[sgeisler]

Tax competition is what keeps governments in check. Taxes are just fees for services in the territory of the state (e.g. security, market access, infrastructure, …). If these services don't warrant paying the fee anymore people and companies should of course leave for better-run places! Nothing else will make governments become more competitive than voting with one's feet. We should really become less sentimental about countries, they are just crude constructs to provide services that need coordination which markets can't as easily provide. Choosing the best service provider is something good as it increases overall efficiency as only sufficiently efficient systems survive in the long run.

Wanting a global minimum tax is like one mafia asking the others to increase their protection charges so their clients don't leave. Such collusion is frowned upon for good reasons in free markets as it leads to worse outcomes due to reduced competition.

I'm hopeful that this idea will not work due to the profitability of breaking the deal and the big number of countries that exist. The US also shouldn't overestimate its importance which seems high but ever-declining.

[dkjaudyeqooe]

This is a kind of "market will solve all" naivety.

In a functioning market, this might work, but it overlooks the ability of corporations to game the system via one or two self-interested jurisdictions.

The key problem is that corporations can avail themselves of the public goods (infrastructure, public education, public order) and then use accounting maneuvers to shift profits to jurisdictions that will not tax them.

Some jurisdictions don't provide much in the way of public goods (small island states) or see an opportunity to raise some modest taxes on money they would otherwise never see (eg the Netherlands).

So you end up with the (individual) taxpayers of some countries subsidising these corporations, other countries profiting modestly and the corporations keeping most of the tax money.

Is this what an efficient market would deliver? An unfair and unsustainable situation? According to your theory the countries should compete with each other until their taxes are very low and their subsidies are very high, because that would reflect "efficiency". But what is the incentive for countries to do this? A rational country in the this market would set taxes to balance out the public goods provided. But because of profit shifting this is impossible, no matter how efficient they are. Yellen's plan is a rational response to this.

[CryptoPunk]

>>The key problem is that corporations can avail themselves of the public goods (infrastructure, public education, public order) and then use accounting maneuvers to shift profits to jurisdictions that will not tax them.

Countries can easily tax income generated by foreign corporations within their jurisdiction.

What you and Yellen are advocating risks imposing on the entire world an economic and tax system that may be far from optimal, to address a risk that can be mitigated through numerous other methods.

[sgeisler]

Exactly this. Just tax the value added in your country if you are so inclined (or even better the resources used to do so like land, infrastructure use, …). If you find out that's not so much you have deeper problems.

Why would e.g. an integrated software/hardware business pay significant taxes in the US if their value chain isn't strictly bound to it?

Sure, if developers live and work there you can tax their income to a certain degree before they leave and work remotely. Hardware is built abroad anyway (and probably taxed there), you can only levy import taxes at your own detriment. But if the business is successful most of the added value comes from the integration of these aspects and that can happen wherever because it's an idea not bound to a place to be executed. If something doesn't require physical presence taxing it becomes very hard and morally dubious (on what grounds would you tax it all if e.g. only 10% of your profits need physical infrastructure that is funded through these taxes?).

Globalization means that a society's most successful people aren't stuck with it any longer. They can go where they aren't seen as subjects to milk to keep the less productive happy. I don't owe my country of origin anything, they need to be competitive to keep me as I can take my business everywhere. In that sense directly investing in your population's higher education might be misguided to some degree because it creates more people capable enough to leave with the acquired knowledge, increasing the tax burden, making the country less competitive.

[KorematsuFred]

> but it overlooks the ability of corporations to game the system via one or two self-interested jurisdictions.

This is a feature of the market system and not a bug.

> Some jurisdictions don't provide much in the way of public goods (small island states) or see an opportunity to raise some modest taxes on money they would otherwise never see (eg the Netherlands).

Again, this is a feature and not a bug.

> So you end up with the (individual) taxpayers of some countries subsidising these corporations, other countries profiting modestly and the corporations keeping most of the tax money.

I do not understand the use of the word "subsidy" here. Corporations are keeping the money they have earned themselves is not a subsidy. Not to mention all the money that corporations earn eventually belongs to the individuals who receive them in the form of dividends or capital gains.

> A rational country in the this market would set taxes to balance out the public goods provided.

There is zero restraint on what is a "public good". Governments like to take over everything and control everything. Without corporations being able to influence policy and be able to move their money abroad we would end up in pretty bad state like California where you spend billions of dollars on a high speed train that goes from nowhere to nowhere and will never really complete to transport anything useful.

I am not sure why leaving more money in hands of people like Joe Biden or Donald Trump should be seen as anything but pure evil at this point.

[ineptech]

> Tax competition is what keeps governments in check.

That's true for me, because if I decide US taxes are too high and leave the country, I don't get to keep using US roads. That's not true of Amazon.

Edit to add: more generally, this is a coordination problem[0], and mutual agreements against defection are a well-studied solution to such problems. Comparing such an agreement to mafia extortion is way off base.

