Major talks between the United States and the European Union to establish a shared tax framework for multinational companies broke down on the issue of seeking to secure an agreement on digital taxation. Big tech, which is heavily a U.S. creation, has long been in the sights of European economies, as their profits and revenues have soared and they have increasingly become major components of the twenty-first-century economy.

Taxation is one of those areas that exposes the contradictions at the heart of globalization. Globalization of goods has proceeded quickly, as has the harmonization of industrial standards across countries.

Harmonization of taxation? Not so easy.

The power to tax is the ultimate national prerogative, one that very few sovereign nations would ever seriously contemplate surrendering to a multinational global entity, even in limited degrees, as has been done in trade (e.g., the World Trade Organization), or global security (e.g., the United Nations). It therefore seems ironic that the Trump administration, largely driven by an economic nationalist agenda, would contemplate, even on an interim basis, changes to global taxation law that would affect leading U.S. big tech companies.

Yet in spite of Trump’s America First rhetoric, he did authorize Treasury Secretary Steven Mnuchin to attempt to get the EU and the U.S. on the same page on a global digital tax framework, in part as a means of curbing the practice of global tax arbitrage. It would make sense for all concerned to agree on a framework that provides some degree of tax uniformity.

In theory, that is; as with agriculture or oil, the tech business is a multinational one, but curiously the U.S. Treasury remains loath to expose big tech to the same kinds of global tax pressures that Monsanto or Exxon regularly deal with today. Perhaps this is because these Silicon Valley behemoths are now among the most economically dominant and profitable U.S. companies, as well as increasingly large sources of political funding for the parties (although more so Democrat than Republican at this juncture). That would explain why the Trump administration wants to keep as much of that revenue pie for itself.

But since so much of the future will be increasingly digitalized, something has to give. Indeed, in the new internet-based economy, there is much to be said for an approach to taxation that recognizes that revenues can be earned via online activities, irrespective of whether or not the company generating the profits concerned actually has a brick-and-mortar presence in that particular country. In India, for example, this is the rationale behind the imposition of “a 2 percent tax in April on online sales of goods and services to people in India by large foreign firms,” as the New York Times reports. This move by Indian Prime Minister Narendra Modi’s government in turn has encouraged the “European Union… [to revive] its push for a similar tax as a way to help fund response measures to the coronavirus.”

The United States is certainly going to go for every advantage to protect its tech industry, but Washington must recognize that the EU (and likely the rest of the world) will move ahead with plans to tax these tech giants, with or without agreement from the United States. But absent a buy-in from Washington, a failure to produce any kind of agreement will simply perpetuate the kind of destructive global tax arbitrage that was the rationale for the talks in the first place. It also has the potential to expand the global economy’s growing list of trade disputes.

By virtue of the odd institutional arrangements of the eurozone (where state money has been divorced from the control of the national governments since the establishment of the euro), raising revenues from taxation to fund economic activities is a matter of ensuring national solvency for these countries.

There are also geopolitical considerations at work: if the EU is prevented from generating additional revenues for its tax base, it will dangerously push the United States and Europe even further apart, making the disagreement over relative defense budget contributions among NATO members seem puny by comparison.

This drive for a digital taxation framework represents a cry for help from all across Europe — the UK, France, and Germany all want in. After all, Google, Apple, Facebook, et al, all derive significant revenues from their European operations. It’s not unreasonable for the EU to want a piece of that pie. It is widely expected that there will be some form of agreement, probably in stages, over the coming years. But it is also inevitable that tech companies will find new ways of avoiding taxes, and that overall multinationals and their coterie of investors will continue to find ways to keep the tax haven game going.

The negotiations could take some years — and until we get to the point where both sides can agree on a workable digital tax framework, there are other ideas worth considering. Taxing inescapable assets, such as land, and reconsidering our treatment of intellectual property are two ideas that should be considered.

In regard to the former, a national property tax is one possibility. The United States had one in 1798 in the quasi-war with France and again in the War of 1812. The 19th-century economist Henry George was one of the first to promote a land tax on the grounds that such “taxes could fall on… [unproductive] income without increasing costs to the rest of the economy… [such as] labor and industry,” Michael Hudson writes in “Henry George’s Political Critics.” As economist Bill Mitchell, who cites Hudson, writes, George’s idea was also consistent with the views expressed by John Stuart Mill in his 1848 book Principles of Political Economy that:

The ordinary progress of a society which increases in wealth, is at all times tending to augment the incomes of landlords; to give them both a greater amount and a greater proportion of the wealth of the community, independently of any trouble or outlay incurred by themselves. They grow richer, as it were in their sleep, without working, risking, or economizing. What claim have they, on the general principle of social justice, to this accession of riches? In what would they have been wronged if society had, from the beginning, reserved the right of taxing the spontaneous increase of rent, to the highest amount required by financial exigencies?

