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The G-7’s Tax Cartel Is Bad News

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09.06.2021

Back during the tax-reform debate of 2017, I warned that while moving to a territorial tax system and lowering the corporate-income-tax rate was great, adopting a global minimum tax was dangerous.

On one hand, I noted, the move to a territorial system from a worldwide tax system for corporate taxes would mean a better and more competitive tax system. Under a territorial system, the U.S. government doesn’t tax foreign-earned income (only the foreign government in which the income is earned does). However, when you add a global minimum tax of 15 percent, as the legislators were talking about doing back then, it overrides the soundness of the territorial regime and tax competition since any profit earned in a country with a lower rate would be taxed at a rate up to the 15-percent level. That’s a form of tax harmonization in which U.S. companies with foreign subsidiaries and income would have to pay at least 15 percent no matter where they do business.

The other risk I warned about was that once you put such a system in place, it is only a matter of time before revenue-hungry legislators (we have a lot of them in this country) will demand a higher rate than 15 percent. There is also a risk that they demand that the system be extended to individual taxes. (The U.S. is actually awful on that already since we........

© National Review


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