0: https://en.wikipedia.org/wiki/Coordination_game

[noahtallen]

I believe the US taxes international income as long as you’re a citizen, even if you live abroad. So maybe the comparison doesn’t quite work, but I do agree with your point!

https://www.irs.gov/individuals/international-taxpayers/taxp...

[endymi0n]

Tax unification is what keeps companies in check. Companies are just providers for services in the territory of any state. If these services don't warrant paying close-to-zero fees anymore, people and states should of course leave for better-run companies! Nothing else will make companies become more competitive than voting with one's feet. We should really become less sentimental about corporations, they are just crude constructs to provide services. Choosing the best service provider is something good as it increases overall efficiency as only sufficiently efficient systems survive in the long run.

Wanting tax loopholes and government competition is like one mafia asking the others to increase their protection charges so their clients don't leave. Such collusion is frowned upon for good reasons in free markets as it leads to worse outcomes due to reduced competition.

I'm hopeful that this idea will not work due to the profitability of breaking the deal and the big number of companies that exist.

[gh-throw]

Counterpoint: corporations are creations of the government, and a polity (and its government) ought to do whatever generates the desired outcome they want from these creations, including bringing in more tax revenue, if that's what they want. Ain't no corporation without government. They serve us. Or should.

[vmception]

Except all governments offer the creation of corporations, it is literally a shopping catalogue offered by every jurisdiction.

These jurisdiction brands are in competition with each other and they need to stay more attractive than the next.

[anoncake]

And that's a problem. Competition is (usually) good for the entities that can shop around. But companies' interests isn't what matters. Citizens' interests are.

[vmception]

The universe of citizens interests includes countries that are overleveraged and can never resolve their budgetary constraints, alongside countries that simply don’t need the additional revenue.

The tax collection expectation is based on hubris, and seems to misunderstand that countries have to figure out their own revenue structures, with national formalized taxes on profits being a new scheme, and international taxes being newer. This obviously brushes up against the capabilities of the nation state concept, as enforcing it even by the wealthiest country is an impractical game of whack-a-mole.

Countries should revisit how they are funded, because they are in competition. Its only a couple of the biggest countries that have egos about it.

[albntomat0]

Doesn't your train of thought only work if collected corporate taxes accurately reflect activity in a country?

I think the frustration is in part due to a corporation conducting business in one country, and playing games so the profits occur and are taxed in a lower tax one.

[onetimeusename]

Another question is what do jurisdictions do with excess corporate tax revenue they don't need? A lot of "tax havens" have no need for more revenue.

But that said the US has pushed a lot of countries into tax treaties and it sounds like they can effectively embargo countries that don't comply with US tax policies. So I think the US has ways of getting what it wants.

[AdrianB1]

There is a joke about this: some guy goes to the market to buy chickens and he sees a seller that was asking 2 times more than the other sellers, so he is asking why. The sellers says: "I need the money". All the countries need money, it's just that some countries spend it wisely and others go crazy.

[jopsen]

> I'm hopeful that this idea will not work due to the profitability of breaking the deal and the big number of countries that exist.

But it's not unthinkable that the EU could do something within the EU.

And if big developed economies adopt it, then it's no problem sanctioning tiny island nations that don't.

[mschuster91]

> Wanting a global minimum tax is like one mafia asking the others to increase their protection charges so their clients don't leave.

No, it's to ensure that countries with extremely low operating costs thanks to few citizens and not a lot of space (Luxembourg, Switzerland, Ireland come to my mind) don't run price dumping on everyone else, allowing the rich elites to concentrate and extract profits while the countries that made that profit possible (by, for example, providing an educated workforce or a secure legal framework to solve conflicts) get nothing in return.

[tchalla]

I mean, the countries that made profit possible can decide to block countries with low operating costs. We all know why that doesn't happen.

[mschuster91]

No they cannot, at least not the "tax havens" in the EU - we don't have a "kick out" mechanism, and tax rules are on a state level.

[AdrianB1]

Switzerland is not a good example to support your idea, they are not very small, have no high density of population and they provide better services than US to their citizens for a lot less money (lower tax rate). They are more efficient and spend wiser.

[paconbork]

Far from nothing, companies allow the government to collect more payroll, property, income, capital gains, and sales taxes. Moreover, corporate taxes are a double taxation of which a sizable portion of the incidence falls on labor

[lowbloodsugar]

You are correct in your assessment of capitalism, and wrong on your prediction of the outcome. The situation you describe is one where an entity (the government) offers services for a fee. Some of its customers, the citizens, are captive. These customers' switching costs are enormous: they must leave their country and go to another one. Another group of customers, have much lower switching costs, in fact, negligible switching costs compared to their revenue: corporations.

The natural outcome is that the entity makes every effort to meet the needs of the corporations, and zero effort to meet the needs of the citizens. Indeed, it can reduce services to the citizens while increasing their costs, at the same time as doing the opposite for the corporations: reducing their costs while granting them monopolies and regulatory protection, for example.