There's a Complete Blackout on Important Ideas
Let's end the blackout.
Dean Baker has important ideas about taxes. To varying degrees, these ideas are being blacked out. We should shine the spotlight on these ideas. And we should also oppose the pathological effort to portray tax-policy as “wonkish”, uninteresting, byzantine—a pathological effort that marginalizes the population.
Noam Chomsky has an important point about April 15th:
First of all, the majority of American people today don’t accept the assumption that it is they who create their institutions and who run their country. The last time I looked at the polls, about 80% of the population felt that the government is made up of a few big interests looking out for themselves and not for the people. You could see this at the elections. Although I don’t have the exact figures at hand, there’s a very striking fact: opinions of Congress are extremely low—in the teens. Nevertheless, probably 98% of incumbents get re-elected. What this tells you is that, essentially, people are aware that they don’t have a choice and that they’re not taking part in running the country. In fact, you can see this in many other ways: take April 15th, the day when taxes are paid. In a democratic society, where people would feel that they are shaping their own lives, this would be a day of celebration. The spirit would be “We’re getting together as a community to put our resources into implementing policies that we have chosen”. What could be better than that? Well, that’s not the way it is here. Instead, it’s a day of mourning when some alien force which has nothing to do with us comes to steal our hard-earned money.
It’s a good point. How much celebration you see on Tax Day tells you how much democracy you have. (Celebrating democracy on Tax Day doesn’t mean that you’re happy about the hassle of filing your taxes, happy about parting ways with your money, happy about the democratically-decided tax-burden that you have to shoulder, or happy about the democratically-decided things that your tax-dollars are going towards. But celebration can occur alongside displeasure about these things.)
In my interview with Baker about progressive priorities under Biden, Baker told me about a “national 401(k)-type system” that “could save workers tens of billions annually in fees”—and also about a “national system of digital accounts, run by the Fed, which would save people tens of billions annually in bank fees”. Such reforms would be great. Unless, of course, you profit from those fees, in which case you need to fight tooth and nail to maintain those fees.
We could also eliminate the fees related to filing taxes. Baker did a great analysis of Trump’s tax cut in which he said (I added hyperlinks):
Somewhere around 90 percent of people, they now expect, will take the standard deduction. Why is that a good thing? People don’t want to waste time on their tax returns. I don’t know anyone who wants to waste time. People get scared of it. They’re worried they’re going to do something wrong and the IRS will come and arrest them or something. I don’t like doing it. I’m an economist. I’m used to dealing with numbers and forms, so it’s not that big a deal for me. But most people aren’t, so they pay H&R Block $200, $300. It’s a lot of money to throw in the garbage.
So if you could just take the thing—and go, “I’m taking the standard deduction,” take twenty minutes to look it over, and send it in—that’s a great thing.…
They could have IRS-prepared tax-returns. What do I mean by this? At least in many—if not most—European countries, the tax agency does your returns for you. They have the information. Most people get pretty much all their money from their wages. They have that information. So if you’re taking a standard deduction, they just say, “You made $45,000. Two kids. Blah, blah, blah. Here’s what you owe. Or here’s what we owe you.” They send it to you.
And if you think it’s wrong, you get 30 days or something, and you file an appeal. You show them the forms. You go, “No. You took out $1000 too much. You owe me another $1000.”
But for most people, they look at it and they go, “Fine.” End of story.
I’d love to see them do that. They don’t do that in the United States because H&R Block is a very powerful lobby. We aren’t that much technologically behind Germany, France, and other countries where they do that.
Baker writes that “tens of billions spent on tax preparation services would be saved each year if the government prepared people’s tax returns—giving them the option to protest—rather than require they file on their own”. H&R Block will fight tooth and nail to maintain the current inefficiency that they profit from. Baker also wrote this:
Let me throw out another policy where there is no other side, government preparation of tax returns.
The idea here is a simple one. Instead of having taxpayers struggle with their returns every year, the I.R.S. would fill out a return for them, based on the data it already has on file about the person’s income and family size. The form would be sent out each year for review. People could accept the information as correct and get whatever refund was indicated, or pay the additional taxes for which they were billed. Alternatively, they could contest the I.R.S. calculation by providing documentation that showing that it was incorrect.
