A Global Minimum Corporate Tax is Evil
I hope you had a fabulous weekend.
Let’s get straight into the macro governmental stupidity known as worldwide tax.
The Opening Salvo
Every time I think, “These bureaucrats can’t possibly get more deluded,” they come up with an even more idiotic plan than before.
Lo and behold! The G7 has agreed to impose a Global Minimum Corporate Tax. Unfortunately, the entire working world will have to suffer this tax if these Insufferables get their way.
Here comes the global cavalry to somehow, someway, plug the supposed holes in the financial system.
When it comes to tax, the proper verb is “suffer.” You do not pay tax. You suffer tax.
Here’s what I wrote about corporate tax in one of my earliest Rudes:
And aren’t people who think that companies pay corporate tax the cutest little things? I just want to pat them on their heads and send them back to the sandbox.
Shareholders, customers, and employees suffer (the correct verb) corporate tax. “Companies” don’t pay anything. Ultimately, a real, live person suffers tax.
Later in that piece, I followed with:
Let it be known: no legislation that targets “the rich” ever hits the rich. Because the rich are rich for a reason. And I’ll spell it out right now: Legal tax avoidance is an integral part of getting rich.
Notice I didn’t write “evading tax.”
And this insidious tax won’t hit its intended target, either, as we’ll see later.
And for our last bit of review:
But I do try to emulate the wonderful author Charles Adams, whose For Good and Evil: The Impact of Taxes on Civilization is required reading. Alvin Rabushka, in his foreword to the book, summarizes what Adams elucidates in his book. He shows:
- Good tax systems go bad unless citizens restrain the government.
- Civilization tends to destruct from bad taxation.
- Moderation is an important principle in the design and implementation of tax systems.
Moderation, in this case, includes the choice of tax rates, the penalties for evasion, the intrusiveness of tax collection, and the need to treat taxpayers equally by avoiding excess progressivity or regressivity.
Ok, let’s get to the recent story on “tax harmonization.”
What Are “They” Doing This Time?
They – the G7 – are doing nothing less than mandating a worldwide minimum corporate tax.
Who’s the G7?
The G7 is an informal club consisting of the wealthiest democracies in the world, which includes the US, the UK, Canada, France, Germany, Italy, and Japan. Russia was booted out of the then-G8 in 2014 over the Crimea affair.
They hold so much sway because these countries have 58% of the world’s wealth (and the American, British, and French nuclear arsenals).
Why are the G7 doing trying to institute a global minimum corporate tax?
The real reason is that global tech companies shift their profits around to the lowest tax jurisdiction. This is entirely legal, moral, and ethical.
No rule says, “Pay the maximum amount of tax you can.”
It’s antithetical to freedom. The more power The State has, the less power private entities have.
“But Sean, Zuck, @jack, and Bezos don’t pay nearly the tax they should!”
To which I’d reply, “How much more would you like to pay for your Amazon goods? How much do you pay to show off for your friends on Facebook now? How much does it cost per tweet?”
I’d also say, “Socialists often use the word ‘should.’ With ideas are this bad, they need to be enforced at gunpoint.”
When asked about how a higher corporate tax would make companies increase their prices to pay for it, White House Press Secretary Jen “Circle Back” Psaki said, “(Joe Biden) also believes that the American people are smart. They’re invested in this. They’re going to pay attention and that they know that corporations do not need to raise the cost of goods in order to pay more taxes and pay more of their fair share.”
Her economic illiteracy is both staggering and alarming. Or she’s just lying.
Matt Palumbo nicely summarized the studies that say labor bears most – yes, most corporate tax increase. (Those hyperlinks go directly to the studies if you fancy reading through them.)
- A review of the academic literature on the corporate tax conducted by the U.S Department of the Treasury found that “labor may bear a substantial portion of the burden from the corporate income tax.”
- Economist Arnold C. Harberger, known for authoring a seminal paper on the effects of the corporate income tax rate on international trade, has found that labor bears over 80% of the corporate tax.
- According to Oxford University economist Li Liu and Rutgers economist Rosanne Altshuler, for every $1 increase in corporate tax revenue, wages decrease by 60 cents.
- Wiji Arulampalam, Michael P. Devereux, and Giorgia Maffini of Oxford University found that $1 in additional corporate tax reduces wages by 92 cents in the long run.
- According to economist Alison Fenix, “a one percentage point increase in the marginal corporate tax rate decreases annual wages by 0.7 percent.”
And in the “It’s Never Too Early to Pat Oneself on the Back” file:
What is she talking about? Not only is the former Fed Governor, but she also has a Ph.D. in Economics and is married to a Nobel Laureate in Economics.
For crying out loud, she should know this stuff!
Of course, a race to the bottom – or 0.00% corporate tax – is what we need! The only benefit for the middle class and working people – we know who you mean, Janet (wink, wink) – will be more expensive goods and services… and lower wages.
You said it, Murray!
How can governments possibly justify an increase in corporate tax – worldwide – when the adverse effects are well known?
Easy. Blame the Boogie Man.
In this case, it’s Big Tech.
Now please don’t mistake my loathing of corporate tax harmonization with a defense of Big Tech. On the whole, they’re a reprehensible lot.
But two things worry me: the first is mission creep. The second is the collapse of low tax economies.
Before I get into those, let me say that tax havens will always exist. They always have, and they always will. This is a poor attempt to defeat them. As I’ve written before, The State never hits its intended target.
So let’s look at mission creep.
The tax they’ve floated targets large companies with a 10% profit margin. Of course, the more naive of us will say, “Great! Small companies are safe.”
Sooner or later, the governments will simply modify the law to include smaller companies. And that will destroy entrepreneurship and small businesses.
For the second, the low tax economies I worry about are places like Ireland. Though I haven’t been for years, Ireland is a delightful place. It also rains 300 days per year. It’s the type of place that needs low tax to attract talent to move there and work there.
If Ireland – which fiercely opposes this plan – was forced to raise its corporate tax rate from 12.5 % to 15%, the implications are big. And remember going from 12.5% to 15% is not a 2.5% increase. It’s a 20% increase (2.5% / 12.5% = 20%).
How can this be stopped?
We must depend on two different groups in two different places.
First, the Republicans in Congress must oppose this move. They probably will fight it because making the first move here is dangerous. If US corporate tax goes up before everyone else’s does, companies may move out and threaten an already fragile recovery.
Second, we must rely on Ireland, Hungary, Luxembourg, and a host of European countries whose economies depend on low taxation. The EU must have a unanimous vote to pass this legislation. I doubt that will happen.
But you never know what the outlandishly profligate Western European countries will hold over their heads to get this legislation through.
I also hope the “tax havens” get vocal, as this whole idea is conceived to reduce the spots where corporations can “vote with their feet” when idiotic governments pass dreadful tax legislation.
Down with tax cooperation! Here’s to tax competition!
Have a great week ahead.
All the best,