New Thinking on Taxation and Inequality from OECD

Paul Sweeney: The previous blog on the recent OECD paper on taxation pointed out its new recognition that taxation systems are not just about efficiency but must include other principles like equity. The paper sets out trends in inequality and the use of taxes and transfers to reduce it. 

The OECD paper takes a tax-by-tax discussion on tax design that supports inclusive growth. It discusses the efficiency and equity implications of each tax and offers options to reconcile both objectives. It argues that, “while a tax-by-tax assessment is critical, the possibility of reconciling efficiency and equity through tax policy will depend on the interaction of many elements within and beyond tax systems.”

Has the OECD abandoned its neo-liberal taxation policies?

Paul Sweeney: The OECD has relentlessly pursued a neo-liberal taxation policy. It seldom uses the word taxation without the appendage “burden” For its tax department, tax is not a “charge” or a “payment”, but nearly always a “burden”. On taxation, the OECD seemed like a Koch Brothers’ funded think-tank rather than one funded by governments. So when it revises its thinking in a new paper, it has to be welcome. 

The Effective Corporate Tax Rate, Again

Prof David Jacobson: I'm glad to see that even though Stephen Donnelly TD got most of the limelight, our Progressive Economy colleague, Jim Stewart, was at least referenced in the article by Jack Horgan-Jones on Section 110 companies in the Sunday Business Post (“REVEALED: the vulture funds that paid just €250 in tax”, SBP 24/07/2016).  

Jim Stewart is the leading researcher on how Multi-National Corporations in Ireland have minimized their corporate tax payments, on how their tax advisors – the big accounting firms – have helped in this, and on how the state, sometimes unwittingly, has allowed this to happen.  Among other important analyses, Dr. Stewart has shown that the effective corporate tax rate for US companies in Ireland is around 2 per cent, nowhere near the nominal rate of 12.5 per cent. 

Soaring Profits almost equals the Total Wages Bill in Ireland.

Paul Sweeney: The news that Ireland saw GDP growth of over 26.3% in one year in 2015 at first appears remarkable. However, it had little impact on jobs or citizens’ welfare. It was the work of “magicians” working for multinationals in the tax avoidance industry.

It really illustrates is how multinational corporations and their servicing agents in the big four accounting firms and legal firms are using Ireland to avoid tax internationally with major profit-shifting, base erosion and other financial shenanigans. 

Normally - in the past in developed countries - the wage share was around 75 per cent of national income. It has been in decline because of globalisation, the decline of union power, reduced taxes on companies, productivity gains going to capital etc.

A remarkable figure is the 44% growth in profits in 2015 over 2014. This is in stark contrast to some growth in aggregate wages of 5.6% (mostly because there were more workers employed) and indeed a small rise in the earnings of the self-employed.

From self-harm to social Europe?

James Wickham:  When in the 1960s the poor of the US ghettos rioted for the first time, they burnt down the areas in which they lived.  When the excluded of the French banlieus rioted in the 2000s, they burnt down the schools which served them.  Now the excluded white ethnics of the English working class have gone one better.  They have not only trashed their country’s economy (which arguably has given them very little for years) they have set in motion a process by which the institutions of the United Kingdom itself could be destroyed.

A New EFTA-EU Relationship Post-Brexit?

Nat O'Connor: Trying to imagine a “perfect” agreement for the UK to enjoy a stable, friendly and mutually beneficial trading relationship with the EU is problematic. A better solution would be to envisage this future relationship as an ongoing process rather than a final agreement or compact. The best candidate for this process would be a new relationship between the European Free Trade Association (EFTA) and the EU, based on respectful ongoing dialogue on the best way to organise trade with the EU’s neighbourhood. This would involve strengthening the EFTA into something more than it is today. If done right, such a process could provide the EU with a valuable mechanism for trading and co-operating with its close neighbours.

Brexit, Ireland and economic policy

James Stewart: Brexit marks a fundamental change in how we think about the EU and  our relations with our closest neighbour. Advice on what should be done has been both freely given and plentiful.