While lawmakers and policy makers in Washington debate the merits of President Biden’s proposed changes to the corporate tax system, Bank of America experts said Friday that one element of Biden’s plan – a global minimum tax – has a better chance of becoming a reality than it has been before . Here’s why.
United States President Joe Biden on April 15, 2021 in Washington, DC
In contrast to Biden’s other tax proposals, a global minimum tax cannot be enacted by the United States alone: other world economies would also have to agree on the minimum and commit not to undercut it.
The Biden government hopes that this type of international corporate tax cooperation will prevent multinational corporations from moving in search of lower tax rates, as tax rates would be essentially the same everywhere.
“It is very difficult to get global tax deals,” the analysts wrote, “but there are better opportunities today than in the past.”
This is partly due to the current political environment, which analysts are calling “ripe for progress”.
They cite elements of President Trump’s 2017 tax cuts and employment law aimed at reducing profit shifting as evidence of the similarities between Republicans and Democrats on this issue, despite disagreements over key policy details, and note that that global attention has been drawn to the transition to issues of income and wealth inequality.
The analysts also suggest that, despite the difficulty in enforcing a global minimum tax, other elements of Biden’s plan and proposed changes to work within the Organization for Economic Co-operation and Development may be enough to include other countries in the plan.
“Together we can use a global minimum tax to ensure that the world economy thrives on a level playing field in the taxation of multinational corporations, promoting innovation, growth and prosperity,” Treasury Secretary Janet Yellen said earlier this month.
7th Of the top ten locations for US multinational profits in 2018, so many are considered tax havens, according to the Treasury Department: Bermuda, the Cayman Islands, Ireland, Luxembourg, the Netherlands, Singapore, and Switzerland. These seven small countries accounted for 61% of after-tax income for US multinational corporations in 2018 and 2019.
Many companies reject Biden’s demand for a global minimum tax. “Members of the Business Roundtable welcome the government’s focus on ensuring that the international tax system creates a level playing field for globally active US companies,” said group CEO Joshua Bolten in a statement. “However, the government’s proposed minimum global corporate tax rate threatens to put the US at a major competitive disadvantage.”
Biden campaigned for a platform of tax hikes for the rich and for big corporations, many of which were unveiled as part of the plan to pay for his government’s $ 2 trillion infrastructure spending proposal. On the corporate side, these tax changes include a minimum tax of 15% on book income for the largest companies, an increase in the corporate tax rate from 21% to 28%, and a doubling of the corporate income tax for foreign subsidiaries of American companies.
What to look for
Bank of America analysts believe that the success of a global minimum tax depends on the effectiveness of incentives for low-tax countries to participate, as well as the closure of tax loopholes for countries that opt out.
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