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G7 Nations Are Taking A Major Step Toward Global Tax Reform

MARY LOUISE KELLY, HOST:

The U.S. and six other wealthy countries are taking a big step towards raising taxes on multinational corporations. Finance ministers from the G-7 countries agreed over the weekend that corporations should pay a minimum tax rate of 15% no matter where they're located. Treasury Secretary Janet Yellen calls that a historic achievement.

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JANET YELLEN: For too long, there has been a global race-to-the-bottom in corporate taxes, where countries compete by lowering their tax rates instead of the well-being of their citizens and natural environments.

KELLY: Yellen and her colleagues also agreed to a higher tax on the most profitable international companies, including U.S. tech giants. But this is far from a done deal. NPR's Scott Horsley is here to tell us more.

Hey, Scott.

SCOTT HORSLEY, BYLINE: Hi, Mary Louise.

KELLY: So what's the significance of this, of a global minimum tax on corporations?

HORSLEY: Corporations' share of the overall tax burden around the world has been on the wane for years now. And it's been hard for politicians to push back because whenever they try to raise corporate taxes, companies can take their money, perhaps their jobs, and move somewhere cheaper. Steve Rosenthal, who's with the nonpartisan Tax Policy Center, says the Biden administration wants to diffuse that threat by getting other countries to set a floor on corporate taxes and agree not to go below that.

STEVE ROSENTHAL: Over the last few decades, one country after another dropped its tax rates on corporations with the hope of enticing more business. Biden would like to reverse that, but that only can be effective to the extent that the U.S. doesn't face competition from abroad.

HORSLEY: So this agreement, if it comes to pass, would be a big deal. It would make it easier for President Biden to raise corporate taxes. And right now corporations pay a much smaller share of the total tax bill in the U.S. than they do in most of our foreign competitors.

KELLY: Let me push you on the if-it-comes-to-pass portion of what you just told us. It's not a done deal. What else has to happen?

HORSLEY: That's right. So far, you have buy-in from seven countries. That's a big step, but that doesn't include China. It doesn't include India. It doesn't include tax havens like Ireland, which has a corporate tax rate of just 12.5%. Now, Secretary Yellen says you don't necessarily need to get all those countries on board, but you do need more than just the seven that have agreed so far. So the next step will be to raise this tax plan with a group of 20 countries that are set to meet next month.

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YELLEN: This effort is far from over, and we look forward to engaging closely with the G-20. At the same time, I look forward to taking the momentum we have achieved and working closely with members of Congress on this important initiative.

HORSLEY: And, of course, Mary Louise, it's Congress that would actually set tax policy for the U.S. That could be a tough sell for the administration as well, given Republicans' opposition to higher taxes and the Democrats' razor-thin majorities in Congress.

KELLY: Indeed. Well, let me turn to the other piece of this. Part of this G-7 deal seems designed to prevent another trade war, a war over digital taxes. Explain that.

HORSLEY: That's right. Big tech companies like Facebook and Amazon have billions of customers around the world. They're making a lot of money around the world. And a number of countries, mostly in Europe, want a slice of those profits, so some of those countries have been threatening to levy taxes on big digital companies. And the U.S. says, wait a minute; that's not fair because all the companies that would be targeted by such attacks just happen to be located in the United States.

KELLY: Yeah.

HORSLEY: The Biden administration, like the Trump administration before it, threatened to retaliate with additional tariffs on those other countries' exports. So what the G-7 agreed to do instead is impose a broader tax, not just on tech companies but any of the most profitable multinationals, and then distribute the proceeds to all the countries where those companies do business. Once again, this part of the deal would need buy-in from a lot more countries and from Congress, but it might prevent another trade war. A Facebook vice president called it a significant step and said the company wants the reform method to succeed, even if it means Facebook winds up paying more.

KELLY: Thank you, Scott.

HORSLEY: You're welcome.

KELLY: NPR's Scott Horsley - and Facebook, by the way, provides financial support to NPR. Transcript provided by NPR, Copyright NPR.