President Joe Biden might have persuaded some of the world's largest economies to hike taxes on corporations, but the U.S. Congress could be a far tougher sell.
White House press secretary Jen Psaki said Friday that leaders of the Group of Seven — which also includes the United Kingdom, France, Canada, Germany, Italy and Japan — agreed with Biden on placing a global minimum tax of at least 15% on large companies. The G-7 leaders, participating in a three-day summit in England, affirmed their finance ministers who earlier this month endorsed the global tax minimum.
“America is rallying the world to make big multinational corporations pay their fair share so we can invest in our middle class at home,” Jake Sullivan, the president's national security adviser, said Friday on Twitter.
A minimum tax is supposed to halt an international race to the bottom for corporate taxation that has led multinational businesses to book their profits in countries with low tax rates. This enables them to avoid taxes and encourages countries to slash rates. The minimum rate would make it tougher for companies to avoid taxes, and could possibly supplant a digital services tax that many European nations are imposing on U.S. tech firms that pay at low rates.
Biden administration officials believe the use of overseas tax havens has discouraged companies from investing domestically, at a cost to the middle class. The president hopes a G-7 endorsement can serve as a springboard for getting buy-in from the larger Group of 20 complement of nations.
The agreement is not a finished deal, as the terms would need to be agreed upon by countries in the Organization for Economic Cooperation and Development and implemented by each of them. The president needs other countries to back a global minimum tax to ensure that his own plans for an enhanced one in the U.S. don't hurt American businesses.
”It has the potential to stop the race to the bottom," said Thornton Matheson, a senior fellow at the Tax Policy Center. "It would be a huge sea change in the way things have been going in corporate taxes for the last three decades.”
The idea of an enhanced global minimum tax is also an integral part of Biden's domestic agenda, but it faces resistance in Congress.