April 11, 2021 | View in Browser
Welcome to The Backstory. Every Sunday, we’ll guide you through the debates driving U.S. foreign policy and international affairs using pieces from the Foreign Affairs archives—some recent, some decades old. Last week, the administration of President Joe Biden announced a plan to make corporations pay higher taxes. The proposal comes after years of growing concern that the clever accounting practices of big companies—including stashing profits in overseas tax havens—are denying states their fair share of taxes. Last year, the economists Joseph Stiglitz, Todd Tucker, and Gabriel Zucman noted the troubling implications of corporations evading national tax regimes. “Unchecked, these developments will concentrate wealth among a smaller and smaller number of people, while hollowing out the state institutions that provide public services to all,” they wrote.
Discussion of corporate tax rates and tax evasion came to the foreground after the shock of the Great Recession and the proliferation of movements such as Occupy Wall Street. Andrea Louise Campbell argued in 2012 that it was time for the United States to levy greater taxes on corporations. “The corporate tax has plunged as a source of federal revenues, from 30 percent in the 1950s to ten percent today,” she wrote.
Corporate taxation was not merely a national issue. “Companies and wealthy people have become increasingly able to shift capital to countries with low tax rates or to tax havens,” wrote François Bourguignon, “allowing them to avoid paying more redistributive taxes in their home countries.” That dynamic demanded an international response. Matt Mossman insisted that “fundamental reform will require the planet’s most powerful sovereigns to act as one—and that includes countries that now compete with each other to use tax incentives to attract foreign investment.”
Securing that collaboration was easier said than done. In Europe, Alexander Saeedy noted in 2017, “coordinating fair corporate tax policies has long proven challenging since several EU member states—such as Belgium, Luxembourg, and the Netherlands—are themselves tax havens.” President Donald Trump’s enormous tax cut also exacerbated the problem in the United States, reducing the top corporate tax rate from 35 percent to 15 percent. Itai Grinberg showed how the business models of digital companies raised further thorny questions as corporations such as Google could conduct business in places where they have no physical presence, and “do so without paying significant income taxes in those countries.”
But momentum for reform is building on both sides of the Atlantic. Klaus Schwab, the executive chair of the World Economic Forum, lamented the “deterioration of the bond between business and society” and the tax evasion that deprives governments of badly needed income. Recent events give the Biden administration and other governments the impetus for action, according to Robin Niblett and Leslie Vinjamuri: “Liberal democracies should . . . use the current fiscal stress and unprecedented government borrowing during the pandemic as an opportunity to rethink outdated national tax structures.”
“Allowing states to collect their fair share of revenue in the form of taxes will not usher in a dystopian era of oppressive government,” Stiglitz, Tucker, and Zucman write. “Instead, strengthening the state will return capitalism to a better path, toward a future in which markets function in the interests of the societies that produce them, and in which the benefits of economic activity will not be restricted to a vanishingly small elite.” 
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