Natasha Sarin, a Post contributing columnist, is an associate professor of law at Yale Law School. Kimberly Clausing is the Eric M. Zolt Chair of Tax Law and Policy at UCLA School of Law.
Republican lawmakers have favored corporate tax cuts for a long time, and that certainly hasn’t changed. But that’s not how they are attacking their latest tax-policy bête noire — the global minimum tax.
In recent months, members of the GOP have launched a vigorous rearguard battle against the groundbreaking international agreement, which is designed to keep large, profitable multinationals from escaping taxation. Just last week a group of 13 House Republicans told Treasury Secretary Janet L. Yellen that, in negotiating the deal, she had “abandoned [her] sworn duty to protect U.S. interests.”
We both worked at Treasury when the agreement was forged, and we believe strongly that it represents an important step forward. Now in the implementation phase around the world, the deal brings together more than 135 jurisdictions, representing about 95 percent of the world economy, to stem the damaging race-to-the-bottom competition that allows the world’s largest multinational companies to shift income offshore rather than pay their fair share at home. The key mechanism is a 15 percent minimum tax — hence the name — and the agreement should be applauded, not pilloried, as something that will help the U.S. government build a fair, balanced and competitive tax system.
But you’d never know that listening to Republicans, who are throwing everything but the kitchen sink at the idea. So let’s take on their arguments one by one.
Politically, this is one of the big ones, since it suggests a subversion of U.S. independence. Except the agreement expands possibilities for Congress, which will continue to be able to write the nation’s tax laws as it sees fit. Think of it this way: In the past, some lawmakers have cautioned that we can’t afford to tax mobile corporate income because that income can simply be shifted to countries that offer lower rates. But with a universal 15 percent minimum rate, Congress’s options widen, giving policymakers the freedom to choose rates that align with the nation’s fiscal priorities.
This argument holds that the global minimum tax deviates from the Constitution by allowing other countries to collect taxes that Congress has chosen not to collect. That sounds deeply problematic. Luckily, it is false.
Here’s what the deal actually does: Say France implements the minimum tax, but a U.S. multinational with a French subsidiary retains the ability to move income from France to a low- or no-tax jurisdiction to avoid it. France could then impose a tax topping up the effective rate to 15 percent to help combat profit-shifting out of the French tax base.
Importantly, this is not a change: France was before, and remains now, free to tax companies that operate in France however it wants. The Constitution has nothing to do with it.
No, it does the opposite. Before the agreement, U.S. businesses complained that competitors in low- and no-tax jurisdictions got a better deal. After the deal is implemented, tax advantages abroad will be far smaller. By raising the “bottom” from zero to 15 percent, and in a way that affects companies regardless of the location of their headquarters, the agreement is a giant step toward a more level playing field, so U.S. businesses don’t end up at a competitive disadvantage. It also will reduce the competitive disadvantage faced by domestic U.S. businesses that don’t have the luxury of profit-shifting to lower their tax bills.
This one is particularly silly. While many contend that low corporate taxation leads to significant investment and economic growth that redounds to workers, the recent experience of the Trump tax cuts suggests that is simply not the case. And, of late, U.S. multinationals pay effective tax rates on their profits of about 8 percent — lower than that of many middle-class families. A global minimum tax will help the U.S. government create a more balanced system that taxes the most profitable companies in the world at rates that are closer to what middle-class families pay. This means workers will shoulder less of the tax burden themselves. Corporate tax revenue can also be used to reduce deficits or fund urgent fiscal priorities.
Republican lawmakers have argued that the federal government will lose revenue once foreign governments are emboldened to tax U.S. companies. But, as one of us (Kimberly) has recently discussed, U.S. adoption of the agreement would increase federal tax revenue, regardless of what other countries do. Importantly, the global agreement makes the corporate tax base less porous by reducing profit-shifting to low-tax havens. That’s by design: The whole point of the agreement was to ensure that countries that want to use the corporate tax to generate revenue can do so. Indeed, the Biden administration has proposed hundreds of billions in new corporate tax revenue from international tax reform.
So, what does it mean that none of the public arguments against the global minimum tax hold water? Perhaps the real reason Republicans oppose the deal isn’t fit for public consumption.
It would be helpful, then, if critics of the agreement would just fess up rather than hurling one misleading argument after another. Opposition to the global minimum tax is about helping companies get to the lowest tax rate possible, even if that comes at the expense of the federal budget, other taxpayers, and the ability of governments worldwide to build fair and efficient tax systems.
5 bad arguments against the global minimum tax
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07.08.2023
Natasha Sarin, a Post contributing columnist, is an associate professor of law at Yale Law School. Kimberly Clausing is the Eric M. Zolt Chair of Tax Law and Policy at UCLA School of Law.
Republican lawmakers have favored corporate tax cuts for a long time, and that certainly hasn’t changed. But that’s not how they are attacking their latest tax-policy bête noire — the global minimum tax.
In recent months, members of the GOP have launched a vigorous rearguard battle against the groundbreaking international agreement, which is designed to keep large, profitable multinationals from escaping taxation. Just last week a group of 13 House Republicans told Treasury Secretary Janet L. Yellen that, in negotiating the deal, she had “abandoned [her] sworn duty to protect U.S. interests.”
We both worked at Treasury when the agreement was forged, and we believe strongly that it represents an important step forward. Now in the implementation phase around the world, the deal brings together more than 135 jurisdictions, representing about 95 percent of the world economy, to stem the damaging race-to-the-bottom competition that allows the world’s largest multinational companies to shift income offshore rather than pay their fair share at home. The key mechanism is a 15 percent minimum tax — hence the name — and the agreement should be applauded, not pilloried, as something that will........
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