That some desire to have more taxation and more government is true. And, if we’re honest about it, that’s an opinion that people may have, are entirely entitled to hold, even as we vehemently disagree with it. We’re against the idea that more of life be decided by those who can kiss enough babies to get elected, even as we agree that some modicum of government is necessary to enable the babies to grow up to vote.
That doesn’t excuse gross misinformation being used to make the case:
The G7 helped to build this low-tax world. Are they really ready to change it?
Mark Blyth
We’re not in a low tax world. As Parliament has been told tax is some 35% of GDP. This is higher than the usual since the war - before which the burden was much lower - and has only been exceeded during one of the regular economic crises which shrink the GDP part of the calculation. We’re simply not in a low tax world.
In the early 90s, governments started buying into an argument about capital mobility, taxes and welfare states: in a world of global capital, investors will seek the best returns they can get globally. If those returns are reduced by “distortions” such as taxes, investment will flow to countries that tax less. Consequently, those expensive and expansive welfare states that neoliberal economists had always targeted had to go. Funding them through taxing the wealthy and corporations would lower investment and employment, so the story went.
This is not an argument, it’s a truth - derived as it is from Adam Smith and one of his only three mentions of the invisible hand. We can also derive it from very simple observations of tax incidence, taxes will always fall on the less mobile factors of production. Further, it says nothing about whether to have an expensive or expansive welfare state - it just says that it will be counterproductive to try to finance it from the more mobile factors of production. Which is why those Nordics don’t try to finance their expansive and expensive welfare states by the taxation of corporates and capital.
That is, it isn’t a normative argument about what sort of polity to have. It’s a positive one about if you wish to have a certain polity then it is necessary to finance it in this particular manner.
There’s even a neat proof of the fact that the taxation of mobile capital does work this way. For what is the solution being suggested? The global taxation of that capital - or at least of tax rates - meaning that capital mobility doesn’t change the tax rate faced. One would only propose this as a solution if it were true that capital mobility were not just an argument about taxation but a truth concerning it.
But then there’s this which steps well over the line of acceptable propaganda:
Governments across the Organisation for Economic Co-ordination and Development (OECD) used this argument to cut taxes on both individuals and corporations. The UK’s corporate tax rate fell from 34% to 19% between 1990 and 2019, while the US’s rates fell from 35% to 21% over the same period. But rather than those reductions leading to an explosion of investment in both countries, investment levels actually fell, as the tax-savings made were taken as profit and pushed into asset markets. In the UK, gross fixed-capital investment fell from 23.5% of GDP in 1990 to 17% in 2019. In the US, it fell from 23.5% to 19%.
Definitions matter. Gross fixed-capital investment being:
Fixed assets are produced assets that are used repeatedly or continuously in production processes for more than one year. The stock of produced fixed assets consists of tangible assets (e.g. residential and non-residential building, roads, bridges, airports, railway, machinery, transport equipment, office equipment, vineyards and orchards, breeding livestock, dairy livestock, draught animals, sheep and other animals reared for their wool). The European System of Accounts (ESA95) explicitly includes produced intangible assets (e.g. mineral exploration, computer software, copyright protected entertainment, literary and artistics originals) within the definition of fixed assets.
Value creation, in this modern world, depends ever more on those intangibles. The measure being used, of fixed-capital, assumes that ARM Holdings wasn’t investment, Windows, Amazon’s website, e-Bay, and on and on aren’t investment. Amazon’s warehouses are but not the rest of it. An absurdity of course.
Mark Blyth is a political economist at Brown University.
By the argument Blyth is using building a new gym at Brown is investment, everything that happens in the classroom, being an intangible, is not. But then at Brown, with Blyth, that might actually be true.
We entirely agree that there are different visions of the future we should be striving for. But we would like to at least try and insist that the evidence presented to argue for one or the other be evidence, be observations about the real world. For without that stricture we end up somewhere on the spectrum from being misleading through propaganda to casuistry which really, we do insist, isn’t the way to run the world.