Dr. Ellen Wald is back for Wald Wednesday.
If you missed the Easter sale, today is the last day to snag that discount.
In a speech to the Chicago Council on Global Affairs earlier this week, Treasury Secretary Janet Yellen called for a “minimum global corporate income tax” and said the Biden administration planned to work with the G20 on this issue. Now, the Biden team claims to be working on a global floor for corporate income taxes, though this would go against the interests of most other countries. The Biden administration can’t be so naïve as to think that other countries will go along with its plan. No, there is a more complicated strategy here.
Yellen’s decision to broach the idea of a global minimum corporate tax level comes immediately after the Biden administration released its plans to push legislation that would raise the U.S. corporate income tax rate from 21% to 28% and increase the minimum tax rate from 10.5% to 21%. Notably, legislation during the Trump administration lowered the federal corporate income tax rate from 35%. Yellen’s vague global proposal is a cover for raising taxes here in the United States.
Other countries simply would not benefit from adopting a U.S. proposal for a minimum corporate income tax rate. Many countries around the world actually benefit tremendously from low or zero corporate tax rates. They have established themselves as tax havens. For example, in the 1990s and early 2000s, Ireland’s economy blossomed as it became a tax haven. Several island countries in the Caribbean that attract firms to incorporate or register to avoid corporate taxes. Other countries, like Saudi Arabia, which is a member of the G20, rely on natural resources to fund large portions of their budgets and thus limit corporate taxes to encourage the growth of other sectors of their economy and to increase the popularity of political rulers. Moreover, more independent-minded or antagonistic countries, like China and Russia, would never consider adopting U.S. corporate income tax systems, simply because they would refuse to follow the United States.
Most importantly, countries would refuse this proposal, because it impedes sovereignty. Imagine the calls from smaller and poorer countries (every country is poorer compared to the .S. economy) claiming that the Biden administration is attempting to exert a new form of economic imperialism on the world. And if most major countries did abide, a small African or South American or South Pacific nation would be wise to open its doors to global corporations seeking tax shelters.
Even if the Biden team was serious, enforcement would be catastrophic. The U,S. cannot sanction every country that refuses to comply. Even amongst countries that might sign an agreement, there is no way to compel a tax structure on a sovereign government. Thus, we are left wondering why Yellen and the White House proposed this far-fetched idea.
Here’s the likely answer, based on realism and cynicism. Yellen’s proposal was meant to establish a political talking point for future elections to help lessen the political fallout of raising taxes. This is a set up, so that when politicians who favor the current tax hike proposals face challenges on those hikes, they can point to, “ongoing talks for global tax hikes” or some similar phrasing. The Yellen proposal won’t succeed, but it gives cover to Biden’s political party for raising taxes unilaterally. In the strange new era of the media, we can expect fact-checkers to point to Janet Yellen’s speech as evidence that, yes, the world is considering a global tax rate to make our own rates look reasonable—even though the world will never actually consider it at all.