Global Corporate Tax Floor: This past weekend, Jannet Yellen pitched her 15% global minimum tax rate proposal to other world leaders. Here’s what both sides are saying. To have stories like this and more delivered directly to your inbox, be sure to sign up for our newsletter.
Top Story: Global Corporate Tax Floor
This past weekend, finance chiefs from G7 countries—a club of wealthy democracies—gathered in London, sat around a campfire and told tax stories. One of the spookiest tales of all was shared by a little girl with an American Flag patch on her shoulder, named Janet Yellen. The US Treasury Secretary quieted her counterparts while speaking slowly, eyes darting side to side, “What if… [she pauses] there was a global tax floor that big, multinational companies had to pay, no matter where they did business?” There was an audible gasp from the audience. Each member was mesmerized by not only the simplicity of the idea but the complexity of its implementation.
Of course, this isn’t how it really happened, but it’s much less dry to imagine Janet Yellen pitching her 15% global minimum tax rate proposal in a kumbaya fashion to other world leaders. Here’s what both sides are saying about the idea of a multinational tax floor:
On The Right
Republicans and right-leaning outlets oppose Yellen’s G7 tax deal, calling it “anti-competitive, anti-US, harmful” and a surrender to countries not only in the EU, but China as well. They have vowed to block its passage in Congress, casting doubt on its future.
A Global Surrender: The Wall Street Journal Editorial Board calls this “Yellen’s Global Tax Surrender.” Simply put, they believe “US workers, consumers, and shareholders will pay for the new minimum tax.” First, they think it’s interesting that progressives “finally concede that tax rates matter to decisions about investment and job creation, since the left has denied this for decades.” Secondly, they take issue with the fact that in order “to get the minimum tax Ms. Yellen also had to agree to a digital tax aimed primarily at US tech companies.” They’re upset that Yellen “acquiesced to European demands,” and what about “large European manufacturers?” The editors note that “One country that almost certainly will not sign up for this is China” since “Beijing… wants to retain control over its tax policy as a tool to encourage more investment.” At the end of the day, “Rather than focusing on economic growth, [the officials] struck a tax deal for the benefit of governments rather than the economy. Of all the policy surrenders this weekend, this is the most damaging,” the writers opine.
Execution Unlikely: Meanwhile, writing for RealClearMarkets, Terry Haines outlines the likelihood that a global tax floor will actually be implemented. Spoiler alert: chances are slim. He says G7 ministers used the word “commitment” not “agreement,” calling the “ballyhooed” proposal “an airy-fairy expression of intent by ministers with no ability to bind their governments or legislatures.” First, “The US Congress passes laws, not Treasury Secretary Yellen,” he writes. Secondly, “Between Republicans and centrist Democrats fighting for their political lives in 2022, there’s not likely to be a congressional majority for it.” More broadly, Haines believes “Yellen now is viewed in Washington as a Biden apparatchik, not as an independent policy voice, and so has no political capital of her own to help get it through.” Even on a global scale, Haines says, “There’s still the Ireland lower tax ‘problem’ – and [he] continues to think as Ireland goes, so goes the ‘commitment’, agreement, or whatever other wonderful word will be applied” to the proposal. From an investment standpoint, he states the “‘commitment’ has to negotiate so many hurdles over such a long period of time that any immediate market impact should be incremental at most.”
Republican Pushback: To that end, “Several top US Senate Republicans on Monday rejected Treasury Secretary Janet Yellen’s G7 deal to impose a global minimum corporate tax,” David Morgan and David Lawder report for Reuters. Republican Senator John Barrasso said he thinks “It’s going to be anti-competitive, anti-US, harmful for us as we try to continue to grow the economy and certainly at a time when we’re coming out of a pandemic.” Meanwhile, Republican Senator Pat Toomey told Fox Business Network that “There will be no Republican support for this.” Toomey added, “The deal would drain tax revenues away from the US Treasury to other countries, adding that he hoped some Democrats would be unwilling ‘to subject the American economy to this kind of misery.'” The pair of Reuters reporters also note that “Daniel Bunn, an international tax expert at the Tax Foundation, a right-leaning think tank in Washington, said he believed that establishing new taxing rights on 100 multinational firms would require a new tax treaty.”