Currently people pay over $27 billion a year to have their tax returns prepared, most of which could be saved if the I.R.S. prepared tax returns for people.[1] This comes to about $200 per household, or around 0.13 percent of GDP. If the latter figure sounds trivial, it is very much in the ballpark for the projected gains from trade deals like NAFTA, CAFTA, and the TPP. (A 10-year figure would put the savings over $300 billion.) Also, the direct savings might be the smaller part of the benefit. People spend hours working over their returns and many have anxiety about filling them out wrongly and the potential consequences. Almost all of this would instantly vanish if the I.R.S. did the forms for people.
The notion of the I.R.S. filling out returns should not sound far-fetched. Several European countries have been doing this for decades, and they are not that much smarter than we are. In short, we have an entirely doable reform that would save tens of billions of dollars a year, and save people a huge amount of time and anxiety. So why doesn’t it happen?
The obvious reason is the political power of the tax preparation industry. NPR’s Planet Money had a fascinating piece a few years ago about an effort to have California’s revenue service prepare people’s state income tax for them under a program called “ReadyReturn.” The tax preparation industry fought the proposal with all guns blazing. They were undoubtedly concerned about not only losing the market for preparing California’s state taxes, but the precedent this could set for the country as a whole. As it turned out, in spite of widespread bipartisan support, the legislature ended up passing a very watered-down version which would only benefit people too poor to use tax services anyhow.
One of Baker’s tax-policy ideas does get mentioned: the idea of a financial transactions tax (FTT). An FTT could both raise money and reduce Wall-Street bloat. As Baker writes:
There is a great deal of confusion about the nature of the financial sector in a modern economy. The financial industry plays an essential function in processing payments, providing insurance, allowing families to save for the future, and allocating capital to those who want to invest or borrow. However, the services it provides are almost entirely intermediate goods in that they facilitate economic activity; they are not end products that provide benefits in and of themselves, like housing, health care, or education.
In this regard the financial sector is like the trucking industry. Trucking, like finance, is essential to the economy. We need it for moving raw material to factories and finished products to stores. But an efficient trucking industry is a small trucking industry: we want to have as few resources as possible devoted to getting goods from point A to point B. This means that we don’t want to see a huge expansion in employment in the trucking industry or an explosion in the number of trucks and warehouses just to move the same quantity of goods.
Baker points out that it would be great if an FTT could eliminate waste in the financial sector:
There is no doubt that a non-trivial FTT will substantially reduce the size of the financial sector. The key question in assessing the merits of the tax is whether this downsizing results primarily from eliminating wasteful transactions that don’t affect the ability of the financial sector to serve the productive economy. This would be comparable to finding a way to monitor truckers to ensure that they only take the most direct routes to get to their destination. Alternatively, if the downsizing seriously impedes the financial sector’s ability to effectively allocate capital or ensure the security of household savings, then the FTT would be imposing a substantial cost.
During the 2020 primary, Bernie Sanders brought attention to the idea of an FTT:
We can guarantee higher education as a right for all and cancel all student debt for an estimated $2.2 trillion. To pay for this, we will impose a tax of a fraction of a percent on Wall Street speculators who nearly destroyed the economy a decade ago. This Wall Street speculation tax will raise $2.4 trillion over the next ten years. It works by placing a 0.5 percent tax on stock trades—50 cents on every $100 of stock—a 0.1 percent fee on bond trades, and a 0.005 percent fee on derivative trades.
If Wall Street can be bailed out for several trillion dollars, 45 million Americans can and will be bailed out of the $1.6 trillion burden of student loan debt and we can provide free college for all. Some 40 countries throughout the world have imposed a similar tax, including Britain, South Korea, Hong Kong, Brazil, Germany, France, Switzerland and China.
It’s good that the idea of an FTT gets some attention, but there’s a complete blackout on Baker’s two intriguing ideas regarding the corporate income-tax. The first blacked-out idea is Tax Stock Returns (“TSR”) and the second blacked-out idea is Non-Voting Stock (“NVS”). On TSR, Baker wrote this:
This brings me back to the idea of replacing the corporate income tax with a tax on stock returns. Most progressives would like to see the government raise more revenue from taxing corporate profits. The logic is straightforward, the vast majority of stock is held by people in the top 10 percent of the income distribution, with close to half of all shares being held by the richest one percent. If a corporate income tax reduces the money that corporations give to shareholders, either directly as dividends or indirectly through higher share prices, it will be a highly progressive tax.
The problem with the corporate income tax is that we have had considerable difficulty collecting it. Prior to the Trump tax cut, the nominal corporate tax rate was 35 percent. Due to various loopholes, the actual amount of tax paid was typically in the range of 20 to 22 percent of corporate profits.
