Tangle - The new corporate tax rules.

Episode Date: October 14, 2021

Over the weekend, 136 nations officially agreed to enforce a corporate tax rate of at least 15 percent, and also pledged to institute better systems of taxing profits fairly, where they are earned. The agreement, announced by the Organization for Economic Cooperation and Development (OECD), included countries like Ireland that once opposed the deal but now support it. The overarching goal is to address multinational companies that have made a habit out of rerouting their profits through low tax rate countries. The OECD has been leading talks on a plan to institute a minimum rate for a decade.Our newsletter is written by Isaac Saul, edited by Bailey Saul, Sean Brady, Ari Weitzman, and produced in conjunction with Tangle’s social media manager Magdalena Bokowa, who also created our logo.The podcast is edited by Trevor Eichhorn, and music for the podcast was produced by Diet 75.You can support our podcast by clicking here. --- Send in a voice message: https://podcasters.spotify.com/pod/show/tanglenews/message Hosted on Acast. See acast.com/privacy for more information.

The flu remains a serious disease. Last season, over 102,000 influenza cases have been reported across Canada, which is nearly double the historic average of 52,000 cases. What can you do this flu season? Talk to your pharmacist or doctor about getting a flu shot. Consider FluCellVax Quad and help protect yourself from the flu. It's the first cell-based flu vaccine authorized in Canada for ages 6 months and older, and it may be available for free in your province. Side effects and allergic reactions can occur, and 100% protection is not guaranteed. Learn more at flucellvax.ca. From executive producer Isaac Saul, this is Tangle.

Good morning, good afternoon, and good evening, and welcome to the Tangle Podcast, a place where you get views from across the political spectrum, some independent thinking without all that hysterical nonsense you find everywhere else. I am your host, Isaac Saul. It is Thursday, October 14th, and today we are going to be talking about the new global corporate tax minimum of 15%, which became maybe kind of law, official policy, standard practice. We're not really sure what to call it yet, but it's a deal that's been made among 136 countries as of this weekend that will probably be finalized in the coming days, and we're going to get into the weeds and tell you all about it. Before we do, as always, we'll start with the quick hits section. First up, President Joe Biden announced a series of measures in an attempt to address the supply chain bottleneck, including opening the Los Angeles port 24 hours a day and seven days a week. Number two, at least five people were killed and dozens injured in Beirut during a Hezbollah-led protest calling for the removal of the judge

investigating the devastating explosion at Beirut's port last year. Number three, former President Barack Obama will campaign with Terry McAuliffe in the Virginia governor's race. Number four, the House Committee investigating the January 6th Capitol riot issued a subpoena to Jeffrey Clark, a former Justice Department official under President Donald Trump. Number five, the FDA released new voluntary guidelines to reduce the amount of sodium in commercial food products. All right, that is it for our quick hits of the day. Before we jump into the main story, we actually have a corrections issue from yesterday's podcast. A few sharp-eyed and sharp-eared readers and listeners pointed this out,

that we used the expression Taiwan's airspace and the ADIZ, the air defense identification zone, interchangeably once in the newsletter. We also didn't really clarify the distinction between the two, which kind of left some ambiguity and an error up in the newsletter and the podcast. There is an important distinction between these two. Taiwan's airspace is a sovereign territory that extends about 12 nautical miles off the coast of the island. The ADIZ is a designation for airspace that extends much further out around certain countries, and it's an area that requires just a specific positive identification from an aircraft that crosses into it.

So in recent weeks, China has not been entering Taiwan's sovereign airspace. That would be a much graver threat and a much bigger deal. They've been entering Taiwan's ADIZ, which is the airspace that requires that positive identification and is much further away from mainland Taiwan, the actual island, the coast, whatever you want to call it. So it's a simple mistake, but a very important distinction. And we appreciate the readers who called it out because we definitely do not want to leave any ambiguity about that. This is the 43rd Tangle correction in its 114-week history. I believe it's the first one we've ever had to announce on the podcast because it's the first correction since August 24th.

