Stop banging the vending machine
‘Starbucks has caved in to public pressure and pledged to pay £10m in UK corporate tax in each of the next two years even if it makes a loss following calls to boycott the coffee chain over its “immoral” tax practices.’
Financial Times
Seems like the “tax shaming” campaign worked, then.
I suppose so, if you think that the amount of tax the government collects should be determined by public relations campaigns on all sides. I’m not sure how sustainable that is likely to be – or indeed how well public protest is likely to work against, say, a multinational provider of industrial detergents or rat poison. Not everybody has a consumer-facing business to worry about.
“Tax shaming” has worked. Don’t deny it.
Has it really worked? It’s worked for the politicians and campaigners who have described the low corporation tax paid by some multinationals as an “insult”. But while politics deals in insults and shame, corporations don’t, by and large. And I have no idea why anyone goes to Starbucks, but I can assure you it isn’t because of their noble decision to bung the taxman a few extra quid. These campaigns may chivvy a few companies for a few years but this is no way to run a tax system.
Fine. What’s your alternative?
Why not just abolish corporation tax? We could collect the same revenue using other taxes. Closing the loophole that lets Amazon and others ship free of value added tax from the Channel Islands will be a good start.
You’re just going to let the fat cats have their way, then?
Hang on. Which fat cats? All tax is ultimately paid by individuals. You can tax individuals by taking a slice of their income. Or you can tax them more indirectly, and one way to do that is to tax the corporations whose shares individuals ultimately own. The question is this: do we have any reason to believe that taxing the individuals who own pieces of profitable corporations is a particularly sensible way to raise money?
It’s progressive.
It’s hard to be sure of that, but let’s assume you are right. We could also be progressive using income tax, and that would include taxing dividend income as though it was any other kind of income.
Isn’t it easier to tax profits and dividends separately, rather than load the whole bill on to dividends?
I think that Starbucks and all the other companies accused of perfectly legal corporate tax avoidance are rather proving the point there. Profit is a really slippery concept. Remember the old saying from Hollywood, advising people not to work in exchange for a slice of a film’s ultimate profits: “A percentage of net profits is a percentage of nothing.” Profits are easily manipulated by multinational companies and a number that is easily manipulated is probably not the kind of number we should be trying to tax much. There are easier ways to tax the rich.
But corporation tax has an advantage: some of the people who pay it are foreigners who own shares in British companies.
Oh, OK. I see. Is it a good idea to tax foreigners now? I thought we gave up on taxing Americans in 1783.
This is different. We’re not trying to tax all Americans.
No, only the ones who invest in the UK. I get it, I get it.
So you’re saying that tax simply shouldn’t be a moral issue. It’s all about the letter of the law?
No, although getting the law right wouldn’t hurt. Tax is, in part, a moral issue. It’s just that morality is something that tugs at individuals, not companies. We all need to do our bit and pay our taxes, and one reason that the moral component is important is that many individuals with modest means would find it easy to cheat on their taxes by the simple technique of lying. HM Revenue & Customs is too busy to find many of them, and so a big weapon against small-scale tax cheating is moral persuasion.
One rule for the companies, one rule for the little people?
I’m one of the little people, too. I think it’s important that we pay our taxes and I think it’s important that the rich pay a larger share than others. But that’s nothing to do with Starbucks. And to think that a multinational corporation has insulted you is a category error. It’s like thinking a coin-operated machine has stolen money from you. We need to stop banging the vending machine in fury and figure out a better way.
Also published at ft.com.
Clarification: “Closing the loophole that lets Amazon and others ship free of value added tax from the Channel Islands will be a good start.” – that’s clumsy phrasing. As I explained here, the loophole closed earlier this year. I was conflating “was a good start and will have good results”. Sorry for spreading confusion. – TH
8 Comments
Stephen says:
As a partial alternative to corporation tax, a possibility might be for the Companies House annual fee to be levied at 0.5% of a company’s turnover. At the moment, the annual fee is charged at £30 for paper filing and £14 for on line filing.
Levying on turnover avoids the slippery nature of profit and would be progressive and according to ability to pay.
8th of December, 2012Peter Whipp says:
If firms pay wages, this money should return as sales revenue, but that does not allow profits. If firms charge prices that include profit, then if they pay tax on this profit and pay dividends out of what remains, then this returns as sales revenue as it is spent. Corporation Tax is therefore the single most important component of corporate profit and if firms do not report profits, they will not carry on in business and most certainly won’t invest.
8th of December, 2012Russ Abbott says:
I’d support your approach of eliminating some taxes and replacing them by other that are at least as progressive. I don’t support the idea of eliminating some taxes just because one can imagine other equally progressive taxes that might replace them. Let’s do the complete deal; not just one side of it.
8th of December, 2012Nicholas Shaxson says:
“What’s your alternative?” Here is a far better one, Endorsed by FT editorials, by John Kay and by countless tax experts. Profit apportionment / unitary tax. A system fit for the 21st Century. http://bit.ly/UwWhpe This paper is well worth reading.
10th of December, 2012Mick says:
Tim, I’m interested in hearing your views on what form of tax would ensure large multinational companies compete on a level footing with smaller companies and new start ups. Should economies of scale apply to tax? And is it good for consumers?
10th of December, 2012Jack says:
A vending machine is an inanimate object; it cannot respond to your aggression. Corporations are run by people; they can respond. This difference is why your analogy fails.
If sufficiently many people will boycott companies who are immoral in their behaviour, it changes the competitive playing field so that moral behaviour becomes the competitive decision to make.
This matters for two reasons: firstly, it gets companies to behave more morally and, secondly, displays of public opinion can sway the actions of politicians. Do you think our chancellor would be banging on about this in the absence of public protest? I don’t. Moreover, if we act unequally on different companies that’s a feature not a bug because it brings the considerable lobbying power of those companies getting hurt onto our side, lobbying for the government to level the playing field.
16th of December, 2012Stephen Johnson says:
I sympathise with the idea of getting rid of corporation tax, because profit is easily manipulated. There is one tax we might introduce, not as a replacement, but to right a different wrong.
16th of December, 2012This is a tax paid by the company on any salaries/bonus package that exceed say £500K. (in effect a new category of Employers’ National Insurance Contributions)
It would be easy to collect and difficult to avoid without taking action that would achieve the socially beneficial result, ie to curb top pay and bring the highest level of remuneration for employees down to more like 20 times the average wage.
Action taken so far has been feeble, and it is a social disgrace.
If the Chancellor wanted to make the change tax neutral he could reduce companies’ NI contributions on lower paid employees.
Pat says:
All taxes end up being paid by real people. Corporation tax is wonderful, because the workers don’t realise that that is the reason for their low take home pay- they blame the company; Customers don’t blame the tax for their higher prices, they blame the company; Those actively dealing in shares probably do understand that their return on investment is reduced by corporation tax- and are therefor influenced to invest in other financial instruments or other jurisdictions- but the average pension fund member likely doesn’t understand that the tax is responsible for his pension being smaller.
16th of December, 2012Like I say its wonderful, the government can take money from pensioners, consumers and workers and not take responsibility for it- what’s not to like? For the government that is.