Explainer: President Biden’s Global Tax Hike is Not a Victory for America, but a Surrender

June 9, 2021 — