The relentless quest for excellence is ingrained in the American DNA. People the world over revel in the satisfaction of success as well. Imagine, then, the bizarre sight of top sprinters at the upcoming XXXII Olympiad in Japan surging out the starting blocks arm-in-arm and breaking the tape as one. Prosperous nations are doing just that, in effect, as they move to adopt an identical corporate global tax minimum rate. When competition is abandoned in favor of advance in lockstep, no one wins.
The apparent cancellation of competition has emerged from a weekend gathering in London of finance ministers from the Group of 7, comprised of the United States, the United Kingdom, France, Germany, Canada, Italy and Japan, plus the EU, which produced an agreement to tax multinational corporations at a rate of at least 15 percent. The G-7’s goal is to prevent global business leviathans such as Amazon and Google from shifting corporate operations to low-tax nations in order to reduce their tax obligations.
U.S. Treasury Secretary Janet Yellen hailed the agreement as a “significant, unprecedented commitment” to halt what she has dubbed “a race to the bottom.” Instead, the world can look forward to a saunter to the center that trades quality for mediocrity.
It’s an outcome made for President Biden. He wants to hike the U.S. corporate tax rate from 21 percent to 28 percent to help pay for his lavish spending proposals. He fears correctly, though, that unless global competitors follow suit, the U.S. will chase away its rich corporate tax base. Voila — a tax-protectionist scheme.
In an interconnected world, money flows to places where it is most welcome. Among the Organization for Economic Cooperation and Development nations, France is particularly unfriendly, with the highest corporate tax rate of 32 percent. The U.S. comes in slightly below the average of 21.5 percent, but more than a dozen member states 12.5 percent Ireland and 8.5 percent Switzerland among them offer a much more inviting corporate climate. With a Biden tax hike on the horizon, smart companies would be foolish to stick around and watch the president pilfer their profits — unless there were no attractive alternatives.
If there is a possible silver lining to the G-7 agreement, it is an expectation that with a corporate global tax minimum rate in place, tariffs that a handful of mostly European nations have imposed on U.S. digital technology giants would be voided. But they haven’t, at least not yet, raising the possibility of a taxation double-whammy for American tech giants.
It is the quest to be the best that drives success. By urging other nations to cancel the race for economic excellence, Mr. Biden and his collaborators are making a virtue of mediocrity. Instead, the president should be straining to halt the countless billions in U.S. government waste and challenging his fellow national leaders to follow. It’s the American way.