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The global economy

Major talks between the United States and the European Union to establish a shared tax framework for multinational companies broke down on the issue of seeking to secure an agreement on digital taxation. Big tech, which is heavily a US creation, has long been in the sights of European economies, as their profits and revenues have soared and they have increasingly become major components of the 21st-century economy.

Taxation is one of those areas that exposes the contradictions at the heart of globalization. Globalization of goods has proceeded quickly, as has the harmonization of industrial standards across countries.

Harmonization of taxation? Not so easy.

The power to tax is the ultimate national prerogative, one that very few sovereign nations would ever seriously contemplate surrendering to a multinational global entity, even in limited degrees, as has been done in trade (eg, the World Trade Organization), or global security (eg, the United Nations). It therefore seems ironic that the Trump administration, largely driven by an economic nationalist agenda, would contemplate, even on an interim basis, changes to global taxation law that would affect leading US big tech companies.

Yet in spite of Trump’s America First rhetoric, he did authorize Treasury Secretary Steven Mnuchin to attempt to get the EU and the US on the same page on a global digital tax framework, in part as a means of curbing the practice of global tax arbitrage. It would make sense for all concerned to agree on a framework that provides some degree of tax uniformity.

In theory, that is; as with agriculture or oil, the tech business is a multinational one, but curiously the US Treasury remains loath to expose big tech to the same kinds of global tax pressures that Monsanto or Exxon regularly deal with today. Perhaps this is because these Silicon Valley behemoths are now among the most economically dominant and profitable US companies, as well as increasingly large sources of political funding for the parties (although more so Democrat than Republican at this juncture). That would explain why the Trump administration wants to keep as much of that revenue pie for itself.

But since so much of the future will be increasingly digitalized, something has to give. Indeed, in the new internet-based economy, there is much to be said for an approach to taxation that recognizes that revenues can be earned via online activities, irrespective of whether or not the company generating the profits concerned actually has a brick-and-mortar presence in that particular country.

Marshall Auerback, "The global economy," The News. 2020-07-03.
Keywords: Economics , Trump administration , Global tax , Tax uniformity , Economic nationalist , Global security , Global entity , Tax framework , Digital taxation