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Biden Plan and Global Minimum Tax

Recovery from the pandemic crisis — writes the IMF in April’s World Economic Outlook — is increasingly visible due to three factors: first, hundreds of millions of people are being vaccinated; second, companies and employees have somewhat adapted to the healthcare disaster; and finally governments especially the American have pledged massive government — extra fiscal support. Governmental fiscal interventions have reached $16,000 billion worldwide, have averted collapse of the economy that would have been three times worse, blocking the 2020 recession at a 3.3% drop, and have pushed the recovery rate to 6% in 2021.

The overall recovery will be the outcome of a series of divergent recoveries. Only the United States, with a 6.4% growth rate, will exceed the GDP level predicted before the pandemic. The disparity regards healthcare first of all. High-income countries, representing 16% of global population, have already bought up half of the vaccine doses. The real estate, financial and speculative markets have expanded extraordinarily thanks to the floods of liquidity injected by the central banks and the banking system. The banking sector has been accompanied by frequent scandals and little-known financial meteors whose fragments, however, impacted much more famous creditors. Poles apart, retail trade, the catering industry and tourism with all their connected services have suffered great losses. In the industrial sectors, the recovery has been stimulated by durable goods and the automotive industry, which represented one third of the recovery in international trade. The WTO predicts a recovery in trade in goods of 8%, by volume, for the 2021, after the 2020 experienced a 5.3% reduction.

The expectation is for a re-entry into a the markets of huge sums accumulated in family deposits as a result of state aid and the forced saving imposed by the restrictions. Mark Zandi, chief economist of Moody’s Analytics, estimates there exist $5,400 billion extra savings. Still according to Zandi, this is equal to 6% of WDP, and at least one third of this amount will go in consumption, while another third will repay overdue debts.

The Biden infrastructure plan

The stabilisation of the recovery and the presence of imperialist competition, by no means dormant during the pandemic of the century, have placed on the agenda the themes of the investments and productivity of the economic systems, the public and private debts swollen by the healthcare emergency, and the economic and fiscal policies that are needed to reabsorb those debts.

After the $1,900 billion American Rescue Plan, aimed at supporting families, President Joe Biden launched from Pittsburgh, at the end of March, the American Jobs Plan. This is a plan worth about $2,300 billion, lasting eight years for the renovation of US infrastructure, and is followed by a fiscal plan to finance it in 15 years. The main items on the plan envisage investment to the tune of $621 billion in transport infrastructure (roads, motorways, bridges, airports, aqueducts, ports, etc.) which includes $174 billion in investment and subsidies for electric cars, $650 billion in domestic infrastructure (water, electricity, broad band, the construction industry and public schools), $580 billion for industrial policy (manufacturing, small-scale companies and training of the labour force) which includes $180 billion for research and development, and finally $400 billion for the healthcare and social assistance sector. According to Biden, this is a once in a generation spending plan.

The European Next Generation EU plan is, in size, one third of the American plan. If one adds the items for investment of the Union’s Multiannual Financial Framework for the period 2021-2027, it comes to 70%. With €1,000 billion over the next decade, the European- Investment Bank (EIB) will finance projects for the climate action and environment — which can be set up in every continent — and the development of European revolutionary green technologies, from clean hydrogen to offshore renewables and energy storage.

Biden’s fiscal plan

Financing the new infrastructure with taxes was not a foregone conclusion. Just : week before the Pittsburgh speech, Martin Wolf of the Financial Times considered unlikely that taxes would be extensively used and predicted that its funding would, once again, fall to the Fed. The basic principle of American fiscal reform was pointed out by the Treasury Secretary Janet Yellen, who believes that the measures to stop the race to the bottom of corporate taxation cannot be postponed. This is therefore a fiscal plan that intends to orientate the fiscal policies of the OECD and the G-20 globally, further corroborating the return to Washington’ multilateralist approach.

The hasty expansion of debts obliges the states to seek resources from the big business groups and multinationals, until now greatly favoured taxwise. According to Yellen, the taxes really paid by the multinationals in almost all of the OECD economies do not exceed 7.8% of their profits. The fiscal initiative started at the beginning of March in the UK, which for the first time in almost 50 years will increase corporate tax, from 19% to 25%. Both London and Washington can use taxes as a lever thanks to the progress made by their vaccination campaigns, which have reached a number of people who had their first dose equal to two thirds of their respective populations. Europe is lagging behind with vaccines, bows its head to the American initiative, but is sticking to a line long pursued by the powers of the Franco-German axis, which could open up a pathway towards European fiscal union. The attempt is complex, if we consider that Ireland, in 2013, even though overwhelmed by the banking and real estate crisis, resisted the pressure to abandon its 12.5% corporate tax rate.

