It was with a feeling of deep disappointment, as well as some deja vu, that I read Treasury Secretary Janet Yellen is still pushing to form an international cartel of governments that would implement a minimum corporate income tax rate across borders. Now, instead of 21%, Yellen is calling for a bare minimum of 15%.
That may relieve some heartburn for concerned corporate executives, but they’re not the only ones who should be troubled. The proposal is just one part of the Biden administration’s effort to generate prosperity somehow by forcing costs and prices to increase.
Yellen’s push reflects an avowed effort to avoid tax revenue leakages when corporations move their operations to lower-tax jurisdictions. It’s also an attempt to make certain that corporations, as well as the people they keep wealthy, pay their share for the administration’s ambitious spending plans.
Because of intense global competition, corporate managers constantly seek lower-cost locations and other methods of doing business. Obviously, the search involves more than just lower taxes. Infrastructure, property rights enforcement, and labor supply matter a lot, too.
The corporate search is a challenge for policymakers but also nothing new. Scanning the globe for competitive locations puts pressure on governing bodies to find lower-cost ways of operating, lest they lose out to more appealing destinations. Efforts to cartelize taxation among nations will reduce the search for lower costs and, all else equal, lead to a higher-cost world economy.
When the corporate tax cartel is coupled with the administration’s call for a $15 national minimum wage, we have the makings of a modern version of President Franklin Delano Roosevelt’s National Recovery Act and related efforts to fight the Great Depression. The Roosevelt administration encouraged all U.S. industries and agriculture to raise prices in the similarly mistaken view that it would lead to prosperity.
It did not work then, and it won’t work now. It’s like suggesting that everyone at a crowded football game stand so that all can better see the action on the field. A standing crowd gains little or nothing in visual perspective but also grows weary sooner. In a similar way, higher prices cause people to buy less, not more, perhaps while also agitating for higher wages and retirement income (things a weary economy is less able to deliver).
When industries cartelized in the 1930s under government auspices, Roosevelt rewarded cooperating corporations with flags bearing the NRA Blue Eagle and slogan “We Do Our Part.” The Biden administration speaks in terms of paying your share, which implies endorsing its efforts to expand federal programs across most dimensions of American life.
The short-lived NRA efforts were struck down by the Supreme Court, but FDR’s cartelizing continued by way of legislation that penalized price cutting. Meanwhile, the many NRA-spawned trade associations that formed at the time became a major lobbying force in the energized national capital.
Instead of searching high and low for ways to raise costs in the hope that more federal revenue and spending will follow, we should hope that our national leaders work harder to find better, more efficient ways to govern and serve the people. Doing so will give more people a much better chance at prosperity.
Bruce Yandle is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a distinguished adjunct fellow with the Mercatus Center at George Mason University and a dean emeritus of the Clemson University College of Business and Behavioral Science. He developed the “bootleggers and Baptists” political model.
