Joe Biden has done what no European social-democratic leader has dreamed of for 40 years. And the headline G7 agreement, to create a global minimum tax rate of 15 per cent, is only part of it. The real achievement of Biden’s “Made In America Tax Plan” is that it states, in plain language, the basic problem of neoliberal capitalism: that wages are too low and profits too high.
“The labour share of national income has been declining for years,” it states “representing a worrying trend for workers and a contribution to rising income inequality.” The US government recognises that the falling wage share is exacerbated by governments shifting the burden of taxation away from corporations and towards workers.
However cynical we are about Biden’s motives, and no matter how weak the 15 per cent tax agreement turns out to be in practice, this is a watershed moment. For the first two centuries of industrial capitalism, economists were convinced that the share of national income going to labour and capital was constant. In the 1980s, Ronald Reagan and Margaret Thatcher set out to break this pattern.
When you survey Britain’s devastated high streets, abandoned industrial zones and food bank queues, you see the results. By smashing the trade unions, Thatcher smashed the power of all workers to bargain their real wages upwards in order to reap the rewards of higher productivity. For 200 years, workers had managed, broadly, to win their “fair share” of economic growth. But from the 1980s onwards, this process went into reverse.
According to Trades Union Congress research, the wage share fell from a peak of 64.5 per cent in 1972 to around 55 per cent by 2008 and has declined further since. If Labour, given its name, represents anything at all, it has to be the restoration of the wage share to where it was when life felt good for ordinary workers – which means reversing decades of decline.
The tax measures proposed by Biden will only partly achieve this. The immediate reason for raising taxes is, of course, the vast debts accrued by countries during the Covid-19 crisis and the dawning realisation that to reach net-zero carbon emissions by 2050, governments will have to borrow and spend even more.
[see also: America’s race to net zero]
There is now a consensus among G7 governments that by letting corporations shift profits to tax havens (not just obvious offshore locations such as Bermuda and the Cayman Islands, but also places such as Luxembourg, Ireland and Delaware), they have eroded their capacity to act in a crisis.
Another motive at work is Biden’s need to protect US technology giants from effective corporate break-up. The EU and other European governments have proposed or implemented digital services taxes on companies such as Facebook and Amazon, which would force tax revenues onshore into Europe, not into the US. Biden’s aim is to make sure the tax plan incentivises the booking of revenue in America, to the detriment of tax havens and some smaller countries.
The UK, of course, succeeded in watering down the US government’s original proposal of a 21 per cent global corporate tax rate to 15 per cent. With this agreed, Rishi Sunak is now pushing to exempt the financial giants based in the City of London. But the tax deal is a crucial start.
The neoliberal economic system is in ruins, surviving only on the life support of government borrowing and central-bank money creation. This is because rent-seeking has replaced entrepreneurial investment. Capitalism no longer exploits workers only, or even primarily, through work. It does so through extracting “economic rent”, both directly on rented accommodation and financially through the interest payments individuals make on student loans, car loans and credit cards.
It exploits us through monopoly pricing – as we pay over the odds for services such as broadband, or Amazon Prime, or an Apple computer – simply because competition has been flattened. It exploits us through our online behaviour, harvesting our data to sell to advertisers, governments, or medical insurers. Even the tax system, which used to act as a social wage, now guarantees a steady flow of money from you and me to leeches such as Lex Greensill and outsourcers such as Serco.
This is fine and dandy for the super-rich. You put your money into property, the value of which always rises; you book your profits offshore, via complicated companies nested inside each other; and you use your wealth to seek total autonomy from the terrestrial economy.
But the end result is a permanent crisis. It may not feel like it because there’s always a new coffee bar, or deli, or clothing brand funded ultimately by cheap central-bank money. But this is not how capitalism is supposed to work.
Biden’s administration, by hiring labour market specialists and heterodox economists who recognise the problem, is the only G7 government that really gets it. The US liberal establishment lived through a very close call for democracy in January and know it has to act fast to deliver real redistribution to American voters and to avoid a replay of the Trump administration in the middle of this decade.
[see also: Joe Biden: the quiet radical]
By contrast, our own government is still playing right-wing populist games. It would rather argue with Brussels over sausage meat quotas to Northern Ireland, or stoke a culture war over England footballers taking the knee, than address the serious structural crisis of capitalism that could easily engulf democracies before the mid-century.
And what of the opposition? The right wing of the Labour Party is now flying the flag for “dignified labour”. Great. But the most dignified labour is that done for wages you can live on – and to get there, in an era of anaemic growth, it’s the bosses who have to pay for it.
The Labour leadership is still not confident in making the case for rapid and decisive redistribution. Because many MPs believe Keir Starmer’s fate is uncertain ahead of the 1 July Batley and Spen by-election (where Labour is defending a majority of just 3,525), there’s a kind of policy stasis. Labour rightly called for the government to back Biden’s 21 per cent corporate tax rate but shadow ministers are still wary of saying the most obvious thing: the real levelling up will happen when the wage share of the economy rises and the profit share falls.
The trade unions, meanwhile, are left to resist a spate of “fire and rehire” attacks, from British Airways to British Gas, which are always designed to reduce both the pay and conditions of the workforce and to enhance faltering profitability.
The G7 tax agreement will only work if the rising economies of Asia and Latin America play ball. You could shut down all the existing tax havens and new ones would spring up in the gaps between jurisdictions elsewhere unless the project is part of a unified multilateral effort.
What we really need is a change of political culture, whereby it becomes as disreputable to avoid corporation tax as it is to launder money or traffic drugs. It’s no accident that the glitziest office buildings in Canary Wharf, serving the plushest lunches, are those of the corporate law firms that design the tax avoidance schemes for large corporations.
A truly effective global tax regime would put them substantially out of business and the Biden proposal falls short of that.
But the G7 deal, if ratified, is an opportunity to change the debate. It’s been cast as “should Big Tech pay its fair share of tax”? The real question Biden is asking is “should workers get more, and corporations less, of the wealth they jointly produce?” It’s a question most politicians have recoiled from for four decades, but at last it’s back.