other (and importantly, developing) countries, distorting trade and investment patterns, eroding the fairness of the tax system, and diminishing global welfare [8]. The current trajectory of our tax system has to be stopped before it crumbles in on itself. It is not just a matter of justice for the country, but justice and security for the world. We have a duty to tackle this issue, I would argue.

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So again, why do Cameron and others seem to be encouraging tax evasion, and bending over backwards to please the world’s corporations demands for low taxation?
Is it perhaps, because we have little power over the most common tax havens? How can this be, when 7 of the world’s most notorious tax havens (Bermuda, The Cayman Islands, British Virgin Islands, Gibraltar, Turks and Caicos, Anguilla, and Montserrat [9]) are old colonies which we retain a great deal of control and influence over?

The answer lies in the common fallacy that companies invest in low taxation areas. Actually, the rate of taxation and the level of greenfield investment (genuine investment as opposed to mere dummy mergers for tax purposes, which actually bear little economic benefit to the host country) have little correlation. The truth is that they simply do not affect each other.

Investigations be Reuters, for example, found that only 13 businesses could be found to have relocated to the UK for tax purposes over the period 2010-2015, despite the corporation tax rate in the UK being relentlessly cut by the conservatives from 28% to 20% in the same period [10]. The correlation between low tax rates and the level of investment simply isn’t there.

Similarly, the faux exodus claimed by the right wing media surrounding France’s tax hikes in 2013, (which right wing ideologues have been perpetuating as though France has lost billions in potential investment [11]) have equally been found to be bogus claims [12]. The correlation is not there once again.

But what about Ireland? They have some of the lowest tax rates in Europe, and as a consequence have grown faster than most other OEDC countries, haven’t they? It is a popular myth amongst the right wingers, but once again, completely wrong. A simple look at the figures in this growth show that the investment in Ireland, and the growth it has seen, is much more to do with its language and the access it gives to European markets than its level of corporation tax [13].

It works the same way across all countries, and even in the case of tax havens, it is not necessarily those havens with the lowest regulation which receive the most interest: Sharman and Rawlings (2006) found that some of the least regulated tax havens, the Pacific atolls, were some of the least successful at attracting money to their shores, because banks, companies, and hedge funds did not want to risk attracting attention by having their names associated with disreputable, poorly managed tax havens [14]. Exploiting reputation, with this information in mind, could be a potential solution to tax evasion in years to come, and the ‘Publish what you Pay’ campaign is one way which has been suggested for us to go about the task of cracking down on tax havens [15].

Far from investment being driven by low corporation tax and deregulation, the OECD has actually stated that average income and market size, as well as skill levels, infrastructural investment levels, and macroeconomic stability are what drives businesses to invest in a country [16]. Despite the ludicrous arrogance of Boeing threatening to refuse to carry out safety checks on their aircraft if they didn’t receive adequate tax breaks [17], the threats of corporations like this, in real terms, are nothing more than lobbyist hot air. The reality is that they go where the markets are and this is unlikely to be affected by tax rates.

A 50 year study into US tax incentives which concluded in 2013, found that “there is no conclusive evidence from research studies conducted since the mid-1950s to show that business tax incentives have an impact on net economic gains… nor is there conclusive evidence from the research that taxes, in general, have an impact on business location” [18].

It can therefore be concluded with certainty that scaremongering about “rich people leaving the country due to corporation tax” is an utterly ridiculous line of argument for right wing ideologues to use, without even getting into the fact that (even if it were the case that there was a correlation between low corporate taxation and investment) the UK has one of the lowest corporation tax rates in Europe [19].

There is no truth to the bogus line of argument whatsoever.

