In America and Around the World, the Poor Will Pay for the GOP Tax Plan
It is Donald Trump's main promise as a candidate: convincing American firms to come back home, creating millions of jobs, and launching a growth that would reverse two decades of sluggish investment and stagnant wages. It is in the name of this promise that Congress is legislating on tax, especially its corporate part.
Among other things, the tax bills now being considered in Congress, would cut the corporate tax rate from 35% to 20% and allow multinational corporations to repatriate trillions of dollars they are holding abroad at a low tax rate. This is, according to the White House, a strategy to boost the competitiveness of American companies.
The argument has no empirical foundation. Claiming that lower corporate taxes would generate a leap in corporate spending is based on the idea that firms have held off making capital investments because of high tax rates. In reality, figures show that American companies can borrow money at record low interest rates and they don't have any cash-flow problems. Low capital investment rates have probably much more to do with a lack of demand, a problem that the Trump tax plan would fail to address. And while Trump the candidate criticized the growth of US national debt, his plan would add trillions to the debt in the next ten years.
Despite the headline 35% rate, US companies pay on average only 14% in corporate income tax, thanks to tax loopholes, incentives, and successful lobbying, which is well within the range of being competitive. In any case, even a very low tax rate cannot compete with zero taxes, which is what many tax havens offer. There would still be an incentive to shift profits to countries that have an even lower tax rate.
What is certain is that a large cut in corporate rate would be perceived internationally as a full throttle acceleration of the global race to the bottom on corporate taxation. The British government has already vowed to keep the lowest tax rate amongst G7 countries. Mexico has promised to reciprocate against harmful tax measures taken by the United States. Most developing countries would reduce their rates even further and increase tax privileges for corporations to compete for investment. Governments would make up budget shortfalls from tax breaks by cutting back on public services and infrastructure investments, and by increasing taxes such as VAT and fuel, which hit ordinary citizens harder.
Clearly, the spillover effect of the proposed US tax bill would be endured by the poorest people in the world, not just the United States. Oxfam estimates that just eight men control as much wealth as half of humanity. Inequality is a growing problem that we must address. But if enacted, the tax plan would seriously undermine the ambitious commitments made by the international community to tackle poverty and inequality through the Sustainable Development Goals.
As a group of leaders from government, academia, and civil society, the Independent Commission for the Reform of International Corporate Taxation (ICRICT) urges the United States to work with the international community, to reform international corporate tax systems to address the problems the entire world is facing today: widening income inequality, growing job insecurity, climate change, and anemic productivity growth. The creation of an intergovernmental body on tax cooperation within the United Nations system is the only way to ensure a coherent global coordination, with stronger cooperation, less unilateral action, and consistent action against tax havens.
Also published in GNN Liberia (Liberia) under the title « In America and in the world, the poor will pay for the Trump’s Tax Plan http://gnnliberia.com/2017/11/30/america-world- poor-will-pay-trumps- tax-plan/