Five ways a reduction in corporate tax rates will impact your life

Written by By Ana Avendaño, CNN With G20 corporate tax cuts helping lead to a sweeping shift in the way public officials fund infrastructure projects, the movement to make sure taxes are paid on…

Five ways a reduction in corporate tax rates will impact your life

Written by By Ana Avendaño, CNN

With G20 corporate tax cuts helping lead to a sweeping shift in the way public officials fund infrastructure projects, the movement to make sure taxes are paid on profits in the first place has suddenly become a hot topic.

On July 21, the Organization for Economic Cooperation and Development unveiled a framework to lower corporation tax rates in more than 60 countries to support public projects in transportation, energy, science and innovation.

Some governments, led by the United Kingdom and France, have already implemented corporate tax reform in recent years.

The OECD argues that lowering the tax rates lowers tax revenue for governments, and lends support to fiscal stability. However, it also concedes that a reduction in corporate tax could lead to greater tax evasion and, ultimately, loss of revenue to government coffers.

Here’s what this means for the average household:

1. It means more taxes

Corporate tax cuts are financed from the revenue raised from citizens through new taxes. Generally speaking, those taxes could be on consumption or income taxes, depending on what government leaders decide to do.

In Canada, for example, the cut in corporation tax is supported by a tax hike on cigarettes.

While corporate tax cuts on the global scale could mean less revenue for governments, policymakers must also assume any revenue loss will be minimal.

2. It creates incentive for companies to shift income offshore

Tax arbitrage is a major reason behind the spread of tax havens, an economist’s term for companies that shift income into low-tax jurisdictions where it belongs.

In the case of corporations with aggressive tax practices, the movement is further complicated by the fact that tax strategies have to be clear and self-serving.

“Companies can combine tax avoidance techniques with secrecy to tax arbitrage across countries,” Sian Owen, tax policy director at the OECD told HuffPost UK . “And they always follow the law — which is more or less the law they’re exploiting.”

3. It creates incentives for companies to shift revenues overseas

After the G20 adopted a voluntary corporate tax transparency plan in 2015, the OECD began tracking all payments in different countries to see which countries received the largest payments.

With that, the organization released its first report, which revealed that Panama received 40 times more income transfers than Iceland.

4. It makes companies less accountable for their products

The OECD’s interpretation of this survey is that companies “are much less accountable.”

One possible explanation for this is that profits that are born and brought home to the country actually have an additional level of value beyond those of the countries where they are earned. According to the OECD, that value in OECD countries, particularly for companies in manufacturing and energy, adds up to between $12 trillion and $15 trillion of economic value.

The organization explains that governments should aim to collect a share of that value, because the reduced corporate tax would be a loss of corporate income. The loss would put pressure on governments to spend more on public projects.

5. The criticism will increase

Given the effectiveness of multinational companies to intimidate politicians and make political decisions, there is a reasonable chance that the OECD’s corporate tax reform will generate much more pushback.

The United States, the second-largest market for multinational corporations in the world behind China, is already up in arms over the push to lower corporation tax rates and roll back what is seen as its effective corporate tax rate of 35%.

The ultimate response of the United States government may not be different from that in other countries, as the American Manufacturing Council has already abandoned its role in the Trump administration, warning that there is a danger of “one country, one vote.”

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