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The Type of Government Action that Could be Used Against Capital Mobility

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It’s no secret that I see unrestrained capital mobility as a global plague creating a New Gilded Age that makes it nearly impossible for workers to build dignified lives against the constant geographical shift of employment every time they organize. For Americans, the disaster of globalized capitalism has been the fleeing of stable work abroad, a situation I believe has contributed to crises ranging from the decline of unions and weakening environmental movement to the fear of “unemployable majors” in higher education and long-term unemployment.

It’s not that the U.S. could do nothing about this phenomena. It’s not a natural law. Globalization is not gravity. It’s that the politicians, under tremendous pressure from corporations, choose to do nothing except encourage more American jobs to be shipped overseas, soon potentially through the Trans-Pacific Partnership, which Obama supports much to the demerits side of his presidential evaluation.

I was reminded of this when Obama yesterday called for a relatively minor but important reform:

President Obama on Thursday will call for Congress to end a tax loophole that allows big corporations to designate a foreign country as their official address, avoiding American taxes while maintaining their presence in the United States.

“The president will make clear that these companies are essentially renouncing their American citizenship so that they can ship their profits overseas to avoid paying taxes — even as they benefit from all the advantages of being here in America,” a White House official said, speaking on the condition of anonymity to describe the president’s remarks in advance.

This is a good policy but of course it could be extended much further. It is American tax law, or the lack thereof, that helps give corporations incentive to exploit labor in Bangladesh, Honduras, and Sri Lanka. We could change those laws to both incentivize American owned companies employing Americans and to ensure that when American companies choose to move operations overseas, the workers are treated with dignity and the ecosystems respected. That we don’t is a political problem, not an inevitable result of a globalized world.

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  • jafd

    Old riddle:
    Q – Why is Marriage like The Tariff ?

    A – They both
    Protect the Domestic Enterprise and
    Encourage the Infant Industry.

  • sibusisodan

    That we don’t is a political problem, not an inevitable result of a globalized world.

    I think this is correct, but needs a bit more fleshing out.

    It’s not a political problem just in the sense that the answers are obvious and people just won’t vote for it (yes, whatever the answers are, they won’t be popular). It’s rather in the sense that the answers are partial and not-very-obvious. There’s a massive coordination problem / tragedy of the commons issue.

    Crafting a legislative solution is going to be really difficult – if this wasn’t the case, I fancy the later chapters of Piketty’s book would have been more detailed in their prescriptions.

    In my more pessimistic modes, I wonder if its not a problem that can be resolved at the nation-state level at all.

    • A comprehensive legislative solution would be extremely difficult, yes. But legislation (labor, environmental, taxation, etc) could do a lot to improve various parts of the situation.

      • sibusisodan

        Yes, I agree there are improvements to which can be made. I’m just a bit pessimistic that an ad hoc response will be sufficient.

        One of the more striking parts of Piketty’s book for me was his point that, globally, our accounts don’t balance. That is, there must be a fair wodge of undeclared cash down the back of the tax haven sofa: 10% of global GDP.

        That kind of thing won’t be solved by countries acting solely in their individual self-interest.* But I can’t – at the moment – see the will or coordination at a higher level to confront this. It would need the G8 at least.

        *Here in Britain, the govt is simultaneously (i) chastising individuals and companies using legal (but unethical) means to avoid tax without legislating to stop it (much), (ii) wringing its hands over tax havens, many of which are nations closely associated with Britain who we could influence if we pushed hard for it (we are responsible for Foreign Policy and Defence for half of them at least), and (iii) lowering the corporation tax rate so that companies will do their legal-but-unethical tax avoidance here in Britain and not in Foreign Countries.

        • Kurzleg

          …lowering the corporation tax rate so that companies will do their legal-but-unethical tax avoidance here in Britain and not in Foreign Countries.

          You may as well abolish corporate taxation because there’s no rate that can compete with zero. But even if it was possible to identify a rate that kept corporations in country, how does a country recoup the tax revenue lost by making this concession.

          • cpinva

            ” But even if it was possible to identify a rate that kept corporations in country, how does a country recoup the tax revenue lost by making this concession.”

            very good question. for at least an idea of an answer, I suggest you visit those states that have, as public policy, granted millions, if not billions, in tax credits and abatements, along with other millions in shared/not shared public infrastructure costs, required solely to service newly captured companies.

            the costs per job it turns out, are pretty staggering. even taking into account the ripple effect, of the new workers wages, I have serious doubts that most of those states/localities are just breaking even, in a reasonable period of time.

            this is actually an area ripe for study, to see if those expensive proffers actually accomplish the job for which they were intended, or just help mask adverse economic effects of the policies.

