Since the start of the year, the Biden administration has pushed two things that will certainly impact the world in future.
One, it pushed for G7 countries to accept the 15% minimum global corporate tax rate Next, it aims to lobby G20 countries with the aim of obtaining a wider range of agreement in its implementation. Among them, China is the most important target for lobbying, as the country's economy ranks second in the world and is the largest emerging market country.
Assuming China agrees to the proposition, it may expedite the process of making the world's minimum corporate tax rate a global rule.
Two, the Biden administration has been proposing the idea of increasing taxes on the wealthy after it took office. It hopes to increase the capital gains tax for the wealthy, and restore personal income tax rate for the wealthy with an income of more than US$ 400,000 to pre-Trump rate of 39.6%. Right-wing economists warned that increasing taxes on America's companies and the wealthiest groups would hurt the overall economic growth, though liberal economists pointed out that the trickle-down economics practiced in recent decades were a failure, and now it is time for the country to change its strategy. The so-called "trickle-down economics" is often associated with Reaganomics, which posits that government relief is not the best way to rescue the poor. Instead, it suggests increasing total wealth through economic growth which will ultimately benefit the poor.
At first glance, both policies may seem like it only focuses on alleviating the fiscal pressure on the country whilst regulating the distribution of wealth in society. The implementation of the minimum corporate tax rate policy globally is meant to solve the problem of underpaid taxes by multinational companies. In order to reduce tax revenues under the backdrop of globalization, multinational companies are transferring wealth to tax depression countries and regions around the world, causing them to pay less taxes. Now the G7 has formed a unified front on imposing a 15% tax rate on the overseas profits of the 100 largest multinational companies with the largest income in the world, in order to prevent Apple, Google, Facebook, Amazon and other mega companies from avoiding taxes. At the same time, it also avoids "tax havens" from using low tax rates to attract enterprises or wealth inflows.
Increasing taxes for the wealthy is intended to tackle the loopholes of the insufficient taxes paid by the rich. Citing confidential data from the U.S. Internal Revenue Service, non-profit organization ProPublica stated that the worth of the 25 richest Americans increased by a total of US$ 401 billion between 2014 and 2018, yet these people only paid a total of US$13.6 billion as federal income tax rate in that five years, equivalent to 3.4%, compared to the highest tax rate for general labor in the United States, which was as high as 37%. After taking office, Biden has reassured that he is not punishing anyone, and that American middle-class has had enough tax burden.
ANBOUND researchers they will have a far-reaching impact that may even challenge conventional capitalism. For established capitalist countries like the United States and some European countries, multinational corporations and the wealthy have long been the representatives of capitalism, as they are the largest beneficiaries of the capitalist system. Post-2008 financial crisis era, global central banks continued to implement mass easing, ushering the world into an age of excess capital. In 2020, as the novel coronavirus hits the world, and countries introduced larger scale stimulus policies to save the economy, global credit expansion too has been pushed to an unprecedented new height. The changes greatly benefit the wealthy who owns more capital and wealth. They can even gain further wealth by capitalizing on the global market, which has become the key feature in the development of capitalism. In fact, the trend has been studied extensively by French economist Thomas Piketty in his magnum opus Capital in the Twenty-First Century years before the emergence of the COVID-19 pandemic.
The increase in taxes on the wealthy and implementation of minimum corporate tax rate globally serves as a means for Biden to honor his political promise and to push the United States towards a welfare society. That said, these measures might become a global challenge to conventional capitalism. In a society where the gap between the rich and the poor is ever increasing and the middle class faces more and more difficulties, credit expansion has made it easier for the rich to obtain wealth. Therefore, if the government uses power to redistribute wealth, it will not only enable it to obtain more taxes, but also bring about a structural change in conventional capitalism.
We believe that policies like minimum global corporate tax rate and tax increases for the wealthy will bring about a series of changes. The method of wealth creation and appreciation has undergone major changes during the era of credit expansion, that is generating wealth from money is much higher than using labor to do so, and the new tax changes will change this. Through tax changes, the world can balance wealth to a certain extent, realize the redistribution of wealth, and promote fairness in a certain sense, which will provide certain support for the future of social welfare. The era in which the world is living today is an era of modern monetary theory (MMT) is gradually increasing and seeing practical applications. The aforementioned credit expansion in today's world and the large amount of money printed by central banks are related to the concepts and practices advocated by MMT. If the central banks' currency issuance is dominated by fiscal demand, instead of being affected by central banks, inflation and related regulations as in the past, then there is every reason for the world's wealth creation and distribution model to undergo great changes.
Final analysis conclusion:
The minimum global corporate tax rate and the policy changes for tax increases for the wealthy are not just strategies for the U.S. government to strengthen its finances, but also a response to the current era of monetary expansion and credit expansion. These changes will no doubt challenge the conventional capitalist system and will widely impact the world.
