The 4th Annual
Tax Policy Colloquium at McGill Law commences tomorrow with a presentation by Professor
Reuven-Avi Yonah on the topic of the relative mobility of labor and capital and the implications for tax policy. The Colloquium features distinguished visiting academics and offers a forum for students, professors, and local practitioners to discuss issues of tax policy and theory, along with related issues of economics and social justice. Professor Avi-Yonah's talk is scheduled to commence at 2pm; members of the public are warmly welcomed.
Location: McGill Faculty of Law, 3644 Peel Street, New Chancellor Day Hall, Room 203.
Time: Monday, 23 September, 14:00–16:00.
I have been thinking about something related to a talk I attended by Prof. Avi-Yonah I believe on the same subject as he spoke on at McGill. One thing New York, Toronto, London, and Paris all have in common is that their local economies are heavily denominated by large financial insitutions despite the fact all four cities are in different countries and cultures. On the otherhand cities like Boston, Montreal, and Seattle are decidedly less so denominated by big banks.
ReplyDeleteBig banks really hate restrictions on the flow of capital and desperately wish to avoid things the FATCA 30% witholding tax. In turn politicians representing cities such as NY, Toronto, Paris, London etc are going to tend to support the hometown industry and support policies supporting the free flow of capital such as the signing of FATCA IGA's. Most importantly if given a choice of choosing to have either the free flow of labor or the free flow of capital the big banks will choose the free flow of capital as it is essential to their modern business models.
In Boston for example big banks are not the dominate employers or sources of institutional power. Instead entities such as universities(MIT and Harvard), Medical facilities(Partners Healthcare/MGH/Brigham's), biotech/pharma companies, and software/technology companies are the "heavy hitters" in the local political power structure. These entities at some level could care less about the free flow of capital however, the free flow of labor is absolutely essentially to their institutional business models of sucking in the best and brightest from all over the world to Boston and Cambridge. Restrictions on labor mobility such as other non US countries imposing citizenship based taxation, "full" FATCA reciprocity on US Financial institutions, etc would all be deeply harmful to entities such as Harvard, MIT, Partners Healthcare et all and their institutional models of recruiting the best doctors/researchers/scientists in the world to join their organizations. On otherhand if necessary to keep the free flow of capital worldwide institutions such as Goldman Sachs and JPMorgan could probably live with other countries imposing citizenship based tax on their US resident citizens and being required as USFI's to provide FULL FATCA reciprocity to US FATCA IGA partner countries.
In many non US countries the largest companies and institutions are often the large internationally active money center banks. In these non US countries such as France, Germany, Canada, the UK etc you really don't have the institutional counterbalance against the largest banks that you might have in the US explained above. What is interesting in the US if it came down to knife fight between those in favor of capital mobility(like Goldman Sachs) vs those in favor of labor mobility(such as MIT) it is not exactly clear to me which side would have the upper hand. It is true that Goldman has a lot of friends at IRS/Treasury and the Treasury Dept as an institution has always favored the large money center banks. Additionally many tax lawyer and tax practioners i.e. the Big 4 are very close to the big banks like Goldman and JP. However, Massachusetts has just as many Senators as New York State does plus after the 2008 financial crisis the large New York City banks are hated and vilified by many. The "mistake" the largest US banks in favor of capital mobility over labor mobility may have made is to have become way to geographically concentrated in the NYC metro area.
I was actually trying to find a different article but the one below somewhat makes the same point about the decreasingly competitiveness of NYC and NY State vis a vis not just "red" southern states but also California.
ReplyDeletehttp://www.forbes.com/sites/carlschramm/2013/07/09/how-new-york-state-can-grow-its-economy-in-seven-easy-steps/
Well, as it turned out, California knew a lot about baseball and many other things that let, using a quintessentially New York City metaphor, the Golden State eat New York’s lunch. What were they? Apart from weather, I believe four count, but there are surely more. First, it was suddenly the fastest growing state. So, it had “the new” going for it – always an advantage in a nation where “adventurous consumers” are a unique aspect of our economy. Americans continue to prove that for us “the new” makes us perk up and pay attention. When easterners could really get to see what California was all about, thanks to the plane and television, it turned out its charms, including its exploding economy, were hard to resist.
Second, it was inventing its future, a non-agricultural future, without the burden of much of an old industrial past. The artifacts and ghosts of a once dominant manufacturing economy didn’t hang over it. There was no golden age of the canal in California. The Gold Rush was not an economically sustaining experience. Western states bought typewriters — they didn’t really make things (do movies and wine count?), rather, they grew fruits, nuts, figs and vegetables. Money came from the ground – oil and cash crops. California had little in the way of heroic industrial achievements reaching much before World War II when it, and Washington State, began to dominate “new” metal fabrication on a grand scale. California built ships in just days! And it knew how to make aluminum into airplanes.
Third, California faced the new “new” world, the Pacific Basin. Japan was an economic colony of the United States for a long time after the war and California was its gateway. Korea demanded that California dominate wartime shipping long after the European Theatre of WWII had recovered its economy. Nixon’s trip to China in 1972 was of the greatest consequence in shifting the American worldview toward Asia and California stood the most to gain as a matter of geography.
But, in that which matters most to any state’s economy in the emerging post-industrial age, California was winning the human capital race. By 1970 California was the undisputed home state for technology research. Its powerful public university system and its eminent private institutions were outperforming New York’s equivalents by whole magnitudes. By 1970 California’s research universities enjoyed a threefold advantage in funded research (the basic work that often finds its expression in new companies), on a per capita basis, over New York’s schools! The nascent venture capital industry came together in California in the early seventies largely to exploit the research conducted in its universities. New York’s canal route had modeled the Silicon Valley in the industrial age but it couldn’t keep up in the intensely research-based age of the semi-conductor.
To my original point as New York, Toronto, and Paris have lost competitiveness in other industries they have become more and more dependent on banking and financial services and the free flow of capital whereas to California the free flow of the labor is much more important.