A Global Minimum Corporate Tax Would Help Democrats Hide Their Appetite For American Wealth

A Global Minimum Corporate Tax Would Help Democrats Hide Their Appetite For American Wealth

President Joe Biden’s proposed increases to U.S. corporate tax rates will continue to make the United States uncompetitive internationally, while the G7’s proposed global minimum corporate tax rate will cause harm to our economy, tax haven countries, and businesses.

The Group of 7 (G7) is an association of wealthy, democratic nations whose leaders meet to use their combined wealth and power to shape the global economy.

The financial ministers of these member countries agreed during their annual summit to create a global minimum corporate tax of 15 percent, which would apply to each member as and the EU, with the intention of expanding to the Organisation for Economic Cooperation and Development (OECD). Unsurprisingly, each member country already has a corporate tax rate above this “global minimum,” Canada (15 percent federal, with non-deductible local taxes), France (28 percent, but will be 25.83 percent in 2022), Germany (15.825 percent), Italy (24 percent), Japan (23.2 percent), the United Kingdom (19 percent), and the United States.

The United States presently has a corporate tax rate of 21 percent, but the Biden administration has proposed an increase to 28 percent in order to fund a bloated infrastructure bill. With the increase, the United States will have the highest tax rate in both the G7 and the OECD.

To justify this increase when other countries are rightfully lowering their corporate tax rates to appeal to investment, Treasury Secretary Janet Yellen testified before Congress, declaring the need for an international agreement to create a minimum global rate in order to prevent a “race to the bottom.” This global minimum is intended to somewhat offset the effects of a comparatively higher corporate tax rate.

With agreement from the seven member countries, the proposal still needs to be approved by the European Union, which could be a challenging feat. Despite only being debated by the G7 countries, any agreement will also be enforced over the entire European Union, several of whose members are not particularly enthusiastic about abandoning their individual right to determine their countries own tax policies. 

Opposition is mounting from tax-haven countries such as Cyprus and Ireland, which each have a competitive 12.5 percent rate. Other smaller European Union countries, including the Netherlands and Luxembourg, have joined the opposition, as they value independence in tax policy despite currently holding higher rates than the 15 percent minimum.

Ireland would be disproportionately affected by this international rule, as the country has used competitive tax rates to attract business and develop its economy. The forced increase would end this advantage, destroying the smaller country’s ability to position themselves as hospitable to international business. Moreover, sovereignty over tax policy has been a long-held and cherished freedom that each country deserves, in order to best support their own economic interests.

This 15 percent floor will further not tangibly offset the U.S. reduction in investment caused by an incomparably high corporate tax rate. Our competitiveness abroad would still be severely harmed, as the United States would still have the highest tax rate in the OECD.

Businesses would further face harm, both domestically and abroad. The higher corporate tax rate means less money for hiring, investment, and innovation. While the impacts of the tax hike can no longer fully be escaped due to the proposed minimum, the United States’s competitive disadvantage due to an incomparably high rate will still drive innovators and investment abroad, though they will face reduced profits due to the tax minimum.

The corporate tax minimum is an absurd bill that will hurt businesses and business-friendly countries while still failing to mitigate the costs of the US’s absurdly high proposed rate. The 15 percent was decided by countries who will not be harmed by the change, and will likely be forced upon smaller countries who value their sovereignty or ability to attract investment and jobs with their own policies.

Paulina Enck is an intern at The Federalist and a Georgetown University graduate. Follow her on Twitter at @itspaulinaenck
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