I track corrections and place them at the top of the newsletter and the podcast in an effort to maximize transparency with our readers. All right, awesome. That brings us to the main story of the day. So today's topic is the new global minimum corporate tax. Over the weekend, 136 nations officially agreed to enforce a new corporate tax rate of at least 15% and also pledged to institute better systems of taxing profits fairly where they are earned. The agreement was announced by the Organization for Economic Cooperation and Development, also known as the OECD. It included countries like Ireland that once opposed the deal but now

support it. The overarching goal is to address multinational companies that have made a habit out of rerouting their profits through low tax rate countries. The OECD has been leading talks on a plan to institute a minimum rate like this for more than a decade. So briefly, just to explain why this matters, imagine a major company like Apple is trying to decide where to set up shop or where to file its profits. It often hunts for the country with the most favorable tax rules. Because being able to tax a company like Apple brings in a lot of government revenue because Apple has a lot of revenue, nations have a strong incentive to lower their tax rates in order to win Apple's business. If you're collecting a 10% tax of Apple's profits, that might be better

than collecting 0% tax of Apple's profits while having a 15% corporate tax rate on all the other companies involved in your country. This has left smaller and poorer countries in what some economists call a race to the bottom to attract multinational corporations and this big investment. So the new rules will apply a minimum to companies with annual revenue of more than $750 million. If approved formally this week at the G20, it will generate about $150 billion in additional global tax revenue per year. The rule will also shift tax rights on profits certain multinational companies are making from their tax havens to the countries where they're actually earning their income. Generally speaking, it's going to allow nations to extract more tax revenue from domestic companies

that are avoiding taxes or foreign companies that are using them for their low tax rates. The new minimum and these new rules will go into effect in 2023. So who signed it? Just about everyone except Kenya, Nigeria, Pakistan, and Sri Lanka. That's because some developing nations oppose the rule. They say that having a lower corporate tax rate is a good way to attract investment, and since none of them can go lower than 15% now, it would benefit countries that are already ahead. Ireland, which actually used its 12.5% tax rate to attract major foreign investment, including Apple in the real world, not just a hypothetical,

agreed to the deal after securing a compromise on the wording of the agreement. It had previously called for at least a 15% minimum global tax, but the words at least were removed from the agreement. The reforms had been agreed to in principle at the G7 meeting in London this past June, but the latest announcement marks the official agreement, which is expected to be finalized this week at the G20 summit. Below, we'll take a look at some reactions from the right and the left, and then my take. All right, first up, we'll start with what the left is saying about this deal. The left is generally supportive of the agreement, though they think that it could have gone further. In June, when this deal was first proposed, the Guardian's editorial board said it was genuine progress. International corporate tax rules were designed 100 years ago to protect multinational companies from predatory governments and the threat of double taxation.

to protect multinational companies from predatory governments and the threat of double taxation. But since the late 20th century, and particularly in the digital era, the power relationship has been inverted. In the age of high globalization, multinational giants played pick and mix with tax jurisdictions, salted away profits offshore through baroque ownership structures, and used their power to play countries off against each other. A minimum global corporation tax of at least 15%, as proposed, would establish a floor on what the U.S. Treasury Secretary Janet Yellen has described as a 30-year race to the bottom on corporate tax rates.

It would also lead to real pressure on the world's tax havens, many of them overseas territories of the United Kingdom, to follow suit. The second part of the deal is intended to reform the tax framework to more fairly reflect where companies such as Amazon, Google, and Facebook do business and make their money, as well as where they are headquartered. This is also overdue. The economic realities of the digital age mean that the tech titans have been getting away with paying far too little for far too long. In the New York Times, Peter Kaur asked if the race to the bottom might be over.

One argument against a global tax minimum is that it's a way for rich countries to gang up on companies and extract excessive taxes to finance their costly welfare states. That's what some conservatives contend. Another argument against a global tax minimum is that it could harm poor countries with low tax rates. A poor nation that's unattractive to multinationals might want to set its corporate tax rate very low to attract investment, and the global minimum prevents it from doing that. But Professor Daniel Dresner says that, in practice, many of the countries with very low or zero corporate tax rates aren't poor nations but comfortable tax havens like Jersey, Bermuda, or the British Virgin Islands. In June, as the deal was taking shape, the Initiative on Global Markets at the University

of Chicago's Booth School of Business asked top American and European economists what they thought of it. A majority on both continents thought it would limit the benefits of companies shifting profits to low-tax jurisdictions without distorting their investment choices in economically inefficient ways. Smaller majorities had confidence that it was achievable. That part remains to be seen. It's one thing to ink a deal, but quite another to enforce it. One of the economists surveyed told me by email that in an ideal world, each country would set a corporate tax rate based on its needs, preferences, or constraints. But, he wrote, that first best might not be attainable at all or may be subjected to gaming, so setting a global minimum is a way, albeit a second best way,

