International corporate tax rules were established a century ago with the good intentions of protecting multinational companies from being gouged by unscrupulous countries and being hit with double taxation.
But in the era of globalization and ever more powerful corporations, those rules no longer work. Instead corporate goliaths pit countries against one another to locate where there is little or no corporate taxation and stash money in offshore accounts under dubious business structures.
U.S. Treasury Secretary Janet Yellen correctly describes the result as “a 30-year race to the bottom on corporate tax rates.”
That’s why President Joe Biden has been pushing for a global agreement for a minimum 15% corporate tax to reign in the global corporate tax abuse.
He’s found broad support for the idea, even from our major competitor countries. Last week 130 nations signed on to the global corporate blueprint, including China, Russia and India.
That’s good news but Biden’s ambitious plan has a long and tough road ahead.
There are plenty of faults to pick apart in the initial proposal, including whether it unfairly carves out exemptions for some industries. There are also questions about whether all the countries that signed on will have the political will to approve and enforce a final plan.
Still, the fact Biden’s plan has reached this level of initial support is impressive.
The concept of a global corporate tax has generated so much support from such a diverse group of countries because they understand the balance of power has shifted from nations to multinational corporations who play countries off one another. That has denied government treasuries around the globe needed tax revenue.
The largest multinational companies have for too long paid too little in taxes. The global corporate tax rate won’t make that disparity disappear, but it would go a long way with improving things.