Large scale tax avoidance undermines capitalism
Kaveh Pourvand, 22 May 2013
Yet another large company has recently been accused of tax avoidance: Apple has allegedly exploited US tax loopholes to avoid $9bn in taxes there. This follows all the controversy here in the UK over the tax affairs of Amazon, Google and Starbucks. The old adage, that only the little people pay tax, is becoming ever truer. Whether you favour higher or lower taxes than present, it is surely wrong that rich companies and individuals can decide to simply opt out of paying certain taxes. Capital mobility in a globalised economy and an ever thickening web of offshore tax jurisdictions has allowed this to happen. The Tax Justice Network estimates that a gargantuan $21 trillion is locked away in such tax havens.
This behaviour undermines the legitimacy and viability of a market economy in two ways:
Firstly, it literally undermines the ability of a market economy to reproduce and sustain itself. Contrary to the claims of some free-market fundamentalists, the market does not create wealth solely out of some spontaneous process of private agents interacting – although market freedoms are important. Public investment is also essential to the wealth creation process and not just through providing things like infrastructure and education. Public investment is also crucial in creating the technologies that private sector firms can exploit. As Marianna Mazuccato points out, many of the revolutionary technologies that the iPhone employs – the internet, GPS, touchscreen display, the voice activiated assistant ‘Siri’ – were funded and developed by the US government. Apple itself received finance from the US government’s ‘Small Business Investment Company’.
Needless to say, if companies like Apple avoid tax, it makes it much more difficult to sustain such investments.
Second, it undermines the legitimacy of the law, the democratic process and capitalism itself. The rest of society are told that there is one rule for those who are capital rich and have access to accountants, and another rule for the rest of us. We can already see this distinction in some of the excuses made. Starbucks defended its corporate tax minimisation by arguing that it pays other taxes such as National Insurance. Yet most individuals cannot avoid paying income taxes and get away with it by arguing that they do pay VAT on consumer purchases.
That is why, for the sake of the market economy, a way has to be found to reign in the use of offshore tax havens and complicated tax avoidance schemes.