Donald Trump has unveiled plans to slash US taxes, Jeremy Corbyn presents his plans for the most socialist agenda to hit the political mainstream in decades, and Uber claims it is not part of the gig economy – there is a theme running through all of this.
One of the odd aspects of President Trump’s tax plans, just announced, is that they involve low income earners paying more tax. It is strange indeed; he says that the US is broken, and that he wants to support ordinary working families, yet he plans to cut the taxes paid by the richest, and increase tax at the lowest threshold.
The idea is that by cutting taxes, US firms will bring their cash back home – well this may well happen – and also, by cutting taxes, people will have incentives to work harder. President Trump also wants to see the tax system simplified.
The US tax system is indeed incredibly complex, and some simplification would be good. It is just that at the moment, the lowest US tax rate is 10 per cent, under the Trump plans, the lowest rate will be 12 per cent.
There is certainly a problem relating to the cash piles pertaining to certain US companies – Apple, for example – and if Trump’s plans to cut corporate tax from 35 to 20 per cent go ahead, there probably will be a flow of cash into the US. But the fact is, in the US, capital to GDP – represented by corporate profits – has been rising and is close to an all time, while labour’s share of GDP, as represented by wages, has been falling. It is hard to see how lower corporate tax can solve this problem. In fact, there is only one possible fix, and that would involve some kind of global corporate tax, not an easy thing to arrange for sure – but in an era of creeping nationalism, the odds of that happening seem to be diminishing.
There is a wider point, and beyond that a wider point still.
The Trump tax plans are not designed to support the poorest people in America, they are designed to help the Middle Class, those very people who feel so disenfranchised by the changes that have been creating such distortions with the economy.
Meanwhile, in the UK, Jeremy Corbyn talks about supporting the many not the few. Contrast those words with what Peter Mandelson, who once said, “we have no problem with people becoming filthy rich – providing they pay their taxes.”
So that’s the big shift in the UK, a reaction against trickle down economics – the idea that the way to create wealth is to incentivise people at the top, and some of the wealth they create will trickle down into the pockets or ordinary folk. The Trump tax cuts have trickle-down economics written all over them, Corbyneconomics is at heart the opposite.
The big irony, is that the real casualty of trickle down economics has been the US itself. Despite seeing GDP per head rise enormously over the last few decades, median wages in the US are no higher today than 40 years ago. In the UK, and after tax and tax credits, we have barely seen any rise in inequality at all – although inequality of wealth is a much bigger issue.
It partly stems back to the 2008 finance crisis, and the quantitative easing that followed. It all smacked of subsidies for the rich, penalties for the poor – that may or may not be an accurate description, but that is how it felt.
But technology lies at the core of this. Studies show– with research from Ball State University in the US, the most often cited – that technology has had a far greater impact on inequality than globalisation.
See also, The problem of technology and inequality
Meanwhile, Uber, still licking its wounds after the decision by (Transport for London) TfL not to renew its licence in London, says it is not part of the gig economy.
Dinah Rose QC, representing Uber, told a tribunal that: “Potential drivers or users are under no obligation at all to use it and if they don’t use it they don’t have to pay Uber anything at all.”
And when you look at Uber from one point of view, what a great idea – it’s way people can top up their income, from time to time, when they need to. What can be wrong with that?
It is just that studies show that Uber workers, after taking into account the time they spend waiting to provide a lift, say they receive less than the minimum wage. Management by algorithmn can feel tyrannical, anecdotal evidence suggests that Uber drivers are under enormous pressure to comply with a performance rating system that is not always appropriate.
We are entering the era when people, might have multiple careers, all running simultaneously. This is an opportunity, but it comes with a huge downside, and both Trumponomics and Corbyeconomics are just different ways of grappling with the huge social changes that are occurring.
But no real fix will be found, until we are honest about the underlying cause.