      • njorl

        We’d need to leave the WTO for this to be effective. Members afford each other most favored nation status, and nearly the whole world is in it except for nations we don’t trade with.

        There are ways to give nations better than “most favored nation” status. I suppose we could make regional trade deals contingent on periodic approval of labor and environmental practices, but the worst that will happen is that the violator would drop back to MFN status.

        I suppose getting people used to the idea of basing trade status on labor and environmental practices (and human rights) would be a good step. The stakes being so low might make it possible to achieve. With such agreements in place, we might be able to raise the stakes in the future. If we had regional trade agreements with every trading partner with such conditions in place, then we could credibly threaten to leave the WTO, and suddenly sharpen the teeth of all those agreements.

        • L2P

          Which treaty obligations would the US violate by prohibiting the import of fish caught by bottom trawling, for example?

          In any event, as I understand it we wouldn’t need to leave the WTO. At worst we’d be adding a list of environmental and labor policies as part of the routine amendments to our free trade treaties.

          • njorl

            You’re right. What the hell was I thinking?

            • cpinva

              “You’re right. What the hell was I thinking?”

              I was wondering that myself. glad I read far enough down, that I caught L2P’s response, before I went ahead and made an idiot of myself, by restating it. I have so many ways to make an idiot of myself, why waste them?

    • xq

      It’s not a political problem just in the sense that the answers are obvious and people just won’t vote for it (yes, whatever the answers are, they won’t be popular).

      There are very few things more popular than protectionism. Politicians of both parties run on it all the time. For various reasons, its popularity isn’t enough for it to win out, but its not lack of popularity that’s holding it back.

      • To be clear, I am not calling for protectionism.

        • xq

          “Incentivize American owned companies employing Americans” sounds like protectionism to me, but I don’t want to debate exactly what falls under that label–the point is, this kind of policy is popular, and the reason it doesn’t happen is because elites don’t like it, not because voters don’t.

        • cpinva

          “To be clear, I am not calling for protectionism.”

          I didn’t get the impression you were. it is possible to create incentives for American businesses to remain in America, along with the jobs they represent, without resorting to overt, classic “protectionism”. requiring that source countries create/maintain American level labor/environmental protections, in order for goods from those countries to even be allowed entry into, much less sold, in the US, is a very good, fair way to start.

          sure, it could be argued those kinds of requirements constitute a type of “protectionism”, but not in the negative sense ordinarily associated with the practice. those requirements would actually go a long way to improving the work experience and living standards of all the workers in those countries. it wouldn’t just be a direct monetary hit on the importing corps., it would require substantive action by the countries in question. again, this action would improve the lives of all the country’s workers, not just those of the company.

          seems like a win-win to me.

      • wengler

        Politicians of both parties run on it all the time.

        No they don’t. They run on ‘creating jobs’, but rarely is it linked to trade. They only seemed to balk on fast-track authority recently because some Republicans perceived it as giving Obama power while most Democrats see the TPP as a steaming pile of ship cooked up by the global transnational corporate elite to fuck everyone over.

  • Derelict

    If this comes to pass, it could result in some interesting upheaval in the defense industry. Lots of companies with headquarters in a PO Box in NoTaxiStan, but doing business from Langley, VA. Making their foreign citizenship formal opens up all kinds of ITARs problems. How does the [now-foreign] supplier of the frequency-agile burn-through jammer continue to develop highly classified technology when that technology is barred by law from being in the hands of foreign companies?

    • NonyNony

      My heart bleeds for scumbags who want the benefits of US tax dollars in the defense industry who cook up tax avoidance schemes to avoid paying taxes themselves.

      Since Congress needs to do it there’s about a 0% chance that this happens. But it would warm the cockles of my heart if these assholes were forced to shut down their tax avoidance scams and start paying into the system that is making them rich.

      • As a liberal, nothing scares me more than the Republicans running on a platform of preserving tax breaks for war profiteers.

        • Davis X. Machina

          Nothing scares me more than an electorate who will buy it, if it’s properly packaged and sold.

          • NonyNony

            I gotta be honest – I don’t see this going anywhere precisely because the people who get bent out of shape about their taxes being wasted a) rarely seem to care when it comes to defense spending ($40K toilet seats aside) and b) generally think that someone avoiding taxes is doing God’s work and wants to figure out how to get in on the action rather than shutting them down.

            The people who will get upset about this are liberals. And liberals don’t count when they complain about their tax dollars being wasted.

