Is eliminating corporate tax havens such a good idea?

Juan Carlos Suárez Serrato says maybe not:

We show that eliminating firms’ access to tax havens has unintended consequences for economic growth. We analyze a policy change that limited profit shifting for US multinationals, and show that the reform raised the effective cost of investing in the US. Exposed firms respond by reducing global investment and shifting investment abroad — which lowered their domestic investment by 38% — and by reducing domestic employment by 1.0 million jobs. We then show that the costs of eliminating tax havens are persistent and geographically concentrated, as more exposed local labor markets experience declines in employment and income growth for over 15 years. We discuss implications of these results for other efforts to limit profit shifting, including new taxes on intangible income in the Tax Cuts and Jobs Act of 2017.

Here is the NBER paper.

Comments

Not sure whether this is a good idea or not, but why is the comments section still open?

Just like straws in California, comments are gone. Sad day for MR

A question that some have wondered for years, to be honest.

The explanation I tend towards is that the comments allow plausible deniability - it isn't Prof. Cowen endorsing ideas of the sort held by someone such as Stever Sailer, nor is it Prof. Cowen providing links to sources which are generally considered to be straightforward in providing their own vision of which steps are required for a much better world.

The working paper here: http://www.jcsuarez.com/Files/Suarez_Serrato_UCETH.pdf

The Puerto Rico tax exception repeal caused a higher effective tax rate for business located in the US. In addition to NAFTA and China, this made investments abroad more competitive and even jobs on the US mainland were relocated to somewhere else.

The corporate tax rate was reduced last time on Jan 1 2018 making manufacturing and services from the US become more competitive. The "negative" outcome of eliminating firms' access to tax heavens may be neutralized by a corporate tax reduction. It might make even increase productivity: the accountant army required for profit shifting is no longer needed.

I fail to see how Puerto Rico having a preferential corporate tax is more efficient that the whole US having a lower corporate tax.

The preferred solution is just to have the same tax rate across the entire US jurisdiction. Not to play political favorites.

I have no doubt that trade has increased global output and made the world a much richer place, and that tax havens have facilitated it by reducing the tax burden and thereby increasing investment, productivity, and output. What that overlooks, however, is that the benefits are not distributed equally; indeed, in America the growth of the global economy has coincided with the growth in inequality in America, far less progressive taxation, and neglect of public goods such as infrastructure. The irony is that trade and growth in the global economy has come at the expense of investment in productive capital and public goods, wages, and order and stability here at home.

... great to see 21st Century economists doing pioneering economic research.
Apparently if you tax stuff... you get less of that stuff produced.
Somebody should write that down somewhere (Taxes reduce economic productivity).

Don't want comments? Don't post.

Enforcement of tax laws generally involves confiscation, not physical violence. Politics and government are coercion and deceit. Each legislator for each bill should contemplate whether the coercion and violence connected with enforcement are justified.

That post (not economics) is one of the more valuable I've seen in years.

Off-topic quote of the day: “Every great cause begins as a movement, becomes a business, and eventually degenerates into a racket.” Eric Hoffer, the longshoreman philosopher. Happy Birthday, Eric!

Eric Hoffer - blue collar intellectual.

There are too many soft hands and too few hard knuckles in this room.

?? ... guess you're responding to latest Alex post here, but ya shoulda made that clear

Good post by Alex. 90% of Americans (especially lawyers) do not understand 'fundamental' legal theory nor its grizzly and routinely unjust application by government actors.

True. They hire thugs to do their dirty work.

"In 2016 for instance, Google Alphabet made $19.2 billion in revenue in Bermuda, a small island in the Atlantic where it barely employs any worker nor owns any tangible assets, and where the corporate tax rate is zero percent."

https://voxeu.org/article/missing-profits-nations#.W1eBEDXaBHw.twitter

You're a whore for corporations.

Isn't that correct, TC?

Oi, Mr Cowen: would you please tell your co-blogger that I thought his post above was pretty good stuff? Thank you.

It brought up a good issue, for sure. But if he thinks Dems in Santa Clara are going to suddenly pause upon realizing that someone might have to die for their straw ban, he is mistaken.

They are fully aware, and they delight in the idea. I would dare say that's actually a point they very much want to get across.

Finally someone talking some sense. The Democrat party is merely the cover for a seething, murderous mob who literally would kill every real American with their bare hands if they could. They worship only power and death.

