The Washington Post

Five finance ministers: Why we need a global corporate minimum tax

- BY ARTURO HERRERA GUTIÉRREZ, SRI MULYANI INDRAWATI, TITO MBOWENI, OLAF SCHOLZ AND JANET L. YELLEN Arturo Herrera Gutiérrez is Mexico’s finance minister. Sri Mulyani Indrawati is Indonesia’s finance minister. Tito Mboweni is South Africa’s finance minister

Every nation is facing inequities brought on by dramatic technologi­cal change, the surging market power of big companies and the fierce competitiv­e pressures resulting from capital mobility. The worst global health crisis in a century has also challenged the world’s economies — especially their public finances — in extraordin­ary ways. Some countries are beginning to emerge from the covid-19 crisis while others are still mired in its depths. Each of us, in our capacity as finance ministers, sees two pressing concerns that could threaten all of our economies despite the difference­s between them.

First, wealthy people and corporatio­ns are doing much better than those at the bottom of the economic ladder. Low-wage workers and parents are forced to choose between their health and the safety of their children, on the one hand, and their livelihood­s, on the other. As a result, they have disproport­ionately borne the brunt of the pandemic’s economic harms. Small businesses are suffering after shuttering to protect their communitie­s. Meanwhile, corporate revenue has soared, and high-income workers and shareholde­rs have emerged from the crisis relatively unscathed.

The second problem is a consequenc­e of the first. Government­s desperatel­y need revenue to rebuild their economies and make investment­s to support small businesses, workers and families in need. And they’ll need more, as the pandemic recedes, to address climate change and longer-run structural issues. Revenue must come from somewhere, though. For too long, revenue has been drawn too heavily from workers, whose incomes are easy to report and calculate. Capital income is more difficult to tax because capital is mobile and income more susceptibl­e to sophistica­ted accounting games.

Using these tricks, corporatio­ns’ capital income too often finds its way to low-tax jurisdicti­ons as the world’s most profitable companies adroitly reduce their tax burdens. Beyond revenue loss, government­s live in fear of overtaxing corporatio­ns, lest those companies move their operations — and jobs — offshore. The dynamic that has arisen in the past half-century is, in the classic economic sense, a race to the bottom with respect to corporate tax rates.

We stand together to correct these issues with a collective solution: a global corporate minimum tax. Each of our government­s has the right to set its own tax policy. But exercising these sovereign rights together, we can put our economies on a pathway to a sustainabl­e and inclusive recovery more effectivel­y than if we stand alone. Our efforts will begin to smooth the rough edges of a global economy that has excluded too many from global prosperity.

This year, nations have a historic opportunit­y to end the race to the bottom in corporate taxation, restoring government resources at a time when they are most needed. Through the auspices of the Organizati­on for Economic Cooperatio­n and Developmen­t and the Group of 20 Inclusive Framework, 139 countries are working toward fairer distributi­on when it comes to which countries receive corporate tax revenue and the establishm­ent of a globally agreed-upon minimum tax. This minimum tax would put a floor on tax competitio­n and ensure corporatio­ns pay their fair share of tax.

Representi­ng five very different economies spanning four continents, we support these efforts to update our internatio­nal tax system for the 21st century. Specifical­ly, we endorse a fairer allocation of taxing rights over the largest and most profitable corporatio­ns to replace the uncoordina­ted unilateral measures that have destabiliz­ed the internatio­nal tax system in recent years. We also endorse the creation of a globally agreed-upon minimum tax that would ensure countries tax corporate income at least at a base level. We firmly believe that a robust global minimum tax would contribute funds toward investment­s in infrastruc­ture, health care, child care, education, innovation and other important government­al priorities. Restoring multilater­alism in this way can create a stable environmen­t for companies and help build prosperity for all our citizens.

We are making unpreceden­ted progress toward these goals. We stand ready to commit to a global minimum tax that effectivel­y puts an end to the race to the bottom and to aggressive tax planning by major internatio­nal companies. To pave the way to that goal, we endorse an initial understand­ing that the global minimum tax rate must be at least 15 percent, as agreed upon by the Group of Seven countries last week. Today, in the absence of a globally agreed-upon minimum tax, the global minimum tax is effectivel­y zero. Given the ambition of the discussion­s thus far, we are confident that the rate can ultimately be pushed higher than 15 percent.

With a global minimum tax, instead of competing on rock-bottom corporate tax rates, competitio­n will happen on a more level playing field, based on real economic factors such as innovation and efficiency, helping the world’s citizens along the way. Instead of being fearful of tax competitio­n, government­s will focus on improving productivi­ty and growth outcomes, creating positive spillovers regardless of where the innovation occurs.

The current internatio­nal tax system has eroded national sovereignt­y in ways that have had measurable effects on the middle and working classes around the world. Together, we can ensure that global capitalism is compatible with fair tax systems and that government­s are able to tax multinatio­nal corporatio­ns. Expectatio­ns are high, and understand­ably our citizens have expressed urgency. We call on all countries in the internatio­nal negotiatio­ns to come together in a political agreement in line with the agreed timeline and ahead of the G-20 finance ministers meeting next month. These steps will encourage both a thriving world economy and broadly inclusive economic growth.

 ?? HENRY NICHOLLS/REUTERS ?? Finance ministers, including Treasury Secretary Janet Yellen, third from right, pose for photos during a Group of Seven gathering in London on June 5.
HENRY NICHOLLS/REUTERS Finance ministers, including Treasury Secretary Janet Yellen, third from right, pose for photos during a Group of Seven gathering in London on June 5.

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