OECD Minimum Tax Rate Hurts the U.S. Economy

Last year, the Organization for Economic Cooperation and Development (OECD) announced its two-pillar proposal to pursue the goals of transferring tax rights between nations, targeting profits of larger companies and multinational corporations, and instituting a cross-border minimum tax rate.

The G-20 is gearing up for a meeting to discuss the first pillar of placing a global tax on the digital activities of large U.S. tech companies, and the second pillar of enforcing a global minimum tax rate on cross-border activities is unlikely to be left out of negotiations. The second pillar is designed to discourage companies from moving operations from high-tax countries to low-tax countries, a tactic known as venue shopping.

In setting a global minimum tax rate, pillar two is engaging in price fixing at the expense of low-tax countries like the United States. These taxes are basically a tariff that could slow economic recovery and reduce investment both domestically and internationally.

A minimum tax also raises costs on U.S. businesses, which would undoubtedly be passed down to consumers in the form of higher prices. Price hikes would be especially felt in the insurance industry. Minimum rates could impose double costs on insurance companies if the right safeguards are not put in place, potentially leading premiums for consumers and businesses to increase significantly.

Instead of creating a system of equal taxes for all nations, the OECD proposal will pad tax revenues for some nations with higher international tax rates at the expense of others, threatening the tax control nations like the U.S. have over their own companies. OECD would not be wise to pass a global minimum tax rate.

A global minimum tax rate would be incredibly harmful for businesses in our country. Since some countries have higher corporate tax rates than the U.S., the U.S. would end up paying more. Higher taxes increase operating costs for businesses resulting in slower growth, fewer jobs, reduced innovation, and higher prices for consumers. Around 31% of corporate taxes are paid through higher prices and lower wages for consumers, according to the National Bureau of Economic Research. If these taxes are passed, Americans could end up unfairly paying more based on the tax rates of other nations.

These taxes could have an especially powerful effect on the prices insurance companies charge consumers. Insurance companies rely on high profit years to offset years with high costs. If global taxes are able to take a larger chunk of the money these companies make, consumers and small businesses will be left paying higher premiums to offset the profits lost from the taxes. Higher premiums would leave less people insured for severe storms and other types of catastrophes that place an enormous financial strain on American families. Choosing instead not to pass this tax would ensure Americans continue to have access to affordable premiums.

Higher costs on corporations could also lead to less investment from U.S. companies at home and less foreign investment from abroad, both of which have long-term impacts on the health of the American economy. The OECD estimates these taxes will cause an increase in the effective tax rate by up to 2%, which would raise tax revenues substantially but result in less capital for companies to invest in the economy.

These negative effects on the consumer base would come at a time when the U.S. economy and America’s workers are still rebounding from the damaging effects of the Covid-19 pandemic. A survey conducted by Pew Research revealed that just over half of non-retired U.S. adults say the economic consequences of the pandemic will make it harder for them to achieve their long-term financial goals. Implementing a global tax now would slow the recovery of the economy and make it even harder for Americans to achieve economic stability.

A global tax would also reduce U.S. tax sovereignty. An international regime of taxes decided abroad prevents the U.S. from choosing what tax rate is best for the economy and consumers. Instead of benefitting all countries equally, pillar two initiative would create an unlevel playing field between nations, placing the largest burden on industries in nations like the U.S.

By agreeing to a new global minimum tax rate, the OECD would be harming our businesses and consumers. The OECD should not seek to enforce a minimum global tax rate that will have profoundly negative effects. Consumers should be spared being told to pay higher prices to benefit the tax coffers of other nations.

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