The white man’s debt

Honoring their climate debt means that the countries of the North must help developing countries to adapt to climate disasters, which we know will occur, even in the most optimistic of scenarios. Developing countries must also be given the means to make the transition to less polluting energy sources. An effort that amounts to hundreds of billions of dollars.

These funds exist, as the publication of the ‘Pandora Papers’ has just reminded us, and they must be sought where they are: in the accounts hidden in tax havens owned by multinationals and multi-millionaires who, for decades, have not paid their fair share of taxes. All the more so since, throughout the world, those who pollute the most are also the richest. The World Inequality Lab has just shown that the wealthiest 1 percent of individuals produce 17 percent of the world’s carbon emissions, while the whole poorest half of humanity (3.8 billion people) is responsible for only 12 percent of these emissions.

In this context, it is infuriating to see that the world has just deprived itself of precious financial resources by adopting a cheap global agreement on the taxation of multinationals. Imposed by the Northern capitals, following a negotiation that did not take into account the demands of developing countries, this reform has allowed the establishment of a modest global minimum tax rate of 15 percent. The objective? To put an end to the devastating competition between countries in terms of corporate taxation, in the illusion of attracting more investment. And for good reason, global nominal tax rates on corporate profits have fallen from an average of 40 percent in the 1980s to 23 percent in 2018. If the decline continued at the same rate, corporate taxes could fall to zero by 2052.

To stop this decline, the United States proposed a global minimum tax rate of 21 percent, which would have generated more than US $200 billion in tax revenue. The Independent Commission for the Reform of International Corporate Taxation (ICRICT) – of which I am a member along with economists such as Thomas Piketty, Gabriel Zucman, Jose Antonio Ocampo and Jayati Ghosh – advocated a rate of 25 percent, which would recover most of the US $240 billion that is lost each year to what is modestly called tax optimization.

In the end, however, it was the lack of ambition that prevailed, with a global minimum rate of 15 percent, which is barely more than the rate implemented by tax havens such as Ireland, and which should not generate more than 100 billion US dollars in additional resources per year.

At 15 percent, the risk is that this low global minimum rate will become the global norm, and that a reform that was intended to force multinationals to pay their fair share of taxes will end up doing exactly the opposite, by pushing countries with higher tax levels – such as African ones – to lower them to match the rest of the world.

Excerpted: ‘For Rich Countries to Honor Their Climate Debt, We Must Better Tax Multinationals’

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