Nations Will Not Surrender Sovereignty for Global Minimum Tax Rate: Economists

Economists are sceptical of the Biden administration’s push for a global minimum tax rate for corporations, saying not only will it “frustrate” the free market, but it will see very little support from foreign governments.

“At the end of the day, any international agreement is essentially toothless due to the existence of national sovereignty,” Gigi Foster, professor of economics at the University of New South Wales (NSW) told The Epoch Times.

“The incentive for individual countries to offer appealing tax treatment will remain, no matter how strong the international pressure on a country to conform to some nominated standard,” she added.

Foster said practical policies mostly originate from individual countries, not via coordinated efforts.

“We have already seen in other areas, in everything from climate policy to criminal justice, how coordinated effort across multiple countries is simply not a workable approach for achieving significant change,” she said.

Foster said the only alternative where she could see a global minimum tax rate succeed was for a supranational body to wield unilateral power over different nations, akin to a “world empire,” and setting a global tax rate.

However, this would be a “true dystopian nightmare.”

On Monday, U.S. Treasury Secretary Janet Yellen told the Chicago Council on Global Affairs that the Biden administration would throw its support behind a global minimum tax rate.

The announcement came following revelations U.S. President Joe Biden’s $2.3 trillion infrastructure plan will be propped up by an increase in the U.S. corporate tax rate from 21 percent to 28 percent.

President Joe Biden speaks about jobs and the economy as Vice President Kamala Harris listens, at the White House in Washington on April 7, 2021. (Alex Wong/Getty Images)

To disincentivise U.S. companies from relocating overseas, the administration is pushing for nations to adopt a standardised rate, and prevent them from domiciling in tax havens or low-tax jurisdictions.

Since 2013, the Organisation for Economic Cooperation and Development (OECD) and G20 nations have been working on the Base Erosion and Profit Shifting (BEPS) project, with one of its pillars being to agree to a global tax rate.

The United States has historically resisted unconditionally endorsing BEPS, but the Biden administration’s position signals a major shift.

“It is about making sure that governments have stable tax systems that raise sufficient revenue to invest in essential public goods and respond to crises, and that all citizens fairly share the burden of financing [the] government,” Yellen told attendees.

“We are working with G20 nations to agree to a global minimum corporate tax rate that can stop the race to the bottom,” she added.

The Washington D.C.-based Tax Foundation disputes the “race to the bottom” claim, saying tax rates across the world have plateaued for over a decade.

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Hundred dollar bills are are counted out by a banker counting currency at a bank in Westminster, Col., on Nov. 3, 2009. (Rick Wilking/Reuters)

“When the United States cut the federal statutory corporate rate from 35 percent to 21 percent in 2017, it was not leading a race to the bottom but moving to the average,” it said in a report.

Universal Tax Rate Threatens Competition and Developing Nations

Robert Carling, the former executive director of the New South Wales Treasury warned that Yellen’s proposal would be disruptive to the free market, especially since tax breaks can often be the only tool for some governments to attract investment into their countries.

“I think it’s an attempt to frustrate tax competition. Tax competition between countries is always good, and a productive thing. And this would frustrate it. There’s no other way of looking at it,” he told The Epoch Times.

Sharif Mahmud Khalid, assistant professor in accounting from the University of Sheffield, warned that developing nations would suffer the most.

“In a world where there are huge disparities in the income levels of different countries, a minimum global corporation tax rate could crowd out those who are not especially attractive but for the fact that they can offer lower rates,” he wrote in The Conversation.

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A woman walking in the Gypsy Hill quarter in the town of Soroca, some 155 km north of Chisinau, Moldova on October 31, 2020. (Sergei Gapon/AFP via Getty Images)

In contrast, low-tax jurisdictions already attracting significant investment, like Singapore or the Republic of Ireland, may be just as reluctant to support the proposal.

“Why would they increase taxes for the sake of this global minimum tax?” Cian Hussey, a research fellow at the Institute of Public Affairs, told The Epoch Times.

Hussey also said tax policy should be the domain of national governments and citizens, not a supranational body.

“This is just the latest example of unelected, unaccountable bureaucrats trying to undermine national sovereignty in the nation state,” he said.

Australian Treasurer Josh Frydenberg, once a colleague of the OECD’s newly appointed Secretary-General Mathias Cormann, welcomed discussion on the issue.

