President Joe Biden says he wants to partly roll back the Republican tax cuts of 2017, including corporate tax reductions that amounted to a giveaway to some of the world’s richest entities. Reversing those reckless cuts is the right goal but won’t solve the underlying problem that predated them: the use of offshore tax havens that allow corporations to skirt U.S. taxes (as well as those of other countries) by funneling their profits through subsidiaries in low- or no-tax jurisdictions.
So it’s encouraging that newly installed Treasury Secretary Janet Yellen is now pursuing an international agreement that would set a global minimum tax on multinational corporations. This would theoretically remove the incentive for American entities to set up shop in Bermuda or the Cayman Islands just to get around U.S. taxes.
The Republican tax-cut package of 2017 offered some crumbs to regular Americans while giving away the store to the rich. It included a major reduction in the corporate tax, from 35% down to 21%. The bill’s supporters invoked the familiar supply-side myth that the tax-cut package would “pay for itself” with increased economic growth. In reality, says the nonpartisan Congressional Budget Office, it will add close to $2 trillion to the deficit over a decade. Then came the pandemic, and the trillions more in deficit spending which — unlike the tax cut — was necessary.