Last weekend, while most sensible Americans were enjoying their lives, a little-noticed but nonetheless significant event occurred: The G7 nations — the U.S., Japan, Germany, United Kingdom, France, Italy and Canada — forged a “historic agreement” to impose a minimum tax on corporations. It’s an awful idea hatched by anti-free market globalist bureaucrats and should be soundly rejected by Congress.
The talks for a deal actually began during the Obama administration eight years ago. They went nowhere under President Donald Trump. Now, with the mentally challenged globalist Joe Biden in the White House, the other members of the G7 are licking their chops.
The idea is simple: No country should be able to tax corporations less than 15%. It’s unfair. By putting a 15% floor under what corporations pay, supporters assert, it will end a “race to the bottom” as countries battle to attract investment from foreign companies by cutting tax rates and adding lots of incentives.
The goal is to get all the developed nations of the world to sign on to the deal in July, when the G20 governments are expected to meet.
Not surprisingly, Biden’s Treasury Secretary Janet Yellen is a big fan of the global minimum tax. As she explained Saturday, after the G7 approved the move:
(A 15%) global minimum tax would end the race-to-the-bottom in corporate taxation, and ensure fairness for the middle class and working people in the U.S. and around the world. The global minimum tax would also help the global economy thrive, by leveling the playing field for businesses and encouraging countries to compete on positive bases, such as educating and training our work forces and investing in research and development and infrastructure.
Very nice boilerplate, the kind Democrats in both chambers of Congress are parroting in support.
But is it true? Unfortunately, the Biden-Yellen argument is completely wrong.
The move doesn’t “level the playing field” for businesses. What it in fact will do is make it harder for countries that want to reform and grow their economies. It will take away nations’ policy flexibility to respond when things get tough.
A recent piece in the Wall Street Journal explains:
Democrats want a high global minimum tax that would end national tax competition and reduce the harm from their huge tax increase on U.S. business. But tax competition has been a boon to global growth and investment, as Ireland’s famous low-tax policy makes clear. Far from a ‘race to the bottom,’ Ireland adopted policies that were ahead of their time and helped its economy grow from a backwater into a Celtic tiger.
As recently as the 1980s, Ireland was an uncompetitive also-ran. Its economy was people-rich, but investment-poor. A strategy of lowering taxes and cutting red tape worked brilliantly.
The Journal notes, “Between 1986 and 2006, the economy grew to nearly 140% of the EU average from a mere two-thirds. Employment nearly doubled to 2 million, and the brain drain of the 1970s and 1980s reversed. Ireland became a destination for global capital.”
Today, Ireland is the richest nation in Europe, according to IMF data. That’s right. In the entire EU (with the exception of Luxembourg, the tiny tax haven that has lots of rich people from other countries living there, but not much of an economy to speak of).
Ireland’s per capita GDP currently stands at about $88,087 in inflation-adjusted dollars. That compares with the U.S. $62,608, and Germany’s $53,900. How many people would guess that Ireland’s per capita national income would be 63% higher than Germany’s? Or 41% higher than then U.S.’?
That’s the reality. And such performance would be extremely difficult if not impossible if the international tax bureaucrats get their way. Ireland, no surprise, opposes this deal.
But there’s an even better reason for not going along with this scheme, as Republicans in the Senate now say they won’t.
As Brad Palumbo, writing for the Foundation for Economic Education, notes: “Corporate taxes are not really paid by corporations. Economic theory and extensive empirical research alike confirm that workers and consumers bear the large majority of the real costs associated with corporate taxes, via lower wages and higher prices. More broadly, corporate taxes discourage investment, reduce economic growth, and kill jobs.”
So the global tax bureaucrats can pretend all they want that they’re really sticking it to the big multinational corporations, not the little guy. But that’s a big lie. Once they get one-size-fits-all tax rates for corporations, you can bet they’ll want it for your taxes, too.
To become law, this rotten proposal will first have to be approved by Congress. Lawmakers should reject it soundly, or reap the consequences at the ballot box when taxpayers realize they’ve again been duped.
— Written by the I&I Editorial Board