“Australia welcomes the United States’ commitment to continue to engage in the OECD-led discussions seeking to agree to a globally consistent approach to the tax challenges posed by the digitalisation of the economy,” he told The Epoch Times in an email.

Josh Frydenberg Mathias Cormann Budget
Australian Treasurer Josh Frydenberg (L) and Finance Minister Mathias Cormann (R) announce the Federal Budget in Canberra, Australia, on April 2, 2019. (Tracey Nearmy/Getty Images)

“Australia will remain an active and constructive participant in these discussions as we have done so throughout,” he added.

European Leaders Pleased By US Move

Finance ministers from Europe’s largest economies, Germany and France, have already strongly backed the proposal for a global minimum tax rate with French Finance Minister Bruno Le Maire saying he was “delighted” by the announcement.

“An agreement on international taxation is now within reach,” he told AFP. “We must seize this historic opportunity.”

German Finance Minister Olaf Scholz also hailed the proposal saying he was in “high spirits.”

Their response could be partly motivated by the Republic of Ireland’s historically low tax rate of 12.5 percent which has attracted over 700 U.S. companies to its shores.

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Drones create the ‘Orchestra of Light’ St Patrick’s Day lights display above the Samuel Beckett Bridge, over the River Liffey in the centre of Dublin, on March 7, 2021. – (Paul Faith/AFP via Getty Images)

“They (the European Union) have not succeeded in forcing Ireland to increase that rate, and it’s always been a bone of contention,” Carling said.

Even if a global tax rate was established, there could instead, be an increase of tax loopholes and opaque tax policy.

“A country could just establish a domestic policy of subsidising certain industries to attract them there,” Hussey added.

“I think this is a short-sighted and a poorly thought-out move,” he said. “It’s another example of bureaucrats trying to design the world that they would like to see, without thinking through how those in the business world actually make decisions about investments.”

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With Push by US, Talks on Global Minimum Tax Gain Momentum

WASHINGTON—Treasury Secretary Janet Yellen is urging other countries to support a global minimum tax rate for corporations, which is crucial for funding President Joe Biden’s infrastructure proposal, called the American Jobs Plan.

The Biden administration proposes substantial tax increases on U.S. corporations to pay for the $2.3 trillion plan aimed at boosting investment in infrastructure, clean energy, manufacturing, housing, and other programs.

Amid concerns that a higher corporate tax rate would hurt the country’s market competitiveness, Yellen announced on April 5 that the United States is working with the Group of 20 (G-20) countries to adopt a minimum global corporate income tax.

Biden’s eight-year infrastructure plan is to be fully paid for by tax increases on companies spread over 15 years. His proposal is to boost the federal corporate tax rate to 28 percent from 21 percent.

Yellen said if an agreement among G-20 economies is reached on the minimum corporate tax, it would end “a 30-year race to the bottom.”

“Together, we can use a global minimum tax to make sure the global economy thrives based on a more level playing field in the taxation of multinational corporations, and spurs innovation, growth, and prosperity,” she said.

Both France and Germany, which have relatively high corporate tax rates in the OECD welcomed the Biden administration’s proposal.

“We are delighted by the U.S. support for a minimum corporate tax,” French Finance Minister Bruno Le Maire told AFP.

“An agreement on international taxation is now within reach,” he noted. “We must seize this historic opportunity.”

The average statutory corporate tax rate among Organization for Economic Co-operation and Development (OECD) countries had fallen to 23.3 percent in 2020 from 32.2 percent in 2000, according to a report by the Treasury Department.

The report, which outlines Biden’s “Made in America tax plan” stated that the declines have resulted from a “collective action problem.” Fierce competition among countries to attract investments has fueled this “race to the bottom,” according to the report, and a better coordination across the globe will prevent companies from relocating to countries with lower taxes.

German Finance Minister Olaf Scholz also hailed Yellen’s proposal.

“I’m in high spirits that with this corporate taxation initiative, we’ll manage to put an end to the worldwide race to the bottom in taxation,” Scholz said, according to Reuters.

However, Ireland, which has one of the lowest corporate tax rates in the OECD (12.5 percent), voiced concerns about a global minimum tax. The country has chosen a low tax model to attract foreign investment.

Increasing the corporate tax rate to 28 percent would raise the U.S. federal-state combined tax rate to 32.34 percent, according to the Tax Foundation, a conservative-leaning group. This change will make the U.S. corporate tax rate the highest in the OECD, reducing U.S. competitiveness. The average corporate tax rate among the OECD countries, excluding the United States, is 23.4 percent.

