The Google Tax

The announcement by the Conservative UK government of a tax on diverted profits (popularly referred to as the “Google Tax”), along with reports that the Abbott government may follow suit, has received only limited attention (as far as I have seen) but seems like a very big deal. A few observations on this

* It’s notable that these are conservative, business friendly governments that are, like all governments, short of money. It appears that, thanks to the steady drip feed of revelations about the “Double Irish”, Luxembourg private rulings and so on, that, even for such governments, highly profitable multinationals have become an appealing target, at least relative to domestic taxpayers

* If successful, this tax will turn two of the standard presumptions of the corporate tax debate on their heads. First, that corporate tax minimisation is not only legitimate but part of the obligation of managers (the corresponding shift was made with respect to individuals, in Australia at least) decades ago. Second, and more important, that global corporations can choose where they pay tax. The point of the UK tax is that, once corporations are found to be engaged in tax avoidance (pretty much a slam dunk), they can be made to pay in any jurisdiction, at rates that jurisdiction considers appropriate.

* It’s hard to see how corporations like Apple and Google can dodge this. They could refuse to supply their goods and services to the UK, but that would be immensely costly, and would be likely to provoke retaliation from other EU members.

* This will make a big change to the OECD processes aimed at a co-ordinated response to base erosion and profit shifting. Until now, corporations have had a strong interest in slowing this process down, and shopping around for good deals from the likes of Ireland, Luxembourg and, of course, Delaware. Now that they face the risk of facing unco-ordinated punitive action applied in many different countries, enlightened self-interest would suggest that they should support a global deal.

* In combination with the GFC, which revealed the extent to which “global” banks actually depended on protection from their home national governments, limits on global tax evasion undermine much of the analysis of globalisation that was dominant in the late 20th century

* If capital income can be taxed effectively in the countries where profits are generated, there’s much less need for ideas like Piketty’s global wealth tax.

71 thoughts on “The Google Tax

  1. @Ernestine Gross

    You are not ignorant on the question of what capitalism is. You are pretending ignorance.

    You know the simple definition of capitalism as well as anyone even remotely interested in economics. Here is an example of such a simple definition.

    “Capitalism is an economic system in which trade, industry, and the means of production are largely or entirely privately owned and operated for profit.[1][2] Central characteristics of capitalism include capital accumulation, competitive markets and wage labour.[3] In a capitalist economy, the parties to a transaction typically determine the prices at which assets, goods, and services are exchanged.” – Wikipedia.

    I resisted a simple definition because;

    (a) I knew you knew it; and
    (b) I knew as well as you do that simple definitions leave a lot out.

    I am certainly amazed if modern courses on economics do not deal with 18th C and 19th C economic thinkers even if only to indicate the history of development of economic thought and where these thinkers are now held to be obsolete, incomplete, superseded or refuted. So frankly, I would be amazed if you really are ignorant of Marxism instead of just pretending to be.

    By the way, there is plenty of empirical evidence that large chunks of Marx are not refuted, do still matter and may provide us with plenty of theoretical power to understand what is going on right now. Maybe you should broaden your reading. And read more than equations.

  2. @Ikonoclast

    My guess would be that it is common for people to talk broadly about national economics without referring to Marx, and if it’s common I don’t see how it can be surprising.

    But perhaps my guess is wrong, and in fact it’s much less common than I imagine for people to talk broadly about national economics without referring to Marx. I don’t know how to find evidence that would bear on the point. Do you have any ideas?

  3. @J-D

    In public, business and bourgeois economics it is not surprising. Capitalist ideology has hijacked the entire discourse.

    I expect a higher standard from academic economists. I am continually surprised at how low the standard has fallen in that arena. Prof. J.Q. himself has admitted that modern orthodox economics is a failed research program or words to that effect. He did so in an article that you can request him to link to if you wish. The current stagnation and accelerating collapse of capitalism indicate fundamental problems with the system.

    Marxism and Marxian thinking are making a considerable comeback among those who actually understand political economy. Of course our business community and their hired gun business economists are a combination of ignorant, in denial and in suppression mode of alternative ways of understanding our economy properly. They want to keep exploiting workers, keep an unemployed reserve army and push down wages to the bare minimum while destroying the environment and amassing as much wealth for themselves as possible.

  4. J-D :

    John Quiggin has not made it a rule for discussion here that participants must first pass your personal intelligence test.

    Good for you, then.

  5. @Ivor

    I specified 2 sets of parameter values to generate 2 examples (versions) of ‘capitalism’. My chosen numbers are not excluded in your “precise theoretical model”.

