The seven major capitalist economies in the G7 group have announced an agreement, supposedly to make it easier to tax multi-national companies. But it is a very long way from being put into effect and, in any case, it will not make a fundamental difference to the taxation paid by the super-rich and global companies.
What has been described as an “historic” agreement has only come about because there are increasing demands in Europe for fairer levels of taxation on companies that operate across the globe, but which minimise their taxes by using low-taxation states as their base of operations. This applies particularly to US tech companies, and it is for that reason that Italy, France and the UK have already introduced digital sales taxes as a stop-gap, pending global agreement.
It is envisaged that the G7 agreement will be broadened out to include the top twenty capitalist countries, the G20, and then all countries in the OECD. As well as facilitating the taxation of multinational companies, there is a commitment by the G7 countries to a global minimum of at least a 15 per cent corporation tax, although it has to be said that this is below the current level of most of the major capitalist countries.
Dodging taxes for years
The agreement means that “the largest global companies” with “profit margins of at least 10 per cent” would, in future have to allocate 20 per cent of their global profits to countries where they make their sales. “If implemented” the Financial Times comments, it “would overturn a century of international corporate taxation, where profits are taxed only where companies have a physical presence”.
The pressure to come to some agreement has arisen from the fact that the big US tech companies, Google, Apple, e-Bay, Amazon, Microsoft, Facebook, have been dodging taxes for years. By nominally basing their operations in low-tax areas, like Ireland for example, where corporation tax is only 12.5%, these big companies dodge tax in the states in which they operate. Even the Irish Republic fails to rake in the tax they ought to get, because the companies further base operations in even more favourable tax havens to minimise taxes in Ireland.
When it comes to the taxation of individual owners of these companies, the situation is even more scandalous. As the revelations on the US Propublica website reveal, the richest billionaires in the US have paid little or no income tax for years. There are a thousand and one dodges they use to avoid paying tax. They live the lifestyle of a modern-day Roman emperor: nothing is denied to them, and money is no object, yet they pay less income tax than an average teacher or lorry driver. Their only function in life is to get more and more wealthy.
Workers pay tax through PAYE, but not the rich
The Propublica revelations apply to the wealthiest individuals in the USA, but tax-dodging is not unique to that country; it is a global phenomenon. It has long been established that connections with tax havens like the Channel Islands, Bermuda, the Bahamas, the Cayman Islands, and so on, make income tax entirely optional for the British super-rich. Trusts, blind companies, offshore accounts and hidden assets are all parts of the everyday financial dealings of the British rich. While ordinary workers have no option but to pay their dues through PAYE, a typical company executive will be paid in shares options and benefits to a company registered offshore.
There is nothing in this so-called “historic” G7 agreement that will make any fundamental difference to those arrangements. Indeed, the agreement itself is a long way from being implemented, as weak as it is, and it has taken eight years of international discussions even to come this far. Now, in the ‘technical’ phase of negotiations, likely to last several more years, the “commitments” are likely to be negotiated out of existence.
Under present circumstances it is unlikely that US President Joe Biden will get agreement for the deal through the US Senate, where it requires a two-thirds majority. The British government, as the political lapdogs of British finance capital, are already attempting to get exemption from the deal for the big financial corporations based in the City of London.
Agreement will be ‘loopholed’ into nothing
Michael Devereux, professor of business taxation at the University of Oxford’s Saïd Business School, pointed out in the Financial Times (June 10), that “the UK’s opposition to including the City of London in the deal was also akin to the Americans’ reservations about allowing the rest of the world to tax their tech giants”. In other words, if there are special exemptions for London, that would make Biden’s job of getting it through the Senate even more difficult.
The bottom line is that every government wants a bigger slice of tax revenue from the top 100 global companies and there will be a lot of hard wrangling over the spoils. In the end, there could be so many loopholes that the agreement will mean next to nothing.
Even as it has been announced, according to the UK-based think-tank TaxWatch, the US tech companies will pay less tax to the UK exchequer. Based on their 2019 revenues, “Amazon, e-Bay, Facebook and Google would pay £232.5m less tax under the new G7 plans”. (Financial Times, June 8)
A growing sense of unease, as the ground shifts beneath their feet
In one very important sense the efforts of the G7 to come to some kind of international tax agreement has a profound political meaning. It demonstrates that within the ranks of the tiny 0.001% of the global population who own and control the resources of the planet, there is a growing sense of unease about the political implications of wealth disparity. This vanishingly small number of people, along with their representatives – the politicians they have bought and own – understand, in a vague and ill-defined way, that the ground is shifting below their feet.
