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One major way that President Joe Biden and his team propose paying for his $2 trillion infrastructure plan is by revamping the way U.S. corporations pay taxes. As Amna Nawaz reports, the plan would both raise tax rates, and go after the ways some large companies record profits overseas. Jesse Drucker covers taxes and tax havens for The New York Times and joins us to discuss.
At least one thing stands out and President Biden's infrastructure plan: the price tag.
As Amna Nawaz reports, to pay for the nearly $2 trillion plan, there are calls for revamping how U.S. corporations pay taxes, including what they pay overseas.
Judy, in 2017, Republicans and then-President Trump reduced the U.S. corporate tax rate from 35 percent to 21 percent. President Biden wants to raise that to 28 percent.
He's also calling for an international minimum tax rate of 21 percent. Now, that is meant to keep big multinational companies from doing something many have done for years, use offshore loopholes to pay fewer taxes. All told, the various tax provisions would raise $2.5 trillion over 15 years.
Jesse Drucker covers taxes and tax havens for The New York Times, and he joins me now.
Jesse, welcome to the "NewsHour." And thanks for making the time.
So, these loopholes, these tax maneuvers, a lot of companies use them, Google and Amazon and Facebook and Apple. But what does it mean? If the corporate tax rate is 21 percent, what does it mean for what they actually pay?
Well, I mean, historically, they have generally paid somewhere around half of that. I mean, it's always a lot less than that.
I mean, Google for years was paying taxes at a rate of 2 percent or 3 percent on the majority of its profits around the world, because it was putting them into a mailbox in Bermuda. So, the theory behind the Biden plan is to provide a minimum rate for the profits they're pushing offshore.
And what does all that mean for, I guess — quote, unquote — "lost revenue" for the U.S. Treasury over the years? Is there some kind of estimate?
There is an economist at Reed College, Kim Clausing, who is now the top international tax official in the Treasury Department, and she had estimated years ago that the U.S. was losing somewhere on the order of $100 billion a year because of them — because of companies moving profits offshore.
So, you can sort of see the numbers adding up very quickly, where that gets you to around a trillion dollars in a decade.
What about those 2017 tax cuts? What kind of impact did they have? Did they make it easier or harder or more or less likely that companies would engage in these kinds of practices?
Well, it's an interesting question, right?
I mean, overall, the tax cuts meant that corporations are paying a lot less in taxes than they did before 2017. The tax burden for U.S. companies is much less than it was three years ago. But, at the same time, it did introduce the kind of kernel of a concept of doing a minimum tax offshore at a much lower rate than what the Biden folks are talking about. But it was the first time that the U.S. introduced a concept like that.
So, we heard from Treasury Secretary Janet Yellen this week backing this plan. She said it's going to help to end the — quote, unquote — "global race to the bottom."
Here's what she had to say specifically. She said: "Competitiveness is about more than how U.S.-headquartered companies fare against other companies in global merger and acquisition bids. It's about making sure that governments have stable tax systems that raise sufficient revenue to invest in essential public goods."
Jesse, first of all, could any of these proposals go through Treasury in the form of regulation? Or do they all have go through Congress?
No, what they're talking about are all things where the law would need to be changed. So, they are relying on the Democratic Congress to do this.
There are plenty of things that the Treasury could do to improve things in this area. But what they're seeking now requires a new law.
And, of course, you have already seen, as the plan has been out, Republicans have come out against it. Also, the U.S. Chamber of Commerce has come out against it. They said that this plan would hurt American businesses and cost American jobs.
Jesse, what's the evidence here? Is there any data to back that up?
Well, we have a fair amount of data sort of going in the other direction.
In other words, over the years in 2004, and then again in 2017, the U.S. gave enormous tax breaks to companies to bring back money that they had stowed offshore in places like the Cayman Islands. And the evidence is pretty convincing there that they did not use that money to build new plants or hire new workers. They used the majority of the money to buy back shares from their investors to increase the stock price of the company, which, of course, enriches the executives most of all.
But at the same time, a lot of these companies were laying off tons of workers, that they were bringing money back. So, there's lots — there's a very substantial body of evidence to the contrary, that the tax cuts have not had an impact on investment, have not had an impact on hiring.
Jesse, I have got to ask. You have covered this issue for years and years. These practices are nothing new. They have been going on for years and years. Is there something in this proposal that strikes you as different, as something that could actually curb these practices that have been in place for so long?
I mean, having a — having a 21 percent minimum tax — we call them overseas profits. That's sort of the wrong way to describe it. I mean, the best way to describe it, the best way to think of these things, the tax, are tax haven profits, right? These are the profits that companies push into Bermuda and the Cayman Islands and Switzerland and Luxembourg and claim are being earned overseas.
If, all of a sudden, companies, instead of having those profits taxed that 2 percent or 6 percent, which is what we have seen with the kind of Googles and Apples and Bristol-Myers of the world, if now there's a minimum tax of 21 percent on those profits, that's a very big change and a very big difference, and would probably both raise a lot of money, and would probably curb a lot of these transactions that move profits into tax havens.
Jesse Drucker of The New York Times joining us tonight, thank you for your time.
Thanks for having me.
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Amna Nawaz serves as co-anchor of PBS NewsHour.
Courtney Norris is the deputy senior producer of national affairs for the NewsHour. She can be reached at email@example.com or on Twitter @courtneyknorris
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