Taxes

The World's Richest Countries Want To Create a Competition-Crushing Global Tax Cartel

Hundreds of leaders have endorsed a 15 percent global minimum tax to quash countries with lower and simpler taxes.

|

There is a certain irony to a group of rich countries pushing for policies that will disadvantage poorer countries. Yet this is exactly what the leaders of the world's biggest economies did by endorsing a global minimum tax rate of 15 percent on the profits of large businesses, a deal that has since gained momentum and pledges from leaders in 136 countries.

The deal's objectives are simple. It creates a tax cartel, and high-tax nations believe this will limit competition from countries with lower and simpler taxes. It also benefits wealthier, higher-tax nations by shifting revenues from countries where companies are headquartered to countries where companies make their sales. At the heart of these two objectives is the need to feed wealthy nations' enormous budgets.

Here's the skinny on a global minimum tax: Most countries, including the United States since the passage of 2017's Tax Cuts and Jobs Act, use some version of a "territorial" system. Territoriality is a basic principle of good tax policy and means that governments don't tax their taxpayers' foreign-earned incomes. That money is instead taxed by the foreign jurisdictions where it is earned. Firms can choose where to do business based on what country has the best tax regime. This approach puts pressure on governments with punishing tax regimes to become less draconian.

High-tax nations don't like this competition, which is why they've been itching for the past decade to undermine it with a global minimum tax. And while the U.S. government is set to benefit immensely from the new regime, U.S. companies with foreign subsidiaries and income will not.

The interesting thing is that some advocates don't bother to hide the fact that their goal is to simply extract more revenue from businesses. In a recent piece in The Washington Post, economist and former Treasury Secretary Lawrence Summers cheered the new deal:

"Countries have come together to make sure that the global economy can create widely shared prosperity, rather than lower tax burdens for those at the top. By providing a more durable and robust revenue base, the new minimum tax will help pay for the sorts of public investments that are fundamental to economic success in all countries."

Summers seems to believe that higher tax rates inevitably lead to more tax revenue, and that politicians will always use the money in ways that are sure to promote growth. It's putting a lot of faith in the notion that politicians will finance worthy investments, as opposed to introducing all sorts of economic distortions or buying votes by feeding corporate welfare. A look at the "Build Back Better" legislation making its way through Congress, which is loaded with counterproductive tax credits and other policies, shows that this faith is unwarranted.

What's more, scholarly work by the Tax Foundation, the International Monetary Fund, the Organisation for Economic Co-operation and Development, and others show that an increase in the corporate tax rate is one of the least effective ways to raise revenue, and that it will lower gross domestic product. That's partly because it lowers investments and, in turn, reduces workers' wages and increases consumer prices.

Corporations may not be popular, but if we squeeze them too hard, how many raises can we expect them to hand out to American workers? What happens to the prices we pay for their products? Even corporations need accountable government, and that means having options in case taxes become too punishing.

The irony, of course, is that while the United States and its richest friends are set to benefit at the expense of poorer countries, the deal is being sold in the name of fighting inequality at home. Or, as Summers puts it, to avoid "lower tax burdens for those at the top."

Wealthy nations could address their budget woes by cutting spending, something most politicians don't have the stomach for. In addition, if these countries have a problem with how multinational corporations are taxed, they could change other policies like transfer-pricing rules. What they shouldn't do is tell other countries how income should be taxed within their own borders, let alone set up a global tax cartel.

The average taxpayer may feel unconcerned by this development. But beware: This cartel is just the beginning. Once such a system is in place, it's only a matter of time before revenue-hungry legislators extend the minimum tax rate to individuals.

COPYRIGHT 2021 CREATORS.COM

NEXT: A Truck Driver With a Few Thousand Bucks and an iPhone Just Toppled New Jersey's Most Powerful Lawmaker

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  1. Stupid, yes, but cartels never last, and any cartel trying to establish a uniform tax will break up even sooner. Nice to set a uniform tax rate, but the devil is in the details -- what income do they count? What exemptions? There are a zillion ways for countries to game the system, and 136 countries will find ways to help their favored industries.

    This cartel won't be effective even as long as OPEC.

    1. Considering it sounds like it will probably be an illegal non-treaty, it will probably last until the next Republican president. Unless the next Republican president is an existential threat to democracy like the last one was, then the courts might not let him undo it.

      And if Reason thinks the next Republican president is a poppy head, they’ll probably be fine with that.

      1. Poopy head. Ducking autocorrect.

        1. I am making $165 an hour working from home. i was greatly surprised at the same time as my neighbour advised me she changed into averaging $ninety five however I see the way it works now. I experience masses freedom now that i'm my non-public boss.
          that is what I do...... READ MORE

          1. Seriously I don’t know why more people haven’t tried this, I work two shifts, 2 hours in the day and 2 in the evening…BW And i get surly a check of $12600 what’s awesome is I m working from home so I get more time with my kids.

