By Alex Hendrie| Real Clear Markets.]
The Biden administration is pushing a misguided 21 percent global corporate minimum tax on American businesses. At the same time, the administration is pushing for a global agreement amongst foreign countries to set a foreign minimum tax rate of 15 percent.
This is a terrible idea that, if successful, will surrender U.S. sovereignty to foreign leaders in Russia, China, Saudi Arabia, and the European Union in order to bind the world into higher taxes and bigger government.
Fortunately, the proposal requires the sign off of lawmakers in Congress. Democrats and Republicans alike should reject this proposal and stand with American taxpayers. Rather than signing off on this reckless proposal by voting for Biden’s tax hikes, lawmakers should be focused on policies that help American businesses and workers and strengthen innovation, manufacturing, and intellectual property in the U.S.
The Biden administration, led by Secretary Yellen, is pushing the flawed narrative that we need a global agreement locking in high taxes in order to “end the race to the bottom” and “make all citizens fairly share the burden of financing government.”
Unfortunately, the concept is receiving strong approval from foreign countries – it was endorsed last week by the G-7 nations in a joint communique and will soon go before the G20, where it will require the approval of Argentina, Australia, Brazil, Canada, China, France, Germany, Japan, India, Indonesia, Italy, Mexico, Russia, South Africa, Saudi Arabia, South Korea, Turkey, the United Kingdom, and the European Union.
Why is the Biden administration pushing this proposal given their supposed priority is helping American families and workers?
Well, the administration is pushing this global minimum tax agreement concurrently with higher taxes in the U.S, an acknowledgement that the tax increases proposed will make America less competitive.
Biden has proposed 30 tax increases totaling $3 trillion. As part of this plan, he would raise the corporate tax 28 percent (32 percent after state taxes) and enact a 21 percent global minimum tax on American businesses operating overseas.
It should be telling that the Biden admin’s proposal to foreign countries is a 15 percent minimum tax, while his domestically he has proposed a 21 percent minimum tax. Clearly, the administration is not prioritizing American businesses and workers.
It is unrealistic at best and naïve at worst for the U.S. to expect foreign countries – many of which have a history of undemocratic governance and human rights violations — to play by the rules in a way that ensures American businesses and workers are treated fairly.
In fact, there is already the expectation that China and Russia will find ways to avoid the global minimum tax agreement or ignore it entirely. Chinese media are urging the Chinese Communist party to respond to the G-7 agreement by cutting taxes in order to attract more investment and bolster domestic manufacturing.
China already provides generous tax subsidies to businesses. For instance, they recently enacted a 200 percent deduction for eligible research and development expenses and has a preferential 15 percent tax rate for high-tech enterprises.
Rather than following the lead of global bureaucrats and signing off on Biden’s minimum tax proposal, federal lawmakers should maintain pro-growth tax policies that ensure American workers and businesses can thrive.
The year after the Republicans passed the Tax Cuts and Jobs Act, the U.S. was named the most competitive economy in the world. By 2019, the unemployment rate had dropped to 3.5 percent, a 50-year low. In the same year, median household income increased by $4,440 or 6.8 percent, the largest one-year wage growth in history.
The U.S. grew faster than rest of the world and was the only G7 industrialized country to record annual real GDP growth exceeding 2 percent in 2018 or 2019. The U.S. growth rate of 2.9 percent in 2018 was significantly higher than other developed countries like Germany, which saw 1.5 percent growth and the United Kingdom, which grew by just 1.3 percent.
The global minimum tax agreement being pushed by the Biden administration is a terrible idea that will stifle tax competition and lock in big government across the world. U.S. lawmakers should reject this proposal and maintain American tax competitiveness so that workers and businesses can compete and thrive.