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Taxes: Government Competition
Janet Yellen has proposed a global minimum corporate tax rate. This is a terrible idea, for a very simple reason: “harmonizing” between governments eliminates competition between them. And it locks in the kind of bloated incompetence that is a feature of even the best governments out there.
We want companies to be able to shop for their preferred home, just as we want Americans to be able to move to low-tax states. Similarly, if a poor country is trying to attract tenants (companies), why should they not be able to offer advantageous tax rates or less bureaucratic overburden?
Government is already a monopoly. A global government would cement all that is bad, and bar future innovations and improvements in government efficiency. Here’s hoping other governments can successfully resist the US Executive.
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If such a things were adopted, it would basically be a collusion of the political and bureaucratic classes against everybody else.
And against diversity–any diversity of political and economic philosophies.
Of course, this is a stupid idea (as is any suggestion that requires the Unites States to surrender or compromise any of its sovereignty).
The obvious first question suggested by Yellen’s silly suggestion is, “what will the enforcement mechanism be?” What organization or agency is going to have the power to compel compliance upon any signatory state that decides it’s no longer in their own best interests to continue cooperation?
Yet, there is a problem, when the system gives favored tax treatment to huge corporations verse startups. I think the problem could be solved if the best accountants wrote the laws to level to the playing field rather than crafting loopholes for multi-national oligarchs.
When will US citizens living abroad not have to pay US income taxes? That is the tax reform I want to see. Time to ditch the US.
The United States Government wields an incredible stick. This has been used to hound any US citizens worldwide, as well as destroy secrecy laws worldwide. If the US blackballs you, then your currency cannot be converted, your citizens cannot travel as before, your businesses cannot conduct normal business.
So the US can compel compliance on just about any state in the world.
This is well-meaning naiveté. There is no such thing as a level playing field, or a system without loopholes.
Doubt me? Propose what would be a “level playing field” for reducing gun ownership in America.
I do not doubt that there is corporate favoritism and political corruption. But that is not the primary reason why smaller companies are at an inherent disadvantage.
The system favors big companies primarily because it is complex, and battling government collectors is ruinous for a small company, but small change for a very large one. So every added rule, regulation and tax is another barrier to small companies, and a shield for the powerful players.
There may be no level playing field, but a simple and transparent tax and regulatory code would be a best-case outcome.
I know many people who are thinking of renouncing for this reason. Long-term residents of foreign countries who also were born in the US face a ridiculous paperwork and taxation burden.
I know. The US and the Philippines are the only countries counting worldwide income for US tax purposes.
All it will do is drive companies into the arms of China and India and Vietnam and other countries that aren’t part of the suicide pact.
So? It’s already clear they aren’t American corporations anyway.
Relationships with foreign governments over taxes are stipulated and enforced via treaties – which must be ratified by the Senate. One by one. There is no global minimum tax, although the OECD is arguing hard for it. The Dems seem to skip this step, actually, lots of steps, that at present requires making treaties with all the countries on the globe. There are many countries with which we have no tax treaty – and some have considered that a problem for a long time. Tax- it’s so confusing. Existing treaties are enforced by the Treasury – through your favorite and mine, the IRS – with the cooperation of the corresponding fisc, whatever the form is in the respective country(ies). The forms vary. Again – stipulated in the treaty, after negotiations. Resolving disputes between countries and their agencies over corporate taxes on the income of the corporate entity ain’t beanbag, and is often not simply bilateral.
See my related post: The Logic of Insatiable Centralization.
Hmmm… I just had a conversation a couple of weeks ago with someone who used to be quite prominent here on Ricochet. He used to live in California and started what is now a very large and successful tech company. He moved to Switzerland years ago, and until recently has done well there. He is strongly considering leaving there now, as that country has extremely confiscatory estate taxes. His destination is somewhere in the Middle East.