Joe vs. the multinationals

Every time those of us of a liberal-left bent propose bold solutions for endemic problems, the question always arises: How are you going to pay for that? (The same question is hardly ever raised for military adventures, or tax breaks to the rich, but those are topics for another time.) 

One solution usually posited is to raise the corporate tax rate. However, there's a slight problem with that: International corporate law is such a hodgepodge that multinationals can often arrange their affairs so that they abscond to low-tax havens, leaving the countries where they do the bulk of their business in the lurch. And, often, corporate law on the national level incentivizes companies to take advantage of such schemes, rather than punishing them.

How do you get around this? One way is by what President Joe Biden is proposing: a global minimum corporate tax rate.

The Biden administration is calling for the world’s biggest multinational companies to pay levies to national governments based on their sales in each country, as part of an ambitious proposal for a global minimum tax. 

The plan would apply to the global profits of the very largest companies, including big US technology groups, regardless of their physical presence in a given country. 

The US Treasury laid out its proposal in documents obtained by the Financial Times, which had been sent to the 135 countries negotiating international taxation at the OECD in Paris. 

The plan faces an uphill battle through the US Congress. But an agreement at the OECD would allow Joe Biden, US president, to increase corporate taxes on US companies without being undercut by other countries because it would include a global minimum tax rate.

The European Union backs Pres. Biden's call, as it, too, suffers from too many corporations seeking low-tax countries to park most of their profits. (Even within the EU itself, as the different member states have varying corporate tax rates.) 

With a global minimum tax, corporations wouldn't be able to shop around for the best deal and avoid taxes in their countries of residence. This would fill national coffers with much needed tax revenue, revenue they are currently denied. It would also reorient the balance of the tax burden, from the middle classes to those who can well afford higher impositions. 

The trick, of course, is to not make the taxes confiscatory. But no one involved in these discussions wants to "eat the rich". They just want the rich to pay their fair share into the societies from which they derive benefits and profit. And when you have the likes of Amazon and Lyft agreeing that corporate tax rates need to rise to fund much-needed national investments, one can say a sea-change is underway.

Of all his proposals, this one on an international level playing field may be the most radical, and turn out to be the most impactful. It will be one part of paring back the power of global corporations in relation to the nation-state. As consumers we benefit from what these multinationals provide for a fee; however, as we are the ones providing them with their wealth, it's only fair that they contribute back to their societies, so that they can support them and create the conditions where their customers will be financially able to continue to afford their products. Corporations have lost sight of the virtuous circle; laissez-faire capitalism is no more tenable than command-economy communism.

If Pres. Biden can engineer this course correction, it will be another mark for what is in these early days promising to be the most consequential American presidency in generations. Not bad for the kid from Scranton, PA.