Thursday, July 14, 2011

Another way to think about taxing multinationals

Calvin H. Johnson, professor of law at the University of Texas and a well known tax writer, has an interesting article in Tax Analysts, reproduced at TaxProf. Although there's a lot of detail, the premise of the article is simple.

"Taxing corporations is fiendishly complex, and lots of corporations get away with murder, using tax havens and other sources of tax trickery. (Try this, for example.) Another way to estimate a firm's tax bill would be to calculate its tax bill based on its market capitalisation. A 0.8 percent tax per year on General Electric (GE), for instance, would raise $6.5 billion, which he reckons is fair. He says:
It is said that the French ancien régime fell because the richest country in Europe could not pay its debts. The régime could not pay its debts because the aristocracy, which held the wealth, was made exempt from tax. GE is our aristocracy, both wealthy and exempt from tax on its economic resources. If we are to survive the impending budget crisis, we need to tap into the wealth of our nation.

We might improve the tax law on capitalization of intangibles, on offshore tax haven subsidiaries, on accelerated depreciation, and on tax credits, but each of those issues would entail hard, unpopular work by Congress to solve the real issues. A tax on market capitalization would cut the Gordian knot and solve all the problems, on a fair and conveniently administrated basis. With the impending budget crisis, a tax on market capitalization of publicly traded corporations would be a good tax."
Well, it's an interesting idea, though it does raise a host of new issues, not least of which would be the fact that without some serious tinkering with this tax, genuinely loss-making companies would still be getting hefty tax bills. But it's something to ponder.


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