Thanks to modern methods of information dissemination, the truth of the situation – that a tiny number of individuals own so much wealth – is now common currency among hundreds of millions of people around the planet, among anyone, in fact, with even the simplest political idea in their head. The notion of the “1%” and the “99%” is common currency. Moreover, the world disparity of wealth is growing.
AS Ruchir Sharma wrote in the Financial Times May 14: “Over the past two decades, as the global population of billionaires rose more than fivefold and the largest fortunes rocketed past $100bn…Rising inequality was becoming ever more of a political issue, threatening to provoke popular backlashes against capitalism itself.”
Widespread – and growing – distrust of the system
“The pandemic has reinforced this trend. As the virus spread, central banks injected $9tn into economies worldwide, aiming to keep the world economy afloat. Much of that stimulus has gone into financial markets, and from there into the net worth of the ultra-rich. The total wealth of billionaires worldwide rose by $5tn to $13tn in 12 months, the most dramatic surge ever registered on the annual billionaire list compiled by Forbes magazine.”
An opinion poll, conducted at the end of 2019 and claiming over 34,000 respondents in 28 different countries, showed that globally there is a widespread distrust of the political and economic system. Fully 56% of those asked agreed with the idea that “capitalism as it exists today does more harm than good in the world.”
Asked to judge what was true for them, 74% felt a “sense of injustice”, 66% felt a “lack of confidence” in leaders, and 73% expressed a “desire for change”. This poll reflected opinion before the pandemic; no doubt the figures would be starker since then. What this indicates is a political awakening on the part of hundreds of millions of people, a growing awareness that the current system does not work.
“Between taxes and pitchforks, I’m choosing taxes”
Two years ago, the Financial Times ran a series of articles on the disquiet that was felt by the big owners of capital. In an article entitled, “Why American CEOs are worried about capitalism”, it quoted Morris Pearl, the chair of the so-called Patriotic Millionaires group [an informal group of CEOs in favour of higher wealth taxes], as follows: “Given the choice between pitchforks and taxes, I’m choosing taxes.”
The problem with the fine words is that the economic system over which these people preside is governed by greed, profit and personal gain. Nothing else. Altruism comes a long way down in the list of priorities. Whatever is said in ‘Patriotic Millionaire’ seminars and opinion pieces, the wealthy and the super-wealthy will never voluntarily give up their privileges, power and prestige. They might talk about wealth taxes, but in practice, it is a case of “…after you. No, after you…”
Ultimately, it is not a question of ‘fairness’ or equality in taxation, although the obscene disparities of wealth quite understandably push labour and socialist activists in that direction. It is a more an issue of who manages and runs the economy and in whose interests.
Some of the super-rich, like Microsoft’s Bill Gates and Warren Buffet, distribute a part of their massive wealth to ‘good causes’. They avoid taxes, thereby helping to create the social problems in the first place, problems which they then seek to ameliorate by their ‘generosity’. Then they expect gratitude for their largesse, when in most cases their wealth was founded on government subsidies, contracts and hand-outs.
The real problem is the management and control of the economy
The real problem is not taxation, but their control of the economy. The super-wealthy and the top one hundred global companies which are allegedly in the sights of the G7 tax-makers, have the power to determine where investment goes, which industries are promoted, and ultimately, through taxation (or the lack of it) which social and welfare services are provided for. In the case of the giant arms manufacturers and oil corporations, they bribe governments to waste trillions in resources on weapons of mass destruction or to look the other way while the planet is trashed.
Socialist ideas are not founded on ‘fairness’ alone, not that we would ever object to it, but on the principle that the major levers of the economy – and there are no better examples of these than the biggest one hundred companies on the planet – should be owned, controlled and managed democratically in the interests of the whole of society. A planned use of the world’s natural and human resources, a rational application of scientific and technical know-how: these are the fundamental principles on which socialists should campaign.
The G7 agreement is like a meeting of mafia dons, agreeing between themselves that their extortions, corruption and scams are becoming too blatant to be hidden. We have no confidence whatsoever in these gangsters changing anything for the better. We will only get more smoke and mirrors. It is time for the Labour Party in Britain and the labour movement internationally to seek to fundamentally change the system, not adjust the deck-chairs on the Titanic.
