The Rich Walk Away

It’s time for a global corporation tax

By George Monbiot. Published in the Guardian 23rd March 2000

British people are no longer taxed on their income, but on their immobility. Only those who cannot move are obliged to pay.

This, though almost everyone seems to have missed it, was the real message of this week’s Budget. Income tax remains unchanged, but the tarriffs on business are collapsing. Capital gains tax has been slashed. The “withholding tax” imposed on financial corporations will be abolished. The biggest lorries – but only the biggest – will be exempted from much of the duty they now pay.

For big business, Britain is already one of the world’s most luxurious tax resorts. In 1979, corporation tax stood at 52 per cent. After successive Conservative and Labour cuts, it has been reduced to 30. This, Gordon Brown boasted last year, is “now the lowest rate in the history of British corporation tax, the lowest rate of any major country in Europe and the lowest rate of any major industrialised country anywhere, including Japan and the United States.” Mr Brown claims that he wants to wage war on tax havens. But, under his guidance, Britain is becoming one of the worst.

It is not hard to see why this is happening. More mobile than ever before, big businesses can bully governments into relieving them of their responsibilities. If a state won’t cut the taxes it levies, they threaten to disinvest, and move to somewhere which will. By these means they have been able to shift the burden of taxation, worldwide, from the rich to the poor and middle-incomed. Fifty years ago, corporation taxes in the United States rendered over thirty per cent of federal revenues, which was more that the union received from personal taxation. Now they account for just twelve per cent, a quarter of the amount delivered by personal tax. While the Confederation of British Industry clamours for cuts in corporate taxes, it has also lobbied AGAINST cuts in consumer taxes. It wants the money spent, instead, on public infrastructure, providing lucrative contracts for business.

Personal taxation has not been growing evenly. The highly paid, like the corporations which employ them, are mobile, and can play one state off against another. The poor are forbidden to move, so their taxes remain as high as their weakened democracies allow. They pay their immobility tax, and reap the insecurity caused by this global race to the bottom.

The great corporate tax rebate, in other words, mirrors the great corporate handout. Before it came to power, Labour hinted that it would stop doling out money to big business. But it reckoned without the protection racket big companies now operate in Britain, threatening to clear out and take the economy with them if they don’t get what they want. Last week it gave £530 million to BAe, to persuade it to build its new jet here rather than elsewhere. Some economists have suggested that the subsidies corporations receive from governments now outweigh the total tax they pay.

Big business has further reduced its contributions by means of ingenious tax avoidance strategies. Rupert Murdoch’s British holding company, Newscorp Investments, has managed to pay no net British corporation tax on the £1.4 billion in profits it has made since 1988. As companies move their transactions onto the internet – a shift encouraged by this week’s Budget – their business will become both more opaque and even more mobile. They will install their servers where taxes are lowest, disguise their trade in goods as a trade in services, and even launch their own virtual currencies. The British inventor of one internet currency – beenz – appears to understand the implications. “I wouldn’t want to be working for the Inland Revenue when it happens,” he says.

The tax burden, in other words, is shifting to those who are unable to move their assets either offshore or out of the old economy and into cyberspace. While the beggar-thy-neighbour economics that Gordon Brown practises hurt rich countries, the poor are wounded still more gravely. With little else to offer, poor countries end up giving everything away in a desperate attempt to undercut their rivals and attract “investment”. If, in other words, taxation is not to become wholly regressive all over the world, we will have to revolutionise the means by which the rich are charged.

Some innovative schemes have been proposed. The “Tobin tax”, for example, would penalise short-term financial speculation. If it were collected internationally, it could fund, for example, the United Nations, and pay for development and emergency programmes. War on Want calculates that a 0.25% tax would raise an annual £250 billion. The “total consumption tax” proposed by Professor Robert Frank would exploit the gap between richer people’s incomes and savings, levying steep tarriffs on the purchase of luxury goods. Land taxation would make use of one of the few assets big business can’t move. Some people have proposed a “bit tax”, imposed on all electronic communications. This, though, is surely just as likely to punish the impoverished internet anorak (or, for that matter, the information-hungry Guardian columnist) as the tax-exempt corporate predator.

But it seems to me that we need to be still bolder. Perhaps it is time to give serious consideration to the idea of a global corporation tax.

The corporations have, so far, succeeded in globalising everything except their obligations. Their rights have been harmonised, while their responsibilities have been shed. They have ensured that international bodies such as the World Trade Organisation establish only maximum standards for corporate behaviour, rather than minimum standards. We need to turn this formula around, obliging corporations to respond to human needs. And among the measures we should force on them is a fixed rate of business tax, payable by companies wherever they trade.

This would, I realise, not be easy either to implement or to enforce. It would hand a formidable advantage to countries playing outside the rules, as corporations would flock to them just as they flock to tax havens today. But it is possible to conceive of a system of sanctions, rather like the sanctions imposed today upon countries seeking to protect their markets.

None of this could work without the democratisation of global treaty-making: prior parliamentary approval of all national negotiating positions, for example, and referenda on important decisions. But this needs to happen anyway: corporations have been able to extract such advantages from globalisation only because they have been able to keep the public out of international decision-making. Governments will reassert their control over corporations when people reassert their control over governments.

Global taxation will be troublesome and politically hazardous. But whether we intervene or not, corporate taxes will converge worldwide, but downwards, rather than upwards. If business is not forced to re-distribute its wealth, then the rich will roam the world free of obligations, while the rest of us will be left to support society, the state and even the corporations through an ever more onerous immobility tax.