Block the revolving door: why we need to stop EU officials becoming lobbyists | Alter-eu.org

John Bruton, former Irish Prime Minister and EU ambassador to Washington DC until November 2009 went through the revolving door to become the president of the Dublin-based International Financial Services Centre in September 2010 and later the same year became a senior advisor to the Brussels-based lobby consultancy, Cabinet DN - which acts for a number of US clients including AT&T and the Financial Future Forum.  The Commission only authorised the move after Corporate Europe Observatory enquired about authorisation. Bruton claims he had asked for authorisation earlier, but his request appears to have been lost in the post.

Somewhat after the event, the Commission imposed a two-year condition that Bruton should not be in contact with former colleagues at DG RELEX about issues he had previously dealt with, and that he did not deal with cases which he had dealt with in Washington. ALTER-EU believes Bruton should have been subject to a cooling off period.

29/11/11 - A turning point in British history | Paul Mason

Paul Mason on good form talking about the “Autumn Statement”.

And don’t kid yourself that Britain is somehow immune, either, from the “government by technocrat” virus sweeping Europe. We saw last night the Lib Dems forced to effectively write their manifesto on the set of Newsnight; Labour too will now be wrenched from the leisurely world of blue-skies thinking, by boxfresh young frontbenchers in as yet unwrinkled suits. It will see its core electoral base - the public sector workforce and low-income families - subjected to four more years of demands for givebacks, job losses, service cuts, tax-credit cuts. But it cannot publicly support their protest actions. Those of us who’ve reported from the streets of Athens, and know what a leaderless mass of angry people looks like, know how disorienting a fiscal crisis can be for social democrats.

Via Blood and Treasure.

Reminds me of a line I read recently about social democrats being the only people now who are scared to death of changing anything.

[The full report is available as a 144-page PDF. The "Double Irish" "Dutch Sandwich" is mentioned. This post contains the introduction]

Global Corporate Taxation and Resources for Quality Public Services

Edited by Laura Figazzolo and Bob Harris
Published by The Education International Research Institute, Brussels.

OUTLINE

Rationale
The purpose of this project is to highlight, on the basis of existing research, the issue of the payment of fair and reasonable taxation by global corporations. The study aims to
expose the way in which existing tax regimes are manipulated by corporations with global reach. Through this report, citizens and political decision-makers will understand that resources for quality public services, such as public education, health and essential community services can be found, even without increasing taxation on citizens or small or medium enterprises (SMEs), but by applying the existing rules. This requires in essence that principles be put in place requiring respect by global corporations of their fiscal responsibilities.

This study is complementary to the well-researched public campaign for a tax on international financial transactions (the FTT), while putting the spotlight on an area which has received less attention – the loss of tax revenues under existing rules, due to the use of loopholes opened up by globalization. The study is set in the broader context of the role of taxation in society, as a source of revenue for quality public services, and as an instrument of distributive justice and equity.

Thirty years ago, Margaret Thatcher and Ronald Reagan succeeded politically in establishing the concept of small government linked with reduced taxation and deregulation. After three decades, it is time to reaffirm the vital role of public services in the community – and by that we mean quality, effective, ethical and adequately resourced public services. One of the major issues for industrialized and developing countries alike is the question of resources for social needs – including education, health, safety nets for the poor, and services for migrants. Yet resource constraints derived from the dominance of the small government low tax movement have militated against the provision of quality public services. The financial crisis and the attention given to tax havens by the G20 and the OECD have put the public spotlight on the extent of tax avoidance in a global economy, and debate has developed anew over the case for taxation in international transactions has been reinvigorated. .

Preliminary work by the ICFTU in 2006 [Weise, K. (2006) Having their Cake and Eating it too: the big corporate tax break, ICFTU] showed that Multinational Companies use their global reach to avoid their responsibility to contribute through fair and responsible taxation to national and community social needs. Techniques for “minimization” of corporate tax include the use of offshore tax havens, setting up competition between localities and countries for tax advantages (“arbitrage”), and the little-known technique of “transfer pricing”. The latter technique exploits on the fact that an estimated 40% of global commerce occurs within global corporations, enabling them to avoid national taxes by manipulating the prices charged for the transfer of goods and services. This phenomenon has developed dramatically since the mid 1990s. It is estimated that several trillion U.S. dollars of tax revenues are lost to national budgets annually through the use of such techniques – enough to provide the resources needed to the fund UN Millennium Development Goals (MDGs) and the budget requirements for social services in industrialized countries, including the growing costs associated with migration and global mobility.

