At a time when our nation’s recovery hangs in the balance, we should not allow the federal government to take drastic steps to permanently grow the size and scope of the U.S. government.
World leaders from the G-7 recently announced their support for the Biden administration’s plan to implement a global minimum corporate tax of at least 15 percent. The plan would effectively eliminate tax competition and create a government taxation cartel — companies could no longer vote with their feet and move to more tax-advantageous countries to grow their businesses. The Biden administration led the charge, and European leaders from high-tax countries with hugely inflated welfare spending embraced the proposal. Whenever European leaders cheer for an American policy proposal, it’s usually safe to assume that this means bad news for everyday Americans.
Treasury secretary Janet Yellen and other world leaders successfully got buy-in from 130 countries — at least in principle. The enforcement of the new global tax regime will be complicated, with an abundance of loopholes available to governments that would like to be more competitive in international markets.
Secretary Yellen has previously pushed the corporate global minimum tax agreement, arguing it is needed to “end the race to the bottom” and “make all citizens fairly share the burden of financing government.” What’s another term for a “race to the bottom”? It’s competition — the very principle Democrats and Republicans agree is missing from Big Tech and other industries. For some (political) reason, when the Biden administration has to compete, all that talk of the benefits of vigorous competition for American consumers and workers falls by the wayside.
The term “race to the bottom” is a not-so-clever mask (no pun intended, 2021) for Yellen’s real goal: to end tax competition. Putting a floor on the cost of government is like putting a floor on the cost of any other product. It’s bad for consumers. And in this case, it’s bad for businesses and workers.
As Grover Norquist, president of Americans for Tax Reform, wrote in a letter to U.S. policy-makers, “Cartels that keep prices high hurt consumers. Creating a tax OPEC of governments to avoid tax competition is bad for citizens and taxpayers. Competition drives out self-serving rent-seekers in business and in government.”
And this is exactly what the G-7 leaders agreed on. A global cartel to raise taxes. An OPEC for politicians.
If this global minimum tax agreement is allowed to go into effect, it will surrender U.S. financial sovereignty to unelected Parisian bureaucrats working for the Organization for Economic Cooperation and Development (OECD) and their like-minded counterparts in Brussels at the European Union. They all share the wish to bind the world into higher taxes and bigger government.
How did the U.S. get in this position in the first place?
President Donald Trump resisted a decades-long push by the OECD and the European Union to install a global minimum tax through the OECD’s Pillar 2 proposal, which is designed to get rid of what they like to call “tax havens.” The European Union especially does not like competition from member states such as Ireland, Hungary, or Luxembourg, all countries that dare to tax “too little” and therefore attract businesses and investment. President Trump also fought the changes the OECD pushed for in their Pillar 1 proposal, which attempts to rewrite the international tax system to provide countries with a greater share of tax revenue from American multinationals. Both proposals are especially harmful to U.S. interests — they attack American companies and the U.S. tax base, eliminate the long-accepted physical-presence standard, and would undoubtedly harm American jobs and American innovation.
The Biden administration has two main reasons for its change of direction: First, the president sees this plan as a way to raise taxes and finance his spending spree without losing tax revenue to international competition — cartelist playbook 101. Second, Biden is currently making a great play of the idea that a multilateralist America is “back,” and this, in his view, is a pain-free way of reinforcing that message, even if the price comes at the expense of American consumers.
President Biden has proposed 30 tax increases on American families and businesses totaling $2.975 trillion ($2,975,000,000,000!) over the next ten years. This includes raising the corporate tax rate from 21 percent to 28 percent. After factoring in state corporate taxes, the U.S. will be at an average rate of 32 percent, which is significantly higher than China’s 25 percent corporate tax rate (as a practical matter, it can often be lower) or even the average corporate tax rate in many European nations, which is at just 23 percent.
On top of that, Biden’s tax increases would also impose the global minimum tax on American businesses operating overseas, and his plan would repeal tax deductions that encourage intellectual property to move back to the United States.
The Biden administration may hope that a global tax cartel will mitigate the economic damage caused by his tax increases: It also assumes that foreign countries will in fact abide by the rules. That may be an assumption too far.
Will they really play by the rules in a way that ensures American workers and businesses are treated fairly? And why should we now trust the European governments and institutions that extorted significant tax revenue from American companies through digital services taxes and fines for so-called antitrust violations?
Meanwhile, countries such as China and Russia are expected to find ways to avoid the global minimum tax agreement, if not ignore it entirely. In fact, China’s state-controlled media is already urging the Communist party to push for massive exemptions or to simply ignore the agreement. In reality, the Chinese see this global agreement as an opportunity to cut taxes while everyone else is hiking them, attracting more investment, boosting domestic manufacturing, and becoming even more competitive globally than ever before.
This proposal is a gift for the Beijing regime and its “New Silk Road” agenda. It would dangerously restrict the United States just as we are entering a new era of global competition with China, paving the way for Chinese companies to displace American success stories in tech and other critical industries.
China’s effort to become the world’s technology leader is at an inflection point. In March 2021, China enacted a 200 percent tax deduction for eligible research-and-development expenses. And China already offers a preferential 15 percent tax rate for high-tech enterprises.
Instead of colluding with foreign governments to keep taxes high, President Biden should ensure that the U.S. tax code becomes even more competitive globally than it currently is. And he should aggressively fight back against efforts by foreign countries to enact discriminatory taxes and trade barriers such as digital services taxes and unfair government subsidies.
The U.S. was named the most competitive economy in the world after Republicans passed the 2017 tax cuts. What happened next? The American economy grew faster than rest of the world, and it was the only G-7 country to record annual real GDP growth above 2 percent in 2018. The U.S. economy’s 2.9 percent growth rate in 2018 outstripped countries such as Germany, which saw 1.5 percent growth, and the United Kingdom, which grew by just 1.3 percent. President Biden should continue this path of success.
The Biden administration’s plan to eliminate tax competition and agree to a global minimum tax is dangerous for America. At a time when our nation’s recovery hangs in the balance, we should not allow the federal government to take drastic steps to permanently grow the size and scope of the U.S. government, let alone those countries all over the world that would regard the 15 percent minimum tax as a valuable prop for their own swollen governments. Instead, we should pursue a tax policy that promotes competition and innovation and preserves America’s legacy as an economic leader of the world.