The Trump tax cut lowered the nominal rate to 21 percent. The reduction in rates was supposed to go along with an elimination of loopholes so that we would collect something close to a 21 percent nominal tax rate. That is not what happened. In 2019 tax collections were just 13.3 percent of corporate profits. That amounts to a cut in the corporate tax rate of close to 40 percent, a pretty nice gift for the richest people in the country.
If instead of taxing corporate profits we targeted stock returns, we could be certain of collecting the tax rate we had targeted. Stock returns are dividends and capital gains, both of which are public information. We could calculate every public company’s tax liabilities on a simple spreadsheet.
In addition to largely eliminating the possibility for tax avoidance, this switch would also put a huge number of tax lawyers and accountants out of business. The tax avoidance industry itself is an important source of inequality since many of these people get lots of money to reduce the tax liabilities of the rich. We would also save the I.R.S. money on collection and enforcement. They could redirect personnel to reviewing the books of privately traded companies or others who might be ripping off taxpayers.
We’ll see if anyone in the Biden administration, or a hopefully Democratically controlled Congress, is interested in actually collecting the corporate income tax. But the point is that we can write laws in ways that are enforceable, and we have to be sure we do.
Baker also wrote this on TSR:
Although the Trump administration probably had little interest in actually cutting down on tax avoidance and evasion, the taxation of stock returns gives us a surefire way to accomplish this trick. We simply apply whatever tax rate we are targeting to the returns that shareholders receive in a given year.
Let’s say we have a tax rate of 25%. Suppose a company’s stock has a market value of $100 billion on Jan. 1 and $105 billion on Jan. 1 of the following year, and that it pays out $3 billion in dividends over the course of the year. This means the returns to shareholders have been $8 billion over the year, which would make its tax bill $2 billion (25% of $8 billion).
This calculation is about as simple as it gets. It requires no complex accounting and leaves no room for companies to rip-off the Internal Revenue Service unless they are also ripping off their shareholders, in which case the government will have some powerful allies in collecting the taxes owed.
There will be some complications due to the fact that most major companies now operate in multiple countries. This of course, is a major problem for the current tax code as well. The logical solution is to prorate the tax rate based on sales over some prior period. If 60% of the company’s sales, on average, have been in the U.S. over the last five years then 60% of its stock returns in the current year will be subject to this stock returns tax.
There is also the issue that stock returns are erratic. This can be dealt with through averaging, where taxes are based on the last four or five years of returns. The formula remains simple and can be calculated on any spreadsheet.
There is the obvious point that basing a corporate income tax on stock returns is not feasible for privately traded companies. This is true, but it doesn’t undermine the advantages of this switch. Publicly traded companies earn the vast majority of corporate profits. If determining their tax liability can be reduced to a simple calculation based on stock returns, the IRS will free up an enormous amount of staff for monitoring privately traded companies.
This simplified treatment will also give privately traded companies a large incentive to become publicly traded. Any company that was not actively looking to rip off the IRS could save itself a substantial sum in accounting fees by becoming a publicly traded company and determining its taxes based on a simple calculation.
States can also opt to go this route of taxation based on stock returns. This will substantially reduce the burden states now face in monitoring corporate income tax collections. States would have a targeted tax rate which they can then apply to the share of sales that occurs within the state. This would both be good policy for any state choosing to go this route and an example that could be picked up by other states and the federal government.
The basic story here is that by switching the focus from corporate profits to stock returns we can both make sure that the corporate income tax is collectible and radically reduce the resources required to administer the process. This is what tax reform should be about.
So that’s TSR. The other idea is NVS. On NVS, Baker wrote that:
the need for true reform is real. Although the corporate tax rate is 35%, companies generally pay around 23%. Giant loopholes save companies money, deprive the government of money, and create money for people in the tax avoidance industry.
Exotic schemes to game the system are constantly in the news.
Take, for example, the corporate inversion strategy, in which a U.S. company arranges to be taken over by a foreign company in order to eliminate its liability on overseas profits. These takeovers generate large fees for the accountants and lawyers who engineer the process without improving the broader economy.
“Dead peasant” insurance policies, made famous by the documentarian Michael Moore, are another example. In that scheme, huge companies like Wal-Mart take out insurance policies on the lives of front line workers, such as checkout clerks, to smooth out their profit flows and reduce their tax liability. If a worker dies, the company gets the payout, not the individual or his family. Someone undoubtedly got very rich dreaming up dead peasant policies but, again, this financial innovation does not contribute to economic growth.
