If we’ve learned anything at all in regards to finance, business and life, albeit cynically, if you want to get a straight answer, just follow the money. Somehow it makes the hair on the back of my neck rise when I saw Italian President Sergio Mattarella and German Chancellor Angela Merkel shaking hands and smiling at the G-20 summit that approved the imposition of new minimum corporate taxes worldwide. A global corporate minimum tax is a proposal to impose a minimum rate of taxation on corporate income in most countries of the world by international agreement.
Could you imagine a world where leaders from around the globe actually got together to do something other than take more money for their governments. I’m guessing the G-20 has never convened to discuss the idea of reducing taxes, stimulating the economy, and making their citizens better off. Instead, you find the usual tax and spend mentally that has the rest of the world wondering why they can’t keep pass with the U.S. But wait, one must notice that Treasury Secretary Janet Yellen was also in attendance representing the interests of her boss President Biden. Even before you read the fine print of the agreed proposal put forth by the Organisation for Economic Co-operation and Development (OECD), and yes, that is organisation spelled with an “s,” you have to be skeptical.
The pretense for the minimum global corporate tax was that wealthy multinationals were dodging taxes by incorporating and doing business in ancillary countries that have more favorable tax rates than those of the G-20. In Robinhood fashion, the ORCD estimated that the initial tranche would reallocate more than $125 billion annually in corporate profits from large companies’ home countries for taxation by jurisdictions where the profits were earned. The second tranche would raise an estimated $150 billion for countries applying the 15% minimum tax rate to corporate income. Just like the tax system in the United States, it’s utterly opaque and incomprehensible to most. The average American won’t realize it though, even when the price of their Johnson & Johnson baby shampoo goes up.
Instead of letting the free markets dictate as they should, heavy handed bureaucrats who have never run as much as a hot dog stand, will tax you and distribute your profits in ways that they know best. Janet Yellen doesn’t understand that there already is competition among countries via the taxation rate. There must be a reason that Ireland can have a low tax rate of 12.5%, almost twice as low as that of the United Kingdom. The invisible hand works by having companies like Amazon, Meta, Google et al go to the lower taxed nation. Redistribution isn’t necessary. Instead of taxing Amazon, why doesn’t the UK figure out why they have such a high tax rate. Maybe they spend exorbitantly on social programs, free medical for all, et al. That’s their choice as a nation, but don’t make Ireland and other low tax nations subsidize your welfare state.
It’s ironic how the people in charge who despise the profits made by corporations forget that a corporation is nothing but people. Companies like Amazon and Meta were started out of garages and dorm rooms, by people. They grew to create thousands jobs and millions in taxes to governments and municipalities. Don’t get me wrong, they are far from perfect, but it is what a result of capitalistic success is. Innovation with unbridled growth and a modicum of regulation. That’s a formula for success.
Don’t just take our word for it at Investing and Money, but get it straight from the horse’s mouth. Johnson & Johnson is forecasting a 1.5 percent increase in its tax rate as a result of the global minimum tax. According to Joseph Wolk, J&J’s chief financial officer, “The global minimum tax, as it stands now, is reducing U.S. incentives for innovation and resulting in U.S.-based multinational companies paying more tax revenue to foreign governments.” Echoing these same sentiments is Suky Upadhyay, CFO of medical technology company Zimmer Biomet, “The company would see a tax rate increase of about 1.5 percentage points. That is not devastating but still impactful nonetheless.” There you have it.
Perhaps we’re missing something here, as the global tax hike has received support from some 137 countries worldwide. I’m guessing 100 or so of those countries other than the G-20 really are only there for the tax handout. You have to be careful what you wish for and how you structure it. What would be the incentive for an industrial country like the U.S. to shift its corporate focus to some third world country if the minimum tax rate is the same in both? My guess is they won’t.
