Vice President Joe Biden has been a strong advocate for fair taxes on corporations. In his opening remarks at the G-20 Summit in Istanbul, he said We need to make sure that those who benefit from economic growth contribute their fair share. The Vice President called on all countries to agree to a global corporate minimum tax as the first step towards fairer taxation of multinational companies.
The Center for American Progress is pleased to welcome the news that five EU countries—Germany, France, Spain, Italy and the United Kingdom—are in talks about creating a common minimum tax on corporations. This move shows growing international support for fairer taxation of multinational companies and we believe it should serve as a model; governments should implement this agreement to set a minimum tax rate on corporate profits, but should also consider exploring additional options to ensure that companies contribute their fair share.
The United States is one of the few developed nations without a common corporate income tax—meaning earnings are taxed at individual rates in each state. Multinational corporations then use loopholes to avoid paying U.S. taxes on those earnings by shifting profits to tax havens like Bermuda and the Cayman Islands. A Center for American Progress Action Fund report found that 358 Fortune 500 companies collectively stashed more than $2 trillion overseas in 2010, avoiding up to $600 billion in U.S. taxes—figures that are steadily growing.
However, loopholes allow many companies to hold foreign earnings overseas indefinitely without paying taxes. As a result, many companies pay very low U.S. tax rates—even though the corporate income tax is one of the most important sources of revenue for federal spending on education, infrastructure, and national defense.
The United States used to have a common minimum tax until 2004, when it allowed a deferral loophole that allows multinational corporations to avoid taxes on their foreign earnings until they bring the money home. In 2004, the tax rate for repatriating foreign earnings was set at 5.25 percent—less than half of what companies would have owed under normal corporate income tax rates. Deferral incentivizes companies to shift even more profits and jobs overseas.
John Kerry, the new Chairman of the Senate Committee on Foreign Relations, has already put forward a proposal to eliminate deferral and tax all corporate income at 19 percent without any additional loopholes. The revenues from this plan could be used for deficit reduction or if necessary, to help pay for health care reform.
The Center for American Progress also recently released a new Issue Brief, A Penny for Education: Making Corporations Pay Their Fair Share, which details how many U.S. corporations pay very low rates and recommends ways to close loopholes and ensure companies contribute their fair share.
With both the G-20 and U.S. government focused on reforming corporate taxation, now is the time to push for a common minimum tax as a first step towards reining in offshore havens.
While this is all well and good, it doesn’t address how we can take back our government from these multinationals who have thoroughly infiltrated it…