On June 13, 2022, The Hamilton Project at the Brookings Institution hosted a webcast entitled “Tackling International Tax” that explored significant changes to the taxing of international corporate income.
The webcast, which was opened by former U.S. Treasury Secretary Timothy Geithner, brought together Hamilton Project Director Wendy Edelberg and National Economic Council Director Brian Deese for a discussion. A roundtable followed between Kimberly Clausing of the UCLA School of Law, Rohit Kumar of PwC, and Chye-Ching Huang of the Tax Law Center at NYU Law, with Jason Furman of Harvard University serving as moderator.
The facts describe how current policies allow U.S. multinationals to shift profits abroad, lowering their effective tax rates. “The basic problem is relatively straightforward, which is that we have an international tax system that is best characterized as a race to the bottom,” Deese said during his discussion with Edelberg.
However, Deese noted the progress that countries have made during the past year, with more than 130 nations signing on to a new international tax framework. Countries have an incentive to codify this framework into their own laws, according to Deese. “Actually, getting in and being part of the global minimum tax regime means your companies can benefit from the stability that the agreement provides,” he said during the discussion.
"[G]etting in and being part of the global minimum tax regime means your companies can benefit from the stability that the agreement provides.”
Deese and Edelberg then handed the floor over to Furman. Clausing and Huang both noted the potential benefits of U.S. compliance with the new international framework. “Such reforms can raise hundreds of billions of dollars for the U.S. government at a time when we really need the money,” Clausing said.
Kumar responded by proposing that tax rates for multinationals are understated, and that corporations may already pay more than the 8.8% effective rate reported in 2018. However, Kumar acknowledged the potential merits of an international consensus. “If the rest of the world were to actually adopt something like [the framework], and the U.S. were then to do it at the same time, that would actually be helpful,” Kumar said.
The panelists then discussed the riskiness of the U.S. adopting policy changes before other nations move to comply. “There’s a strong incentive for other countries to adopt,” Clausing noted. “And if we adopt, I think it will be an even stronger incentive.”
Huang agreed, pointing to the precedent the U.S. would set as a first mover. “The U.S. tax policy settings do have global gravity,” she said. “So, I think there is some benefit in going first in order to actually shape what other countries do.”
As the conversation concluded, Clausing underlined the broader importance of acting on the proposed tax framework. “International cooperation is more important than ever before,” she said during the panel. “The negotiation of this international agreement was a really meaningful step forward in the U.S. leading and bringing countries together…And I think it could be a model for how to address other international collective action problems.”