Corporate Tax

Cravings for a world corporate tax | columns

Adam Smith’s 1776 warning needs to be updated. He said, “People of the same trade rarely meet, even for amusement and diversion, but the conversation ends in a conspiracy against the public or a ruse to raise prices.” If you have an unromantic understanding of government, know They believe that these are not disinterested altruists, but people who are just as interested in maximizing their power as private sector actors are interested in maximizing their profits. So be careful when governments form cartels to increase society’s resources.

The United States and 131 other nations and jurisdictions recently agreed to impose a global tax on a few (mostly American) large corporations. The deal would impose a minimum tax of 15% on foreign profits of multinational corporations (the Biden government wanted 21% and plans to continue to impose the higher rate on US corporations). It would also tax the profits of some of the largest corporations where the corporations’ customers are, rather than where their production (factories, etc.) is.

Part of this proposal is a redistribution of taxation rights that benefits some nations and disadvantages others. That should be of interest to the US House of Representatives, in which, according to the constitution, “all bills to increase revenue should be created”.

A great majority of nations have an interest in forcing the few nations that have succeeded in using low corporate tax rates to attract businesses to compliance. The Biden government desperately wants to impede corporate mobility by proposing to pay for part of its spending frenzy by increasing corporate taxation. (Though they hide the fact that corporations don’t pay taxes, they levy this: corporate taxation is paid by the company’s employees, shareholders, and customers.) The new global tax system would discourage US corporations from accepting the proposed increase in the Biden administration avoid the corporate tax rate from 21% to 28%.

Treasury Secretary Janet Yellen, who knows how to provide the media with helpful vocabulary, describes corporate mobility as a “race to the bottom”. Indeed, it is a race for sanity for Americans who benefit domestically from “corporate federalism”: states that understand that capital goes where it is welcome and stays where it is treated well, competing (with laws on the Right to work and other) incentives) to create a welcoming business environment.

The Biden government operates in a familiar two-step process: the government creates conditions that are harmful to part of society; then it prevents the segment from escaping the conditions. For example, governments leave control of public schools to politically influential teachers’ unions that advocate ideological goals and working rules that benefit teachers who pay rather than children who do not. To prevent parents from withdrawing from union power, governments limit the number of non-union charter schools.

If implemented, the new tax system would redistribute a small fraction of global gross domestic product to different nations. A consortium of European think tanks estimates that 78 current companies (around two thirds of them Americans) would be affected. However, the implementation is uncertain.

Three low-tax members of the European Union – Ireland, Estonia and Hungary – are against it so far. That is two more than is necessary to prevent the 27-state EU from introducing the minimum tax. China and India’s reluctance to adopt the new regime can perhaps be overcome by granting spin-offs to protect preferred industries, a process which, once started, will make the regime permeable.

In order to accept the new global tax system, Congress, which interferes in the governance of this nation through the executive branch, would have to change not only some US laws but also some treaties, which would require two-thirds of the Senate. This presupposes, perhaps prematurely, that a parliamentary maneuver does not lead to the rule of law being further undermined by circumventing this constitutional requirement. The Paris climate “accord” and the nuclear “joint comprehensive action plan” with Iran should have been treaties, but were treated as minor matters because the executive did not want to seek the broad support that the Constitution prescribes for momentous action. For the United States, congressional approval of the Biden government’s global minimum tax rate by wafer-thin majorities as part of a ridiculously elastic “reconciliation process” would be most momentous as the nation’s increasingly disrupted rule of law continues to fray.

When Adam Smith warned in The Wealth of Nations against raising prices through private sector cartels, he was not facing a cartel of the governments of the 21st century by transferring resources that would otherwise be available for investment to governments that are always greedy for revenue, today’s cartel is an attempt to stifle the wealth of nations.

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