Perhaps the greatest scheme of all is the private equity industry, which loads firms with debt. Because the interest on that debt is tax deductible, private equity firms can make large profits even if they’ve done nothing to improve a company’s performance. Incidentally, many of the richest people in the country made their fortune in private equity, including folks like Mitt Romney, Pete Peterson, and many other prominent billionaires or near-billionaires.
If the tax reformers are serious, and I hope they are, here’s one simple way to largely eliminate the gaming opportunities that have made these people rich.
Instead of traditional taxes, the government could require corporations to turn over a portion of their stock, say 25%, in the form of non-voting shares. The government would benefit from any dividends or share buybacks but would have no voice in running the company.
This system would eliminate almost all opportunities for gaming since a company would not be able to deny the government its share of profits unless it also withheld profits from its other shareholders. And we would not call that “tax avoidance” but outright theft—the sort of thing that gets people sent to jail.
Many companies might actually embrace this system. They would save a huge amount of money on accounting and bookkeeping, and they wouldn’t have to take the tax code into consideration when they decided their accounting procedures for long-term investments. They could simply do what makes the most sense for them.
(Publicly traded companies could be required to give the government non-voting shares, with private companies allowed to choose between this system or a higher tax rate.)
Don’t bet on the Republicans looking in this direction—the potential losers from these reforms, after all, are probably rich people who vote Republican. It is likely that they have more interest in reducing the taxes corporations owe than in reducing waste and increasing economic growth. But the rest of us should have a clear idea of what is at stake. The corporate tax code is badly in need of reform and there are ways to make it better.
Baker tweeted a great point about TSR/NVS:
It’s probably too simple for policy types, but stock returns are very well defined and easily measured, corporate profits are not. Tax what you can see!
This is a strong point. Why tax something nebulous, vague, ill-defined? Why not tax what you can see? Profits are hard to define, whereas stock-returns are easy to define. Stock-returns are transparent, whereas profits aren’t. Stock-returns are well-defined, whereas profits aren’t.
Chomsky wrote to me that Chomsky regards NVS as even more innovative than Baker’s ideas on intellectual property. That’s an interesting comment from Chomsky about NVS.
See below my Q&A with Baker about TSR/NVS. I added hyperlinks where useful. (Some questions were asked in 2020.)
1) What’s the contrast between TSR and NVS? Do you prefer TSR or NVS?
NVS keeps the money from going to the shareholders. Which is what the federal government cares about, since taxes are supposed to reduce consumption. TSR gets you money, which state and local governments need.
It would be pretty comparable. I prefer NVS, since it seems more foolproof—I just feel a little better with shares of stock that get the same dividends/buybacks as other shares. But NVS scares people about socialism. And states/cities can do TSR.
2) How could any corporation ever get behind TSR/NVS, given that TSR/NVS will make taxes more collectible? Could TSR/NVS ever conceivably happen? Would TSR/NVS threaten the rich and the powerful?
Some corporations don’t cheat—TSR/NVS will only mean higher taxes for those that do. There are two issues. What level of revenue do we target? And what mechanism do we use to collect it? This is an argument over the latter.
Powerful lobbies hate TSR/NVS. Anything that takes money from rich people is politically difficult.
TSR/NVS will threaten the tax-shelter industry and will probably go along with a hike in the corporate income-tax.
3) Would TSR/NVS be legal? Wouldn’t NVS expropriate private property? Are TSR/NVS merely thought-experiments?
Yes.
No more so than the corporate income-tax.
No. They are policy-proposals.
4) How do TSR/NVS deal with the issue of different jurisdictions? Does sales-based apportionment work the same for TSR/NVS?
If you mean that they sell internationally, then you apportion based on sales. If you mean that they have multiple bases (e.g., Shell), same story. Taxing US corporations’ profits that were earned overseas is already problematic. The logical way to do it is to have it be proportional to sales. Other countries could easily adopt the same system and largely avoid double-taxing profits.
The system is the same.
5) Why might TSR/NVS have less fraud than the status quo?
The only way to have fraud under TSR/NVS is to rip off shareholders, in which case you will have a lot of rich and powerful people who want to see you in jail.
6) Couldn’t companies manipulate TSR/NVS? What about private companies?
Only by ripping off their shareholders. They are very likely to get caught in that situation, since shareholders tend to be rich and powerful.
