The Great Divide by Joseph E. Stiglitz

Author:Joseph E. Stiglitz
Language: eng
Format: epub
Publisher: W. W. Norton & Company
Published: 2015-09-19T16:00:00+00:00

GLOBALIZATION ISN’T JUST ABOUT PROFITS. IT’S ABOUT TAXES TOO.*

THE WORLD LOOKED ON AGOG AS TIM COOK, THE HEAD OF Apple, said his company had paid all the taxes owed—seeming to say that it paid all the taxes it should have paid. There is, of course, a big difference between the two. It’s no surprise that a company with the resources and ingenuity of Apple would do what it could to avoid paying as much tax as it could within the law. While the Supreme Court, in its Citizens United case, seems to have said that corporations are people, with all the rights attendant thereto, this legal fiction didn’t endow corporations with a sense of moral responsibility; and they have the Plastic Man capacity to be everywhere and nowhere at the same time—to be everywhere when it comes to selling their products, and nowhere when it comes to reporting the profits derived from those sales.

Apple, like Google, has benefited enormously from what the U.S. and other Western governments provide: highly educated workers trained in universities that are supported both directly by government and indirectly (through generous charitable deductions). The basic research on which their products rest was paid for by taxpayer-supported developments—the Internet, without which they couldn’t exist. Their prosperity depends in part on our legal system—including strong enforcement of intellectual property rights; they asked (and got) government to force countries around the world to adopt our standards, in some cases, at great costs to the lives and development of those in emerging markets and developing countries. Yes, they brought genius and organizational skills, for which they justly receive kudos. But while Newton was at least modest enough to note that he stood on the shoulders of giants, these titans of industry have no compunction about being free riders, taking generously from the benefits afforded by our system, but not willing to contribute commensurately. Without public support, the wellspring from which future innovation and growth will come will dry up—not to say what will happen to our increasingly divided society.

It is not even true that higher corporate tax rates would necessarily significantly decrease investment. As Apple has shown, it can finance anything it wants to with debt—including paying dividends, another ploy to avoid paying their fair share of taxes. But interest payments are tax deductible—which means that to the extent that investment is debt-financed, the cost of capital and returns are both changed commensurately, with no adverse effect on investment. And with the low rate of taxation on capital gains, returns on equity are treated even more favorably. Still more benefits accrue from other details of the tax code, such as accelerated depreciation and the tax treatment of research and development expenditures.

It is time the international community faced the reality: we have an unmanageable, unfair, distortionary global tax regime. It is a tax system that is pivotal in creating the increasing inequality that marks most advanced countries today—with America standing out in the forefront and the UK not far behind. It

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