Corporate tax evasion

President Biden and other world leaders are on the brink of an extraordinary agreement that could curb the maddening —” and until now, seemingly insoluble –“ problem of corporate tax evasion. Success would mean hundreds of billions of dollars in new revenue for fixing crumbling infrastructure, healing the sick, and improving schools from Massachusetts to Mumbai.

But the president cannot deliver on the American end of the deal alone. He will need help from Congress if the world’s most powerful country is to do its part to bring a measure of justice to an unjust system.

For decades, jurisdictions from Ireland to Bermuda have engaged in what US Treasury Secretary Janet L. Yellen has called a “race to the bottom” on corporate taxes —” slashing rates in a bid to attract some of the largest firms in the world. American companies like Apple and Nike have taken full advantage –“ stashing billions offshore, cutting their tax bills, and effectively shifting the burden for funding government services to a struggling middle class.

For the longest time, a global solution to this problem felt out of reach. But an effort overseen by the Paris-based Organization for Economic Cooperation and Development made notable progress toward a multilateral agreement in recent years –” only to watch the effort stall amid the pandemic and the Trump administration’s insistence on a provision that would have favored American companies.

The Biden administration revived talks after taking office. And earlier this month, 130 nations representing more than 90 percent of worldwide GDP signed on.

The agreement has two major pillars. It would create a near-universal 15 percent minimum corporate tax, designed to dampen the motivation for corporations to shop around for low rates. And it would impose a separate levy on the largest companies in the world –” requiring firms like Facebook and Amazon to pay taxes where they sell goods and services, even if they don’t have a physical presence there.

The pact, which still needs to be finalized, would be more than a diplomatic victory. It would be a triumph of the imagination.

Jeffrey Winters, a political scientist at Northwestern University who studies economic elites, says there has long been a sense that globalization is an “impersonal force of nature” that “no one controls” and that big, wealthy players will inevitably game the system. But the new agreement, which he calls “a breakthrough,” is a striking statement that the community of nations can, in fact, exert control.

Still, as Winters and other observers argue, the pact is just a start. The 15 percent corporate tax minimum is actually quite low. It’s a floor. And parties to the agreement can and should aim higher.

Gabriel Zucman, a University of California, Berkeley, economist known for his pathbreaking work on inequality, has called on Congress to approve a 25 percent levy that might inspire other nations to follow suit, “replacing a race to the bottom with a sprint to the top.”

* Guest editorial excerpt by The Boston Globe.


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