Treasury Secretary Janet Yellen and her political allies are constantly working to get the Railroad Congress to agree to a global tax agreement and their latest argument is that it will be good for competitiveness. United States paintings. If only that were true.
At issue was an agreement last year at the Organization for Economic Cooperation and Development to apply international tax principles that go back a century. The first is a form of excess profits tax primarily targeted at the largest US technology companies, applied in the markets where they operate rather than where they are headquartered. The second is that a minimum effective tax rate of 15% will be imposed on the profits of global companies.
Ms Yellen and other supporters of the plan say this would end a “race to the bottom” over tax rates, although that race is largely left-wing fantasy. They recently made another argument: Implementing the OECD deal would boost America’s competitiveness by reforming America’s dysfunctional tax system while protecting companies from sanctions. foreign taxes if other countries follow the OECD plan and the US does not.
If Mrs. Yellen wants to reform the US taxing of foreign profits, we can only say our guests. For decades, the US has taxed the global profits of US companies, which is already an uncompetitive base, but has done so in a way that gives companies an incentive to invest outside of the US. than their income repatriated. The Tax Cuts and Jobs Act of 2017 has made significant progress in reforming that mayhem, but room for improvement remains on issues like the tax treatment of past losses. .
But Yellen and Congress don’t need foreign help to solve those problems — and the OECD’s plan could put American companies at a global disadvantage. For example, the OECD offers a more generous tax treatment for subsidies disguised as refundable tax credits common in Europe, while eliminating the non-refundable form of tax credits. more popular in the US.
That suggests a point in the OECD’s plan to prevent exactly the kind of tax policy experimentation that could benefit the United States in the long run. Yellen’s solution to the tax-credit conundrum is to press Congress to switch to a refundable tax credit to comply with OECD rules. Congress should defend the ability to impose any rules on credits, or anything else, that it thinks might benefit the US economy.
Speaking of Congress, the political world believes in the claim that a global tax would be good for US companies. The Biden administration supports the OECD effort because the White House and Treasury hope a global minimum tax rate will provide political cover for tax increases on their own corporate profits. But most of the Administration’s tax plans are worse than the OECD’s recommendation, whether by imposing a 15% higher efficiency rate or offering fewer deductions and exemptions.
Ms Yellen wants Parliament to believe this is not important because she and her colleagues have already agreed to the OECD plan so it is fail colleagues. Hard. Efforts to implement the OECD agreement in the European Union are stalled, and no one knows how China or India will interpret the proposed rules when — or rather if — the countries that rewrites their tax laws. There is nothing worse for America’s competitiveness than Washington’s rush to implement a “global” tax agreement that is not global at all.
Competition is something that lawmakers should argue about when they talk about tax codes. But a global tax agreement that is bad for America and not even global is the wrong way to go.
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Appears in print May 9, 2022.
https://www.wsj.com/articles/spare-america-from-janet-yellens-global-tax-agreement-oecd-europe-11651868060 Spare America From Yellen’s Global Tax