Yellen calls for global minimum corporate tax rate

https://www.cnn.com/2021/04/05/politics/janet-yellen-global-cooperate-tax/index.html

by _4570 • 5 years ago

80 78 5 years ago

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UncleOxidant• 5 years ago

Good luck with that.

huy-nguyen• 5 years ago

Duplicate of https://news.ycombinator.com/item?id=26698242?

ghgdynb13• 5 years ago

Whether or not we see such a harmonized tax rate emerge and even if we could find a way to have some governing body “enforce” it, you’d still see countries lowering their effective tax rates to lure firms or bolster growth. I bet there’s a maximum sustainable effective corporate tax rate, but I have no idea what it is (and for all I know it could be zero or negative).

Ericson2314• 5 years ago

It's certainly positive because all the other countries could tariff the spoiler or whatever. It doesn't have to be race to the bottom.

scsilver2• 5 years ago

Can these small countries who offer the low rates stand up the US sanctions and tarrifs apparatus. The US has alot of strings to pull to make these tax havens cooperate. Thats a nice export industry you have there, would be a shame if something were to happen to it wink nudge.

ghgdynb13• 5 years ago

The point is that effective tax rates can be really subtle.

For instance, you could have a country change what it considers to be “profit” so that you’re paying $2 on $100 of revenue, whereas in the neighboring country you’d be paying $6. Same nominal tax rate, different effective tax rates.

There are even more ways to play this: “Sure, we tax you at the required 20%, but you can then direct how those funds are used to reduce costs you’d otherwise have to pay directly.”

And this happens a ton— see the WTO and “effective” but not nominal tariffs.

woot4823• 5 years ago

My theory is that inequality is simply the result of globalization and it's not necessarily a bad thing.

If you had build the most successful retail business, in 1900 you would own the market in your town; in 1950 in your country; in 2020 you'd own the world (or a big part of it). The opportunity is just a lot bigger now than 50 years ago and that trickles down.

Also technology enables goods and services to be produced from everywhere; that means countries compete globally. Many 0.1%ers had to overcome global competition to make the money they're making. In addition, more and more of them can do it from anywhere (def true for entrepreneurs starting fully remote startups, for instance).

So there is both value and necessity in having to compete globally to attract the entrepreneurs and highest producers / best talent. Does it mean 0 tax? No. But it does mean you have to have reasonable taxes and offer a good product (security, laws, culture, talent, whatever it may be).

It also means you don't offend your best 'customers' all the time. All this talk about how 0.1% people essentially unfairly stole their way to their success won't want to make anyone pay more or stick around to higher tax place (city/state/country).

As a government you first want to be efficient with tax money; be reasonable with taxes, even if higher than average (but within the competitive ballpark); show appreciation for the people that end up paying most of your taxes; and stop talking about inequality as being exclusively a bad thing and a result of tax policy.

macrael• 5 years ago

You might enjoy https://en.wikipedia.org/wiki/Capital_in_the_Twenty-First_Ce...

woot4823• 5 years ago

I know the book and it's an interesting theory. I guess most of the 'rich' people I know / know of are entrepreneurs and they didn't get rich from capital returns but by building a company that created an unthinkable amount of value and also many jobs and success for a lot of people.

In my mind also, the best antidote to that is not taxes but anti-trust (make sure companies don't unfairly stay dominant) and low interest rates (which has been the case for a while) so that people without capital can borrow at reasonable cost.

Taxing a company doesn't make it less dominant. it can be argued that it makes it more dominant because the cost to compete with the dominant company will be higher if corp taxes are higher.

aeternum• 5 years ago

Interesting, I think there is some truth to this. Making more from investments than you make at a day job is pretty demotivating.