Attempts to regulate transfer pricing today are derived either from the 1995 OECD transfer pricing guidelines or the U.S. Internal Revenue Code (section 482). To a greater or lesser degree, many states have been dealing with the matter. Despite a well-established regulatory framework, however, serious problems remain. Transactions performed in countries which promote tax havens and even in some European countries are not subject to transaction. Another difficult issue is the assessment of more intangible transactions – i.e. transfers of intellectual property, expertise (consulting) and knowledge and skills. An additional problem is that it is difficult to establish a fair market price for transactions that are not conducted between independent companies. It is hard to untangle this web as transfer pricing is also influenced by tariff structures, exchange rate fluctuations and risk profit repatriation policies, and asset capitalization policies. This means that it is very difficult to get a clear and transparent picture of what is really going on.

Why focus on global corporations? Precisely, because they are global they have opportunities to avoid their responsibilities to communities. National SMEs do not have the same opportunities.

This also links to the debate on corporate social responsibility (CSR), since the global push for corporate philanthropy is in many ways a substitute for paying taxes in the jurisdictions where the corporations operate. [See the chapter on MSPE's in EI's recent report Education International (2009) Public-Private Partnerships in Education http://www.ei-ie.org/research/en/documentation.php] Conceptually, we will present the need for corporate social responsibility through fair and reasonable taxation in all national jurisdictions.

The report maps out the general context of the debate on taxation and society but places its main emphasis on the issue of the payment of fair and reasonable taxation by global corporations. This is one piece in a new approach to growth which is outlined in the recent ITUC, TUAC and ETUI report Exiting from the crisis: towards a model of more equitable and sustainable growth. [Coats, D. (ed) (2011) Exiting from the crisis: towards a model of more equitable and sustainable growth. Report of a Taskforce, ITUC, TUAC, ETUI: Brussels]

Methodology
The study has been conducted by a ‘taskforce’ of trade unionists and scholars, who have overall responsibility for the project, under the auspices of the Council of Global Unions (CGU). This Taskforce includes Michael Kahn (NEA, USA), Pierre Habbard (TUAC), James Howard (ITUC), Jim Baker (CGU), Bob Harris (EI), David Robinson (CAUT, Canada) and Mechthild Schrooten (GEW, Germany).

The Taskforce has developed a structure for the study, reflected in draft chapter headings, and approached authors to develop each chapter. A Research Assistant, Laura Figazzolo coordinated work among the authors and assisted the Taskforce in identifying key sources and information. She prepared a selection of relevant literature and sources and wrote an overall background paper for the study. She then analysed and compared individual contributions, summarizing key findings. The draft report was reviewed by a Review Panel including Guntars Catlaks (EI), Andrew Watt (ETUI), James Howard (ITUC), John Evans (TUAC) and Frank Hoffer (ILO ACTRAV). Editing was completed by Bob Harris and Laura Figazzolo.

Structure of the Report
In Chapter 1, the stage is set for the discussion, presenting various estimates of the trillions of dollars lost to public revenues through different techniques of tax ‘minimization’ and amounts involved globally in the so-called ‘offshore’ economy. This section illustrates how multinational companies (MNCs) use their global reach to avoid their responsibility to contribute through fair and responsible taxation to national and community social needs, with harsh consequences for communities in both industrialised and developing countries.

Chapter 2 illustrates how globalisation has increased demands on communities for the provision of quality public services. Community expectations include services historically provided publicly such as health, education, utilities (sanitation, water and energy), essential services (police, and other security services including prisons, fire fighting and emergency services), municipal services and public administration, and the regulatory services required in every community, from national to local levels. Demographic changes and urbanisation have increased demands for public services, for example for the provision of services for the elderly. But increased pressure on virtually all community public services also flows from globalisation, notably as a result of migration. In many communities, additional pressures are becoming apparent because of the need to deal with the consequences of climate change, including changing weather patterns and desertification.

Chapter 3 offers an insight into the broad concept of quality in public services, presenting the priorities in both OECD and emerging countries, in terms of pressures to downsize budgets for public services due to growing state deficits, and the erosion of public services in the developing world, with the consequential increasing ‘casualization’ of public services. This chapter also focuses on key challenges to be addressed most immediately, including the need to combat corruption and development of effective tax collection systems.

