A Global Tax Cartel Would Be as Bad as It Sounds

Several studies have found that the vast majority of costs incurred by increased corporate taxes are passed along to workers in the form of lower wages.


When all you have is a hammer, everything does indeed look like a nail. This is the best way to describe government officials' unoriginal and often destructive thinking. No matter the problem du jour, the answer is always more government spending. But more spending requires more tax revenue, which is not always easy to acquire in the modern global economy.

That's how we got the current effort by some United States officials to impose a global minimum tax. They are hammering away to extract more revenue from U.S.-based multinational corporations by limiting competition from countries with more welcoming tax systems.

In 2017, former President Donald Trump's administration improved the corporate tax system by lowering the top corporate income tax rate from 35 percent to 21 percent. At the same time, the worldwide tax system, under which income is taxed by a firm's home country no matter where it is earned, was replaced by a territorial tax regime. In this system, income is taxed only in the country where it is earned. For example, an American company earning income in France is taxed only in France, not in the U.S.

This new system is a vast improvement for U.S. companies, which in turn helps repatriate their foreign profits here. However, it does put pressure on politicians to further lower tax rates and diminish incentives for corporations to locate their production abroad or shift reported profits overseas. Don't forget that there are still plenty of nations with corporate tax rates lower than those imposed in the United States.

It's worth noting that in 2017 the United States also adopted a minimum tax called Global Intangible Low-Taxed Income, or "GILTI," for companies that earned a high rate of return yet also paid low taxes overseas. It wasn't a good idea, but it had more merit than what Treasury Secretary Janet Yellen now has in mind—namely to impose a minimum tax based on a company's worldwide average tax rate instead of on a country-by-country basis.

If Yellen truly believes what she says about taxing U.S. corporations, all she has to do is convince Congress to implement these alleged improvements. But she likely knows that raising rates here would lead to more capital flight out of the United States, so she's resorting to coercing other governments to make their tax regimes less appealing to U.S.-based companies. Hence, the idea of cajoling other governments to impose a global 15 percent minimum tax rate on foreign companies' incomes earned within their borders.

Under this cartel of countries, with foreign governments committed to refusing to compete for capital by cutting tax rates, the incentives for U.S. companies to avoid high U.S. taxes are seriously reduced. So are the incentives for governments to keep their own tax systems modest.

Whether Yellen can convince countries like China and India to go along is an open question. The proposal also faces political headwinds in the European Union, which usually supports any attempts to hinder tax competition.

Finally, it's unclear that Yellen can convince Congress to go along with her scheme. The reason, in part, is that enough legislators are skeptical of whether a global minimum tax will truly increase Americans' prosperity, especially given the current fragility of the global economy.

Such skepticism is in order. First, economists at the Organization for International Cooperation and Development, who examined the effects of various types of taxes on the economic growth of developed nations, found corporate taxes "to be most harmful for growth, followed by personal income taxes, and then consumption taxes."

Second, while legal liability for these taxes is placed on corporations, several academic studies have found that the vast majority of the costs are passed along to workers in the form of lower wages.

Third, while the argument for raising more revenue is often presented as a tool of fiscal responsibility, the reality is quite different. Countless studies show that feeding the government beast with more corporate-tax revenue increases spending rather than reduces government budget deficits. And as my recent review of the literature with Mercatus Center economist Garett Jones reveals, more deficit spending will likely hinder economic growth.

Under these circumstances, why not give the hammer a rest and for a change try a new tool? A nice, sharp saw, for instance, could help slice from the budget unnecessary spending and reduce the constant need for more revenue, which drives away American companies.


NEXT: Gwyneth Paltrow’s Gemstone-Encrusted Alpaca Wool Diaper Is…a Tax Protest?

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  1. I only read the title. But, I agree and it would be pretty hard to sell me on the opposite.

  2. This is only about the New World Order, and nothing more. You will be the property of the "state". Are you going to let them do this to you?

    The Big Club: the CEOs all sit on each others boards and attend the same meetings (and pizza parties) at Davos and Bilderberg. What you’re witnessing with the world falling into ruin is their global reset plan in action.

