Peru & Cuba
In an age of hyperpartisan politics, the Biden presidency offers a welcome centrism that might help bridge the divides.
But it is also Biden’s economic centrism that offers a chance to cut through what has become an increasingly polarised approach to economic policy.
On the Republican side of politics, there is strong support for neoliberal economic policies – that is, economic policies that don’t just emphasise the importance of markets but represent a kind of free-market fanaticism. Ronald Reagan aptly expressed this view in his 1981 inaugural speech, in which he said “government is not the solution to our problem, government is the problem”.
On the Democratic side, the centrism of the Bill Clinton era (1993- 2001) has given way to much more left-wing policies. Indeed the democratic socialism of Bernie Sanders and Alexandria Ocasio-Cortez have been in the ascendancy for several years.
If you have any doubt about this, consider two facts.
First, Sanders came very close to being the Democratic Party’s presidential nominee in 2016. Second, the 2020 Democratic presidential primaries were dominated by candidates with similar views – such as Senator Elizabeth Warren.
Biden, of course, ran on a much more centrist economic platform.
This was perhaps best captured by his approach to health care – seeking to build on Obamacare (the Affordable Care Act) and insure more people, rather than adopt the “Medicare for All” policy advocated by Sanders and Warren.
In a whole range of areas Biden and his nominees for important cabinet posts have signalled the new administration’s economic policies will be responsive to the demands of the left but still be sensitive to the concerns of the right.
Who’s who in Joe Biden’s cabinet
One of the most important things the administration will do in its early days is to orchestrate a large spending package to help deal with the fallout of the coronavirus pandemic.
This will include spending on the vaccine roll-out, helping schools reopen, extending unemployment insurance and cheques to households.
So the spending package is likely to be huge. But the administration is not going to spend with complete abandon and without acknowledging constraints.
As Biden’s pick for Treasury Secretary, Janet Yellen, said in her confirmation hearing:
Neither the president elect, nor I, proposed this release relief package without an appreciation for the country’s debt burden. But right now, with interest rates at historic lows, the smartest thing we can do is act big. In the long run, I believe the benefits will far outweigh the costs, especially if we care about helping people who’ve been struggling for a very long time.
Sanders and others’ “Medicare for All” plan involves single-payer (i.e. the government) universal coverage and ending private health insurance. This would be similar to the approach in Scandinavia, Canada and Britain.
Biden has strongly resisted this on two fronts.
One, it would be incredibly expensive, costing US$30-40 trillion over a decade. Two, it would involve more than 150 million Americans losing their current insurance.
Instead, Biden wants to expand the Affordable Care Act with more incentives to push towards truly universal coverage. This is something Mitt Romney (the Republicans’ 2012 presidential candidate) might easily have proposed. Don’t forget that as governor of Massachusetts (from 2003 to 2007) he enacted a plan almost identical the Affordable Care Act – an idea championed by the conservative Heritage Foundation.
Biden’s tax plan certainly involves raising taxes but not to anywhere near the levels called for by the democratic socialist wing of his party. Nor will he embrace a wealth tax like Warren championed. Under her plan, people with assets of more than US$50 million would be taxed 2% of that amount a year (and 3% for more than US$1 billion).
But he does plan to raise the top income tax rate (on income more than US$400,000) from 37% to 39.6%. He will raise the flat 21% corporate tax rate introduced by Trump to 28%.
US companies will need to pay a minimum tax of 21% on foreign income – addressing the issue of companies avoiding taxes through legal set-ups in low-tax overseas jurisdictions (such as Apple in Ireland).
Biden will even introduce a tax penalty on companies that move jobs overseas if their products are sold in the US.
This is not a package any Republican administration would be likely to introduce. On the other hand, it falls dramatically short of what Sanders, Warren and Ocasio-Cortez want.
The Biden economic plan is responsive to the current – almost shocking – state of the US economy. His health care and tax policies are sensitive to concerns about inequality.
