This side of a tax revolution
Tax, like heart surgery, is unwanted, painful, and a distraction from the pleasures of a carefree but good life. Tax is good.
Without calling into question the acquired dogma according to which the State should have no role in economic activity than private investment can do better, the dry years of austerity, the ineffective response to climate change, the public resources that we had to mobilize to manage a pandemic remind us that we also need government.
Economies large and small, sophisticated and lagging, need a renewed infrastructure to enable communication, transport, distribution and energy. Governments need financial resources to anticipate the needs of the economy. The vision required must be at scale. We can’t just fix what’s broken. We need a new, sustainable and green economy that reverses climate degradation.
The United States is pushing the world’s largest economies to agree on minimum tax rates paid by businesses. It is doing it because it needs to raise the corporate tax in the United States from 21 to 28 percent. What would be the point of doing this if American businesses avoid paying taxes by sliding to another country that levies lower corporate taxes?
Compare that with the rules on labor standards. Imposing minimum working conditions on company employees increases costs for these companies. If employees have to be paid to do their jobs, labor will be more expensive than slavery. So why not buy products made in countries where slavery is allowed?
Reaching international minimum standards on trade and driving out holdouts is a difficult process built on carrots and sticks wielded over time. But experience shows that this is far from impossible.
International standards on working conditions are just one example. Also consider minimum sanitary standards for food and pollution standards. Consider the global agreement on tariffs and trade barrier limitations that require countries to give up some of their sovereign flexibility in exchange for assurances of reciprocity.
We should rebuild our infrastructure for more environmentally sensitive times
These changes have impacted even ancient Malta over time. We lowered the competitive indices of the industries that were our bread and butter. We couldn’t support textiles and low-output manufacturing, or large-scale ship repair business as global realities changed around us.
For a while, we raised our fists in anger at the realities of the world. For decades we have blindly subsidized shipyards that had no hope of ever becoming viable economic activities. We played blame games as factories sowing denim or questionable quality underwear and footwear shut down.
When we focused on reinventing ourselves and reinventing ways to rebuild our economies and when we caught up with what was going on in the world around us, we did reasonably well.
Americans are by no means the only ones participating in this gathering of the “fiscal revolution”. France, Germany, Italy and the Scandinavian countries have been campaigning for ages for tax harmonization within the EU. These are high-tax countries that experience significant slippages towards Ireland, Hungary, the Czech Republic and other countries that build their business model around a low corporate tax model.
We know which side Malta is on.
I am going to make a haphazard comparison here. The analogy only works so far. But consider the United States on the eve of its civil war. The economies of the southern states were built on agriculture and this needs labor linked to the fields. Slavery was a key part of the economic model for a vast swath of the United States. The north needed a workforce that was free to move around, that could be marketed and employed in economic activities that were less grounded.
The economic fault line of our time is not weighed down by the deep moral injustice of slavery, and hopefully we can solve the problems today without resorting to arms.
Yet the dividing line between high and low tax corporate economies is fraught with injustice and myopia. The low tax model is the product of an archaic overestimation of the investments needed in infrastructure, in economic reforms for the species to survive climate change, in social solidarity. He underestimates the role of government as a force for good.
We can raise our angry fists at these realities of a changing world and stubbornly cling to an economic model that, like slavery or textiles, is outdated, or we can become realistically part of the deal. global reform and find a new role for ourselves in the world.
It may sound like treacherous speech at a time when resistance against the “tax revolution” is escalating.
It might help. Think of Malta in the 18th century, ruled as it was then by a religious sect whose income came from rents collected on properties given to it to finance the Crusades (which had been over for centuries) and a license. to steal ships and enslave their crews as long as they were not Christians. How was it going to survive the Enlightenment, the French Revolution and Bonaparte?
In this revolution, once again, we are the old regime. Our old way of doing things is being challenged by a wave of change. Raising our fists to this wave will not help us. We must ride this wave and lead this revolution, build a new sustainable green economy for ourselves and rebuild our infrastructure for more sustainable and environmentally sensitive times.
And we have to accept once and for all that in order to do that we have to pay taxes.
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