Hi Eoin, I am shocked that the US is attempting to get agreement on a global minimum tax. If I replace Yellen's speech with any global industry the same reasons would be justified to fix pricing which is clearly illegal. Why is no one challenging the legality of this or at least criticizing the move based on this premise? Kind regards, TG

Eoin Treacy's view

Thank you for this email which may be of interest to the Collective. When it comes to agreements between countries there are few limits on what is possible given sufficient will. The barrier to agreement on taxation is probably lower than it is for incentives and supports because governments are broke and hungry for revenue.

Governments are curtailed from rising individual taxes or cutting back on social services because of the threat of social unrest. The rise of populism on both sides of the political spectrum is a direct consequence of the response to the credit crisis. It is the number one unintended consequence of pushing private sector debts onto unsuspecting populations. 

The USAs foreclosure crisis and the fiscal austerity Europeans lived means there is no tolerance for a repeat. The question of how to deal with people and companies that are way behind on their rent remains unresolved. The rationale for continuing to push the deadline is less compelling when herd immunity is close to being achieved. There is already some rumbling at the margin about what will happen when eviction prohibitions expire. That’s one of the primary reasons the Fed is reluctant to rush to raise rates. 
 
The basic rule of taxation is to take from those who have the means to pay. Corporations did visibly better than anyone else during the pandemic. They are prime targets for additional taxation. 
Europe has been quite active in attempting to force tax cohesion on small countries like Ireland and Luxembourg, with little to show for their efforts just yet. Meanwhile offshore locations like Switzerland, Singapore or the Cayman Islands are much harder to coerce.

The entire logic behind carbon taxes is focused on the same argument. It is corporations who will bear the brunt of these taxes. I got an email this morning from the California Public Utilities Commission telling me that I am due a refund because of the income received by the state from selling credits. What is not discussed is the price will likely increase to consumers because of these measures. 

This report from TaxJusticeNow.org is at the extreme of what the progressives are proposing so it is unlikely to be enacted. However, it highlights the fact that “middle class” workers pay the majority of taxes and the disquiet many voters feel at inequality. 

Inflationary cycles arise because of a confluence of factors. Everyone knows that if corporations have higher costs, they will pass them along to consumers. They will also attempt to optimise technologically and reduce worker headcount to be as efficient as possible. The taxation question is a symptom of a larger issue. There is a mountain of debt, rising liabilities that need to be paid for and reluctance among key stakeholders to foot the bill. That suggests we are at the dawn of a new inflationary cycle because it is the only solution that has a hope of working.