George Osborne

fertieg50

Britain is determined to repeat the mistakes of the past:

Google 2.4% Rate Shows How $60 Billion Lost to Tax Loopholes, by Jesse Drucker, Bloomberg: Google Inc. cut its taxes by $3.1 billion in the last three years using a technique that moves most of its foreign profits through Ireland and the Netherlands to Bermuda. Google’s income shifting -- involving strategies known to lawyers as the “Double Irish” and the “Dutch Sandwich” -- helped reduce its overseas tax rate to 2.4 percent... Google, the owner of the world’s most popular search engine, uses a strategy that has gained favor among such companies as Facebook Inc. and Microsoft Corp. The method takes advantage of Irish tax law to legally shuttle profits into and out of subsidiaries there, largely escaping the country’s 12.5 percent income tax. ... The earnings wind up in island havens that levy no corporate income taxes at all. ... The tactics of Google and Facebook depend on “transfer pricing,” paper transactions among corporate subsidiaries that allow for allocating income to tax havens while attributing expenses to higher-tax countries. Such income shifting costs the U.S. government as much as $60 billion in annual revenue... Google is “flying a banner of doing no evil, and then they’re perpetrating evil under our noses,” said Abraham J. Briloff, a professor emeritus of accounting at Baruch College in New York who has examined Google’s tax disclosures. “Who is it that paid for the underlying concept on which they built these billions of dollars of revenues?” Briloff said. “It was paid for by the United States citizenry.” The U.S. National Science Foundation funded the mid-1990s research at Stanford University that helped lead to Google’s creation. Taxpayers also paid for a scholarship for the company’s cofounder, Sergey Brin, while he worked on that research. ... Technically, multinationals that shift profits overseas are deferring U.S. income taxes, not avoiding them permanently. The deferral lasts until companies decide to bring the earnings back to the U.S. In practice, they rarely repatriate significant portions, thus avoiding the taxes indefinitely... U.S. policy makers, meanwhile, have taken halting steps to address concerns about transfer pricing. In 2009, the Treasury Department proposed levying taxes on certain payments between U.S. companies’ foreign subsidiaries. Treasury officials, who estimated the policy change would raise $86.5 billion in new revenue over the next decade, dropped it after Congress and Treasury were lobbied by companies... The rules for transfer pricing should be replaced with a system that allocates profits among countries the way most U.S. states with a corporate income tax do -- based on such aspects as sales or number of employees in each jurisdiction, said Reuven S. Avi-Yonah, director of the international tax program at the University of Michigan Law School. “The system is broken and I think it needs to be scrapped,” said Avi-Yonah... “Companies are getting away with murder.”
Posted by Mark Thoma on Friday, October 22, 2010 at 12:18 AM in Budget Deficit, Economics, Politics | Stumble, Digg, del.icio.us, Reddit, Tweet, Share, Like | Permalink Comments (4)
British Fashion Victims,[link widoczny dla zalogowanych], by Paul Krugman, Commentary, NY Times: In the spring of 2010, fiscal austerity became fashionable. I use the term advisedly: the sudden consensus among Very Serious People that everyone must balance budgets now now now wasn’t based on any kind of careful analysis. It was more like a fad,[link widoczny dla zalogowanych], something everyone professed to believe because that was what the in-crowd was saying. And it’s a fad that has been fading lately, as evidence has accumulated that the lessons of the past remain relevant, that trying to balance budgets in the face of high unemployment and falling inflation is still a really bad idea. Most notably,[link widoczny dla zalogowanych], the confidence fairy has been exposed as a myth. There have been widespread claims that deficit-cutting actually reduces unemployment because it reassures consumers and businesses; but multiple studies ... have shown that this claim has no basis in reality. No widespread fad ever passes, however, without leaving some fashion victims in its wake. In this case, the victims are the people of Britain, who have the misfortune to be ruled by a government that took office at the height of the austerity fad and won’t admit that it was wrong. ... The ... British government seems determined to ignore the lessons of history. Both the new British budget announced on Wednesday and the rhetoric that accompanied the announcement might have come straight from the desk of Andrew Mellon, the Treasury secretary who told President Herbert Hoover to fight the Depression by liquidating the farmers, liquidating the workers, and driving down wages. Or if you prefer more British precedents, it echoes the Snowden budget of 1931, which tried to restore confidence but ended up deepening the economic crisis. The British government’s plan is bold, say the pundits... But it boldly goes in exactly the wrong direction. It would cut government employment by 490,000 workers ― the equivalent of almost three million layoffs in the United States ― at a time when the private sector is in no position to provide alternative employment. It would slash spending at a time when private demand isn’t at all ready to take up the slack. Why is the British government doing this? The real reason has a lot to do with ideology: the Tories are using the deficit as an excuse to downsize the welfare state. But the official rationale is that there is no alternative. Indeed, there has been a noticeable change in the rhetoric of the government of Prime Minister David Cameron over the past few weeks ― a shift from hope to fear. In his speech announcing the budget plan, George Osborne, the chancellor of the Exchequer, seemed to have given up on the confidence fairy ― that is, on claims that the plan would have positive effects on employment and growth. Instead, it was all about the apocalypse looming if Britain failed to go down this route. Never mind that British debt as a percentage of national income is actually below its historical average; never mind that British interest rates stayed low even as the nation’s budget deficit soared, reflecting the belief of investors that the country can and will get its finances under control. Britain, declared Mr. Osborne, was on the “brink of bankruptcy.” What happens now? Maybe Britain will get lucky, and something will come along to rescue the economy. But the best guess is that Britain in 2011 will look like Britain in 1931, or the United States in 1937, or Japan in 1997. That is, premature fiscal austerity will lead to a renewed economic slump. As always, those who refuse to learn from the past are doomed to repeat it. Paul Krugman: British Fashion Victims
We're losing quite a bit of tax revenue to transfer pricing strategies:
The plan was "dropped it after Congress and Treasury were lobbied by companies." What a surprise.

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