Dear friends and all those who are interested,
Joe Biden has extended an invitation to all countries with progressive tax systems: Let’s jointly put an end to tax dumping by multinational companies, with an effective minimum tax rate of 21%. In this way, we will protect the socially just distribution of income. By way of comparison, the leaders in Europe’s capitals have so far sought agreement in the OECD on a minimum tax rate of just 12 to 14% – far too little to achieve noticeably more tax justice. But instead of taking Joe Biden’s outstretched hand, Finance Ministers throughout Europe have reacted cautiously when it comes to the concrete tax rate. German Finance Minister Olaf Scholz said that “personally” he had “no objection to the US proposal” – falling far short of an enthusiastic endorsement by the German Government. His French counterpart Bruno Le Maire was equally reluctant to take a strong stance in support of Biden’s proposal. And the Irish Minister of Finance Paschal Donohoe, who also leads the Eurogroup, said Ireland would not support the proposal and would seek to defend “appropriate and acceptable tax competition”.
Fact is: There has been no mention of a strong transatlantic alliance for progressive taxation between the US and Europe. Usually so often invoked, our decades old transatlantic ties are being ignored here. I have sought to change that with the following opinion piece. Joe Biden’s proposal is a historic opportunity to finally put an end to the devastating tax competition between states. Crucially, Biden’s proposal is designed in such a way that we don’t need the agreement of tax havens such as Ireland to implement it. Let us seize this opportunity for greater tax justice now.
With resolute transatlantic greetings,
Tax dumping: Joe Biden deserves our full support
The longer this pandemic lasts, the higher public expenditure will be to cushion the damage. State coffers are empty already today. Tax revenues are missing in many places, while at the same time large public investments in climate protection and digitalisation are necessary. As right as today’s expenditures are, tomorrow’s revenues are equally important. Someone has to pay the bill sooner or later. And it should certainly not be the next generation. On the contrary, now is the time, at the very latest, to put an end to tax dumping by big business. While the retail sector suffers and entire city centres die out, companies like Amazon profit doubly from this pandemic: their stationary competitors have to close down, and they pay only a minimal tax contribution on their increased profits in our country.
At the beginning of April, a historic opportunity suddenly opened up to put an end to this tax dumping globally: The new US administration called for the introduction of a global minimum tax on corporate profits of 21 per cent. The proposal is not new, but the effective tax rate of 21 percent is almost twice as high as that which had been discussed within the OECD countries until then. The lack of ambition at the OECD level is quickly explained: here, tax havens like Luxembourg, Ireland or Switzerland sit at the negotiating table. Finding a consensus with tax havens against tax dumping is like trying to agree with the bank robber on a secure alarm system for your local bank. The recipe for success in Joe Biden’s “Tax Plan” is therefore that it turns the tables: instead of agreement with the tax havens, the proposal relies on consensus among the aggrieved states. In practice this would mean, for example, that a company that makes profits in Germany but has so far paid tax on them in a tax haven would have to pay Germany the difference between taxes paid elsewhere and the minimum tax. This removes the central incentive to shift the profits that companies undoubtedly want to continue making in Germany to tax havens.
The historic thing about the proposal now is above all its sender: the USA. While a breakthrough against global tax dumping cannot be achieved with tax havens, it can be achieved with the world’s largest economy. All the more annoying is the reaction we hear from Berlin and Paris to Biden’s plans. Olaf Scholz says on the surface that he “personally” supports a tax rate of 21 per cent, but “exactly where it will be” is to be determined only by “the talks in the coming weeks”. And the tax havens will also be involved in these talks. Very similar tones can be heard from the liberal French Finance Minister Bruno Le Maire. In plain language, this means that Germany and France are not accepting the outstretched hand of the USA in order to move forward against tax avoidance with an international alliance, but are instead throwing the ambitious US plan to the tax havens. Within the European Union, a single country – say Luxembourg or Ireland – could use its veto to prevent the euro countries from agreeing to Biden’s proposal. It would be a disaster for tax justice.
Joe Biden has extended an invitation to us Europeans
Already under Obama, the US has shown how it can make significant progress against tax evasion by acting with determination. At that time, it was about the tax secrecy of banks, behind which many tax cheats could hide. With a withholding tax on American bonds, the Obama administration forced other countries to cooperate. Today, banks around the world automatically exchange tax information with investors’ home countries. The lesson: progress against tax injustice is not achieved by waiting for everyone, but when the aggrieved parties consistently lead the way. Today is an opportunity for a transatlantic alliance against the world’s toxic tax-cutting race to the bottom. Along with climate policy, tax policy is one of the policy areas where Biden is fortunately reversing the course of his predecessor. And indeed, tax policy is virtually predestined for a revival of the transatlantic partnership. For Biden’s plans have a historical model: as with Roosevelt’s New Deal, the aim now is to create a link between progressive taxes and forward-looking investments. Today, the Deal is a green one, but the financing can succeed again this time with a progressive tax policy.
For this path, Joe Biden has extended an invitation to us Europeans. The fact that the otherwise expressly transatlantic conservative CDU is not very enthusiastic is due to its defensive reflexes towards higher corporate taxation and the ambitious agenda of public investment in the future. It is incomprehensible, however, that the social democrats (SPD) also reacted rather cautiously. After all, Biden has also agreed to include the taxation of digital giants – most of which are headquartered in the US – in his plan. One does not have to share all the positions of the new US president, for example with regard to the demanded military spending of the allies, but to deny him support in this central and meaningful point of his multilateral turnaround is negligent. Biden also needs the support of his international partners in domestic policy. In the end, we are doing ourselves the most harm. After all, Germany is at the top of the list of countries harmed by tax dumping. Biden deserves the German government’s explicit support for the planned minimum tax rate of 21 percent on corporate profits.
The opinion piece was published in Zeit Online on 29 April: https://www.zeit.de/wirtschaft/2021-04/steueroasen-steuerflucht-usa-joe-biden-europa-digital-unternehmen
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