Wouldn't raising the corporate tax rate further reduce economic growth though, making things worse instead of better?

tootie2• 5 years ago

Inequality is simply inherent to capitalism. The free flow of capital, goods and labor will always see concentration happening. The issue is that it should be very possible to eliminate true poverty with reasonable redistribution policy. Capitalism (and Industrialization) have gotten us tantalizing close to a post-scarcity economy. We still need the last 1/3 or so of the world to get on the trolley while addressing our growing ecological crises. Both of which are hard problems to solve, but at this point we actually probably have all the ammunition we need if we can just summon the will. We can reach a point where we still have some absurdly wealthy people, but everyone else down the ladder has food, shelter, health care and dignity available at all times.

godelski2• 5 years ago

It sounds like you're just saying "pareto happens in any resource allocation scheme" which isn't specifically inherit to capitalism and is kinda just what happens when people have resources. I'm not convinced that people can live without resources. Sure, there are concerns when the distribution becomes too long tailed, but what you're describing is inherit to any system (we haven't seen a system where this hasn't happened). Stop creating a boogieman, let's have a good faith conversation instead.

elliekelly• 5 years ago

Inequality is simply inherent to capitalism.

I can’t say for certain whether or not this is true but I really don’t think it is. The entire premise of capitalism is that we’re all better off through specialization and trade. It’s the _very_first_thing Adam Smith writes in The Wealth of Nations.

We use the word “inequality” a lot at the moment but I think, in some ways, it’s a bit of a misnomer because the true issue the term “inequality” attempts to describe is that people aren’t getting the “better off” end of the deal that capitalism promises. For a lot of people participating in capitalism there isn’t any action in their set of available actions where they’re economically better off than they were before.

pessimizer2• 5 years ago

This is how imperialism works.

If you had build the most successful retail business, in 1900 you would own the market in your town; in 1950 in your country; in 2020 you'd own the world (or a big part of it). The opportunity is just a lot bigger now than 50 years ago and that trickles down.

In 1900, thousands would own the markets in their respective towns, in 1950 dozens would own the the markets in their countries, and in 2020 one person would own the entire market. This is not trickling down, this is flooding up.

It's no different than being the big man in your small island culture before the British navy rolls in. If there are no protections in place to preserve you, you will disappear and the Empire will expand.

woot4823• 5 years ago

If you believe that, then your answer is anti-trust -- not taxes. You also need to cut all red tape for small businesses which right now are enormous especially in places like NYC (property taxes alone are a travesty).

All taxes do is make the government a business partner of the 'imperialist' entrepreneur. It won't bring back the small town businesses or anything else about the past that you idealize.

djvu9• 5 years ago

All talk. No action. Sounds good. Doesn't work. Never going to happen. (tm)

TechBro86154• 5 years ago

That doesn't seem fair to the smaller (sovereign) countries who want to set their own tax laws to incentivize companies to do business there. In fact, it seems fundamentally outrageous that one country should be able to dictate anything about tax laws in another country. Wars have been fought over such abuses of power.

mvzvm• 5 years ago

This is a wild misunderstanding of how the world actually works. Welcome to Realpolitik.

vivekd• 5 years ago

I don't think it's valid to say that the parent has misunderstood how the world works without saying what you believe that misunderstanding to be. It seems perfectly logical to think that a corporation would be attracted to places with lower corporate tax rates to use as a tax shelter.

TechBro86154• 5 years ago

So Janet Yellen should have the right to tell Panama what its tax rate should be? Or China, or Russia? Good luck with that.

newacct5832• 5 years ago

You're confused about the incentives here, I think. Traditionally the conflict in this space has been smaller nations wanting to tax economic activity within their borders (by larger multinational corporations) and being prevented from doing so by coercive foreign policy. You really think that Ecuador or wherever wouldn't like a bigger cut of the oil they're shipping out?

The news here is that US policy seems to be moving to align with smaller powers, not the reverse.

TechBro86154• 5 years ago

No... countries like Ireland explicitly set lower tax rates to attract companies to open HQ there. You think Apple has an HQ in Ireland just because they like the whiskey?

mc32• 5 years ago

But it’s not global it’s whoever the allies are, which I guess is OECD and co. They’re just trying to avoid having companies move (tax jurisdiction shopping) and do reverse mergers to shirk tax responsibilities, etc.

I presume it would be via some convention which allows tit for tat reciprocity and so on.

ineptech2• 5 years ago

I think you're missing the point here.

