The erosion of our tax base
When I interviewed Douglas Carswell MP a few weeks ago, he said that one of the things that would most affect the future of government would be the shrinking of the tax base. Over the last few years, the huge rise in the volume of new labour coming in to the global market has pushed down real wages and cut the degree to which governments in the West can force populations to finance bloated states.
In the past that might not have been an insurmountable problem. Low wages tend to mean high corporate profits, so a falling tax take from labour should just mean a higher tax take from capital.
Unfortunately, that’s not how it works anymore. As we see from the behaviour of the likes of Google, Starbucks and Amazon (see my colleague Tim Bennett’s video on the topic), globalisation, alongside the fact that the value of big companies rests as much in intellectual property as anything else, has also allowed the big multinationals to shift profits around and between countries specifically to avoid paying corporation tax of any kind. And very successfully too. At the international level it appears to have become all but impossible to make traditional tax policy work.
• Read the full editor’s letter here: The erosion of our tax base.