World Politics News   Articles for World Politics Course

Joseph E. Stiglitz, Todd N. Tucker, and Gabriel Zucman have written an essay for Foreign Affairs entitled “The Starving State: Why Capitalism’s Salvation Depends on Taxation” which makes a powerful argument that the US government’s policies since the 1980s of lowering tax rates on capital have led to the growth of inequality in the US.

“That simple truth is being forgotten today. In the United States, total tax revenues paid to all levels of government shrank by close to four percent of national income over the last two decades, from about 32 percent in 1999 to approximately 28 percent today, a decline unique in modern history among wealthy nations. The direct consequences of this shift are clear: crumbling infrastructure, a slowing pace of innovation, a diminishing rate of growth, booming inequality, shorter life expectancy, and a sense of despair among large parts of the population. These consequences add up to something much larger: a threat to the sustainability of democracy and the global market economy.

“This drop in the government’s share of national income is in part the result of conscious choices. In recent decades, lawmakers in Washington—and, to a somewhat lesser extent, in many other Western countries—have embraced a form of fundamentalism, according to which taxes are a hindrance to economic growth. Meanwhile, the rise of international tax competition and the growth of a global tax-avoidance industry have put additional downward pressure on revenues. Today, multinationals shift close to 40 percent of their profits to low-tax countries around the world. Over the last 20 years, according to the economist Brad Setser, U.S. firms have reported growth in profits only in a small number of low-tax jurisdictions; their reported profits in most of the world’s major markets have not gone up significantly—a measure of how cleverly these firms shift capital to avoid taxes. Apple, for example, has demonstrated as much inventiveness in tax avoidance as it has in its technical engineering; in Ireland, the technology giant has paid a minuscule annual tax rate as low as 0.005 percent in some years.”

About “eight percent of the world’s household financial wealth is hidden” in tax havens permitted by many governments which further reduces the revenue base. The consequences of this reduced tax base harms democracy in two different ways:

“This spiraling inequality is bad for the economy. For starters, inequality weakens demand: the bulk of the population has less money to spend, and the rich don’t tend to direct their new income gains to the purchase of goods and services from the rest of the economy; instead, they hoard their wealth in offshore tax havens or in pricey art that sits in storage bins. Economic growth slows because less money overall is spent in the economy. In the meantime, inequality is passed down from generation to generation, giving the children of the wealthy a better shot at getting into the top schools and living in the best neighborhoods, perpetuating a cycle of ever-deeper division between the haves and the have-nots.

“Inequality also distorts democracy. In the United States especially, millionaires and billionaires have disproportionate access to political campaigns, elected officials, and the policymaking process. Economic elites are almost always the winners of any legislative or regulatory battle in which their interests might conflict with those of the middle class or the poor. The oil magnates the Koch brothers and other right-wing financiers have successfully built political machines to take over state houses and push anti-spending and anti-union laws that exacerbate inequality. Even rich individuals who are seen as more politically moderate—technology executives, for instance—tend to focus their political efforts on narrow technocratic issues rather than the distributional conflicts that define today’s politics.”

Inequality should be a central question in the upcoming US election. It is a challenge to the future more serious than any other issue, save that of climate change.

The British Parliament has passed a bill “in principle” that supports Prime Minister Johnson’s agreement to leave the European Union on 31 January 2020. The bill will be debated after the 1st of the year, but it seems inevitable that the question of Brexit will finally be settled. More details about the terms of the departure still need to be worked out, but the bill limits that debate to 31 December 2020. The Guardian lays out the key similarities and differences in the bill that has just passed from the previous attempts over the last three years:

What stays the same?

• Powers to make the Brexit deal legal domestically.
• The legislation enabling the transition period allowing the UK to stay in the customs union and single market between 1 February and 21 December 2020.
• Powers to ensure key elements of the European Communities Act of 1972 remain applicable domestically. The UK will remain a rule-taker and not a rule maker.
• Extensive powers to ministers and devolved governments to deal with the separation issues.
• So-called “Henry VIII powers”, under which ministers can repeal or amend an act of parliament without going back to MPs, allowing them to implement the protocol on special arrangements intended to avoid a hard border between Northern Ireland and Ireland. These are “a bit of a blank cheque”, says Joe Owen, Brexit director at the Institute for Government. But as nobody knows the detail of how they will operate they reflect the complexity of the consequences of the divorce from the EU.
• Powers and arrangements to ensure EU citizens’ rights laid out in the withdrawal agreement are implemented.

What has been removed?

The clauses that give parliamentary say on future Brexit deals, negotiating objectives or the extension period have been removed. Specifically they are:

• The clause giving MPs the right to approve an extension to the transition period.
• The clause 31 requirement for parliamentary approval for negotiations on the future relationship in the October bill has gone. Under the old bill, the House of Commons would have had to approve the negotiating objectives of the government in the next phase of talks. The parliamentary approval process for any future relationship treaty subsequently negotiated with the EU has also gone.
• The removal of clauses pledging alignment with the EU on workers’ rights. The government on Thursday promised in the Queen’s speech that workers’ rights would instead be “protected and enhanced” under an employment bill.
• Legal protections for refugee children reunited with family members in the UK have been watered down. The bill removes, via clause 37, obligations in regard to unaccompanied children seeking asylum in the EU with an obligation to make a statement within two months of passing the act.
• The promise that the government’s position on negotiating the future relationship will be in line with the political declaration that accompanied the withdrawal agreement.

What’s new?

• A clause outlawing an extension to the Brexit transition period beyond 31 December is included.
• A clause locking in Brexit at the stroke of midnight, 31 December. The only way that can change is if the EU changes its summer daylight saving.
• The bill gives the government new powers in several areas, including Northern Ireland, to change Brexit-related laws through secondary legislation rather than primary, which has the potential to reduce parliamentary scrutiny.
• Time limits on any discussion of the divorce bill payments, removing the option of debate up to March 2021. This is in line with the other clauses removing any chance of an extension to the transition period.
• It gives the House of Lords’ EU committee the right to scrutinise developments in EU law of “vital national interest” to the UK during the transition or implementation period. The House of Commons already had these powers under the October bill.

An independent monitoring authority to allow EU nationals in the UK to appeal against decisions relating to their rights has slightly changed, with the authority given the power to delegate decisions to launch inquiries.