Biden's minimum international corporate tax rate is a bad idea

Martin R. Kantor, BridgeTower Media Newswires

United States Treasury secretaries often introduce a president’s domestic fiscal policies, and when they are overseas meeting with their counterparts, they often try to marshal support for these policies. Such was the case with Treasury Secretary Janet Yellen who, at a recent meeting of the Group of Seven finance ministers in London. Yellen sought endorsement for a global minimum corporate tax rate of at least 15 percent that would provide international political cover for President Biden’s plan for a 15 percent minimum tax on American corporations, and primarily tech giants and other multinational companies.

It strains credibility to believe that the G7 would willingly support a minimum international corporate tax rate. A more likely scenario is that they would not challenge the American president in his first foray into the international fiscal and tax policy of other countries. The reality is that they just pushed the issue to a larger group of 20 finance ministers that will meet in Venice in July.

Yellen, for her part, in what seems like globalism run amok, is suggesting that a minimum corporate tax “would end the race to the bottom in corporate taxation and ensure fairness for working people in the U.S. and around the world.”  In actuality a universal minimum international corporate tax rate would do just the opposite. The political reality is that economic expansion, generated by job creation, new businesses and higher corporate profits are what elected executives such as presidents, governors, county executives and town supervisors all covet, so it seems unlikely that a foreign country would sign on for a minimum tax that would actually transfer taxes paid to them to the United States.

I found how international business really works when, as Suffolk County economic development commissioner, I hosted a representative of the Bank of Scotland who offered that Scotland would provide low interest loans and favorable tax treatment for Suffolk County businesses who would open up shop and create jobs in Scotland.  Nothing at that meeting suggested tax parity.

The real culprit of corporations who pay little tax is American tax policy which provides tax credits and enhanced depreciation to spur capital investments, credits against American taxes from taxes paid to foreign countries for business profits generated there.

Furthermore, Yellen doesn’t clarify what income will be taxed at 15 percent. Will it be the net profit calculated under current tax law, or will it be based on book income before any tax credits and depreciation, resulting in an outsized corporate tax increase that would effectively be an economic disincentive that would stifle job creating capital formation and investment in plant and equipment.

Lost in Yellen’s discussion is that corporations do not pay taxes, the consumers of their goods and services do through higher costs that cover the lost revenues swallowed up by new taxes. The unintended consequence is that artificial price increases in goods and services are as bad as individual tax increases impacting the poor and middle class, the groups least able to absorb any tax or consumer price increases, especially after being economically whipsawed by the pandemic.

A minimum international corporate tax rate is global economic socialism and is bound to fail because all economic politics is local.

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Martin R. Cantor is director of the Long Island Center for Socio-Economic Policy and a former Suffolk County economic development commissioner. He can be reached at EcoDev1@aol.com.