In America and in the world, the poor will pay for the Trump’s Tax Plan 

By Prof Léonce Ndikumana| 

Prof Léonce Ndikumana|

It is Donald Trump’s main promise as a candidate: convincing American firms to come back home, creating millions of jobs, and launching a growth that would reverse two decades of sluggish investment and stagnant wages. It is in the name of this promise that Congress is legislating on tax, especially its corporate part.

Among other things, the tax bill being considered in Congress today, would cut the corporate tax rate from 35% to 20% and allow multinational corporations to repatriate trillions of dollars they are holding abroad at a low tax rate. This is, according to the White House, a strategy to boost the competitiveness of American companies.

The argument has no empirical foundation.  Claiming that lower corporate taxes would generate a leap in corporate spending is based on the idea that firms have held off making capital investments because of high tax rates. In reality, figures show that American companies can borrow money at record low interest rates and they don’t have any cash-flow problems. Low capital investment rates have probably much more to do with a lack of demand, a problem that the Trump tax plan would fail to address. And while Trump the candidate criticized the growth of US national debt, his plan would add trillions to the debt in the next ten years.

The tax bill’s proponents also argue that lowering the corporate rate to 20% from 35% would prevent US companies from shifting their investments, employment, and operations out of the United States to lower-tax jurisdictions. According to Kimberly Clausing’s research, the U.S. Treasury loses more than $100 billion a year because of tax dodging by multinational companies. Most of their profits come from work done in the United States, but the profits are attributed to a foreign subsidiary, using transfer prices, to avoid taxes.

Despite the headline 35% rate, US companies pay on average only 14% in corporate income tax, thanks to tax loopholes, incentives, and successful lobbying, which is well within the range of being competitive. In any case, even a very low tax rate cannot compete with zero taxes, which is what many tax havens offer. There would still be an incentive to shift profits to countries that have an even lower tax rate.

What is certain is that a large cut in corporate rate would be perceived globally as a full throttle acceleration of the global race to the bottom on corporate taxation.  The British government has already vowed to keep the lowest tax rate amongst G7 countries. Mexico has promised to reciprocate against harmful tax measures taken by the United States. Most developing countries would reduce their rates even further and increase tax privileges for corporations to compete for investment. Governments would make up budget shortfalls from tax breaks by cutting back on public services and infrastructure investments, and by increasing taxes such as VAT and fuel, which hit ordinary citizens harder.

Clearly, the spillover effect of the proposed US tax bill would be endured by the poorest people in the world, not just the US. Oxfam estimates that just eight men control as much wealth as half of humanity. Inequality is a growing problem that we must address. But iIf enacted, the tax plan would seriously undermine the ambitious commitments made by the international community to tackle poverty and inequality through the Sustainable Development Goals. 

As a group of leaders from government, academia, and civil society, the Independent Commission for the Reform of International Corporate Taxation (ICRICT) urges the United States to work with the international community, to reform international corporate tax systems to address the problems the entire world is facing today: widening income inequality, growing job insecurity, climate change, and anemic productivity growth. The creation of an intergovernmental body on tax cooperation within the United Nations system is the only way to ensure a coherent global coordination, with stronger cooperation, less unilateral action, and consistent action against tax havens.

Léonce Ndikumana is a Professor of economics and Director of the African Development Policy Program at the Political Economy Research Institute at the University of Massachusetts. He is a Commissioner on the Independent Commission for the Reform of International Corporate Taxation (ICRICT).

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About Cholo Brooks 5288 Articles
Joel Cholo Brooks is a Liberian journalist who previously worked for several international news outlets including the BBC African Service. He is the CEO of the Global News Network which publishes two local weeklies, The Star and The GNN-Liberia Newspapers. He is a member of the Press Union Of Liberia (PUL) since 1986, and several other international organizations of journalists.