Opinion: Don’t bend to calls for a global tax cartel
No matter the problem du jour, the answer is always more government spending. But more spending requires more tax revenue, which is not always easy to acquire in the modern global economy.
In 2017, the Trump administration improved the corporate tax system by lowering the top corporate income tax rate from 35% to 21%. At the same time, the worldwide tax system, under which income is taxed by a firm’s home country no matter where it is earned, was replaced by a territorial tax regime. In this system, income is taxed only in the country where it is earned. For example, an American company earning income in France is taxed only in France, not in the U.S.
It’s worth noting that in 2017, the United States also adopted a minimum tax called Global Intangible Low-Taxed Income, or “GILTI,” for companies that earned a high rate of return yet also paid low taxes overseas. It wasn’t a good idea, but it had more merit than what Treasury Secretary Janet Yellen now has in mind — namely, to impose a minimum tax based on a company’s worldwide average tax rate instead of on a country-by-country basis.
Under this cartel of countries, with foreign governments committed to refusing to compete for capital by cutting tax rates, the incentives for U.S. companies to avoid high U.S. taxes are seriously reduced. So are the incentives for governments to keep their own tax systems modest.
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