But imposing a global minimum tax on the world’s corporations would significantly curb countries’ autonomy in using tax policy to stimulate investment, while also setting a ceiling for global productivity and the speed at which we can recover from today’s pandemic-driven downturn.
As talks between policymakers and governments at the Organisation for Economic Cooperation and Development (OECD) — where over 130 countries are negotiating changes to international tax rules — continue, leaders must ask whether this is an appropriate response to a world trying to restart its engine.
Supporters of a new global minimum tax point out that it’s a way to level the playing field, but it’s an excuse for the countries at the OECD to pick who wins and who loses new business as the world rebuilds. Imagine if the big tech companies decided to level the playing field with “minimum prices” that froze out lower-priced competition. Consumers would be the losers because companies would no longer be able to compete to produce good products cheaply, just as taxpayers would be the losers if governments set a global minimum tax. Competition is good in business and in tax policy.
If one goal of the current OECD negotiations and Secretary Yellen is to raise new revenues to help address the global pandemic, a policy that redistributes revenues from one country to another and relies on increasing the tax burden on investment does not seem to fit the task.
Not to mention, the United States already has its own version of a minimum tax. The Global Intangible Low Tax Income (GILTI), enacted as part of the 2017 tax cuts, operates as a minimum tax on profits of US multinationals. Expanding that policy on a global scale will only burden the very businesses that stand to help the United States and the rest of the world rebuild.
These policies designed to enforce tax collection are burdensome and complex, throwing sand in the gears of cross-border investment by making it more expensive for businesses to expand and run global operations because they would face higher taxes. As talks at the OECD continue, leaders must ask whether this is an appropriate response to a world trying to restart its engine.
Last year tested the world’s mettle and proved its resilience. But it also revealed fragilities within our economies. If countries want to promote competitiveness, we should do everything we can to encourage that, so we can all rebuild more quickly. The desire of leaders like Yellen and others across the world to set a new global minimum tax runs the risk of starting a different and much more harmful “race to the bottom” — slower economic growth.