[1] Chavagneux, C. Murphy, R. & Palan, R. Tax Havens: How Globalisation Really Works (Cornell University Press 2010), p.50
[2] Chavagneux, C. Murphy, R. & Palan, R. Tax Havens: How Globalisation Really Works (Cornell University Press 2010), pp.61-63
[3] Chavagneux, C. Murphy, R. & Palan, R. Tax Havens: How Globalisation Really Works (Cornell University Press 2010), p.66
[4] https://fullfact.org/economy/tax-avoidance-evasion-uk/
[5] Chavagneux, C. Murphy, R. & Palan, R. Tax Havens: How Globalisation Really Works (Cornell University Press 2010), p.66
[6] Christensen, J. Shaxson, N. Tax Competitiveness: A Dangerous Obsession -in- Global Tax Fairness (eds. Pogge, T. Mehta, K.) (Oxford University Press 2016), p.276
[7] Chavagneux, C. Murphy, R. & Palan, R. Tax Havens: How Globalisation Really Works (Cornell University Press 2010), p.208
[8] Chavagneux, C. Murphy, R. & Palan, R. Tax Havens: How Globalisation Really Works (Cornell University Press 2010), p.212
[9] Chavagneux, C. Murphy, R. & Palan, R. Tax Havens: How Globalisation Really Works (Cornell University Press 2010), p.124
[10] Christensen, J. Shaxson, N. Tax Competitiveness: A Dangerous Obsession -in- Global Tax Fairness (eds. Pogge, T. Mehta, K.) (Oxford University Press 2016), p.274
[11] http://www.dailymail.co.uk/news/article-2292189/Two-MORE-executives-join-French-exodus-including-Moet-champagne-empire-boss.html
[12] http://economistsview.typepad.com/economistsview/2013/03/-huge-flight-of-rich-after-french-tax-hikes-nope.html
[13] http://foolsgold.international/did-irelands-12-5-percent-corporate-tax-rate-cause-the-celtic-tiger/
[14] Chavagneux, C. Murphy, R. & Palan, R. Tax Havens: How Globalisation Really Works (Cornell University Press 2010), p.160
[15] http://www.publishwhatyoupay.org/about/
[16] Christensen, J. Shaxson, N. Tax Competitiveness: A Dangerous Obsession -in- Global Tax Fairness (eds. Pogge, T. Mehta, K.) (Oxford University Press 2016), p.281
[17] Christensen, J. Shaxson, N. Tax Competitiveness: A Dangerous Obsession -in- Global Tax Fairness (eds. Pogge, T. Mehta, K.) (Oxford University Press 2016), p.267
[18] http://origin-states.politico.com.s3-website-us-east-1.amazonaws.com/files/131115__Incentive_Study_Final_0.pdf
[19] https://tradingeconomics.com/country-list/corporate-tax-rate

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Unelectable Terrorist Sympathizer: The Rapid Fall of Theresa May in the General Election 2017

Much to the irritation of Isobel Oakshott and other Daily Mail commenters (who are generously referred to by some as “journalists”), the Conservatives only ‘won’ the general election in the most basic and rudimentary two-dimensional sense.

Many of my left leaning friends are disappointed that Theresa May will be leading the Conservative party into government once again, but I must disagree with them. I am completely elated by the result of this election; Theresa May is finished, and every second she clings to power by the skin of her teeth only helps the conservatives to haemorrhage support.

What can I say? Two-dimensional strength will get you a two-dimensional victory. Until recently, Theresa May was polling extremely high amongst the general public [1] …until she had to face the one thing she apparently can’t deal with: scrutiny.

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It seemed to me that, for a very long time, she was able to hide how terribly feeble she was. There had always been an unsavoury authoritarian undertone to her way of doing politics, which is regarded by many international spectators as a little unsettling [2], but the calling the general election to take advantage of an apparent poll lead was seen as a particularly thuggish and authoritarian move; forcing other leaders to take part or be branded a coward and denouncing any opposition to her position as mere political agitation. The satire website NewsThump declared it was a “Snap Annihilation of the Labour Party” [3], and it was difficult for most people to view it many other ways at the time. A consolidation of power.

In particular, Theresa May wanted to take advantage of Brexit populism, by taking a hard right stance on the issue, and hoping that the vote would flow to her. For months she has been declaring that she has a mandate for this form of Brexit (despite no such mandate existing), and showed a remarkably poor understanding of democracy.

What she invoked was majoritarianism- which is often confused with being the definition of democracy, but is actually only a single (and rather basic) interpretation [4]. The majoritarian move to ignore the concerns and wishes of the 48% entirely, not only shows a poor understanding of democracy for a Prime Minister, but also puts the very unity of the United Kingdom at risk, in the hopes of claiming Brexit populism for her own gain.

It is fair to say, I think, that her poor understanding backfired.

Despite her feeble understanding, she is also overly brazen and extremely lacking in subtlety. The declarations of “strength and stability” simply had no weight to them within a few weeks of her campaign launch. On Europe, in particular, she has taken the stance of a hardline Brexiteer and tried to bulldoze a hard Brexit through the country, against the advice of the overwhelming majority of expert opinion [5] [6] [14].

