Fighting Tax Dodgers Can Kill Economic Growth
Shut out of their favorite havens, companies reduce investment and cut jobs.
Apple has more cash than it knows what to do with.
Photographer: Josh Edelson/AFP/Getty Images
It’s easy to be outraged about multinational corporations’ shifting of profits to tax havens, but much harder to figure out how to stop them from doing it without hurting the economy. Evidence exists that curbing tax avoidance opportunities makes these firms move actual jobs, not just accounting profits, overseas.
In a recent paper, Thomas Torslov, Ludvig Wier and Gabriel Zucman argued that governments throughout the world are cutting corporate tax rates (to an average of 24 percent today compared with 49 percent in 1985) simply because they’ve given up on trying to fight profit shifting, defined as the recording of accounting profits in low-tax jurisdictions. “Machines don’t move to low-tax places; paper profits do,” the economists wrote, estimating that about 40 percent of multinational profits were artificially shifted to tax havens in 2015.