IN 2017 multinational corporations stashed 40 percent of their profits, or more than $700 billion, in tax havens like Luxembourg and Bermuda, according to research by economists at the University of California, Berkeley, and the University of Copenhagen.

American companies and companies that make money in the United States are not paying enough income taxes. Even as profits have soared, tax payments have declined.

Fifty-five of America's largest corporations - including FedEx, Nike and the agribusiness giant Archer Daniels Midland - paid nothing in federal income taxes in 2020, despite collectively reporting more than $40 billion in profits, according to the Institute on Taxation and Economy Policy.

The federal government lets companies avoid taxes by shifting profits earned in the United States to countries with lower tax rates.

Every year, American firms, especially in the technology and pharmaceuticals sectors brazenly pretend to earn billions of dollars in microstates like Barbados, Bermuda and the Cayman Islands.

American policymakers have rewarded this naked legerdemain with rounds of tax cuts, most recently in 2017, partly justified as necessary to induce companies not to cheat.

The laissez-faire policy has crammed money into the pockets of wealthy shareholders while depriving the government of needed revenue. But it has failed to deliver its advertised benefits.

In a welcome course correction, President Biden is proposing to increase corporate income taxation and to spend the money on infrastructure. His plan would raise the statutory tax rate on corporate income to 28 percent from 21 percent, still below the pre-2017 level of 35 percent. 

The administration estimates it would raise $2.5 trillion over the next 15 years.

However, collecting more money is not as simple as ratcheting up the corporate tax rate.

The Biden administration also is pressing for an international agreement to establish a minimum corporate income tax rate, so foreign corporations could not continue to make use of tax havens.

The benefits would extend beyond the United States. Developing nations are particularly reliant on corporate tax revenue. The International Monetary Fund estimates that profits shifting deprives them of $200 billion in annual revenue.

The World Students Society thanks The Editorial Staff at The New York Times.


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