Bermuda is a lovely place to have a home. Pink sand beaches. Pleasant temperatures. A distinctive blend of British and American culture. Bermuda — all 22 square miles of it — also happens to be home to over 18,000 companies that trade and generate wealth in other jurisdictions but take advantage of the secrecy and low tax rates that Bermuda so generously offers.
Economist Gabriel Zucman, author of The Hidden Wealth of Nations, and his research colleagues tell us that multinational corporations based in the United States and other advanced economies have sheltered nearly 40 percent of their profits in tax havens like Bermuda, in the process depriving their domestic governments of badly needly tax revenues and enriching already wealthy corporate shareholders.
Those shareholders are getting plenty of enriching outside Bermuda as well. The Tax Cuts and Jobs Act that President Trump signed into law last December is handing America’s top executives billions upon billions in corporate tax savings.
These execs aren’t devoting their new billions to job creation and wage growth, the ostensible rationale for the GOP tax cut. They’re having their firms buy back their own shares off the open market, a move with one purpose and one purpose alone: goosing up corporate share prices — and, not so incidentally, the mega millions in corporate executive pay linked to these share prices.
All this self-enrichment comes, of course, at the expense of the majority of ordinary working people. They’ve seen wages fall and prices rise.
Our contemporary wealth gap reflects our deeply flawed, out-of-date economic system. We are failing to meet the needs of a multi-stakeholder society. We’re serving instead only shareholders. So how do we get companies and the executives who manage them to act responsibly in the interests of all stakeholders and not just these shareholders?
How about we rethink tax incentives? Everyone, after all, likes to save on taxes. An approach called “social offsetting” could give us the incentives we need for a more just and productive world.
At the heart of this approach: carrots, not sticks!
Let’s reward companies that respect the needs of all a corporation’s stakeholders. Let’s give tax breaks to companies that behave responsibly — that pay a real living wage to workers and don’t pay their top execs more than 20 times their lowest-paid worker, that have a profit-sharing program in place, that make no political contributions, that offer employees adequate training and flexible hours, that use renewable energy, that do not shift profits overseas to avoid taxes.
Social offsetting in this manner could make a major contribution to reducing inequality and moving us forward and closer toward prosperity for all.
Social offsetting would use financial incentives to encourage socially responsible business behavior. Those companies that take these incentives would quickly be seen as good employers and have an easier time attracting the best employees. They would be off and running to success and sustainability.
A corporate income tax structured to recognize good corporate behavior would be a fair tax. We all have a hand in creating the wealth our economy generates. That wealth just needs to be shared more equitably. And corporate income taxes — taxes on profits — don’t increase the cost of doing business or distort the economy. They only kick in below the bottom line, after expenses and revenues have been calculated and tallied.
With social offsetting, a corporate income tax return would become a badge of honor for responsible corporations and a source of shame for corporations that concentrate wealth at our economic summit. With socially offsetting, we could see more companies making a positive contribution to all of society, not just for the privileged few.
With social offsetting, wealth would start coming home where it was created, which is not in Bermuda!
Tom Burgess, the author of From Here to Prosperity: A new political agenda for a sustainable economy and greater social justice, has worked as the CEO of a public relations firm that operated in 80 countries.