Taxes

Light from the US: taxing companies with pandemic super-profits

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The proposal of two American economists: a temporary tax on the giants that have dramatically increased their turnover.

Taxing companies with pandemic super-profits. As economies around the world prepare for the most acute recession in recent history, some companies in the “new economy” are experiencing unprecedented sales volumes. In the US, sales of medicines on Amazon have increased by 800% on a monthly basis. In Italy, Netflix had a 66% increase in users in one month. Zoom users have increased tenfold in the space of 4 months, leading to an annual + 150% on the stock exchange, with earnings exceeding 8 billion dollars.

In the United States, many are asking for the application of measures similar to those already announced by the Italian government, or aid to companies that allow the latter to “hibernate” by covering their current costs until the end of the lockdown. In a country traditionally hostile to public intervention in the economy, these proposals manifest a radical ideological change. When asked how to finance such aid, Emmanuel Saez and Gabriel Zucman, economists of the University of Berkeley, and Reuven Avi-Yohan, of the University of Michigan, give a radical answer: a temporary tax on the excess profits of companies that are earning due to the pandemic, Amazon and Google in the first place.

In the New York Times, Saez and Zucman explain why they redistribute the economic damage of the pandemic among companies. Against the “liquidationist” argument, according to which business failure is a natural selection that eliminates the most inefficient companies, they argue that the failure of profitable companies in pre-Coronavirus times destroys economic value. The loss of relationships with suppliers and customers, in which companies invest years, will have severe consequences on the economic recovery. In addition, the failure of large numbers of companies risks creating new monopolies and exacerbating economic inequality.

Putting the profits of industries that are earning from human tragedy has an illustrious precedent in the taxes introduced during the world wars. At that time, profits exceeding 8% of the capitalization rate of return were taxed at progressive rates of up to 80%. In the words of Roosevelt, the goal of these manoeuvres was that “no one in the US would become a millionaire thanks to the disaster of the war”. Like Roosevelt, Saez and Zucman propose a targeted tax to prevent someone from getting rich while the vast majority of people suffer a human and economic tragedy.

To those who object those taxing companies that make profits discourage investments by compromising economic growth, the two scholars reply that it would have no distorting effect. In fact, the tax would affect unexpected gains, as Amazon and the like have not invested in view of the pandemic. Saez and Zucman are careful to specify that such taxes should be temporary and that if they become a permanent post-Covid 19 feature, the effects on economic growth would undoubtedly be negative.

The authors do not comment on companies engaged in vaccine research and in the production of masks and protective clothing. They too, are not making huge profits. However, taxing them at higher rates discourages the search for a vaccine and reduces the sales volumes of masks and the like. A distinction must be made between basic necessities and luxury goods and services, such as those offered by tech companies.

The question, however, is what the new normal will be. Suppose we want an economic system ready to operate in a state of lockdown. In that case, we must not tax more the companies that are gaining from the lockdown—doing so disincentives the conversion to a pandemic-proof economic model. At the same time, this conversion favours monopolies and concentrations of economic power, as well as costing large sums of money. The question is, how much are we willing to lose, in terms of freedom of consumption, in order to be ready for when another pandemic happens?

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