to limit the race to the bottom. Sometimes the second best way is the best we can hope for. In Bloomberg, David Fickling was skeptical anything would change. So much money now moves through the world's offshore financial centers that such paper transactions now account for a greater flow of capital than any country receives from genuine foreign investments, he wrote. Far from taking a larger share, most developed nations have coped with the leakage of taxable profits over the past decade by cutting their own corporate tax rates, a tacit admission that enforcement has failed. Mandatory disclosure rules introduced in 2014 to prevent European banks' use of tax havens seem to have made no real difference. That's

according to a report last month by the EU Tax Observatory. Why have all these worthy efforts achieved so little? One explanation suggested by the list of powerful figures named in the latest leaks dubbed the Pandora Papers is simply that the people in charge of writing the laws and treaties that underpin international capital flows have much to gain from the current setup. Any attempts to restrain them are like a game of whack-a-mole, he wrote. That applies even to the Organization for Economic Cooperation and Development's attempts to reset the world's tax rules via an accord between 130 jurisdictions due to be finalized this month. The centerpiece of the proposal, a 15% global minimum tax rate that can be applied unilaterally by governments that feel they're losing out,

is over time as likely to end up as a global maximum tax. The Biden administration's efforts to restore rates cuts to 21% under Donald Trump will stop at 26% rather than the 28% originally sought or the 35% that existed previously. There's little sign the race to the bottom that's been going on for four decades is about to end. All right, that brings us to what the right is saying. The right is generally opposed to the changes, saying that it will hurt the United States in the end. In June, when this was first proposed, Mick Mulvaney said Americans should root for the Irish fighting higher corporate taxes. The premise behind the minimum global tax corporate tax is simple. Most governments

around the world are looking to raise money, Mulvaney said, but they don't like taxing middle class as this tends to result in lost elections and there aren't enough rich people to soak to raise the necessary funds. That means that governments have started to look to corporations as the piggy banks they can rate. The Microsofts and Apples of the world don't garner much public sympathy when it comes to paying their fair share. The flu remains a serious disease. Last season, over 102,000 influenza cases have been reported across Canada, which is nearly double the historic average of 52,000 cases. What can you do this flu season?

Talk to your pharmacist or doctor about getting a flu shot. Consider FluCellVax Quad and help protect yourself from the flu. It's the first cell-based flu vaccine authorized in Canada for ages 6 months and older, and it may be available for free in your province. Side effects and allergic reactions can occur, and 100% protection is not guaranteed. Learn more at flucellvax.ca. In the not-so-distance past, the U.S. knew better, he wrote. We knew that low corporate tax rates boosted investment, productivity, jobs, and wages, all of which encouraged a prosperous economy. When the U.S. cut the corporate tax rate to 35% under Ronald Reagan, giving us the lowest

rate in the world, we reaped huge benefits at the expense of other countries with higher rates. But those countries also learned from our example. They even started beating us at our own game, which led to an exodus of U.S. businesses to more favorable tax climates, including Ireland. By the time we lowered rates under President Trump, that 35% U.S. corporate tax rate had become the third highest in the world. Competition among nations or states on tax rates is just that, competition. If you're going to lose a competition, there are two ways you can respond. One is to get better. The other is to prevent the competition from happening.

The Wall Street Journal editorial board said this is a gambit to impose much steeper taxes domestically. Other governments locked in the lowest minimum tax rate they could and then tried to delay full implementation as long as possible, the board said. Ireland is a case in point. It insisted that rate be a cap rather than a floor. The OECD proposals over the summer spoke of a rate of at least 15%. And at Ireland's and Switzerland's behest, that at least is now gone. The message from this to Congress is that the rest of the world will not easily allow a global tax minimum rate to drift upward to match an uncompetitive U.S. rate, no matter what Treasury Secretary Janet Yellen hopes. no matter what Treasury Secretary Janet Yellen hopes. Ms. Yellen and progressives hope the OECD global tax gambit will provide political cover to impose much steeper taxes in the U.S.

Now Capitol Hill is on notice. There is a limit to how much governments will hobble their companies with higher taxes. Democrats want to raise taxes in the U.S. now while foreign tax increases are years away. The global tax project is bad policy that will reduce tax competition that has helped countries like Ireland attract more investment and grow faster. It serves the interests of the political class, not working people. But Congress shouldn't compound the damage by making U.S. taxes even more burdensome than Ms. Yellen's misguided global tax already does. The National Review editorial board criticized the race to the bottom argument.

