US economy

Tax justice is served


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I’m about to go off for five weeks of sabbatical to write a book. As I leave you for a while (don’t worry, you’ll be entertained by brilliant Swamp Notes guests in my absence) I’m happy to be able to praise Joe Biden’s administration in my last pre-book leave Note. The US dropped a big stumbling block to a transatlantic digital tax deal, possibly paving the way for new co-operation on not only tax, but technology regulation and trade.

Treasury secretary Janet Yellen announced American companies that had been lobbying for a “safe harbour” provision that would allow them to opt out of any new agreement cut on digital tax will, in fact, have to honour any new laws passed between the US and the EU. 

This is good news on many fronts. First, it sends a strong signal that countries, not companies, are going to set the rules on tax. This is pretty much the opposite policy that we had under Donald Trump, and it’s much needed at a time when corporate wealth is at record levels relative to either the state or labour share, but also when even more of it will be flowing into digital companies. As I wrote a few weeks back, there are good reasons to think that most companies that survive Covid will invest more in intangible assets, rather than labour — which makes a fair tax agreement on digital assets even more important in order to help bolster the social safety net and fill public coffers at a time of rising debt. 

Second, it tells Europe that the US is ready to compromise on highly contentious issues. As I’ve also written, a transatlantic agreement on digital regulation, trade and taxation is crucial to dealing with the “one world, two systems” challenge of China. But both sides will have to make some big compromises, and this signal from the US is a good start. Germany, take note: now would be a good time to think about how to square concerns about security and sovereignty in 5G with the desire to continue beefing up exports to China. 

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Finally, the tax announcement sends a message that status quo globalisation is over, and the Biden administration is not looking to reset to the 1990s, or go back to the neoliberal paradigm in which economic globalisation (and in particular the fortunes of multinational companies) can float 35,000 feet above national politics and the concerns of the nation state. I believe that shift is long overdue and that convincing workers and voters that the administration is serious about rebalancing things will be crucial to Democrats’ performance in the midterm elections. 

Peter, in our last Swamp Notes exchange, I’d simply ask whether you agree with my analysis, and what you’d like to see the administration do in the first 100 days to get us to a better place? 

Adieu Swampians — I’ll be back at work, and in the Swamp, on April 5.

Recommended reading 

  • Foreign Affairs has an interesting analysis of how the World Trade Organization did, and didn’t, change China.

  • Charles Blow writes in The New York Times that we should expect a new Great Migration of African Americans from north to south. If he’s correct, this would reshape American politics, I think in a good way. 

  • My colleague John Thornhill is spot on in his analysis of how important Taiwan, and the chipmaker TSMC, will be both economically and geopolitically over the next few years.

  • Also, don’t miss this lovely FT House & Home piece about the future of Venice, one of the hardest-hit cities in the pandemic, post Covid. The pictures are beautiful. 

Peter Atwater responds

Rana, I like your take. And I’d like to see that same willingness to “compromise on highly contentious issues” happen on the domestic front, too. 

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Under the Trump administration, American business leaders felt an incredible sense of control, albeit amid a backdrop of uncertainty arising from the White House. Chief executives were always braced for an unexpected middle of the night tweet which would complicate their efforts. At the end of the day, though, they made peace with it, given the financial and operating benefits they reaped.

I get the sense from business leaders that while there is far more certainty with the new administration, they feel far less in control of their businesses. Calm is returning — especially with respect to the management of the outbreak and its consequences — but CEOs are worried about more regulation, higher taxes and more direct intervention by Democratic policymakers. Rather than seeing potential benefits, leaders are envisioning more and more potential costs.

What I would like to see from the new administration is a much clearer view of the benefits. While I agree that the pendulum of neoliberalism moved too far, an attitude of “eat your vegetables because I told you to” isn’t going to encourage more private sector investment or job training, or higher economic growth. 

Nor is Democrats’ current attitude that they don’t need Republicans in Congress. There is a growing view among business owners that rather than crossing the aisle to get the votes they need, the White House will, instead, placate progressives by dangling inherently anti-business measures. 

It may be a pipe dream at this point, but I’d like to see something notably bipartisan on the business front in the first 100 days — something meaningful that could be embraced as “build back better” for both parties. 

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Since the election, small business owner optimism has fallen sharply. While the response can be tagged as partisan — much like the surge after the Trump victory in 2016 — America desperately needs greater Main Street enthusiasm. 

The current vaccination efforts are a huge start, but demonstrating that the new administration is pro-business as much as it is pro-labour needs to happen soon.

Edward Luce is on book leave and will return in mid-March

Your feedback

And now a word from our Swampians . . .

In response to ‘The potential pitfalls of economic growth’:

“New, multigenerational wealth creation is coming from more efficient and lower emitting economies in a more globalised and integrated world economy. These periods of wealth creation favour wealth concentration. The proper challenge is to create wider and better returns to the work going into and creating the expansion of wealth. Income over the past several decades has not gone to the median participant in the growing economy even though it is median productivity that has driven growth. The people at the top hived off a disproportionate share of overall income by utilising their position at the top of a corrupt Washington power structure to flow an ever-larger share of the national income to the very top. It doesn’t have to be that way. More inclusive growth would also probably be higher growth because more people would participate and make a greater effort in a system which more broadly shared rewards. More social democracy will yield a better capitalism in the 2030s.” — Paul Myers, Corona del Mar, California

We’d love to hear from you. You can email the team on swampnotes@ft.com. Follow them on Twitter at @RanaForoohar and @Peter_Atwater. We may feature an excerpt of your response in the next newsletter.





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