IMF Managing Director Christine Lagarde said the Trump administration’s $1.5 trillion tax cut could prompt other nations to follow suit, fueling a “race to the bottom” that risks hemming in public spending.
While the impact of the package passed by Congress in December is only just beginning to be understood, its effects are likely to include increased consumption and “hopefully the payment of higher wages,” Lagarde said on a panel at the Munich Security Conference in Germany on Friday. It also will fuel global inflation, she said, Bloomberg reported.
“What we are beginning to see already and what is of concern is the beginning of a race to the bottom, where many other policy makers around the world are saying: ‘Well, if you’re going to cut tax and you’re going to have sweet deals with your corporates, I’m going to do the same thing’,” Lagarde said.
The IMF chief’s blunt assessment follows an unusually public disagreement between the fund and President Donald Trump’s administration last fall over an IMF paper arguing that developed nations can share prosperity more evenly, without sacrificing growth, by shifting the income-tax burden onto the rich.
Competitive tax cuts risk holding back governments in spending on anything from defense and infrastructure to health and education, Lagarde said.
“You need public money,” she said. “The race to the bottom is not conducive to those investments and to helping prepare the workforce and our societies for this new economy of tomorrow.”
Neoliberalism
In other words: The IMF is worried the Trump tax cuts will strengthen the hand of the global capitalist class and condemn the workers of the world to an even more exploitative form of late neoliberalism.
But the dispute between the IMF and Trump administration points to an oft-overlooked irony in contemporary politics. In popular discourse, populism is associated with nationalism, and elitism with “globalism”. And not without reason: Generally speaking, in most democracies, the public has an easier time influencing policy at the national level than at the global one. National governments are more sensitive to popular sentiment than democratically unaccountable, international organizations like, say, the IMF.
And yet, populism in its ideal form—which is to say, a politics that privileges the wants and needs of ordinary people—is impossible in the modern world absent international cooperation and institutions of global governance. Nationalist movements that restrict the mobility of labor across borders—but let capital traverse the planet at will—pose no threat to the “global power structure” that (in Trump’s words) “robbed our working class”. And that is, of course, even more true of nationalist movements that slash corporate tax rates.
So long as the cosmopolitan Uber-elite can force nations to bid against each other for access to their capital, the power of any national public to exercise genuine self-rule will be limited. Right now, 10% of the world’s gross domestic product is hidden in tax havens. There is no way for any country to claw back its share of that wealth—or prevent their superrich from further shifting the burden of taxation onto the middle class through tax evasion—without international action to sanction tax havens, and keep track of the ownership of all the world’s financial assets.
Be Independent of US
Germany’s defense minister opened the major security conference by urging Europeans to rally together and become more independent of the United States.
“We want to remain trans-Atlantic, but we also want to be more European,” Defense Minister Ursula von der Leyen said.
Unease over Europe’s relationship with the US was apparent at the start of talks. Von der Leyen took subtle jabs at a shift in US policy under Trump, who has emphasized US military power in his approach to foreign affairs, but has blasted institutions such as the United Nations.
“Germany wants to strengthen the United Nations,” she said.
Trans-Atlantic burden sharing can’t just be investment “in the sharp end of the stick,” von der Leyen said, suggesting the US should dedicate more resources to development assistance.
“Our American friends too have a precious obligation that goes beyond military matters alone,” she said. At the same time, von der Leyen acknowledged that Germany continues to fall short on defense spending, which has been a source of tension with the US for years and has intensified under Trump.
