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Yes, Allan Sloan: All Companies Hate All Taxes, And No They Have No Conscience

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Allan Sloan has a great article this week in Fortune about U.S. corporate tax dodgers, many of which are choosing Ireland as their new "home." And he asks: Is Corporate America willing to pay any corporate rate above zero?

The answer is a resounding no, as seen in the case of Starbucks which avoided the bulk of taxes in relatively "low tax" United Kingdom. The truth is: Corporations are not citizens, no matter what the U.S. Supreme Court thinks; all corporations hate all taxes and will avoid them if at all possible even in "low tax" domiciles; trying to placate tax-hating corporations is a fool's errand.

Take the case of Ireland, which seems to be all the rage these days for tax warriors in the U.S., who point to Ireland's low corporate tax rate as a rallying cry for cutting corporate taxes here. 60 Minutes did a piece back in 2011 in which Diane Sawyer spoke with breathless wonder about how many jobs were exported to Ireland because of their low tax rates. Cisco CEO John Chambers incredulously claimed that he was all but obliged to export jobs to countries with lower rates.

Yet there are three elephants in the room -- line-dancing to the low corporate tax music -- which both 60 Minutes and Cisco's CEO conveniently ignore.

1. The Effective Tax Rate Is What Counts, And That Doesn't Count for Much

According to a recent paper by the Statistical and Social Inquiry Society of Ireland (reported the Guardian), the effective tax rate for U.S. companies in Ireland is about 11 percent, which is actually higher than the effective rate in "high tax" France. The author of the paper cites an effective tax rate in France of about 8 percent according to PricewaterhouseCoopers -- despite France's nominal rates of about 34 percent.

A critic of the paper puts the Irish figure much lower. He says that 61 percent of companies paid no tax at all and cites Boston Scientific as an example of a company that paid just 1 percent in corporate tax. And the much-vaunted Google pays just 2.4 percent. Not only is Google escaping U.S. taxes by laundering profits in Ireland, it's escaping much of Irish corporate taxes as well through other shell games.

So, no matter how low your tax rates, corporations will still try to squeeze you further. And in Ireland, just 10 percent of corporations (or 1 percent depending on who's doing the math) pay 84 percent of the corporate taxes, because the other 90 percent to 99 percent are either broke from the recession... or cheating.

So don't expect lower taxes to make corporations happy. Whether your nominal taxes are high (France) or low (Ireland), corporations are pretty much always unhappy with taxes and will always try to stiff the tax man.

2. Low Taxes Were Just One of Many Factors That Fed the "Celtic Tiger"

No doubt, the low tax rate brought thousands of jobs to Ireland. The Walsh Paper points out that American corporations pay the largest share of Irish corporate taxes, even more than Irish companies do. And American companies contribute mightily to the Irish economy.

But was it just low taxes that brought them there? No. It was one of many factors, and without the others the low tax rate would have not had nearly the same impact.

After many years of lagging the rest of Europe, Ireland joined the EEC (forerunner to the EU), and shortly thereafter "Single Market" rules were enacted. At the time, Ireland had among the lowest wages in the unified market and a large surplus of English-speaking workers. To get ahead of the tech boom, the country was also working overtime to churn out highly trained workers in technical fields, at a higher rate than other European economies -- thanks to significant government investment in education. At the very same time, both the EU and the Irish government embarked on an aggressive infrastructure program, including both transportation infrastructure and communications infrastructure.

So, let's review:

- Low relative wages

- Large English-speaking workforce

- High levels of technical education

- Access to a newly unified "Single Market" that spread across all of Europe

- Significant investments in public infrastructure to support the private economy

Sounds like a wonderful place to invest. But low taxes were only one driving factor among many that helped set the Celtic Tiger free from its cage. Many of these drivers were investment --focused and led by government (e.g., education, infrastructure investment) -- a policy that tax cutters in the U.S. abhor.

A paper out of University College Dublin back in 2003 said that while low corporate taxes no doubt helped spur job growth, without facilitating factors, low taxes would not have had the same impact.

3. Corporations Prefer Low Wage Countries Over Low Taxes Countries

Throughout the 1990s and 2000s the Irish economy boomed and foreign investment seemed to be unending. But then what happened? The same thing that always happens -- corporations started penalizing anyone's success except their own.

While many foreign companies are still in Ireland, an exodus began in the late 2000s because Irish workers had prospered and were now "uncompetitive." Georgia Pacific cut 77 jobs with the reason that its cost base was "unsustainable." In a much-publicized departure in 2009, Dell Computer (then Ireland's second largest employer) cut its manufacturing workforce by nearly half and shifted those jobs to Poland; and then promptly sold the Polish factory to a Taiwanese company. Teva Pharmaceuticals also cut it's workforce by half in 2009 and left for Hungary -- which had joined the EU in 2004 and where worker salaries were just 1/10th of those in Ireland.

So the message here is clear: Corporations have no allegiance to you, your nation, or your low taxes. They will take it, use it, and when you are pretty much used up, they will move on. They have no interest or investment in anything remotely resembling the public interest.

U.S. tax cutters hoping to use Ireland a model for our future need to be very careful about what lessons they draw. Ireland benefited from many other economic forces besides just low tax rates. A tax rate of 0 percent did not help Ireland grow its jobs base in the 1960s, nor did raising to to 10 percent in the 1970s and 1980s (which was still considered extremely low by European standards). It wasn't until the advent of the common market, large infrastructure investments, wage restraints, educational investments and a number of other coordinated policy efforts that Ireland's economy truly started to take off (article). And while low taxes are no doubt an economic asset, they surely are not stopping capital flight from the economy now. They also don't stop corporations from trying to flout even these "low" rates.

All the PR spin from corporations cannot conceal what their own behavior makes perfectly plain (and especially ironic in the wake of the Citizens United verdict): corporations are not citizens. They have zero interest in "fairness" or a "rational" tax policy, and have zero social investment in the countries where the operate -- despite today's fig leaf of "social responsibility."

In the 21st century economy, corporations are purely arbitrageurs (Cisco's CEO admitted as much): they arbitrage wages and taxes to lower their cost of doing business, no matter its impact on workers, or national economies. They don't care. They are private players beholden to no one. So don't make the mistake of believing them when they say that if you lower their taxes all will be rosy.

Nations must have larger interests at heart than the narrow arbitrage interests of corporations that act like economic pirates. You can pay the ransom, but they'll still make you walk the plank. And if they try to convince you otherwise, tell them to kiss your Blarney Stone.

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