Naomi Fowler ■ The US’s ‘Trump/Goldman tax law’ and the race to the bottom
The American Interest magazine has published an article by TJN senior adviser James Henry in which he points out that the damage caused by President Trump’s tax reforms will ripple out way beyond the USA, where many citizens will be seriously harmed (we reported on the human rights implications of the tax reform here), damaging the well-being of the rest of the world, particularly the poorest nations. As Henry comments:
It is one thing for America’s aging elite, their enablers, donors, and friends on Wall Street to infect themselves and their offspring with affluenza, an unhealthy obsession with the accumulation of unlimited private wealth and power. It is quite another to infect the entire rest of the world with it.”
Quite. We’ve been warning at the Tax Justice Network for years that we may be living in the final years of corporate taxation and that a race to the bottom on tax between nations will have serious consequences for democracy, inequality, economies and the provision of public services. Henry is clear about the implications of the Trump reforms:
Far from leading quickly to higher U.S. economic growth, more jobs and higher wages, the deep corporate tax cuts contained in this bill have already triggered, or at least substantially accelerated, a global tax war—an aggressive “race to the bottom” in international corporate tax rates, rules, and regulations that will be deeply harmful, especially to developing countries.”
He goes on to list the countries who’ve recently announced their own corporate tax cuts.
And as he points out, poorer nations with smaller economies are more reliant upon corporate tax revenues than others:
With a few exceptions, the real problem is not this “happy few” of relatively affluent OECD countries. By now, most of them rely on corporate taxes for well under 10 percent of all government revenues. For the United States and the United Kingdom, for example, this figure is only about 8 percent; for France it is 5.8 percent; for Germany it is 4.7 percent. The handful of OECD countries that are still most exposed includes (as expected) Australia (18 percent), Korea (14 percent), Chile (22 percent), and Mexico.“
While the race to the bottom between nations on corporate tax began in the 1980s with Reaganomics, throughout the 2000s the United States resisted joining this tax war. With Trump bringing the USA back into the race, the downwards momentum will accelerate, causing real suffering and hardship, and massively increasing global inequality and insecurity. The Trump reforms represent a major political triumph for the owners of Capital, and we fully expect that the race to the bottom dynamic won’t stop with abolition of the corporate income tax: across the world we will see subsidised capitalism, diminished genuine competition and monopoly-dominated economies.
James Henry does identify one cloud with a silver lining for developing nations, but on the whole it’s a grim picture indeed that he paints.
Read on here.