Global influence and its power over the economy is precisely what governs American domestic politics. Yes, politics and economics are somewhat indivisible. But they’re not nearly as independent as that German cabinet minister said in an interview two weeks ago with the Washington Post’s Will Baude. In Europe, commerce is an everyday pursuit; in the United States, the expansion of commerce has increasingly been enabled by deregulation, tax breaks and executive largesse, and it would be hard to imagine markets in the U.S. using this growth in influence for political advantage.
To understand the influence that global economics exercises over the economy, we should take a look at the tax deal that Sen. Susan Collins, R-Maine, helped secure for the U.S.A.
For some time, there was a healthy debate over whether the U.S.A. ought to adopt a corporate tax rate of 20 percent or 24 percent, as the European Union called for in the early days of President Trump’s administration. Here in the U.S., on the other hand, both parties were racing to achieve the goal of a corporate tax rate of 20 percent. Both sides were working to the same objective, which was to reduce the U.S. tax burden and boost foreign and domestic investment and investments in the United States by raising the repatriation value of repatriated profits from somewhere in the mid-to-high tens of billions of dollars to something near $400 billion.
Some countries (Canada) managed to achieve substantial tax-reform plans with border adjustments and tariffs and deductible investments from total company profits in that manner. Some countries (the EU and others) simply made zero-based tax accounting provisions a requirement, but they only assumed that the U.S. would adopt a one-time transition tax — a 10 percent tax on companies’ foreign profits — while allowing them to continue to enjoy the depreciation of plants and equipment and growth in payroll and wages.
In an interview with Baude two weeks ago, the German cabinet minister (and European Commission President-elect) was quite candid about the political complexities and pressures associated with the agreement on a deal to strengthen multilateral tax administration agreements, which resulted in the repatriation value of repatriated profits being raised from 25 percent to 20 percent. He acknowledged that the move by the Trump administration was a double-edged sword — on the one hand, it created protectionist noise in certain corners of Europe, and, on the other hand, it provided the international community with a better global standard.
“The U.S. has been notably absent from this bargain,” the minister said, “and in the early days of Donald Trump’s presidency — he was building a wall, talking about Brexit and trade protectionism — he was isolating himself internationally.”
The New York Times’ David Herszenhorn reported that the agreement between the Trump administration and the European Union resulted from “unprecedented contacts,” including phone calls from Vice President Mike Pence to Jean-Claude Juncker, the European Commission president.
This is a great example of U.S. businesses and Republican Party interests being able to lobby freely in the international community for corporate tax reform — and then reap the fruits of their action when the coalition began to grow. Republican economic nationalism has been partly responsible for this, by pursuing lower corporate tax rates — both in the U.S. and abroad — to the detriment of progressive tax and regulation policy. The benefits of those conservative tax policies are quickly apparent. To be sure, there is tension between companies and governments on the level of what’s appropriate to the needs of companies and how far the tax and regulatory policy of a government should go in favor of those same companies. But lobbying and campaign contributions have long been the bread and butter of all levels of political government.
As the European political philosopher Michal Kalecki once noted, the U.S. is the “star of world liberal order,” and companies and politicians in other parts of the world — particularly in emerging markets and even in Europe — lean on the U.S.
The first question then — how do we look at the U.S. in the global sphere in order to adapt our economic policies and regulatory actions?