The problem with that argument is that it hasn't happened yet, they wrote. What has been derided as a race to the bottom in reality has been more of a slow glide to the middle. Over the past 40 years, corporate tax rates have slowly declined across the board, and the worldwide average in the past 10 years has settled right around 25%. The distribution has also become less variable over that span. The most common statutory rates globally are between 20 and 25%. The United States used to be far above the global average. The federal statutory corporate tax rate was 35% until the 2017 Tax Cuts and Jobs Act reduced it to 21%, where it currently stands. The domestic political

agenda behind Biden and Yellen's global antics is obvious. Democrats want to raise the federal corporate tax rate back above the global average again to 26.5%. Since states also levy corporate taxes, the average corporate tax rate for the U.S. would be 30.9%, which would be third highest in the OECD, trailing only Colombia and Portugal. Large, powerful countries shouldn't force smaller, weaker countries to adopt tax policies that facilitate the large country's extraction of revenue from corporations. In any other context, the left would cry imperialism, but apparently tolerance of global differences must be set aside if it gets in the way of revenue. Setting tax

policy is an inherent power of governments, and it should be left to them, not outsourced by the international agreement. Alright, that brings us to my take. So So I am genuinely torn about this. The argument that each nation should have the freedom to impose its own tax rates resonates with me. I'm also not sure this deal violates that principle. After all, this is a global agreement where all 136 nations are opting into the 15% minimum. It's not as if they're being forced. Clearly evidenced by the countries who refuse to sign on, it's possible to say no here. It seems obvious that developing nations

who are struggling to woo investors are going to be hurt the most by a global tax minimum, and I haven't exactly seen any arguments spelling out why that won't be the case, though I'm open to them. At the same time, I'm not sure classifying this as a race to the middle is accurate either, as the National Review Board did.

They cite the Tax Foundation's numbers claiming rates have, quote, slowly declined or, quote, settled in the middle. But if you look at the graph they link to, I'm not sure I'd describe it as either of those things. I'd say the rates have fallen pretty precipitously and declined by 15% from where they used to be, which is a pretty big deal. In the newsletter today, I included a graph that shows this pretty steep decline over the past 40 years. It's also true that a lot of the initial fear-mongering about this tax has not come true. For instance, one of the grave warnings

this summer when the deal was being negotiated was that the global minimum tax was going to disrupt the stock market because multinational corporations were going to take such a hit. David Fickling, in an article over the summer, examined that claim and basically put it to bed. Larger questions still need to be answered, though. The most obvious is how and whether countries will actually enforce these minimums or if new loopholes will simply be created and exploited. So many caveats and carve-outs have already been put into this deal, it's not hard to imagine the latter. It's also true that for Biden and Yellen, these changes are almost certainly tied to a domestic agenda to

raise corporate taxes, and perhaps even to try and create a uniform baseline for state taxes too. Remember, some nine U.S. states have no income tax, so one might wonder why the same global logic wouldn't apply inwardly, as Mulvaney argued in his op-ed. Of course, there's something about the spirit of the PAC that I very much support. We want obscenely profitable giant companies paying their fair share of taxes, and we want them doing it in the countries whose labor and infrastructure they're profiting off of, not just being minimally taxed by low-rate nation they're running their profits through. The details of getting that done, though, are what's important here, and it's there that I'm left with a lot more to chew on. All right, so that's it for our main story. We're going to move into the question of

the day. Today's reader question comes from Jen in Glen Cove, New York. She asked the question concerning the United States Postal Service and Louis DeJoy. It seems like DeJoy is doing everything he can to torpedo the USPS, and it feels like there's nothing that can be done to stop him and save this incredibly important service from becoming solely privatized. Am I wrong, she asked? Can the USPS be wrestled from his hands, and is it possible to actually fix it so that it is no longer in jeopardy? This story is about to get very hot, actually. By now, most Americans have probably noticed the USPS getting a lot slower, and mail service speeds today are somehow back where they were in the 1970s. I've personally experienced the slowdown under DeJoy and the huge pains that come along with it, and it's anecdotal evidence that I guess

matches the data we're seeing from the USPS and watchdogs who oversee the agency. My own opinion is and has been that the USPS is critical, it's worth spending a ton of money on, and DeJoy's appointment, which I was very much open to at first, has been basically a total disaster. There are now attorneys general in 19 states and the District of Columbia who have filed an administrative complaint asking to block the 19-year budget-cutting plan DeJoy is hoping to implement. The complaint asks the Postal Regulatory Commission to review the plan in detail before rolling it out. It would also allow U.S. Postal Service customers to submit comments during hearings. The DeJoy's plan is a political disaster as it calls for higher rates, reduced postal office hours, and slower service. Given how many Americans across the political spectrum rely on the postal service in their

