Meeting in Rome for the G20, 78-year-old President Joe Biden and his 75-year-old Treasury Secretary Janet Yellin had no problem convicting the world’s top economies’ finance minister to accept a 15% global minimum tax, designed, among other things, to finance the vast socialist agenda so well entrenched in the European Union now sweeping into the United States. Biden pushes Congress to pass his $3.5 trillion infrastructure plan, more a social welfare program than shovel ready jobs for dilapidated U.S. infrastructure. Getting EU finance ministers to go along with a 15% global minimum tax was a no-brainer where individual tax rates exceed 50%, putting Europeans on a lean budget. With businesses fleeing the U.S. for tax breaks abroad, Biden’s latest brainstorm will continue to decimation of U.S. industry, leading to a net loss of jobs, all because government’s appetite for new taxes.
Speaking the new Democrat socialism in Rome was preaching to the choir, always looking for more tax revenue to fund the ambitious social programs that contribute to Europe’s—and now the United States—slow growth. ”What it will provide is a level playing field globally where companies and countries can compete, on the basis of their innovative ideas, fundamentals, the quality of workforce and their business environment,” said Yellen, endorsing the 15% global minimum tax. Yellen knows, as former Federal Reserve Board Chairwoman, what happens when governments start squeezing corporations for more cash. Most companies start laying off workers to deal with the added drag on the company’s bottom line. Yellen has swallowed the Biden administration Cool-Aid that more corporate taxes can help finance the vast social programs pushed by the White House.
Yellen doesn’t accept the basic business principle that if the cost of doing business becomes unsustainable, companies start laying off workers to preserve the corporate profit margins. “Countries around the glob have decided to finance the public infrastructure investments that they need, to invest in their people, and not to have all the burden of raising taxes fall on workers . . . this is a way to make sure that all countries in a fair way can collect more,” Yellen said. Yellen knows that government doesn’t “tax to get the money it needs, it needs the money it gets,” a famously line from President Ronald Reagan. But the basic business principle is sound that the more taxation, the more businesses contract to save corporate profits. China opposes a global minimum tax rate because it will force many businesses to cut into profits, leading to layoffs and less corporate output.
Former President Donald Trump’s 2017 tax overhaul already accounted for a 10.5% minimum global tax rate on multinational corporations. Biden, in accepting a new 15% global minimun tax, essentially doubles the current 15% corporate tax rate on multinational corporations. U.S. multinational corporations, like Apple Inc., will be forced to raise iPhone prices by at least 15%, to accommodate the new punitive tax structure designed to squeeze more companies for doing business in their respective countries. “There’s going to be a lot of opportunity for enforcement to make it difficult, especially if there’s more international cooperation,” said Itai Ginsberg, deputy treasury secretary said last month in a blog post. Skeptics think Biden’s new plan will fuel more inflation by chipping away at corporate profits, forcing multinational companies to raise prices on a wide variety of products.
European companies have been hit hard during the pandemic year need more tax relief not more compulsory taxes. “The Europeans have no particular interest in the global minimum tax, and will in subtle ways gut it so it’s effectively far less than 15%,” said Doug Holtz-Eakin, a GOP policy analyst. “The deal was: ‘We’ll give you some more tax base, and in exchange, you’ll raise taxes on yourself.’ But I wonder if we’ll get that deal in practice.” Yellen contends that about 40% of the profits earned by the world’s multinational firms—or more that $700 billion—was stashed into tax havens, something the global minimum tax seeks to guard against. Yellen sees multinational tax rates falling from 40% in 1980 to about 23% today, accounting for the massive jobs growth around the planet. Biden’s new global minimum tax will kill jobs, anyway you look at it, not spur GDP growth.
Socialist countries, or those like the U.S. leaning in that direction, never met a tax they didn’t like. But for a global minimum corporate tax to work in the U.S., it’s going to cut into companies’ bottom lines, resulting in job cuts. “The production occurs in the developing world,” said Columbia University, Nobel-winning economist Joseph Stiglitz. “The fact they decided to give the tax to advance countries just shows the lack of empathy for developing countries,” showing that the tax scheme could backfire. If multinational corporations, based in the U.S. or Europe, are forced to pay another 15% in corporate taxes for work in the developing world, they’ll scale back work in those counties. African countries like Nigeria or Indian Subcontinent countries like Pakistan oppose the 15% global minimum tax hike. Raising taxes, whether on individuals or companies, has its drawbacks.
