Source cover image: Principal
This House would significantly increase the corporate income tax in major business centres of the world, such as Macau, Jakarta, New York, Sydney, London.Groningen Open 2021 – Semifinals
This was one of the topics debated during this year’s edition of the Groningen Open 2021 last weekend. It represented the semifinal topic, which means that only the best eight teams participating in the tournament got the opportunity to debate it. As the Chief Adjudicator panel (a.k.a. the people who pick the motions) myself, we chose this one for an outround both because it requires a higher level of economic knowledge and because it asks speakers to ponder important questions about how we chose to set up our governments’ policy. In the following paragraphs, I will be discussing several arguments for the proposition and the opposition, and I’ll show how these logically interact. By the end of the article, readers should hopefully have a comprehensive account of the major clashes in opinion surrounding raising the corporate tax.
One of the first and most intuitive aspects of the motion to consider is what will be done with the additional tax money. For example, propositions might argue that it will be invested to improve the infrastructure of small to medium-sized cities, given that some businesses will reallocate there to avoid higher corporate tax. This is likely to be the form the bill takes when it is passed through any legislative body. In contrast, oppositions could counter by questioning the efficiency of government institutions. A lot of governments are corrupt and too bureaucratic to build lasting infrastructure in an adequate amount of time. Additionally, if a lot of companies move then there is very little additional corporate tax coming in for governments to spend. It then becomes unclear how large the proposition’s benefit here actually is.
Another thing worth covering is how companies might react to this. Given that we can all agree that the main goal of any business is to maximise profits, how will they adapt to this shift in policy? Proposition teams argued that firms who find relocation easy are going to move their operations to other emerging business hubs. So for example, if we looked at England, some companies would move their headquarters from London to cities like Birmingham. This can be beneficial for a few reasons. The first, most immediate one concerns the people living in Birmingham. They will experience an increase in jobs, goods and services, which will make their lives better. A possible second benefit is for the people living in London. If businesses move, then more people will migrate out of big business centres, which means that the people left behind now enjoy lower rents and less crowding. That is especially important given that a lot of major business hubs experience intense competition for resources and a large amount of damaging urban sprawl.
Opposition teams responded to this argument in a few different ways. For one, they can argue that some firms have the capacity to dodge corporate taxes, while others do not. If you are a big business, you can afford a huge tax department which can enable you to move your operational centre to a smaller city to avoid tax. Therefore, the policy does not hit big, multinational corporations but rather hamper the growth of small businesses. This, in turn, lowers competition, which hikes up prices for goods and services in major business centres. Additionally, on the opposition, one can argue that bigger, more established companies moving into smaller cities will kill local business and, in turn, also hamper competition in these areas.
Lastly, there is an issue to be raised about how the motion impacts the possibility for future economic growth. On proposition, the move towards middle-sized cities can be argued to be beneficial, since it leads to expanding the customer bases and investment opportunities for many companies. On the other hand, opposition teams can push back by pointing out that decreasing competition and further taxation raises prices for essential goods and services, which locks out many people from maximising their welfare.
Clearly, whether or not corporate tax should be raised in major business hubs is a very important aspect of public policy to be determined. Therefore, it is worth considering both sides and the tradeoff they entail before deciding on what the right answer is. And this is exactly what happened for the speakers, judges and observers at the Groningen Open 2021. Hopefully, by promoting discourse about this policy and many others, we can do our part in creating more informed and interested student communities all around the world.