WASHINGTON (AP) – From John Kennedy to Ronald Reagan to Donald Trump, U.S. presidents have targeted corporate tax evasion schemes in the past – and most have failed.
Now President Joe Biden is once again leading the government into loopholes, shelters and international havens that have long allowed multinational corporations to dodge taxes in ways ordinary households cannot.
The idea is twofold: First, to help pay for the billions of dollars in spending proposed by Biden – for everything from roads and bridges and green energy to internet access, skills training, preschool and sick leave. And second, shifting more of the federal tax burden to businesses and reducing the vast income inequalities in the United States. Wealthy investors reap the biggest deals when after-tax corporate profits accelerate.
“The burden,” said Thornton Matheson, senior researcher at the Tax Policy Center, “would fall mainly on the wealthier people.”
Biden, in fact, wants to roll back the pendulum. At one time, from the early to mid-1950s, corporations accounted for 30% of federal tax revenues. Last year, their share barely exceeded 7%.
As businesses generated an increasingly smaller share of federal tax revenues, the burden fell more heavily on individuals, through income tax and the levies that pay Social Security and Medicare.
The president wants to prevent companies from hiding their profits in low-tax countries. To do this, he has proposed a minimum tax of 21% on the foreign income of multinationals and urges other countries to follow suit. His plan would also reverse what the administration sees as international loopholes in Trump’s tax laws in 2017.
To bolster its ability to root out tax evasion, the administration proposed adding $ 80 billion to the IRS budget over a decade to bolster the agency’s underfunded enforcement team. As part of his efforts to reduce the wealth gap in the United States, he also proposed to increase the tax rate on long-term capital gains for Americans who earn more than $ 1 million. per year.
Many analysts see Biden’s corporate tax plan as a game changer – if Congress approves it.
If passed, the 21% global minimum tax “will effectively signal the end of tax haven as we know it,” said Alexander Arnon, analyst at the Penn Wharton Budget Model, a research organization associated with the University. from Pennsylvania. .
Penn Wharton analysts estimate that a 21% global minimum tax and other international provisions of Biden’s tax plan would raise $ 987 billion from 2022 to 2031, nearly half of what the tax plan would produce overall of Biden. Biden would raise an additional $ 892 billion on the centerpiece of his plan: an increase in the overall corporate tax rate to 28% from the 21% Trump reduced it in 2017, according to Penn Wharton’s analysis.
“It’s a great plan,” said Matthew Gardner, senior researcher at the Left Institute on Taxation and Economic Policy. “We cannot have a sustainable corporate tax system until we solve this problem of companies moving their intangibles. This plan should stop it dead.
Republicans and business groups are already lining up in opposition. The Business Roundtable, an association of CEOs, reported that 76% of top executives surveyed said the 21% global minimum tax would weaken their company’s competitiveness by forcing them to pay more tax on global profits than their international rivals. Biden’s tax hikes, the roundtable warned, could also limit business investment and hiring.
Chamber of Commerce director of policy Neil Bradley argued that the Biden plan would “slow down economic recovery and make the United States less competitive globally.”
In defense of Biden’s tax plan, his Treasury Department has said it will target corporate “excess profits” – unusually high profits that can result from a company’s near-monopoly power. Such companies already have so much cash available for investment that higher taxes would not dissuade them, for example, from building a factory or hiring more workers, argue the Treasury and some academic economists.
Ultimately, many analysts say they think any deal on a higher corporate tax rate could be around 25% – less than Biden would like but higher than the current rate.
Governments have long been frustrated by the difficulty of collecting taxes from corporations that operate in multiple countries. The goal seems simple: “What they’re trying to do is tax where economic activity takes place,” said Ronald Graziano, managing director of accounting and tax research at Credit Suisse.
But the Organization for Economic Co-operation and Development estimates that governments lose up to $ 240 billion a year to companies that shift profits between countries to lower their tax bills.
The Biden plan would strengthen provisions to prevent companies from playing with the system – for example, by having their U.S. operations purchase supplies from a subsidiary in a tax haven, thereby creating a deductible expense in the United States, where the tax is higher while placing the profits in a low tax jurisdiction.
The existing law also consolidates all foreign income, giving businesses the ability to shift income and tax credits between countries to minimize their U.S. tax bill.
“Right now it’s like a mixer approach,” Gardner said. “Businesses are allowed to put all of their foreign income in one bucket to calculate these items. And that leaves room for a company that has a bunch of assets in a high tax jurisdiction to throw stuff in the Caymans just for the fun of it. “
The Biden plan seeks to end it by assessing taxes on a country-by-country basis: if a company pays no tax in a tax haven, its income in that country would be subject to the full US global minimum tax of 21%.
Overall, businesses would face a tax hike. Among large multinationals, Credit Suisse estimates, the effective tax rate – what companies actually pay – would drop from 14% to 18% for Apple, from 17% to 22% for Microsoft, from 16% to 22% for the parent company of Google Alphabet and 12% to 17% for Facebook. Some of the higher tax burden would ultimately fall on the wealthy, who disproportionately own shares of companies: New York University economist Edward Wolff found that the richest 10% of Americans hold about 85% of the wealth in stocks.
The Biden administration endorses the OECD’s efforts to get countries to sign a global minimum tax like the one it is proposing for the United States. companies. The idea is to prevent countries from cutting corporate tax rates to outbid each other for multinational corporations – at the cost of lost income that could help finance public works projects and projects. social spending.
For the United States, however, international cooperation is “not strictly necessary for the Biden plan to work,” Gardner said. “If we put this in place unilaterally and give the IRS the tools it needs to enforce the laws, that’s all you need. “
As early as 1962, the Kennedy administration sought to collect more taxes from multinationals. But history suggests that corporate giants – and their armies of accountants, tax lawyers, and lobbyists – are endlessly creative in finding ways to keep revenue away from the IRS.
“Just as there is no limit to the ingenuity of 12-year-old boys who are in trouble,” said Gardner, “there is no limit to the ingenuity of companies to circumvent these regulations.” .