Economic vandalism: We’re getting dragged into tax race to the bottom

business corporate bureaucrat fat cat hoovering vacuuming up moneyMatt Davidson cartoon / illo / illustration / toon / artworkThe Age 16-08-2014It is increasingly likely will be dragged into the global corporate tax race to the bottom after the Republican Party’s extraordinary piece of economic vandalism passed US Congress overnight.

The implications are manifold – and none of them beneficial beyond the initial sugar hit stock markets had already priced in.

Among the less obvious, the $US1.5 trillion ($1.96 trillion) Trumpster/Republican tax bill increases the urgency of genuine n tax reform – the sort that will have any and all vested interest groups complaining, the sort that requires real leadership, not mere election-focussed income tax trimming and big business pandering.

The urgency comes from the big picture impact of the US throwing more fuel on a strongly-growing economy, abandoning concern about burgeoning deficits and exacerbating its inequality tensions. That combination is unlikely to end well.

The US cutting its corporate tax rate to 21 per cent also destroys one of the two justifications put forward by the federal government and the Business Council of for reducing the n rate to 25 per cent.

The claim that cutting our tax rate will attract more investment becomes spurious when the global corporate tax tide has gone out.

Sir Joh Bjelke-Petersen, Queensland’s longest-serving premier, abolishing death duties was a particularly apt example of the race-to-the-bottom folly.

Queensland unilaterally scrapped death duties in 1979 supposedly to encourage rich retirees to move north. Fear of that happening saw all the other states follow suit – and lost a useful tool from its tax kit with no state benefitting and all eventually losing.

(It’s no surprise ending estate tax was a Trump/Republican goal. It’s what you’d expect of a plutocracy. The Senate compromise has been to double the threshold to US$11 million. Not for the first or last time, a John Kenneth Galbraith’s dictum comes to mind: “The modern conservative is engaged in one of man’s oldest exercises in moral philosophy; that is, the search for a superior moral justification for selfishness.”)

As a Washington Post analysis explains, what will be called the Trump tax cuts were sold on a couple of key deceptions. Despite all the rhetoric, the “middle class cuts” were really about the corporate rate and axing Obamacare .

So now the BCA/government argument for cutting the corporate tax rate here to 25 per cent is just a matter of maintaining relative competitiveness with no bonus for the effort.

The Republicans’ claim that corporate tax cuts will spark an investment surge has been debunked time and again. On form, yet more share buybacks are likely. A room full of American CEOs admitted as much. Re-read the Galbraith quote.

That doesn’t worry the BCA, which prefers to push the fanciful Trumponomics estimate of a 20 per cent lift in American investment from the tax cuts. Oh please.

There’s no reason beyond dubious and very theoretical Treasury modelling to think companies operating in will react any differently with nothing extra to show for the tax trimming. Heavens knows there are already plenty paying no or little tax here.

doesn’t have to match the extent of US and UK corporate tax cuts, but it is likely we’ll be dragged at least part of the way down the slippery slope. (Watch for the next step in the low/no-tax lobby’s logic: if a 5 percentage point cut is good, a bigger cut must be better!)

Which is why focus needs to be brought back to bear on our total tax system to both afford the tax cut forced upon us and to fortify our economy for the international ructions to follow the US move, never mind the desirability of having a better system that encourages our own growth and future prosperity.

An obvious quid pro quo for a corporate cut is ending corporate lurks e.g. novated leases . Yes, we need to broaden the GST and replace stamp duty with a broad, no-exemptions land tax.

Yes, those on the highest effective marginal tax rates – people coming off social welfare – need attention. Yes, the Henry Review needs dusting off. And, yes, every lobby group in the company will have something to scream about.

But we also need a rational debate about how much tax is “right” for us to pay instead of continuing to bumble along with a random rule-of-thumb that the maximum has to be 25 per cent of GDP.

It might be a smaller take if we decide we want to spend less on social welfare and military hardware designed for power projection. It might be larger if we decide we want to invest more in our key source of future wealth – our people.

That all would take leadership and a degree of bi-partisanship – neither of which is visible.

Remember the stuff about “everything will be on the tax reform table”?

Well, I found the table – it’s in pieces at the back of the shed, lunch for termites.