And she wonders why she was met with resistance?

But more than that, her understanding of negotiating is so incredibly poor. As a student who is required to study international politics, I was stunned by how blatantly she must be ignoring the expert advice around her. Beginning Brexit negotiations by threatening to walk away with nothing [7] is a shallow understanding of these negotiation at absolute best. The EU are not stupid- they know that we need a trade deal, and they will know that it is ridiculous to suggest that we walk away without one, but Theresa May still feels the need to threaten Europe with a bluff that will be viewed as ignorant and impolite.

In many ways, I have to wonder if she began to believe her own monotonous rhetoric? Did she honestly think that she was half as strong and stable as the papers were declaring she was? I think there is a good chance she got swept up in her own propaganda.

The reality is that May was robotic and shallow at every single turn [8]. I had been uncertain on my views on her in the past- I thought I was perhaps being overly critical- but now I can say with certainty that she always was a terrible leader with a media screen to protect her. Conservative friends of mine called for her resignation and thought she would resign on the night, but predictably, she was her old authoritarian self. To my delight, she clung onto power like a cement block clinging to the leg of the conservative party.

This election was also dubbed “The Brexit Election” and Theresa May declared that the objective was to “put forward our plans for Brexit and our alternative programmes for government and then let the people decide” [9].
It appears that the people decided; they chose to reject Theresa May’s hard Brexit, and her mandate for pursuing it has effectively been destroyed. However, if you believe this will stop her pursuing a hard Brexit, I would gently suggest that you don’t understand Theresa May’s nature.

Many far right Brexiteers will declare that Brexit was only mentioned in passing, and this cannot be taken as a rejection of a far right hard Brexit, but humour me:- can you imagine what Brexiteers would be saying if Theresa May had won a larger majority?
They would claim it as an utterly indisputable mandate.
Why should the same standards not apply?
The shaky basis upon which May declared she had a mandate just sunk like a rock in the ocean of reality.

But perhaps best of all, the world underestimated Jeremy Corbyn once again. Less than two months ago, even his allies were declaring that the party was ‘doomed’ under Corbyn, and that his leadership would spell the end of the party itself [10] [11] [12] [13]. And I have no intention of letting his critics forget this.

The criticism of Jeremy Corbyn went much too far, and was propped up by the considerable efforts which the media have (now undeniably) gone to in order to project this image of Corbyn as “unelectable” [15], which is of course nonsense: no politician is inherently ‘unelectable’ due to their position. If it were so, we would be hearing how ‘unelectable’ Nigel Farage was due to his extreme right wing views, but we simply do not.

Politics is about persuasion, not adjusting your morals to suit the public mood, even if your views are considered radical, which, despite the constant “comrade Corbyn” rhetoric [16] is not true of Corbyn; his policies are both popular here in the UK [17] and considered mainstream elsewhere in the world [18].

Corbyn

However, it is now even better that all of the “Corbyn is a terrorist sympathizer” rhetoric has fallen flat on its face. I have always attempted to ridicule this logic- negotiating with a group does not imply sympathy. No one has yet declared Neville Chamberlain to be a Nazi sympathizer for negotiating with Hitler in 1938. It is a ridiculous leap in logic to use- a leap in logic which has come back to eat its now hypocritical proponents since 8th June.

Unlike others, I do not actually believe that the DUP are terrorist sympathizers, but I do recognise that by the standards set by Corbyn’s critics in condemning him as a “terrorist sympathizer”, they are terrorist sympathizers. It is simply undeniable. The right wing have laid a logical pitfall trap and fallen right inside it in the course of their election campaign.

You see, just as much of Sinn Fein had been imprisoned prior to August 1994 for their involvement with the IRA [19], so the DUP was heavily involved with groups such as the Ulster Resistance during the 1980s, and has led to the DUP being regarded as extreme even by other unionist groups such as the UUP [20].

In particular, it’s longstanding ‘official’ rejection of, but continued association with, the paramilitary Ulster defence association (UDA) has landed it in difficulty, particularly given that the UDA was known for randomly targeting catholic civilians in campaigns of brutal murder in “retaliation” for IRA killings [21] which those civilians had no part in. The UDA’s Tommy Herron had also declared war on the British Army (despite supposedly being on the same side in the conflict) a number of times [24] during the troubles.

