Another Look: A Rare Opportunity to Fight Corporate Tax Evasion | Editorials


President Biden and other world leaders are on the brink of an extraordinary deal that could curb the infuriating – and so far, seemingly intractable – 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 Massachusetts schools in Mumbai.

But the president cannot deliver the American part of the deal on his own. It will need help from Congress if the most powerful country in the world is to do its part to bring some justice to an unjust system.

For decades, jurisdictions from Ireland to Bermuda have engaged in what US Treasury Secretary Janet L. Yellen has called a “race to the bottom” in corporate taxes – by reducing rates in an effort to attract some of the world’s largest companies. American companies like Apple and Nike have taken full advantage – hiding billions abroad, reducing their tax bills, and effectively shifting the burden of funding government services to a struggling middle class.

For a very long time, a comprehensive solution to this problem felt out of reach. But an effort overseen by the Paris-based Organization for Economic Co-operation and Development has made notable progress towards a multilateral agreement in recent years – only to see the effort stagnate amid the pandemic and the insistence of the Trump administration on a provision that would have favored American companies.

The Biden administration revived talks after taking office. And earlier this month, 130 countries representing more than 90 percent of global GDP signed.

The agreement rests on two major pillars. This would create a near universal minimum corporate tax of 15%, designed to dampen companies’ motivation to seek low rates. And that would impose a separate tax on the world’s largest companies – forcing companies like Facebook and Amazon to pay taxes where they sell goods and services, even if they don’t have a physical presence there. The pact, which has yet to be finalized, 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 economic elites, says there has long been a feeling that globalization is an “impersonal force of nature” that “no one controls” and that the big and rich players the system will inevitably play out. But the new agreement, which he calls “a breakthrough”, is a striking statement that the community of nations can, in fact, exercise control.

Yet, as Winters and other observers argue, the pact is just the start. The minimum of 15% corporate tax is actually quite low. It’s a floor. And the parties to the deal can and should aim higher.

Gabriel Zucman, an economist at the University of California at Berkeley known for his groundbreaking work on inequality, called on Congress to approve a 25 percent tax that could inspire other nations to follow suit, “replacing a leveling down by sprinting up. “

As lawmakers strive to strengthen the deal, 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 accompanied.

One way to rally them is to exert political pressure. And diplomats do a lot. But Seth Hanlon, a senior researcher at the left-wing Center for American Progress, said U.S. lawmakers could “seal the deal” by approving a proposal from the Biden administration called Stopping Harmful Inversions and Ending Low-Tax Developments, or SHIELD, which would impose tax penalties on companies from recalcitrant countries operating in the United States.

It’s an aggressive approach, more of a sword than a shield. But lawmakers should pass it. And they should move quickly. Democrats cling to narrow majorities in the House and Senate, and Republicans have been hostile to the fledgling deal.

The nation and the world have a rare opportunity to curb a wave of damaging corporate tax evasion – bringing economic relief to a besieged middle class and hope for some of the poorest on the planet. We cannot pass up this opportunity.

– The Boston Globe

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