atans1

Taxes on MNCs: 4G leaders should relook

In Economy on 11/05/2018 at 5:26 am

Recently I wrote:

To show S’poreans that saying that they want to earn the right to lead is more than BS, the coming generation of leaders should start looking at Hard Truths that have become irrelevant or were wrong in the first place.

Healthcare: user fees drives up costs

Here’s another Hard Truth that should be relooked. It’s a Hard Truth that MNCs should be given tax incentives so that they invest here. But the premise of such a Hard Truth no longer is valid

As Paul Krugman pointed out in his regular NYT column:

In the world according to Trump officials, or right-wing think tanks like the Tax Foundation, corporate profits are basically a return on physical capital — on bricks and mortar and machines. Cut taxes, and companies will add more physical capital, increasing competition for labor, and profits will go down while wages go up.

Apple, however, is nothing like that. Its profits come from its market position — its brand, if you like. It doesn’t matter whether you think it deserves its role as a quasi-monopolist; what matters is that given its position, it can and does charge what the market will bear, pretty much regardless of costs. If Trump cuts its taxes, it gets to keep more of its profits, but it has no real incentive to change its behaviour by, say, building more Apple stores. It just takes the extra money and either sits on it or hands it back to stockholders via buybacks.

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