Private companies would continue to be subject to the corporate income-tax, as they are now. Since the IRS would have less to deal with (it can calculate the taxes for public companies on a spreadsheet), it would be able to devote more resources to examining the books of private companies. I would also structure the tax so that there was a slightly lower rate for public companies, which would give companies an incentive to go public. There is more transparency with public companies, so it is generally a good thing that companies be publicly traded.
7) Why wouldn’t there be a shock if TSR/NVS were implemented too quickly? Over how many years would you implement TSR/NVS? Is there any reason why NVS would take longer to implement than TSR?
We change tax-rates all the time.
It should be possible to do it very quickly. Both are simple to implement.
You would probably need more time for the NVS route. The challenge is getting company-stock in line. Many companies have multiple types of stock. You would probably want to give them time to consolidate into a single common issue. This is less of a problem with taxing stock-returns, since you can make this the point of reference and still give them time to consolidate their shares.
8) Where have you analyzed how behavior would change in response to TSR/NVS being put in place?
You would see a huge reduction in accounting fees. Also, companies would stop playing games where they set up shadow-operations in tax-havens like the Cayman Islands—or set up somewhat-real operations in places like Ireland.
9) Does the corporate sector pay billions to accountants to track profits/losses? What % of this money (that’s spent on accountants) would still be spent under TSR/NVS? Under TSR/NVS, what % of this money (that’s spent on accountants) would still be needed (this tracking helps companies to make business-decisions and helps people outside a company to make buying/selling/pricing decisions)?
Yes.
Much less.
Probably around 25 percent.
10) How would “equity” be defined under TSR? If you just based TSR on common equity, then wouldn’t you need all sorts of anti-avoidance measures?
We can define what types of shares companies issue. Corporations are created by the government—we set the rules.
11) Earlier in the interview, you commented that NVS would require “getting company-stock in line”. How would you ever get people to give up their special stock-types that they own that they don’t want to give up? Would you try to buy them out? What if they refused?
You would force the company to buy them out. The government sets the rules of corporate governance—if they don’t like the rules, they can become a partnership.
12) What do you think about multiple-voting shares? Check out this article from 2010: “Stronach and his family have controlled the company through a special class of shares that gives them majority voting rights without a majority equity stake. Each of the family’s 750,000 class B shares has 300 votes, giving the Stronachs a 66 per cent voting interest.”
Exactly what needs to be simplified.
13) How do you define “loophole” regarding taxes? We have deductions for a reason. Deductions are designed to incentivize certain things. Isn’t a “loophole” defined as a circumvention of a tax “that was not intended by the regulators or legislators that put the law or restriction into place” and that is “due to a flaw or defect in the legislation, often one that wasn’t obvious to those who originally drafted said law”?
A loophole is something that creates a gap between the statutory rate and the actual rate. Deductions are loopholes—that fact is not changed by the fact that they serve a purpose.
Not being a mind-reader, I don’t know what members of Congress intend. But even if their intent was to give Donald Trump $10 billion off his taxes, I still consider that a loophole.
14) Who other than yourself uses this particular definition of “loophole”? If everything is a “loophole” then what about legitimate deductions that have a clear purpose and are designed to incentivize something?
It’s not uncommon among economists. Economists have a strong preference for doing policy through explicit spending rather than through the tax-code. With the latter, the costs tend to be hidden. And with the latter, tax-provisions will inevitably be gamed.
I’m sure that every loophole was ostensibly designed to incentivize something. It’s just generally a very bad way to incentivize things.
15) Is the statutory rate the “intended” rate? How much is the current corporate tax-code “supposed” to collect? How much of the current gap between the actual rate and the statutory rate is based on things that the democratically-elected government put in there with their eyes open?
If you took their projections when they passed the tax, around 20 percent of corporate profits.
Don’t know what “eyes open” means—the public has almost zero knowledge of the corporate tax-code.
16) Won’t TSR/NVS be just as messy as the status quo once you factor in tax incentives, multijurisdictional stuff regarding multinationals, efforts to deal with affiliated companies?
No. The only issue is apportionment. That is not hard.
17) Under TSR/NVS, wouldn’t there be various possible tax-avoidance schemes and various opportunities for fraud?
There is plenty of avoidance and fraud under the current system. If it’s not zero under my proposal, I really don’t care.
18) Would TSR/NVS destroy the tax-incentive to hire US workers? Won’t TSR/NVS disincentivize the starting-up of new US companies?
I know of absolutely zero research that would imply anything like this.
No. Companies pay taxes now and also waste a lot of money on accountants.
