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Original title: US Treasury Secretary Yellen took steps to coordinate the “tax cut competition” of OECD members
Since the beginning of this century, 76 economies have lowered their corporate tax rates, while only six economies have increased their corporate tax levels during the same period.
According to US media reports, when the Biden administration was considering raising funds for the next big spending bill, US Treasury Secretary Janet Yellen decided to move forward in negotiating an agreement to set the tax rate. lowest in the world.
The $ 1.9 trillion economic stimulus package that Biden signed last week was funded entirely by additional federal loans. However, for the infrastructure and employment plans that Biden is about to discuss on the table, the Tax increases for businesses have become a source of funding. Potential channels. During Biden’s presidential campaign, he proposed lowering the US corporate tax rate from 36% to 21% during the Trump administration and increasing it to 28%.
Zhao Yongsheng, a finance professor at the University of International Business and Economics, said in an interview with a China Business News reporter: “In fact, the letter Trump left to Biden is not easy to play because the tax rate in the United States States have fallen relatively. Taxes are the same as social assistance. It is very similar to a one-way policy. After this, it is difficult to get it back. It is very difficult for Biden to raise taxes in the short term. “
Some Republican business groups and legislators are concerned that because countries generally have lowered corporate tax rates in recent decades, tax increases in the United States could affect their competitiveness and cause American businesses to relocate abroad. . Therefore, Yellen is working hard to curb countries’ ‘race to the bottom’ practice through the Organization for Economic Cooperation and Development (OECD), allowing countries to agree to set a minimum corporate tax rate. global.
Yellen once responded to a written question after her confirmation hearing: “The Biden-Harris government will seek to reach a comprehensive multinational agreement to update global tax rules, establish effective minimum tax rate rules, and prevent global changes in earnings. . And to ensure that companies pay their fair share … The direction of our action is to maintain the competitiveness of the United States and reduce the stimulus that promotes the exit of American companies abroad. “
Lower corporate tax rates lead to an increase in the US deficit.
In recent years, many countries, including the United States, have lowered their tax rates to attract business investment. In 2020, nine countries, including France, have lowered their corporate tax rates. Some economists believe this trend is a destructive “race for lower tax rates.” In the context of the impact of the new corona pneumonia epidemic on the economy, this “go the trend” tax cut has curtailed the US government’s ambition to launch a broader stimulus package.
Prior to the introduction of the Republican government’s new tax law in 2017, the U.S. corporate tax rate had hovered at 35% for decades. According to US media reports, the new tax reform bill reduces the official tax rate from 35% to 21% and significantly reduces the effective tax rate that companies actually pay. The effective tax rate paid by Fortune 500 companies has dropped from 21% to about 11.3%, and the tax at the federal level for the world’s 91 largest companies is zero.
And the tax cuts have created staggering federal debt. According to data from the Federal Reserve Bank of New York, during Trump’s tenure, US Treasuries increased by nearly $ 7.8 trillion. According to calculations by the Congressional Budget Office (CBO) in 2018, the tax cuts will add about $ 1.9 trillion in deficit to the United States in 11 years.
On the other hand, when Biden ran for president, he promised to enact a trillion-dollar federal plan, which included expanding health care coverage and rebuilding America’s infrastructure, which means huge expenses. Wang Yong, a professor at the Peking University School of International Relations, told a China Business News reporter: “Due to the current economic difficulties, we will also launch a large-scale infrastructure construction plan, which will greatly increase measure the US tax rate deficit going forward. “
How should America raise funds for the future? Biden has said he will raise money by abolishing some of the GOP’s corporate tax reduction policies and by fighting corporate tax evasion. But Republicans criticized that the tax increases would encourage multinational companies to relocate abroad, damaging America’s competitiveness.
To alleviate this concern, Yellen set her sights on the global level. In other words, as long as other regions are prevented from cutting taxes further, the relative competitiveness of the United States will not weaken. White House press secretary Jen Psaki mentioned many times at the press conference that corporate tax increases are a global problem that needs a global solution.