            Try it, you won’t regret it........CASHAPP NOW

    2. Only Little People pay taxes - Leona Helmsley

    3. These are 2 pay checks $78367 and $87367. that i received in last 2 months. I am very happy that i can make thousands in my part time and now i am enjoying my life. Everybody can do this and earn lots of dollars from home in very short time period.JGn Your Success is one step away Click Below Webpage…..

      Just visit this website now.......... Pays 24

    4. Sarah getting Paid upto $18953 in the week, working on-line at home. I’m Student. I shocked when my sister’s told me about her check that was $97k. It’s very easy to do.FGi Everybody will get this job. Go to home media tab for additional details……

      So I started.............. E-CASH

    5. About Latest Jobs In Karachi - We make this web portal for jobs in pakistan newspapers searching specially for all Private and Govt Jobs Seekers. You can easily find job here according your education, city and skills.

    6. Seriously I don’t know why more people haven’t tried this, I work two shifts, 2 hours in the day and 2 in the evening…QAz And i get surly a check of $12600 what's awesome is I m working from home so I get more time with my kids.

      Try it, you won't regret it! ……...........VISIT HERE

  2. This is rather disingenuous framing as it fails to distinguish between earnings that are, well, earned in a foreign jurisdiction and those that are simply shifted there by accounting. A reverse merger that transmogrifies a company into an Irish domicile doesn't mean that these earnings are really Irish in a meaningful way.

    On the other hand, how is this going to be enforced, and how is this cartel different from the US simply changing its tax laws to demand that a company pay US income taxes proportional to the share of US sales? If 90% of your revenue is from the US, then it seems intuitive that 90% of your earnings should be subject to US income taxes. If we're going to have US corporate income taxes.

    1. That doesn't follow at all Bubba. 90% of your revenue might be from the US, but the cost of doing business in the US is likely also higher. You might only get 85%, 80%, or even 75% of your profits from that 90% of your revenue.

      Profits are revenue minus costs. If you pretend costs don't exist, you can't sensibly talk about economic policy.

  3. "It creates a tax cartel, and high-tax nations believe this will limit competition from countries with lower and simpler taxes. It also benefits wealthier, higher-tax nations by shifting revenues from countries where companies are headquartered to countries where companies make their sales. At the heart of these two objectives is the need to feed wealthy nations' enormous budgets."

    ----Veronique de Rugy

    Three points:

    1) If we can't lower our tax rates unless the rest of the European Union agrees to do likewise, we're surrendering our sovereignty to the politicians in the European Union, who are not elected by American voters. Biden is basically trying to make us join the European Union on a limited basis. This is not only undesirable but also unconstitutional in a number of ways.

    2) Setting tax rates is an enumerated power of Congress. That's one of the ways in which this is unconstitutional. Likewise, any treaty like this is and should be subject to ratification by two-thirds of the Senate, which can't be reached by getting rid of the filibuster. We haven't even started talking about constitutional prohibitions against taxing exports.

    3) One of the things we're talking about when we're talking about elitism is making us subject to unaccountable bureaucrats. This is the recipe for populism. When the American people become convinced that liberal institutions are unwilling or unable to protect our interests, they will not abandon their interests. They will abandon liberal institutions.

    1. This isn't even a treaty, it's just some executive agreement. Even treaties are not enforceable absent Congressional action, and this has even less chance of Congress agreeing to it than climatastrophe legislation.

      I said above that cartels don't last, and that's among businesses with more continuity from regime to regime. Few of these 136 countries have that kind of continuity. This cartel is just a press release.

      1. I guess they're planning to undo the American Revolution?

        Not taxing exports is almost as essential to the American Revolution as "No taxation without representation".

        No wonder they want to reeducate our children to hate old white men and tear down their statues!

  4. In other business news, Bristol-Myers announced they are moving their corporate headquarters to Djibouti, after discovering that it's cheaper to pay off warlords than pay taxes.

    1. Interesting gamble. How bad will it look if multiple corporations follow suit?

      1. They will be banned. Or be forced to agree to pay exit taxes for an adjustable period.

  5. I wrote this a couple weeks ago, but it is worth repeating here:

    Global Minimum Tax - What is Really Happening
    Over the last several months, there has been a lot of news about Biden’s negotiations with OECD countries towards getting a Global Minimum Tax in place. While the Biden administration *claims* that this is all part of their effort to force tax-dodging corporations to pay their fair share, you really need to understand that this is yet ANOTHER bail out for elite businesses- in this case, big Tech Companies.

    This is not obvious from reporting, but in fact, the Global Minimum Tax is being offered as an ALTERNATIVE to Digital Services Taxes that have been established by other countries in an attempt to syphon revenue off of companies like Facebook, Twitter, and Google. These DSTs tax Google for doing things like linking to articles, online advertising, etc. Don’t get me wrong- these are pretty terrible taxes, often used to bail out competitors in these countries. But there is no doubt that these taxes target a couple of (American) companies for tax revenue. It was so egregious that the US was about to slap tariffs on countries like France for Cosmetics in retaliation.

    https://www.channelnewsasia.com/business/talks-remove-digital-taxes-should-end-tariff-risks-us-treasury-officials-2238591

    What the Global Minimum Tax is actually doing is removing a host of DSTs from Big Tech Companies, and broadening the tax base to more large multinational companies. Countries like Ireland, Hungary and Estonia that have low corporate tax rates will increase their minimum tax to 15% (for multinationals, not for local or smaller companies). It will also ensure that all large companies with more than 10% profit margin (i.e. tech companies that aren’t as big as Facebook and Google) ALSO pay taxes to these countries.

