Pandemic crash requires global solutions
International report urges minimum corporate tax rates and tax on wealth, with COVID-19 costs paid by firms benefiting from pandemic
A new international report on the COVID-19 economic collapse suggests firms that benefit from the pandemic, such as e-delivery companies like Amazon, should pay the social costs. (One Illinois/Ted Cox)
By Ted Cox
A new international report on the COVID-19 pandemic calls for global solutions to the economic collapse it’s brought on, including minimum corporate tax rates, the “effective taxation of wealth,” and targeted taxes on firms that have benefited from the pandemic to pay its social costs.
“The Global Pandemic, Sustainable Economic Recovery, and International Taxation” was released this week by the Independent Commission for the Reform of International Corporate Taxation, an umbrella group of global organizations including Oxfam, dedicated to alleviating world poverty. The report warns that — globally as in the United States — the economic collapse brought on by government efforts to slow the spread of COVID-19 has only allowed the rich to get richer, with the result that poor nations, like poor people everywhere, bear the brunt of the impact.
The report argues forcibly that “reductions in corporation tax ‘to stimulate reconstruction investment’ will be neither economically effective nor socially desirable. Rather, corporate tax systems should be strengthened by accelerating truly inclusive international cooperation,” to prevent profits being shifted to tax havens and offshore accounts, and “by making these taxes more progressive to stimulate small firms, and by ensuring effective taxation of the offshore wealth of shareholders.”
It grants that the social costs of the pandemic have been immense and that “the question of who will ultimately foot the bill will need to be answered, but the economic burden must not fall disproportionately on disadvantaged groups and countries.”
Nobel Prize-winning economists Joseph Stiglitz of Columbia University in New York and Thomas Piketty of the Paris School of Economics are both commissioners with the organization, and conducted a media Zoom call on the report last weekend. According to Politico, “They argue that the biggest economic winners from the pandemic — digital companies that don’t depend on face-to-face interactions or physical goods for their revenue — are the same ones that find it easiest to minimize or evade tax.”
Stiglitz reportedly said the shift in wealth in the pandemic so that the rich get richer was “100 times worse” than in the Great Recession of a decade ago, while the report drew on recent data finding that billionaires have regained their wealth on the stock market while workers have borne the brunt of continuing job losses, as reported by the Institute for Policy Studies and Americans for Tax Fairness.
The report’s Executive Summary charged that “between March 18 and May 19, the total net worth of the 600-plus U.S. billionaires jumped by $434 billion or 15 percent, based on the groups’ analysis of Forbes data,” while as of last year, even before the economic collapse, “the world’s billionaires, only 2,153 people, had more wealth than the poorest 4.6 billion people combined, (with) the pandemic threatening to push half a billion more people into poverty.”
The report pointed out that “excess-profits taxes on firms benefitting from the peculiar conditions of the pandemic have been widely debated, such as perhaps e-delivery firms at present or pharma in the near future, based on the precedent of similar taxes during World War II on military suppliers or more recent windfall taxes on oil firms.”
Digital companies immune to the pandemic’s economic impact, such as social media, also were targeted, with the Executive Summary citing that “Amazon founder and Chief Executive Officer Jeff Bezos, for example, has seen his net worth grow 30.6 percent in the past two months, boosting it to $147.6 billion,” while “the fortunes of Bezos and (Facebook founder Mark) Zuckerberg combined grew by nearly $60 billion, or 14 percent of the $434 billion total.”
The report urged a minimum corporate tax of 25 percent imposed by all governments worldwide, to minimize tax-dodging shell games played by multinational firms. The report emphasized that is a tax on profits — companies making money in the pandemic — and that “essentially, corporate taxes are a withholding tax on dividends, and thus in effect an income tax on the wealthy because shareholdings (directly, or indirectly through e.g. pension funds) are even more unequally distributed than income.” It charged that cutting tax rates would only benefit profitable corporations, while increasing those taxes would draw revenue from where it exists in the pandemic, while not acting as a drag on companies struggling to get back in the black as the economy recovers.
But on the Zoom call Piketty said such taxes are “not enough” and that “a global system with global registry to track income flows and asset ownership” is needed. Piketty previously argued for a wealth tax in his book “Capital in the Twenty-First Century,” the definitive historical study of income inequality, as well as his new “Capital and Ideology.” He said, “The case for a wealth tax has become stronger since the pandemic,” especially with the prevalence of tax avoidance by the very rich.
The report took specific aim at the Federal Reserve’s moves to backstop corporate debt at no cost, even as the Fed has insisted on charging state and local governments interest on any loans intended to make up for lost revenue in the economic collapse. “Faced with a global crisis, there is a natural urge for the wealthy to withdraw equity from firms and replace it by debt, hopefully government-backed (which is what happened with the U.S. corporate tax reform in 2017), and then shift assets offshore to keep them ‘safe’ — safe, that is, from the tax authorities,” it stated. “The use of ‘offshore’ structures allows not only the real ownership of this wealth to remain hidden, but also its location and perhaps its very existence. This same secrecy also creates fertile ground for tax evasion, avoidance, and for financial crimes.” Thus the repeated need for a global wealth tax, along with a global database serving to “publish aggregate data on overseas private wealth by country of origin and destination, in order to enable taxpayers to hold their governments to account for failing to tax undeclared offshore assets, to enable all governments to adopt effective progressive wealth taxes on their residents, and to be able to better monitor effective income-tax rates on highest-income taxpayers.”