> If you make it clear there will never be a tax holiday, but that you will instead keep adjusting the rules to go after earnings withheld abroad, at some point the rational choice for them will be to bite the bullet and repatriate the income.
Another rational choice is to relocate the company, a la Burger King's move to Canada [1,2].
Then the government can counter with tariffs [3,4]. It's a balancing act, though.
At the end of the day, there is no way you as a corporation can entirely subvert a nation state. I find it odd even that rational individuals think its possible against an adversary (typically with effectively unlimited resources) that can tariff you, dissolve your organization, and even jail you.
It's not corporation against nation state, it's nation state against nation state.
I'm pretty sure China would be quite happy if the US punishes Apple. That means that their protectionist policy towards Huawei will be even more effective. It is difficult for me to imagine other nations either not rolling out the red carpet to bring Apple over, or giving virtually tax free giveaways to their own companies to gain smartphone supremacy.
>I'm pretty sure China would be quite happy if the US punishes Apple. That means that their protectionist policy towards Huawei will be even more effective.
If the US put onerous taxes on the purchase of Apple phones that might be true.
If the US instead just collects a larger share of Apple's profits then Apple is going to go on exactly as before and just not deliver quite as much cash to its shareholders.
Taxing the phone or the company’s margins should have the same effect, right? They’re both costs on apple’s revenue. Barring maybe some enforcement issue or something it makes no difference how you collect it, Apple will pass some of it off to their customers and eat another percentage based on whatever the new cost/demand curve looks like to them.
My argument is that since apple can move the price, if you tax the company they increase the cost of the phone as much as makes sense and eat the rest. If you tax the phone, they leave as much as the increase on the cost to the end user as makes sense and lower the price beyond that, eating it. In neither case are profits or demand going to zero.
And a tax on the phone does this, so they either lower the cost and eat it, or suffer the same fall in demand as when the price of the phone increases to protect their margins.
Are you arguing that a 100% tax on Apple profits wouldn’t impact their competitiveness? How would they build new factories, develop new products or hire more workers without reinvesting profits into their company? Why wouldn’t a company that can raise more money from capital markets and that has the support of its government quickly overtake Apple’s position?
>Are you arguing that a 100% tax on Apple profits wouldn’t impact their competitiveness?
Pretty much. It would render their stock worthless, but there's nothing about a 100% tax on realized profits from preventing a business from operating exactly as before.
>How would they build new factories, develop new products or hire more workers
With relative ease. Corporation tax is paid only on realized profits. Reinvesting earnings has often been a way of avoiding paying it at all, which is actually supposed to be a feature.
Yeah, but why would they? Why would any employee or manager have an incentive to do extra work to do so? Where do they get the money from, and more importantly, why would they reinvest the money if there is absolutely no gain to doing so, instead of paying it out to executives and shareholders and just cashing out?
> Corporation tax is paid only on realized profits.
I’m not sure you know what this means. A new factory is an asset, taxes are definitely paid on it if Apple buys a new factory with retained earnings. Are you claiming that a corporation can gain new long term assets without paying any tax unless investors put more money into the business or banks loan them money?
I'm sorry if I sound shocked, but I actually file corporation taxes for a small business. Corporate profits are taxable whether they get paid out to shareholders or reinvested into the company.
>Yeah, but why would they? Why would any employee or manager have an incentive to do extra work to do so?
Coz they get paid.
>why would they reinvest the money if there is absolutely no gain to doing so, instead of paying it out to executives
It's true that with a higher profit tax you'd may see execs paying themselves higher and higher salaries and shareholders would be less inclined to prevent it.
>I’m not sure you know what this means. A new factory is an asset, taxes are definitely paid on it if Apple buys a new factory with retained earnings. Are you claiming that a corporation can gain new long term assets without paying any tax unless investors put more money into the business or banks loan them money?
>I'm sorry if I sound shocked, but I actually file corporation taxes for a small business.
So do I. Actually, the year before last I personally paid more in corporation tax than Facebook did (they paid £4,000).
I'm pretty sure they were taking neither investment nor loans.
It's a balancing act, not (just) an arms race. As a government, raise corporate taxes too high, and corporations leave and/or overseas corporations outcompete them and/or new corporations form overseas instead of domestically. Raise tariffs too high, and domestic consumer choice and quality decrease, and consumer purchasing power decreases. These aren't consequences that dissolving your domestic corporations or jailing their managers address.
