How Joe Biden’s victory paves the way for a global corporate tax rate
- Countries are losing, on average, 9.2 per cent of their health budgets to tax havens every year. Biden’s plan to increase US corporate tax will put pressure on the European Union to set the bar high as well, helping establish a 25 per cent global corporate tax rate
Defying the certainty of those who insisted that this promise is the best way to lose an election, Biden committed to raising taxes on America’s richest corporations and on the 1 per cent. And he won.
This is not an American peculiarity. Over the past few decades, governments all over the world, influenced by corporate giants and the super-rich, have programmed their tax systems to prioritise the requests of the wealthiest over the needs of the rest of the population.
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And let’s get this myth over and done with: tax abuse by the wealthiest is not marginal, nor it is necessary to keep the global economy running.
In the United States alone, this tax loss amounts to 5.8 per cent of the health budget. This is a scandal, when you consider the shortage of medical personnel and their exhaustion.
But in lower-income countries, the situation is even more tragic, with losses to tax havens amounting to 52.4 per cent of their health budgets. Hong Kong is responsible for more than US$21 billion in lost taxes by other countries, which would pay the yearly salaries of nearly 1.7 million nurses, according to the report.
The coronavirus pandemic reminds all governments, even the conservative ones, how essential public services are. They need to invest more in health, schools and infrastructure, but also in supporting businesses, especially the smallest ones. They must, therefore, turn to those who benefit from the system without contributing to it.
Most importantly, governments must not give in to big companies’ claims that tax cuts are necessary for economic reconstruction.
In normal times, a company does not invest in a country primarily because of low taxes: other important factors include the quality of the workforce and infrastructure, market access and political stability. In an uncertain investment environment, tax cuts will not promote private investment, but deprive governments of revenue.
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The Independent Commission for the Reform of International Corporate Taxation supports the introduction of a global minimum effective corporate tax rate of 25 per cent. Any multinational that books its profits in a tax haven would therefore be taxed in its home country up to this minimum rate. This would reduce its interest in transferring its profits to tax havens.
The pressure in recent weeks to set this minimum rate at 12.5 per cent is purely irrational. This would push countries with higher rates to reduce them, further reducing their resources.
With the Biden administration intending to increase the US corporate tax rate to 28 per cent and the global effective minimum corporate tax rate to 21 per cent, the European Union will have to set the bar high as well.
Given the importance of these two markets, it would no longer be possible for any multinational company to avoid these levels of taxation. The 25 per cent rate can thus be established worldwide, giving states all over the world enough resources to rebuild societies and economies that are not only more prosperous and resilient, but also more equitable.
José Antonio Ocampo is professor at Columbia University, and chair of the Independent Commission for the Reform of International Corporate Taxation (ICRICT). He is also a former finance minister of Colombia and executive secretary of the UN Economic Commission for Latin America and the Caribbean