Over 140 countries have signed on to strip countries like Bermuda of their corporate tax haven status, meaning they’ll be known for nothing more than bad male fashion. And if they go through with their plans, your wallet will take a hit.
We’re talking about the global minimum tax. Like the seventh Harry Potter book-turned-movie, the agreement is a two-parter:
- The world’s largest companies will be taxed according to where their goods and services are sold rather than where they’re located.
- All countries will implement a 15% minimum tax rate on large corporations to eliminate a so-called “race to the bottom” and boost global tax revenue by an estimated $150 billion. The accountant in me is shrieking at the overgeneralizations here, so read this if you want more detail.
I buried the lede: Despite the deal topping President Biden’s agenda, U.S. Democrats are making like an audit intern and getting lost in the ticks and ties of the deal. If Congress can’t pass the deal, it could kill the entire agreement (the U.S. is the OG influencer.) Since Republicans aren’t likely to vote for any version of the deal, it’ll take every Senate Democrat’s approval to pass the bill.
I spoke to Thornton Matheson, a senior fellow at the Urban-Brookings Tax Policy Center. She painted a bleak picture of a potential global minimum tax’s short-term effect on consumers and shareholders:
- Citing lower corporate profit margins, “the short-term impact of higher corporate tax liabilities is going to fall on shareholders,” Matheson said.
- … and that can play out in many ways for consumers, from increased prices to lower wages to bolster profits.
- But since there’s so much going on in the markets right now, it will be tough to squarely blame the global minimum tax for any effects.
But it’s not all bad. With more tax revenue, governments can spend more money on programs that benefit society or our own bottom lines. For example, if the U.S. started more aggressively paying down its trillion-dollar deficit, we could see a positive effect on interest rates, Matheson said.
Lawmakers should get out their Lululemon yoga mats because it’s crunch time: The agreement is set to start in 2023, and implementing a global tax rule is no simple task.