Mar 29 2011

Has Jeffrey Sachs been reading Treasure Islands?

Posted by: Nick Shaxson in: Thoughts

Reposted from the Tax Justice Network blog and slightly tweaked (I wrote the original anyway)

We’ve had our beefs with Jeffrey Sachs in the past, but he has, to his great credit, just written a humdinger of an article in the Financial Times, entitled Stop this race to the bottom on corporate tax. The first half of the article could have been written by the Tax Justice Network (TJN,) or by myself. Indeed, I should have.

Here are some examples of what he says:

Both the US and UK have experienced a profound shift of income distribution from the poor and the middle-class to the rich in the past 30 years yet the fiscal adjustments are dominated by sharp cuts on public services combined with reductions on corporate tax rates. The social contract is under threat.

I’m not sure why he focuses on high-income countries only – tax competition is threatening developing countries at least as much, as this article and associated link explains — but the general thrust is absolutely right. As is this:

With capital globally mobile, moreover, governments are now in a race to the bottom with regard to corporate taxation and loopholes for personal taxation of high incomes. Each government aims to attract mobile capital by cutting taxes relative to others. Governments like Ireland have created tax havens that drain revenues from the rest and act as conduits to tax-free Caribbean hideaways such as the Cayman Islands. The rich are doubly benefited: by the underlying market forces of globalisation and by their governments’ policy response.

Again, absolutely right – and it’s particularly good that he has focused on Ireland, which is so often overlooked by those who think tax havens are solely in the Caribbean, or Switzerland, or Monaco. The most important ones, as TJN has long noted, and as Treasure Islands explains in great detail, are OECD nations.

We can’t get enough of the first half of this article – here is another crucial section:

Both the US and UK are aiming to do the impossible: run a modern, high-technology, prosperous 21st-century knowledge economy without the requisite tax base, largely to satisfy the upper classes and multinational companies, which threaten to decamp to milder tax regimes, or direct their campaign contributions elsewhere, if they do not get the tax cuts they obsessively crave.

Again, straight out of the TJN and Treasure Islands school.

The second half of the article is where we don’t necessarily agree with him – where he argues for austerity now, in contrast to economists such as Paul Krugman who argue for delaying budget rebalancing and focusing on Keynesian stimulus for now. TJN generally doesn’t take a strong position on spending levels, because it works on the revenue side of things, though many of its members would come down on Krugman’s, not Sachs’, side in this debate.

Sachs also credits the UK government, albeit in a nuanced way, for doing some work to stem the race to the bottom, when it is working aggressively in the other direction – see the highly knowledgeable Progressive Tax Blog for example, to see just how awful this is, or George Monbiot‘s article earlier.

But he correctly notes that Ireland has clung to its “irresponsible” tax haven status, the U.S. leadership seems to be facing disastrous lack of political backbone on this front, Canada is heading downwards, and so on. (We might add Northern Ireland, threats from Wales, Scotland, to name just a few.)

He also calls for international co-operation on this – and particularly on the OECD to take a lead in helping stop the rot. We have seen the OECD serving so very often (though not always) as a malign force in the field of international tax (here’s a recent example) that we’re not sure this is going to get very far. But it’s excellent to see voices like Sachs’ giving them big prods like this.

By the way, just to clear up any possible misunderstanding from the headline, we haven’t been in contact with Sachs, and he hasn’t “joined” TJN in any way. But now that he’s written this article, he might as well have.

And it’s quite possible that he’s been reading Treasure Islands.

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