Last Friday, the Organization for Economic Cooperation and Development (OECD), an international organization of countries working together toward economic progress, announced that 136 countries, including the United States, have agreed to a global minimum corporate tax rate of 15%.
This is huge news. For far too long, countries around the world have engaged in a “race to the bottom” with regards to corporate taxes. Countries have catered to the needs of big multinationals by pushing their corporate tax rates lower and lower with the aim of “winning” investments from those companies. Companies like Google, Apple, and Facebook took advantage of this race to the bottom and overwhelmingly established their headquarters in low-tax jurisdictions so they could avoid paying their fair share back home. In the end, the only winners of that race were wealthy corporations that ended up paying almost nothing in taxes on significant portions of their profits.
But thanks to significant work by the international tax community, this OECD agreement will limit the corporate tax avoidance that has gone unchecked for too long. Long-time tax haven holdout countries like Ireland and Hungary have signed onto the agreement, signaling a global shift in the fight for tax fairness
Now, multinational corporations making more than $866 million in revenue a year will have to pay a reasonable tax rate, no matter where they are physically headquartered. A 15% global minimum corporate tax rate will raise billions in new revenue for countries to spend on repairing infrastructure, combating climate change, improving healthcare systems, and more. It will also reduce economic inequality and make a positive, tangible difference in the lives of millions. In the midst of our own ongoing debate on taxation here in the United States, we welcome this news with open arms.
While we believe that a 15% corporate tax rate is a little too low to drastically reduce inequality, we certainly think that this is a massive step in the right direction for tax fairness.
There is, however, a catch to all of this. Even though all 136 countries have agreed to a 15% minimum corporate tax rate, they now must go home and change their own tax laws and treaties to comply with this agreement, ideally by 2023. This is, as you might imagine, a real political challenge, and the United States is no exception. Congress must now pass legislation that raises the US corporate tax rate on international profits to at least 15%, up from the 10.5% rate that we currently have in place (just half of the domestic corporate rate of 21%), if they want to maintain compliance.
The obvious solution would be for Democrats to raise the corporate tax rate through the major reconciliation bill that is currently being negotiated. Republicans in Congress have already voiced opposition to the OECD agreement, and getting enough of them to sign onto a corporate tax increase to pass a bipartisan bill would be nearly impossible. Democrats are going to have to do this alone, and they have the ability to do so.
But as we’ve seen recently with the moderate opposition to Biden’s Build Back Better Agenda, Democrats are certainly not all aligned on raising taxes on the rich and corporations. It’s going to be a fight over the next several weeks (or months) to make sure that these international changes make it into the Democrats’ reconciliation bill, and you can be sure that we’re going to be on the front lines of that fight.
But for now, let’s take a moment to recognize how monumental and rare it is for over 100 countries to all agree on raising taxes on corporations, and celebrate this as an important milestone in the fight for tax fairness and economic justice!