With great fanfare, the Biden administration has praised a global tax agreement reached by the Group of 20 nations.
Finalized at last week’s G-20 summit in Rome, the agreement endorses a global minimum tax on corporations. Treasury Secretary Janet Yellen hailed the deal as a means to “end the race to the bottom” on corporate taxes.
In reality, the agreement is the start of a race for more tax revenue to fund more social spending programs. The accord is also a distinctly bad deal for the United States in that it will serve to make it easier to raise taxes on U.S. companies.
The deal was devised to prevent countries from competing with one another on corporate tax rates. It would be like New York and New Jersey coming up with an agreement that prevented states such as Texas and Florida from reducing taxes to attract businesses and people to their states. It’s a government protection plan to keep taxes and spending high.
This global agreement is a big government attempt to reduce the tax competition that has helped countries such as Ireland attract foreign investment, expand economic growth, and create hundreds of thousands of jobs for their people. What’s so wrong with that?
What’s wrong is that the government worries it won’t raise as much revenue if corporate taxes are lower. President Joe Biden admitted as much when he said the agreement would ensure that corporations “provide governments with the revenue needed” to fund more spending programs. Similarly, Yellen believes that higher corporate tax rates will bring the U.S. “decades of prosperity.” But the vast majority of economists recognize that high corporate rates are the most harmful taxes when it comes to economic growth. That is why so many of our trading partners have reduced, not increased, their corporate tax rates.
Study after study shows that higher corporate rates lead to lower wages, higher prices, and lower government tax revenue.
The Biden administration now wants to raise the U.S. global minimum tax to the highest in the world before seeing if any other country acts. This would put our companies at a competitive disadvantage.
This global tax agreement is a bad deal for the U.S., and we should reject it.
Bruce Thompson was a U.S. Senate aide, the assistant secretary of the Treasury for legislative affairs, and the director of government relations for Merrill Lynch for 22 years.
