Show description

Almost every country in eastern Europe now has tax rates on corporate profits of barely 10 percent. In 2008 the computer giant Dell announced it was closing its local production units and reopening them in Poland, causing panic in Ireland. Besides, piling up foreign-capital investments comes with a high price: right now, a country like Ireland pays out roughly 20 percent of its domestic production to the foreign owners of its offices and factories, in the form of profits and dividends. In technical terms, the actual gross national product (GNP) of the Irish is about 20 percent smaller than their GDP.

In particular, they argue that the current level of the gas tax is only just sufficient to compensate for the other types of pollution linked to automobiles (air quality, congestion, noise pollution), but not for their greenhouse gas emissions. The technical argument holds up, but it has to be explained; otherwise the danger is that all this will look to taxpayers more like a double penalty than a double dividend. This is especially the case because so far the debate over how to use the revenues from a carbon tax has gotten off to an extremely bad start.

The Cotis report tells us that over the last twenty years, gross profits have been 32–33 percent of firms’ value added, versus 67–68 percent for wages, which is true. But capital depreciation has been around 15–16 percent of value added, or roughly half of gross profits. In other words, pretty pie charts showing that firms generously devote half their profits to investment are kind of a joke. The truth is that companies replace old equipment before they pay their shareholders—which is the least they can do.