The Treasury Department recently announced that the negotiated delay to the imposition by foreign nations of the global corporate minimum tax in 2021 the US and 140 other countries signed on to an agreement under the Organisation for Economic Cooperation and Development (OECD). That would implement a 15% minimum global corporate income tax in all partner nations. The deal had been cited by proponents such as our own President Joe Biden, and Treasury Secretary Janet Yellen, as an attempt to curb international corporate tax avoidance.
However, the OECD global minimum tax agreement has several major negative policy implications that are being outright ignored in this discussion, including a decrease in economic competitiveness and tax competition, let alone the circumvention of the separation of powers laid out by the United States Constitution. Much of the argument for the global payment of tax is based on the premise that businesses need to pay their fair share. But proponents are forgetting the most important lesson when it comes to business taxes. Businesses don’t pay taxes, people pay taxes.
Beyond the major consequences for the United States, the ramifications of this global minimum tax deal could be disastrous for all countries that use pro-growth tax policy to expand their economies. competitive tax rates encourage nations to craft smart policies. We’re also losing out on the job creation and economic opportunity. The world can learn a lot about economic competitiveness by examining the dynamic of the 50 states in our system of competitive federalism where the states establish their own tax rates and fiscal policy means that state leaders can determine what’s best for their state economies.