{"id":1058,"date":"2018-06-10T20:57:52","date_gmt":"2018-06-11T00:57:52","guid":{"rendered":"http:\/\/www.gopplaybook.com\/?p=1058"},"modified":"2018-06-10T20:57:52","modified_gmt":"2018-06-11T00:57:52","slug":"tax-havens-blunt-impact-of-corporate-tax-cut-economists-say","status":"publish","type":"post","link":"https:\/\/www.gopplaybook.com\/?p=1058","title":{"rendered":"Tax Havens Blunt Impact of Corporate Tax Cut, Economists Say"},"content":{"rendered":"
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By\u00a0Jim Tankersley<\/span><\/a>\u00a0June 10, 2018<\/p>\n<\/div>\n<\/div>\n

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Researchers concluded that multinational corporations have sheltered nearly 40 percent of their profits in tax havens like Bermuda.<\/span>Credit<\/span>F. Ann Spurling for The New York Times<\/span><\/figcaption><\/figure>\n<\/header>\n
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The new corporate tax cuts are unlikely to stimulate the level of job creation and wage growth that the Trump administration has promised, a trio of prominent economists has concluded, because high tax rates were not pushing much investment out of the United States in the first place.<\/p>\n

Instead, the researchers conclude, multinational corporations based in the United States and other advanced economies have sheltered\u00a0nearly 40 percent of their profits<\/a>\u00a0in\u00a0tax havens<\/a>\u00a0like Bermuda, depriving their domestic governments of tax revenues and enriching wealthy shareholders. That number suggests a jarringly large amount of what appears, to policymakers, to be investment pushed abroad by high tax rates is instead an accounting trick \u2014 so-called paper profits \u2014 which tax cuts will not reverse.<\/p>\n

\u201cThis idea that if you cut taxes, you\u2019ll attract a lot of physical capital, a lot of investment to the United States, I don\u2019t think is supported by the evidence,\u201d said Gabriel Zucman, an economist at the University of California, Berkeley, and one of the paper\u2019s authors. \u201cPaper profits \u2014 that doesn\u2019t boost wages for workers. What boosts wages is actual factories.\u201d<\/p>\n

The\u00a0research<\/a>\u00a0by Mr. Zucman and Thomas Torslov and Ludvig Wier of the University of Copenhagen does not imply that corporate tax cuts will not help companies or lead to at least some new investment. But it challenges the magnitude of the increase that President Trump and congressional Republicans promised would result from cutting the corporate tax rate to 21 percent from 35 percent as part of the $1.5 trillion tax overhaul.<\/p>\n<\/div>\n<\/div>\n

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Throughout the debate over the tax bill, Republicans cast the country\u2019s corporate tax rate as uncompetitive when compared with nations such as Ireland and Canada, and said the rate was pushing American multinationals to park their profits in other countries where their tax bills would be lower.<\/p>\n

The new research concludes that assumption is wrong. \u201cMachines don\u2019t move to low-tax places,\u201d the economists write, \u201cpaper profits do.\u201d<\/p>\n

Administration officials dismissed the researchers\u2019 results, saying the evidence is clear that reducing corporate tax rates increases investment and wages. The chairman of Mr. Trump\u2019s Council of Economic Advisers, Kevin A. Hassett, has long argued that workers\u2019 wages are bolstered in countries where companies locate their profits. Last year, the council\u00a0publicly estimated<\/a>\u00a0that reducing America\u2019s corporate rate would raise average household incomes in the United States by $4,000 to $9,000 a year in the medium run.<\/p>\n<\/div>\n<\/div>\n

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Large corporations like Apple, Google, Nike and Starbucks all take steps to book profits in tax havens like Bermuda and Ireland.<\/span>Credit<\/span>Christie Hemm Klok for The New York Times<\/span><\/figcaption><\/figure>\n
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The research by Mr. Zucman, Mr. Torslov and Mr. Wier employs a first-of-its-kind method to assess how big a share of profits multinational corporations stash overseas. They draw on international data to determine a ratio of pretax profits to wages at individual companies, for both locally owned firms and foreign firms operating in those countries.<\/p>\n<\/div>\n<\/div>\n

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They find that multinationals operating in tax havens are far more profitable than locally owned companies in those countries, and that their profits dwarf what they pay workers. They break the numbers down to show the outsize profits are largely due to money being \u201cshifted\u201d \u2014 on paper \u2014 into those havens.<\/p>\n

Large corporations like Apple, Google, Nike and Starbucks all\u00a0take steps to book profits<\/a>\u00a0in tax havens such as Bermuda and Ireland. Their strategies have prompted a crackdown by government regulators, particularly in the European Union, where officials have tried to force companies to pay back taxes they believed are owed to their countries. Mr. Zucman said his research suggested that officials should step up those efforts.<\/p>\n

\u201cIt\u2019s very striking in the sense that these multinational companies, they are the main winners from globalization. And they are also those who have seen their tax rates fall a lot,\u201d Mr. Zucman said. \u201cThis means that other actors in the economy, they have to pay more in order to take up the tax burden.\u201d<\/p>\n

Mr. Zucman said the results should cause policymakers to rethink their efforts on several fronts. They suggest, he said, that advanced countries are underestimating economic growth and undercollecting corporate tax revenues, because they are missing the profits that have been shifted on paper by multinational corporations.<\/p>\n

Kimberly Clausing, an economist at Reed College who has\u00a0written and researched extensively<\/a>\u00a0about the scope of shifting profits to tax havens, said the research demonstrated that \u201cthe decline in the corporate tax is a result of policy, not an inevitable feature of the global economy. This implies that policymakers have the ability to address this problem without losing out in a tax competition game against other countries. But they must have the will to tackle tax havens themselves, instead of directing their fire at other non-haven countries.\u201d<\/p>\n

Included in the new tax law were several steps meant to address profit-shifting, including a complicated set of global minimum taxes for multinational corporations. Those steps have frustrated many companies as\u00a0they wait for the Treasury Department<\/a>\u00a0to issue regulations and guidance on how they will be put into effect. Some economists worry that one of the measures\u00a0could actually encourage companies<\/a>\u00a0to move jobs out of the United States.<\/p>\n

Mr. Zucman said it was too soon to tell whether those measures would succeed. But he said it was clear that policymakers should worry less about outdoing their allies with corporate tax cuts, and instead consider steps to crack down on profit-shifting, such as taxing profits where companies register their sales.<\/p>\n<\/div>\n