10th March 2021 | Tax | Farming
Time to tax multinationals properly; Fixing farming
Welcome to Just Two Things, which I try to publish daily, five days a week. Some links may also appear on my blog from time to time. Links to the main articles are in cross-heads as well as the story.
#1: Time to tax multinationals properly
Three eminent economists have an open letter to President Biden published in Project Syndicate asking the new Administration to step in and sharpen up the current multilateral discussions on taxing multinational corporations.
Their starting point is that the current tax evasion and tax avoidance by multinational companies is toxic for a prosperous and fair global economy. (And so they are: it’s said that 10% of the world’s wealth is now hidden offshore somewhere, and countries like Britain, which talk about cracking down on dirty money, allow it to wash through the City of London—more a feature than a bug.)
The economists are Joseph Stiglitz, Jayati Ghosh, and Jose Antonio Ocampo, who are all involved in the Independent Commission for the Reform of International Corporate Taxation (ICRICT). They put some numbers on the costs of multinational tax manipulation: $240 billion a year, much of it extracted from the gloabl South.
The current talks have involved the G20 countries, but by the economists’ account these have been a bit of a zero sum game:
Unfortunately, these negotiations have not gone well. The governments of leading member states… have negotiated under the misplaced assumption that their national interest is best served by protecting those multinationals headquartered within their borders. Discussions on the reform of international taxation have thus sacrificed common ambition to the lowest common denominator. Meanwhile, multinationals continue to avoid taxes that could help pay for public expenditure to support the post-pandemic recovery. The world cannot afford this.
The one step that has been agreed is the important) principle of “unitary taxation”, which means that companies should get taxed in any given country on the basis of sales, revenues, and assets in that country. It may seem surprising that this doesn’t happen at the moment, but it doesn’t. But the current proposals are a watered down version of a unitary taxation proposal, which would leave multinationals a lot of scope to move profits around through “transfer pricing”—where a multinational adjusts prices internally to move money from a higher tax country to a lower tax one. So the first request in the Open Letter is to toughen this up a bit.
The second is to propose a standard minimum corporate tax rate of 25% for G20 countries—which would cover 90% of the corporate profits made worldwide. At the moment the G20 working group is talking about setting a “minimum” of 12.5%—but there’s clearly a danger that this becomes a standard instead of a minimum, and corporates would therefore continue to enjoy tax privileges that the rest of us don’t.
And although conventional wisdom says that higher tax rates mean that companies will invest less, and so on, that’s not what the evidence says. In fact, it should reduce inequality:
There is no evidence that the recent trend toward lower corporate tax rates has stimulated productive investment and growth. The 2017 US rate cut mainly ended up funding dividend payments and stock buybacks. Corporate taxation is in effect a tax on pure profits, and so lowering the rate has little effect on economic activity. In other words, corporate taxes are essentially a withholding tax on dividends, and thus an income tax on the wealthy.
The other point to note: creating an Independent Commission or Convention as a source of expertise in an area where you’d like to see change is both a good strategy and often a sign that an emerging issue is moving up the S-curve into the mainstream.
#2: Fixing farming
I keep coming back to this, but we need to fix farming. Apart from the fossil fuel dependency of much of the system, the current dominant models are accelerating the loss of biodiversity in the land and in species. If global warming doesn’t get us, then the Sixth Great Extinction will.
(Image via the Oxford Real Farming Conference website)
So it was heartening to see news of the Oxford Real Farming Conference in January, which brought together 5,000 people worldwide to talk about how to transition agriculture to a system that could stay inside natural and planetary limits.
Chris Williams, who wrote the article for the New Economics Foundation, took three lessons away from the conference:
The first is that ‘externalities’ matter — producing huge amounts of food might make it cheap, but this hides its true costs to human welfare and environmental health. The second is that communities matter — a food system that doesn’t enable people to have control over what they eat and how (and by whom) it’s produced, isn’t a functioning food system. And the third is that ownership matters – we are losing land for small-scale farmers every day (whether it’s the continued selloff of public farmland in the UK, or land grabs in the global South), and with that the knowledge and ability to farm in a sustainable, regenerative way.
Fortunately, the models of farming and food production already exist, and go under the general heading of agroecology—a set of practices and attitudes that is sustainable, that works with ecosystems, and works with small farmers. The independent UK Food, Farming and Countryside Commission has been working on this for while, and in January produced a technical report that modelled an agroecological system for the UK:
[T]he model finds that we can feed a growing UK population a healthy diet through agroecology as well as maintaining some export capacity. It finds that we can free up land for other uses such as ecological restoration. It also achieves a theoretical climate impact reduction… showing that it is theoretically possible to farm with nature, mitigate and adapt to climate change, and feed a growing population healthily.
Chris Williams’ conclusion from the conference is:
The easy part is that agroecology makes economic sense. The knowledge and tools to farm in this way already exist, closely linked to numerous global movements, from La Via Campesinaand Movimento Sem Terra through to UK groups like the Landworkers Alliance and the Ecological Land Cooperative. There are already thousands of organisations representing hundreds of millions of people pushing for food sovereignty and social justice.
But like so much else, the large food corporations aren’t going to give up their margins or their revenues lightly, and they spend a fortune on lobbyists who tell a different story about food to politicians, often playing on a narrative about the need to “Feed the World” which focuses on particular narratives about production, and ignores distribution, external costs, and food equity.
Update: I wrote about Google’s ethics problems last week. These seem to be getting more problematic. This is from an internal Google group that says that the company is dismantling its AI ethics research and calls on academic and other organisations to respond appropriately.
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