BREAKING NEWS UPDATE – 6/5/2021 – G7 leaders agreed today on a global minimum corporate tax rate of 15%.
Tax-dodging corporations that pit countries against one another in a race to the bottom may soon have fewer places to hide. That’s because, in a sharp reversal from Trump administration policy, President Joe Biden’s Treasury Secretary Janet Yellen stepped up Monday to back international negotiations for a global minimum corporate tax.
It would target the corporate practice of setting up shell headquarters and booking profits in low-tax “haven” countries to avoid paying what they owe back home. Yellen signaled the U.S. was now eager to join in efforts to establish a worldwide tax that would apply to multinational corporations no matter where they open a P.O. box or supposedly establish their main offices.
With Biden making higher corporate taxes a centerpiece of his domestic infrastructure push, the idea of a global system to tax business is high on the agenda. The details of what the new tax regime might look like, including what the international corporate tax rate would be, are still to be worked out.
“Together, we can use a global minimum tax to make sure the global economy thrives based on a more level playing field in the taxation of multinational corporations,” Yellen told the Chicago Council on Global Affairs Monday. She argued that bringing countries together in a common front against corporate tax avoidance would benefit people everywhere, ensuring that governments have the money they need to fund what their people need.
The new global tax drive is putting countries like the Cayman Islands, which charge nothing in corporate tax, in the spotlight. It has a population of just 63,000 people, yet somehow U.S. corporations claimed they earned nearly $60 billion in profits there in one recent year, nearly 10 times the country’s entire GDP—an obvious economic impossibility.
A global corporate tax system probably wouldn’t totally eliminate such tax refuges, but cooperation among the world’s biggest economies would go far toward hemming in companies’ avoidance strategies. Establishing a global minimum corporate tax is about “making sure that governments have stable tax systems that raise sufficient revenue to invest in essential public goods and respond to crises, and that all citizens fairly share the burden of financing government,” Yellen stated.
Negotiators from several countries in the Organization for Economic Cooperation and Development spent the better part of 2020 trying to hammer out the details of such a worldwide corporate tax rate, but the Trump administration continuously torpedoed any possibility of agreement.
The OECD talks had focused on technology giants like Google and Facebook and how to prevent U.S. corporations from pressuring countries to compete to lower their taxes. The cost of responding to the coronavirus pandemic and the economic depression it sparked put governments around the globe under intense fiscal pressure. Insufficient tax revenue left many developing and middle-income countries, in particular, struggling to pay for vaccine rollouts. Meanwhile, some of the world’s biggest companies, especially in the tech sector, saw their profits soar as the demand for virtual working and online shopping increased.
The crisis made it clear that corporations have long played countries off one another to avoid paying taxes on those profits. But if governments go it alone in trying to raise revenues through taxing big business, they risk setting off trade wars or creating openings for more tax havens—thus the push for a coordinated international response.
Yellen’s predecessor, Trump Treasury Secretary Steve Mnuchin, had demanded immunity for the U.S.’ biggest capitalist firms, essentially neutering the entire idea of a joint tax effort. Without the participation of the United States, the effort was destined to go nowhere. Other countries pulled the plug on talks in October of last year, opting to wait out the results of the U.S. election.
With Trump and Mnuchin now gone, the prospects for instituting a global corporate taxation agreement are rising fast—especially because it would fit perfectly with the new U.S. administration’s domestic priorities.
Biden’s giant “Build Back Better” infrastructure proposals, which could top $4 trillion in spending over the next several years, will require major infusions of cash, and the president says big business should be footing the bill. Democrats in Congress are beginning to assemble a U.S. corporate tax package they plan to implement to fund Biden’s goals, including the likelihood of raising the domestic corporate tax rate from 21% to 28%.
Getting the new tax proposals through the Senate will be a tough fight, given the near even divide in the chamber. Senate GOP leader Mitch McConnell has already signaled his party’s refusal of any taxes on corporations, saying the president’s plan is “something we’re not going to do.”
Biden fired an opening salvo Monday, dismissing Republicans like McConnell who defend low corporate taxes, pointing out that “51 or 52 corporations of the Fortune 500…haven’t paid a single penny in taxes for three years.” Biden told the GOP, “Come on man, let’s get real.”
The situation may be even worse than Biden lets on. A just-released study from the Institute on Taxation and Economic Policy found that 55 of America’s largest corporations paid nothing in corporate income taxes in the past year, despite the fact that they collectively raked in nearly $40.5 billion. The combination of tax breaks and rebates they received for 2020 add up to at least $12 billion in lost revenue that could have been used to fund public needs.
The study pinpointed the 2017 Trump tax cuts as a major part of the problem, though it said the tax-dodging stretches back decades. Tech companies like Verisign, HP, and Salesforce.com were among the big winners in 2020. But at least 26 firms—Duke Energy, Nike, FedEx, and chip-maker AMD among them, have managed to pay nothing in taxes every year since Trump’s cuts came into force.
Trump and Republicans sold their tax plans to the public by claiming they would boost job creation, bring profits home to the U.S., and eliminate corporate loopholes. But the results show that the 2017 law did nothing but accelerate tax avoidance with little benefit to the rest of the population. As another ITEP study put it, “Evidence of corporate tax cuts indicates that they do not help working people,” and “there is no reason to think that corporate tax avoidance would either.”
With progressive organizations and unions pressuring Biden and the Democrats to act quickly and aggressively to finish off the coronavirus threat and secure an equitable economic recovery, the need to raise money to pay for it is all too apparent. Winning tax reform at home is one component of the effort, but an international battle against corporate tax-dodging is another. Without both, rebuilding the U.S. economy and social safety net could be seriously hobbled.
The country’s biggest capitalist firms and their right-wing political representatives in Congress will resist on all fronts, so on-the-ground organizing to support raising corporate taxes will be crucial in the period ahead.
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