Why Is The Federal Government Always The Winner In Every Tax Dispute?

During the Biden administration, Treasury Secretary Janet Yellen got together with OECD countries to agree on a global minimum for corporate taxes. Notable is how Yellen didn’t even hide behind the purpose of the tax minimum: it was to ensure that OECD countries wouldn’t compete for the biggest and best companies via lower rates of corporate taxation.

From this, it’s easy to see that U.S. corporations were hit the hardest by the tax collusion that Yellen engaged in. That’s because U.S. corporations, by virtue of being some of the world’s most valuable, also have the most substantial global presence.

Translated, Yellen’s tax collusion made it easier for foreign governments to tax the world’s largest corporations, those corporations are frequently American, which means Yellen’s tax collusion proved a windfall for foreign governments. As Republican economist Lawrence Lindsey recently put it in the Wall Street Journal, “Biden and Yellen handed foreign countries a license to overtax U.S. businesses.”

Which brings us to a tax dispute, one that can be found in the tax bill making its way through Congress right now. In response to Yellen’s actions, and the subsequent over-taxation of the foreign subsidiaries of U.S. corporations, Congress has decided to hit back with section 899. Some are calling this a “revenge tax” whereby subsidiaries of foreign companies operating in the U.S. can be taxed at a variety of rates. The assumption with the revenge tax is that hitting back will force foreign governments to shrink their tax take of the earnings of U.S. corporations operating overseas. Which is the problem.

Really, why would Republicans writing a tax bill encourage any kind of taxation of corporations stateside, domestic or foreign? No matter what, corporate taxes signal double taxation of individual earnings when it’s remembered that individuals own corporations. This is true for domestic corporations, but also ones with foreign addresses. American investors own shares in companies around the world, which means a tax on foreign earnings stateside will frequently be a tax on U.S. earners.

Just the same, a bigger tax on foreign subsidiaries in the U.S. would be a tax on foreign investment. It would raise the cost of operating in the U.S. No thanks. There’s never enough capital, and U.S. economic activity requires capital in abundant amounts. How odd for Republicans to place a tax on it.

How odd especially in consideration of how much political capital President Trump put into his 2017 tax cuts, cuts that were billed as an effort to bring more corporate activity (once again, domestic and foreign) back to the U.S. Section 899 would exist as a penalty on it.

Not so, says Lindsey. He defends the revenge tax as a way to “unwind the previous administration’s unvetted and foolish embrace” of global tax minimums. There’s no dispute with Lindsey about Yellen and the Biden administration’s errant imposition of enhanced taxation on U.S. corporations, but there is with his own embrace of a wrong to allegedly fix a wrong.

The simple, crucial truth is that capital is precious. And precisely because it’s precious the vast majority of it finds its way to the United States. Let’s not tax a brilliant U.S. feature.

Instead, let’s acknowledge what’s true: per Lindsey himself “Neither the OECD nor the G-20 has any rule writing authority,” after which Yellen’s tax was “never submitted to Congress for approval.” So there you have it. Put what Congress never approved up for a vote instead of using an execrable tax as revenge against an execrable tax. Really, why must the federal government always be the winner of tax disputes?