day-to-day lives, and DeJoy's ties to former President Trump, you might have expected him to be fired by now. But that's not something Biden can do easily. Instead, that's up to the governing board of the USPS. Biden got his nominees confirmed to the board this summer, which increases the odds they may replace DeJoy, but so far there's been very little movement there. It's possible they're waiting to see how this plan rolls out or if it rolls out, but for now this latest challenge is probably the most likely way to stop the changes he's proposing. Remember, as always, if you want to ask a question, you can write in to Tangle, Isaac at ReadTangle.com. tangleisac at readtangle.com. All right, and our story that matters for today is not an encouraging one. Inflation is hitting levels not seen in 13 years, and analysts are increasingly worried it's

not going anywhere anytime soon. Another jump in consumer prices in September sent inflation up 5.4%, according to the Associated Press. A tangled global supply chain continues to wreak havoc, and the prices of houses, rent, food, gas, electricity, furniture, new cars, TVs, and restaurants have all jumped, Axios reports. Worse yet, those price rises are rising faster than the pay gains workers are commanding for many businesses. are rising faster than the pay gains workers are commanding for many businesses. On the other side, clothing prices, car rentals, hotel rooms, and airline tickets all fell recently, which some have attributed to the Delta variant and some people traveling less. But this is a really important story to keep an eye on. All right, that brings us to our numbers for the day. 65% is the percentage of all voters who somewhat or strongly support raising corporate tax rates to pay for the Biden infrastructure plan. 21% is the percentage of all voters who somewhat or strongly oppose raising corporate tax rates to pay for Biden's infrastructure plan. Five is the number of people killed in Norway after a bow and arrow attack.

number of people killed in Norway after a bow and arrow attack. Negative 22% is the reduction in new daily COVID-19 cases over the last 14 days, according to the New York Times. 52.80% is the highest ever corporate tax rate in the U.S., which was in 1968. 1% is the lowest ever corporate tax rate in the U.S., which came in 1910. All right, that gives us our have a nice day story. Always finishing up the podcast with a little piece that maybe can just give you a smile. Today's story, I'm sorry, it's just awesome. I know there's all this other stuff about Jeff Bezos and Amazon and Blue Origin and whatever,

but William Shatner, the actor who played James T. Kirk in the original Star Trek series, actually flew to space yesterday. The 90-year-old joined three other crew members aboard Jeff Bezos' Blue Origin rocket named New Shepard and became the oldest person to ever enter space. The entire flight lasted just about 10 minutes, reaching 65 miles above Earth, where crew members experienced four minutes of weightlessness. The New Shepard hit a peak altitude of 351,000 feet, so it didn't go out into orbit, but it did pierce the atmosphere. What you have given me is the most profound experience I can imagine, Shatner told Bezos after landing. I am overwhelmed. I had no idea. NBC News has a great

story about this. If you want to read more of Shatner's quote and about his experience, I just think it's really cool. All right, everybody, that is it for today's podcast. Before you go really quick, I want to let you know that tomorrow we have a really interesting piece coming up about the attempted assassination of Julian Assange. This is a story I've been reading about and writing about for a little while. And I think, I'm not 100% sure, but I am hoping today I'm going to sit down with Assange's lawyer. If that's a story you're interested in, it's going

to be for subscribers only, but you can get it by going to readtangle.com backslash membership and becoming a subscriber. All right, everybody, thank you so much. And we'll see you on Monday. Have a good one. Our newsletter is written by Isaac Saul, edited by Bailey Saul, Sean Brady, Ari Weitzman, and produced in conjunction with Tangle's social media manager, Magdalena Bokova, who also helped create our logo. The podcast is edited by Trevor Eichhorn and music for the podcast was produced by Diet 75. For more from Tangle, subscribe to our newsletter or check out our content archives at www.readtangle.com. The flu remains a serious disease. Last season, over 102,000 influenza cases have been reported across Canada,

which is nearly double the historic average of 52,000 cases. What can you do this flu season? Talk to your pharmacist or doctor about getting a flu shot. Consider FluCellVax Quad and help protect yourself from the flu. It's the first cell-based flu vaccine authorized in Canada for ages six months and older, and it may be available for free in your province. Side effects and allergic reactions can occur, and 100% protection is not guaranteed. Learn more at flucellvax.ca.