>As a government, raise corporate taxes too high, and corporations leave
Only when there's almost no cost to leaving, which in itself is a tax loophole. If you declare that residency is about where you do the most business and has nothing to do with which letterbox has the word "headquarters" on it then their reaction would be limited to tantrums in Wall Street Journal op eds.
>or overseas corporations outcompete them
That's not how corporation tax works. It's paid on profits and does not affect the competitiveness of the firm.
>>As a government, raise corporate taxes too high, and corporations leave
>Only when there's almost no cost to leaving, which in itself is a tax loophole. If you declare that residency is about where you do the most business and has nothing to do with which letterbox has the word "headquarters" on it then their reaction would be limited to tantrums in Wall Street Journal op eds
Or to the other two arms of the disjunction in the text that you elided.
>>or overseas corporations outcompete them
>That's not how corporation tax works. It's paid on profits and does not affect the competitiveness of the firm.
It has to come from somewhere. It can come from owners, workers, or consumers. If it came from consumers (higher price or lower quality for products and services) this would affect the competitiveness in a straightforward way. [1] and [2] claim that it instead comes from owners and workers, with considerable uncertainty about the ratio between those. If it comes from owners, it increases the corporation's cost of capital – but only to the extent that investment is global. If it comes from workers, it decreases the ability for the corporation to compete for labor – but only to the extent that labor is global. So you're correct that it does not affect competitiveness in a sufficiently non-global economy.
It is collected from owners. Tax collection and tax incidence are separate issues. In economics parlance, where tax "comes from" or "falls on" refers to tax incidence, not tax collection.
Tax collection and tax incidence are indeed separate issues.
The tax incidence falls on owners - probably at least until profit taxes reach ~80% or capital became magically very scarce for some reason that clearly doesn't apply to the present day.
>That's not how corporation tax works. It's paid on profits and does not affect the competitiveness of the firm.
Corporations often need to raise money from investors, who will rationally only fund corporations that are expected to generate enough profit to produce a good enough return for the risk and so on. If profit is lower in some countries, that reduces the amount of money going to investment in that country as the potential reward has gone down. Therefore such companies are less competitive in fundraising.
>At the end of the day, there is no way you as a corporation can entirely subvert a nation state.
There are countless examples of this happening, from the East India Company (who essentially ruled India for a century) to the United Fruit Company to present-day Shell Oil.
The first sentence there ends with "this clearly established Parliament's sovereignty and ultimate control over the company". So not a very convincing example of company independence over its host nation.
[Influence and control over another, relatively weak country is clearly a separate issue, but that's not always clearly separable from the host country's influence]
Can you provide an example present day of a company successfully subverting the US government? To my knowledge, they're even pursuing companies successfully outside of their jurisdiction (Kim Dotcom/MEGA).
Large corporations simply have the ability to shop around to figure out which tax/legal jurisdiction they want to incorporate under, and which instruments they choose to represent their incomes, expenses, and holdings. If things like tariffs are implemented, then the cost/benefit situation changes and shopping around resumes. A smaller company or individual often doesn't practically have that scale of flexibility & research to pull off the same changes, though technically they do.
But even in your personal purchasing, because you might shop around and even negotiate prices with sellers to get a good deal, does that make you an adversary of the economy? No, it makes you part of the economic structure, like the various corporate implements are part of various jurisdictions' tax structures, and the governments benefit from their presence in various ways, not just directly through taxes. That's what all the negotiations are based on.
Of course, I'm speaking of options that are legal, and it gets arguable (and sometimes flagrant) how some corporate actions get interpreted in that sense.
Another rational choice is to relocate the company, a la Burger King's move to Canada [1,2].
Then the government can counter with tariffs [3,4]. It's a balancing act, though.
[1] "Tax inversion", Wikipedia. https://en.wikipedia.org/wiki/Tax_inversion
[2] "Let's Abolish The Corporate Income Tax", John C. Goodman, Forbes, Aug 26, 2014. https://www.forbes.com/sites/johngoodman/2014/08/26/lets-abo...
[3] "Trump takes aim at Obama's ban on tax inversions", Larry Light, Moneywatch, April 21, 2017. https://www.cbsnews.com/news/trump-taxes-corporate-transfer-...
[4] "Trump to keep Obama rule curbing corporate tax inversion deals", Reuters, October 4, 2017. https://www.reuters.com/article/us-usa-tax-inversions/trump-...