For some time, corporations have had things their way. With globalization, which was largely designed by and for them, they were able to slip the leashes that nation states had imposed on them and move wherever labour was cheapest and taxes lowest. And, in effect, blackmail governments for favours.
Now the Biden administration is proposing measures to help bring them back under control. In a speech this week, U.S. Treasury Secretary Janet Yellen described countries slashing tax rates to attract corporate investment as a “30-year race to the bottom.” In response she said the administration is proposing a minimum global corporate income tax. “It is important to work with other countries,” she explained, “to end the pressures of tax competition and corporate tax base erosion.” It was particularly encouraging to hear her emphasize the need for collaboration in resolving global problems.
Yellen’s remarks endorsed global tax negotiations underway at the 37-nation Organization for Economic Cooperation and Development. Even the conservative International Monetary Fund has called for a fairer international tax system.
The proposal is in part designed to offset disadvantages to the U.S. that might arise from Biden’s intention to increase the corporate tax rate from the current 21 percent to 28 percent. (Trump had reduced it from 35 percent.)
To maintain a level playing field, the administration would penalize countries without a minimum corporate tax by taxing their subsidiaries in the U.S. more heavily. Biden also intends to set a minimum tax on overseas corporate income and make it harder for companies to shift earnings offshore.
According to Yellen, the U.S. will also apply financial policy to fight climate change. It will “promote the flow of capital toward climate-aligned investments and away from carbon-intensive investments.”
Canada will, I assume, eagerly support the proposal. Finance Minister Chrystia Freeland’s press secretary commented, “It is only fair, and Canadians expect, that businesses pay their fair share of tax on revenue booked in Canada and around the world.” Indeed.