All aboard the global minimum tax charade

Some ideas are so bad it is hard to believe that any government leader would endorse them — let alone leaders from 130 countries.

The latest really bad idea is for a global minimum corporate tax rate. It will take away much of the right of people in sovereign countries to decide on their own tax structure and rates.

Government spending and taxing as a percentage of national income is already much higher in most countries than that which would maximize job growth and national income, and a global minimum corporate rate will only make matters worse. Corporate income taxes are one of the most destructive forms of taxation, in that they fall on productive inputs of capital and labor rather than consumption, as less harmful taxes do.

Global minimum tax rates destroy tax competition that helps check the irresponsibility of governments and bully small jurisdictions into adopting tax policies that are not in their citizens’ interest.

Unlike the average citizen, the leaders of multinational companies are well-aware that the “corporation” does not actually pay the tax; it is only a tax collector while the real tax is mostly paid by their workers in the form of lower wages. The illusion that there is a form of business called a “corporation” that can be taxed without hurting individuals is something politicians and their media allies endlessly foster.

If the members of the media were more competent, less corrupt, and more responsible, they would undertake to educate their readers and listeners about the true incidence of the corporate income tax rather than feeding the illusion.

This past weekend, Americans celebrated their independence from Britain. A primary grievance leading to the Revolution was that taxes were imposed on the Colonists without their consent. What would the ancestors of the tens of millions of Americans who risked everything to fight British tax tyranny think of their timid descendants — who are willing to kneel and grovel to a global bureaucratic tax cartel?

A number of small countries do not have corporate taxes or, if they do, they are at a very low rate. The high-tax-rate countries shout “unfair tax competition” because multinational corporations set up legal homes in these low-tax jurisdictions. For a small country without natural resources and limited tourist potential, becoming a tax efficient jurisdiction is a way of attracting financial businesses and corporate offices that will employ its citizens at good wages.

Large, high-tax countries like France, and now the U.S., have no morality when they implicitly argue it is just fine to crush the ability of poor people — in the Caribbean and elsewhere — to have good-paying jobs. Unlike much of what is called racist these days, rich, white-run countries crushing the economies of poorer black-majority countries really is racist, and yet many of the race activists are silent. Hmmm.

In the United States, there are a number of states that do not have income taxes — such as Florida, Texas, South Dakota, Washington, etc. High-tax states such as New York, California, New Jersey and Illinois have politicians who say this is “unfair,” because their citizens vote with their feet and move their wealth and bodies to low-tax places.

The New York state government spends about twice as much per capita as does the Florida government. Yet, NY Governor Cuomo whines that he does not have enough tax revenue, while Florida Governor DeSantis runs a sound fiscal ship with high level services for state citizens and is not begging for higher taxes. The evidence is that many high-tax states and high-tax countries waste much of the tax money through mismanagement and/or corruption.

The 130 countries have in theory agreed on a minimum 15% corporate rate, but the rate is only part of the equation. The definition of what is income is all important, which gets into arcane but very important issues such as depreciation rates, R&D tax credits, various subsidies and so forth. It is claimed that China and Russia have agreed to join the tax cartel. What are the chances that they and many other countries will actually play by the rules and not cheat? And what are the chances that France or the next Democrat administration in the U.S. does not soon demand a higher minimum rate?

In most countries, including the U.S., it is illegal for businesses to collude on prices — because price collusion results in less innovation, poorer services, and higher consumer prices. A tax is a price of government services, and tax monopolies are as damaging as business monopolies or collusive oligopolies. So why is abuse of power good when government does it and bad when businesses do it? Of course, in practice government abuses can be far worse.

Establishing global or domestic minimum corporate or individual tax rates is all about more power for the political and bureaucratic elite. Ultimately it will provide more fodder for corrupt and incompetent politicians and governments at the expense “of the people” — who will suffer from fewer job opportunities, lower wages, and less liberty.

• Richard W. Rahn is chairman of the Institute for Global Economic Growth and MCon LLC.

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