    For your information, Karl Marx is recognised in mainstream economics (history of economic thought) as an important writer for his time. He is accredited with having introduced dynamics, detailed empirical analysis, a hierarchy of influences (with material concerns – economics – at its base). It is news to me that he developed a precise theoretical model of ‘capitalism’ and you have convinced me that I haven’t missed anything.

  6. @Ernestine Gross

    How does your specified 2 sets of parameter values generate 2 examples (versions) of capitalism?

    If you understood Marx’s definition {M – C – M’} – you would know that – under successful capitalism M’ can never be less than M.

    Your values, M=1, with M’ = 0, by definition, are nonsensical.

    The rest: your A, B, C make no sense whatsoever.

  7. @Ikonoclast

    There are ‘expectations’ in the empirical sense of forecasts of what’s likely and there are ‘expectations’ in the normative sense of standards by which performance is to be evaluated. Failure of events to conform to empirical expectations is close to definitional of surprise, but failure to conform to normative expectations should not be surprising (or not always, anyway). I can see that you’re disappointed that academic economists don’t pay as much attention to Marx as you think they should, but being disappointed is not the same thing as being surprised.

    In fact you’ve got a clear explanation of why (you think) academic economists don’t pay more attention to Marx, which suggests it doesn’t actually make a lot of sense for you to be surprised.

  8. @Ivor

    1. The topic of this thread concerns a contemporary issue. Please read the heading. There is nothing in this topic which can be twisted into a ‘test’ of understanding Marx as allegedly taught in Jugoslavia at some time in the past.

    2. As it turned out, you did not specify whatever was taught in Jugoslavia, or, alternatively, you were taught nonsense. Only after I made a mockery of your theoretical model skills did you get the idea that writing three letters (I take M’ to be a different one to M) and hyphens between them makes no sense. You then seen to believe that you would have gotten away with it, if I would “understand Marx” (I never met the man). What you have produced is a good example of superfluous and quite silly pseudo-formalism.

    3. Ikonoclast has already stated errors in your deductions.

    4. I am tired of hearing laments about ‘capitalism’ without plausible and feasible policy proposals for actual problems without a revolution and more misery. And this brings me back to the thread.

    5. Irony alert: If you don’t like ‘capitalism’, defined by {M – C – M’}, feel free to choose another set of letters {A – C – M’} or whatever. This was the purpose of me changing the letters.

    I would expect our host is going to send us all to the sand pit if this goes on any longer.

  9. @Ernestine Gross

    “I am tired of hearing laments about ‘capitalism’ without plausible and feasible policy proposals for actual problems without a revolution and more misery.” – Ernestine.

    There are plenty of plausible and feasible policy proposals for actual problems. These run the gamut or spectrum from centrist to leftist. Nothing right of centre is plausible because it has been implemented and it is not working for the majority. Soviet-style Communism does not seem plausible either given Soviet history. Though some, like Prof. Richard D. Wolff et. al., have argued that the Soviet system was state capitalism not communism or socialism.

    Of course, what is plausible and feasible on economic grounds simply does not appear plausible and feasible in political terms under neoliberalism. I see no sign of neoliberalism slackening its hold in the USA. Neoliberalism is pretty much identical, in operation, to the rule of the oligarchs.
    The system has very much ossified. Without a revolution there will be no change.

    I am not an advocate of revolution. I continually advocate changes that would defuse and head off the need for revolution. (Much good it does of course as nobody listens to the powerless majority of which I am one.) However, I have given up hope for reforming capitalism. I would advocate continual radical reform until capitalism is done away with entirely. I have even posted some of these ideas (they are not original) on this blog to deafening disinterest. I don’t propose to post them again.

    But as I say, I have given up hope in opposing, reforming or ending capitalism by political action or argument or advocacy. Capitalism is like a hurricane. It is a force now beyond human agency.* It has to blow itself out. It will blow itself out as it will destroy the environment’s capacity to support it. Not a pretty end of course. I am fatalist not an activist. As a fatalist I should learn not to argue with anyone. I am still working on that.

    * Note: I know it seems odd to argue that something humans do is beyond human agency or gets beyond their agency at some point; meaning roughly that it gets beyond their will and ability to change. But a simple analogy will suffice. I speak from personal experience. One can build or re-build a machine (say a motorcycle) and then drive it faster and faster. Eventually, usually at a corner or some other challenging obstacle, something goes wrong. A key component breaks or fails, the rider makes an error of judgement or a black swan event arrives under the front wheel (small oil patch on the road).

    This oil patch under the front wheel on a corner at high speed can induce a dynamic phenomenon called tank slapping. The front steering assembly, including handle bars, snaps rapidly from lock to lock. It acts like a huge brake on the front wheel. Motorcycle and rider somersault, fly throught the air, come down heavily and slide along the road.

