The Science Survey

A Tax On The World’s Poor

The Global Consequences of President Trump’s Tax Reform

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A Tax On The World’s Poor

“The United States ought to remain committed to our values, even in other parts of the world,” said Ana Diakolios ’20.

“The United States ought to remain committed to our values, even in other parts of the world,” said Ana Diakolios ’20.

Chloe Frajmund

“The United States ought to remain committed to our values, even in other parts of the world,” said Ana Diakolios ’20.

Chloe Frajmund

Chloe Frajmund

“The United States ought to remain committed to our values, even in other parts of the world,” said Ana Diakolios ’20.

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Africa is on the cusp of a revolution. While the populations of America, Japan, and all of Europe are set to shrink with aging workforces, the UN estimates that the world’s poorest countries will see their populations dramatically expand, tripling from from less than one billion to more than 3.2 billion by the end of the century. By 2050, Nigeria will surpass America as the third most populated country, making up more than a third of the world by 2100.

With growing populations comes a tremendous opportunity for economic growth, but only if the economy and government spending programs can expand proportionally. Yet, though tens of millions of young workers enter Africa’s workforce every year, African countries lack adequate investment and new business creation, causing youth to disproportionately fall into unemployment. More than 60% of Africa’s unemployed are youth, and in major economies like South Africa, more than half of all youth unable to find a job. By 2040, the UN estimates that Africa will face a shortfall of more than fifty million jobs. Even when African youth are able to find employment alternatives, the options are dire, with most pushed into the informal economy. In this unregulated sector, workers are not paid a consistent wage or subject to labor regulations, doing day to day work and trying, but often failing, to provide for oneself.

The solution must involve investment. African economies cannot grow themselves out of poverty, with corrupt governments, a lack of adequate capital, insufficient worker protections, and a host of other barriers to economic development. The International Monetary Fund estimates that half of all of the economic growth in Africa over the last two decades has come as a result of foreign investment from larger countries like the United States, whose businesses can expand opportunity, open up new factories, and help transform economies to become more industrialized. Furthermore, these businesses tend to pay higher wages, as they allow subsistence farmers and informal workers to find a place in more profitable industries.

Yet, at a time where investment is critical, with population growth creating an increasingly dire need for new jobs, the Trump administration has created one of the worst business climates for Africa seen in the twenty first century. This is because the Trump administration’s landmark tax reform cut corporate tax rates in the United States, creating a comparative incentive to do business here rather than lower taxed, developing economies. Furthermore, the Trump tax bill included special tax incentives for American corporations to end investment  projects in Africa, allowing for businesses who pull out their foreign investments to be taxed at a lower tax rate.

As a result, at the crucial time when investment is most important, Africa has faced a devastating shortfall. The UN reported in October 2018 that global foreign investment fell by 43 percent, its lowest level since 2005, specifically because of Trump’s tax reform. This decline in investment was attributed to major American corporations pulling out of their business projects in developing countries. For the first time since the early 2000s, more investment went into the United States than out of it.

Africa has shouldered most of the burden of this declining investment, with economic growth falling to a seventeen year low this year.  The two years after Trump signed his new tax plan have been two of Africa’s worst years of growth in the last two decades. African economic growth after Trump’s tax plan was half of what it was in the preceding decade, and for the first time ever, developing countries are not developing faster than the rest of the world.

“This is the real paradox of ‘America First’ policy making,” said Julia Haberfield ’19. “It may sound attractive to bring back American jobs and manufacturing and cut taxes to help out ‘our’ businesses, but too often we forget who this will affect.”

For every businesses bringing jobs back into America, there is another country, often much poorer, losing jobs. With America’s economy booming and nearing full employment, developing countries need these jobs far more.

“We should not put the marginal benefits to our country’s people over the unemployment and abject poverty of needier countries,” said Ana Diakolios ’20.

The American government does exist for American citizens; it is enshrined in the social contract that Enlightenment era scholars envisioned. Yet, there comes a point that we must consider how our country’s policies, as a global power, affect the world’s most poor and vulnerable.

“We should never take a policy that moves jobs back to America when millions of subsistence farmers across the world, making just a dollar a day, must starve without employment alternatives as a result,” said Ana Diakolios ’20. “We should not put the marginal benefits to our country’s people over the unemployment and abject poverty of needier countries.”

It’s time for us to think: if America comes ‘first,’ then who comes second, third, fourth, and even last?

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