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Friedman and Rauh: Biden’s Global Tax Conspiracy


President Joe Biden’s plan to get corporations to pay their “fair share” of taxes would undo recent improvements in US tax law that made America more internationally competitive as a location for jobs and investment.

The proposals to both raise the federal corporate tax rate to 28% and increase the taxation of foreign profits of US multinational corporations could seem deceptive as an obvious tax on large corporations.

If these big corporations left the US to get into a friendlier tax environment and take jobs with them, it will be the workers who would end up paying the price. Including the average corporate income tax at the state level, the statutory corporate tax rate would rise to over 32% and return to the highest level among the Organization for Economic Co-operation and Development (OECD) countries.

The Biden administration does not seem to lose the risk of a start-up. Finance tries to avoid this inevitable outcome by negotiating a global minimum tax. The vehicle through which these discussions are conducted is the OECD itself, an institution created to promote free markets and publish economic data. In essence, the government is conspiring with the OECD to suppress global tax competition by effectively asking all countries to introduce similarly high tax rates.

BIDEN ECONOMIC ADVISER PRESSURES GLOBAL CORPORATE TAX MINIMUM to Counter Proposed US Increase

This collusion is the solution proposed by Biden Treasury to avoid a return to a never-ending battle with US companies.

Obama’s Treasury Department tried to force American companies to stay in the US by issuing strict rules against so-called inversions, in which a large American company merged into a tiny foreign company to dissolve its US status and become a foreign company To reintegrate the country. However, constraints against inversions predictably failed.

They simply induced foreign colleagues to acquire American companies. These acquisitions were much worse than inversions because, unlike an inversion’s paper change, they actually moved corporate headquarters, community engagement, and decisions about jobs and global supply chains out of the United States.

The Tax Cut and Jobs Act (TCJA) of 2017 replaced these perverse incentives with a US tax rate that was internationally competitive but still above the middle of OECD countries. It also restricted the taxation of profits of US companies abroad and introduced significant guard rails to prevent abusive practices.

The tax code is now encouraging multinational corporations to relocate their operations back to the US and allowing American companies to acquire foreign peers instead of doing the opposite.

However, President Biden is pushing for a policy of envy that puts “the wage gap between CEOs and their employees” above job creation and higher wages for all.

Contrary to the president’s rhetoric that the tax cuts only increased CEO pay, the TCJA resulted in historic employment and wage growth, with the largest percentage increases being for non-executive employees.

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If the United States reverses course, we will throw away all of this advances. Working with the OECD as the world’s tax policeman would be catastrophic for many reasons.

To be implemented, a global minimum tax would need to have very detailed rules covering all aspects of taxation, from cost recovery, losses and interest deductibility to tax incentives such as R&D and what types of businesses must be taxed first.

The program would transfer tremendous power to the OECD Secretariat, which would begin to look like the world’s IRS commissioner. It would also be a back door through which tax legislation could be further removed from Congress and placed in the hands of the Treasury Department and its foreign counterparts.

Why should the US want to relinquish its sovereignty over its own tax rules to impose high taxes on companies – and why should we want to encourage other countries to give up theirs?

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The Biden government is trying to force countries around the world to favor high taxes on corporate income regardless of the impact on employment and wages.

It is difficult to imagine any more important attribute of sovereignty than the right of each nation to maintain and change its own tax rules as their legitimate government deems appropriate.

It’s not as if the administration is on very solid economic ground and charging high corporate taxes to increase income. Basic logic suggests that workers are the ones who cannot avoid a corporate tax hike while companies can relocate their business.

There is ample evidence to show that workers and consumers bear a significant portion of the corporate tax burden, and it is impossible to imagine that every country in the world adheres to the OECD minimum tax rates. So capital will always have a place to flee.

To make matters worse, the Treasury Department is trying to bribe other countries by dangling the carrot from something else these countries want: the right to tax the profits of US tech companies. Treatment would be symmetrical, but even after the Treasury Department’s recent proposal to include high-margin large corporations across all sectors, the US will lose the most from such an agreement.

It doesn’t matter that foreign governments already levy sales and value-added taxes on these sales – they also want to tax the profits of US firms over which they have no traditional authority.

In order to collect one of the most inefficient taxes, borne on behalf of companies but in practice disproportionately borne by workers and consumers, the Biden government proposes relinquishing sovereignty over our own tax rules while allowing overseas tax the profits US operations by US companies.

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Instead of this folly, the United States should stand against digital taxes and stand firmly behind traditional international tax rules that forbid taxation that is removed from the real place of value creation.

Congress should carefully monitor developments in the OECD and insist that any agreement be subject to the contractual clause of the Constitution and refuse to join a global minimum tax. Rather than relinquishing the right of Congress to determine tax policy, it is time to recognize that in a world of inevitable global competition, adopting high corporate tax rates without the bleeding of jobs and lowering wages is child’s play.

Joshua Rauh is Professor of Finance for the Ormond Family at the Stanford Graduate School of Business and a Senior Fellow at the Hoover Institution.

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