Is G7 right to endorse 15% global minimum tax on corporations?
- Group of Seven (G7) is an organization of the world’s seven largest “advanced economies” which are Canada, France, Germany, Italy, Japan, the UK, and the United States. During the 2021 G7 meeting, officials focused on COVID recovery, taxes, climate change, trade, and peace talks with Northern Ireland.
- On Saturday, June 12, 2021, G7 announced their decision to support a global minimum corporate tax rate of 15% to “ensure fairness.” France, under French Finance Minister Bruno Le Marie, was the catalyst for the movement.
- The G7 was initially founded as the Group of Six in 1975 to discuss inflation and recession after the OPEC oil embargo. Russia was included in 1998, but removed in 1991 after its annexation of Crimea from Ukraine.
- Global taxes are meant to solve global problems while simultaneously raising revenue for global developments.
- The Penn Wharton Budget Model, a nonpartisan group at the University of Pennsylvania’s Wharton School, released a September 2020 study on Biden’s financial platform projecting Biden’s plan would raise taxes on Americans and corporations by $3.4 trillion over the next decade. Additionally, it’s predicted Biden’s platform would raise federal spending to about $5.4 trillion by 2030.
The current system of taxation of multinational corporations dates to the 1920s and is frankly inadequate for our modern economy. The rise of internet business has transformed the world economy in fundamental ways, making these tax laws essentially useless. Current tax laws center around a company's location and where it holds its money. However, the power of the internet has presented a paradigm shift where consumers reside all over the globe, and companies need little to no physical infrastructure to service them online, making this method of taxation no longer workable. It has become effortless for companies to move money around to tax havens to avoid paying their fair share. By creating a minimum fifteen percent tax, the G7 leaders have made a positive step toward stopping these companies from avoiding their tax responsibilities.
Opponents of this proposed tax will no doubt take the cynical view that companies will find new and innovative ways to hide their money. While some companies may attempt to do this, it's no reason not to try. We must update our tax system internationally to ensure these revenues are not lost. We must continue to go after new tax avoidance methods as they arise in the future. It may be surprising to some that big tech firms do not completely oppose these taxes. Part of this deal may include eliminating digital services taxes, meaning that big international tech companies such as Facebook and Amazon may not necessarily pay a significant amount more under the new regulation. This proposal is good for ordinary citizens, good for companies, and good for the world.
The G7 is misguided in its call for a 15% minimum tax on corporations. The proposed tax will disproportionately be borne by companies in the United States, as only one of the top 15 global corporations is domiciled in a G7 other than the US (Toyota Motor in Japan); the remaining 14 are registered and housed in the US. This means the 15% tax is essentially a European giveaway program—taking a cut of American companies' profits from overseas revenue. In agreeing to the G7 tax levy, the US is surrendering its sovereignty to determine tax policy for domestic-based corporations. A one size fits all approach to corporate taxes is flawed, as each country has unique economic conditions that merit consideration in determining an appropriate tax policy.
Governments are notoriously ravenous about collecting taxes while undisciplined and wasteful in spending the tax revenue generated. The way the tax idea is being sold is telling. Employing phrases like 'fair share' and 'tax justice' should alert you to watch your wallet. It's an old political cliché to curry favor to the masses by appearing to be benevolent by redistributing tax revenue from the 'rich' corporations to the needy masses. However, corporations will simply raise their prices to recover the additional tax burden imposed. This creates a chain reaction of bad economic outcomes, including inflation and slow growth. This negative cycle of government taxing and spending runs counter to a free market, capitalist system and is an aggressive move closer to a government-controlled Communist/Socialist economic model. We've seen the disastrous results that a non-free market economy generates—massive unemployment, gas shortages, food shortages, civil unrest, etc. We should vigorously resist the 15% tax.