Two American surprises

Moisés Naím / El País

Dramatic international developments that affect us all are becoming more frequent. Some touch us directly and others reverberate around us. But the daily news leaves us with the feeling that we are in a time of great change.

In some cases, we don’t need the media to tell us about the magnitude and severity of change. We live them daily. The coronavirus is one example. It is inescapable, global and, in many ways, unprecedented. Another example is the record number of climate refugees who have fled their homes due to devastating wildfires, hurricanes, and cyclones. Heat waves with temperatures that in the pre-industrial era occurred every 50 years, now occur every ten years.

But the changes that affect us are not only due to climate change and the pandemic. Global politics is also catching us off guard. Nobody expected that a mob of Donald Trump’s supporters would storm the US Capitol or that the US withdrawal from Afghanistan would be so ineptly handled by the Biden administration. On the other hand, frictions between the United States and China have become so frequent that it is now normal to hear that a cold war is already underway between the two superpowers. Global warming is changing the world, but so is geopolitics.

In addition to these pressing and much discussed trends and events, there are others that – without being so visible – will have enormous consequences. Two are worth noting.

One of the under-reported trends has to do with the demographics of the United States: the current growth rate of its population (0.35% per year) is the lowest in 122 years. This is partly due to America’s rapidly falling life expectancy. This decline actually preceded the Covid-19 pandemic, the disease that has already claimed the most lives in United States history. These increases in mortality mainly affect the poorest citizens, specifically workers and, in particular, the 52% of the population who do not have a college degree. This inequality has been exacerbated by Covid-19. From the outbreak of the pandemic in 2019 to 2020, life expectancy among Hispanics and African Americans in the United States fell three years. Among the white population it dropped 1.2 years. These changes in American demographics will have a huge impact on the politics and economy of the whole country.

One of the areas most directly affected by this demographic shift will be fiscal policy: who pays taxes and at what rate, as well as what programs the government will spend those tax dollars on. America’s long-running tolerance for its high levels of economic inequality is finally ebbing, and Joe Biden aims to reduce the gaps even more. To do this, he plans to take advantage of the state’s ability to collect taxes and to use public spending to catalyze social change. An example of this is his decision to increase the corporate tax rate on large multinational corporations. In addition, he decided not to do so unilaterally, but to create a broad coalition of countries that would act together.

The objective of making this an international initiative is to prevent companies from moving their operations abroad to reduce their tax bills. The purpose is to stop the “race to the bottom” among countries which compete in their bid to attract foreign investors by lowering their taxes The proposal by Biden and his Treasury Secretary Janet Yellen is to impose a global minimum tax of 15% on all companies with revenues above $890 million.

According to the Organization for Economic Co-operation and Development (OECD), large multinationals have been able to avoid taxes for amounts ranging from $100 million to $240 million each year, that is, 4% to 10% of their total taxes. Between 1985 and 2018 the tax rate paid by the largest multinationals fell by half, from 49% to 24%. In 2017, which is the last period for which there is reliable data, multinationals placed 40% of their earnings, approximately $700 billion, in tax havens where they paid little or no taxes.

With this agreement, the United States managed to get 132 countries to commit to charging the global minimum rate. The countries that participate in the agreement represent more than 90% of the global economy, which means that companies that try to move their profits to other countries to avoid paying taxes will have very few options.

It is not clear whether this agreement will survive, at least in the form it was originally put forward. Presumably, companies will use their enormous financial resources and political influence to bring the final agreement into line with their interests. But in any case, it shows that international cooperation is possible.

And that’s a change worth celebrating.

Twitter @moisesnaim