The FT is unequivocal this morning. This is a headline:
There is good reason for this concern. The proposal for US corporate tax reform is a disaster in the making. It would exempt revenues from exports by US companies from tax and give no tax relief for imports. Trade war would follow. It would provide no tax relief for interest paid: chaos in financial market would follow. And the dollar would require massive change in valuation to compensate for the change which, when it's a base currency, is reckless.
But the question has to be asked then as to where this madness came from. The answer is simple. It was from the Institute for Fiscal Studies. Yes, that's the supposedly sober and respected UK tax think tank. The following comes from a paper by Alan J. Auerbach, Michael P. Devereux, and Helen Simpson that the IFS published a part of their 2010 Mirrlees review:
An alternative which we put forward for consideration is a destination based tax, levied where a sale to a final consumer is made. This takes the form of an extension of the flow-of-funds taxes of Meade. Specifically, we suggest that one might improve on Meade's proposed taxes by adding border adjustments: imports would be taxed, but tax on exports would be refunded. The result is a destination-based cash flow tax, essentially a destination-based VAT, but with labour costs deductible. Such a tax would leave location choices unaffected by the tax, and would also considerably reduce the opportunity for companies to shift profits between countries. We put forward a case for implementing a tax of this type on both real flows and on financial flows, on the grounds that this would also tax the economic rents generated by banks on lending to domestic borrowers.
This is exactly what Trump is now proposing to do, with untold risk to the stability for the world economy.
I have for at least a decade opposed many of the tax proposals coming out of the IFS and in turn the Oxford Centre for Business Taxation (they are very closely linked) because I felt them to be fundamentalist and fundamentally dangerous. As I wrote in 2011 under the headline 'The Mirrlees review — just an exercise in right wing propaganda on behalf of the Oxford elite':
I have given much attention to the Mirrlees review by the Institute for Fiscal Studies in the past — just look here and take your pick. Now they have published their final report.
I know the world bows down to the IFS — but I don't. And that's because the whole of this review is a coordinated attack on the ordinary people of the UK and as such is shameless promotion of the interests of the elite that neoliberal economics serves.
It just so happens that the US might now be the launchpad instead of the UK. That does not make things any better, and it's still an assault on ordinary people. I feel that everything I said has been vindicated.
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Irrespective of its parentage, the basic approach is being advanced by the Speaker of the House of Representatives, Paul Ryan. Trump wanted to repatriate profits being kept offshore by US MNCs and proposed a much lower US corporate profits tax rate as an incentive. But he seems content to adopt some or all of Ryan’s proposals as they may meet his requirements – and have a better chance of being passed by a GOP-dominated legislature.
The real issues are not so much the advantages/disadvantages of this approach relative to others, but the global disruption and unintended consequences if the US decides to implement it unilaterally.
I have the idea that there is a Department Of Bright Ideas, that is an organisation that comes up with wheezes and notions that when applied are invariably disastrous. The IFS has always seemed to be a section of that Department. In a globalised world errors gain in magnitude and immediacy.
IFS =
Infinitely
Fleecing
Society
The first line says it all really:
‘An alternative which we put forward for consideration is a destination based tax, levied where a sale to a final consumer is made.’
Sounds to me that prices would rise as tax gets passed onto the consumer? And the cost of borrowing would go up as a consequence of tax too from what I read in the last pasrt of the quoted text.
The IFS: Sober? Respected? My arse.
This behaves like a VAT
So the tax is paid by the consumer, not capital
How convenient is that?
It’s daylight robbery basically. And it is so brazen.
If you had a chance to watch C4 News yesterday evening, Richard, you’d have noticed that an increasing number of commentators are now paying attention to the political philosophy of Steve Bannon – the real president, as The Daily Show portrays him. His neo-traditionalism (which is what I’ve seen it defined as) is built on the idea of fundamental shocks to the American – and thus nowadays, world – system, that lead after much chaos to a new golden period of economic growth, that he clearly believes would benefit many of those working class voters who supported Trump – or at least those who haven’t been wiped out in the previous period of chaos.
Don’t forget here that we’re dealing with a president who gets his news and key information from Fox News and sites like ‘Infowars’ – a place where, for example, the Sandy Hook massacre (yes, a real massacre)is dismissed as a stage managed event of the federal government using actors. This is the Trumpian world we live in and in which Bannon’s infuence is huge. The tax reforms you mention here, though not a Bannon idea, feed directly into the ‘destruction and reconstruction’ agenda Trump is pursuing at Bannon’s behest.
I saw it
It’s truly shocking
I wonder if he’s considered there may be many casualties in the way to his supposed nirvana?