If his repeated efforts to strip healthcare insurance from millions weren’t enough, Donald Trump’s tax reform “plan” — more accurately, a set of vague talking points — should kill off any remaining fantasies of left wingers that he represents some sort of force for economic disruption. The talking points, involving huge tax cuts for US companies and high-income earners and a removal of deductions for low- and middle-income earners, represent more of the relentless hollowing out of the US middle class for the benefit of the super-rich, which has been going on in that country for a generation.
Nor does it even have courage of its neoliberal convictions — it is entirely unfunded and would blow out the US budget deficit by trillions of dollars, leaving future US low- and middle-income taxpayers with the bill.
The proposals will be particularly popular with corporate executives because Trump wants to repeat the George W Bush experiment of having a tax holiday for American multinationals, so that they can shift trillions of dollars in unrepatriated profits onshore under a super low tax rate. When Bush did it, the repatriated profits were used not for additional investment, for growing the economy or employing more Americans, and certainly not for paying them higher wages. Instead, they were used to buy back stock and juice company share prices, delivering remuneration windfalls for executives. Any corporate tax cuts would be used the same way — to boost share prices, not generate productive investment.
[Enough with the fetishism of the Hawke-Keating years]
Inevitably, despite the dearth of any detail in the Trump announcement, both the Business Council of Australia and the government used it to urge that any opposition to big tax cuts for multinationals be abandoned here. Jennifer Westacott of the Business Council claimed a tax cut for multinationals was “super urgent”, while Scott Morrison argued that we’d lose jobs to the United States.
Morrison, of course, has the tricky task of claiming that the economy and jobs growth are performing very strongly, and higher-than-forecast company profits have delivered a lower-than-expected deficit, while at the same time arguing that we desperately need a company tax cut to get the economy and jobs growing. Westacott has the tricky task of finding credibility for a beleaguered lobby group that even conservatives no longer take seriously.
The Turnbull government, driven by political necessity, has stumbled after the political centre of gravity as it has swung in favour of government intervention and away from free-market ideology. It has embraced protectionism, bank-bashing and drastic intervention in energy markets, and continues to pump tens of billions of dollars in deficit spending into the economy. But it stubbornly clings to one key neoliberal shibboleth: handing tax cuts to the world’s largest corporations.
[The surprisingly quick death of neoliberalism in Australia is underway]
The tax cuts are an audacious bid by those companies to formalise the massive tax avoidance that many of them engage in in Australia. The BCA’s members pay on average 24.3% tax, not the headline rate of 30%. Many pay zero, or single-digit rates (ironically, most of the hated big banks actually pay full fare when it comes to tax). They exploit the complexity of company tax laws, transfer pricing, overpriced loans, intellectual property deals, tax havens and a myriad other techniques to reduce their tax obligations. The incessant lobbying for tax cuts is merely another tool in this arsenal of tax avoidance weapons. There’s a spectrum of behaviours here, from outright tax evasion undertaken in the expectation companies can litigate their way out of any response by tax authorities, to tax avoidance tools that push the letter of the law to breaking point, to encouraging political recipients of corporate donations to cut taxes for them.
A company tax cut would reward this behaviour with another windfall, one that would simply be used to bump up share prices and reward executives. The government’s company tax cut plan, like Trump’s, is unfunded. So the rest of us who will pay through higher taxes and lower government spending: ordinary taxpayers who can’t use transfer pricing or dodgy IP deals to cut our taxable income to nil, low- and middle-income earners who can’t employ batteries of tax lawyers to appeal tax decisions to the High Court. The tax cut pushed by the Business Council and its political backers here is an economic war on ordinary taxpayers, just as it is in the US.
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