Think I'm exaggerating? That's because you are a sheep, and Obummer and Shillary are your shepherds.

+1 to good post.

Also, @site overlords: please don't turn off the comment section. Too much of the internet has already fallen victim to the soulless, corporate-backed idea that "no discussion" > "messy discussion."

They could adopt my idea of having a pay-to-comment system. Like 2 cents per comment or something.

And another +1.

Just having an actual log on system would solve 2/3rds of the problem. And I'm not sure charging a nominal fee would prevent the worst trolls.

It would if your account has to be linked to a paypal account.

No need to charge: just requiring that they use Paypal would be a good deterrent.

But it would be fun to charge per comment and see if you can set the price to acheive a desired rate of comments. Maybe even add like a 25cents per swear word additional fee. Economics in action!

Oh balls to that.

2 cents is too low to stop the trash talk going on here, try $1 instead. SMS messages used to cost 5 to 10 cents, and it didn't keep people from texting. I for example, doubt the interns or teddy bear or whoever would impersonate Art Deco if it cost a buck. And my original idea of a membership to forfeit if violating posting rules can make the cost of incivility much higher than the cost of participating, which is a useful price discrimination.

Rather than having a cost per comment, just have a 1 time cost for a permanent user name, and let people sign up for free, but disable the accounts after 30 days.

I'm not sure either approach (cost per comment vs cost per account) would be completely workable, but they'd both be an improvement.

Of course the paid account would be subject to banning without refund if it violated terms of use.

It would be a really interesting experiment, IMO, to charge per comment and see if you could play around with the price formula to get a desired commenting rate. You could do all sorts of different schemes, like 10 free comments a day and an escalating amount per comment thereafter. Maybe use a nonlinear formula so your first comment is free but your 100th comment of the day is like $10 or something.

That seems too technical for this site...

A one-time fee + moderation would solve the issue, but then you'd have to trust the moderator.

It works for Metafilter, but the left-leaning commenters there accept the premise that sometimes, the answer is more government.

Moderation is expensive and would not be covered by the fees. An automated algorithm takes an initial capital investment, but seriously, we're just talking something that counts comments and charges paypal. You could probably steal the code for that off someone's old Myspace page.

" An automated algorithm takes an initial capital investment"

It's never that simple. Eventually something will change (probably IE) and your implementation will be broken and someone will need to disable to get the site back up. Then you'll have to pay to fix it. The idea of a maintenance free site is a myth.

I think the most robust solution is a one time fee for a user. That's minimal effort and there are various sites that will handle the transaction for a fee. Then you ban any user account who greviously misbehaves. The troll(s) we have would quickly disappear.

Unfortunately, as soon as you introduce a cost, most of the commentors will disappear. Not so much because it's not worth the money as because it's not worth the hassle of setting up an account and inputting a credit card.

Frankly, I think just a log in with password would fix 80% of the issues.

Maintainance is probably cheaper than moderation.

But if your goal is minimal upkeep costs, sure. You might draw a net profit by charging for comments, even if there are fewer of them. Again, as I said you could price the first 10 comments for free and then have an escalating rate thereafter. Many people will not hit the 10 comment limit. Getting rid of spambots and trolls is not the only possible objective either. Manipulating the price of comments is a mechanism for shaping the social atmosphere.

Tabarrok's post about criminalizing normal behavior reminds me of adolescents and criminalizing normal adolescent behavior. In one school district, the district attorney was so concerned about the high and growing number of adolescents who were being referred to the DA's office for prosecution, mostly for what the DA considered normal adolescent behavior, that he scheduled a meeting with all the resource officers to explain to them that only serious offenses be referred to the DA's office, and that the rest be handled at the school level as disciplinary matters. Well, the number of referrals to the DA's office went up by 50%. Everyone is important in her own way, including resource officers.

So, refusing to do business with cheaters might hurt your business in the short run if your competitors still do business with the cheaters. And if you shut down cheaters, it reduces short term employement in the cheaters’ host locale.

Got it

True patriotism.

Next paper, The Unintended Consequences of the China Shock. We seem to advocate for things that make money, despite their consequences.