19) Under TSR/NVS, won’t there be a massive incentive to take companies private?
No. The profit-tax should be scaled to be comparable to the tax on stock-returns. Since the IRS will have many fewer companies that it has to review, it is far more likely to catch cheats, especially since going private in response to TSR/NVS will be a signal that you intend to cheat.
20) Won’t Tesla get destroyed under TSR? What would Tesla do under TSR to get money?
Only if Elon Musk is a total moron.
Sell stock.
21) Under TSR, would a company have to pay taxes on capital appreciation? Under TSR, if a company’s stock-price tanks then is that a tax loss?
You mean a rise in stock-price? Yes.
You can have averaging.
22) Under TSR/NVS, what if a company sells products through an intermediary (rather than directly) in order to avoid US taxes?
Not impossible. But would be hard to do on a large scale. It would be hard to conceal the sales if GE suddenly started selling billions—or tens of billions—of dollars of merchandise to a foreign company, the items physically went there, and then the items were resold in the US. Also, the loophole requires the other company to have lower expected stock-returns—you’d need to structure the deals to make the profits show up on the sales to the intermediary, which then presumably doesn’t make much money on the sales back to the US.
23) To what extent is the status quo a “patchwork quilt” for good reasons? Won’t TSR/NVS become a “patchwork quilt” over time as people find loopholes and anti-avoidance is layered on in response to those loopholes? Will TSR/NVS become “patchwork quilts” over time? Under TRS/NVS, won’t things get more and more complex over time because you will need to pass laws to close the loopholes that people discover in TRS/NVS?
Not much. Powerful lobbies get special deals and don’t easily give them up.
The big benefit here is that you have something that is well-defined. Stock-returns are dividend-payouts and price-appreciation—nothing more and nothing less. Profit is not well-defined.
I don’t know why they would—stock-returns are a well-defined measure, profits are not.
Anything could happen. Stock-returns are well-defined and transparent, profits are not. So tax-avoidance is less likely than with the current system.
24) Why not go after capital gains if you want to target the rich?
We have a corporate income-tax right now. I’m talking about restructuring it in a way that makes it collectible and eliminates a ton of waste in the process.
25) If we decide that X/Y/Z are good loopholes—loopholes that have some social benefit, like incentivizing companies to create jobs in the US instead of China—then those loopholes can all be added on to TSR/NVS, correct?
Yes. But we can also just give direct subsidies—we can make the incentives explicit expenditures. The incentives would be more obvious, since stock-returns are well-defined and public, whereas profits are not.
26) Could any status-quo incentive that someone likes just be duplicated under TSR/NVS? Would there be any difficulty in adding those incentives on to TSR/NVS?
Yes.
They would be very visible. In the current tax-code, they are hidden.
27) To properly evaluate TSR/NVS, isn’t it crucial to predict the flaws in TSR/NVS, build in responses to those flaws, and only then ask if TSR/NVS would be simpler and more efficient than the status quo?
No. When we make policies we never assume that every bad thing in the world will happen. You think of what is likely.
28) Wouldn’t any system (TSR, NVS, the status quo) work fantastically well if every country in the world signed equivalent legislation and no countries cheated?
Countries “cheating” would hurt them, not us.
29) Won’t there be a “race to the bottom” under TSR/NVS? In the ivory tower, maybe you can imagine that every country will cooperate. In the real world, it’s a “race to the bottom”.
If other countries don’t want to collect corporate taxes, then that is a right they already have.
30) You said that countries “cheating” on TSR/NVS would hurt them, not us. But if they cheat, then won’t corporations go to that country and won’t we will lose jobs/investment?
Countries have different tax-rates now. There is no easy cheating in TSR/NVS. If a country wants to have zero tax on the portion of sales within its borders, who cares?
31) What mechanism would TSR/NVS have to incentivize companies to manufacture products in the US and employ workers in the US? Every business is given an optimization equation that the business then solves. You only handicap your own country if you don’t give beneficial treatment.
There is lots of research on tax-competition. Most evidence shows that taxes are a small factor in location-decisions, although they are a large factor in where companies report their profits. The situation you describe would only be helpful to the company if they decided not to sell in the US.
32) Under TSR/NVS, how many corporations will no longer want to be based in the US, have offices in the US, manufacture in the US?
My guess is almost none. There is not much evidence that corporations make decisions by temper-tantrums. Many researchers have looked at the impact of taxes on location-decisions—it is small.
Dean Baker good