The Biden administration is going to raise taxes on America’s wealthiest individuals, but, more importantly, new U.S. Treasury Secretary and former Fed Reserve Chair, Janet Yellen, is taking aim at the real culprits — America’s biggest corporations — in a very reasonable and intelligent way. They lobbied for decades to widen loopholes and now dodge taxes so effectively that individual taxpayers are unfairly left holding the bag. Let me explain how this works and why it’s unjust.
I am a U.S. and Canadian citizen who lives in Canada. I file annual tax returns in both countries because American citizens must pay taxes on worldwide income irrespective of where they live or earn income. I am not double-taxed because whatever taxes I pay elsewhere are deductible which means: If my taxes in Canada are higher than they would be in the United States I owe nothing. If they are lower, I have to pay Uncle Sam the difference. If I move to Bermuda where there are no taxes, I pay the full whack of American taxes. This is the law. America is the only nation that taxes you irrespective of residency.
That is unless you are Walmart, Apple, Exxon, Microsoft, Amazon, Facebook, Google, or any other American multinational or rich guy with an army of tax lawyers. These companies luxuriate in loopholes, thanks to America’s politicians who have been bought and paid for with unlimited, tax-deductible campaign contributions. But now, finally, a populist President and his pint-sized sidekick, Janet Yellen, have ridden into town and are taking on the big guns by proposing do-able tax reform, that will level the playing field and singlehandedly revolutionize the world of business and geopolitics.
America is a victim of “state capture” by private interests who influence the state’s decision-making processes to their own advantage. This is what afflicts banana republics and kleptocracies like Russia where oligarchs and business empires pay no taxes and create jobs and economic activity in other countries where they stash their money. But it’s slowly becoming true here in America and major corporations and rich entities fiddle their way out of paying their fair share of the cost of everything from the Pentagon to first-responders, roads, hospitals, bridges, schools, and border controls.
On April 5, Yellen unveiled her tax initiative at a modest gathering in Chicago where, I’m sure, the microphone had to be adjusted to accommodate her 5-foot 3-inch height. Then she quietly declared war on the world’s biggest tax cheats which also happen to be all of America’s most respected global corporations. "We're working with G20 nations to agree to a global minimum corporate tax rate that can stop the race to the bottom. Together, we can use global minimum tax to make sure that the global economy thrives, based on a more level playing field in the taxation of multinational corporations, and spurs innovation, growth, and prosperity."
She talks in jargon, and it is a lot to unpack, but what Yellen is proposing is transformative: Walmart and all American multinationals will be treated from now on just as people like me, individual ex-pats who are legally obliged to file and pay taxes even though we live and earn and save and invest our money abroad. Her initiative will also shut down the tax haven scourge (also used by criminals) because she proposes a minimum corporate tax of 21 percent on the profits of American entities no matter where they were earned and no matter where they are deposited, be it in the tax-robbing British Virgin Islands or Jersey, or Ireland.
This is new. Currently, they can play games so they pay no taxes whatsoever. Some 51 of America’s largest corporations made profits and paid no taxes, or very little, last year. The current corporate income tax rate is 21 percent, but last year all corporations paid an average of only 11 percent. And steadily, over the decades, their proportion of tax payments, as a share of GDP, has plummeted and left individuals holding the proverbial bag and deficits soaring.
Yellen’s proposal will prevent companies from cooking up tax arrangements in sleazy tax havens that don’t charge taxes, look the other way, or write off everything that moves so corporations don’t have any income left to pay taxes on. Her global minimum tax is simple, fair, and will apply on a country-by-country basis (21 percent of profits per country they operate in). She is going to present this to the 37 countries that belong to the OECD (Organization of Economic Co-operation and Development) and they will lap this up because they have the same problem. She has even gotten the nod already from the European Union (which includes a bunch of tax-dodge enabling countries). Best of all, she can implement the minimum corporate income tax as Secretary of the Treasury — without butting up against the Republican wall of tax-deniers and corporate sell-outs — because there already exists a minimum corporate tax and she can regulate away the loopholes.
