This is one of those times when the demands of domestic policy drive international economic policy. Joe Biden has decided to convert America into a European-style welfare state, which means he needs lots of money to finance childcare, family leave, higher pay for selected groups, and free education for toddlers and high school graduates. That is in the neighbourhood of $6 trillion — some $2 trillion more than in the normal, pre-pandemic year of 2019 and the largest claim on the nation’s income and wealth since the Second World War.
That creates a problem for him in a globalised world in which the geese he wants to pluck can take flight from these shores and alight in countries that place fewer demands on the revenues and profits of international businesses. That sort of reaction to the tax burdens he has in mind also means jobs disappearing over the horizon, factories being built in countries for the benefit of populations that cannot vote to re-elect Democrats, and a shortage of tax revenues to finance his plans to transform the American economy. Yes, the government can add to the already mountainous pile of its IOUs, but surely not without limit.
The solution for any high-tax, high-spend government is to agree with other governments to end the flight from the tax collectors by agreeing to set a floor under their tax rates. These governments have watched jealously and hungrily as low-tax Ireland — a 12.5 per cent corporate rate compared with 29.9 per cent in Germany and 28.4 per cent in France — has attracted jobs and investment resulting in GDP per capita of $78,779, compared with $46,468, $42,329, $40,496 and $33,226 for Germany, the UK, France and Italy, respectively. That’s what a growth rate 140 per cent of the EU average between 1986 and 2006 can do for a country.
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