Janet Yellen, the US treasury secretary, will join the G7 finance ministers meeting in London this weekend to seek to build support for the Biden administration’s proposed global minimum corporate tax rate.
I have written before about how revolutionary the policy is, and how significant it would be if other countries were to endorse the plan. The proposal is both political – the Biden administration wants to raise corporate taxes to pay for its infrastructure investment and doesn’t want US companies to leave the country for tax havens – but also principled. Is the global economy meant to work for the richest and most powerful corporations, or is it meant to work for ordinary people, wherever in the world they are?
Closer to home, Joe Biden is moving the Democratic Party away from the long Reaganite era of tax cuts for the wealthy and corporations, welfare reductions and deregulation. Instead, the new US president is offering domestic policies that are intended to work for the many, not the few. The policies – such as child care tax credits – are proving popular with the US electorate, which is not as opposed to an interventionist government that as conservative pundits and politicians might have one believe.
It is far too soon, however, to say whether Biden can replicate this realignment on the world stage. The mission to realise his global tax proposals will be a challenge: several countries in the European Union – most notably Ireland – have low corporate tax rates and have expressed wariness. The US proposal is for a minimum corporate tax rate of at least 15 per cent and the Biden administration has stressed that it would like to push the rate higher. But this is still higher than the 12.5 per cent tax rate in Ireland and the nine per cent rate in Hungary, both of which could veto the proposal on an EU level. Countries with lower corporate taxes understand that this is at least part of what makes them attractive to large corporations. Yellen’s argument is that, while that may be true in the short term, in the long term, such a stance is a race to the bottom: the world’s governments and citizens lose, and it is the powerful corporations that win.
If Yellen can make progress on this issue at the G7, it will be significant not only for the US (which has also, incidentally, announced that it will focus on kleptocracy and corruption), but also for the G7. As Jeremy Cliffe has written, there are some questions over the role the G7 plays, and whether such multilateral groupings are still relevant. Is this a collection of countries that needs to meet? Who are they meeting for? And what is the purpose of the G7 in 2021?
The group is expected to debate the minimum corporate tax rate this weekend. British Chancellor Rishi Sunak has rightly observed that the world is watching. But Japan has already said that it doesn’t expect an agreement this week (and if not, we should not expect one next weekend when the G7 world leaders meet, a gathering that will be less focused on financial matters.) Even if there were a deal, it would still need to be presented and accepted at the G20 in Venice in July.
If the world’s most advanced economies don’t match their statements on tax with concrete action, their credibility will be damaged. If Yellen, however, can build support for a global minimum tax rate – and hold businesses to account across the globe – she may yet defy the pessimists.
[See also: Can the G7 nations rebuild a global alliance?]