President Biden recently spearheaded an agreement among the G-7 nations to implement a global minimum corporate tax rate of 15 percent. The agreement has received the support of 130 other countries including China, Russia, and India. Notably withholding their support are several major tax havens, including Ireland, Hungary and others.
The agreement, if fully implemented, would reduce competition among the world’s major economies and secure a tax funding base for financially strapped nations, particularly those in Europe, with bloated social spending budgets. President Biden says the agreement shows that “America’s back.” However, the agreement would surrender America’s tax sovereignty to a coalition of nations who believe in high taxes and huge government spending. The tax is an essential part of President Biden’s plan to greatly expand the role of the federal government in America’s economy at a level not seen since World War II.
The Tax Cuts and Jobs Act that was passed in 2017 created economic growth in America that eclipsed the economies of most of the G-7 countries. This tax reform eliminated the minimum corporate tax and reduced the top corporate tax rate to 21 percent, incentivizing U.S. companies to invest here at home instead of overseas. The United States hung out an “Open for Business” sign which attracted billions of dollars of investment and generated explosive job growth not seen in decades.
President Biden and many Democrats in Congress are working vigorously to reverse this growth. Their support for a global minimum tax is one of at least 30 proposed tax increases on American families and businesses that will total around $2.975 trillion over the next 10 years. These tax increases include raising the top corporate tax rate to 28 percent, which, when state taxes are included, balloons to an average rate of 32 percent. This is significantly higher than the average corporate tax rate of most nations in Europe (23 percent) as well as China (25 percent).
The global minimum tax is also subject to significant manipulation by nations seeking to gain an edge through offsets and work arounds. China’s state-controlled media already is calling for massive exemptions. Russia and India are likely to follow suit. Most significantly, many tax haven countries like Ireland who have seen their economies grow rapidly due to their low tax regimes are not expected to sign on to the minimum tax.
Treasury Secretary Yellen calls the current tax policies of China, Russia, India, Ireland, and other nations a “race to the bottom” to attract business at the expense of their budgets. Another term for this is competition, so it is easy to predict that that even if the global corporate tax agreement is ratified, many of these nations will find a way to undermine it to better compete.
President Biden’s tax policies amount to a surrender in this race for business. He is not only pressing for the global minimum tax, but he is basing its implementation in the United States on book income rather than taxable income, further disadvantaging American companies over foreign workers and companies.
Should the Biden global minimum corporate tax go into effect, those losing most will be American consumers and workers. By eliminating competition, this tax, on top of his other tax increases, will make America even less competitive and drive jobs, manufacturing, innovation and investment overseas. It will encourage the flight of business to those nations, like Ireland, who do not sign on or to countries like China, who will effectively ignore the tax while making a show of agreeing to it.
The American economy is just beginning to emerge from the damage wreaked by the pandemic. We are also engaged in fierce competition with China, which is seeking to become the world leader in technology and other critical industries. Instead of restricting competition with a 15 percent global minimum tax that is nothing more than a gift to China, the United States should be pursuing low tax policies that welcome investment and will secure our nation’s position as the leading economy in the world.
Congressman Erik Paulsen represented Minnesota’s 3rd District from 2009 to 2019. He was a leading member of the chief tax writing Ways and Means Committee. He was also the Chairman of the Joint Economic Committee, which focuses on innovation, entrepreneurship, digital trade, and economic issues.