Gabriel Zucman is an economist who regularly collaborates with Emmanuel Saetz and Thomas Piketty. He is also, as they are, French, which might be why his economic ideas betray a certain oddity to us Anglo Saxon types. For here he is insisting that there's a new way for France to tax the profits of Apple, as if taxing the profits of corporates was something that must be done. Instead of what is the more usual Anglo Saxon view which is that we really shouldn't be taxing either corporates or capital at all. Those companies were most certainly convenient places to collect revenue from, that's true, but globalisation has made this much less true. And thus we should perhaps be moving to other methods of revenue collection, rather than desperately trying to shore up a system that we don't really want to exist in the first place.
But here's Zucman, telling us all that it's vital that France get some chunk of Apple's profits:
These tax havens are about to be made obsolete by Donald Trump's America. Congressional Republicans want a border adjustment tax meaning that exports wouldn't be taxed while imports would be.
If this effort succeeds, the U.S. will siphon off the fiscal base of countries all over the world. It would become the biggest de-facto tax haven on the planet. It will be in the interest of multinationals to manipulate transfer prices — the prices different branches of one company charge each other for the goods and services they exchange — so as to artificially move profits back to the U.S.
Apple California, for instance, could charge its overseas subsidiaries a hefty price for using their brand and logo, thereby reducing the same amount of taxable profit in France. Yet it would not add one cent of tax in the U.S. since exports won't be taxed. Zero percent — that’s a tax rate that even Ireland’s 12.5% rate can’t compete with.
This is a horror that just cannot be contemplated therefore:
Fortunately, France and the European Union aren't powerless. Tax optimization can be thwarted: You just need to change how taxable profits are calculated in each country. In concrete terms, the right approach consists of taking the consolidated global profits of companies.
For instance, if Apple makes 10% of its global sales in France, then 10% of its global sales would be taxable in France. This approach would neutralize tax optimization efforts in U.S. and Britain. It would become impossible to register disproportionate profits in Ireland or in the U.S. If companies can now easily choose where they locate their profits, they cannot control the location of their clients; they can't move them from France to the Cayman islands.
This is unitary taxation and it's a terrible idea. Good grief, Richard Murphy supports it so we know that it must be wrong. To work out why we've got to go right back to basics.
The first point is that companies don't actually pay tax. Economists are very keen (well, not-French ones are) on the idea of incidence. Who hands over a check is not, necessarily, the same person who carries the actual economic burden of the check having been handed over. With corporation tax we know, absolutely, that the incidence is not on the company. Quite apart from anything else any and every tax will mean that the wallet of some live human being getting lighter and companies are not human beings. No, really, they're not, they're legal persons, not natural persons and human being here means natural person. The company simply isn't bearing the economic burden. As to who is we've known for well over a century now (Seligman, 1899 I think) that it is some combination of the shareholders of the company handing over the check and all the workers in the economy doing the taxing. In the first instance it's the shareholders, as they're the people who get the profits and this is a profits tax, so they get less. However, as Adam Smith pointed out, there's a natural rate of profit--perhaps better described as an average one. And if you get some of your profit taxed away then therefore you're getting, in that taxing jurisdiction, a lower rate of profit. People thus invest less in such an economy taxing in such a manner. And it is capital added to labour which increases productivity, and average wages are determined by average productivity.
Thus a corporate profits tax reduces the wages of the workers. Quite how much the split is between shareholders and workers is still argued about but not this basic point, that that's who the split is going to be between. Reasonable estimates for the US have shareholders at 70% incidence, workers at 30, and workers at 70, shareholders at 30. Mike Devereaux, going a bit over the top it should be said, has indicated over 100% on the workers in the UK (and it's Joe Stiglitz and Tony Atkinson who proved that the total incidence can be over 100%), something later revised down to perhaps 50%.
And it's Adam Smith who showed that there will always be some incidence on shareholders with his invisible hand remark in Wealth of Nations. He talks about how some people just prefer to invest at home whatever, and if that's true then some of the incidence of a profits tax will be upon those people.
So, we know absolutely that it's not the company paying the tax. And that it's some combination of shareholders and workers who are.
We can also go a stage further as optimal tax theory does, which is to say that we don't really want to tax shareholders anyway. This is the end result of Sir John Mirrlees' work. The essential point being that we like people saving and investing, because it increases the workers' wages, so why on Earth would we tax this? True, there's an equity argument that we shouldn't allow the plutocratic capitalist running dogs to just surf down the hills of caviar they purchase from their oppression of the faces of the workers in to the dust but that's also easily dealt with. A progressive consumption tax allows us to tax that which is withdrawn into consumption while leaving capital, and returns to it, to accumulate up in a less than primitive fashion.
At which point we don't in fact want to be taxing companies at all. The reason we did is twofold, firstly because it used to be easy. Secondly because politicians love it--all too many don't understand the above and thus politicians can pretend that they're offering the workers something lovely by taxing those people over there, not lowering the wages of the workers by doing so. But we are supposed to look through politics and its dissembling to the economics of things, nu? At which point we get to where Zucman is starting from, which is that this is not easy any more, it's difficult. And thus his suggestion for unitary taxation. Which is an attempt to make it possible to do again what we don't want people to be doing. We don't want to tax capital, the returns to capital or corporates. We should simply abolish the entire corporate taxation system. Instead tax people upon their consumption, that's the thing which will make us all richer over time.
But, you know, Zucman is doing politics here, not economics. Which is why his suggestion about how France can tax the profits of Apple is such bad economics even if it does pander to the political prejudices of the French.
