Ending Corporate Tax Avoidance and Tax Competition: A Plan to Collect the Tax Deficit of Multinationals1 Kimberly Clausing (UCLA School of Law)2 Emmanuel Saez (University of California Berkeley) Gabriel Zucman (University of California Berkeley) July 2020
Broader public summary: Between 1985 and 2019, the global average statutory corporate tax rate has fallen from 49 percent to 23 percent, largely due to the rise of international tax competition. 3 The biggest winners from globalization have received the largest tax cuts. In this paper we propose a solution to replace this race-to-the-bottom with a race-to-the-top. Multinational companies that have low effective tax rates in some foreign countries (what we call a “tax deficit”) would pay an extra tax in their home country. We explain how such a tax should be designed and how it could be collected. The ideal solution would be for all countries to jointly start collecting the tax deficit of their multinationals. We describe how defensive measures could be applied against countries refusing to take part in such an agreement, measures that could ultimately pave the way to global corporate tax coordination. Introduction Globalization has opened new ways for corporations to reduce their tax bills. As countries compete to attract investments, firms can move their activity to places that offer low tax rates. International tax competition and profit shifting have led to a large decline in effective corporate tax rates. Between 1985 and 2020, the global average statutory corporate tax rate has fallen from 49 percent to 23 percent. In the United States, the average effective tax rate on corporate profits has fallen from close to 50 percent in the 1950s to 17 percent in 2018.4 Some of the biggest winners of globalization have seen their taxes fall—a process which is unlikely to be sustainable, neither politically nor economically.
1 Funding from the Center for Equitable Growth and the Stone Center at UC Berkeley is thankfully acknowledged.
This proposal solely reflects the authors’ views and not those who generously commented on it. The proposal builds upon previous tax reform ideas presented by the authors in book format for the broader public: Clausing, Kimberly. Open: The Progressive Case for Free- Trade, Immigration, and Global Capital. Cambridge, MA: Harvard University Press, 2019 and Saez, Emmanuel and Gabriel Zucman. The Triumph of Injustice: How the Rich Dodge Taxes and How to Make them Pay. New York: W.W. Norton, 2019. 2 From January 2021. Prior to that, Reed College. 3 See OECD Statistics, Statutory corporate income tax rates, weighted by GDP. 4 See US National Income and Product Accounts. Detailed statistics on tax rates relative to national income are compiled in Piketty, Saez, and Zucman (2018). 1