The central pillars of the Yellen-Biden fiscal plan focus on: increasing the federal tax on corporate profits from 21% to 28% — halfway between the rate introduced by Donald Trump and the one previously in force (35%); doubling the global minimum tax from 10.5% to 21% and removing the tax exemption on the first tenth of foreign profits (with the aim of making tax havens less attractive); a 15% minimum book tax - this is a tax on corporations (about 200) with profits of $2 billion or more, which are recorded and notified to shareholders. These often manage to avoid paying any taxes thanks to deductions and ‘inversions’ of destination.

Daron Acemoglu, of the Massachusetts Institute of Technology, observes that Biden’s reform is a departure from a decades-long tendency. In the first postwar decade taxes on incomes and social security contributions provided 50% of the tax levy, while 30% arrived from companies. Since then, the former have paid more and more, to the point of contributing 85% of total taxes, while taxes on companies have fallen below 10%. Meanwhile the national share of labour income has fallen from 66% to 58%. In a communiqué the American Treasury Department has estimated that taxes paid by companies fell below 1% of GDP with Trump’s tax cuts, while their profits in the last fifteen years have grown from 5.4% to 9.7% of GDP.

Various entrepreneurial associations have fiercely attacked the tax reform on ground of losing competitiveness. The chairman and CEO of JP Morgan, Jamie Dimon, has spoken out in favour of the reform. The statements of the main exponent of financial capital need to be noted down especially when they express a certain idea of imperialist democracy.

In his April letter to shareholders, Jamie Dimon, exhilarated by the ongoing economic boom which could easily run into 2023, denounces the extraordinary number of loopholes, tax exemptions and subsidies that in every sector of finance and industry create protection from legitimate competition. Income inequalities are prevailing. Nearly 30% of American workers earn less than $15 an hour, which is barely a living wage even if two adults are working in a family of four. China belives that America is in decline. The Chinese see an America that is losing ground in technology, infrastructure and education - a nation torn and crippled by politics, as well as racial and income inequality and a country unable to coordinate government policies (fiscal, monetary, industrial, regulatory) in any coherent way to accomplish national goals. Unfortunately, recently, there is a lot of truth a to this.

A political CEO

This is an interesting game of mirrors between Wall Street and Beijing: Dimon reports the Chinese criticism - agreeing with it of the American political system, and simultaneously betrays hint of envy for the different quality of the political centralisation of the Asian giant, able to organise all the policies of an imperialist state in a coordinated way. Dimon states to The Wall Street Journal, the main critic of Biden’s fiscal plan: [Taxes] are going to have to go up; you cart run a 10% to 15% deficit forever.

The Economist distrusts the political CEO who embodies in the USA today the mixing of government and corporations. Dimon is defined as a CEO-statesman. A host of managers are politicising their aims, getting in tune with Biden’s big government agenda that is founded on an alliance with business to bring about national renewal, to fight climate change and to gird America against the rise of China. The Economist fears that, if politics asks business to help it resolve its problems, sooner or later business will use its place at the table to promote its own particular interests. Politics cannot deal with popular discontent by giving more power to an elite of unelected CEOs.

Lines for European recovery

Time will show what gradation of liberism the new state interventionism will be able to adopt, also because the divergent recovery between the two coasts of the Atlantic continues to manifest itself. The Director of the IMF’s European Department, Alfred Kammer, the former chief-of-staff of Christine Lagarde when she directed the IF, argues that Europe’s slower recovery may not bring its output back to the path expected before the pandemic, even in another five years. Kammer asks the Eurozone governments to increase their spending by additional three GDP points, in order to obtain an extra 2% growth, with additional transfers to families, subsidies for the unemployed and support for companies’ capital. This line embodies the will to accelerate recovery in order not to lose ground with respect to the competing powers and is met with the diffidence of the Nordic countries within the ECB, which are worried about the growing debt that the Central Bank itself will have to back up.

In a conference at the end of March, Bundesbank President Jens Weidmann warned against increasing false expectations that the emergency measures may persist indefinitely and called for determination to be shown when the time arrives to raise interest rates. Klaas Knot, governor of the Dutch central bank, suggested in an interview with Reuters that the gradual withdrawal of quantitative easing could be brought forward to the third quarter of this year. Shortly afterwards, Knot tempered his impatience, excluding the withdrawal of the measures until we have made a good start with the recovery. This may take us to year-end at least.

Kammer’s dramatisation of Europe’s delay offers arguments to the ECB exponents who favour continuing its expansive line and, if necessary, reinforcing it. But it also makes room for some strategic innovations, including launching the preparation of the ECB’s digital currency, in order to be ready to face the challenge of the Chinese digital currency within five years.

Lotta Comuista, April 2021

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