In addition, Biden wants to raise overall corporate taxes to 28 percent, but that’s a different issue and requires assent from the same crooks in Congress who devised the loopholes in the first place. But Yellen’s proposal is about those who use offshore methods to evade taxation and she can tweak the law herself. Hopefully, this will stop cold the types of scams perpetrated by Walmart, a retail monolith, and lots of others. Last year, the retailer’s revenue was $519.9 billion, equivalent to the GDP of Belgium, and yet it paid only $6.85 billion in taxes. Here’s how:
Walmart’s tax-dodging architecture is designed to move profits and assets to tax-free jurisdictions. As the map shows, Walmart has 78 subsidiaries with $76 billion in assets in tax havens where it doesn’t own a single store.
Worse is Apple, not only because it’s America’s gold-medalist when it comes to the job-killing, offshoring of labor, but also because it also offshores tens of billions of dollars in profits through a nifty dipsy-doodle that the Euros caught on to. Apple now faces an E14-billion fine from the European Union’s razor-sharp competitions team, which is under appeal. Apple was caught shifting sales from one high-taxation country to Ireland, where taxes are virtually non-existent.
And the gaming goes beyond Europe. Between 2009 and 2012, Apple made $74 billion in profits globally and paid virtually nothing in income taxes to any country, according to a report by Americans for Tax Fairness. Sales were earmarked as income for Irish subsidiaries where tax rates are less than 1 percent. If Apple had recorded this income in the United States, it would have paid, over four years, up to $26 billion in taxes (at the 2017 corporate tax rate of 35 percent). That rate has since been lowered to 21 percent but these companies still pay no taxes because there is no globally applied minimum.
Laughably, Ireland’s four biggest companies by “revenue” are the world’s biggest tax shirkers, according to the Irish Times, and include the local units of Apple Inc., Alphabet Inc., Facebook Inc., and Microsoft Corp. Fortunately, And speaking of Irish, Biden presents the case for tax reform by using plain talk. “I’m not trying to punish anybody, but damn it, I’m sick and tired of ordinary people being fleeced,” he said.
Even the world’s richest American, Jeff Bezos of Amazon Inc. supports the Biden minimum tax even though, according to the Wall Street Journal, Yellen’s measure would have doubled his 2020 tax bill. For instance, that year, after taking deductions for research and investment in renewable energy, Amazon paid an income-tax rate of only 9.4 percent, according to a progressive think tank Institute on Taxation and Economic Policy. And another 51 deadbeat American outfits like Apple, as large as small nation-states, paid zero taxes to Uncle Sam. What’s galling is that these are companies whose investors, workers, suppliers, research, enabling infrastructures such as education and roads, and military protection abroad were paid for out of taxes collected from individual Americans whose taxes are automatically taken out of their paychecks by law.
Tax havens like Ireland or Luxembourg or Caribean islands should be shut down for enabling tax evasion, or the “race to the bottom”. This is not simply about tax justice, but about the future. If legitimate companies and their investors continue to become “stateless” and duck taxes, the wealth of America will be harvested, leaving behind deficits and a middle-class to bear the burden of providing police, schools, roads, bridges, hospitals, and national security. The outlook is worse for poorer nations. An IMF analysis showed that non-OECD nations lost $200 billion a year, or about 1.3 percent of their GDP, due to companies shifting profits elsewhere. For these nations, ending the practice of tax evasion by their wealthiest citizens and companies could allow them to provide clean water, rural electrification, or education for females.
Then there’s the need to attack money laundering by kleptocrats around the world, but that’s an issue I will address in the future. These initiatives are not about taxing the rich guys, or eventually the bad ones, but represent a battle for civilization itself. Former Chief Justice of the U.S. Supreme Court, Oliver Wendell Holmes Jr. put it best in words that are carved above the IRS building in Washington D.C.:
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