President Joe Biden says he wants to partly roll back the Republican tax cuts of 2017, including corporate tax reductions that amounted to a giveaway to some of the world’s richest entities. Reversing those reckless cuts is the right goal but won’t solve the underlying problem that predated them: the use of offshore tax havens that allow corporations to skirt U.S. taxes (as well as those of other countries) by funneling their profits through subsidiaries in low- or no-tax jurisdictions.
So it’s encouraging that newly installed Treasury Secretary Janet Yellen is now pursuing an international agreement that would set a global minimum tax on multinational corporations. This would theoretically remove the incentive for American entities to set up shop in Bermuda or the Cayman Islands just to get around U.S. taxes.
The Republican tax-cut package of 2017 offered some crumbs to regular Americans while giving away the store to the rich. It included a major reduction in the corporate tax, from 35% down to 21%. The bill’s supporters invoked the familiar supply-side myth that the tax-cut package would “pay for itself” with increased economic growth. In reality, says the nonpartisan Congressional Budget Office, it will add close to $2 trillion to the deficit over a decade. Then came the pandemic, and the trillions more in deficit spending which — unlike the tax cut — was necessary.
Deficit alarmism is an overwrought (if inconsistent) element of GOP politics, but the fact remains that deficit spending can’t continue indefinitely. Crucial priorities Biden wants to pursue, like a national infrastructure overhaul, are going to need more tax revenue. He has said he wants to raise the corporate tax to 28%, which would help — but not for corporate revenue ensconced in those offshore tax havens.
Part of the stated rationale for the GOP tax cuts was to make it less tempting for corporations to use those havens, but that’s ultimately a losing strategy. As Nobel-prize-winning economist Joseph Stiglitz told The Washington Post, various countries have lowered corporate taxes over the years in order to lure corporate business, “and the only beneficiary of that race to the bottom has been the richest multinational corporations.” Indeed, over the past four decades, the global average corporate tax rate has dropped from about 40% to about 23%.
By some estimates, the U.S. Treasury is missing out on close to $100 billion a year that corporations are sheltering in this manner. The nonbinding agreement Yellen is pursuing with more than 140 countries through the Organization for Economic Cooperation and Development would set a minimum corporate tax rate around the globe, at a yet-undetermined level. It’s a longshot, but if it works, it could reduce the opportunities for corporations to wriggle out of their tax obligations at home.
— St. Louis Post-Dispatch
