The Biden administration seeks to form an international agreement to establish a global minimum corporate tax at 15%. According to CNN, 132 nations back the proposal, but some notable holdouts including Ireland, block the way. The EU needs to vote unanimously to pass the proposal, so as long Ireland opposes it, there’s no deal. Over the years, Ireland established itself as a tax haven, so they have a lot to lose under the terms of this deal. The Irish “raced to the bottom” and stayed there at 12.5%, attracting regional headquarters, manufacturing hubs, and all other sorts of businesses. Ireland is living the good life on the tax front, and they have no reason to stop. Many, including Treasury Secretary Yellen, say that raising taxes on corporations around the globe will be good for the poor, the middle class, and the entire global economy. I’m not seeing it. Of course, taxes fuel governments which we need to protect individuals’ liberty from external threats. We bear a deadweight loss in one area in the hopes that the benefits of a lawful society will outweigh those losses.* Despite the concerns that low taxes will benefit companies instead of people, the Irish appear to be doing just fine.
The US rate is 21%, and many in Congress want a higher rate. Essentially, nations like the US have decided we cannot offer a safe place to do business for as low of a price as Ireland seems to be able to; we cannot compete. Instead of seeking to become more efficient or offer something better, nations like the US decided to look for a way to handicap low tax countries. By banding together, 132 nations can enforce a tax floor on the world. If anyone does not comply, nations within the agreement will slap tariffs on goods from non-compliant nations. This is the geopolitical equivalent of packing up your toys and leaving because the other kids are faster and taller than you. This creates trade diversion. Even though Ireland may be the most effective producer of some good (in part due to a lower tax rate), people will choose to trade with someone else because the tariffs have driven up the prices on imports from Ireland. For the Irish, if this tax deal goes through, they’ll be forced to raise their rates or lose nearly all trade opportunities.
I stand against this proposal not just to protect Ireland’s competitive edge. I stand against this in defense of all individuals, rich or poor, who will lose opportunity as a result. Resources will move from more efficient producers into the hands of the inefficient, leaving everyone worse off in the end. Supporters sell it as an effort to ensure that corporations pay their “fair share.” Instead of making their nations a better place for people to thrive, world leaders would rather handicap those who are more competitive to make things “fair.”
*A deadweight loss is caused by the reduction in production and consumption due to a tax. This is an unavoidable side effect of a tax.
