Raising the corporate tax rate is the best option. In the first decade after World War II, taxes on individual incomes and social insurance receipts made up about 50 per cent of federal tax revenues, while corporate taxes accounted for another 30 per cent.
These marginal rates are what guide corporate investment decisions. Under the current US tax structure, corporations have much stronger incentives to pursue excessive automation than to employ, train, and properly pay workers. Another major contributor to this trend has been depreciation allowances, which enable corporations to deduct investment expenditures from their taxable income.
In theory, the idea is simple. Ideally, tax rates would be hiked substantially in Ireland, Luxembourg, Switzerland, Panama, the British Virgin Islands, and other jurisdictions that allow corporations to evade their tax obligations through “arbitrage.” If US policymakers lead with enough conviction, other countries will be forced to follow. Biden’s tax plan already contains provisions to prevent tax inversions and includes proposals for limiting tax deductions for multinationals engaged in tax arbitrage.
In addition to subsidising research and development, the state can do more to help increase the supply of well-trained engineers, scientists, and skilled workers, and to facilitate the diffusion of technological know-how.With a more level playing field between capital and labour, companies can be induced to develop and adopt new technologies that increase worker productivity, rather than continuing the trend of excessive automation that has shaped the US economy for the past two decades.
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