Considering the current wave of rightwing, nationalist movements in Europe, the United States and other countries throughout the globe, we thought it would be an interesting exercise to take a quick look at the relationship between tax and economic nationalism in many of its guises.
According to Michael Croker, a Tax Leader for Chartered Accountants Australia and New Zealand (CA ANZ), in this day and age, practitioners operating in the tax industry “must also monitor the rise of tax nationalism, a subset of economic nationalism” where “there are no textbooks [or] rules,” but only “a bewildering mix of good cop, bad cop tax policies.”
Let’s see what has been in the news for the past several months!
European Powers Fight Economic Nationalism
Back in January 2018, prior to a Trump visit to Europe, French President Emmanuel Macron said, “We have a situation where people are being told, on social and financial issues, that the answer is to do less, to cut our taxes, there is no limit, it’s a race to the bottom.”
“If we aren’t able to agree a standard of international cooperation, we will never convince the middle class, the working class that globalization is good for them,” he added.
Germany’s Angela Merkel also said, “We are seeing nationalism, populism and in a lot of countries a polarized atmosphere…We believe that isolation won’t help us. We believe we need to cooperate, that protectionism is not the answer…Have we really learned from history, or haven’t we?”
Is Brexit Embracing Economic Nationalism?
A recent KPMG survey of about 1300 executives has shown that one of their main concerns relates to economic nationalism.
As explained by The Guardian, “Two-thirds of UK CEOs said they were most worried about the growing use of protectionism, which includes measures such as tariffs and quotas on imports, compared with just over half of their international counterparts.”
Bill Michael, KPMG’s UK Chair, said, “If world trade doors continue to close, there will be an inevitable impact on global growth. This persistent retrenchment is of huge concern to the business leaders I speak to.”
Does Nationalism Hinder Redistribution?
As reported by Lee Drutman for Vox, Israeli economist Moses Shayo of the Hebrew University of Jerusalem argues “high levels of nationalism undercut support for redistribution.”
More specifically, Shayo says that members of the lower class will call for greater redistribution and elect leaders who seek great equality if they identify based on their class.
However, taking into account the effect of group think, lower class individuals might identify more with the nation in the case in which nationalism is more prominent than class.
Hence, says Shayo, a stronger and more visible “national identity means less weight on class issues and less support for redistribution,” which in turn means that, in a highly nationalist country, the lower classes are far poorer than the rich.
Drutman, using statistics in a 2016 survey ran by the Democracy Fund Voter Study Group, supported Mayo’s findings by looking at answers provided by individuals who voted for either Donald Trump or Hillary Clinton.
Drutman shows that, regardless of income, the most nationalistic on both sides expressed greater opposition to increasing taxes on the rich.
He concludes that, despite the difference only being between 10 to 12 percentage points in all categories, “within each income group, but especially among the under-$40,000 respondents, the most nationalistic respondents were notably less supportive of taxing the rich, controlling for their vote,” and, therefore, “high nationalism appears to dampen support for redistribution.
Digital Tax & Economic Nationalism
More and more countries, both in the developed and developing world, have moved to implement a tax on digital revenues, which has affected multinational companies like Amazon, Facebook, Apple, Google, Netflix and others.
As explained by Croker, old school economists would define digital taxes as “unilateral tax measures [that] increase supply costs to those markets and potentially adversely impact economic development and consumers.”
On the other hand, Croker says, perspectives are shifting to a place in which “our appetite for all things online is making demand for digital products and services inelastic, and taxing revenue streams is simple and effective.”
Europe has seen vibrant discussions over the implementation of a digital tax with countries such as Spain, Germany, France and Italy looking to target multinational companies’ revenues.
Opposition to this plan, of course, has been staunch with a myriad of companies and civil society actors voicing their concerns over this initiative.
One problem Croker believes might arise from this increased preference for digital taxes is that, “unlike income taxes which generally trigger foreign tax credit entitlements, countries which embrace new turnover-type taxes can create double taxation scenarios outside the current purview of tax treaties.”