U.S. Treasury Secretary Janet Yellen speaks during a news conference after attending the G7 finance ministers meeting at Winfield House in London, England, June 5, 2021. (Justin Tallis/Pool via Reuters)
Janet Yellen celebrated a recent G7 tax agreement as a win for “the middle class and working people in the U.S.” In reality, the scheme to establish a minimum global corporate-tax rate would transfer revenues from the U.S. treasury to foreign governments while putting American businesses at a disadvantage in international markets.
At the heart of the current drive for a global tax system is the fact that President Biden is pushing $4 trillion worth of spending plans at a time of record debt. Because suburbanites are now a core part of the Democratic coalition, there could be severe political ramifications to forcing the upper middle class to pay for too much of his agenda. The lowest-hanging fruit from a revenue and political standpoint is to hike corporate taxes. But Yellen recognizes that, under the current system, raising corporate-tax rates risks making the U.S. uncompetitive. Thus, she’s determined to create some sort of global corporate-tax system to reduce the incentive for multinational companies to seek out lower-tax jurisdictions.
Unable to foster innovation domestically, Western European governments have spent the past two years devising “digital services taxes” (DSTs) on foreign technology firms. A report from the Trump administration’s U.S. Trade Representative found that such taxes discriminated against U.S. companies and contravened prevailing tax principles. By targeting only the largest multinational tech firms (i.e., American companies), France, the U.K., and others were attempting to protect domestic laggards from American competition.
OECD discussions on international taxes, which set the stage for this weekend’s G7 summit, began under the Trump administration with the goal of replacing DSTs with a more efficient tax regime.
The deal championed by Yellen, however, does just the opposite. The “equitable solution on the allocation of taxing rights” gives member nations the right to tax the largest and most profitable multinational enterprises irrespective of whether those corporations have physical presences in their countries. Unsurprisingly, American businesses
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