The International Monetary Fund favors raising taxes on the wealthy to pay for pandemic programs, as well as a global minimum corporate tax

Washington (AFP) - Raising taxes on wealthy firms that have done well during the pandemic is increasingly viewed as a source of revenue to finance pandemic recovery efforts, an idea pushed Wednesday by the IMF and the United States.

The renewed support for the reforms comes as G20 finance ministers said they would continue work on a minimum corporate tax that would undermine the use of tax havens, with the aim of announcing a deal in July.

As momentum builds for the plan, which has support of France and Germany, Washington is taking the first step – announcing details on Wednesday of a plan to raise corporate taxes and clamp down on loopholes to ensure companies making huge profits, at home or overseas, pay a minimum amount to the government.

“Destructive tax competition will only end when enough major economies stop undercutting one another and agree to a global minimum tax,” Yellen said.

Yellen this week said she is pushing the G20 to adopt a global minimum tax to prevent firms from evading taxes by establishing headquarters in countries with lower rates – a practice prevalent among tech companies.

- IMF support -

The IMF supports that idea and also argues that higher taxes on wealthy firms and individuals, even if temporary, could finance policies needed to ensure recovery from the pandemic.

“The IMF has been calling for a minimum, global corporate income tax rate as a way to interrupt the race to the bottom in corporate income taxation,” said Vitor Gaspar, head of the IMF’s Fiscal Affairs Department.

US President Joe Biden last week announced plans to raise corporate taxes to pay for a massive $2 trillion infrastructure and jobs program.

The US proposal “is in the context of an effort at the global level to combat tax avoidance and evasion and to make sure that large multilateral, multinational corporations pay their fair share in taxation,” Gaspar told reporters as he unveiled the IMF’s Fiscal Monitor report during the fund’s spring meetings.

But Irish finance minister Paschal Donohoe on Tuesday expressed “reservations” over the proposal.

Ireland is considered a major tax haven, but Donohoe rejected the notion the country has sought a “race to the bottom.”

The IMF also has promoted the option of using a “recovery contribution” or surcharge on personal or corporate incomes given that some major companies have done very well during the pandemic.

Stock prices worldwide, especially among tech companies, have surged throughout the pandemic, picking up speed in recent weeks to set successive new records as the global economy showed signs of a strong recovery from the downturn.

In the United States, the broad-based S&P 500 has jumped more than 50 percent in the past year, while the tech-rich Nasdaq gained more than 73 percent.

- Vaccines pay for themselves -

The IMF said increased tax resources can be used for measures to support national economies, notably aimed at accelerating Covid-19 vaccination campaigns and ending the pandemic which will generate returns and boost growth.

Vaccinations will “more than pay for itself, providing excellent value for public money invested in ramping up global vaccine production and distribution,” the IMF said in its Fiscal Monitor.

Fund economists calculated that controlling the pandemic sooner than expected – so that most countries have broad and affordable access to vaccines by early 2022 – means “stronger economic growth” and more than $1 trillion in cumulative tax revenues for advanced economies by 2025.

In the latest forecasts released at the start of the spring meetings held alongside the World Bank, the IMF was more optimistic about global growth this year, projecting a 6.0 percent expansion after the 3.3 contraction in 2020 – the worst peacetime downturn in a century.

The IMF pointed to the rapid responses by governments to spend freely – a response totaling $16 trillion – to help contain the economic damage from the pandemic, but warned that ending the health crisis remains crucial to a solid recovery and vaccine distribution to poor countries was “deeply iniquitous.”