President Biden and other world leaders are on the verge of an extraordinary deal that could contain the annoying – and so far seemingly unsolvable – problem of corporate tax evasion. Success would mean hundreds of billions of dollars in new revenue to repair crumbling infrastructure, cure the sick, and improve schools from Massachusetts to Mumbai.
But the president cannot accomplish the American end of the deal alone. He will need the help of Congress if the most powerful country in the world is to do its part to bring a measure of justice to an unjust system.
For decades, jurisdictions from Ireland to Bermuda have been involved in a “race to the bottom” in corporate taxes, what US Treasury Secretary Janet L. Yellen has called the “race to the bottom” – lowering tax rates to attract some of the largest companies in the world . American companies like Apple and Nike have taken full advantage of the benefits – shoving billions overseas, slashing their tax bills, and effectively shifting the burden of funding government services onto a struggling middle class.
For a long time, a global solution to this problem seemed unattainable. But an effort overseen by the Paris-based Organization for Economic Co-operation and Development has made remarkable strides toward a multilateral deal in recent years – only to watch the effort grow amid the pandemic and the insistence of Trump- Government stalled on a provision that would have favored American corporations.
The Biden government revived talks after taking office. And earlier this month, 130 nations representing more than 90 percent of global GDP signed up.
The agreement has two main pillars. It would create an almost universal minimum corporate tax of 15 percent that is supposed to dampen the motivation for businesses to look for low rates. And it would impose a separate levy on the world’s largest companies, making companies like Facebook and Amazon pay taxes when they sell goods and services, even if they’re not physically present there.
The pact that has yet to be concluded would be more than a diplomatic victory. It would be a triumph of the imagination.
Jeffrey Winters, a political scientist at Northwestern University who studies business elites, says there has long been a feeling that globalization is an “impersonal force of nature” that “no one controls” and that big, wealthy gamblers inevitably play the system. But the new agreement, which he calls “a breakthrough”, is a striking statement that the international community can actually exercise control.
However, as Winters and other observers argue, the pact is only a beginning. The minimum of 15 percent corporate tax is actually quite low. It is a floor. And the contracting parties can and should pursue higher goals.
Gabriel Zucman, a University of California Berkeley economist known for his pioneering work on inequality, has called on Congress to approve a 25 percent levy that could inspire other nations to follow suit and “unite A race to the bottom replaced by a sprint into the world “above.”
As lawmakers work to build on the agreement, they should also strengthen its foundations. A handful of low-tax countries including Ireland, Hungary and Barbados have refused to join the pact and must be taken along.
One way to get them on board is to use political pressure. And diplomats do that in abundance. But Seth Hanlon, a senior executive at the left-wing Center for American Progress, says American lawmakers could “seal the deal” by approving a proposal from the Biden government called Stopping Harmful Inversions and Ending Low-Tax Developments, or SHIELD, which would have a significant impact on tax penalties for holdout nation companies operating in the United States.
It’s an aggressive approach, more of a sword than a shield. But the legislature should accept it. And they should move quickly. Democrats cling to narrow majorities in the House and Senate, and Republicans are hostile to the nascent deal.
The nation and the world have a rare opportunity to stem a devastating series of corporate tax evasion – to economically unburden a distressed middle class and bring hope to some of the world’s poorest people. We cannot miss this opportunity.