Friday, December 3

The business plot to torpedo Biden’s plan | Business



I am not one of those progressives who believe that corporate greed is the root of all evil. It is the root of only a few evils; There are other dark forces, especially white nationalism, that beset the American body politic. But corporate money is undoubtedly the villain behind the most recent obstacle to President Biden’s program: Senator Kyrsten Sinema’s opposition to the repeal of Donald Trump’s big corporate tax cut in 2017. At last and last. After all, Sinema, who was in the House of Representatives at the time, voted against that tax cut. And he attacked her the following year, in his election campaign for the Senate. Given that the corporate tax hike enjoys overwhelming public support, it is difficult to find any reason for the senator’s change of mind other than strong pressure from corporations against the Build Back Better plan.

It is a disturbing story. But here’s what they need to know: While Trump’s tax cut was bad and should be repealed, right now it’s not essential that we recover lost revenue. If the key elements of Biden’s program – investing in children and protecting the planet from climate change – have to be paid for in part through debt, no problem. It would certainly be better than to stop making those investments.

Regarding the tax reduction: the Tax and Employment Rebate Law was sold through claims that the reduction in corporation tax would induce companies to repatriate the money they had invested abroad, which would cause a large increase in business investment which in turn would increase productivity and wages. It was a slightly more credible tale than the usual justification for tax cuts: the claim that it will give the already wealthy an incentive to work more. But none of that happened.

On paper, the tax cut did appear to cause a repatriation of money to the United States, albeit for a short time. For a few quarters after the downgrade, the multinationals declared that their overseas subsidiaries were divesting and sending their profits to the country by increasing the dividends paid to their parents. But it was a temporary incident, not a sustained change in behavior. And there is no indication that the tax cut led to an increase in business investment in the United States, beyond what would be expected given the economic situation.

The most plausible interpretation of the data is that lowering corporate taxes has had no economic effect. Although companies claim to have invested large amounts abroad, this is largely an accounting fiction perpetrated to shift reported profits to low-tax jurisdictions such as Ireland. The tax cut in the United States reduced the incentive to sustain that fiction, so that some of the money went back to the parent company’s books. But nothing real actually happened. So Trump’s tax cut was the latest in a series of gifts to the rich that were sold under false pretenses. And Sinema should be ashamed to help business interests perpetuate this scam. That said, the Biden program does not need the income from a corporate tax hike.

The budget resolution that will advance the program, if Sinema and Senator Joe Manchin can be convinced, does not require all investments to be paid for in the future. In fact, it allows a debt of up to 1.75 trillion dollars. And if the opposition of the corporate wing of the Democratic Party – can we stop calling them moderates? – prevents raising taxes, it is better to go into debt than stop investing.

Should we be concerned that an increase in debt threatens America’s solvency? No. The interest rate on long-term federal debt is only 1.65%, so even if we add 1.75 trillion to the debt, annual interest expenses would increase by only about $ 30 billion. or 0.15% of gross domestic product, a negligible percentage. And even this calculation exaggerates the true debt burden, which should be calculated using the real interest rate, that is, adjusted for inflation, which is negative.

What about concerns that deficit-financed spending could turn out to be inflationary? I insist, it is important to do numbers. If the United States did end up increasing its debt by 1.75 trillion, it would be over the course of a decade, not a single year, and the Congressional Budget Office projects total GDP in the next decade to be $ 288 trillion. So even though it may seem like we are talking about huge deficit spending, the additional deficit would be only 0.6% of GDP, which is simply not that bad.

In fact, given these calculations, you might wonder why Biden has ever wanted to raise taxes enough to fully fund his program. The answer, I think, is more related to politics than economics: it was supposed that if he launched his plans as deficit-neutral plans, it would reassure those politicians who have not caught up with current thinking. conventional economy, and they continue to see deficits as a major threat.

However, at this point, it seems that, if it is reached, the final budget agreement will have to involve considerable indebtedness. And that is not bad. We can deplore the corporate clout capable of blocking some justified tax increases, but going into debt to invest in the future is not bad in itself. Let’s see, companies do it constantly, so the Democrats should dare.

Paul Krugman He is a Nobel Prize in Economics. © The New York Times, 2021. News Clips translation.

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