Tell me if you’ve heard this before: Nations from around the world gathered in Paris to sign a multilateral agreement that had been negotiated over several years with the U.S. as a leading partner. In the end, the U.S. was conspicuously absent from the ceremony and did not sign onto the final agreement.
I, of course, am referring to an effort to combat aggressive corporate tax avoidance and address the wealth-draining concerns over the growth of tax havens. See FACT’s statement on the event. The agreement was a part of the multilateral initiative on Base Erosion and Profit Shifting (BEPS) negotiated through the Organization for Economic Cooperation and Development (OECD). Over seventy countries moved forward with an agreement to combat tax avoidance by amending bilateral tax treaties.
Globally, we have been stuck in a seemingly endless race to the bottom on corporate tax rates in an effort to attract business. One thing rarely discussed by proponents of such competition is where is the bottom? Is it 20 percent? 15 percent? Is it zero percent?
Rather than engaging in a self-destructive race, the nations that signed the agreement recognize the dangers of escalating tax competition. The revenue loss has already led, in several cases, to destabilizing local economies and the signers decided it was time to take action to prevent further damage.
In the U.S., we have seen the hazards of tax competition. Nowhere is that more stark than in Kansas—a case study of the tax competition experiment. In 2014, Kansas cut business taxes nearly half a billion but growth in the number of new business entities actually slowed. At the same time, public investments were decimated and two bond rating agencies downgraded the state due to its budget problems.
Beyond Kansas, nationally, American taxpayers lose in excess of $130 billion per year due to multinational tax dodging—more than any other country. Without a global response, tax dodging multinationals will only continue to leverage countries against each other in an effort to get better and better tax deals—thereby perpetuating the race to the bottom.
As with climate, it makes sense that with a problem that is so clearly global, a global response is necessary to combat it.
Jacob Wills is a Communications Associate with the FACT Coalition.