Home > Uncategorized > Where has all the surplus gone?

Where has all the surplus gone?

from David Ruccio

profits abroad

Thanks to the release of the so-called Paradise Papers, and the additional research conducted by Gabriel Zucman, Thomas Tørsløv, and Ludvig Wier, we know that a large share of the surplus captured by corporations is artificially shifted to tax havens all over the world. This, of course, is on top of the conspicuous tax evasion practiced by the individual holders of a large portion of the world’s wealth.  

Thus, for example, U.S. multinational corporations now claim to generate 63 percent of all their foreign profits in six tax havens, the most prominent being the Netherlands, Bermuda and the Caribbean, and Ireland. This is 20 points more than in 2006.*

What this means is that, in the tax havens themselves, low tax rates can generate large tax revenues relative to the size of the economies. But it also means large multinational corporations can play off one tax have against others, and shift their profits to those with the most generous laws and regulations—as Apple has recently done, by relocating tens of billions of dollars from Ireland to the small island of Jersey (which typically does not tax corporate income and is largely exempt from European Union tax regulations).

tax loss

It also means that the putative home countries of the multinational corporations lose potential tax revenues, which means a larger tax burden is imposed on others, especially individuals and small businesses.

In the case of the United States, Zucman and his colleagues estimate that the United States loses almost 60 billion euros to tax havens (about three quarters from European Union tax havens and the rest from tax havens elsewhere), which amounts to about 25 percent of the corporate tax revenue it currently collects.

As Zucman explains,

Tax havens are a key driver of global inequality, because the main beneficiaries are the shareholders of the companies that use them to dodge taxes.

Clearly, the existing rules are such that large multinational corporations win twice: first, by capturing more and more surplus from their workers, whose wages have barely budged in recent decades; and second, by using tax havens to avoid paying taxes on a large portion of that surplus, thus shifting the tax burden onto workers at home.

 

*I created the charts in this post based on data that have been made publicly available by Zucman, Tørsløv, and Wier.

  1. lobdillj
    November 15, 2017 at 11:23 pm

    This is outrageous.

  2. patrick newman
    November 16, 2017 at 9:01 am

    Well what do you know – there are money trees! The challenge is how to harvest them for the public good. In the UK the tax authority (HMRC) is under-resourced (apart from checking up on the low paid in receipt of tax credits). Ultimately there has to be deep national cooperation between the countries of the origin of this wealth and the UK which punches above its weight in terms of having responsibility for an exceptional number of these repositories for filthy lucre!

  3. November 16, 2017 at 3:00 pm

    “It also means that the putative home countries of the multinational corporations lose potential tax revenues, which means a larger tax burden is imposed on others, especially individuals and small businesses.”

    Tax revenue is not used for paying for expenses. It is not true that others pay “a larger tax burden,” it just means the tax evaders get wealthier and the tax payers get poorer in terms of salary increases. “Taxpayers do not fund anything”–see http://bilbo.economicoutlook.net/blog/?p=9281

    • November 19, 2017 at 7:26 am

      Don’t see how this is possible. Assume a county government plans to build a new bridge over a creek at a cost of $1,000,000, all from county taxes. Now assume 100 citizens of the county withhold paying county taxes they owe in the amount of $100,000. Assume no new tax collections, the county will likely now be unable to build the bridge. The only way to build the bridge, it seems is to collect additional taxes from county citizens not in the group of 100. Is my reasoning incorrect?

  4. antireifier
    November 17, 2017 at 11:34 pm

    How much of the profits generated include the interest payments from tax dollars on the money loaned governments by these large corporations?

  5. Hepion
    November 22, 2017 at 5:19 pm

    I think large multinational corporations win trice, they also gain unfair competitive advantage against, fair playing, tax paying local businesses.

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