His approach acknowledges, rightly, that with interest rates at historic lows there is room for considerably more spending than in the past, despite already huge deficits. But it also acknowledges there are limits to what the government can or should do.
In that sense it is something even conservative Republicans ought to be able to live with – and common ground is something the US desperately needs to find.
Rhetoric plays an important role in tax debate and therefore tax policy. If your side manages to gain traction in the public imagination with labels such as “death tax” or “dementia tax”, you have gone a long way to normalising the labels and winning support.
Some truth underpins these particular labels — an estate tax is triggered by a person’s death, and the United Kingdom’s abandoned levy for end-of-life care would have been particularly relevant for dementia sufferers.
Nevertheless, these tags are essentially political messages and we should expect unbiased media to use neutral terminology. Fair reportage would not, for example, repeat the extreme libertarian claim that “tax is theft” — a baseless slogan incompatible with the rule of law.
However, both reputable media and politicians of every stripe invariably use the phrase “taxpayer money” to describe government funds, despite the phrase having no constitutional or legal basis.
This article argues that truth-based media should avoid the phrase, and progressive politicians should recognise they fall into a conservative trap when they repeat it.
Richard Murphy, one of the founders of the UK’s Tax Justice Network and author of The Joy of Tax, explains that “taxpayers’ money” is the money left in our pockets after we have paid taxes that are legally due. Money payable through taxes is the government’s property.
This is quite easy to prove — try not paying your income tax and see if the courts will enforce government property rights in that money.
Murphy also observes that “taxpayer” is typically understood as “income tax payer”, thereby implicitly preferring high income earners while excluding beneficiaries. But a goods and services tax (GST) ensures everyone is a taxpayer, and indirect taxes disproportionately affect the poor.
Similarly, at a local level, “ratepayer” has become synonymous with the propertied voice to which councils should pay heed, even though renters (rather than the registered ratepayer for a leased property) bear the effective burden of local rates.
If the government is the legal owner of its funds, then, does it hold tax revenue in trust for taxpayers? Not at all. Subject to the rule of law, governments can do what they choose with their money.
Self-appointed watchdogs such as the Taxpayers’ Union claim to bring government waste to public notice. Rightly so — as citizens, we should demand proper stewardship of government funds.
But our actionable right as electors is to vote a wasteful government out of office. The electorate as a whole, rather than an ideological interest group, determines the size of government we should have.
Unlike trust beneficiaries, we do not have an equitable interest in the government’s money. If it were otherwise, groups of taxpayers might have some claim on the government to spend or not spend its money in particular ways.
For example, paying taxes to fund belligerent activities is problematic for pacifists, notably certain religious groups. A Religious Freedom Peace Tax Fund Act, which has been regularly introduced to the United States Congress, would permit dissenting taxpayers to assign the defence portion of their taxes to supporting peace work and social services.
Proponents of the legislation have not sought to pay less tax than their fellow citizens but to direct how their tax contribution is spent. These attempts have failed, as they must do. Democratic political communities permit dissent, but nonconformism does not extend to directing how taxes should be spent.
In The Variorum Civil Disobedience (1849), a reflection on his imprisonment for failing to pay a highway tax, Henry David Thoreau recognised that an individual citizen can protest against government by refusing to pay tax (and accept the consequences), but they cannot treat the government’s choices in its expenditure as if it were a cafeteria. He wrote:
It is for no particular item in the tax-bill that I refuse to pay it. I simply wish to refuse allegiance to the State, to withdraw and stand aloof from it effectually. I do not care to trace the course of my dollar, if I could, till it buys a man or a musket to shoot one with — the dollar is innocent — but I am concerned to trace the effects of my allegiance.
Liberal democracies are based on some form of metaphorical social contract, most obviously manifest in the constitution. Under this arrangement, parliamentarians are elected representatives, not agents for particular groups.
Like any government that fails to comply with the basic values of society, groups that seek to control government expenditure outside the electoral process can be seen as bending, if not breaching, the social contract.