            • LosGatosCA

              Only Republican taxpayers money is ever wasted. It’s an absolute fact.

              • cpinva

                “Only Republican taxpayers money is ever wasted. It’s an absolute fact.”

                I’ve heard this. rumor has it that Einstein came up with two formulas, which proved that:

                1. time does, indeed, equal money.
                2. only republican taxpayer dollars are ever wasted.

                I’m sure they’re buried in his papers.

          • Malaclypse

            Did you know that liberals want to cripple our nation’s defense industry with jobs-killing massive tax hikes, exposing us to thugs like Putin that shoot down planes full of civilians? Don’t leave your family at risk. Preserve our nation’s jobs, and our security. Vote Ted Cruz in 2016.

            • Jewish Steel

              Pitch perfect.

  • joe from Lowell

    A worthwhile reform that is going nowhere in this Congress.

    You can always tell it’s an election year when the Democrats start talking about this reform, and about the hedge fund loophole.

    • LosGatosCA

      It’s almost like they care.

      Closer to the election they might start bringing up card check, too.

  • Snarki, child of Loki

    “The Type of Government Action that Could be Used Against Capital Mobility”

    AKA, drone strikes?

    Because it’s not as if the USA does stuff like “corporate regulation” or “tax enforcement” any more. Drone strikes, on the other hand, THAT the USA does with gusto.

    • tomstickler

      Well, if the problem is simply “capital mobility”, perhaps a return to the gold standard could slow things down a bit.

      Even better, emulate the Island of Yap currency.

  • Manju

    It’s no secret that I see unrestrained capital mobility as a global plague

    Whew! I originally red this without the highlighted part and was about to go all Paul Krugman on your ass(es)…which is almost as bad as going all DW-Nominate. Coincidentally, I learnt the latter from the former, but I digress.

    • DrDick

      but I digress

      As always.

    • sharculese

      I actually find when you pretend to understand Paul Krugman to be way more obnoxious than when you babble about statistics, fwiw.

      • Manju

        pretend to understand Paul Krugman

        cites omitted.

        • DrDick

          Everything you have posted about him?

          • Manju

            Well, that should make it easier to find a cite.

    • Brad Nailer

      Are you saying that unrestrained capital mobility is not a global plague? I’m no Krugman scholar but something tells me he probably thinks it is.

  • Simple Mind

    Mr. Obama is speaking out of both sides of his mouth as his administration pursues The Great Transatlantic Market, which would take away most governmental power to regulate wages, hours, and the operation of financial institutions.

    See more at History Unfolding and
    http://tinyurl.com/mea7tox

    • efgoldman

      See? Trolls can register, too.

  • Simple Mind

    From what I’ve been reading Walgreens and Medtronic (Minneapolis) are relocating to Switzerland.

    • Ken

      So if that comes to pass, could someone who shoplifts from Walgreens be arrested by the local police, or would it be an Interpol matter? And would the trial have to be before the International Court of Criminal Justice?

  • LFC

    The Generalized System of Preferences (GSP) for developing countries is already supposed to work sort of this way (w/in the WTO framework), but in practice it’s not that effective in protecting labor rights. (When the Obama admin sanctioned Bangladesh by withdrawing its GSP status after the factory collapse, even that step was too much for, e.g., the Heritage Foundation, which put up a post decrying such “punitive” trade sanctions.)

    • LFC

      Sorry, this was supposed to be in reply to njorl’s comment upthread.

  • efgoldman

    The president will make clear that these companies are essentially renouncing their American citizenship so that they can ship their profits overseas to avoid paying taxes

    I thought only individuals had citizenship.
    Oh, wait!

    ETA: Hey! “Edit” allows fixing screwed-up tags, too. It is a wonderment.

    • LosGatosCA

      And they can ‘convert’ to marry merge outside their family religion, also, too.

    • cpinva

      “I thought only individuals had citizenship.”

      though I appreciate the snark, there have been foreign and domestic corporations for decades, dependent on where it was chartered, physical location (usually their headquarters) and where its primary tax return is filed. that’s why transfer pricing has become such a hot ticket tax issue, because it enables the foreign parent to easily siphon funds out of the US, tax free.

      remember, corporations have always been treated as “persons”, for legal issues, including taxation. it’s just that, up until hobby lobby, they were never treated as “persons”, for issues that have (again, up until hobby lobby) always been considered solely attributable to actual living and breathing humans.

  • LosGatosCA

    Incentivize, burglarize, murderize.

    None of these words are not like the others, except the one that would get me an ‘F’ when I was in 4th grade.

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