The last time Japan imposed protective tariffs on U.S. beef was in August 2017.
Bloomberg reports this week that Treasury Secretary Janet Yellen is working with colleagues around the world to forge an agreement on a global minimum tax for multinational corporations that will help pay for the emerging national agenda.
The effort involves “a difficult and challenging global tax law negotiation,” according to Bloomberg, but if successful it could be one of Yellen’s greatest political legacies, and it could also prove central to Biden’s presidency.
The $ 1.9 trillion incentive, which went into effect last week, was funded entirely by additional federal loans. However, the government was looking for ways to minimize reliance on taxes for other key priorities such as the massive infrastructure and jobs package being debated by White House officials and Congressional Democrats.
A major source for discussing new revenue is corporate taxes, which President Trump cut sharply in 2017. Although President Joe Biden has not proposed reversing Trump’s corporate tax rate cut from 35% to 21%, he has announced that he will aim to generate potentially hundreds of billions more revenue from large corporations.
At the same time, tax experts, corporate groups, and Republican lawmakers fear that an increase in the tax rate could affect US competitiveness. Countries around the world have recently and for the past several decades joined forces with the US to cut tax rates to attract business investment – a trend some economists see as a destructive “race to the bottom”.
“It’s a bit like the Paris Agreement, any country believes it can steal business from other companies by lowering taxes. The main beneficiaries of this breed have been the wealthiest multinational corporations,” said Joseph Stiglitz, Columbia University Nobel Prize winner and mentor von Yellen said.
Yellen is now expected to work to contain the trend through efforts by the Organization for Economic Co-operation and Development, in which more than 140 countries participate. The aim is for the countries to generally agree on a – probably non-binding – corporate tax rate that will make it more difficult for multinational companies to play countries off against each other by threatening to leave.
At present, Yellen’s efforts are met by countless skeptics who fear that the move could encourage further tax shift outside of the OECD or lead the United States to make concessions that undermine its competitiveness. The US Chamber of Commerce belongs to this group.
“It’s just a money robbery from the Europeans, and we shouldn’t let them do that,” said Douglas Holtz-Eakin, president of the center-right American Action Forum and former director of the Congressional Budget Office. “My major concern is that the administration – as part of their desire to take part in a ‘Let’s Be Friends’ parade – is giving too much away.”
Over the past four decades, industrialized nations around the world have drastically reduced corporate taxes, especially in developed countries that are not considered tax havens. The average corporate tax rate worldwide was around 40% in 1980, but more recently it was 23% in 2020. About 40% of the profits of the world’s multinational corporations were kept in tax havens in 2017.
Bloomberg calls the global tax cuts “amazing”. According to the OECD, 76 countries lowered corporate tax rates between 2000 and 2018, while 12 countries kept their corporate tax rates and only six raised them. In 2000, more than 55 countries had corporate tax rates in excess of 30%. Now less than 20 are doing it.
For example, prior to the passing of the 2017 tax bill, the effective U.S. federal tax rate had dropped from about 44% to nearly 29%, according to Goldman Sachs. After that cut, the effective tax rate of the largest Fortune 500 companies fell from 21% to about 11.3%, with 91 of the world’s largest companies paying zero dollars in federal taxes.
Biden struggled with promises to pass new federal programs, but critics accuse the plans of “tax hikes that hurt US competitiveness” and encourage multinational corporations to move abroad. This leads government officials to argue that the OECD negotiations are critical to the broader administration agenda.
Part of the global tax restructuring effort would include the granting of tax rights by the OECD on part of the profits of multinational corporations residing in consumers based on established international formulas that would cover approximately $ 100 billion in global tax revenue. To support this approach, an agreement is being discussed on a floor for international corporate tax rates, based on a global minimum tax rate set by the OECD and likely to be around 12% of profits – both highly controversial approaches.
“The OECD’s plans offer little more than a ‘Tax Haven Lite’ model, where tax havens can keep most of the profits they draw from around the world as long as they share some of that profits with the richest countries.” said Alex Cobham, chief executive of the Tax Justice Network, said in a statement last fall.
Any administrative deal on digital tax rules would likely have to be ratified by Congress in a series of extremely difficult negotiations, depending on the details of the deal. Critics say it could take OECD member countries to enact laws that put the agreement into effect – if at all. But proponents say the cost of inaction remains too high, says Bloomberg.
She sees the OECD negotiations as an important early test for global tax ambitions and cites Yellen’s letter to the G-20, in which, among other things, the global effects of the coronavirus are highlighted. “We have teamed up in the past to face great challenges. We have to do this again.”
So we’ll see. It is clear that political pressures against sharply increased borrowing to support new programs is growing rapidly and that the OECD approach could offer some important opportunities. These suggestions are extremely important and should be watched closely by manufacturers as they emerge, believes Washington Insider.
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