    In fact, some countries like UK admit that this will bring in less tax revenue than maintaining their DSTs, which goes to show that this is really helping Big Tech. It is only the threat of Tariffs and the promise that the US will allow the Pillar 1 (extending taxes to all tech companies not just big tech) that is making this go through.

    Once again, it is interesting to see how populist claims of “making THEM pay their fair share” really end up being about protecting certain big, entrenched interests.

    1. Show me a Baptist and I'll show you a bootlegger.

      1. Jimmy Carter?

    2. Thanks for this; didn't see it the first time.

  6. So what happened to the story about how all the government leaders around the world were hiding their cash and avoiding taxes? That story sure disappeared fast.

    1. Pandora closed the box again.

  7. In other unconstitutional treaty news, the developing world is demanding that we pay them $1.3 trillion a year to go green.

    "GLASGOW—Most of the world’s developing countries have backed a demand for wealthy nations to channel at least $1.3 trillion in climate finance to them annually starting in 2030, the opening salvo in one of the most contentious negotiating topics at the COP26 climate summit."

    https://www.wsj.com/articles/climate-finance-china-india-11636039142?

    Yes, India and China are among those doing the demanding--and between the two of them, they have more in the way of coal plants under construction than we could possibly close in the United States.

    1. I saw this grift when the Kyoto treaty was inked- though that one was far more, "Wealthy nations including the United States....that is all." The treaty gave carbon offset credits to Russia if they planted trees, but no similar consideration for the US. It allowed Europe to claim credit for the modernization of their Eastern European power credits, while the US was expected to send money to 3rd world countries, paying them NOT to develop their natural resources.

      It is a total racket.

  8. What I don't understand is how Nation A can compel Nation B to raise its taxes. Someone explain how this global tax works to compel non-cartel nations to raise their taxes to match?

    1. Because you voted in an idiot for a president.

    2. Sanctions, trade, tariffs, immigration, realpolitik gives one lots of options.

    3. Check out the link in my post above. The World Trade Association (through treaty) provides a framework for how countries may retaliate on others for "anti-competitive" processes. Canada subsidizes its steel industry? US can take them to World Trade Court alleging this breaks the treaty, and the WTA rules that the US can levy tariffs on Canada as a result.

      The tax cartel is the same way. If you can get enough countries to agree, then they can collectively punish (through tariffs and sanctions) other countries that don't play along.

    4. It's not a question of compelling others to raise them. It's a question of punishing countries that lower them.

    5. Brandyshit, we had a POTUS who wouldn't have a thing to do with this, and TDS-addled assholes like you did your best to make sure he wasn't re-elected.
      Stuff your head up your ass a breathe deeply.

    6. Obviously having nations with more materially developed economies force poorer nations into compliance for the benefit of the more developed nations is a good thing.

      But colonialism is the great unforgivable sin of history.

      It all makes sense if you put a galvanized bucket on your head and strike repeatedly with a hammer

  9. Those that support this garbage are currently free to pay this out of their pockets. Are they?

  10. If you're a small low-tax haven and you don't like this, build your own global tax cartel.

    1. Build your own planet.

      Elon Musk: Okay.

      1. Astro-Ecologist: How dare you spoil the natural beauty of that airless rock!

  11. Brought to you by the USA Nazi-Regime.....
    We've moved past just National Socialism NOW it's Global Socialism.

    1. To Conquer and Consume....

    2. interNational Socialism. iNazis.

  12. Income taxes are a scam and should be abolished. All they do is encourage avoidance. A flat head tax is the only true and just tax. It's good enough for every single business that admits customers to a premises, why wouldn't it be good enough for a government?

    1. Sweden has an interesting system. The rates are higher but compliance is also higher. They manage this by simplification. The yearly ordeal of taxes can be accomplished in minutes with a text message.

  13. We had a POTUS who most certainly would not be on board with this.
    As I recall, Ms. De Rugy did her best to convince everyone he should not be re-elected.

  14. So much shit would not be happening if we didn't have our current zombie in chief.

    1. Don't say I didn't warn you.

  15. Times like this I love the Senate. The big multinational deals that end up becoming the applicable law in random European countries whose voters never got to vote on it? Yeah, not a thing here. It's just a (Democrat) President's personal agreement with the foreign cartel, promptly repudiated once an American is elected again.

    If you want an international treaty, it has to be ratified by the Senate in our country in order to become the law.

    1. And it's time to fix the Senate: restore election of Senators to the State legislatures. Perfect solution? No. Brings another set of priorities to the game and slows things down a bit more? Yup! It was a good idea in 1787, and it's a good idea now.

Please to post comments

Comments are closed.