Taxes. A word everyone hates. It means people from all over the globe are forced to give a chunk of their hard-earned money every year to their national government. But a landmark decision was recently reached that demands corporations, not everyday citizens, must pay a higher tax rate. However, would this new burden on corporations benefit the average worker?
Before we get into that, let's learn about what's been happening. President Biden's Treasury Secretary, Janet Yellen, recently met with other world leaders at the G7 summit. This is a very important event that brings wealthy democracies together to address various issues from around the world, with a specific focus on the global economy.
The G7, or Group of Seven, consists of the United States, the United Kingdom, France, Germany, Italy, Canada, and Japan.
The new agreement proposes that international corporations (companies operating in multiple countries) pay a 15% rate in each country they are operating in. In addition, large-scale corporations like Google, Amazon, and Facebook will have to pay a higher rate based on their profits.
In the past, international companies have been taking advantage of the old, "black-and-white" tax rules that allowed these companies to move profits into specific countries that have low tax rates. This is essentially a sneaky form of tax evasion, where nations trying to tax these corporations are unable to regulate them.
The Biden administration has estimated that the agreement will generate roughly $500 billion in global tax revenue.
Potential issues? Yes, there are many. As mentioned above, international companies like Amazon and Facebook will face a significant reduction in profits.
And when a company sees a reduction in profits, what happens as a result? This loss of revenue can be affected in two ways.
First, these companies may see a reduction in growth, which would prevent the creation of jobs. As international corporations see an increased need to accommodate for a significant tax hike, they will find ways to reduce their loss of profits. This may result in halting new company projects, such as the construction of new factories. This would then prevent new jobs from being created, as halting these projects eliminates the need for construction jobs and for the jobs created by these new factories.
Second, the reduction in overall profits as a result of the tax hike could then trickle down to the current workers themselves. As companies see a need to reduce funds, the little guy is often affected. The worker, as the millions of layoffs from the COVID-19 pandemic have shown us, could be collateral damage in the end.
Finally, it will be difficult to get other countries to sign on to the agreement. Take Ireland, for example, who attracts technology companies because of its 12.5% corporate tax rate. They will not give up this significant advantage because they need to attract these corporations to grow their economy.
It's important to note, however, that there is a significant problem involving corporations not paying their fair share. There's no guaranteed way to address the problem, though it can be inferred that going up against corporations does not typically lead to a happy ending for everyday citizens.