Nick Shaxson is having fun spamming the comments of this blog with a link to the TV thing about corporate tax avoidance between Alex Cobham and myself. You can see the TJN post on it here.
I have left a comment there. I wonder if they’ll publish it?
So, I wonder if this comment will be published?
That paper that you link to, by Kimberly Clausing, is not a CBO paper. It’s in Tax Law Review as is clearly marked.
When the paper came out I was in correspondence with Professor Clausing. Here is my email to her and her response (both in full, so I’m not editing for effect):
Me to her:
“Dear Professor Clausing,
Prompted by Richard Murphy, who I believe you know, I have read your
recent paper on the incidence of the corporate income tax. I would
like to try and clarify a part of your argument. This, from the
“In this context,
it is important to note that the reporting of profit in particular tax
jurisdictions is becoming increasingly discretionary. Truly global multinational
firms are adept at using complex chains of ownership together
with tax-motivated decisions regarding the holding of
intangible property, the structure of finance, and the transfer pricing
of intermediate goods, in order to report income where it is most
lightly taxed. If global firms separate the location of their profits from
the location of their investments and employment, then workers need
not bear the burden of the corporate tax. The firms that are adept at
shifting income face a lighter tax burden, which need not adversely
affect their workers. Whereas immobile firms behave like closedeconomy
actors, and thus they are unlikely to generate the open-economy
I read that as stating that precisely because many multinational firms
are “tax dodging” therefore the incidence of the corporate income tax
is not upon the workers in the form of lower wages.
I can see the logic here. If Google sells all its EU advertising from
Ireland, as it does, then the corporate income tax rates across Europe
will not affect its decisions to invest in Europe. For however many it
hires or employs, it knows that it will be paying tax in Ireland on
the revenues and or profits of such hires.
The same would be true of the various arrangements of Microsoft,
Facebook, Amazon, Apple and so on.
In wider terms, it is precisely the jurisdiction shopping that such
companies undertake that explains the lack of evidence of an impact
upon labour of the corporate income tax.
I just wanted to check that that is the implication that you are
making in this part of your conclusion?
Her to me:
“Thank you for your email. Yes, that is the implication. It does not necessarily imply that if the dodging went away, that labor would bear the tax. (That remains an empirical question, and there is not much evidence (as I note) that K/L ratios are sensitive to taxation, which is what you would need for a large effect on labor.)
I think the literature here is a bit agnostic, which is why in the United States, the CBO/Treasury/JCT/TPC distribute the tax as they do (mostly toward capital).
I assure you that my paper is an academic work and not a piece of advocacy. (I do know Richard, but my work is rather different in character.)
Further, I would have been happy to report that the tax fell on labor if that is what the data suggested. You’ll find that there is exhaustive empirical work behind my results.
I also have a great deal of empirical work on tax avoidance, which you will find on my website (address below).
Finally, I refer you to my “Future of Corporate Tax” paper, which you may find helpful.
And to clarify further. That there is some split between capital and workers in the incidence of the corporate income tax is the standard economic assumption. So too what influences the split: a standard assumption. The larger the economy compared to the global economy and the less mobile capital is the more the incidence will be upon capital. The smaller the economy and the more mobile capital is the more the incidence will be upon labour in that taxing jurisdiction (please note, with relevance to that crack about who are the employees in hedge funds or shell companies, the assumption is not the workers in the company being taxed, but all workers in the jurisdiction applying the tax as the tax leads to less capital investment across the economy).
The US is a very large economy and capital (given the global taxation system there) less mobile than in many other places. Thus the assumption is that capital bears some significant part of the incidence. Various CBO reports have put it at 30% capital, 70% labour, and another at 70% capital, 30% labour.
But as we move to smaller economies and start to talk purely about foreign capital, which is what we are doing when we talk about MNC investment in developing countries, that burden falls ever more on labour and ever less upon capital. And we should not forget the Stiglitz and Atkinson result, that the total incidence of a tax can be more than 100%.
Finally, please note that this has nothing at all to do with the taxation of resource rents. They should, righteously and justly, be taxed until the pips squeak. Assuming that Alex can manage to work out the difference between wholesale prices in Zambia and retail prices in Switzerland of course.
Currently in moderation……