    The thing about this event is that the onset is quicker than human reaction time and the forces involved are far greater than human strength. There’s nothing you can do to prevent a crash once the tank slapping dynamic is induced. We humans have built a vast machine. The global advanced economy. It has many dynamic features now, well beyond even our collective agency even if such agency was well coordinated. Soon I think there will be a dynamic wobble we can’t manage. It’s a simple as that.

  10. @Ikonoclast

    You are quite right in noting you don’t advocate revolution. I certainly did not wish to suggest anything to the contrary. I should have made a suitable note to this effect in my post to Ivor.

    Thomas Piketty has a dynamic model, using some concepts that are consistent with those in Radner’s model of an economy with a sequence of commodity and financial markets. Piketty’s model specifies conditions on parameter values that are meaningful in macro-economics. I’ve worked through his lengthy book only once. Subject to this qualification, I say the approach does not take into account the real resource constraint (finite life of planet earth, to use short hand for all environmental issues). Interestingly, Piketty advocates a wealth tax to reduce the growth in wealth and income inequality instead of economic (GDP) growth to get closer to the parameter value restrictions. I interpret this as an acknowledgement that there is a limit to economic growth (more so for some countries than for others, I suppose).

    PS: I read most of your posts and I find them interesting. As is the case with most people, I have limited time.

  11. @Ernestine Gross

    Yes, I must read Piketty’s latest work; his magnum opus I guess.

    At the moment, I am about to start “The Endless Crisis” by John Bellamy Foster and Robert W. McChesney. I am troubled by a mundane existential question. Why bother to seek understanding if one can have no impact?

  12. @Ernestine Gross

    I did not understand your little effort as one of “mockery”. So if this is the quality of your mind then so be it. Blogs do have bottoms.

    The times are such that winging over supposedly being:

    tired of hearing laments about ‘capitalism’ without plausible and feasible policy proposals for actual problems without a revolution and more misery.

    is fatuous.

    Better minds do address this issue and I note that Quiggin that:

    We need … in the long term the replacement of the current capitalist model with a more sustainable and equitable economy and society

    without plausible and feasible policy proposals.

    But it is a start and helps others to separate the academic (and blogging) wheat from the chaff.

    You should be aware that I have previously referred to the policy of Self Management developed in Yugoslavia under Tito and Kardelji. This set is complete and there is a copy of the Yugoslav Associated Labour Act in the National Library – Canberra.

    Others have taken a different route, presenting other plausible and feasible policy proposals for a non-capitalist economy, such as cooperative movements world wide. In Australia Race Mathews (Fabian) has been proposing such policies.

    Playing games with letters is not relevant: most people will want to use M for money, and C for Capital. This is rational – your corruption was not.

    So it is Ernestine, who really should be the target of mockery.

  13. @Ivor

    Yes, as I said above I am now reading;

    “The Endless Crisis” by John Bellamy Foster and Robert W. McChesney.

    It fully covers the grounds that the review of Piketty covers.

    The danger for me I guess, is that the position of writers like John Bellamy Foster and Robert W. McChesney seems very evidently true and very evidently butressed by empirical and historical (meaning more empirical) data. Neoclassical economics on the other is palpably fallacious at all levels and self-serving propaganda for the elite. This means that my reaction to supporters of neoclassical economics or even seeming support for any part of it is moral disgust, empirical outrage and even incredulity.

    I can understand the 1% supporting neoliberal economics. For the large part of the other 99% who also support it mostly, I can only wonder “How can you be so stupid?

  14. @Ernestine Gross

    Can you nominate a book for me to read which would best encapsulate and explain your style of economic thinking? I get the sense you are an Institutionalist of some type but I might well be wrong. I want to read something you recommend to expand my thinking. I suspect your position is complex and does not fit neatly in the (no doubt) simplistic categories I have set up in my mind. One needs to challenge one’s categories and frameworks from time to time.

    This book would need to be for an educated but general readership. I won’t be able to understand a book full of complicated economic mathematical formulas.

  15. @Ikonoclast

    It seems to me Prof Q’s blog is very helpful to learn about main stream economics. He is very skilled in expressing complex matters in words and in delivering the material in digestable bits. I just throw my two cents worth in to keep my grey matter alive. There is one suggestion I could make, try not to think in terms of categories (labels) of economists but rather in terms of what are the questions which economists try to tackle, using different approaches. Sooner or later, the importance of resource constraints and environmental problems will filter through to the public at large. I am quite confident about this.

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