On Monday 5 April, speaking at the Chicago Council on Global Affairs, US Treasury Secretary Janet Yellen called for a global corporate tax, which would mean that large companies would have to pay a certain amount in taxes regardless of where in the world they were based.
Such a policy, Yellen said, would “make sure the global economy thrives based on a more level playing field” and would end a decades-long race to the bottom.
I was immediately a cynic. For one thing, could Yellen even get her own country on board with a respectable corporate tax? Before Donald Trump became president, the corporate tax rate in the US was 35 per cent; post-Trump, it is now 21 per cent. President Joe Biden’s infrastructure plan proposes moving the corporate tax rate back up to 28 per cent, which Republicans oppose, and which some Democrats — namely, Joe Manchin, the proudly moderate senator from West Virginia — have signalled they will resist (Manchin has suggested that 25 per cent is a better number).
For another, why would the rest of the world listen to the US about a global corporate tax? Not only did the US cut its own corporate tax within the last few years, but who is to say that, in 2024, the country will not elect a president who will undo all that Biden and Yellen are trying to achieve? Trump cut the corporate tax, Biden is potentially raising it again, the next president of the benighted hegemony will do something else. How can other countries be expected to join multilateral agreements at the behest of a behemoth that might pull out three years later?
And even if the US were not as it is, why would the rest of the world play along? What are the chances that Ireland, for example, is going to happily embrace a global corporate tax?
But after that rush of cynicism, I was able to see this for what it was: a game-changing proposal.
At present, companies can avoid paying taxes in their home countries, moving profits and tax revenues even if they are not moving the locations of their sales. An American company could decide to base itself in Ireland or the Netherlands, for example, so as to pay less money in taxes. Yellen’s proposal would reduce such tax base erosion without disadvantaging American firms — but so, too, would it eliminate a disadvantage for many other governments around the world. And the Organisation for Economic Co-operation and Development (OECD) and G20 are apparently working on reaching a consensus in the direction of which Yellen speaks.
More than that, however, it’s an antidote to America First — and, for that matter, to Any Country First. The competition does not need to be between the US and Uganda, or Britain and Brazil. The competition could be made fair within and between countries. Globalisation could potentially be an equaliser, just as it has long been the very opposite. This might not be the first step in that direction. But it could be.