What has Obama done?

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There’s mighty stink in the US corporate world this morning about Barack Obama’s attack on offshore. According to the FT:

“It is the wrong idea, at the wrong time for the wrong reasons,” said John Castellani, Business Roundtable president. “It will cripple growth, reduce the competitiveness of US companies overseas and destroy jobs.”

And according to Irish commentators (I was on Irish radio at 7 this morning) it’s all about US protectionism. But what is actually happening?

First, let’s be clear, and regret the fact, that this is not the Stop Tax Haven Abuse Act. It’s nothing like as tough. I do deeply regret that.

Second, let’s be clear, if as the administration says:

In 2004, the most recent year for which data is available, U.S. multinational corporations paid about $16 billion of U.S. tax on approximately $700 billion of foreign active earnings β€” an effective U.S. tax rate of about 2.3%.

and the drive against corporate America that has been announced will raise $103 billion over the next decade then the tax rate is going to increase to 3.7%. It’s pretty important to put this in context. the reality is that big corporations so any tax is too much tax as far as they are concerned. It’s something we need to remind ourselves of time and time again.

So what is actually being proposed? This:

1. That is a US corporation spends money in the US supporting its overseas subsidiaries it does not get tax relief for that spend until such time as the overseas subsidiaries remit funds back to the US. In other words, there’s a matching of tax relief given with taxable income received, which hardly seems like a revolutionary concept. Nor does it seem protectionist in the slightest. It seems like the sort of act a prudent government should do to protect its tax base unless it is specifically seeking to support business in certain locations e.g. as pat of development strategy.

2. It’s stopping US companies making artificial claims for tax relief on tax paid overseas. This is a straightforward anti-abuse measure because the existing rules have been abused.

And, as far as corporate USA is concerned that's it.

There are measures on tax havens per se β€” but that’s a different issue. The above is the sum total of the measures that corporate USA is saying will restrict its competitiveness, which Ireland says will undermine is economy and the Dutch say unfairly pick them out.

I’d simply draw attention to the work I did recently on Google for the Sunday Times. Here a US corporation failed to pay tax in the UK on all the revenues it charged to customers within that country, reallocated its profits to Ireland, then appeared to reallocate them again to Bermuda, and the loss along the way was a significant part ($705 million in 2007) of the benefit the US Treasury wants to recover. It’s not hard to see that each company is not going to be hit much. It’s equally clear that the abuse is massive.

Of course this can be seen as a simple anti-avoidance issue. It is, in part. But it’s also much more significant than that. The corporations in question claim to think globally. I dispute that. In fact there is no evidence that they do so at all. If they thought globally as Google suggests in its accounts by claiming it is just one business segment it would not be structuring its local affairs to make sure tax was not paid in the UK, or Ireland come to that. The claim is simply untrue on the basis of that evidence.

What companies are seeking is a system of operating beyond accountability, without (in the literal sense) government control. In effect they have made the declaration that they are above the law; that for them there is no society. In so doing they reflect the attitude of the neo-liberal hard right who would demolish all semblance of society in the pursuit of individual greed β€” and will, if they succeed destroy civilisation as we know it.

Obama has made the mistake of tipping at the mechanics of this process. That is a mistake. I know his advisers have suggested he should have looked at unitary taxation as the solution to this issue. I have argued for this. We need it.

The reality is that in accounting and tax we are being faced with choices: choices about who governs. Not a choice about on whose behalf there is government: a choice about who governs. Is it government or is it corporations and the elite that controls them? The Left has to get its head round this issue. It has to tackle it, and embrace solutions that ensure the power of government by and for the people of the world survives. If it doesn’t we all go down with it.

Obama has done something useful. But he could have done so much more. It’s not a day to celebrate.