“Contrary to the proposal’s claims about a ‘race to the bottom’ on corporate tax rates, reductions in corporate rates have plateaued for more than a decade,” Tax Foundation said in a report.

“When the U.S. cut the federal statutory corporate rate from 35 percent to 21 percent in 2017, it was not leading a race to the bottom but moving to the average.”

During this week’s virtual spring meeting of the International Monetary Fund (IMF) and the World Bank, IMF Managing Director Kristalina Georgieva also called for “progressive taxation” and an agreement on “minimum taxation for companies.”

The IMF has long supported a global minimum tax, according to IMF’s top economist Gita Gopinath.

“It is a big concern that we have a large amount of tax shifting, tax avoidance, countries sending money to tax havens, and that’s reducing the tax base from which governments can collect revenues and do the necessary social and economic spending that’s required,” Gopinath told reporters. “So we are very much in favor of a global minimum corporate tax.”

OECD officials earlier floated a minimum corporate rate of 12.5 percent. Yellen, however, proposed agreeing to a minimum tax rate of 21 percent.

World Bank President David Malpass warned governments against setting a minimum tax rate that is too high.

“The critical thing is to have growth for countries around the world,” Malpass told BBC.

Yellen’s proposal of a 21 percent global minimum tax “strikes me as a high corporate rate,” he said.

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Ben Roback: Biden can continue to expand the state – now that Republicans are too distracted by the culture wars

Ben Roback is Head of Trade and International Policy at Cicero Group.

Joe Biden is free to grow the size of the state because no one is there to oppose him

Still within the first 100 days of his presidency, Joe Biden continues to call on the power of the federal government to dig America out of a Covid-shaped hole.

The size of the state is set to grow even further as Biden shapes the future of his presidency. He wants to use a major infrastructure package to fire up the economic recovery, and being able to pass it without any Republican support in the Senate means that the GOP has effectively abandoned the playing field in order to focus instead on culture wars.

Senior Republicans like Sen. Mitch McConnell appear much more focussed on telling big corporates to stay out of politics. Biden is free to grow the size of the state because there is no one left to oppose him.

An FDR-size presidency?

Recovering from a major “moment” like a pandemic or war presents governments with a rare chance to go big in policy terms. Voters are desperate for intervention and change.

History points to Franklin Roosevelt and Lyndon Johnson as worthy examples. Both men inherited a huge political and economic crises, and both have tried to solve them with big money and big government. Roosevelt’s “New Deal” was based on the principle that the power of the federal government was needed to get the country out of the depression.

Fast forward to 2021, Biden’s “American Jobs Plan” is a $2.3 trillion infrastructure package with investments directed towards roads, schools, broadband and clean energy. Like Roosevelt’s political philosophy and vision, it is based on the idea that when Americans fall down through no fault of their own, the state can help them get back on their feet.

That economic agenda received a significant boost when the Senate Parliamentarian ruled that Democrats could enact another resolution package this year. Put simply, this means that additional bills can be passed this year without any Republican support.

With the Senate split 50-50 and Vice President Kamala Harris making the tie-breaking vote, legislation would have been doomed to failure had it required the 60 votes typically needed. Republicans instead have the green light to oppose the president’s agenda without any consequence whatsoever.

That gifts Biden something of a free hand in a significant deployment of the power of the state. He campaigned citing infrastructure as something that all sides in Washington could agree on. A chance to put a bipartisan presidency into action.

For a country that is home to Wall Street on one coast and Silicon Valley on the other, far too many American roads, bridges and airports in between are crumbling. America gets a C- in its 2021 infrastructure report.

Janet Yellen, the Federal Reserve Chair, wants an increase in corporation tax (21 per cent to 28 per cent) to help pick up the tab. The legislation will only pass if Biden can keep his party united, and once again the main opposition will come internally within the Democratic caucus in the Senate.

Republicans want a more focussed and cheaper plan that focuses on roads and bridges, but the consequence of the Senate Parliamentarian’s ruling means that the real opposition will come from Democrats in competitive states like Sen. Joe Manchin who want less big Government, not more.

Neither fish nor fowl, but it will taste awfully good

After the financial crisis and at the outset of the Obama presidency, the White House sought similarly to expand the role of the state. Republicans opposed the 2009 rescue package on the grounds that it was a significant government overreach that swelled the national debt to irresponsible levels.

