Yellen’s Folly

The newly-proposed Global Minimum Corporate Tax is an impracticable plan that diminishes American economic sovereignty and competitiveness.

As I write this post, American officials are meeting with their counterparts from the UK, France, Japan, Italy, Canada, and Germany at the G7 Summit currently underway in Cornwall, UK. One of the main issues they are discussing is the promulgation of what they are calling a ‘global minimum corporate tax’, which would involve all seven of the world’s wealthiest democracies agreeing to not move corporate taxes below 15% so as to better capture the profits of large multinational corporations. When I first read that the Biden administration – and particularly Treasury Secretary Janet Yellen – was seeking to push this international agreement on taxes, I was flabbergasted at the fact that any American administration would think this is a good idea. There are several reasons for my skepticism, many of which were expertly laid out by the Wall Street Journal, but this post will focus on one major issue that’s dear to my heart: the fact that the agreement necessarily diminishes American sovereignty for no good purpose.

Let’s start with a brief disclaimer: I’m not at all against multilateralism in international affairs, particularly in areas where joint action is needed, like air traffic, seafaring, space, and the laws of war. I’m also totally for treaties between sovereign nations or groups of nations that serve a truly international purpose like going to war or mutual defense.

That being said, I don’t think that all problems which affect multiple countries should be dealt with in a multilateral fashion. Corporate taxation is one of those issues that is best handled by individual nation-states, as it is most relevant to domestic economics and internal revenue collection. In this case, the potential agreement on corporate taxation is an abrogation of American domestic sovereignty to an international body which operates outside of any real political accountability. These decisions should not be made by unaccountable, faceless bureaucracies, but by the American citizens through their elected representatives. We’ve all seen this past year how poorly international bodies deal with real crises or challenges, and that experience should counsel us all against trusting these bureaucracies with important domestic matters like public health or tax policy.

Personally, I’m a proponent of lower tax rates and broadened tax bases so as to stimulate economic growth, innovation, entrepreneurship, and job creation; others may disagree entirely, and that is a debate that is well worth having. But that debate should and must remain an internecine argument between Americans, not something which we outsource to foreign nations that do not put American interests first and foremost. Tax policy touches so many aspects of life and business, and as such it should be up to the American people to decide how our taxes are collected and calculated, just as it should be up to Canadians in Canada and French in France. International competition is just as important a factor for global growth and prosperity as is international cooperation. Unfortunately, it seems like the Biden administration has hyperfocused on cooperation over competition and, in the process, has hurt American economic prospects and primacy. Competition in tax policy has allowed the US to gain huge advantages globally with respect to innovation, technology, and dynamism; compared to much of Europe, we are vastly superior in those aspects of economic progress and prosperity. Giving that up in pursuit of international agreement for its own sake is irresponsible.

That the Biden administration is so gung-ho about this deal is a depressing ill-omen; Secretary Yellen has even agreed to an absurd tax on Big Tech companies which is meant only to harm American corporate competitiveness for the sake of European regulators. But the digital tax isn’t the only worry here for American companies – they will also have to navigate an infinitely complex web of international economic rules which would have to be applied to all countries agreeing to this plan. Agreement on tax rates is basically meaningless without agreement on how to calculate the base on which the tax will be assessed, which is a far more complicated and intricate process. The good news is that given the depth of coordination that would go into any deal of this nature, it would likely have to be ratified by the Senate as a treaty (an uphill battle). Still, the Iran nuclear deal (JCPOA) was also an international agreement that should have been put to the Senate for ratification, yet was not; this agreement – which the Biden team is desperate to rejoin, come what may – shows that the Executive branch under a recent Democratic President can delegate American sovereignty in an extra-Constitutional manner without Senate consultation. I would hope that such a clear breach of political ethics and process is not repeated by this current administration, but their previous track record leaves much to be desired.

One of the last key factors to understand is the stated rationale behind the proposed agreement. According to Secretary Yellen, the point of this agreement is to give the large, wealthy nations of the G7 a chance to transform their massive, purportedly-temporary stimulus spending sprees to manage the pandemic into permanent spending funds to deal with left-wing priorities like climate change and ‘systemic’ injustice. I personally disagree with these spending plans, but if we want to kneecap our own economy by tilting at windmills we should at least be honest enough to bear the cost ourselves. Instead, the Biden team proposes to cajole, coerce, and cudgel other, less powerful, non-G7 nations into following this plan set down from on high; smaller and (relatively) poorer nations with more competitive tax rates, like Ireland and Hungary, would be most harmed by this policy. Larger rival nations like China won’t be shanghaied into hurting their own economies just so American leftists can punitively tax multinational companies to pay for utopian socialist programs, but more vulnerable nations who seek our friendship might; we’ll be harming ourselves and our friends, while only benefiting authoritarian regimes like Russia and China, who will look competitive by comparison.

Ironically, those most fervently pushing this ridiculous plan are the farthest left in American politics, the same folks who often decry American foreign policy as thinly-veiled ‘imperialism’. But what is more indicative or representative of modern-day imperialism than this plan? It is certainly imperialistic for the governments of the richest democratic nations on Earth to try to force down economic policies on other nations that are meant to reduce their competitiveness in an effort to increase tax revenues in the G7. Just as with climate policy, the rich nations of the world are looking to pull the ladder out from under those developing or less wealthy nations who wish to traverse the same, well-trodden path to prosperity that the G7 themselves followed! Yet I hear nothing about this policy being described (appropriately, for once) in imperialistic terms from the usual suspects; one might get the impression that they’re fundamentally unserious people who only wish to denigrate the US in favor of our international foes. Unfortunately, it seems that seeking international agreement as an end in itself versus as a means to an end, denigrating the US, and pushing anti-competitive economic policies are currently in vogue. One can only hope that the new administration comes to its senses sometime soon, but that may be unduly optimistic. At least we can count on the Senate to refuse ratification of such an economically disastrous treaty – if the Constitution still is worth the paper it’s written on.

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