The OECD Crusade To Raise Taxes

COMMENTARY Taxes

The OECD Crusade To Raise Taxes

Feb 4th, 2022 3 min read
COMMENTARY BY
Preston Brashers

Senior Policy Analyst, Tax Policy

Preston is a senior policy analyst for tax policy in The Heritage Foundation’s Grover M. Hermann Center for the Federal Budget.
While taxpayers most everywhere would suffer from this, it will hit American taxpayers the hardest. solopiero / Getty Images

Key Takeaways

The OECD is spearheading a global tax agreement that it boasts will cause governments in rich and poor countries alike to collect more taxes.

This would mark a major reversal in the international income-tax system.

The OECD-Biden plan is a bad deal for Americans. It would ensure higher taxes and more American taxes diverted to foreign governments.

The Organisation for Economic Co-operation and Development is wrong. The last thing the world needs is more taxes and bigger governments.

The OECD is an intergovernmental organization with a mandate to “improve the economic and social well-being of people around the world.” Increasingly, though, the OECD has twisted that into a mandate to push its top-down big government agenda on countries around the world.

The organization is spearheading a global tax agreement that it boasts will cause governments in rich and poor countries alike to collect more taxes. And while taxpayers most everywhere would suffer from this, it will hit American taxpayers the hardest.

The Paris-based organization’s two-pillar “solution” to global tax challenges is driven mostly by two things: European governments’ desire to tax U.S. companies and the OECD’s agenda to increase global taxes.

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First, some background.

Several European countries recently passed digital services taxes. These are taxes on businesses with online activities like internet advertising and the operation of online marketplaces. The taxes, which apply regardless of physical presence in a country, were designed to target large, profitable American technology companies.

During the Trump administration, the United States responded by threatening to impose retaliatory tariffs on products from those countries. Negotiations at the OECD to resolve the dispute broke down in 2020.

“They all came together and agreed that they’d screw America, and that’s just not something that we’re ever going to be a part of. I don’t want tax systems that unfairly treat American companies,” Trump trade representative Robert Lighthizer said.

The Biden administration has taken a different approach.

At the October 2021 OECD meetings, the administration caved to European-led demands. Under Pillar One of the OECD framework, a portion of the taxing rights of large, profitable companies would be reallocated from the location of the company to the location of the consumer.

This would mark a major reversal in the international income-tax system. Worse, the revenue and profitability thresholds ensure that U.S.-based companies will disproportionately face the foreign taxes.

Since the U.S. companies’ profits are simply being reallocated from U.S. coffers to foreign coffers, the companies themselves may or may not pay more tax, depending on whether the foreign tax rates are higher or lower. But American taxpayers will be left to fill the gap left by the taxes sent overseas.

The OECD and the Biden administration went further with Pillar Two, adding a 15% global corporate minimum tax. Countries that don’t tax companies up to the 15% rate will effectively relinquish that portion of their tax base to other countries.

Pillar Two encourages countries to keep taxes on businesses high by stifling tax competition and punishing countries that dare to set tax rates “too low.”

While the OECD complains that “globalization has exacerbated unhealthy tax competition,” the truth is tax competition protects Americans and people around the world from tax increases.

When elected officials see the economic success of their low-tax neighbors, they often follow suit and reduce economically destructive taxes like corporate and personal income taxes. Big Government politicians and the OECD cartel, though, would rather raise taxes and seal off the exits.

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The predictable result of stifling global tax competition is less capital investment, reduced worker productivity and wages, slower global economic growth, and higher prices on goods and services.

Unfortunately, the Biden administration is a willing accomplice. It joined the OECD’s nonbinding two-pillar framework statement in October. Moreover, its Build Back Better Act includes a 15% global minimum tax provision consistent with Pillar Two.

The OECD-Biden plan is a bad deal for Americans. It would ensure higher taxes and more American taxes diverted to foreign governments.

America’s leaders shouldn’t give legitimacy to a global tax agreement that’s bad for Americans. If the president won’t stand up for American interests, Congress must make it clear that the United States won’t change its tax laws to conform to schemes coming out of Paris.

This piece originally appeared in The Washington Times