by Joyce Nelson
Our government is using the economy to trump the environment, largely by exploiting people’s ignorance of economics. Allegedly to reduce the deficit, the Harper government cut 776 jobs at Environment Canada and threatens to cut $12.9 million (43 per cent) from the Environmental Assessment Agency budget, while axing one-third of its staff.
In the US, right-wing Tea Party Republicans created the so-called “debt ceiling crisis,” forcing a deal to cut $3 trillion in federal government spending over the next decade. Melinda Pierce of the Sierra Club says the cuts will decimate enforcement of the Clean Water Act and Clean Air Act: “There won’t be funds available to protect drinking water and clean air to breathe.” Republican presidential candidates have called for dismantling the Environmental Protection Agency (EPA), claiming that “over-regulation from the EPA” is at the heart of the stalled economy.
Such a wrong-headed analysis may have prompted multibillionaire Warren Buffett to write his August 14, 2011 New York Times op-ed, “Stop Coddling the Super-Rich,” calling for higher tax rates for those with “taxable income in excess of $1 million.”
Corporate Coddling
According to the Globe & Mail (August 9, 2011), US multinational corporations “are collectively sitting on almost $2 trillion (US) in cash and contributing little in the way of job creation.”
Global giant General Electric is reportedly sitting on $91 billion in cash, but in 2010 the company paid no US federal income tax, despite $14.2 billion in profits. In fact, GE got a $3.3 billion US federal tax refund last year, while paying CEO Jeff Immelt $15.2 million. Despite the corporate coddling, GE has eliminated one-fifth of its U.S. workforce.
A July report from the BC Federation of Labour, Failed Policies, shows that a decade of Campbell-era corporate tax cuts has not improved the economy. Since 2001, the BC Liberals have lowered the corporate tax rate from 16.5 per cent to 10 per cent, saving corporations some $7.7 billion. “Where did that money go?” writes Robert Matas in the Globe & Mail (August 31). “Not into new machinery, equipment and other capital items, says a draft of Part Two of the Failed Policies report.” And not into jobs. The BC unemployment rate is higher now than in 2001.
Where did that money go? Likely into tax havens – the “elephant in the room” that right-wing conservatives don’t mention when discussing economic turmoil. The Tea Party movement’s primary goal is “starving the beast” of government, and the multinationals are doing just that to foster privatization and deregulation. The easiest way to starve government is the tax haven.
Tax Havens
This autumn, the Harper government will sign an order-in-council ratifying a new Canada-Bahamas Tax Information Exchange Agreement (TIEA), by which Canadian corporations can create Bahamian subsidiaries in order to repatriate profits taxfree. We only know about this because The Nassau Guardian (July 21) ran a story about the delay, explaining that Canadian Bill C-3, signed on June 17, contained the TIEA details.
The new TIEAs are being touted as a means for more “transparency” about tax avoidance, but there is little to justify this claim. TIEAs provide a tax dodge for the super-rich. In March 2011, the House of Commons Finance Committee heard proponents of the TIEAs, including Montreal billionaire Stephen Jarislowsky, describe the benefits. But Quebec activist Louise Champoux-Paille told the Committee that (for example) the five Canadian banks which have branches in tax havens thereby save $2.5 billion in annual Canadian taxes.
Statistics Canada reported that Canadian corporations held $88 billion of assets in offshore tax havens in 2003 – the latest figure I could find. During 2011, Canadian TIEAs with at least ten tax haven jurisdictions came into effect.
Transfer Pricing
Peter Gillespie of Inter Pares explains (CCPA Monitor, Dec. 2010), frequently offshore affiliates “are shell companies … little more than a postal address and a bank account…. Today, more than half of all global trade is conducted among affiliates of the same parent company.”
Offshore affiliates allow a tax avoidance trick called “transfer pricing.” By adjusting its internal pricing, a corporation can shift profits offshore, where it pays little or no tax, and shift costs onshore, where they are deducted against tax. According to Reuters (July 28), “nearly $1.2 trillion of accumulated US corporate profits are now held in overseas subsidiaries” to avoid taxes.
“Transfer pricing” allows a corporation to claim a “tax deferral,” millions of dollars added to and rolled over year after year. Nicholas Shaxson, author of Treasure Islands: Uncovering the Damage of Offshore Banking and Tax Havens (Palgrave Macmillan, 2011) explains that if corporations leave earnings offshore, “they can ‘defer’ tax on them indefinitely,” like “an interest-free loan from the government, with no repayment date.”
From the deferred tax item on an annual report, a government could estimate the profits a company had hidden away in offshore havens. Now, however, with the new TIEAs, a corporation can repatriate those offshore profits tax-free, leaving no trace of the deferred taxes. The Tax Justice Network estimates individual and corporate assets held in tax havens globally amount to more than $11.5 trillion.
Starving the Beast
Harper is “starving the beast” of government by signing TIEAs and cutting the corporate tax rate to 15 per cent. By shifting the tax burden to low and middle-income Canadians, the Conservatives expect that citizens will clamour for less environmental regulation, and jobs at any cost to planetary sustainability.
“Is the Environmental Movement Dying?” ran the headline in a Globe & Mail item (Aug. 30) that appeared almost gleeful about a poll showing “the environment has lost its status as one of the top five issues facing Canadians.” Canadians “are tired of being green,” we were told, and “money is what really talks.” The corporations and our own governments are doing serious classwarfare on us, folks. Even Warren Buffett has recognized that. At stake is nothing less than the planet.
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Joyce Nelson is a freelance writer/researcher and the author of five books.
[From WS November/December 2011]