On The Left
Left-leaning commentators and outlets are excited about the prospect of a global minimum tax. At the same time, they’re wary of potentially unscalable speedbumps including Republican opposition and non-compliance from countries like Ireland.
Game-Changer: The Financial Times Editorial Board calls the G7 tax accord “a game-changing opportunity.” They believe “The proposed model is imperfect, but a lot better than the system today” and begin by noting that “For four decades, global corporate tax rates have fallen in an international ‘race to the bottom,’ allowing big multinationals to reduce their burden by funneling profits through low-tax jurisdictions.” The global tax floor can help “reverse that process — and ensure companies are visibly making a fair contribution to the post-pandemic recovery,” they write. Not only that, “The agreement also represents a revival of multilateral co-operation and constructive US leadership after the Trump years.” The editors say, “China might balk at its own multinationals having to pay some tax elsewhere. But it is in its own interest to receive revenues from, say, Apple, and to have a stable global tax system.” As for the US, they think “giving up some tax revenue from American corporates abroad can open the way to collect much more from them at home.” Ultimately, the editors believe “No one wins from a Wild West tax system where everyone is trying to make gains at another’s expense. The chance to reform that system should not be lost.”
Good Start, Long Way to Go: Similarly, The Guardian Editorial Board believes the “Finance ministers’ agreement on a fairer global tax system for multinationals is a step in the right direction. But there is a long way to go.” They call it the “first step towards dismantling this footloose, beggar-thy-neighbour version of capitalism, which has deprived treasuries of hundreds of billions of pounds in tax receipts.” Originally, “International corporate tax rules were designed a hundred years ago, to protect multinational companies from predatory governments and the threat of double taxation. But since the late 20th century, and particularly in the digital era, the power relationship has been inverted,” they write. This “sudden momentum for change came about through a combination of factors,” including pandemic-induced debt, lockdown profits for big tech, and the “disappearance of Donald Trump.” In conclusion, “The balance of power between multinational businesses and governments is shifting in the right direction,” they write, “but there is a long way to go before global business is truly paying its fair share.”
All Eyes on Ireland: Finally, Julia Horowitz of CNN Business notes that “A deal will only work if lower-tax regimes get on board.” For example, “Opposition remains from countries including Ireland, which has successfully recruited global companies including big US tech firms by offering a corporate tax rate of just 12.5%. It’s expressed significant reservations over the Biden proposal.” Meanwhile, Horowitz says, “Wall Street is worried about higher corporate taxes, but is brushing off the risk for now, betting that it will take some time for negotiations to translate into actual policy.” She quotes Jeffrey Sacks, head of investment strategy in Europe, the Middle East, and Africa at Citi Private Bank, who said “What’s more interesting and relevant for us is the time scale. How quickly will this be imposed? That impacts directly on corporate earnings.” Additionally, Elke Asen, a policy analyst at the Tax Foundation’s Center for Global Tax Policy, told CNN “that realistically, it could be years before any deal moves beyond a political agreement and receives ratification at the national level.”
Flag This: Global Corporate Tax Floor
Currently, there is no comprehensive, cross-country poll to gauge public support for a global minimum tax. If we focus on just the US, here is how each side of the ideological spectrum currently portrays public sentiment regarding the matter:
On the left, Rachel Maddow’s MSNBC Blog led with a headline on April 12, 2021 that said, “Polls show broad support for tax hikes on wealthy, big corporations.” Specifically, author Steve Benen cited a Pew Research Center report, which “found that most Americans agreed that the existing federal tax system was unfair.” Meanwhile, on May 6, 2021, the right-leaning New York Post published a piece saying, “Half of Americans say their tax payments are too high, poll shows.” Author Mark Moore cited a Gallup poll, which found 50 percent of Americans say their federal taxes are too high, while 44 percent said they were just about right. Finally, Morning Consult which represents more centrist viewpoints, found on April 7 that “More Than 3 in 5 Voters Support a Corporate Tax Hike to Fund Biden’s Infrastructure Plan.”
Flag Poll: Global Corporate Tax Floor
Do you agree with the Biden administration’s push for a global minimum tax rate of 15%? Comment below to share your thoughts.