.jpg)
Former Treasury Secretaries Jack Lew and Larry Summers penned op-eds for CNBC and the Washington Post, respectively, praising the G20 agreement to rewrite the rules of global corporate taxation that will level the playing field and end a decades-long race to to the bottom.
Read full op-eds below.
CNBC: Historic international tax agreement at the G-20 will eliminate destructive race to the bottom
[Jack Lew, 10/30/21]
This weekend, leaders of the G-20 joined 136 nations in total in endorsing an international tax agreement to make the global economy more fair and more productive. This historic deal will increase incentives to invest in workers and workplaces and ensure that large and profitable corporations do not escape taxation. Further, it demonstrates the power of diplomacy to enhance U.S. leadership around the world.
Secretary Janet Yellen and the Treasury Department negotiated an end to the global race to the bottom on corporate taxation by establishing a global minimum tax on foreign earnings. Over four decades one country after another, including the United States, played a self-defeating game of trying to win the race by claiming the lowest tax rate to attract and retain businesses, only to see other nations quickly follow suit.
Countries would slash their corporate rates, creating tax havens that permitted some of the most profitable businesses in the world to escape paying taxes at home, damaging the tax base in both the home country and the tax home. Even though all countries would have been better off cooperating to ensure a minimum level of taxation, acting individually they arrived at a situation in which all countries are worse off.
That is the definition of a race to the bottom, and in a race to the bottom, there are no winners. Rather than grow more competitive, the United States saw its tax base erode. Corporate tax collections following the 2017 Tax Cuts and Jobs Act fell to their lowest level since World War II: just 1% of gross domestic product. This left our country unable to invest in the core ingredients of economic growth: infrastructure, education, childcare and research and development.
This destructive race ends now. A new global minimum tax of at least 15% leaves no incentive for nations to undercut each other by slashing rates and no ability to do so because of strong enforcement rules. Instead, nations will compete on aspects of economic strength that will undergird growth for decades to come: Are the nation’s workers educated and skilled? Are their supply chains efficient and modern? With a level playing field, the United States will be more competitive, and all nations will be pressed to compete on terms that lead to more productivity and growth. And no longer will U.S. businesses be the only companies subject to a minimum tax on foreign earnings.
The deal also marks a significant diplomatic achievement. It is a major step towards reviving U.S. leadership on the international stage. Close and constant consultations on this agreement signaled to partners and allies that a page had turned on a recent period of unpredictable unilateralism. Instead, the Administration embraced multilateral leadership to strengthen the global economy while serving the interests of working American families.
Rarely do 136 nations agree on anything, let alone a topic as complex and controversial as international corporate taxation. It is an encouraging example of cooperation among the world’s economies that offers hope for tackling the other transnational challenges we face, from climate change to ending the pandemic. These issues cannot be addressed without deep multilateral engagement. But, if we can achieve this level of unanimity on something as complicated as international taxation, there is reason for optimism on other seemingly intractable issues.
While the completion of the international tax agreement is a landmark achievement, neither Secretary Yellen nor other leaders have the luxury of a victory lap, even if they deserve one. There remains far too much to do, and the stakes have never been higher.
Leadership on the global stage is only lasting if action follows negotiations. Most crucially, Congress must move quickly to implement the agreement on the global minimum tax in the upcoming reconciliation bill so that this landmark foreign policy achievement, and the investments it will support, can begin to flow to the middle-class Americans who stand to benefit.
Washington Post: A triumph for Detroit over Davos
[Larry Summers, 10/31/21]
The leaders of the Group of 20 nations, representing the largest economies in the world, gathered Saturday to announce agreement on a deal that will create a more worker-centered global economy.
This agreement is arguably the most significant international economic pact of the 21st century so far. It is built around a profoundly important principle: Countries should cooperate to raise corporate taxation, not compete to reduce it. At a time of much cynicism about government, this agreement is a triumph of American leadership, for Treasury Secretary Janet L. Yellen and her colleagues. It also demonstrates the power of ideas to shape economic policy, as tax scholars have for years been pondering the conundrums of taxing global companies.
For too long, governments have been complicit in the light tax burdens of their companies, competing in a race to the bottom that has steadily lowered corporate tax rates. This competition to lighten tax burdens on mobile capital has occurred amid trends of rising inequality, rising corporate profits and a rising share of capital income (relative to labor income) in national income.
This agreement ends that race to the bottom. Under the deal, countries representing nearly 95 percent of world GDP agree to tax their multinational companies’ foreign income at a rate of 15 percent. Fifteen percent is a floor, not a ceiling. Countries can of course go higher, but they can no longer lure mobile capital with rock-bottom tax rates.
Countries that choose to stay out of the agreement will face consequences: Their own multinational companies will lose the ability to fully deduct expenses when they operate in countries that have joined the agreement. This strong backstop strengthens the incentives to join the regime and can eliminate the advantages of not doing so.
This new global minimum tax is a triumph of Detroit over Davos. Countries have come together to make sure that the global economy can create widely shared prosperity, rather than lower tax burdens for those at the top. By providing a more durable and robust revenue base, the new minimum tax will help pay for the sorts of public investments that are fundamental to economic success in all countries.
A stronger tax base is central to American prosperity. What determines U.S. competitiveness is not whether we can lower our tax rates faster than other nations, but rather the strength of our fundamentals: the talents and skills of our workforce, the modernity and durability of our infrastructure, and the stability and trustworthiness of our institutions. We need to make important public investments in broadband Internet access, roads and bridges, basic research, climate change mitigation and education, from prekindergarten through the university level.
Workers around the world will also be better off because this historic achievement enables tax burdens to be placed on those most able to pay. For too long, mobile multinational corporations have used accounting gimmicks and clever legal arrangements to avoid taxes, benefiting their shareholders while shifting tax burdens to others.
The Joint Committee on Taxation, an arm of Congress, found that U.S. multinational companies paid an average tax rate of only 7.8 percent on their worldwide income after the 2017 Tax Cuts and Jobs Act, while our top trading partners levied an average rate of 18 percent. At the same time that companies avoid taxes, important public priorities go unfunded.
Workers have received many benefits from a more open world economy, including lower prices on consumer goods and opportunities to serve new markets for those in export industries. But they have also faced many adverse side effects from globalization. Economic disruptions associated with trade and technological change have been particularly damaging to local economies in many states, and some workers feel wronged by a global economic system where the rules are designed to protect the interests of shareholders but not those of typical Americans.
As a consequence, harmful nationalist economic policies, both here and abroad, have looked more attractive than they are. When countries engage in trade wars, consumers suffer from higher prices, companies and workers face business disruption, and the goodwill that is needed to solve global problems through collective action is hard to find. So this agreement couldn’t come at a better time.
In short, the agreement helps nations forge tax systems that are fit for purpose in the 21st century. It is also a template for much more that needs to be done to tackle the adverse side effects of our modern, global capitalism. Continued bold action will be needed to address other international challenges, including vexing problems of public health, as well as the existential threat of climate change. But Saturday’s agreement is a really good start.
