OPINION:
The vast majority of Americans disapprove of President Biden’s handling of the economy as prices continue to increase, wages are failing to keep up with inflation, and supply chain shortages persist.
Instead of pushing solutions to help American families and businesses, the administration continues to push for the adoption of a global corporate minimum tax with foreign countries and global bodies like the Organisation for Economic Co-operation and Development and the G7.
Not only does this agreement do nothing to help American taxpayers, workers or businesses, but there is little reason to believe foreign countries will keep to the agreement.
Take the case of NATO. In 2006, defense ministers from NATO member countries agreed to spend a minimum of 2% of their Gross Domestic Product on defense spending in order to ensure the alliance maintained military readiness.
By 2016, just five of 27 members had met this commitment — the U.S., Greece, Estonia, Poland and the U.K. By 2019, this had increased to nine members, yet some countries won’t reach this target for years. For instance, Germany has said they will not reach the goal until 2031.
If our allies can’t meet this commitment, there is little reason to expect them to keep to the global minimum tax agreement.
Allied countries also routinely disagree over trade access and barriers and take steps to protect domestic farmers and manufacturers. There is no reason to think the same dynamics would not occur regarding the global minimum tax and countries would not take steps that protect or provide an advantage to their workers and companies.
There is even less reason to think geopolitical rivals like China and Russia will keep to the agreement instead of pushing their own interests. Russia’s recent decision to deploy troops to the Ukraine border has shown it cares little about offending foreign countries in pursuit of its own interests. China has shown similar brazenness in its treatment of Hong Kong and in persecuting Uyghurs.
China has also shown it will aggressively utilize tax policy to gain an advantage. For instance, they recently enacted a 200% deduction for eligible research and development expenses and have a preferential 15% tax rate for high-tech enterprises. Chinese media even urged the Chinese Communist Party to respond by cutting taxes in order to attract more investment and bolster domestic manufacturing.
Not only is it foolish to believe the global minimum tax agreement will work, but it is not even clear that it is necessary.
The left justifies the global minimum tax agreement based on the premise that corporations exploit tax “loopholes” to pay zero income tax every year. However, this ignores the reason these companies are able to reduce their liability — through the use of legal tax deductions and credits, many of which were created on a bipartisan basis to promote investment, job creation and growth. In addition, these companies still pay taxes including payroll taxes for employees and state and local taxes.
For instance, corporations can deduct the cost of new equipment and investment, a policy known as full business expensing. Businesses can also deduct net operating losses and carry forward unused losses to future years.
There is nothing controversial about these tax provisions. Former Obama Economic Adviser Jason Furman has long supported full business expensing, and the policy was included in several Obama budgets (albeit as part of a net tax increase). Similarly, NOLs have repeatedly been expanded during periods of economic downturn including in 2008 and 2009 when Democrats had control of both chambers of Congress and the White House.
While U.S. lawmakers can’t stop foreign countries and the Biden administration from continuing to push the global minimum tax agreement, they can stop adoption of this deal in the U.S.
The U.S. would become compliant with the agreement by amending existing tax treaties and passing the “Build Back Better Act” to impose a 15% minimum tax. Under this plan, not only will businesses see higher taxes, but businesses will have to calculate this new tax on a country-by-country basis, rather than a worldwide basis. This change would create significant tax complexity and uncertainty for businesses operating overseas.
Lawmakers can and should reject this effort and ensure the U.S. does not surrender tax sovereignty to global organizations and foreign countries.
Not only does the agreement do nothing to help American businesses and workers — but it is doubtful that our allies or geopolitical rivals will keep to this agreement instead of pushing their own interests.
• Alex Hendrie is director of tax policy at Americans for Tax Reform.
Please read our comment policy before commenting.