Corporate profits

Is the global economic climate changing? —MercoPress

Taxing Corporate Profits: Is a Change Coming in Global Economic Conditions?

Saturday, June 12, 2021 – 08:00 UTC


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If he makes it through all of this, companies like Microsoft will no longer be able to protect their profits from prying taxes.

By Gwynne Dyer – It’s not Bretton Woods, but it’s a start. The decision by G7 finance ministers to create a global minimum tax rate on corporate profits, and reaffirmed by world leaders meeting in Cornwall, is a step in the right direction, if only a little step. The tide had to turn now, according to one theory, and maybe it’s finally happening.

What was actually agreed at the London meeting on Saturday June 5 was both tentative and tentative. The minimum tax rate for large international corporations has been set at 15%, not much above the rate applied by low tax countries such as Ireland and Cyprus (12.5%).

That’s already a significant drop from the 21% tax rate originally proposed by US President Joe Biden. Moreover, the G7 (United States, Germany, Japan, France, United Kingdom, Canada and Italy) was only the first obstacle to this initiative.

The plan is also due to be considered by the Organization for Economic Co-operation and Development (38 high- and middle-income democracies) and then by the G20 meeting in Italy next month (which includes Russia, China, India and Brazil), and finally by the American Congress (ratification in 2022?).

If he gets through all of this, companies like Microsoft could no longer protect their profits from prying taxes by the following routine:

A) Earn US$315 billion worldwide from licensing rights to use copyrighted Microsoft software;

B) Remit all licensing revenue to Microsoft’s European subsidiary, conveniently located in Ireland, whose accounts indicate that it has “no employees other than administrators” and is “tax resident” in Bermuda;

C) Pay a few billion to the Irish government by other means to satisfy it;

D) And send all $315 billion in worldwide profits to Microsoft’s “office” in Bermuda (a brass plaque on a wall), where it pays no tax because Bermuda has no corporate tax .

Ordinary people would go to jail for organizing such a brazen tax scam. What ordinary people need, of course, are Bill Gates’ tax lawyers. But alas, ordinary people can’t afford Bill Gates’ tax lawyers.

It is therefore encouraging to see that the doors to this particular form of tax avoidance are closing. As governments desperately need more tax revenue after a year of huge spending on various forms of pandemic support, the political mood has shifted and previously unthinkable violations with neoliberal dogma are now entirely on the cards.

The question is whether this is a flash in the pan or a lasting change of course. The answer largely depends on whether or not you believe in the idea of ​​a long cycle (about 40 years) in the politics of the economy. If you take it seriously, then we are indeed due for a change.

Modern economists tend to doubt the existence of business cycles – not even the traditional 7-11 year boom and bust business cycle. Technology-related cycles like the “Kondratieff wave” (45-60 years) receive an even colder reception. But many see a plausible political cycle hidden in plain sight.

It has to do with the expansion and contraction of income gaps in developed countries over the last century and a bit. Between about 1890 and the end of the 1920s (from the Golden Age to the Roaring Twenties), the gap between the rich and the rest widened rapidly: Rockefeller, Rothschild and Vanderbilt.

After the crash of 1929 and the Great Depression came not only Roosevelt’s New Deal in the 1930s, but even more ambitious welfare states in all Western countries after World War II. The Great Boom lasted until the late 1970s, and the income gap between the rich and the rest remained relatively narrow throughout.

The neoliberal era began with the elections of Margaret Thatcher in the UK in 1979 and Ronald Reagan in the US in 1980. Over the next four decades, middle and working class incomes stagnated or fell in most Western countries, while a new class of the super-rich have emerged with Bezos, Musk and Gates as totems.

The last period when income differentials remained low and public spending soared (1935-1980) ended with runaway inflation. The previous get-rich-quick era ended in wild speculation and a spectacular economic crash (1929). If this precedent holds, the neoliberal era should also end in a crash, and 40 years would be almost now.

There was a crash almost as bad as the one in 2008 and Western economies have not really recovered since, while income gaps have continued to widen. Maybe we’ve just been in a waiting pattern because it happened a little too soon, and now the emergency expenses of the pandemic have finally pushed us over the edge.

Or maybe not: I’m just speculating here. But it feels like the wind has changed. If governments start cooperating internationally to curb the excesses of the neoliberal era, we really are in for a new game. What’s Next for Universal Basic Income? (And runaway inflation by 2060?)