The Jeffersonian conception of Fiscal Federalism is in many respects the result of the shared paradigm between Production for Profit and Production for Utility. It assumes its proper form within the US taxation system as it currently exists. The average American in this country pays taxes to their Municipal government, their State government, and the Federal government. The Municipal, State and Federal governments have had to periodically adjust their taxation policies in order to attract American and foreign investments. The manner in which the Municipal and State governments levies their taxes differs from how the Federal government levies its own taxes.
For instance, consider the interplay between State and Federal taxes in the existing Liberal Capitalist system. The State governments receive a good portion of their funding from Income Taxes. The Federal government has its own Income Taxes which are separate from the ones imposed by the State governments. A State government can cut its Income Taxes, be it Personal or Corporate, to encourage investments from the American people or foreign investors interested in conducting their economic activities within these United States. The Federal government, insofar as it remains controlled by the Democratic-Republican Party, can alter its Income Taxation policies to do the same, albeit more broadly and covering huge swathes of the country.
Another important topic, and this is of interest to the Work-Standard on the topic of the Jeffersonian Empire of Liberty, is the debate over a “Territorial Taxation System” and a “Worldwide Taxation System.” The American Market Economy, spurred by Globalization and the Death of Bretton Woods, has economic activities scattered throughout the world. Some have expanded to the rest of the Americas and Africa, while others were brought to encompass the Eurasian landmass. US Multinational Corporations generate Kapital from conducting themselves outside the US with the Incentive of transporting the finished goods and services back to America, where it is then sold to the American people for their Kapital. The Democratic-Republican Party taxed these movements of Kapital across international borders as part of its trade and tax policies.
The US Multinational Corporations know that if they were to transfer that Kapital back to the US, they will be taxed by the Jeffersonians running the Federal government. This is a second set of taxes complementing the first set of taxes levied by the country that allowed US Multinational Corporations to generate Kapital within their borders. Thus, the Incentive of transferring Kapital back to the US has to be replaced by a different one. The other Incentive stipulates that any Kapital accumulated outside of the US should stay in the country of origin. A Multinational Corporation would prefer being taxed once than being taxed twice.
What did the Liberal Capitalists propose? They argued that the Worldwide Taxation System should be replaced by a multiplicity of Territorial Taxation Systems for each nation in the Empire of Liberty. In essence, create the economic conditions whereby Multinational Corporations will be taxed once by the host nation and its homeland as opposing to being potentially taxed twice.
Suppose for a moment that somewhere in the US Market Economy there is a small privatized commercial firm, a Jeffersonian Multinational Corporation, that has plans to invest in a developing country on the Eurasian landmass. The Jeffersonian Multinational Corporation’s efforts yielded $1,000,000 USD from conducting its economic activities in that developing country. Before the Kapital could leave the Eurasian landmass, the developing country’s government levies its taxes on the Jeffersonian Multinational Corporation. The Jeffersonian Multinational Corporation had to pay $250,000 USD, leaving it with $750,000 USD.
The remaining $750,000 USD left the Eurasian landmass, wired to accounts at a financial institution in New York’s Lower Manhattan. However, before it could be added to the accounts of that Jeffersonian Multinational Corporation, the Democratic-Republican Party levied its own taxes on the $750,000 USD. For the sake of simplicity, let’s assume that the Democratic-Republican Party charged $250,000 USD in taxes. The Jeffersonian Multinational Corporation now has $500,000 USD left.
The contention within Liberal Capitalist economic discourse is that the Jeffersonian Multinational Corporation should not have had to pay two different sets of taxes. This “double taxation” presupposes that the Democratic-Republican Party should tax the Kapital of Jeffersonian Multinational Corporations, regardless of whether that Kapital was generated in the US or abroad. The argument is that Jeffersonian Multinational Corporations should just be taxed for the Kapital that they earn in the US and develop Incentives that would encourage those Jeffersonian Multinational Corporations to spend more of their Kapital on the US Market Economy.
Going back to the example that I just provided, instead of spending $500,000 USD in taxes, the Jeffersonian Multinational Corporation will only spend $250,000 USD in taxes across international borders. The catch is that another $250,000 USD will be invested in the US Market Economy. The Kapital, the logic goes, should be redistributed between the Jeffersonian Multinational Corporation ($250,000 USD), the Democratic-Republican Party ($250,000 USD), the foreign country ($250,000 USD), and the American people vis-à-vis investments in the US Market economy ($250,000 USD).
The US taxation system on this particular matter of international trade, in its Jeffersonian conception, is a hybrid between a Worldwide Taxation System and a Territorial Taxation System. One of the goals of the Trump tax cuts in 2017 was to assist in the shift away from the hybrid model and toward a pure Territorial Taxation System. The belief was that the tax cuts would pave the way for further economic reforms to realize that particular redistribution of Kapital. But because Trump never got reelected in 2020, the rest of that endeavor never came to fruition.
As one can surmise from the description of an obscure aspect of the US taxation system, it should be noted that every aspect of it is fixated on the interplay between Kapital and Schuld. The Kapital that came from the developing country has to be compensated with the Schuld of paying the taxes and investing in the American people vis-à-vis the US Market Economy.
The question that I would like to entertain at some point is where does the Work-Standard stand on this issue? Is it possible for us to envisage a different set of arrangements involving Real Trade Agreements (RTAs) and the interplay between Arbeit and Geld? Is there a way for the State Enterprises of two nations to promote a fairer distribution of wealth between their States and Totalities? Does Arbeit and Geld require a different methodology?
Based on what I had argued in The Work-Standard (2nd Ed.) and The Third Place (1st Ed.), the Work-Standard was designed specifically to promote the proper Balances of Trades and Payments. Every contribution of Arbeit and each generation of Geld should be split between the nations involved in any RTA. In essence, a State receiving a large proportion of Arbeit must be willing to let the other State acquire a similarly large proportion of Geld and vice versa. If neither possibility seems feasible, the involved nations should be willing to negotiate for an even split between their contributions and generations of Arbeit and Geld.
At some point in a future post, I would like to explore the topic in greater detail. But rather than discuss it from the standpoint of Kapital and Schuld, my goal is address it with Arbeit and Geld.
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