G20 agrees to raise all prices across the board and worldwide

Southside Matt

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Meeting in Rome, Italy, leaders of the world’s 20 largest economies (G20) endorsed a plan to set a minimum global tax on corporations. The endorsement is basically a commitment to adopt a tax plan set by the Orgnisation for Economic Co-operation and Development (OECD) adopted in August.

Consisting of 136 countries and jurisdictions representing over 90% of global Gross Domestic Product (GDP), OECD announced on August 10 an agreement among the members to begin taxing Multinational Enterprises (MNEs) at a minimum rate of 15% by 2023.

OECD and the G20 have instituted this measure to prevent companies from “cherry-picking” countries with a low or no corporate tax rate in order to set up offices. The companies will then filter their revenues through these offices to avoid higher taxes in other countries.

In reality, though, corporations truly pay no tax. While tax returns will exhibit otherwise, business, in general, considers taxes in the cost of their operating expenses, which are then included in the pricing of their goods and services. As tax liabilities increase, successful businesses increase the cost of their products or services to compensate.

To keep their prices lower, though, companies choose they do to avoid increasing the price for their customers due to the higher taxes.

Corporations are beholden to their stockholders and boards of directors to become profitable. These groups expect the corporation to earn a specific profit margin – the percentage of profit that comes from revenue – and purchase stock in the company based on that expectation. Without stock purchases, the corporation loses public trust, and earnings drop. Based on that, the corporation is encouraged to keep profit margins at the same or increasing level.

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In today’s world, the majority of large corporations that provide products and services to smaller businesses are MNEs. As such, MNEs subjected to a new global corporate tax rate to which they have not been subject previously will need to find a way to compensate for this. Their way of compensating for this will be to increase the prices of their products and services “across the board.”

Some of the most notable companies to be directly affected will be Google, Apple, Amazon, Facebook, and Microsoft. Providing a variety of products and services, each of these companies has an effect on virtually every consumer’s life worldwide. They will all have to increase the prices of their products and services, for which their direct customers will then have to increase prices to meet their cost increase. Their customers will then have to increase prices, and so on until the ultimate price increase reaches the consumer. Because of the number of levels of price increases through the process, consumer prices will increase exponentially compared to the original increase.

Consumers are already expecting to pay higher prices due to product shortages and supply chain delays that have been attributed to the COVID-19 pandemic. Based on media reports, photos, and videos, the delays are expected to last for at least a couple of months if not longer. The rule of supply-and-demand will apply throughout this situation, increasing prices for consumers.

When combined with increased fuel costs to transport products from the ports to the warehouses, then to the stores, the price increases are magnified. With no plans to reduce fuel costs, this situation, like the supply issues, is expected to continue through the winter months.

If either of these situations were to resolve themselves or be resolved within the year 2022, the resolution would likely not come before MNEs began “ramping up” for the implementation of the minimum tax rate to which the G20 just agreed. This means that consumer prices at their current increased levels will remain. It is almost assured that the prices will increase even more after the tax is implemented.

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Hailing from the Great State of Texas, South Side Matt monitors government for compliance with the Constitutional values that founded the United States, and works to maintain liberty for all in that spirit. His articles focus on furthering this cause, but also occasionally go "off track" into lighter topics such as cooking, general life and others.

Fort Worth, TX
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