Joe Biden’s administration has been ditching his predecessor’s policy initiatives at a rate of knots. The US President has signed around three dozen executive orders in the month-and-a-half since his inauguration, roughly the same amount that Barack Obama signed in the entire first year of his Presidency.
Biden has previously poured scorn on 'government by decree', but he has been reversing four years of Trump-era policy at a dizzying pace. He has already acted on the Affordable Care Act, the Paris accords and foreign aid budgets, all of which were highlighted as priorities on the campaign trail (if you can describe it as such). You are left with the impression that rather than simply reform, he wants to completely erase the policy legacy of Donald Trump, so we might reasonably expect other reversals as we go forward.
Some policy areas will have more of an impact for investors than others. Last week, US Treasury Secretary Janet Yellen signalled to members of the G20 that the imposition of a global digital tax will get the approval of a Biden administration. The backing of the Secretary of the US Treasury would be at odds with Trump’s support for regulations that would have enabled the tech giants to opt out of any scheme that would impose a global minimum corporate tax.
Any meaningful support from Washington would play well with the European Commission, which has grown weary of the ability of the tech heavyweights to trim their obligations by simply claiming domicile in lower-tax jurisdictions within Europe.
A new type of commerce calls for global solutions, so Rishi Sunak will be looking to press his US counterpart on the subject at the upcoming G7 meeting in June. The imperative to boost government finances is easy to appreciate with state borrowing at peacetime highs, both here in the UK and across the pond. Yet there is an unknowable element in all this; just how willing is the Biden administration to alienate big tech if it imperils future political support? We should not underestimate the lobbying power of the tech titans on Capitol Hill.
One imagines that whatever agreements in principle are reached in June, it is likely to be a drawn-out affair as any proposals and/or timetable for action on the issue will need to pass muster with the Organisation for Economic Co-operation and Development (OECD), which has the final say in such matters.
The big tech companies have reduced their tax burden in the US by amassing overseas earnings rather than repatriating those funds. Biden has said that he wants to raise taxes on foreign earnings of US companies located overseas, but we cannot be sure that such a measure would bring them into line with the statutory rate anyway.
Any forceful initiatives on this issue would likely have the benefit of public support. The FAANGs have reinforced their market dominance during the pandemic, while other areas of the economy have foundered. These companies have also been heavily criticised for failing to pay a fair amount of taxes in poorer countries where governments are struggling to meet the basic needs of the populace.
Yet beyond the machinations of the OECD and Federal lawmakers, the likes of Facebook (US:FB) and Alphabet (US:GOOGL) may be more concerned over recent news that Maryland has become the first state in the US to enact a digital advertising tax – could others follow suit?
Unfortunately, there is every chance the Democrat-sponsored legislation could eventually be overturned in the courts, but it undoubtedly forms part of a wider push on the tax issue. After Facebook’s recent debacle in Australia, where it banned all domestic media organisations from its platform, there is a chance that national and regional governments will start to frame legislation that classifies the likes of Facebook and Google primarily as advertising platforms. At some point, investors may need to reassess their tech holdings if any of the measures come to fruition. If Amazon (AMZN) is ever brought to book on the tax issue, it might provide a chink of light for the surviving high-street retailers.
