Stiglitz hits out as global tax reform watered down on behalf of US

Economist Joseph Stiglitz and and former Senegal Prime Minister Aminata Touré were among those calling for a radical overhaul of global taxation at the UN Finance for Development conference after the G7 backtracked on a key deal to get multinationals to pay more tax.

Stiglitz said that a G7 agreement to to water down the global minimum tax (GMT) – an internationally agreed-upon minimum rate of taxes that would be paid by large corporations – had been a bitter disappointment.

An OECD proposal on the global minimum tax, which set a rate of 15% on profits, received the support of 137 countries and was approved at the October 2021 Summit in Rome with an effective date of 2024.

However, in June the world’s leading economies agreed a deal to spare the US’s largest companies from the tax. The G7 agreed to a “side-by-side solution” of taxation that would exempt US companies from some parts of the new global tax regime because of the taxes they pay in the US.

“For 14 years, we focused on this,” Stiglitz told the conference, “trying to get a global minimum tax, and there were negotiations and agreements. It was difficult to get an agreement, but it was achieved.

“And then, to me, it was heartbreaking to see what happened, when the G7 seems to have caved in, and in one day, one hour, destroyed 14 years of global governance, and made a mockery of the whole process of the inclusive framework.

“It was six countries besides the US that gave in and said, effectively, we’re destroying the global minimum tax.”

Stiglitz co-chairs the Independent Commission for the Reform of International Corporate Taxation (ICRICT), a group of leaders from around the world who believe “there is both an urgent need and an unprecedented opportunity to bring about significant reform of the international corporate taxation system.”

ICRICT states that income concentration of the super-rich has risen sharply, as between 1987 and 2004 the average wealth of the top 0.0001% richest households globally has increased by about 7% per year net of inflation, much faster than average wealth (3% a year). Nevertheless, Stiglitz said that tax reform can still register some achievements despite the resistance of the US.

“One of the other headwinds that the world is facing right now is Trump. I know one isn’t supposed to say that in polite circles, but he’s destroyed politeness as even a verb, as a word. So, the point I think the rest of the world has to remember is that the US represents less that one fifth of global GDP.

“We ought to be taxing the super-rich. It’s obvious you don’t need to have a Nobel Prize to figure that out!” he said.

Touré says Africa will lose out

Aminata Touré, who served as Senegal PM in 2013 and 2014, told the conference that Africa was losing out on billions in tax revenues.

“The issue of taxation is a manifestation of the continuum of injustice that the African continent has been going through for centuries. It’s another manifestation of it,” Touré said.

“Let me remind the audience that for this year, the African Union’s theme is about the reparations for all the damage and the violation and the looting the continent went through. And that’s not because we want to recall history endlessly, but that’s the consequence of the situation we are living in.”

Touré cited the African Tax Administration Forum’s estimat that the continent is losing around $50bn a year in illicit financial flows.

“That’s precisely the money we need that we don’t get, and that we have to go to borrow on the international markets at an interest rate four times higher than any country or region on this planet,” Touré added.

Compounding this injustice, she argued, is the fact that some multinationals that invest in the Africa do not pay equitable taxes.

“They ask for tax breaks, but they are exploiting our own resources, our minerals, yet they go and pay taxes back to their country of origin. How unjust is that? I mean, you cannot be more unjust than that! This is a very critical issue. Fortunately, we have a new generation of young leaders on the continent who are going to fight back. That’s what led to the proposition of the African Union about having a UN Framework Convention on International Tax Cooperation.”

A crucial agenda

Stiglitz remains convinced of the need for wide-ranging reform.

“It is necessary to address inequality,” Stiglitz argued. “Inequality is bad for society, for the economy. I wrote a book called The Price of Inequality, which outlined the price we pay, our economy pays and also the broader social and political costs.”

“They’re wasting money that could have been spent to make sure that people don’t die in Africa or in other developing regions, with the object of simply not paying their fair share of taxes. And that’s why this agenda of taxing the super-rich is so important.”