The World Bank’s Slippery Advocacy of Tax Cuts

Doing Business enjoys the highest circulation of any World Bank publication. It ranks countries based on the favourability of their regulations to business.

It is like the Heritage Foundation’s Index of Economic Freedom and the Cato/Fraser Institute’s Economic Freedom of the World Report, but supported by the World Bank’s credibility and clout. (Notwithstanding corporate Canada’s incessant complaints about regulation, Canada comes in 7th out of 183, placing in the top 4%.)

One chapter of Doing Business is “Paying Taxes,” which is defined broadly to include employer contributions to social security programs. The World Bank and PricewaterhouseCoopers also release an expanded version of Paying Taxes as a separate report.

The chapter’s first page features some very reasonable sentences:

Taxes are essential. In most economies the tax system is the primary source of funding for a wide range of social and economic programs. . . . Besides paying for public goods and services, taxes also provide a means of redistributing income, including to children, the aged and the unemployed.

Despite this acknowledgment that taxes are important, the Paying Taxes indicator is constructed to award the best scores to countries where businesses do not pay any. Specifically, the indicator measures how many tax payments are due each year, how long it takes to comply with tax rules, and the effective tax rate.

Countries that levy appreciable business taxes can achieve decent rankings by streamlining their tax administration. But the best scores go to countries with both ultra-low tax rates and streamlined administration.

Indeed, the top Paying Taxes score for 2011 went to the Maldives, which is widely regarded as a tax haven. The World Bank calculates that all of its business taxes and social-security payments amount to below 10% of profits.

Furthermore, both the Doing Business report and the separate Paying Taxes report assign check marks to countries that cut taxes and “X” marks to countries that raised taxes. For example, the 2011 reports criticize that “Iceland increased the corporate income tax rate from 15% to 18%,” even though 18% is still quite low and Iceland clearly needs the additional revenue.

The World Bank calls for “Keeping tax rates at a reasonable level,” but makes no attempt to define such a level. Nor does it accept any tax increases as being reasonable.

The irony is that, as an international financial institution, the World Bank has a direct stake in developing countries collecting sufficient revenue to service or repay their loans. It is well placed to discourage international competition from pushing taxes below “a reasonable level.”

Instead, the World Bank promotes a ranking system which implies that zero is the optimal tax rate. The separate Paying Taxes report explicitly encourages tax competition:

Governments use the Paying Taxes results to benchmark their tax systems against neighbouring countries, or their economic peers. . . . This section of the study therefore explores the results from a number of different regional, economic and income groupings.

One comment

  • Here’s a vivid illustration of what I call ‘mysterious lawlessness’, which is lawlessness that simply confers advantages on those who are clever and aggressive enough – as Darwin might advise them to be – to puruse it. It’s only mysterious to those who (whether they are decent or not) don’t have a solid foundation of basic prinicples and a moral compass. Set that aside for now.

    The gift of mysterious lawlessness goes to those who are willing to sin and survive. It’s freedom, of sorts, with the cost to be paid in the immediate term by others and, sometimes, by the gift receiver as well. In the long term, the gift receiver dies – completely. It’s one thing to invest dollars and lose. It’s another thing to invest (knowingly and willingly) your soul and lose.

    Broadly speaking, Taxes are rules agreed upon by all. The clever among us, these days variously known as elites or as neoliberal capitalists and politicians, all whom are associated with and supportive of law & order governments, then proceed to break the tax rules, which it’s fairly easy to do since, I’m sorry to report, in clear language, they own our governments and can declare such criminal behavior ‘legal’ and ‘rational’, and, by breaking those rules they can gain advantages within the brutal money system that they’ve also helped to create because they are just so wise, like people who get tatoos.

    And that system is also, therefore, one that controls ‘the people’, who, by and large, buy into the idea that their civilization depends upon a degree of law and order, including in the area of a government’s fiscal and monetary policies and regulatory oversight. The first step in controlling the people is to have power over them, and lawlessness (betrayal) by those among the people confers that. The right kind of lawlessness (involving money, which, in our money system, means life), done the right way (using governments, which are also like rules, for they are, ostensibly, from all of us and have the purpose of serving all of us), brings dominance and from a position of dominance, one can dictate to, or control, the masses, not to mention guarantee outcomes that benefit the dictator and his or her family, friends and class.

    And one can argue about whether it’s control if it’s incidental if one wishes. But it’s control – as long as enough of us are civilized enough for such a mafia capitalism to exist.

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