I would love to hear how they intend to enforce such a global minimum tax rate. As well how they would guarantee that no country offers a tax credit or otherwise to lower the numbers.
And then, of course, there's the really common trick of keepin profits on the books near zero for a corporation to avoid taxes altogether. Would they suddenly be taxing income and not profit?
> The thing about this is that we ought to understand both PARC and its East Coast friend Bell Labs as in important respects outgrowth of the high marginal tax rates prevailing in postwar America. These were, lets recall, very high rates.
If recent experience with America’s unilateral application of FATCA on the rest of the world, (effectively imposing massive compliance costs on other countries’ banking systems to help them find non-compliant Americans and bring in revenue equal to maybe 1/100th of the worldwide compliance costs) and how literally no country put up resistance to this imposition, I’d say everyone still cares what America has to say!
A unilateral global regime is the only complete solution to prevent capital from fleeing to lower-tax locales (e.g. Cayman Islands).
That said, the same incentives for smaller countries to offer lower tax rates will make them unwilling to agree to a global regime. And a global taxation regime would require a degree of international cooperation that has never been seen.
Janet is laying the groundwork for a potential policy which would take decades if not 100 years to come to fruition. She is extremely smart and intentional about her words, as a leader of the Fed.
> capital from fleeing to lower-tax locales (e.g. Cayman Islands)
I don't think the problem is the Cayman Islands, although it's the one people think of.
Instead, take a look at the places that the big multinationals choose to put their overseas revenue through. This side of the Atlantic two high on the list would be Luxembourg and Ireland. Then look at the corporation tax rates in those jurisdictions[0].
you act like capital fleeing to lower-tax locales is a problem? that is what is suppose to happen.
this is just a measure for fiscally irresponsible nations (i.e the US) the are advancing the moronic Magical Monetary Theory err, Modern Monetary Theory a check to ensure global competition for capital does not expose their fraud.
It won't be cooperation. Either it will requiring buying off those countries or using coercion which could include anything from tariffs, fees, and penalties, or to even locking them out from access to global banking and assistance.
a global tax lets the countries with irresponsible spending to offload their costs to other countries. pure and simple. it will be packaged as something else entirely but it is no different that what happens internally in many countries between different levels of governments (states,cities, territories,etc)
It is both. Corporations benefit from the existence of a well-functioning society that gives them invaluable tools to survive and thrive (they wouldn't exist without it). Why should they not contribute anything back?
Well the simple answer is that they do contribute something back. Payroll taxes fund social security, medicare, and federal unemployment insurance. And of course they contribute indirectly by paying wages so that people can buy things and we can have an economy.
I am on the side of people wanting to see corporate tax avoidance stopped. But my first reaction on seeing this headline and reading the article is that if a bunch of businesses got together and decided to set rates, we'd accuse them of collusion and call them a cartel; if they were in the US, we'd all be yelling about antitrust.
IMO, trying to set a global minimum corporate income tax is addressing a symptom. I don't know what the real problem is, but "dang it, they reported their income in Ireland!" is definitely not the whole story.
The company needs a profit margin of x. If you place a tax of y on the company, that margin, simplistically, is now x+y.
The company can increase the prices on its goods by y, which means everyone now pays y more (so, the government is now making the corporation collect the tax). Or it can absorb the cost of the tax, which would hurt it’s operating margin to survive, a small amount maybe could be done, but after a while they simply raise the price and pass y along to the populace.
It is a stealth tax, pure and simple. If you want the more pernicious suggestion, the tax is a poor persons sales tax disguised as populace claptrap to make the electorate like they are sticking it to the big fat cats in corporations.
taxes aren't just a way to raise money for federal and local governments, they are also an elegant way which society has to allocate social hatred.
You need a corporate tax because people hate corporations, a wealth tax is being discussed and on the horizon because people hate the wealthy...and so forth
It is peculiar to me how people view what a company does (accepting mutually consensual payments in return for valuable life-improving products and services) as 'exploitative', while taxes, which are in economic terms what's called rent seeking, happen to be some universal good.
It seems you've managed to get things completely reversed.
That's a strange worldview, corporations are typically seen as adding to the value of a society. They generally become profitable by providing people a better alternative than a competitor.
Corporate taxes are the most blindingly stupid idea ever.
People forget that the only way to level the playing field between Amazon and local shops is to cut taxes to 0 rather than layering on increasingly complex tax rules. Amazon thrives in the presence of corporate taxes.
Corporate taxes also create huge incentive to offshore jobs to tax havens.
Not to mention no corporate tax rates would mean no need for all sorts of expenses on legal and accountants for tax optimisation.
In the UK I think we acknowledge they are a bad idea by having a plan to step them down over time to some low level (and potentially even 0 eventually). Covid derailed that plan.
The problem here is that we are treating a symptom of legislation and not the cause, as usual. Instead of all trying to agree on a level of tax rates (unrealistic) we could unilaterally slash corporate tax rates and watch the others follow.
