by Ross Marchand

It’s lonely at the top. Prior to the passage of the 2017 Tax Cuts and Jobs Act, the U.S. had the highest corporate tax rate in the industrialized world. Prior to the Tax Cuts and Jobs Act, companies such as Burger King inverted and moved out of the country due to the sky-high tax burden. The Tax Cuts and Jobs Act slashed the corporate tax rate from 35% (nearly 40% with state corporate taxes) to 21%, spurring businesses to hire more workers, raise salaries, and expand operations.

If the Biden administration has its way and rates are raised again (this time in lockstep with other countries), the bad old days of slow economic growth may soon be back. This destructive global effort will not only stymie wage and hiring growth, but also ensure the demise of international tax competition that has kept rates from rising. For the sake of billions of taxpayers and consumers around the world, President Joe Biden and his international partners must refrain from raising the corporate tax rate.

As economies around the world are finally beginning to recover from the pandemic, the U.S. and other nations within the Organization for Economic Cooperation and Development are actively pursuing a high-tax, low-growth agenda. Last week, the Treasury Department announced that companies should pay a 15% tax on their earnings regardless of where they are located.

While a 15% minimum rate may not sound terrible to U.S. corporations who now pay a 21% tax, this “floor” is likely only the beginning. According to the Treasury, “discussions should continue to be ambitious and push that rate higher.” If this global minimum corporate tax rate is set at, say, 25% (in line with Biden’s views on the proper domestic rate) then much of the developed world would see a tax hike. Nations such as the U.S., England, Denmark, Sweden, and Norway would all have to raise the cost of doing business within their borders.

And according to a large body of research, this rigid tax regime would result in higher prices, smaller paychecks, and lower prosperity across the board. Tax Foundation president Scott Hodge and adjunct scholar Bryan Hickman note that “lost wages represent a disproportionate share of the corporate income tax burden, with most studies finding that share to be 70 percent or higher.”

In the short term, this means that workers would see their pay go down after more than a year of dealing with coronavirus-related cuts and unpredictable compensation. Over the longer run, businesses would likely adjust by hiring fewer workers and ditching their expansion plans. Economists have long pointed out that companies are loath to cut wages for fear of demoralizing their workforces. As a result, corporate tax rates ultimately succeed only in halting hiring and swelling unemployment lines everywhere.

The idea of a global minimum corporate tax is particularly devastating for countries of the developing world. While OECD membership is largely limited to developed nations, setting a high tax floor as a condition for entry into the club is an unnecessary deterrent to growth and industrialization. Companies are naturally reluctant to relocate to nations with checkered histories of corruption and wanton violence. Countries looking to turn the page on the past can overcome this stigma by setting taxes and regulations low.

During the pandemic, African nations started experimenting with corporate tax rate reductions after decades of high and stagnant rates continent-wide. A floor on business taxes would prevent further rate reductions, eliminating a powerful tool that governments have at their disposal to attract foreign capital.

A worldwide minimum corporate tax rate would be devastating to all countries involved, with the “bottom billion” hit especially hard. Instead of charting a course for ever-higher taxes, Biden should use his global clout to push for further tax relief and reform. No country needs to win this “race to the top” with onerous tax rates.

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