The Democrats’ ambitious plans to raise the tax rate for corporations are likely to end with the tax having to be lowered
News Front has previously reported that Joe Biden as president of the United States intends to increase tax on corporate income. The tax is expected to increase from 21% to 28%.
The idea of taxing the rich regularly resurfaces in the US, but the rich find ways to get rid of the burden each time. This case is no exception. There is a real danger that the middle class will have to pay for the government’s actions.
But the problems don’t end there. Bloomberg says that Washington’s war on corporations could have worldwide repercussions, given the controversial idea of a global minimum corporate tax rate. The agency warns that such measures would provoke a “shock to the international economic order” on a scale comparable to the US-China trade war of the Donald Trump era.
Multinational corporations have long found solutions to their problems with tax hikes. They are cutting operating costs by redirecting production to emerging economies where labour costs are lower. Corporations have done the same with their profits. Profits that are earned, for example, in the US are transferred to low-tax jurisdictions like Bermuda, Singapore or Luxembourg. It is in these so-called tax havens that company earnings are reported.
New US Treasury Secretary Janet Yellen intends to fight this, which is far from a precedent.
“To say that these efforts have gone nowhere would be a major understatement”, – Bloomberg stresses.
For example, attempts by states to combat financial outflows have ultimately come down to a rudimentary lowering of their own tax rates. 24 out of 37 member states of the Organisation for Economic Co-operation and Development have capitulated in this confrontation and lowered their tax rates for the benefit of corporations.
Therein lies a partial solution to the problem, as lowering taxes can make companies refuse to withdraw funds. But the Virgin Islands, for example, does not tax corporate profits at all.
“This is a race to the bottom in which rich country governments can only win by either drastically cutting spending or shifting more and more of the financial burden onto the shoulders of middle- and working-class voters”, – the paper said.
The US, however, has another way to achieve its goal: sanctions. As is known, many European companies refused to participate in the construction of the Nord Stream-2 pipeline for fear of being blacklisted by the U.S. Many states are no less afraid of US punitive measures, as the dollar has long been a weapon of sorts for Washington. Such tools can enable the US to force other countries to adopt a unified corporate tax, which will not have the best effect on international relations.
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“If there is a sincere desire to fight tax minimisation, it suggests that the Biden administration may be able to find a way”, – Bloomberg states. – “But the failed reform attempts of the past decade raise doubts that change is on the way. For all the rhetoric in Washington, corporate tax rates in 2030 are likely to be lower rather than higher”.