Corporations Are People, Too

Audio Length: 00:53:04



S1: My name is Felix Salmon. I work at Axios. I’m here with Emily Peck. (Hello.) And we have a special guest this week, not for the first time. Welcome back Yinka Adegoke. But you are no longer where you are. You have a new employer.

S2: Yes, I am at Rest of World. Thank you for having me again.

S1: What or who is Rest of World?

S2: The Rest of World is a publication which covers the impact of global technology around the world. We cover everything from, you know, big tech and Silicon Valley’s impact in far reaches of the universe of the globe, but also how local companies are coming up with technology ideas that can actually be things that more advanced economies can learn from.

S1: It’s a worthy and awesome publication. Go check that one out. We are going to be talking a bunch about actually what’s going on in Africa, the investments that are being made there, and especially in financial services and whether they’re entirely a good thing. And we’re going to talk about the housing bubble and whether that’s a good thing. Spoiler alert, probably not. And we, of course, are going to talk about the big Joe Biden tax plan. He wants to increase corporate tax rates. Is that a good thing? Find out on this week’s Slate Money.

S3: and also maple syrup. Just puttin' that out there. We’re also talking maple syrup .

S1: we do solve the maple syrup problem. There is a maple syrup problem and we solve it. So stay tuned for that in the numbers aound.

S3: It’s kind of a perfect Saturday category.

S1: So the other shoe has dropped and the Biden administration has announced how it wants to pay for most of this infrastructure spending, and it is through corporate taxes, which famously got cut by the Trump administration down to 21 percent. And Biden wants to bring the map back up to 28 percent, which apparently is going to raise about two trillion dollars over like 15 years. It’s not exactly the same. So it won’t cover the whole thing. They’ll do some other stuff internationally, which we’ll talk about. But, Yinka, I have a question for you. If the tax cut in 2017 was universally regarded as the reason why stocks went up so much in the Trump era, then is it reasonable to assume that a tax hike in 2021 or 2022 is going to be bad for stocks? Because if it is reasonable to assume that no one seems to have told equity investors.

S2: who knows anything about the stock markets anymore, you and I could sit here and make all kinds of guesses because there are a lot more things going into what’s encouraging investors right now than just tax cuts. But there’s no doubt that you actually are even hearing corporates out there, certain sectors. I think Jamie Dimon and some others have said, oh, yes, raise the taxes. That’s fine. It’s not the end of the world. I don’t know if that discourages or encourages investors, but for now, I don’t think it makes a huge amount of difference because there are far more other factors that impact stock prices,

S1: not least the fact that the tax rate is not the same as the amount of tax they pay. According to Treasury, the actual effective tax rate on big corporations is not 21 percent, it’s 7.7 percent. That’s the overall amount of big corporate profits that get paid in corporate taxes....

S2: You have these giant companies that don’t pay any taxes at all, here’s that research into, with five of the largest companies in the US don’t pay

S1: zero taxes. Well, they pay zero income tax. They pay zero federal income, federal income tax, which is never the largest corporate tax. Payroll taxes are pretty much always the largest. But income tax, you kind of feel that, you know, if as Mitt Romney famously said, corporations are people, too, then they should be paying taxes just like just like people.

S3: That’s what I thought was really revolutionary about the tax proposal. At least how I was reading it was the notion throughout it that, yeah, companies should have to pay taxes just like people. And they had this great chart in there that showed that people, workers are paying a higher percentage of their money to federal taxes than companies are. It was like one of those diverging chart charty things where the people's taxes are going up and to the right and the corporate taxes are going down into the right and a big wide divergence. And it seems like part of what the Biden administration is trying to do in addition to getting more tax revenue and the US has the lowest tax revenue from companies of most countries, is trying to make a fair playing field for people, make them pay their fair share, because this notion that companies paying corporations paying lower taxes makes them more productive or makes them create more jobs has just proven to be utterly incorrect. Like, yeah, maybe stock prices went up, but there wasn’t like some like big boom in investment from corporations or hiring boom.

S1: Yeah, exactly. The savings the companies made in terms of taxes went straight to shareholders. They did not go to increased employment. The other big part of this proposal, which I wanted no doubt a little bit about, is the way that the United States has really got on board with an OECD proposal, which has been going on for a few years. And it’s in pretty advanced state of play right now to basically make sure that all the OECD countries, that’s 36 different countries around the world, all the richest countries in the world, pretty much cooperate to ensure that. You can’t get that kind of tax arbitrage that we’ve been seeing so much where companies like Apple or Facebook will make sure that their Irish subsidiaries say or their Swiss subsidiaries make all of the profits. And because corporate tax rates are very low in Switzerland or Ireland, then they get to save a huge amount of money on taxes. The idea under this proposal. If you pay a low amount of tax on your corporate profits in Ireland or Switzerland, then you or your taxes then get topped up in the United States. And Janet Yellen, the treasury secretary, said that she reckons that this rule alone is going to increase the taxable income of American companies, the American taxable income of American companies, by two trillion dollars, which is a huge amount of money.

S3: One thing I don’t understand about that is even if all the if this works and all the OECD countries have the same tax rate and Amazon can’t go to Ireland anymore, whatever, aren’t there many more countries that companies can go to to shelter themselves from paying a lot of taxes? I don’t understand how it’s going to work.

