The big fat corporate tax debate… The Biden admin just rolled out with its $2.3T infrastructure proposal. So, where do they expect the dollars to come from after spending a year and ~$5T on the pandemic? Taxes! Janet Yellen, the secretary of the treasury of the US has been consistently pushing for a global minimum corporate tax rate. Last week the G20 also agreed to come to a decision (a positive one of course) by mid-2021.
Wait, but why a ‘global’ tax rate?
Let’s quickly crunch the 2.3T dollars. America’s old infrastructure needs a major revamp. It was recently graded as a ‘C.’ The plan proposed to spend $621B for transportation projects (10K bridges, 20K miles of highways, airports, 500K EV chargers, etc); $400B for long-term care facilities for the elderly and disabled; $300B to make the US less China-reliant by boosting manufacturing and supply chain; $213B to build affordable housing; $100B for schools; and finally $100B for high-speed broadband.
This is one of the biggest federal investments: “The American Jobs Plan will invest in America in a way we have not invested since we built the interstate highways and won the Space Race.”
How is America going to recover the costs of this massive stimulus that is spread over 8 long years?
Corporate Taxes. In 2017, the corporate taxes were slashed to 21% from a whopping 35% by the Trump admin. Republicans weren’t your regular tax fans. But Biden is bumping them up to 28% now. The stimulus would be paid over a period of 15 years with the help of these taxes. Biden has been targetting corporations and the wealthy.
The Proposals. Let’s go hiking?
– Raising the corporate tax rate to 28% from 21%.
– Raising the income tax rate on people earning $400K+ per year (less than 10% of total taxpayers).
– Raising the capital-gains tax rate (what you pay when you sell investments at a profit) for people earning at least $1M/year.
– A minimum 15% tax on what’s known as “book income” — the profits that firms report to investors but that are not used to calculate tax liability. (the sums lost to exchequers around the world have risen as high as £311bn annually)
Two Sides, Same Coin. Higher taxes means lower profits for companies. They’ll have fewer dollars for the growth and investment. This could result in lost wages and a decline of growth in a lot of sectors. But on the other side, the stimulus could boost investment and economic growth and help reduce inequality.
A tiny 11.3%. American corporations and giants paid as little as 11.3% tax on 2018 profits. As a matter of fact, Amazon even got a $129M tax rebate for the year 2018. Such are the tax loopholes…But for some reason, billionaires are “very, very quiet” about these proposals.
It is relatively easy for a billionaire to say they support higher taxes. More is on the line if they are asked to do something about it.
Biden’s promises. To pay for “Build Back Better”: Biden pledged $2T to clean energy innovation, and trillions more to building a modern infrastructure (think: roads, bridges). That could cost ~$7T. Higher taxes could help pay for BBB, without adding to the US’ $28T debt.
Now, why is Yellen pushing for a “global” tax rate? In 2000, more than 55 countries had corporate tax rates above 30%. But soon they realized the importance of corporate investments and foreign multinationals. By 2018, less than 20 countries have rates above 30% – with the global average being 24%. But if the US raises its taxes to 28%, it could lose tremendous economic activity.
Hence the push for a “global” minimum corporate tax rate.
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