The Global Minimum Tax Agreement: Why It Matters For America’s Small Businesses
October 26, 2021
ROME, ITALY - OCTOBER 07: G20 Summit in Rome, Italy on October 07, 2021. (Photo by Turkish Grand ... [+] ANADOLU AGENCY VIA GETTY IMAGES
This week, leaders from the G20 (or Group of Twenty), an intergovernmental forum of 19 countries and the European Union, are meeting on a number of issues related to the global economy. One critical item is an international tax agreement on a global minimum corporate tax rate of 15% for multinational corporations. This agreement forged by the Biden Administration with nearly 140 countries is the first of its kind and could be a milestone in tax fairness for small businesses if Congress ratifies it.
For decades, small businesses have been crushed by a race to the bottom where big corporations can leave our country or hide their profits offshore for lower tax rates. It is called the race to the bottom because countries continue to reduce their tax rates to encourage multinational corporations to ship their jobs and profits offshore. For example, the federal corporate tax rate was 21% in 2020, but much lower in countries known as tax havens. Some of these havens, such as the Turks and Caicos and Cayman Islands which have a statutory tax rate of zero, have been made famous through crime and spy novels, while others like Barbados (5.5%) and Ireland (12.5%) are lesser known. Even when accounting for corporate tax credits and deductions, the U.S. still had a higher effective tax rate (8%) than the top 10 tax havens (4%) in 2018.