One of the most unassailable buzzwords of our time is “innovation“. We are repeatedly told that our economies aren’t working properly simply because we aren’t ”getting enough innovation“ these days.
However, what our singular attention to the innovation mantra misses is that the knowledge economy is harder to measure, and therefore to tax.
The very aspects that define the knowledge economy are the ones that make it so difficult to tax. These include its intangible nature, global structure spread across multiple jurisdictions and its seemingly endless components, including: information, bio and financial technology “fintech“, smart renewables and cities, social networks, and the sharing economy.
The knowledge economy is now a defining factor for countries around the world. If fiscal policy regulation does not catch up, the gap between the outcomes for financially successful multinational companies and the broader society will only widen.
A very recent example of this fiscal challenge can be seen in the lenient tax deal the UK government signed with Google, a vanguard of the knowledge economy, for a paltry 130 million pounds. This amount was seen by many policymakers as “derisory“, although Google insists that the deal is fair.
Another example is the comparison of the finances of the State of California as opposed to its residing Silicon Valley tech giants. Whereas the State of California has suffered from budget difficulties for decades and considers maintaining fiscal balance to be “an ongoing challenge“, the Silicon Valley companies have more cash than they know what to do with.
Turning innovation into a vehicle for broader prosperity requires that both the redistribution of taxation and increasing the amount of public services offered, in accordance with the notion of tax morality, which argues that there is a normative, moral imperative for large economic entities to contribute to the tax base.
