Free market, world’s lowest tax rate bad for national sovereignty: economist

Economists are skeptical that the Biden administration is pushing for the world’s lowest tax rates for businesses, not only “irritating” the free market, but also seeing little support from foreign governments.

“After all, the existence of national sovereignty makes international agreements essentially irritating,” Gigi Foster, a professor of economics at the University of New South Wales (NSW), told the Epoch Times.

“Even if countries put international pressure on them to comply with specified standards, their incentives to offer attractive tax incentives remain the same,” she added.

According to Gigi, practice policies originate primarily from individual countries rather than collaborative efforts.

“In other areas, from climate policy to criminal justice, we have already seen that collaborative efforts in multiple countries are not a viable approach to achieving major change,” she said. Told.

Foster said the only option to see the world’s lowest tax rates succeed is that supranational organizations exercise unilateral power over different countries, similar to the “world empire.” He said it was to set the world tax rate.

But this would be a “true dystopian nightmare”.

On Monday, US Treasury Secretary Janet Yellen told the Chicago Council on Global Affairs that the Biden administration would cast support behind the world’s lowest tax rates.

The announcement was made in response to a revelation that US President Joe Biden’s $ 2.3 trillion infrastructure plan would be supported by raising the US corporate tax rate from 21% to 28%.

President Joe Biden will talk about work and the economy at the White House in Washington on April 7, 2021, with Vice President Kamala Harris listening. (Alex Wong / Getty Images)

To prevent US companies from moving abroad, the government has adopted standardized tax rates in each country and is calling for them to be prevented from living in tax havens or low tax jurisdictions.

Since 2013, the Organization for Economic Co-operation and Development (OECD) and G20 countries have been working on Base Erosion and Profit Transfer (BEPS) projects, one of the pillars of which is to agree on global tax rates.

The United States has historically resisted unconditional support for BEPS, but the Biden administration’s position has changed significantly.

“It is to ensure that the government invests in important public goods, has a stable tax system that raises enough income to respond to the crisis, and shares the funding burden fairly among all citizens. .. [the] Yellen told the attendees.

“We are working with the G20 countries to agree on a global minimum corporate tax rate that can stop race to the bottom,” she added.

The Washington, DC-based Tax Foundation has challenged the race to the bottom and states that tax rates around the world have been flat for more than a decade.

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Hundred dollar bills are counted by bankers counting currencies at banks in Westminster, Colorado, on November 3, 2009. (Rick Wilking / Reuters)

“When the United States lowered its federal statutory enterprise rate from 35% to 21% in 2017, it wasn’t leading the race to the bottom, but it moved on average,” he said. In the report..

Universal tax rates threaten free markets and developing countries

Former Secretary-General of the New South Wales Treasury Department, Robert Curling, warned that Yellen’s proposal would disrupt the free market.

“I think it’s an attempt to frustrate tax competition. Tax competition between countries is always good and productive. And this will frustrate it. There is no other way to see it.” He told the Epoch Times.

Sharif Mahmud Khalid, an assistant professor of accounting at the University of Sheffield, warned that developing countries would suffer the most.

“In a world with wide disparities in national income levels, the lowest global corporate tax rates are not particularly attractive, but can be crowded due to the fact that they can offer lower tax rates,” he writes. I am. conversation..

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On October 31, 2020, a woman walking in the Gipsy Hill district of the town of Soroca, about 155 km north of Chişinău, Moldova. (SergeiGapon / AFP via Getty Images)

In contrast, low tax jurisdictions, such as Singapore and the Republic of Ireland, which have already made large investments, are probably hesitant to support the proposal as well.

“Why are they raising taxes for this global minimum tax?” Cian Hussey, a research fellow at the Institute of Public Affairs, told The Epoch Times.

Mr Hassy also said that the tax system should be in the territory of national government and citizens, not a supranational organization.

“This is just the latest example of an unelected, irresponsible bureaucracy trying to undermine the sovereignty of a nation-state,” he said.

Former Australian Treasury Secretary Josh Frydenberg, a former colleague of the newly appointed Secretary-General of the OECD, Matthias Corman, welcomed discussions on this issue.

“Australia welcomes the United States’ commitment to continue to participate in OECD-led discussions, seeking to agree on a globally consistent approach to the tax challenges posed by the digitization of the economy,” he said. I told the Epoch Times by email.

Josh Frydenberg Mathias Cormann Budget
Australia’s Treasury Minister Josh Frydenberg (left) and Finance Minister Matthias Corman (right) announced their federal budget in Canberra, Australia on April 2, 2019. (TraceyNearmy / Getty Images)

“Australia will continue to be an active and constructive participant in these discussions, as it has always been,” he added.

European leaders happy with US moves

Finance Ministers Germany and France, Europe’s largest economies, have already strongly supported the proposal for the world’s lowest tax rate, saying France’s Finance Minister Bruno Le Maire is “happy” with the announcement.

“The agreement on international taxation is now within reach,” he told AFP. “We need to seize this historic opportunity.”

German Treasury Minister Schortz also welcomed the proposal, saying he was “healthy.”

Their reaction may have been partially motivated by the historically low 12.5 percent tax rate in the Republic of Ireland. Fascinates over 700 people An American company on the shore.

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On March 7, 2021, the drone will create a “light orchestra” St. Patrick’s Daylight display on the Samuel Beckett Bridge over the River Liffey in central Dublin. – (Paul Faith / AFP via Getty Images)

“They (European Union) have not succeeded in forcing Ireland to raise that rate, and it has always been the bone of controversy,” Curling said.

Even if a minimum tax rate is set and published, it may instead increase uncertain policies and loopholes.

“A country can establish a domestic policy of subsidizing a particular industry to attract it,” Hassy added.

“I think this is a short-sighted and unthinking move,” he said. “This is another example of trying to design the world you want to see without thinking about how bureaucrats actually make investment decisions.”

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