"We're working with G20 nations to agree to a global minimum corporate tax rate that can stop the race to the bottom."

The race to the bottom Yellen refers to is corporations playing one country off another, as in "lower your taxes or we'll move our profits to Ireland." The proposed solution - countries agreeing with each other not to lower the corporate tax rate below some limit - is an example of sovereign nations working together in a way that benefits both sides, not one sovereign nation dictating policy to another.

jurassic2• 5 years ago

I don't think it's fair to assume harmonized tax rates are mutually beneficial. Taking Ireland as an example, how many of the companies that shifted profits there for favorable tax treatment would continue to do that if they had to pay the same as they would in the US? My guess is relatively few would remain. So Ireland would likely lose revenue without that discount as an incentive drawing in these companies.

rcMgD2BwE72F2• 5 years ago

So it is fair that one tiny country sets a near-zero capital tax, and enjoy free trade of food and services with all the big countries around it. Any corporation would move to the tiny country, of course, where nothing happens except tax and accounting.

How fair.

jmpman• 5 years ago

Add in a global minimum estate tax, and we’re on our way to an interesting new world.

nonameiguess• 5 years ago

We need a global maximum, of 0%.

I don't want to sound like some kind of hardcore Austrian fundamentalist, because I'm not. Taxes are fine, but levying them on fictitious non-person entities is just a means of obscuring to voters where the tax burden ultimately lies. All taxes are paid by individuals, either directly, or by corporations raising or lowering the prices they charge and prices they pay, to suppliers, employees, owners, and customers. But this just means who bears the burden is now an opaque function of relative bargaining power and price elasticity of supply and demand.

But that is not what we want from tax rates. We want them to be an open, transparent reflection of democratically passed laws. To that end, it is far better to levy taxes directly on suppliers, employees, owners, and customers of businesses, rather than on the businesses. This would also have the nice side effect of causing businesses to choose where they locate headquarters and factories based on something other than comparative tax rates, reducing an avenue of both dead weight loss and potential corruption.

dnautics5• 5 years ago

I'm kind of the opposite. We should have 0% personal income tax and a minimum corporate income tax.

A personal income tax incentivises the state to surveil the economic activity of individuals and play games with nudging people to do X or Y, and puts the burden of tax filing and the consequences of not reporting (which some people just can't do correctly).

Contrariwise, a corporate income tax can be thought of as a "user fee" for the privilege of the corporate veil and limited liability. If you don't want your mom and pop shop to pay corporate income tax, simple: don't incorporate, and be responsible for your personally responsible for your employees' well being. And thus it becomes a driver of small business growth and a progressive taxation (the beneficiaries of bigcorp profits are going to be disproportionately wealthy). If you can't afford an accountant to keep track of what taxes you owe, don't incorporate. Etc.

partiallypro3• 5 years ago

Your proposal would actually punish mom and pop stores in aggregate. Limited liability is incredibly important to business operation.

cutchin• 5 years ago

I don't understand how this would work. You would tax corporations based on actual income? So money-losing businesses would have to pay taxes on their income even though they operated at a net loss? And low-volume/high-revenue businesses would pay less in taxes than high-volume/low-revenue would?

adventured• 5 years ago

Corporations don't generate enough profit to float a nation's tax needs.

Corporate profit in the US is generally somewhere around $2 trillion per quarter when times are very good. That's including all businesses, from mom & pop to Microsoft, and that includes all profit from global operations (not just domestic operations).

A 50% tax would only pay for just over half the US tax revenue needs (assuming you make the mistake of taxing global profits at 50% as well) and that would probably cripple the US economy. Many of the consequential corporations would attempt to flee (so you'd have to implement some form of government-sponsored slavery to keep people in). A 100% tax would immediately begin to collapse the US economy as businesses would no longer be able to save for any future purpose (including recessions, business problems, unexpected opportunities, and so on) and they would fail rapidly.

