by Thomas Lifson
A recipe for global economic stagnation.
The Biden administration wants to increase the corporate income tax rate by a third, from 21% to 28%, a move that would lower business investment and therefore economic growth. It would also reignite a new wave of so-called corporate inversions, the process by which companies relocate their home to an overseas location in order to enjoy lower corporate taxation. For example, Medtronic, a giant medical electronics company, moved its headquarters and corporate domicile from Minneapolis (where it was founded) to Ireland in 2015, costing jobs and tax revenue for Minnesota and the United States.
Janet Yellen, the secretary of the Treasury, wants to put a stop to this — not by keeping taxes in the United States competitive, but by convincing other countries to form a cartel enforcing a (high) minimum corporate income tax. Hans Nichols of Axios reports:
Janet Yellen will use her first major address as Treasury secretary to argue for a global minimum corporate tax rate, Axios has learned, as she makes the case for President Biden's plan to raise U.S. corporate taxes to fund his $2 trillion+ infrastructure plan.
Why it matters: Convincing other countries to impose a global minimum tax would reduce the likelihood of companies relocating offshore, as Biden seeks to increase the corporate rate from 21% to 28%.
- "Competitiveness is about more than how U.S.-headquartered companies fare against other companies in global merger and acquisition bids," Yellen will say today in a speech to the Chicago Council on Global Affairs, 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."
Corporate income taxes are among the stupidest possible ways for governments to raise money. It sounds like forcing the rich "to pay their fair share," but all it does is discourage business investment, which is calculated on the basis of expected after-tax profits that could be realized from a prospective investment. Lower the expected after-tax profits, and you lower the number of investments that pass the threshold. That means fewer jobs, lower wages, and lower economic growth. If you want to tax the rich, then tax them when the profits reach actual human beings. Corporations are legal abstractions.
Yellen's tax cartel is recipe for global stagnation. I wonder what kind of pressure will be brought to bear in Ireland, whose 12.5% corporate income tax rate has attracted a huge amount of foreign investment on the Emerald Isle. Would Ireland willingly kill that golden goose?
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