Just last month, DUP leader Arlene Foster met with UDA leader Jackie McDonald, despite the murder of Colin Horner in front of his 3 year old son just days before, which has been attributed to the activities of the UDA [22]. The DUP are opposed to gay marriage, family, planning, and the peace agreement in Northern Ireland; when it was proposed, the DUP refused to participate and declared they would not “negotiate with terrorists” [23] (despite the fact that there were sectarian paramilitary groups such as the UVF and UDA on their side too).

Forming a government with the DUP may well put the Good Friday Agreement at risk, and I suspect that Theresa May knows this, but she will do it anyway. She will cling on to power.

Make no mistake; the DUP are extremists, and by the same standards that Jeremy Corbyn is a “terrorist sympathizer”, they would also be considered terrorist associates.
Theresa May was so desperate for a mandate that she has gone into coalition with those people.
Many conservatives will have to do logical acrobatics in order to justify this to themselves, and my generation should take heart- because of us, and the allies we have from all age groups who I am immensely proud of, Theresa May is struggling to cling onto power, and has been caught in a snare of her own making.
An unelectable terrorist sympathizer.

[1] www.economist.com/blogs/graphicdetail/2017/06/daily-chart-3
[2] http://edition.cnn.com/2017/04/19/opinions/theresa-may-authoritarian-maltby-opinion/index.html
[3] http://newsthump.com/2017/04/18/theresa-may-announces-snap-annihilation-of-the-labour-party/
[4] www.bu.edu/law/journals-archives/bulr/documents/macedo.pdf
[5] http://cep.lse.ac.uk/pubs/download/brexit01.pdf
[6] http://www.open-britain.co.uk/the_brexit_cliff_edge_by_ian_dunt
[7] http://blogs.lse.ac.uk/brexit/2017/06/08/unpicking-the-no-deal-is-better-than-a-bad-deal-mantra-what-would-a-bad-deal-look-like/
[8] www.economist.com/blogs/bagehot/2017/06/road-disaster
[9] www.bbc.co.uk/news/uk-politics-39630009
[10]  http://labour-uncut.co.uk/2017/04/20/corbyn-has-doomed-labour-time-to-vote-tactically-for-the-strongest-opposition-to-brexit/
[11] www.dailymail.co.uk/news/article-4121088/Corbyn-doomed-electoral-failure-doesn-t-watch-Mrs-Brown-s-Boys-says-Labour-MP-Stella-Creasy.html
[12] http://www.independent.co.uk/news/uk/politics/david-miliband-savages-jeremy-corbyn-and-his-own-brother-too-a7321531.html
[13] https://inews.co.uk/essentials/news/politics/nicola-sturgeon-launches-withering-attack-unelectable-jeremy-corbyn/
[14] https://www.parliament.uk/business/committees/committees-a-z/commons-select/exiting-the-european-union-committee/news-parliament-2015/brexit-white-paper-report-published-16-17/
[15] www.lse.ac.uk/media@lse/research/pdf/JeremyCorbyn/Corbyn-Report-FINAL.pdf
[16] www.express.co.uk/news/politics/593968/Corbyn-admits-Karl-Marx-my-communist-hero/
[17] www.indpendent.co.uk/news/uk/politics/jeremy-corbyn-policy-blitz-poll-supported-by-majority-of-british-public-a7685016.html
[18] www.mirror.co.uk/news/politics/7-radical-policies-draft-labour-10401191
[19] McKearney, T. The Provsional IRA: From Insurrection to Parliament (Pluto Press 2011), p.175, p.187
[20] Cox, M. Guelke, A. & Stephen, F. A Farewell to Arms? Beyond the Good Friday Agreement (Manchester University Press 2006), p.78
[21] Fay, MT. Morrissey, M. & Smyth, M. Northern Ireland’s Troubles: The Human Costs (Pluto Press 1999), p.60
[22] www.belfasttelegraph.co.uk/news/general-election-2017/DUP-chief-arlene-foster-met-UDA-boss-days-after-loyalist-murder-in-bangor-35776873.html
[23] Fay, MT. Morrissey, M. & Smyth, M. Northern Ireland’s Troubles: The Human Costs (Pluto Press 1999), pp.64-65
[24] Dillon, M. Lehane, D. Political Murder in Northern Ireland (Penguin Books 1973), p.265