The tax that could fix global capitalism


AP Photo/Carolyn Kaster, File

In this Dec. 13, 2017 file photo, Federal Reserve Chair Janet Yellen speaks during a news conference. Yellen on Monday, April 5, 2021, urged the adoption of a minimum global corporate income tax, an effort to offset any disadvantages that might arise from the Biden administration’s proposed increase in the U.S. corporate tax rate.

TJ Lindstrom, Opinion Editor

Corporate taxation is under attack. As our economy becomes more globalized and digitized, it is easier than ever for corporations to dodge taxation. Tracking and accurately taxing the billions of digital transactions on the global digital marketplace is a difficult task. For example, imagine an American software company with a European headquarters in Ireland selling a product to a French citizen living in Germany. Which country collects the tax on that profit? And at what rate? 

The International Monetary Fund estimates that the world’s governments miss out on $600 billion in revenue due to corporate tax avoidance every year –– and the global economy is only going to get more complicated from here. To make matters worse, countries seem to be in a perverse “race to the bottom” with their corporate tax rates. The logic is that, by lowering corporate tax rates, countries can entice companies to move their business there. This is exactly why opponents of high corporate tax rates in the U.S. warn that increasing taxes will scare businesses away to countries with lower rates. The problem? That’s probably correct. 

Take Ireland, for example. Widely considered to be one of Europe’s biggest tax havens, Ireland has seen an influx of international corporations. In 2019, Dublin had the most European corporate headquarters per capita of any European city, despite the fact that Ireland is one of the poorer countries in Western Europe. Ireland is winning Europe’s race to the bottom, and it appears many other countries are following suit.

(Source: The Tax Foundation

But why does it matter if corporations aren’t paying taxes? Isn’t it just good business to avoid as many expenses as possible? Look no further than the government’s COVID-19 response for an answer. There were hundreds of millions of doses of vaccine procured, millions of pieces of personal protective equipment bought, trillions of dollars of stimulus money distributed. All this has to be paid for somehow. If corporations are able to avoid taxation, that burden will ultimately fall on everyday people –– you and me. 

Taxation is not theft. Taxation is an investment in our society. And right now we need investment more than ever. We are in the middle of a deep, pandemic-induced recession, and we need investments to get us out. We are in a climate crisis, slowly killing off future generations with the fossil fuels we burn. A rapid investment in green energy is the only way out. These investments can only come from the government; it is the only entity with the resources capable of tackling problems of this scale. 

So as the need for government investment grows, how do we solve the global race to the bottom? Well, Treasury Secretary Janet Yellen recently backed a potential solution: the global minimum corporate tax. This specific proposal is currently being spearheaded by the Organization for Economic Cooperation and Development and would implement a “top up” tax. 

Under this proposal, countries would still be allowed to set their corporate tax rates, but a global minimum rate would be established (likely around 15%) by the international community. Every country would then tax any profit made by its corporations overseas at that minimum rate. This means that if a company is doing business in a country with a corporate tax rate below the minimum, that company will still effectively end up paying the full minimum tax. Strong incentives would also be provided to entice countries with lower rates to join the agreement. If most countries joined in this initiative, it would be impossible for any company to legally pay less than the minimum rate, ending the incentive for countries to race to the bottom.

(Source: Our World in Data)

The era of global capitalism has presented many problems –– problems of environmental sustainability, the dignity of work, vast inequality and food insecurity, to name a few. The resources to solve these problems are there; they just need to be put to use. A global minimum corporate tax would mark a turning point in international governance. It would mark the beginning of a worldwide collaboration to retake control of global capitalism for the people. It would mark an incredible advancement towards a more equitable, democratic capitalism.