Taxes are the price we pay for not only the public goods and services we need, but for living in a civilized and prosperous society. Without adequate tax revenues, we simply cannot hope to sustain public services, infrastructure, and programs that have been shown to be key factors in the economic growth and social development of nations. That is why tax avoidance and tax evasion can be so disastrous for countries and their citizens. Chapter 4 shows how, today, the fiscal stability of governments in many parts of the world is being undermined by tax avoidance and evasion.

Chapters 5 and 6 explain that international corporate tax reform is long overdue, through analysis indicating that, for the United States alone, income shifting reduces U.S. government revenue by as much as 30% of total U.S. corporate tax revenues. Chapters show that there are several policy alternatives that would improve the current situation. The most transformative method would be to adopt a ‘formulary’ approach to the taxation of international income. However, more minor policy innovations are also worthy of consideration, such as rate-lowering, tax-basebroadening reforms, proposals to end deferral of domestic taxation on international income, and minor modifications of the tax treatment of foreign income.

Chapter 7 presents the OECD as a key player in international tax cooperation and in shaping the tax policy agenda of its member countries, with a focus on its initiatives for combatting tax evasion and avoidance and strengthening the tax systems of developing countries. The chapter provides a snapshot of selected OECD-led or supported instruments and initiatives for strengthening international cooperation on tax, curbing tax evasion and avoidance by MNCs and building the capacity of tax administrations in developing countries, with a discussion of the tax policy reform agenda. It also sets out the relevant trade union agenda. The Chapter provides a focus on the issue of taxation within the EU.

Chapter 8 by David Robinson presents the trade union perspective on strategies for change. After summarizing the main attempts to challenge tax arbitrage, transfer pricing, and other avoidance strategies illustrated more in details in the previous sections, this chapter highlights the need for a new compact: fair and reasonable taxation paid into public revenues by MNCs and the provision of effective quality public services in all communities.

Finally, Bob Harris draws key conclusions from the various contributions, underlining the need for a paradigm shift: global corporations should engage with global unions and civil society as partners in new thinking, leading to new and serious commitments to build better communities and better lives.

At the end of the report, Annex 1 estimates the consequences, in terms of revenue, of income shifting behavior. The consequences are calculated through regression analysis, focusing on data for the U.S. Annex 2 offers an insight into the political economies of taxation, using the example of the United States to show where corporate taxation fits in the overall framework for taxing MNCs, i.e. the rationale for Corporate Income Tax (CIT), the problems with and the solutions for strengthening corporate tax, and how they apply specifically to the case of the U.S. Three policy changes are presented which could strengthen the tax system, allowing states, governments and legislatures to increase corporate income tax from near irrelevancy as a source of revenue to a significant source of income. Annex 3 focuses on pensions and their impact on government budgets, highlighting key elements for an effective reform of the public pension system, specifically in the U.S.

Scope of the Report
This Report investigates the issue of avoidance by global corporations of the payment of fair and reasonable taxation, illustrating the way in which existing tax regimes are manipulated particularly by corporations with global reach. It presents a snapshot of the various estimates and data on the extent of this tax manipulation and the consequent effects in terms of loopholes in taxation systems, as drawn from the key international sources on this subject. The study briefly explains the regulatory framework of corporate taxation at international level, providing examples of the way in which this is manipulated by MNCs to avoid taxes. Finally, it presents possible approaches for change, both to challenge tax arbitrage, abusive transfer pricing, and other avoidance strategies, and to promote a new compact for fair and reasonable taxation paid into public revenues by MNCs, and the provision of effective quality public services in all communities. This requires a paradigm shift that would be beneficial to MNCs, as well, as they will have a level playing field, quality services to support their operations, and well trained workforce to boost productivity and profits.

There are different estimates of the overall size of the offshore economy in today’s world. By their very nature, flows of finance are opaque and thus difficult to quantify. It is clear that huge amounts are involved – trillions of US dollars annually for legal or quasilegal transactions – and further substantial amounts that flow through illegal transactions, including the drugs and arms trades, human trafficking, and various forms of money laundering.