“Is America’s goal to win in global competition to reduce tax revenue, or should we end this competition of constantly competing for the lower limit and increase corporate tax levels to reduce the burden on workers in the United States? United and elsewhere? “Larry Summers, former president of Harvard University, said,” I am satisfied with the signal that Yellen sent at this early stage. “
Wally Adeyemo, nominated by the US Under Secretary of the Treasury, also stated at the confirmation hearing in February that raising the corporate tax rate will help finance strategic US industrial investment. He promised to end the global trend of “competitive reduction” of corporate tax.
However, considering the complexity of coordinating the tax rules of different countries, it is still unknown if Yellen and the OECD can reach a new agreement.
Is the global race to cut tax rates healthy?
In the 1980s, after the liberal reforms represented by Reagan and Thatcher, countries around the world competed to reduce corporate tax burdens. According to data from the US Taxation Foundation, the world average corporate tax rate in 1980 was around 40.11%, and by 2020 this figure has dropped to 23.85%. The OECD report indicated that from 2000 to 2018, 76 economies lowered their corporate tax rates, while only six economies increased their corporate tax levels during the same period.
Zhao Yongsheng told a China Business News reporter: “Multinational companies set up branches all over the world and then call the most suitable place their headquarters. This may not be the actual headquarters, just because the tax standards of different countries are different”. Generally speaking, it is the headquarters of the company. Wherever they are located, taxes are collected in accordance with local regulations. Let’s take Europe as an example. Most multinational companies are based in Ireland. This is largely due to the low tax rates that exist there. “
In 2020, the total corporate tax collected by Ireland was just € 11.8 billion, which was accused by competitors of “unfairly using tax policies to attract multinational companies.”
Michael P. Devereux, a researcher at the University of Oxford Business Tax Center, said: “The driving force for lowering tax rates is competition between countries to attract foreign investment.”
“It is a bit like the Paris Climate Agreement in terms of taxes. All countries believe that they can reduce tax rates to get business from other countries, and the only beneficiaries of this competition to reduce tax rates are the wealthiest multinational companies. “. Nobel Prize in Economics said winner Joseph Stiglitz.
The British think tank Oxford Business Group (OBG) stated in a research report that after the global financial crisis of 2007-2008, many countries were forced to cut spending to control large budget deficits. Even if the tax-to-GDP ratio of many economies has reached the highest level in decades, the trend to lower corporate tax rates remains largely unchanged. This characteristic has become one of the main weaknesses of the epidemic. For example, the UK, which has a corporate tax rate of only 19%, is the lowest of the 37 OECD countries (with an average corporate tax rate of 23%), which is difficult to support your answer. to the new corona pneumonia crisis. . Therefore, British Chancellor of the Exchequer Rishi Sunak announced on March 5 this year that corporate tax will be increased to 25% from April 2023 in response to the government’s financial crisis.
Furthermore, developing countries are more dependent on corporate taxes than developed countries. The share of corporate tax in total income for Africa and Latin America and the Caribbean (around 15.3%) is much higher than that of OECD countries (9%). Analysis by the International Monetary Fund (IMF) shows that non-OECD countries lose approximately US $ 200 billion in revenue each year due to the transfer of profits from multinational companies to areas with low tax rates, accounting for about 1 , 3% of GDP. The IMF said that the current situation in countries competing to cut corporate tax rates is particularly damaging to low-income countries because it deprives them of much-needed income and cannot help them achieve higher economic growth and reduce income. poverty.
“The problem is that by competing with each other (by lowering tax rates), countries will eventually have to rely on other, more distorted sources of financing or cut much-needed public spending after lower revenues,” the IMF said.
“It is not reasonable that the tax rate is as low as a certain limit.” Zhao Yongsheng said: “Now countries are involved in unfair competition to fight for different multinational companies, but there are solutions for this situation. For example, the French rule is that regardless of the company where the headquarters is located, France will collect Tax based on actual operating income and income. (Countries compete to cut taxes) I think it’s unsustainable. “
According to foreign media reports, more than 140 countries and regions are currently negotiating on the global minimum corporate tax. Some participants said the tax rate could eventually be around 12.5%, which is the same as Ireland’s current tax rate.
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