Treasury secretary Janet Yellen has proposed that the US and other countries that host multinational corporations (MNCs) impose a “global minimum corporate tax rate” that would help pay for Biden’s $1.9 trillion economic recovery plan. The proposal would also mean that corporations cannot continue using its bag of tax-avoidance tricks, such as moving production to so-called tax havens (i.e., low-tax countries like the Cayman Islands), and taking advantage of very low US tax rates (21%). The Biden administration wants to change that rate to 28%, still well below the 35% it was before Trump took over.
Corporations naturally will say their tax avoidance simply follows what the law allows, as though their lobbyists, advisory groups, and the elected officials they helped finance didn’t have a great deal to do with creating the law. (For more on these ties in the Obama administration, see my blog, https://melgurtov.com/2014/05/12/post-22-take-the-money-and-run-the-privileged-world-of-the-multinational-corporation-part-2/.) The biggest of the MNCs, 55 in all, paid no federal income taxes at all last year, despite enjoying “almost $40.5 billion in U.S. pretax income in 2020, according to their annual financial reports.” The Institute on Taxation and Economic Policy also found that had these corporations actually paid at the current rate of 21%, collectively they would have paid $8.5 billion. Instead, they “received $3.5 billion in tax rebates.” In short, “their total corporate tax breaks for 2020, including $8.5 billion in tax avoidance and $3.5 billion in rebates, comes to $12 billion” (https://www.washingtonpost.com/opinions/2021/04/05/republicans-struggle-defend-corporate-tax-windfall/).
Let’s jump to the big picture on taxes. Numerous studies have found that: (1) tax cuts for wealthy individuals and the largest corporations, such as Trump’s 2017 tax “reform,” do not stimulate productive investments. The added income typically goes into more luxury spending, salary increases for top executives, and higher stock dividends. (2) tax increases, as happened under Obama, do not depress economic growth or decrease jobs.
Yellen’s proposal is all about fairness and global responsibility. First, it would finally force the largest corporations to start paying their fair share of taxes to the federal government. Second, if Biden’s plan is enacted, large corporations would have to pay $2.5 trillion in higher taxes over 15 years. The main beneficiaries would be middle- and lower-income people who are first in line under Biden’s infrastructure plan. The plan would also help combat climate change and promote clean energy production. Third, the plan would be enforced in cooperation with European and other advanced economies (the Group of 20), so that no matter where MNCs are headquartered, they would still have to pay the new global tax rate.
Fourth, Yellen linked her proposal to aid to developing countries that have been hard hit by COVID-19. Aid should include the vaccine, which the US will soon have in abundance. Yellen pointed out that the virus is not just a problem for the affected countries. As Gayle Smith, Biden’s nominee to lead vaccine diplomacy—she formerly headed the Agency for International Development (AID)—put it, “only by stopping Covid globally will Americans be saved for the long term.” Corporate leaders should also understand that the pandemic undermines economies and shrinks markets. So the US needs to be a good global citizen, though Yellen—mindful of Republicans’ disdain for foreign aid, especially to non-white countries—didn’t use that expression. What she did say is important: “Over the last four years, we have seen firsthand what happens when America steps back from the global stage. America first must never mean America alone.” Amen to that.
Mitch McConnell, happily the senate minority leader, is very unhappy about Yellen’s tax ideas, but even more unhappy when he sees corporations lining up with Democrats in criticizing voter suppression efforts in Georgia and elsewhere. That wasn’t in his plans! “Our private sector must stop taking cues from the Outrage-Industrial Complex,” McConnell complained. “My warning to corporate America is to stay out of politics,” he said, but with a small exception: “I’m not talking about political contributions.” Corporations “invite serious consequences if they become a vehicle for far-left mobs.” Far-left mobs? Who are you kidding, Mitch? Just because corporations are doing what comes naturally—protecting their profits—they’ve become the enemy—oh, except for political contributions and political action committees that back Republicans.
Of course McConnell understands the corporations’ motive, but still… if big business should accept higher taxes (because they could be set even higher!), get behind the infrastructure relief package (because it means more customers), and find that its bottom line is still pretty good (which it will be), who knows what it might back next in its own best interest. Climate change?