Last month, President Joe Biden proposed a universal minimum tax of 15% on corporate profits. Biden’s administration also pledges to increase the U.S. corporate tax to 28%.
In 2017, the Trump administration lowered the corporate income tax to 21% to attract foreign capital to the United States. The U.S. economy enjoyed robust economic growth in 2018 and 2019, before the coronavirus pandemic ushered in a global recession.
Some executives, such as Jamie Dimon, CEO of JPMorgan Chase, argued that the Biden tax increase could make the United States uncompetitive with other countries.
In fact, in the United Kingdom, the corporate tax rate is just 19%.
President Biden intends to propose the 15% global tax at the next G7 meeting that will take place from June 11 to June 13 in Carbis Bay, United Kingdom.
Tellingly, some members of the G7, like France, Germany and Italy immediately expressed support for Biden’s proposal, while the United Kingdom was more cautious.
If approved, the proposal could be introduced to the G20, the summit of the 20 world largest economies, which will meet in July.
However, adopting such a tax proposal globally would not be easy to achieve because several countries, especially developing nations, have a low corporate tax rate.
The OECD (Organization for Economic Cooperation and Development) could vote to extend the global corporate tax to its 38 member countries, which represent the world’s most developed nations. Since most OECD members have a corporate tax rate of 15% or higher, there is a high likelihood that the global corporate tax would be approved by the OECD.
The biggest risk of a global corporate tax is its potential to negatively impact corporate spending.
In fact, the tax might dissuade corporations to hire employees, which is essential for the global economy to recover, after millions of people lost their jobs during the pandemic. In January, the ILO (International Labour Organization) reported “unprecedented global employment losses of 114 million jobs in 2020 relative to 2019.”
The global tax proposal would be ineffective if it does not include incentives for corporations to hire employees; for example, tax breaks for companies that rehire people laid-off during the pandemic, to reduce world unemployment and boost the global economy.
Francesco Stipo is the President of the Houston Energy Club, a member of the National Press Club in Washington D.C., a Fellow of the World Academy of Art and Science, and recently joined the Bretton Woods Committee. Born in Italy in 1973, Dr. Stipo is a naturalized United States citizen. He holds a Ph.D. in International Law and a Master’s Degree in Comparative Law from the University of Miami. Read Francesco Stipo’s Reports — More Here.