National Review Online
Thursday, April 08, 2021
It is often the case that the more oppressive a tax,
the more oppressive the measures taken to ensure that it will be paid. Ask the
Sheriff of Nottingham. It is no coincidence that the Biden administration’s
proposals for a much more onerous corporate-tax regime include boosting the IRS budget to ensure tougher
enforcement.
Increases in corporate tax are a bad idea at this
difficult economic moment, but there is not much to be said for them at any
time. Assume that the rate increases to 28 percent, as proposed. Add state and
local taxes, and American corporations will be facing some of the highest rates of taxation
in the world (and the highest in the OECD). Throw in various other proposals,
including the introduction of a minimum tax on book income for
larger companies (think of it, very broadly, as a sort of corporate Alternative Minimum Tax) and increases in the taxation of
the global income of U.S. multinationals, and it is obvious that American
companies are facing not only a substantial tax hike, but one that will put
them at a serious disadvantage to their international competitors. Oppressive?
Pretty much.
It is a measure of just how destructive these increased
taxes are likely to be to U.S. business that Treasury secretary Janet
Yellen has raised the idea of a global minimum tax. “We
are,” she has said, “working with G20 nations to agree to a
global minimum corporate tax rate that can stop the race to the bottom.” Put
another way, what she wants is a global tax cartel. As antitrust enforcers eye
Big Tech, the Biden administration talks up the virtues of competition, but
when it comes to tax, different rules, it seems, apply. And, no, while
countries compete on corporate taxation (and that’s a good thing), there has
not been anything dramatic enough to qualify as a race to the bottom.
Corporate-tax rates did decline sharply beginning in the 1980s, but, as the Tax Foundation points out, reductions in average corporate rates
have plateaued for more than a decade. Far from being a race to the bottom, the
2017 tax cut still left U.S. companies (after taking account of state and local
taxes) with rates above the OECD average.
Yellen’s proposal, which gets a nod in Biden’s
infrastructure plan, is also more than a touch presumptuous. Taxation and
sovereignty are inextricably intertwined. Different countries have different
taxing and spending priorities; priorities, incidentally, that may change over
time. The logic of why they should, at least to a degree, follow the
prescriptions of the Biden administration may escape them. Quite a few will be
irritated by what they may see as American bullying: Companies based in countries that do not
go along with a global minimum tax may find that their U.S. subsidiaries are
subjected to higher rates of taxation. That is not a way for America to win
friends or, for that matter, investment.
It says a great deal that the idea of a global minimum
tax has been welcomed by the EU Commission, and not only because of Brussels’s deeply
engrained preference for harmonization over diversity. The EU’s more highly
taxed countries (such as France and Germany) have long chafed at the
competitive advantage that member states such as Ireland, as well as many in
the poorer east, have derived from lower corporate-tax rates. However, it also
says a lot that even the most tentative moves in the direction of a minimum EU
corporate tax have gone nowhere.
If the EU, a relatively homogenous grouping, cannot agree
on setting a minimum tax for its members, it is hardly likely to be in a
position to accept Yellen’s global minimum tax. And if even the EU will not
accept it, nor will anyone else of any consequence. Instead, America’s
competitors will regard a major U.S. corporate-tax hike as a self-inflicted
wound. And they will take the maximum possible advantage.
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