Sep 1, 2017

Tax the big

One of the striking features of our times is that we have companies that are wealthier than many states around the world. And even when the largest multinationals aren’t bigger, the likes of Apple, Shell, Glencore, Facebook, and Wall Mart still outpower governments on many fronts. Notwithstanding that many consumers may eagerly buy their products and services, due to their rent seeking, tax avoidance, lobbying, etc., then, large multinationals should be considered a significant societal risk. Instead, it is the ones who can’t transfer their profits or incomes to tax havens (the ordinary taxpayer and average small and medium size businesses, so to speak) who have to make up for this deficit – and indirectly subsidise the existence of many multinationals!

Of course, there is anti-trust and competition legislation aimed at preventing companies from obtaining too large a market share. There are also increasing talks about blocking tax havens and unifying tax systems. So far, however, these are either just talks instead of action or just too limited to start with. In other words, the continuing existence of large multinationals is proof that existing approaches do little to reverse the unequal power balance.

In the highly unlikely case of closing tax loopholes, it will certainly become evident that many multinationals aren’t that competitive after all. In addition, though maybe even more unlikely to happen, (too) big should actually become economically unviable. Above a certain size, a company should be subject to higher taxation. The aim is to discourage companies from merging and growing. Companies may still grow bigger, yet size will come at a cost. But wouldn’t this punish companies that produce something many consumers desire, such as Coca-Cola or Apple, one may ask? Maybe. But then companies can just do the maths: selling more products does not necessarily increase profits. The hope is, however, that they may reconsider their business models. After all, these companies have often grown enormously not because of consumer demands, but because they took over, as in the case of Coca-Cola, many other (soda) brands. Or they ventured into other domains and decided, as in the case of Apple, to not only focus on computers but also develop mobile phones. Faced with a higher tax bill, corporations may instead rethink their strategies. They may realise that mergers, (hostile) take-overs, or simply expanding may not weigh up to the higher tax they will have to pay. Consumers, conversely, will suffer little, as innovation will most likely benefit from the absence of monopoly power. And would companies still want to grow, it is at least not the (immobile) individual taxpayers and small and medium size businesses that foot the bill.

Surely, I am perfectly aware that we are very far from (ever) turning this idea into a reality. To start with, the continuing existence of tax havens doesn’t help much. Yet even with a universal tax approach instead of a race to the bottom, it will still be a huge task – not the least, because economies significantly differ in size and as such also in the ruling whether a company is considered too big. So there are lots (and lots and lots and lots) of challenges and fine-tuning ahead. But we need all the ideas and efforts that prevent multinationals from growing ever bigger – at the costs of competition, fairness, democratic decision-making, and so forth. Plus it makes for a nice challenge to oppose multinationals (and their allies) that will certainly not give up their advantages easily!

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