One-hundred-and-thirty-five countries agreed today to the global tax deal that Joe Biden and Janet Yellen have long wanted. The arrangement would establish a global minimum corporate-tax rate of 15 percent and reduce the sovereignty of countries to make their own tax policy. That includes the sovereignty of the United States, and Congress should do everything in its power to scuttle this deal.
For a long time, many on the left have decried the “race to the bottom” in corporate taxes. The argument goes like this: One country cuts its corporate tax rate to lure businesses to its shores, then another country undercuts the first country, then another, and so on. Businesses chase these lower rates all around the world, and the countries that choose not to play along wind up with no revenue.
The problem with that argument is that it hasn’t happened. What has been derided as a race to the bottom in reality has been more of a slow glide to the middle. Over the past 40 years, corporate tax rates have slowly declined across the board, and the worldwide average in the past ten years has settled right around 25 percent. The distribution has also become less variable over that span: The most common statutory rates globally are between 20 and 25 percent.
The United States used to be far above the global average. The federal statutory corporate-tax rate was 35 percent until the 2017 Tax Cuts and Jobs Act reduced it to 21 percent, where it currently stands. The domestic political agenda behind Biden and Yellen’s global antics is obvious. Democrats want to raise the federal corporate rate back above the global average again, to 26.5 percent. Since states also levy corporate taxes, the average corporate-tax rate for the U.S. would be 30.9 percent, which would be third-highest in the OECD, trailing only Colombia and Portugal. The Biden administration has made great play of the importance it attaches to competition when it is agitating for an aggressive antitrust policy, but that enthusiasm mysteriously wanes when it comes to taxation.
Large, powerful countries shouldn’t force smaller, weaker countries to adopt tax policies that facilitate the large countries’ extraction of revenue from corporations. In any other context, the Left would cry, “Imperialism!” but apparently tolerance of global differences must be set aside if it gets in the way of revenue. Setting tax policy is an inherent power of governments, and it should be left to them, not outsourced by international agreement.
That goes for the United States, too. Our Constitution unambiguously puts the power of taxation in the hands of Congress. Not the president, or the Treasury secretary, or the whims of the international community expressed in a multilateral agreement.
Our Constitution also puts the power to approve treaties in the hands of the Senate and subjects such approval to a two-thirds vote threshold. Senators Pat Toomey, Mike Crapo, and Jim Risch have expressed concern that the Biden administration will circumvent that requirement. This agreement is a tax treaty and must be treated as such within the American constitutional system. Without the advice and consent of the Senate and a two-thirds vote of approval, it cannot be considered binding on American tax policy. The last thing we need is a rerun of the Iran deal, which President Obama put into effect over the objections of a bipartisan majority of senators.
As tax policy and as foreign policy, this global tax cartel should be rejected.
Something to Consider
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