A key argument from Congressmen opposing President Biden’s $ 1.9 trillion COVID-19 relief plan is that it would increase the deficit. “We cannot simply spend massive amounts of money on it without being accountable to current and future American taxpayers,” Senator Rick Scott (R-Fla.) Recently told the Washington Post.
In fact, the emergency spending requested by Congress almost a year after the pandemic began has to be paid for by taxpayers. But the notion that it must be medium-sized families or small businesses that bear this burden is wrong. Instead, the Biden administration should make it clear that improving accountability to existing taxes for the richest individuals and businesses would go a long way towards funding the programs Americans need.
As the New York Times coverage last year showed President TrumpDonald Trump Pelosi Urges Newsom To Pick Ship For Next California AG: Palm Beach City Attorney Says Trump Should Be Able To Live On Mar-a-Lago Heliport Trump In Mar-a-Lago To Soon MORE about to be demolished Our current tax system in the United States, which like others around the world, exploits tax laws to avoid paying its fair share, is designed to enable the richest and most powerful people to avoid paying their contributions to society. The rapidly widening gap between rich and poor in America and around the world is due in part to governments unwilling or unable to hold their richest citizens accountable.
Without international cooperation to tackle widespread tax avoidance directly, we will see more of the harmful and often violent consequences of unsustainable inequality that are already evident. As part of the Biden administration’s broader efforts to rebalance the economy and restore US leadership’s credibility on the global stage, it should take this opportunity to take a leadership role in further developing that collaboration.
The biggest problem we face is that so much of the injustice in taxation is perfectly legal. There are many perfectly legal ways for the wealthy to avoid paying taxes. One of the biggest problems is that large multinational corporations can spread a legal fiction that all of their profits are made in another country and therefore should not be taxed by the country where they truly add value. As a result, they can pay much lower taxes than companies operating in a country and sometimes almost no taxes at all.
The full extent of the problem is not known due to the well-established financial secrecy. The use of offshore structures keeps the actual ownership, location and existence of wealth hidden, which in turn creates fertile ground for tax evasion and avoidance. The rise in transfer pricing, profit shifting and a race for statutory tax rates have ended the centuries-old consensus that once dominated international corporate tax law.
At the UN75 Global Governance Forum last year, a coalition of groups brought together by the German non-profit Friedrich-Ebert-Stiftung (FES) set out how higher global tax standards and greater transparency of prosperity are required to combat these problems. Rules that require companies to disclose sales, profits, subsidiaries, tax payments and employee investments in every country in which they operate should be mandatory. Companies should also be asked to disclose their beneficial owners and persons with significant control over shares or voting rights.
These changes would allow lawmakers to more accurately assess whether or not the company is acting appropriately and to legislate accordingly. Voluntary efforts to raise corporate tax standards – as spearheaded by Fair Tax Mark in the UK – are a step in the right direction. However, these measures should be mandatory for all companies.
The need for more transparency also extends to wealthy private individuals. To that end, a global register of assets, as advocated by the Independent Commission for International Business Taxation Reform (ICRICT), would link existing data from recent tax transparency measures and provide missing data such as information on cash assets and property vehicles such as trusts. This would allow better measurement of wealth inequality and allow for more informed public discussion and adequate taxation.
It is not enough to get companies and high net worth individuals who already tend to be good global citizens to pay their fair share, as profit incentives work in reverse. The ones to focus on are those who do not willingly. Starbucks learned the hard way that selling lots of coffee in the UK while claiming not to make a profit was a reputational risk. But there are many companies like Koch Industries and wealthy individuals like Donald Trump who may not care about their reputations.
The relief plan discussed in Congress is likely to get through thanks to the budget vote. However, for the sake of shortcomings, and especially for reasons of economic sustainability in the US and around the world, the Biden administration should make it a priority to establish fair rules that prevent both tax evasion and tax avoidance and to which the same rules apply to everyone.
Morris Pearl is Chairman of Patriotic Millionaires and a former BlackRock CEO.