Promote U.S. Prosperity by Rejecting the OECD Tax Cartel

February 18, 2024 by Dan Mitchell @ International Liberty

I support tax competition because it is our best hope of avoiding “goldfish government.”

 

As such, I’m very opposed to tax harmonization schemes, all of which are designed to make it easier for politicians to impose higher tax burdens. .

That’s why I’m so hostile to the Organization for Economic Cooperation and Development. Politicians from high-tax nations have co-0pted that Paris-based bureaucracy and are using it to push for a global tax cartel.

Adam Michel of the Cato Institute recently wrote an in-depth study on the OECD’s proposed business tax cartel and explained why the United States should not participate.

I recommend that people read that report. But for those who have limited time, I’m going to share some excerpts from his new column for National Review, which addresses the same topic.

To protect their businesses from facing competition, the European Union and the Organization for Economic Co-operation and Development (OECD) have concocted an international tax cartel to weaken America’s most successful international businesses. The new tax rules discourage international investment by imposing tens of billions of dollars in compliance and economic costs. …

Instead of endorsing the European plan, Congress should double down on America’s successful tax cuts by further cutting business rates and simplifying other tax rules. A low enough corporate-tax rate would break the OECD’s tax cartel, benefit domestic workers, and attract new businesses. …

Republicans have raised concerns about the OECD plan and proposed retaliatory measures in response to the OECD taxes. But, as is too often the case, they are being too timid. …Supporters of the OECD plan will argue that the new world-order tax cartel is here to stay, so it’s time for the United States to get on board. They dubiously claim that United States will benefit from new tax revenue…

Fortunately, the agreement is more fragile than they let on. Cartels are inherently unstable. Instead of ceding tax sovereignty and encouraging businesses to conduct their activity elsewhere, Congress should increase the attractiveness of the United States as an investment destination and reject the OECD’s tax tyranny.

Amen.

Tax competition is the right approach, not tax harmonization.

The simple – and accurate – way of summarizing the OECD’s plan is that some governments win and almost everyone else loses.

 

Note that only some governments win.

Countries with very sensible business tax systems (Ireland, Estonia, etc) will lose, as will jurisdictions with good overall tax policy (Bermuda, Cayman Islands, etc).

Workers and businesses lose everywhere, of course.

I’ll close with some bad news. The Biden Administration enthusiastically supports the OECD scheme, even though it largely targets American companies.

P.S. November’s election may not make a difference. The Trump Administration was bad on tax competition issues between 2017-2020, so it would be putting hope over experience to expect good policy if Trump wins a second term.