Biden targets tax havens - a prerequisite for infrastructure renewal

US President Joseph Biden has launched a plan reminiscent of the New Deal, investing about $ 2 trillion in infrastructure. You just have to wait and see who will pay for it.


In the announcements during the campaign, the emphasis was on the corporate business forced by Trump. In 2017, the former president reduced the corporate income tax, from 35 to 21 percent. Biden intends to raise those taxes from 21 to 28 percent, and so the state should earn about two billion dollars. It seems that the choice fell on companies that have always resorted to tax havens. Because, as it is known, capital is a timid beast and it seeks to escape from any tax increase where the tax is lower.


Thus, according to the research from 2017, American companies have placed about 700 billion dollars in tax havens. At the same time, in the last few decades, a "race to the bottom" has been taking place globally between countries that are trying to attract companies by reducing tax rates. Because it is also known that many American companies are looking for countries around the world, where the tax is lower, and they are moving their plants there. Thus, many countries in the world are trying to attract investors and increase production and the economy in their country by reducing taxes.



That is why the American administration, and above all the Minister of Finance Janet Yellen (former president of the Fed), launched an international initiative, for now at the level of OECD countries, to adopt a global minimum tax for multinational companies, which would be valid everywhere. Although no specific rate has been officially proposed, 12 percent is mentioned in the American media.


At the same time, the idea is that if someone else decides to reduce the tax in order to attract multinational companies, the country where the company comes from will collect the excess tax.


In particular, if an American company registers somewhere in a country that holds a very low income tax, such as Hungary with nine percent, the United States will charge them a tax up to the global minimum that is set, say, 12 percent. In the United States, there is even an idea to pass a law that would already attribute such a tax to all American companies, that is, for all American companies to pay the difference between what they paid abroad and the American tax rate of 28 percent.


This idea has yet to pass in Congress, and it is to be expected that huge multinational companies will lobby strongly against it. The American Chamber of Commerce has already reacted, although it has different opinions, that maybe it should be paid for construction and renovation through the necessary infrastructure.


In order for such a plan to succeed, first of all, global unity is needed, or at least the unity of the world's biggest players, which is probably the reason why the United States turned to the OECD.


The idea of ​​getting money for much-needed infrastructure, through taxes, is nothing new, it's just a question of how to get taxes collected in the most painless way possible. How Biden and his administration will play it remains to be seen.


At the same time, there is a struggle between Europe and the United States over the tax payments of large technology companies. France, for example, requires Google to pay income tax on French citizens, even if the company is not registered in France.


The Americans claim that the Europeans want to take away their taxes. The Trump administration has stalled negotiations on the "digital tax", but Yellen recently announced that she would give up demands, which means that about 100 billion dollars a year that flowed into the American treasury will be shared with European countries. This is of course a concession in order to get consent for the idea of ​​the already mentioned global profit tax.


Attempts to stand in the way of tax havens have been going on for decades, but without success. However, experts believe that if the great powers really decided and worked diligently on this, this tax could indeed be introduced. The entire world financial system revolves around tax havens. And it was the western or Anglo-Saxon countries that made tax havens about forty years ago. This is also the main reason why capital cannot be taxed at high rates. It is also one of the causes of growing inequality and a problem for economic systems. The burden is shifting to small and medium-sized companies that cannot escape, and multinational companies are turning trillions in tax havens. The world longs for a fairer tax system, but for it to succeed, it requires committed joint action by both the OECD and the G20, and the US and the EU. Experts in economics are skeptical that this will happen, considering that the developed world cannot even agree on a fair distribution of vaccines at this moment.


Let's be clear, the American economy is the largest in the world, but it is not the only one with tax havens. There are also many rich EU member states that do not benefit from equalizing taxes on a global level. Business is the same everywhere and eats everything in front of it to make it even bigger.


How Biden will solve that in America, and what is connected with the rest of the world, is certainly a challenge.


7 views0 comments