The White House slowly limped along, enacting a slimmed down stimulus package amid fears of inflation and the political risk of growing the debt too much. Two years later, they were punished by heavy defeats in the midterm elections.

Biden, a first-hand witness to those decisions in 2008-09, wants to act quickly and boldly while his party has unified control of Congress, knowing full well that could change next year.

In an electoral system peppered with elections as frequently as in the United States, good politics often trumps good policy. Biden, with one eye on the first set of midterms in which the governing party is historically punished, understands that he and his party will be judged on their handling of the pandemic and the immediate steps to recovery. In that context, he is seeking to use the full force of the state to deliver for voters who care more about results than how they were achieved.

In 1933, Roosevelt signed the Tennessee Valley Authority into law. Controversial at the time, Roosevelt said: “I’ll tell them it’s neither fish nor fowl, but whatever it is it will taste awfully good to the people of the Tennessee Valley.”

Biden campaigned with promises to control the pandemic and end decades of hyper-partisan gridlock in Washington. If he can deliver the former and turbocharge the economic recovery, will Americans really care about how he did it? Or that he abandoned the latter?

Once a dominant force in the Republican Party, the freedom caucus, and conservatives whose raison d’être was small government, are now a fading force. Instead, the GOP is abandoning domestic politics writ large in order to fight culture wars in the press and on Capitol Hill.

It is much more Donald Trump than Paul Ryan. In that respect, Biden’s calculation that he can grow the size of the state could be a shrewd one – if nothing because there are no Republicans left to oppose him.

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Yellen’s Proposal to Revolutionize Corporate Taxation

Yellen's Proposal to Revolutionize Corporate Taxation

(AP Foto/Jacquelyn Martin, File)

President Biden is proposing a substantial increase in the rate of corporate taxation as part of his infrastructure plan, bumping the headline rate up from 21 percent to 28 percent. This is actually below where it was before 2017, when the headline rate was 35 percent, but given the number of loopholes in the tax code, very few corporations actually paid full whack back then. If Biden’s idea is passed, the effective rate of U.S. corporate tax will depend on what happens with those loopholes in Congress, which is not yet clear.

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Biden admin to call for worldwide tax hike so that US businesses don’t leave country following its corporate tax increase

Treasury Secretary Janet Yellen will reportedly call for a global minimum corporate tax rate to prevent U.S. companies from relocating offshore in response to the Biden administration’s forthcoming tax hikes, Axios reported on Monday.

The news outlet made clear that “by trying to convince other countries to impose a global minimum tax, Yellen is acknowledging the risks to the American economy if it acts alone in raising corporate rates.”

The administration has proposed initiating the largest tax hike in almost 30 years to pay for President Biden’s more than $2 trillion American Jobs Act — a bill slated to fund America’s “infrastructure” but that also finances major policy progressive policy initiatives such as climate research, green energy, and free education in addition to highways, bridges, and roads.

The tax changes include raising the country’s corporate tax rate from 21% to 28%, a move that conservatives and moderate congressional Democrats have argued could be devastating for the American middle class.

In a speech to the Chicago Council on Global Affairs on Monday, Yellen is expected to push for all other industrialized nations to raise their corporate tax rates to a minimum standard, as well, to ensure economic “competitiveness” worldwide. However, she will reportedly argue that the tax rate minimum is for the main purpose of ensuring those foreign countries have enough revenue to maintain their own governments.

“Competitiveness is about more than how U.S.-headquartered companies fare against other companies in global merger and acquisition bids,” the secretary plans to say, according to an excerpt of her prepared remarks obtained by Axios. “It is about making sure that governments have stable tax systems that raise sufficient revenue to invest in essential public goods and respond to crises, and that all citizens fairly share the burden of financing government.”

“We are working with G20 nations to agree to a global minimum corporate tax rate that can stop the race to the bottom,” she will state.

During Donald Trump’s presidency, the business-minded Republican slashed the U.S. rate from 35% — a global high — to 21%, arguing the previous rate put American companies at a global disadvantage and resulted in many of them moving their businesses abroad.

According to the Tax Foundation, a conservative tax group, the worldwide average corporate tax rate is just under 24%.

Axios reported that Biden has tasked Yellen with convincing the business community that the massive infrastructure proposal and subsequent tax increases won’t lead to inflation, a tall order by all accounts. Apparently, in the face of pressure, Yellen will look for significant international assistance.

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