As the pandemic widened the wealth gap and raised the poverty line for millions of Americans, pressure has increased on billion dollar companies to evade their tax bills.
See: G7 finance ministers meeting ends with heat on Facebook, Google and Amazon with global minimum tax
Find: Fortune 500 companies that haven't paid federal taxes recently
Earlier this year, President Biden said Amazon was one of 91 Fortune 500 companies that "exploit various loopholes where they don't pay a single penny in federal income tax," and spoke of the common practice of large corporations turning their profits into offshore tax havens and helps them avoid taxes in their home base. In contrast, a middle-class American family who earns less than $ 65,000 a year pays 20% a year in federal income tax – and they have no Cayman Island or Irish bank to deduct their tax bill.
See: These 10 countries pay less taxes than Americans
Find: What is tax return and how does it work?
The G7 finance ministers met at the weekend and finally agreed in a historic decision to push for a worldwide minimum tax rate of 15% for companies. Politicians around the world have tried to legislate to avoid this for decades, but the conflicts between corporate and political interests complicate the issue. For example, the Seattle Times reports that a country like Ireland with an aggregate tax rate of 12.5% would lose around $ 2.4 billion in tax revenue, while France, with an aggregate tax rate of 26.5%, would lose around 6 billion . Ireland has therefore spoken out loudly against the new tax law, stating that maintaining low corporate tax rates is one of the few areas in which it can be globally competitive. The Seattle Times adds that Irish-born U2 singer Bono once said that low corporate tax rates bring Ireland "the only prosperity it has ever known."
The argument is that countries like France hardly need the extra revenue when compared to smaller economies like Ireland, and most international tax havens are in countries that will largely benefit and survive from their continued presence. The Cayman Islands in the Caribbean are another such country that largely benefits from pleasant tax policies. A practically zero tax policy brings thousands of wealthy companies to its shores that would normally not have visited the tiny island nation in such droves.
See: What Are The Best Tax Haven In The World?
Finding: Jeff Bezos supports corporate tax hikes in Biden's $ 2 trillion American job plan
In the United States, Amazon had revenue of more than $ 11 billion for 2018 but paid no federal taxes. CNBC reports that Amazon actually received a federal tax refund of $ 129 million thanks to tax credits and deductions. Amazon's $ 162 million tax return in 2018 was the first in two years and accounted for just 1% of the company's bottom line.
In Europe, Amazon's tax burden was again at zero despite record sales of 44 billion euros, reports The Guardian. This was on top of the 56 million euros in tax credits available to her in Europe to offset future tax bills should she make a profit.
While it may seem a long way off that enough international cooperation will be needed to finalize the deal, more progress was made over the weekend than ever before. The controversy over the pandemic and recent memories of the recent recession may be enough to finally push for big corporations to pay what ordinary Americans have paid all their lives.
See: These 15 companies hit gold during the lockdown
Find: Biden is not convinced that higher corporate taxes will drive businesses out of the US
What does that mean for you?
Most of these big companies like Amazon, Facebook, and Google employ thousands of Americans, and they do business across the country. Should these companies actually start paying their fair share of the tax, it could mean they are forced to operate elsewhere. Although these companies are currently finding recovery in neighboring countries – the Caribbean for the US and Luxembourg and Ireland for the EU – new tax laws could change that. It is unclear whether a new global tax law would extend to countries like Asia, India and the Philippines, to which many American companies are already outsourcing operations at lower costs. Big tech companies could start relocating more jobs to increase profit margins, potentially leading to job losses domestically.
If taxes rise enough, prices could eventually fall too. Amazon already charges fees for delivery, and these could potentially increase if operations change significantly. Facebook, Google, and other companies that currently offer free services may either charge fees or collect even more data about their customers to sell to advertisers due to increased costs.
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About the author
Georgina Tzanetos is a former financial advisor who graduated from New York University with a degree in Post-Industrial Capitalist Structures. She has eight years of experience with a focus on asset management, portfolio management, private client banking and investment research. Georgina has written for Investopedia and WallStreetMojo.