As I noted on Monday, I did, along with others, have a letter in the FT criticising the proposal that Martin Wolf made for the adoption of what is called a ‘destination based cash flow corporation tax'.
Mike Devereux at Oxford University is the creator of this so called corporation tax, which would actually behave like a VAT. He had a letter in the FT this morning in response to my own, saying:
‘Destination based' is a sound corporate taxation system
From Michael Devereux, University of Oxford, UK
Two letters this week have taken Martin Wolf to task for his support of the destination-based cash flow tax (DBCFT). But their arguments are unconvincing.
Contrary to the assertions of Professor Richard Murphy and his co-authors (March 11), the effective incidence of a value added tax and a DBCFT would not be the same – they have markedly different bases. Robert Denham (March 12) argues in a similar spirit that the DBCFT is not based on corporate rents, but on consumption. But that is a false distinction. The DBCFT clearly falls on economic rents, and as a result it would almost certainly be progressive. The destination component means that it falls on economic rents received by residents of the destination country.
Prof Murphy's claim that the DBCFT would “reapportion taxable income from the world's poorer regions and states to the richest ones” is refuted by empirical evidence from the International Monetary Fund that “developing countries would on average be beneficiaries of a move to a DBCFT”. This effect would be much stronger if the DBCFT were combined with suitable taxes on natural resources.
Finally, Mr Denham argues that the DBCFT is illegal under World Trade Organization rules. That is a legal question on which opinion is divided. But from an economic perspective, the legal question is bizarre. As Mr Denham notes, the DBCFT is equivalent to a VAT plus wage subsidy. Neither is illegal under WTO rules; it is odd that they might be if combined into one. All of these issues are set out in detail in the paper cited by Mr Wolf.
Michael Devereux
Professor of Business Taxation,
Saïd Business School,
University of Oxford, UK
Director, Oxford University Centre for Business Taxation
As a matter of fact a destination based tax is a VAT with an allowance for labour spending. Devereux is simply wrong to claim otherwise. That is precisely how it would work.
And I have spoken to one of the authors of the IMF paper to which Devereux refers. Saila Stausholm happens to be a co-author of mine. And as she has pointed out Devereux's claim relies on two assumptions he does not refer to. One is that all countries adopt his tax at the same time, which is never going to happen. The other is that developing countries have the means to collect it. And they do not. If the assumptions, and especially the first, do not hold true the outcome would, in her opinion be ‘hugely harmful'.
Devereux is wrong. His proposal is just another example of a neoliberal fantasist's unicorn approach to policy making: suggesting an ideal that is great in an Oxford paper that has not the slightest shred of evidence that it could ever be of benefit to the world at large.
I would hope we had enough experience of the believers in unicorns to kick such ideas into touch by now.
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‘…one [assumption] is that all countries adopt his tax at the same time, which is never going to happen’. It has just as much chance of happening as your ideal of unitary taxation, which also requires all countries to adopt in order for it to work, and is equally as fantasist! The more likely outcome is that corporation tax will be abolished nation by nation, and very quickly, if a big player such as the U.K. starts the ball rolling.
Except unitary tax specifically does not require simultaneous adoption
And there is not a hope of CT being abolished
Minimum CT rates are very much more likely
But it does! Unless there is agreement between countries all you get is more double taxation and you’re back at square one. It works internally within the U.S. because the U.S. is one country. It could work internally within the U.K. But not the E.U. because the E.U. is not a country [yet]. And with the U.K. leaving the E.U., the collective power of E.U. member states will be significantly less globally in tax matters than it currently is. I’m not being critical of formula apportionment, I’m just being critical of your ‘unicorn’ analysis – because it applies just as much to unitary taxation at a global level too. And why the abolition of corporate taxation is the more likely of the three outcomes. Coupled with a huge global push to eradicate evasion of the personal income tax. Which has the full backing of the U.S.
You clearly have not read about the CCCTB, for example, then
So it’s really not worth engaging if what you’re saying is based on nonsense
I do! This is the point: the CCCTB is a proposal. Which stalled. And the European Commission have proposed a whole range of tax ideas since the 1970s – none of which have been implemented. They have all stalled. So what I said is not nonsense at all. The E.U. is not a country. And it also does not have global jurisdiction. Which – back to the original point – of you calling Devereux’s idea ‘unicorn’ – your ideal [not idea by the way] is just as much pie in the sky.
You, like Devereux, clearly work in an evidence free void
I will continue to work in the real world
Devereux is a serious economist, unlike Riichard . It’s like Richard has entered an arse-kicking competition against a giant monster with 20 legs and no arse.
I agree he’s a serious economist
They believe in unicorns
My colleagues and I know about tax
‘Devereux is a serious economist, unlike Richard’
The last thing we need is another ‘serious’ economist Steve – the sort that did not even see the 2008 crash coming and think that austerity works (which it does not).
The world does not need another ‘serious economist’ which is why Richard and his ilk are needed so badly.
Your faith in ‘serious economists’ Steve is a waste of your faith. Too many of them are rooted in orthodoxy / rigid thinking to be to help real people.
What we need are new ideas, new thinking – in fact we need ‘anti-economists’ – that’s what we need because we’ve been led down too many wrong paths.
Believe me Steve when I say that ‘serious economists’ were undone and unfrocked as of 2008 and since.
Watch the documentary ‘Inside Job’ for a really good debunking of ‘serious economists’ and be grateful our Richard is not one of them.