S1: I think the OECD is kind of has worked that one out. And if you wind up having a bunch of profits in a non OECD country, there’s a penalty associated with that. The big debate here is basically about where does the extra tax go? The way that the Americans have structured it and the OECD has directed it is that if you’re an American multinational and most of the America most of the extra tax winds up going to America, if you’re a German multinational, most of the extra tax winds up going to Germany. And the IMF just came out with this statement basically saying, wait a minute, that’s wrong. We should be making sure that the extra tax goes to these low tax countries, which are often poorer countries, rather than going to the richer countries who already are rich. And they’re saying, let’s do it the other way round. Make sure that, you know, countries that are right now collecting very low levels of corporate income tax are the first places that the taxes go rather than the big rich countries like the US and Germany.

S2: Which countries are they thinking of in that kind of equation? I’m wondering if it’s like the island countries, for example.

S1: You mean the tax havens?

S2: Yeah, exactly. I mean, this is this is about corporate taxes as well. Like I said, this big company that to Belize or something and stuff my profits through there. Or how would this work?

S1: It’s a good question. And one of the things that they have done is they’ve basically said that the amount of tax that you have to pay should be commensurate with the proportion of your sales in a certain country. So, you know, if Ireland has 80 percent of the profits but only 10 percent of the sales, then there’s something wrong with that. On the other hand, if like Nigeria has 10 percent of the sales and it should get 10 percent of the taxes,

S2: that makes sense. That makes a lot of sense.

S3: That seems a hard sell. Politically, though, it makes sense and good for the IMF.

S1: But I don’t see I mean, the OECD and the US is trying this as well. But as you say, it’s going to be hard to implement.

S3: Yeah, the way you sell, the way the administration sells this is like corporations pay their fair share and it benefits America and we can do infrastructure stuff with all the money. So if there’s a provision that says actually America is not going to get some of these some of the increase in revenue, then I feel like that’s going to be not great.

S1: This is America leading the world again. It’s taking the leadership position and saying we’re not just doing what’s good for America, we’re doing what’s good for the world and everyone benefits. You know, this is the age of Tony Blinken. This is not the age of Donald Trump.

S3: Right. But I don’t think voters and maybe I’m wrong, Yanka, you can tell me. I don’t think voters care about that stuff. They just want to hear that, you know, companies are paying their their fair share. And then if you start talking about the world will benefit. I don’t know if that’s salient.

S2: If you’re talking about Americans, they’re just not going to care about what happens. I mean, just like everywhere else in the world, you just care about what happens in your country and what benefits you. And it depends on how you sell it politically. If it comes across like you’re just being nice to the world rather than helping Americans, I’m not sure you’re going to get very far.

S1: On the other hand, I think that I think Americans really don’t care about corporate taxes. You know, like Americans care very much about individual taxes, partly because individual taxes are so salient because we Americans have to fill out tax returns every year, which is dumb. We shouldn’t have to fill out tax returns every year. But it does make tax is very salient. And we know very because we see it every year just how much we’re paying in taxes in total. And we’re like, wow, you know, I want that number to go down. I don’t want that number to go up. Whereas corporations, you don’t see that number, it’s invisible. And I don’t think you care that much. And I don’t think it’s a big political thing, you know,

S2: which brings us back to that zero figure I like, even though we know that even if you give those corporations paid all that federal income tax, it’s, what, 12 billion dollars tops? Right. It’s not a big number. But the idea that Nike paid zero of something is what is politically, like, useful to me if I’m a Democrat or some sort of politician trying to push this idea, just that it’s the it’s one of those things. What’s the message? What message does it send that the idea? I remember this happened in the UK a few years ago with the Starbucks doesn’t pay any taxes or Amazon doesn’t pay any taxes. Right. Just the idea that they do pay something is a very powerful thing to ordinary voters. Once people start to get this idea that these guys aren’t paying their fair share, it starts to take hold and becomes something that the politicians have to think about.

S1: I think it takes hold more. If you have a big American company like Starbucks paying their taxes in the U.K., I don’t see the same level of pushback from Americans about American companies as I do from Brits about American companies. But I think you’re right that ultimately the zero number has a lot of political power.

S3: The other thing I liked about the plan to tax companies more at the same time the administration puts out like what it calls a jobs plan is the severing of this notion that tax cuts for business create jobs because the Biden administration is saying we’re going to raise taxes on business and we’re going to create jobs in this other way instead of this magical thing that happens where companies pay less in taxes and then start hiring more. We’re done with that fiction. We’re going to make them pay more and we’re going to create the jobs in these other ways that actually make sense. You know, we’re going to build more bridges or, you know, put up more Tesla or put up more electric car charging stations. And you can literally understand. Oh, yeah, you need people to do those jobs. I don’t know. People are talking about Bidenomics lately, but this feels like a very radical shift for the country because people had believed that cutting corporate taxes created jobs for a long time or cutting anyone’s taxes does.

S1: So what we’re trying to do basically in terms of this bill, you know, there’s there’s the spending part which creates jobs and then there’s the pay for part, which is corporate taxes. And the pay for is not being sold as a way of creating jobs. It’s the spending part that’s being sold as a way of creating jobs.

S3: Yes, exactly.

S1: But that does leave the rest of the cost of the bill. Right, because this increase in corporate taxes, even if we do repatriate a bunch of profits that are currently abroad, is not going to suffice to cover the long wish list that the Biden administration has put out in terms of what it wants to do in terms of infrastructure. So then the next question is, do you then come up with another bill down the road which will increase things like capital gains tax and make sure that the whole bill is paid for? Or do you just say, look, this is good enough and we can just borrow the rest?

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