Why a pro-worker president would welcome France's tech tax

There's nothing populist about helping corporations shelter profits

President Trump.
(Image credit: Illustrated | Chung Sung-Jun/Getty Images, da-vooda/iStock, cundra/iStock)

On Thursday, the French government decided to crank up taxes on globe-bestriding tech giants like Amazon, Apple, Google, and Facebook.

Here in America, the Trump administration responded by launching an investigation that could end in new tariffs against France. Seeing as most globe-bestriding tech giants are based in the U.S., the administration is upset that France's new tax "unfairly targets American companies."

The move was supported by Senators Chuck Grassley (R-Iowa) and Ron Wyden (D-Ore.), who put out a statement saying, "The digital services tax... will cost U.S. jobs and harm American workers."

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The problem is, coming from a president who campaigned on standing up for everyday workers while railing against global elites, this is an utterly backwards and contradictory response. The major players of Silicon Valley are at the forefront of a growing global problem, in which powerful corporations play national tax systems against each other to shelter their wealth and profits. And it's a problem no country is going to be able to solve on its own.

Specifically, what France just passed is a 3 percent tax on the total domestic French sales of certain companies. To qualify for the tax, a company will need to make a global annual revenue of at least 750 million euros ($844 million in U.S. dollars), with at least 25 million euros ($28 million U.S.) generated in France specifically.

The idea here is that tech companies in particular are able to avoid paying much corporate tax in countries where they do a lot of business — through digital ads, selling user data, and providing platforms that link up customers with other businesses — simply because they don't have a large physical presence there. Instead, they adjust where they're headquartered on paper in order to pick and choose the lowest tax rates for themselves. "The European Commission estimates that on average traditional businesses face a 23 percent tax rate on their profits within the [European Union], while internet companies typically pay 8 percent or 9 percent," the BBC reported.

The tax is projected to hit around 30 companies based in a number of different countries, from India to China to Britain. But given that America is the center of global capitalism, most of the firms will be American. And that's what caught the White House's ire.

"[Mr. Trump] has directed that we investigate the effects of this legislation and determine whether it is discriminatory or unreasonable and burdens or restricts United States commerce," U.S. trade representative Robert Lighthizer announced. If he determines the answer is "yes," the law would allow Trump to retaliate with tariffs.

This is a destructive response in several ways. France is fighting a problem that bedevils the U.S. as much as anyone. Apple, for example, used Ireland as a tax haven to hide about $128 billion in profits from the American government, accumulated roughly between 2007 and 2017. And while France is going after the tech sector specifically, plenty of more traditional companies also indulge in the practice when they can. Everyone from Nike to Uber to the pharmaceutical company Allergan have all avoided taxes by transferring trademarks, patents, and other assets to shell companies located in international tax havens like Bermuda and Grand Cayman. Economist Gabriel Zucman estimates that corporations and the wealthy have protected a grand total of $7.6 trillion from taxation across the globe this way.

It's not exactly that this behavior makes public investment harder: We're talking about countries that issue their own currencies here. But taxes prevent the wealthy from extracting money from the rest of the economy, so tax dodging like this reduces investment, jobs, and wages for everyone else. These vast hordes of cash also give companies enormous political clout to further shape taxes, spending, and regulation in their preferred direction.

Whether Trump likes it or not, there is no unilateral or purely national solution to this problem. It will be solved by international cooperation and coordination, or it won't be solved at all. The European Union has tried to come up with its own fix, but so far the effort has run aground because some of the Union's member nations are the tax havens who benefit from the status quo. The Organization for Economic Co-operation and Development (OECD) is putting together its own proposal for coordinated international taxation of tech giants, hopefully to be ready in 2020.

Lighthizer added that the U.S. still ostensibly supports the OECD project. But France's new tax is pretty obviously an effort to push the international community to finally get serious about exactly that kind of solution. "Either countries follow their lead and implement their own, independent laws, limiting France's exposure," the BBC continued. "Or the move gives added energy to calls for a multilateral agreement on how digital firms should be taxed globally, putting an end to the squirreling-away of vast sums of money made by internet giants." Indeed, other countries are already reportedly prepping their own versions of the tech tax, including Spain, Italy, Britain, India, Japan, and Singapore.

Really, the Trump administration should be cheering these projects on. At most, they could argue that France's tech tax, while of symbolic import, is not the ideal practical fix. But threatening France with tariffs as retaliatory punishment is another thing entirely. Trump's insistence on viewing this as an attack on America by France completely obscures how the tax cracks down on the very global elites Trump claims to oppose — and rebounds to the benefit of citizens and workers everywhere, including in America.

Nor is this the first time Trump's nation-vs-nation approach to international trade has wound up shielding and protecting global elites.

Back in June, Trump ripped into E.U. antitrust commissioner Margrethe Vestager because of fines she's leveled against the tech giants for tax avoidance and anticompetitive behavior. "She's suing all our companies. We should be suing Google and Facebook," Trump continued. It was a bizarre mobster mentality that implicitly acknowledged the harm these practices do in both Europe and America, but insisted that somehow only America should punish these companies because they're "ours."

Meanwhile, Trump's trade war against China — ostensibly carried out for the sake of everyday U.S. workers — is pursuing changes that will benefit no one but wealthy U.S. shareholders. That elites across multiple countries could have more interests in common with each other than with workers in their own countries — or that workers might similarly share interests across borders — has apparently never occurred to our president.

If Trump's populist bonafides were genuine or coherent, he would welcome international efforts to rein in the wealthy and corporations whose power is no longer housed in any one nation, but is very much international in scope.

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Jeff Spross

Jeff Spross was the economics and business correspondent at TheWeek.com. He was previously a reporter at ThinkProgress.