President Biden, leaders of G-7 group of nations to approve global corporate minimum tax rate of at least 15% Friday, a policy that could ultimately divert investment from US companies
That’s according to the Taxpayer Protection Alliance (TPA), a Washington, DC-based nonprofit advocacy group that argues that a higher global minimum rate would ultimately be “passed on to workers and consumers through ‘reduced pay and higher prices’.
WHAT IS A WORLDWIDE MINIMUM TAX RATE AND HOW WOULD IT WORK?
“We won the race to the top, with the highest corporate tax rate in the industrialized world before the 2017 tax reforms,” said Patrick Hedger, vice president of policy at TPA. “It has contributed to decades of anemic growth.”
Prior to the passage of the Tax Cuts and Jobs Act 2017, the corporate tax rate in the United States was 35%; it is now at 21%.
“When America lowered its rate to a competitive rate of 21%, investments, jobs, and wages flourished before the pandemic began,” Hedger said. “Biden’s global minimum corporate tax is not so much about ending competition between nations, but rather about ending the competition between the wishes and reality of progressives.”
There is some evidence to suggest that corporate tax is ultimately borne by workers and consumers. A recent analysis by the Tax Foundation suggested that up to 70% of the tax burden falls on work. As the tax reduces investment, productivity and wages, the dollar amount of the cost of labor can exceed the revenue generated by the tax by a “large margin,” the Tax Foundation mentionned.
But the Biden administration argues that the minimum rate will build a fairer tax system that will help “build a foreign policy for the middle class and help support working families everywhere.” According to a White House backgrounder, the money raised through the tax hike would be used to fund infrastructure initiatives, as well as child care, affordable housing and education.
The strategy aims to crack down on companies that employ a litany of tactics to reduce their tax liability, often by shifting profits and income to low-tax countries such as Bermuda, the Cayman Islands or Ireland, regardless of or the place of sale.
The practice of U.S. and foreign multinationals costs the United States tens of billions of dollars each year, according to the Treasury Department.
Yellen and the Biden administration recently embraced a long-standing effort to overhaul the international tax system, putting the full weight of the U.S. government behind a larger effort to tackle tax evasion by multinational corporations.
By getting all countries to agree on a minimum corporate tax rate, the White House seeks to eradicate certain tax havens without harming the competitiveness of American companies.
Global average corporate tax rate, measured in 177 countries, is 23.85%, recent study finds Analysis led by the Tax Foundation, a non-partisan organization.
Among the G-7 countries, the average rate is slightly higher – 24% – a significant drop from 1980, when corporate tax rates around the world were on average around 40.11%.