A progressive government should reject the suggestion that its funds are not its own to use as it sees fit for the betterment of society — as always, in accordance with New Zealand’s two fundamental constitutional principles of parliamentary sovereignty and the rule of law.
Kowtowing to a myth of “taxpayer money” may act as a handbrake on decisive action. We are taxed in accordance with statutory law. If Inland Revenue seeks to collect more from us than is due, we have access to various tribunals and courts.
These legal rules and processes determine what is mine and what belongs to the government. Broadly, we are free to deal with our own property as we see fit — and the government is too.
Media and progressive politicians should stop perpetuating the untruth that taxpayers retain some residual property interest in the taxes they pay. Taxpayer money is nothing more than their after-tax property and the government’s money is its own.
Jonathan Barrett, Senior Lecturer in Taxation, Te Herenga Waka — Victoria University of Wellington
When, in the midst of the pandemic, the Economic Society of Australia invited 150 of Australia’s keenest young thinkers to come up with “brief, specific and actionable” proposals to improve the economy, amid scores of ideas about improving job matching, changing the tax system, providing non-repayable loans to businesses and accelerating telehealth, two proposals stood out.
They were actually the same proposal, arrived at independently by two groups of “hackers” in the society’s annual (this time virtual) “hackathon”.
I was one of the judges.
The mentors who helped test and guide the proposals were some of the leading names in economics, among them Jeff Borland, John Quiggin, Gigi Foster, Deborah Cobb-Clark, Peter Abelson and John Hewson.
The proposal is to fast track the 15 or more projects already identified by the Australian Energy Market Operator as essential to meet the electricity grid’s transmission needs over the next 20 years.
Starting them immediately, when business investment is weak and there’s a need for jobs and governments can borrow at rates close to zero, will bring forward all of the benefits of being able to bring ultra-cheap power from the places it will be made to the places it will be needed as expensive fossil-fuel generators bow out or are out competed.
Judges Alison Booth, Jeremy Thorpe and I noted that policy hacks were the most useful where neither the market nor the government was getting the job done.
The proposal would help ensure renewables can connect to the grid, something “neither the market nor the government is managing to do quickly”.
A few weeks later Labor leader Anthony Albanese used his budget reply speech to propose the same thing – a Rewiring the Nation Corporation to turn the projects identified in the Energy Market Operator’s integrated system plan into reality.
Here is what is proposed in the winners’ own words:
Investment in new renewable generators in Australia sank 40% in 2019. A major factor holding them back is grid access. The best locations for wind and sun often have poor access to the cables that transport electricity to consumers.
Our near-term recommendation is to guarantee Project EnergyConnect, a 900-kilometre cable between NSW and South Australia due to begin construction next year. The network operators got approval in January, but there is now uncertainty over whether they will get the funding.
We propose that the two state governments agree to cover the shortfall between approved revenues and realised costs (up to a pre-determined limit) to ensure construction starts on time in 2021.
Medium-term, we recommend the Australian Energy Regulator conduct the regulatory investment test and revenue adjustment processes for all priority projects in parallel to condense approval timelines and that the Commonwealth and state governments underwrite priority projects’ early works.
This would allow service providers to commission new transmission lines sooner after regulatory approval.
Currently valued at A$20 billion, the Australian transmission network was designed for a centralised 20th century power mix and suffers from aging infrastructure.
The $6 billion upgrade we propose would have as its centrepiece 15 projects the Energy Market Operator has already identified as essential.
Fast-tracking these projects has the potential to generate 100,000 jobs, to bring about strong private investment in low-carbon power production, and to place downward pressure on wholesale power prices, producing $11 billion in benefits.
A national taskforce consisting of the department of energy and the market operator would oversee a project of a similar size to the Snowy Mountains scheme, which itself created more than 100,000 jobs during its lifecycle.
The government would procure the funds by issuing bonds, with recent rates indicating the yield payable will be less than the rate of inflation.
Firms that tendered for the work would be evaluated on their capacity to upscale production to meet milestones and on their plans to generate long-term, sustainable employment.
Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University