There was a period following WWII when we approached utopia. Well, OK, maybe that’s overstating it, but we had created probably the finest society, in terms of the economic welfare of ordinary people, that humanity has ever managed.
We had for some time enjoyed the benefits of capitalism but in an often erratic and inequitable way. Capitalism is the greatest engine of wealth creation yet devised, however it is an utter failure at distributing that wealth equitably. Quite the contrary. It tends to accumulate wealth for those who already have a disproportionate share with little of the famed trickle-down. It also tends to plunge the economy into vicious cycles.
The required complement to capitalistic wealth-creating was a system that was good at redistributing wealth. The answer was the welfare state. And this we implemented after WWII, with the crowning achievement being Medicare. We had put capitalism on a leash to ensure it served all of us equitably. And it did.
But then in the 1980s, with globalization we began to let it off the leash. Global trade agreements allowed corporations to move operations to countries with the cheapest labour and the lowest taxes. Governments and the public good generally were disadvantaged. Manufacturing went to places such as China and finances to a variety of tax havens. The Tax Justice Network estimates that tax avoidance alone by multinational corporations and rich individuals costs governments $427-billion US a year in lost revenues.
Now Joe Biden is offering us a way to start regaining the upper hand. He has proposed a minimum global tax rate with the allocation of tax rights to those countries where companies make their money.
Taxing rights would be granted to the portion of a multinational’s profits based on where its customers reside, regardless of the company’s physical presence. Governments could set whatever tax rate they wanted, but there would be a global minimum. The US suggested a minimum of 21 percent but has indicated it could accept one as low as 15 percent.
Selling a deal to 130 plus nations will not be easy, however support is growing with a number of countries on board including Germany, France, Italy, Japan and—yes—Canada. Finance Minister Chrystia Freeland called it a “breakthrough moment,” and is optimistic, saying “The Biden administration and secretary Janet Yellen personally have taken important steps that really opened the prospect of having a deal.”
If the proposal is adopted, multinational corporations will no longer be able to escape taxes at the expense of domestic businesses that pay their fair share. And more importantly, the world will move one step closer to restoring an appropriate balance of power between capitalism and the people.