State’s Hour

Biden’s project is a fair reinforcement of what is public in this phase of crisis.

The first 100 days of the Joe Biden administration constitute, in essence, a powerful project of expansion and redefinition of the role of the government and of the state as an answer to the pandemic that shook the system. In U.S. law, it is probably the biggest experiment since the New Deal of Franklin D. Roosevelt and the Great Society of Lyndon B. Johnson. Biden’s effort features an impressive mobilization of public money channeled into an equally impressive array of actions. The fact that it comes accompanied by an explicit disposition to raise taxes is also important. Altogether, it is nothing more nor less than the flagship of a social democratic project for this time of social upheaval. In this regard, its meaning transcends the borders of the first world power.

In a progressive vision of society, both aspects (reinforcing public action and supporting public action through an increase in tax collection) have an indisputable meaning in a time of crisis and a strong risk of increasing inequality such as now. It makes sense to invest to protect the most disadvantaged and breathe oxygen into the economy, and thus avoid charging the entire account to the future debt. This general reflection becomes especially valid for a country such as Spain, that on one hand has a particularly weak side with its sclerotic labor market — marked by high unemployment rates and instability — and on the other, a tax collection rate well below the average of the developed countries: 39% of GDP tax burden compared to 46% on average in the eurozone in 2019, the last year before the pandemic upheaval.

This conceptual framework is so powerful that institutions who are not suspicious of leftist instincts (like the International Monetary Fund) advocate for new solidarity taxes to alleviate the suffering of those hardest hit by the crisis. The IMF advocates temporary rates that affect high-income earners and companies that have prospered during the pandemic. More generally, Biden and the major European countries are working to establish a framework that prevents large multinational companies from tax engineering maneuvers that allow them to pay ridiculous figures in proportion to their profits.

In Spain, a lot has been done by way of social protection through ERTE schemes, which is Spain’s temporary workforce reduction program, and the minimum wage — the former will have to be extended, while the latter will require wider reach. The path to breathing new life into the economy has an uneven balance, with positive public support for the granting of credits and a late and possibly insufficient reaction based on direct aid. Labor market data released yesterday show a loss of 130,000 jobs in the first quarter, and that there is a long path ahead with much suffering. The fiscal data also released yesterday demonstrate that the effective tax rate has decreased in Spain from 19.1% to 8.3% of profits between 1995 and 2020. Data that makes one wonder.

Recovery will not be immediate. Social disruption can undermine citizens’ adherence to the system thus slowing down progress by the mere fact of torpedoing the formative processes and the stability of perspectives. The challenge is therefore twofold: to intelligently redesign the boundaries of the state action to reactivate progress in this acute phase and be ready to formulate a new equilibrium when the pandemic has passed.