At this point, however, a $500 billion allocation is nowhere near enough; a $2 trillion allocation would be far more effective in bolstering the ailing global economy. Nonetheless, even an initial $500 billion worth of SDRs would provide short-term relief to a wide range of developing economies, especially those with heavy debt burdens.
A third priority for the Biden administration should be to cooperate with other countries to create an effective global system for taxing multinationals’ profits. As the Independent Commission for the Reform of International Corporate Taxation has shown, this would not be difficult to do. The first step would be to set a minimum effective corporate tax rate of 25% worldwide.
The share of a company’s profits taxed in a particular country would be determined according to a formula that included sales, employment, users (for digital companies), and capital. That way, multinationals could no longer avoid taxes by artificially shifting reported profits to lower-tax jurisdictions.
The Trump administration vehemently opposed action to tax multinationals fairly. For example, when France decided to tax the revenue of US digital giants like Facebook, Apple, and Google, it imposed retaliatory tariffs, claiming that the tax discriminated against US companies. The Biden administration should take the opposite approach, working with other countries to ensure a victory for governments and people worldwide.
Biden has already vowed that, on his first day in office, his administration will take the final step that can immediately boost the global economy: rejoining the Paris climate agreement. By doing so, the US will commit not only to meet specific targets for reducing greenhouse-gas emissions, but also to provide financial assistance to vulnerable developing countries.
While the Paris agreement has its limitations, it is currently our best hope for decarbonizing the world economy. And America’s influence is essential to make it work. In fact, after Trump announced in 2017 that he was withdrawing the US from the accord – claiming that it placed an “unfair economic burden” on American workers, businesses, and taxpayers – some other countries reduced their commitments.
More recently, however, major economies, from China to the European Union, have made ambitious new pledges. Even US businesses have begun to recognize that investing in a green transition is in their own interest.
By recommitting to the Paris agreement, Biden will accelerate global progress on climate change and provide additional support to post-pandemic economic recovery. We can hope that his administration will quickly pluck the other low-hanging fruit as well.
Jayati Ghosh, Executive Secretary of International Development Economics Associates, is a member of the Independent Commission for the Reform of International Corporate Taxation.