    1. Did you hear about Hitler and Nixon in Paraguay in '56??????

      1. Buenos noches, Mein Fuhrer!

      2. Sqrlvo, why do you get so butthurt when people point out the openly declared plans of globalist oligarchs?

        1. nardz, why are you such an assholish idiot?

          1. Very pathetic avoidance of an answer, but I do love how much it pisses you off when some of us prove your intellectual inferiority.

          2. Anyhow, man up for once in your life: why so butthurt when the globalist oligarchs are called out?

            It's wierd.

  3. "Several studies have found that the vast majority of costs incurred by increased corporate taxes are passed along to workers in the form of lower wages."

    And to customers in the form of higher prices, unless those corporations have Jackson orchards out in the back 40.

  4. They really want their global government.

    1. Yeah, pretty convinced the experiment in democracy has failed. Even if you disagree at the local level, you've got to agree that the light from the shining city on the hill has utterly failed to project beyond our borders.

      1. failed to project beyond our borders

        That's not it. The light itself has failed.

        1. ya. 41 was the most full of shit Bush to have ever lived. may he rest in peace and all.

        2. The light itself has failed.

          That's what I meant by "Even if you disagree at the local level". Even if you think the city on the hill is still shining, there can be no question that it hasn't persuaded the rest of the world of the inherent virtue of individual liberty.

      2. when you think about it, im sure many civilizations and countries viewed themselves as the shining city on the hill

        I cant imagine Rome didnt think that

        1. Except we can look back at our own founding documents and the documents they were founded on back to Rome and clearly see the representative republican democracy shining through. It's not at all clear that the limited and balanced federated republic, founded on individual liberty, (or even necessarily the representative republican democracy) will make its way into the global governance in such a shining fashion.

  5. Its really hard not to see these people (like Yellen, Warren, etc) as "the enemy". The policies they put forward always sound like a mix of short sighted and terrible.

    1. They are.
      They don't even really try to hide it.

    2. They both show easily the Peter Principle is violated. Each has gone at least 10 levels beyond their level of incompetence. But then again they are in political positions.

  6. that Yellen dude just looks evil.

  7. Don't be fooled. I wrote about this back in september or october of last year:

    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 because their business models brought massive income to them here in the states, that they would otherwise have gotten from industries in the EU. And the Digital Services Taxes are so egregious that the US was about to slap tariffs on countries like France for Cosmetics in retaliation.

    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.

  8. In this system, income is taxed only in the country where it is earned. For example, an American company earning income in France is taxed only in France, not in the U.S. This new system is a vast improvement for U.S. companies, which in turn helps repatriate their foreign profits here.

    Does this apply to individuals?

    1. With a 10-year penalty clause after you leave.

    2. No. An American citizen is taxed at U.S. rates on all income, but any taxes paid to foreign countries are credited against the U.S. tax owed.

  9. Janet Yellen should be fired, and the last 20 years of her salary should be clawed back.

  10. Only idiots and Democrats, but I repeat myself, think that corporations and other businesses "pay" taxes. Even the dimmest of business owners and managers count taxes as some form of operating expenses, and realize that increasing those expenses means higher prices, lower wages, and/or reduced returns to investors.

  11. Nice third world tax haven you got there.
    Be a shame if something happened to it.

  12. This from the book “How to Create Economic Disasters,” and I quote: “Assume the reason your plan didn’t work is because it wasn’t tried globally. Crush and assimilate deviants. Eliminating all competition will fix everything.”

  13. Funny how the people who werecNiden or bust for his return to normalcy are now against that normal.

  14. The function of government is to defend liberty. Liberty is freedom from the initiatory use of force. When government initiates force it violates our liberty and is immoral. Why do we allow it? It's crazy.

  15. A Global Tax Cartel Would Be as Bad as It Sounds

    All back to normal after Biden's election, I see.

  16. Price fixing is when businesses collude to set prices. That is no good, very bad, and even illegal.

    When governments collude to set prices . . . that's moral?

  17. Several studies have found that the vast majority of costs incurred by increased corporate taxes are passed along to workers in the form of lower wages.

    That's easy! We'll just pass a law forbidding that! -- Yellen and Warren

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