Corporate tax loopholes aren't a big secret, but leaders from seven nations have resolved to address it on an international scale. The G7 nations' finance ministers are pushing a global corporate tax forward, but they still have to address a larger gatekeeping community.
Here's everything we know about the global corporate tax from G7 nations.
What the G7 leaders want with a global corporate tax
Ahead of meeting in Cornwall for the 2021 G7 Summit, finance ministers from the U.S., the U.K., Canada, France, Germany, Italy, and Japan have all agreed to add a 15 percent global corporate tax.
The G7 nations consider themselves to be "advanced" economies. They're familiar with large corporations, whether those corporations pay taxes in that particular nation or not. The proposed tax hike would impact multinational companies that sell goods or services in these nations.
It's important because the current rate of "phantom investments" is very high due to corporate border shuffling. A full 40 percent of foreign direct investments (FDI) could be untaxed due to this reason.
What's next for the global corporate tax proposal?
Just because seven nations' finance ministers agreed on the global corporate tax proposal doesn't mean that the remaining nations will. They'll have to convince a number of other countries of the global corporate tax in order to make it internationally viable. The focus is the G20, which includes 19 countries and the European Union.
Ireland is one of the likeliest opponents to the regulation, which currently holds a strategically low 12.5 percent corporate tax rate and won't give in easily to a shifted economic plan. The hope is that enough nations will hop on board and sway the countries that are on the fence about the matter. There are key reasons why countries might oppose the proposal. Some countries don't want corporations to offshore, which ultimately reduces the tax income in their nation.
How the shift could impact U.S. spending
The Biden administration is unabashedly interested in government spending. This is obvious given the $1.7 trillion infrastructure bill he proposed, which was met with a since-denied $928 billion plan from the GOP.
Many (including Treasury Secretary Janet Yellen) suggest that government spending will help bolster the economy following the COVID-19 pandemic. Yellen even said that inflation derived from government spending isn't worth worrying about.
The income from a global corporate tax would improve the U.S. fiscal budget tremendously. Also, Biden's proposed increase in U.S. corporate tax from 21 percent to 28 percent would add more cash to the pile and help fund his infrastructure bill.
Pushing the proposed U.S. corporate tax increase aside, the global corporate tax plan could help bring in as much as $500 billion in tax revenue for the U.S. over the next 10 years.
Corporate tax law is largely considered to be outdated, so it isn't a surprise that reform is on the horizon. How that reform will ultimately play out remains to be seen, but it could impact the U.S. and global government spending on a large scale.