It is not surprising, therefore, given the role of the offshore economy in tax matters, that it is difficult to quantify reliably the losses to communities through global tax avoidance. The focus of this study is on known tax minimization and avoidance through legal or quasi-legal means. There are various estimates of the amounts involved, and several of these estimates are cited in the report. It would be particularly useful for a further study to compare these estimates and to seek some coherence among them, so that figures could be reliably cited in public debate. This report highlights the need for further research on this topic.

Informed public debate is fundamentally important in democratic societies. In addition to the need for good data, the public debate around taxation requires clarification of concepts – beyond the facile slogans that prevail. Among those concepts is the rationale for corporations to pay their fair share of taxes in modern societies. That issue is addressed early in the report. Again, the particular focus remains on the global enterprises, which play such significant roles in today’s global economy, and use their global reach to minimize or avoid paying taxes. The time has come for these global enterprises to accept that good corporate citizenship requires paying fair and responsible taxes in all the communities where they operate.

Marx & Philosophy Review of Books | Review of Anderson’s The New Old World

In 2000 when he was relaunching the New Left Review Perry Anderson claimed “For the first time since the Reformation there are no longer any significant oppositions - that is, systematic rival outlooks - within the thought-world of the West: and scarcely any on a world-scale.” This was the new world order, as proclaimed by Anderson, and the left has not been able to provide an alternative. This was at a time when financial capitalism was riding high and one of the supposedly foremost left critics of the system was saying “well, game over”, just before the system itself creaked a little and blew up momentarily in the form of the dot.com bubble bursting. That, of course, was a pre-cursor.  A symptom of the disease. But Anderson’s book on Europe, New Old World is a very interesting and impressive piece of work which provides plenty to think about, as this review indicates. But given the political economic underpinning of the EU, the book is rather weak in its appreciation of what the EU is for (as opposed to the view among those on the British and Irish left who dream about what they want it to be for). However, this comment from the review by Alex Marshall I thought got to the nub of a certain issue:

“The conundrum remains over both how the union should be interpreted, and where its future truly lies. The fundamental weakness of the union, as Anderson repeatedly underlines, remains its lack of a real democratic mandate - a weakness dismissed by supporters of the union as largely a technocratic regulatory body, who argue that advanced democracies inevitably seek to shield overarching regulative and administrative functions from populist demagogues. Andrew Moravcsik and Giandomenico Majone each in their own way praise the master-stroke of the European Union as being ‘just a regulative body writ large’ (109). Anderson himself however has admirably little time for such views, noting that there is a strong political agenda behind this supposed steady glide path towards becoming an allegedly non-political regulatory body - neoliberalism as a whole aspires in fact to supplant redistribution as a social principle with regulation.”

This concept of the EU as a largely technocratic regulatory body can be seen writ large at the moment.

Dublin Council of Trade Unions March Against Austerity 26th November 2011

On November 2nd Ireland handed over €700 million to the unsecured bondholders of Anglo-Irish Bank. Over the next nine months, €3.5 billion in total will be handed over to individuals who received extra high rates of interest precisely because it was unsecured.

This is money that is being robbed from the hands of the weak and vulnerable of our society. If even a tiny fraction of it was spent on helping children with special needs there would be no need for cuts. If we fully stopped these unjust payments, there would be no need for the threatened budget cuts in December. If we invested in society rather than laid waste to it the atrocity of closed wards, closed nuring homes for the elderly, reduced services for the homeless, the hopelessness of mass unemployment, cuts in community budgets, could all be ended.

This NYT piece confirms what Michael Burke and Michael Roberts have already shown. Corporate profits are up as wages are driven down, taxes are lower than expected and the economy (along with public service provision)

The government’s first estimate of corporate profits in the third quarter was released two days before Thanksgiving, at the same time it revised the rate of G.D.P. growth in the quarter down to an annual rate of 2.0 percent.

The report showed that effective tax rates, both corporate and personal, are well below where they were during most of the post-World War II era.

Corporate profits after taxes were estimated to be $1.56 trillion, at an annual rate, during the quarter, or 10.3 percent of the size of the economy, up from 10.1 percent in the second quarter. Until 2010, the government had never reported even a single quarter in which the corporate share was as high as 9 percent, as can be seen in the accompanying charts.

The government began calculating the quarterly figures on corporate profits in 1947, but it has annual figures back to 1929. Until last year, the record annual share was 8.98 percent, set in 1929. For all of 2010, the figure was 9.56 percent.

Wage and salary income was only 43.7 percent of G.D.P., the lowest number for any period going back to 1929. That figure first fell below 45 percent in 2009.