Is the result basically dependent upon closing down some tax havens, while still having tax competition between jurisdictions which aren't technically tax havens? So lets say you close down some tax havens which shielded companies from the taxes they would have owed to the US government from activities they performed on US soil. That is basically an increase in their tax rate and in their marginal tax rate. Then, when it comes time to make decisions about where to site their next factory, they compare the expected costs of putting that factory in the US versus say a different country with a lower tax rate, lets say Canada in this example. Now that there isn't the tax haven to shield activity in the US from taxes, Canada looks like the better site.

My take is that income taxes (outside of wages) are becoming uncollectible, due to the sophistication of lawyers and accountants, complexity of tax law and globalization. Unfortunately if you survive on wages, you are dead meat.

I recommend moving to a national system of sales taxes, import tariffs, property taxes, fuel taxes, and so-called Pigou taxes.

The tax code is politics.

I don't recommend window taxes or brick taxes. How about sumptuary taxes, in the sense of taxes on conspicuous consumption? Everyone who stumped up could get a badge to wear - bronze, silver, or gold - so that they could boast of their extravagance even in the absence of their boat, car, house, or trophy wife.

Every Law is Violent

I was thinking about the Clean Air Act when I the excerpt. Those Volkswagen executives could have been hurt when arrested. We should be more careful!

If only ....

Dying over the straw ban? Hmm. It appears to be the same fine as that for being caught in the act of tossing a straw or cigarette butt on the ground, which presumably has been on the books for years. And yet, the score is Cigarette Butts and Straws, 12,903, 047; People, zero.

Mine is a blue city in a red state. It is our calling card, and in an indulgent way, the people of my state are almost proud of its waywardness, and tend to tolerate it and enjoy visiting even as they roll their eyes. And back when we were sleepy, it kinda gave the hippie-ish and the mildly quirky among their kids a safe place to move to, so they could stay in state. But the state legislators, whose conduct in office generally suggests they belong on a French penal island, often ignore statewide business to focus, for reasons unclear, on interfering with our local rule ... though we are evidently doing something right, at least for local purposes, being as we are the success story, that sends money all over the state, while all the little towns are dying ...

Last session the Lege mounted a peevish and bizarro effort to go after our municipal heritage tree ordinance (which, of course, hardly qualified as a radical idea, indeed is a deeply conservative one: "the great Tree at Groby ...").

But the details, and the political slant, don't matter. Respectfully (!), O Comment Allower, I would suggest that the fervent libertarian desire to make all towns the same, all places the same - is far more likely, ultimately, to lead to the violence you purport to fear.

Austin? Atlanta? Charleston?

It's kinda reactionary of you to even ask. I mean, they're just names on a map some old dead guy drew.

Laws don't kill people. Militarized police forces with ingrained institutional pathologies, open hostility to their subjects, "bounties" for arrests, a culture of omerta, and zero accountability kill people.

Truth. There is no substitute for police hiring standards, training and accountability. The laws argument is good for other points, but should not be used to deflect from this.

Indeed. The core concept is always good advice and may well serve as a good attention-getter in Law Review.

The law ain't tiddlywinks. Are you wiling to die for it?

They really ought to make that seminar mandatory for corporate law, since so much of the law is mainly about corporations protecting themselves from competition and customers by laying down whatever obstacles they can get away with, and no one really believes much of any of it.

lol. So this closing comments in only some threads is some kind of sly experiment on the ripple impacts of partial tariffs.

I thought that yesterday, after TC's snarky non-post, as I went off to make the bed and scrub the bath and be marginally more productive, at least for a couple hours, before the gains diminished, as I began reading about a young celebrity being hospitalized after an overdose, and then listened to some of her songs, and watched a video or two, since I wasn't familiar with her; but today I think the message is -- this is the world without straws. Ponder that with impotent rage.

I am pondering the elasticity of demand. For exported factory-farm chicken, for plastic drinking straws, and for blog comments.

I say don't eliminate them but allow a foreign nation to invade these islands and not use US military to protect the company assets! The US overspends on military that does little for our immediate security but security for the rest of the globe that cost every taxpayer 1 -2% more per person than Germany or Japan.

Imagine a final article where commenting remains open for weeks.

Finally, Marginal Revolution may have stumbled on something with a touch of actual originality, a sort of group dadaist symphony being created out of whatever it is that drives anyone to post a comment.

So much oblivious irony in this comment.

And this one too ...

Meh, 'I know you are but what am I' is pretty hacky.

Nobody ever bothered Ted Kennedy. Might be politics.

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