Nobel-prize winning economist Joseph Stiglitz on how to stop inequality and tax avoidance
One of the most memorable images from the 2016 US election campaign was of Donald Trump celebrating his delegate victory with McDonald's – he's eating a Big Mac and fries on his luxury private jet.
The flamboyant wealthy businessman, now US President, managed to convince ordinary Americans, discontent with the power of big corporations and globalisation, that he was a man of the people.
"They [Americans] are going to be hurt a lot by his policies," Columbia University professor and Nobel-prize winning economist Joseph Stiglitz says. (He was a 2001 winner of the Nobel Memorial Prize in Economic Sciences).
The former World Bank chief economist and adviser to former US president Bill Clinton is bold and unorthodox, and that's part of his charm.
He isn't afraid to advocate ideas that challenge conventional thinking and to question the power of corporations.
When I ask him about how to fight global tax avoidance, he proposes a global minimum tax rate of 20 per cent.
And on the issue of climate change, he suggests that if rich high-emitting countries such as Australia and the United States don't eventually come to the table, companies should be subject to a cross-border carbon tax.
It's not that Professor Stiglitz is anti-business, but rather that he wants everyone to share from advances in technology and economic growth.
"One of the reasons for the anti-globalisation movement is that people realise that the system of globalisation has worked very well for very rich people and for the corporations, but not for individuals," he says in an exclusive interview with Fairfax Media.
A worsening divide
Trump and Brexit were a rebellious response, he says, from people who feel they have been left out. But he worries their fates will now worsen.
The general shift to right-wing leaders globally is already resulting in protectionist, anti-globalisation policies. And those policies, he says, unfortunately, are most damaging to the poor.
This is a key topic explored in Professor Stiglitz' book: Globalization and Its Discontents Revisited: Anti-Globalization in the Era of Trump.
But making the Trump-loving population understand their deteriorating plight is a hard feat.
"There's a view that they don't really look at the policies," he says. "They only look at; 'does he seem to care about us'? As a great actor, he has persuaded them he cares about them, even as he picks their pockets."
According to Washington-based Economic Policy Institute, which maps inequality across the US, between 1979 and 2007, the average income of the bottom 99 per cent of US families grew by 18.9 per cent, while the average income of the top 1 per cent grew over 10 times as much – by 200.5 per cent. It's at levels not seen since the late 1920s.
"You have a lot of inequality and inequality affects the politics; then they [Trump's administration] pass laws that reinforce inequality," Professor Stiglitz says.
He gives the example of the Republicans push to get rid of inheritance taxes. Known in the US as the estate tax, it taxes the right of an individual to transfer property at their death, which according to the IRS, now only falls only on those with assets worth more than $5.49 million and double that for couples.
"We're talking about a few thousand families with lots and lots of money," he says. "The Republican party is coming out on the side of the very, very wealthy."
Tax rates and incentives can also exacerbate divides.
Trump has proposed to cut America's company tax rate from 35 per cent to 15 per cent.
In a world of greater tax competition where countries like Ireland and Singapore offer 12.5 per cent and 17 per cent rates respectively, companies say if the US doesn't cut taxes, they will move offshore.
"I think it's largely a hollow threat, but not completely," Professor Stiglitz says.
"The first tax reform we need is to get a global agreement to end the tax competition race to the bottom and make sure that there isn't massive tax avoidance. But obviously this isn't the corporate agenda- they like this race to the bottom."
Despite the OECD/G20 global plan against profit shifting, known as Base Erosion and Profit Shifting (BEPS), he says multinational tax avoidance still occurs.
"We haven't eliminated the tax havens," says Professor Stiglitz who two years ago help set up the Independent Commission for the Reform of International Corporate Taxation, ICRICT, to fight for changes that reduce inequality and strengthen human rights.
"The fiscal paradises are still there. Panama is still there. Money laundering is still going on."
While BEPS eliminated some of the absolutely worst abuses, it did not eliminate many of the other bad abuses, he says. It put an end to no-tax jurisdictions, but it didn't end very-low tax jurisdictions.
He notes companies including Starbucks and Apple are still engaging in the legal practice of profit shifting to lower-tax nations.
The less revenue we raise from corporate income tax the more revenue we have to raise from individual income tax. "So, in a way you're shifting taxes [the burden] from corporations to individuals," he says.
Aside from BEPS, there's also been unilateral moves by governments – including Australia's – to try tax multinationals.
Tax experts are warning that once there's a share of the pie to tax, there will be more disputes between governments about who gets what share of that pie.
Apple's spat with the European Commission is a case in point, and US Treasury appears to be backing Apple boss Tim Cook's position that its US income.
Could this result in tax revenue wars? "That could happen if we don't get more cooperation," Professor Stiglitz says.
His solution is a global minimum corporate income tax of 20 per cent and limiting tax breaks to rare exceptions.
"I would not want to say there would be no exceptions – for example, the global community could get together and say, 'it's very important for us to encourage research in infectious diseases and give encouragement through the tax system – but basically there would be a framework that says, 'no you can't engage in tax competition through the patent box or anything'."
GFC Mark II?
The same system that has allowed zero tax rates for decades also enabled the Global Financial Crisis.
Professor Stiglitz says the financial sector never paid for the economic damage – which he estimates amounts to $US5 to $US10 trillion, and that's before the human toll is taken into account.
"They paid fines but those fines were minuscule compared to the damage that they [the financial wrongdoers] have done to our economy. [On top of that], there's he damage to peoples' lives, the loss of homes, the loss of families and the loss of jobs. It's just been a disaster.
And while there should be individual culpability, those in the big end of town escaped prosecution.
"Nobody at Goldman Sachs did the misdeeds even though misdeeds were done," he says. "Nobody at Lehman Brothers did the misdeeds even though misdeeds were done. The financial sector behaved badly but nobody did it."
The economy is "far from repaired. We don't have a robust financial system. The system is betting that we won't have another big shock. It's betting it can manage small-and-medium-sized shocks. But we know that on occasion, there's big shocks. And when the big shocks come, they know we will bail them out again."
The economy is also at risk from the impacts of climate change. Australia is a nation that went down the path of considering a carbon tax, but then retreated following a massive campaign from big business.
And in the aftermath of Trump's withdrawal of the US from the Paris accord, Professor Stiglitz, can only hope this is a "passing phenomena".
"We will have an election in 2020, and we will rejoin in 2021 – that's my hope."
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