Compared with the final three months of 2007 - as the 2007-9 recession was beginning - wage and salary income was just 1.8 percent higher in the third quarter of this year. By contrast, overall corporate profits before taxes were 35 percent higher. With estimated corporate taxes just 1.5 percent higher, after-tax profits were up 49 percent. Those figures are not adjusted for inflation.

No, no, no. Ireland is, alas, not an austerity role model | Real World Economics Review

Larry Elliot is wrong in his chirpy assessment of the Irish economy today, lazily suggesting that Ireland has become a poster child for implementing austerity programs. There is no doubt that the Irish government’s appetite for it is undiminished. He suggests though that Irish politicians are reluctant to stop for fear of reprisals from the EU. It’s wrong of course. Elliot relies on strong exports = strong economy, although caveats it, but even so this incorrect. Merijn Knibbe, quoted below, argues that Ireland does not show strong export performance. Curiously enough Elliot is following Jurgen Stark, who clearly has a particular interest in giving the Ireland as poster child for success through austerity line. What’s Elliot’s excuse?

To the contrary. Ireland’s export performance is dismal, even compared with the other countries which are going down the path of internal deflation (graph). It’s far from a role model.

The shocking truth about the crackdown on Occupy | Naomi Wolf

The power of the banking industry is one backed by the violent action of the state against its citizens. Or as Naomi Wolf put it: “So, when you connect the dots, properly understood, what happened this week is the first battle in a civil war; a civil war in which, for now, only one side is choosing violence.”

US citizens of all political persuasions are still reeling from images of unparallelled police brutality in a coordinated crackdown against peaceful OWS protesters in cities across the nation this past week. An elderly woman was pepper-sprayed in the face; the scene of unresisting, supine students at UC Davis being pepper-sprayed by phalanxes of riot police went viral online; images proliferated of young women – targeted seemingly for their gender – screaming, dragged by the hair by police in riot gear; and the pictures of a young man, stunned and bleeding profusely from the head, emerged in the record of the middle-of-the-night clearing of Zuccotti Park.

US investment strike | Michael Roberts

Michael Roberts on the latest US data and the continuing investment strike. Similar to Michael Burke’s finding about corporate profits in Ireland in tandem with a continuing investment strike, it seems that corporations are benefitting hugely from the agenda to drive down wages and increasing unemployment.

The latest revision of US GDP for Q3 2011 also revealed another rise in corporate profits.  According to the official data, corporate profits are now at an all-time high in nominal terms at $1977bn (after adjustments), or nearly 20% above the peak in Q3 2006 before the financial crash.  Profits fell 42% from that peak to a trough in Q4 2008 before making a humongous 200% rise to the current level in Q3 2011.  Corporate profits have been growing much faster than the US economy’s gross domestic product (GDP), so much so that corporate profits as a share of GDP have reached 13%, an all-time high.  So the recovery in profits has been at the expense of income going to labour.

That’s no problem for capital,of course.  But what is a problem is that, despite the huge rise in profits to new heights in absolute terms and relative to GDP, investment is not recovering.  Business investment peaked in nominal terms at $1689bn at the beginning of 2008, just as the crash began.  It fell 23% to the end of 2009, when it bottomed.  It is now up to $1565bn, a  rise of 20% from that bottom, but still 7.4% below its peak.  So although profits are some 20% above their previous peak, business investment is still way below.   Indeed, fixed investment as a share of corporate profits is at a new low for the decade.

The euro: breaking up isn’t hard to do | John G. Fitzgerald

Good article here on the strong argument to be made for Ireland leaving the euro.

It is an article of faith among almost all political parties in Ireland that the country’s future is inseparable from that of the euro. It is widely considered to be insane even to think of the alternative. If Ireland left the euro the economy would collapse, the country would have to default on its debts, and it would be frozen out of international markets, or so the story goes. There are too many practical difficulties in re-issuing an Irish currency and the national debt would still be denominated in euros, leaving a heavy burden for future generations. Such suppositions are typical of the consensus view, but when something is generally assumed to be true, without much scrutiny or analysis, the consensus is often wrong. None of the objections listed above stands up to detailed scrutiny. There are no insuperable difficulties; the potential benefits of leaving are much greater than the costs of staying in; and Ireland could recover and prosper again surprisingly quickly with a re-launched Irish currency.