I'd be curious to know more details about the proposals. It seems hard to look at corporate taxes in isolation from other things corporations do and the other taxes that people pay. Some countries choose to provide fewer government services, or are able to provide government services for less money. It seems only fair that these countries would have lower corporate tax rates. Corporate tax rates also seem like they would be affected by what the capital gains tax is: the government can get money out of a group of people by either taxing the company they own or by taxing the capital gains they realize when their company does well. It also does matter what kind of other taxes a company will need to pay (payroll taxes), or what other taxes citizens pay (whether or not they pay VAT).
It's hard to imagine a global minimum corporate tax rate not being exploited by special interests. Just because companies avoid taxes today by switching countries, won't mean that they won't find other loop holes tomorrow. It's easy to imagine countries saying "sure, our nominal corporate tax rate is 21%, but <special protected industry X> has to have a different rate because of <cultural and historical specific reasons to that country>.
Readit News
And then, of course, there's the really common trick of keepin profits on the books near zero for a corporation to avoid taxes altogether. Would they suddenly be taxing income and not profit?
Never mind the international angle, what about the US states and localities offering business tax incentives to attract corporations?
Taxes is not just a federal thing here.
https://slate.com/business/2012/07/xerox-parc-and-bell-labs-...
> The thing about this is that we ought to understand both PARC and its East Coast friend Bell Labs as in important respects outgrowth of the high marginal tax rates prevailing in postwar America. These were, lets recall, very high rates.
That said, the same incentives for smaller countries to offer lower tax rates will make them unwilling to agree to a global regime. And a global taxation regime would require a degree of international cooperation that has never been seen.
Janet is laying the groundwork for a potential policy which would take decades if not 100 years to come to fruition. She is extremely smart and intentional about her words, as a leader of the Fed.
I don't think the problem is the Cayman Islands, although it's the one people think of.
Instead, take a look at the places that the big multinationals choose to put their overseas revenue through. This side of the Atlantic two high on the list would be Luxembourg and Ireland. Then look at the corporation tax rates in those jurisdictions[0].
[0] https://ec.europa.eu/jrc/sites/jrcsh/files/jrc104157.pdf
Dead Comment
this is just a measure for fiscally irresponsible nations (i.e the US) the are advancing the moronic Magical Monetary Theory err, Modern Monetary Theory a check to ensure global competition for capital does not expose their fraud.
a global tax lets the countries with irresponsible spending to offload their costs to other countries. pure and simple. it will be packaged as something else entirely but it is no different that what happens internally in many countries between different levels of governments (states,cities, territories,etc)
>Most economists concluded long ago that it is among the least efficient and least defensible taxes.
https://www.econlib.org/library/Enc/CorporateTaxation.html
We can't have nice things because too many people see economics as a moral issue and not a math problem.
I am on the side of people wanting to see corporate tax avoidance stopped. But my first reaction on seeing this headline and reading the article is that if a bunch of businesses got together and decided to set rates, we'd accuse them of collusion and call them a cartel; if they were in the US, we'd all be yelling about antitrust.
IMO, trying to set a global minimum corporate income tax is addressing a symptom. I don't know what the real problem is, but "dang it, they reported their income in Ireland!" is definitely not the whole story.
The company needs a profit margin of x. If you place a tax of y on the company, that margin, simplistically, is now x+y.
The company can increase the prices on its goods by y, which means everyone now pays y more (so, the government is now making the corporation collect the tax). Or it can absorb the cost of the tax, which would hurt it’s operating margin to survive, a small amount maybe could be done, but after a while they simply raise the price and pass y along to the populace.
It is a stealth tax, pure and simple. If you want the more pernicious suggestion, the tax is a poor persons sales tax disguised as populace claptrap to make the electorate like they are sticking it to the big fat cats in corporations.
You need a corporate tax because people hate corporations, a wealth tax is being discussed and on the horizon because people hate the wealthy...and so forth
Deleted Comment
Let people flourish in peace. We need liberty to grow as individuals. Otherwise, we're going to end up having only crony corporations and statism.
And the state has democratic control and oversight (ideally at least, much to be improved). Corporations are completely unaccountable.
It seems you've managed to get things completely reversed.
It would allow income taxes to be commensurately reduced if multinational corporations get taxed more.
If you own a ton of shares in multinationals this would not be good for you but it would be for everyone else.
People forget that the only way to level the playing field between Amazon and local shops is to cut taxes to 0 rather than layering on increasingly complex tax rules. Amazon thrives in the presence of corporate taxes.
Corporate taxes also create huge incentive to offshore jobs to tax havens.
Not to mention no corporate tax rates would mean no need for all sorts of expenses on legal and accountants for tax optimisation.
In the UK I think we acknowledge they are a bad idea by having a plan to step them down over time to some low level (and potentially even 0 eventually). Covid derailed that plan.
That's why Yellen is proposing a global minimum corporate tax.
It's hard to imagine a global minimum corporate tax rate not being exploited by special interests. Just because companies avoid taxes today by switching countries, won't mean that they won't find other loop holes tomorrow. It's easy to imagine countries saying "sure, our nominal corporate tax rate is 21%, but <special protected industry X> has to have a different rate because of <cultural and historical specific reasons to that country>.
Corporations don't pay taxes. Their customers pay taxes. She knows that. So we can only assume this is an attempt to curb consumption.