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What’s the best thing to do for an economy that shrank at an almost 5% rate in the first quarter? Tax the high profits of the companies doing well because of the coronavirus lockdown, a University of California-Berkeley professor says.
Gabriel Zucman, a liberal economist and author of a 2015 book on international tax dodging, said an excess profits tax would remove incentives for profiteering by companies.
“One of my main worries is that the crisis is reinforcing some of the key trends of the pre-coronavirus economy,” Zucman said during an online webinar Wednesday sponsored by Groundwork Collaborative, the Economic Policy Institute and Economics for Inclusive Prosperity.
Those trends, he said, include rising inequality and increased business concentration.
“The pandemic is almost tailor-made for these giant corporations and their shareholders,” Zucman said, with brick-and-mortar retailing closed, increased reliance on cloud computing and higher online socializing.
Zucman, an associate professor at Berkeley, is part of a new generation of liberal critics of laissez-faire capitalism. The foreword for his book “The Hidden Wealth of Nations” was written by Thomas Piketty, who, with Emanuel Saez, has been a leading critic of economic inequality in recent years.
Zucman’s prescription stands in direct contrast to ideas the White House has been floating for a next round of coronavirus relief. President Donald Trump has said he would like to see a payroll tax cut, which could free up cash for businesses, and liability protection for business owners as states begin to ease distancing restrictions.
“I’m not saying we won’t put more cash in, but I think we have to kind of switch gears and say to business and the workforce we will lower middle class taxes and business regulations and we’ll put in an infrastructure program and we will try to restrict liability issues,” Larry Kudlow, director of the White House’s National Economic Council, told reporters Wednesday.
Zucman noted that the excess profits tax is not a new idea, having been put in place in World I, World War II and in the Korean War.
“It’s a solution that has been used historically during periods of crisis,” he said. “The idea is you have some corporation that disproportionately benefits from the crisis, either because their competitors are shut down or because they exploit the crisis by hiking prices,” he said.
Suresh Naidu, an economics professor at Columbia University and a fellow at the Roosevelt Institute, said the excess profits tax could come in handy when budget deficit concerns return after the virus abates.
“It’s really important to put the taxes on the table, because once this is over, the austerity caucus is going to be back,” he said.
Zucman didn’t say how high the tax should be, but said the 1918 version applied a high rate to profits in excess of 80% return on capital.
Zucman also said the United States should make use of work-sharing, where two workers split hours part-time instead of one worker having a full-time job, as the economy comes back, with the government subsidizing the costs.
For example, a 10-person restaurant could hire all 10 workers back at half-time as it ran at only 50% of capacity instead of only hiring five, he said.
“Long-term unemployment is devastating psychologically and economically, so we need a plan to avoid that,” he said. “When work comes back, when the shutdown is lifted, work comes back and is shared equitably.”
But he said there was no point in reopening the economy until the coronavirus is under control.
“The case for reopening quickly is very weak, it doesn’t exist,” he said.
Jonathan Nicholson is a Washington-based journalist who has covered economic and fiscal policy for more than 20 years
