In October of 2021, leaders from 136 countries, including the United States, signed onto an Organisation for Economic Co-operation and Development statement to endorse a global minimum corporate tax rate of 15%. Rather than achieving its intended goals of leveling the economic playing field and forcing multinational corporations to fulfill their taxation responsibilities, implementing a global corporate tax rate would be equivalent to handing the keys to the global economy to America’s adversaries in China while simultaneously handicapping American corporations, stifling the American economy in the process.
Supporters of a global corporate tax incorrectly choose to position their policy as the solution to pleasing both sides of the economic spectrum. This, supposedly, provides a balance that forces multinational corporations to pay their “fair share” while preventing industry from fleeing to the countries that have lower corporate tax rates. An inescapable drawback of any rate of corporate taxes imposed by a single country is the incentivization of holding profits overseas in tax havens, countries such as the Bahamas without a corporate tax rate. According to Americans for Tax Fairness, the United States has particularly fallen victim to multinational corporations’ workarounds: U.S. corporations hold $2.1 trillion in profits offshore with every cent untaxed by the American government. In response, imposing uniform corporate tax rates through an international treaty upon these tax havens seems like a viable solution for the United States to recoup taxes and re-invest in our economy.
However, Biden’s misguided tenacity will only embolden our adversaries and swing open opportunities for China to pull ahead. Of course China has come out in support of a global corporate tax—China arguably stands to gain considerably from the enforcing of a global corporate tax given how much profit Chinese tech companies have sunk in tax havens. He Weiwen, a former senior trade official and an executive council member of the China Society for World Trade Organization Studies, predicted a global corporate tax rate will return the Chinese government control over Chinese tech giants to prevent them from avoiding taxes.
But this scenario can be categorized as the best possible case. Naturally, for a global corporate tax rate to succeed, complete global collaboration is a prerequisite, including tax havens that reap the majority of the benefits under the current taxation system. But under a global corporate tax rate, opting out of the agreement and lowering corporate tax rates is all a country has to do to become an industrial powerhouse. Industry is attracted to low corporate tax rates, exemplified by American heavyweights Pfizer, Alphabet, and Johnson and Johnson setting up shop in the low-taxing nation of Ireland. To expect China, a nation willing to violate international law in the South China Sea and in their ongoing genocide of the Uyghur people, to abide by a global coprorate tax rate is hopeful at best and delusional at worst.
Though the rest of the world sets the mark at a minimum of a 15% tax rate, President Biden intends to further the tax burden upon American corporations by increasing domestic corporate tax rates up to 26.5%, thereby defeating the purpose of retaining industry from nations with friendlier tax rates and smothering American industry. Biden may pretend higher corporate taxes, whether global or domestic, provide instant boosts to the economy through government reinvestment. However, corporate taxes of any rate fan economic downturn that inevitably comes crashing down on the working class. Economist Erica York and federal analyst Alex Muresianu of the Tax Foundation estimated the “long-term impact of a 28 percent corporate income tax rate [Biden’s original proposal] would be a 0.7 percent reduction in GDP, amounting to about $160 billion (in today’s dollars) of lost output each year.” Since the government takes a greater share of corporations’ profit, corporate investment decreases. Once corporate investment decreases, the price of capital increases and long-term growth plummets. While progressives cheer on corporations paying their “fair share,” the slowed growth is invariably shifted upon wages, as workers would see their after-tax income fall by between 1.4 to 2.0 percent over the next ten years, according to the same estimates.
At the same time that America snuffs out its own economy with high corporate taxation and squeezes tax havens shut to our adversaries’ benefit, a global corporate tax allows China to swoop in and take the reins of the global economy once and for all. Though a global corporate tax may claim to finally tilt corporate power in the favor of the working class, the United States is sleepwalking into forfeiting our economic prowess over the rest of the world, a mistake our enemies won’t let us forget.