The only tax source large enough to support a nation is an income tax on individuals. That's why, for example, no nation in Europe has ever attempted to fund their expensive and well-experimented welfare states in the way you're suggesting. They know it doesn't come close to working.

klmadfejno• 5 years ago

I've never seen this proposal before. I'm curious what the consensus is that leads to it being downvoted so. I'm inclined to think this is a bad idea, but I'm not confident.

My guess is you'd see a small portion go to employees, a large chunk reinvested into the business, and a large chunk go directly to shareholders. If you managed to alter the structure of taxes so that shareholders paid more for capital gains and dividend income, I feel that's a better outcome than corporate taxes. But lingering doubts of the feasibility of doing so + companies just hoarding cash seem like large problems.

knubie• 5 years ago

There has been consensus among economists for awhile that the corporate tax should be eliminated. https://www.npr.org/sections/money/2012/07/19/157047211/six-...

partiallypro3• 5 years ago

I am for 0% corporate rates as well, I personally think we should just raise the taxes on higher earners and rethink cap gains for people that sell large amounts of assets, but cut corporate taxes to 0%.

unethical_ban2• 5 years ago

An interesting thought exercise, but you use the term "supplier" as if it isn't itself a business.

And while I see what you're trying to get at, I think the idea is flawed. Taxed being "open and transparent" are good attributes, but not the reason, for taxes to exist. They exist to fund society.

Corporations and businesses, as entities, utilize public services. They wear roads, they take up land, they pollute. They should be expected to pay their portion of the upkeep to their local area.

I understand the idea of reducing the race to the bottom and city/country gamesmanship for tax evasion... which is what the linked proposal looks to solve AFAIK.

nightski• 5 years ago

They do pay a portion though, through payroll taxes and their employee's income taxes. They also pay property taxes and shareholders pay capital gains taxes. I'm sure there are even taxes I am forgetting about. This is only talking about the tax on corporate profits.

relax88• 5 years ago

How do you deal with the complexity of taxing suppliers and customers of businesses?

How do you determine the value of goods exchanged and ensure these are equitably taxed?

What happens when you've got a mega-corporation that is both supplier and customer to another business?

What happens if they just decide to exchange goods well below market price and only settle the surplus/deficit of those transactions?

bko• 5 years ago

Also worth noting that corporate taxes make up only 7% of federal tax receipts, but likely incur a huge cost in terms of avoidance and manipulating practices.

https://www.cbpp.org/research/federal-tax/where-do-federal-t...

cuspycode2• 5 years ago

Agreed. Instead of taxing the profit of a corporation, just tax the payment of dividends from that profit. The total tax burden can still remain the same if that's what people desire, but the end result will be more transparency as you say. I think Estonia has exactly this policy, or at least they did last time I checked.

It also removes the incentive to mess around with stock buybacks, which is good because the extra liquidity can be put to better use within the company.

For very small companies (such as my own) it would also remove the bureaucracy involved in saving profits from one fiscal year to the next.

marcusverus• 5 years ago

Instead of taxing the profit of a corporation, just tax the payment of dividends from that profit.

This would be regressive, though. Why not tax the individual via a progressive cap gains tax?

It also removes the incentive to mess around with stock buybacks, which is good because the extra liquidity can be put to better use within the company.

If a company can't think of a good use for their profits, do we really want to force them to keep the money within the organization? This seems like a recipe for bloated budgets and bigger Christmas parties, but I'm not sure that we could expect much benefit otherwise.

yonaguska2• 5 years ago

just tax the payment of dividends from that profit

My dividends are already being taxed as income. I agree with you, but good luck trying to convince Big Gov that they need to eliminate a revenue stream without picking up a new one.

toomuchredbull• 5 years ago

We need to stop taxing incomes of all sorts. Georgism for the win!

