To Build Bridges, Biden Plans to Hike Taxes
Biden’s planned corporate tax hike comes as countries negotiate on a global minimum standard to tackle tax havens.
Here is today’s Foreign Policy brief: Biden introduces a $2.3 trillion dollar infrastructure plan, France enters its third lockdown, and Alexei Navalny plans a hunger strike.
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U.S. Infrastructure Plan Sets Stage For Tax Showdown
U.S. President Joe Biden unveiled his $2.3 trillion infrastructure plan on Wednesday, promising to repair the country’s roads and bridges while boosting the U.S. manufacturing sector and supporting care for older Americans.
To cover the high price tag, Biden plans to partially reverse a Trump-era corporate tax cut, bringing the rate up to 28 percent from 21 percent—a pronounced jump but one which still makes it the second lowest corporate tax rate the country has seen since World War II.
Biden’s offshoring problem. If that was the only provision to raise funds, Biden would be in trouble. Many U.S.-based multinational firms have exploited a complex system, relying on government incentives and offshoring maneuvers to effectively avoid paying federal taxes. A 2019 study by the Institute on Taxation and Economic Policy found that at least 60 of the largest publicly held U.S. corporations paid no federal income taxes in 2018. The companies included household names like Amazon, Chevron, Netflix, and General Motors.
Although still lacking details (and necessary congressional approval), Biden is planning to undercut some offshoring techniques by forcing U.S. firms to pay much higher tax rates on earnings generated overseas. That rate for many companies is currently 10.5 percent.
A global standard. The corporate tax increase comes as the idea of global tax reform is gaining traction. The Organisation for Economic Cooperation and Development (OECD) is leading negotiations to introduce two pillars of a new global corporate tax regime. The first pillar would tax multinationals based on where their customers are located rather than where the firm is headquartered. The second pillar would establish a global minimum rate, allowing countries to collect taxes from companies even if they are based in tax havens.
The United States has an incentive to take the lead on such an initiative since it currently sits on the high end of the corporate tax spectrum compared to other wealthy nations. Janet Yellen, the U.S. treasury secretary, is part of OECD negotiations and touched on the issue at her Senate confirmation hearing, saying a global minimum rate would stop “the destructive global race to the bottom on corporate taxation and help discourage harmful profit shifting.”
Decades of cuts. Although an international agreement would help governments around the world claw back more taxes, individual countries have been all too eager over the past two decades to allow companies to pay less and less. From 2000 to 2018, 76 countries cut their corporate tax rates and only six increased them, according to the OECD. Fewer than 20 countries today have a corporate tax rate above 30 percent, down from more than 55 countries in 2000.
What We’re Following Today
Biden to lift ICC sanctions. The Biden administration is set to revoke a Trump-era executive order sanctioning the prosecutor of the International Criminal Court for investigating alleged war crimes committed by U.S. troops in Afghanistan and Israeli forces in the Palestinian territories. The news was first reported by Foreign Policy’s Colum Lynch and Robbie Gramer.
Although the move eases tensions between the United States and the ICC, the Biden administration is following his predecessors by refusing to acknowledge the court’s standing to prosecute U.S. or Israeli nationals. Israel has already taken action over the ICC investigation by confiscating the VIP border pass of Palestinian Foreign Affairs Minister Riyad al-Maliki after he returned from a meeting with the ICC prosecutor in The Hague in March.
Macron orders national lockdown. French President Emmanuel Macron has ordered a third nationwide lockdown as the country struggles to contain an increase in COVID-19 cases. Schools will close for three weeks under the new restrictions as Macron said the lockdown would last at least a month. With just 12 percent of its population partially vaccinated, France’s vaccine campaign has largely tracked the European Union average. Its rate of new infections is much higher than the EU average, however: France has seen roughly 570 new cases per day per million residents over the past week, whereas the EU average stands at 380 new cases per million residents (which is still nearly twice as high as the U.S. figure).
OPEC+ meets. Oil ministers from OPEC+ member states meet today to decide whether to boost production or maintain current output cuts. It’s expected that the cartel will be cautious and maintain current production levels as a global economic recovery remains threatened amid a new wave of COVID-19 infections and slow vaccine distribution.
Keep an Eye On
Navalny’s hunger strike. Imprisoned Russian opposition figure Alexei Navalny will begin a hunger strike to protest the health care he is receiving in jail. In an Instagram post, Navalny complained of sleep deprivation and demanded to be seen by an independent physician. As Foreign Policy’s Amy Mackinnon reports, Russian authorities have supplied Navalny with ibuprofen and other pain relievers and have deemed his health “stable and satisfactory.” Hundreds of Russian physicians and medical professionals have signed a petition calling for an independent doctor to review his medical condition.
Vaccine production. World Trade Organization chief Ngozi Okonjo-Iweala has called on vaccine manufacturers to enter licensing agreements with poorer countries to boost production. In an interview with the BBC, Okonjo-Iweala cited AstraZeneca’s arrangement with India’s Serum Institute as a model for other firms to follow. The WTO director-general appeared to foreclose the possibility of an intellectual property waiver being used to increase production, saying such a decision would be for the next pandemic.
Odds and Ends
Laurène Beaumond claims to be a French expat who previously lived in Xinjiang in recent op-eds published on the Chinese international broadcaster CGTN’s French language site. In one post, dated March 28, Beaumond slammed a recent campaign by Western firms to boycott cotton from Xinjiang.
Le Monde asserts the author is a fake, based on her name not appearing in any records kept by a French government commission that distributes identity cards to journalists, despite her claim to have worked in French newsrooms in the past. A cursory search by Foreign Policy could unearth no record of the journalist either.
If the author cannot be verified, it will provoke awkward questions for CGTN. The broadcaster only gained approval to operate in France in early March after being banned in the United Kingdom.
That’s it for today.