A land tax could also help to prevent housing bubbles, thereby mitigating the significant affordability gap now prevalent in many of America’s largest cities. And it also addresses the issue of tax avoidance, as land is an asset that can’t be parked into an offshore bank account.

A second approach would address taxing intellectual property (IP) rights that are attributed to Bermuda or the Cayman Islands.

Here, the economist Dean Baker is right: “[G]overnment-granted patent and copyright monopolies have been made longer and stronger over the last four decades. Many items that were not even patentable 40 years ago, such as life forms and business methods, now bring in tens or hundreds of billions of dollars to their owners.”

Instead of letting rentiers accumulate vast fortunes from a single innovation and then playing whack-a-mole trying to tax them, Baker is correct to suggest limiting patent and copyright terms, or force firms to share their IP, or have the government buy out their IP and publicize it for free to stimulate innovation. As Thomas Jefferson said when he set up the patent office, IP is a necessary evil that should be minimized in the public interest.

The alternative is an approach suggested by the economist Mariana Mazzucato, whereby the government secures a perpetual royalty stream from tech companies for the IP, on the grounds that massive public investment laid the groundwork for these companies’ considerable profits. As Mazzucato notes, “Without the massive amount of public investment behind the computer and internet revolutions, such attributes might have led only to the invention of a new toy.”

Overall, the tax system in the United States is making things worse. In their most recent work on inequality, The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay, economists Emmanuel Saez and Gabriel Zucman illustrate, as economist Michael Roberts writes, how the “American tax system, … far from reducing the rising inequality of income and wealth in the U.S., actually drives it higher.” Roberts cites the authors’ work in support of the proposition that the U.S. tax system is in fact highly regressive and entrenches existing wealth inequality:

Contrary to widely held view, [the] U.S. tax system is not progressive. The effective rate of tax takes into account all forms of taxation on the individual (income taxes, corporate tax, capital income taxes[,] etc[.]). On that measure for the top 400 income holders (billionaires) the effective tax rate is 23 percent while it is 25-30 percent for working and middle classes. America’s tax system is now technically ‘regressive’ and is ‘a new engine for increasing inequality.’

A large part of the problem is that the U.S. tax system taxes labor far more harshly than “property and financial assets,” which receive disproportionately favorable taxation treatment. Additionally, as I’ve written before, the U.S. corporate tax is low and has been lowered even further, thanks to Trump’s recent tax reform package.

Some figures, notably former Federal Reserve Chairman Alan Greenspan, have proposed national consumption taxes. Consumption taxes do capture spending that occurs within a country, but they are problematic in the sense that they are regressive (as Roberts notes). On the other hand, this is the Swedish model. In the 1970s, Sweden’s high income tax created capital flight and induced the emigration of the wealthy. In response, the Swedish government capped income taxes and raised revenue for big government from the VAT and payroll taxes. These are regressive in incidence, but as a quid pro quo, if spending is progressive then the overall tax system itself can become progressive and largely retain its political legitimacy, as it does in Sweden.

How does this play into national industrial redevelopment? If the goal is also to redomicile manufacturing, taxation measures can be reinforced via local content requirements, as I have suggested before. Forget incentives; coercion works even better.

Do these things, and many of the problems associated with global tax arbitrage, offshore accounts, or outright tax evasion go away. In the meantime, the breakdown in these digital tax talks between the U.S. and EU is likely to mean more tariff impositions by the Trump administration, followed by retaliation from the EU (and the rest of the world). A renewed trade war is hardly what a highly depressed global economy needs at this time.

Lost in this crossfire is the fact that the rest of us would certainly benefit from finally facing down those with vested interests, who will no doubt mobilize strongly against viable tax reforms, and continue to undermine global cooperation. That means governments continuing a futile attempt to police increasingly creative tax and accounting dodges.

Marshall Auerback is a market analyst and commentator.

This article was produced by Economy for All, a project of the Independent Media Institute.