SomewhatLikely• 5 years ago

I'm trying to think through the ways this could be cheated. For example, if I own a business then instead of paying myself and then donating to a 527 political issue group I could instead have my business donate to the 527. Since the 527 is tax exempt that money never got taxed, but if I had to take the money as income first I'd have to pay income taxes. I'm sure there's other ways to take advantage of a zero percent corporate tax, or indeed even the lower-than-personal corporate tax rate already in place.

fatbob• 5 years ago

Is there anywhere that has tried this and what happened?

jokoon• 5 years ago

I believe that the pandemic will make world politics lean to the left. It's inevitable. Such a gigantic crisis will force society into mutual help, and will make it harder for values like independence and individualism to really thrive and endure. No man is an island. It's true that trade and entrepreneurship are a form of mutual help, but competition bring the worse, and it becomes the economy of the survival of the fittest.

When governments inject money into private banks, it's impossible to deny that capitalism doesn't work without state intervention. Capitalism has been dying since 2008. In my view it started dying after the end of the cold war. An ideology without rival slowly becomes irrelevant because it's unchallenged.

ping_pong• 5 years ago

And yet, it didn't do that with the US. I'm frankly shocked that so many anti-maskers and covid-hoaxers are so adamant, because this was the perfect case for universal health care in the US. And yet, you hear NO ONE calling for it. It's like learned helplessness. There's almost half the population that actively rejects it, which is mindboggling to me.

Mc_Big_G• 5 years ago

IDK if you noticed, but half the population watches brainwashing "entertainment" disguised as "news", which actively pushes conspiracy theories and disinformation down their welcoming throats.

jurassic2• 5 years ago

I don't see any reason why the Irelands of the world would be amenable to the idea of a minimum corporate tax rate. There are huge economic benefits to be had by luring US and UK companies with favorable tax treatment. Yellen's fantasy about getting every country to apply the same high tax rate against their interests is not helping the US's global competitiveness.

In business, if you find yourself in a "race to the bottom" on price it typically means your product has become a commodity. The antidote to commodification is strong branding. Instead of trying to collude on tax rates like some kind of financial mafioso, somebody in Washington needs to figure out how to rescue the brand of the United States in order to reverse this trend.

Hammershaft• 5 years ago

It isn't a fantasy if the US and other high tax rate countries apply pressure in the form of holding at stake economic access at stake.

I'm not in favour of the corporate tax, I would rather have a high progressive consumption tax, a progressive inheritance tax, and a land value tax. (yes I recognize this will never happen...) That said, tax arbitrage across borders is the same kind of global coordination problem as climate policy across borders.

Accepting a race to the bottom and resigning to a climate catastrophe are not solutions; we need countries who want to fix these problems to band together and create carrots and sticks to incentivize misbehaving countries to join in.

partiallypro3• 5 years ago

This will never happen.

legitster2• 5 years ago

A corporate income tax is only slightly more progressive than a flat tax.

A corporate tax rate of 0% but corporate income is passed through to shareholders as personal income seems better in every regard.

kinghajj• 5 years ago

Isn't that just called a dividend? Or are you suggesting that shareholders owe tax liability for all earned corporate profits, regardless whether any of that is paid to them as a dividend?

legitster2• 5 years ago

Not only that, all income (but eliminate capital gains).

While it may sound a bit revolutionary, this is essentially the tax structure Milton Friedman endorsed.

dang• 5 years ago

https://news.ycombinator.com/item?id=26698242

OliverJones• 5 years ago

In many countries, vendors from Apple to the guy selling apples on the street-corner collect Value-Added Tax (VAT) from their customers. It's a kind of sales tax that applies to all sales, not just retail sales to end users. It's harder for companies to play the international shell game with sales than it is with cash.

VAT seems to be sufficiently fair, workable, and enforceable. People don't like it, but nobody likes taxes.

The US feds can't do VAT though. It took the 16th amendment to allow the feds to collect income tax from people; it carves out an exception to the Article 1 requirement that all taxes be apportioned among the states by population.

This corporate alternative minimum tax idea seems to be a way to stay within the bounds of the 16th amendment and still collect business taxes.

None of it matters at all unless the tax-audit authorities get more teeth than they now have. Business-tax compliance in the US could easily go down Greece's path, where you're a chump unless you cheat.

AzzieElbab• 5 years ago

is this something along the lines of multinational companies requiring multinational government/governance?

Yellen calls for global minimum corporate tax rate

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