18 April 2021

Greg Jericho: “Since the 1980s, when Margaret Thatcher and Ronald Reagan, under the thrall of neo-liberalism, cut company tax rates in the UK and US, the mantra on company tax has been to cut and reap the benefits. The logic goes like this: cut company tax rates; multinational firms come to the country; economy booms. It’s the type of policy that always worked better in theory than reality. But cutting taxes is easier for governments to sell as doing something to spur investment than long-term measures such as education or infrastructure. It also seemed more proactive than acknowledging that when you have a heck of a lot of iron ore in a country with a stable and relatively corruption-free system of government then companies will come regardless of the tax rate. … But now the push is going the other way. The UK Conservative government has just moved to increase their company tax rate from 19% to 25% in April 2023, and US president Joe Biden has pledged to increase the US tax rate from 21% to 28%. … The reason for the reversal is the logic no longer works, even in theory. The Trump tax cuts did not lead to more investment; just companies having greater after-tax profits, and the US government having less revenue. And in our globally fluid financial system, companies have become experts at shifting profits to locations with lower tax rates, while not shifting production. So now a change has come. … [T]he race to the bottom has clearly failed, and the sensible policy work is now about undoing the errors of the past 40 years.“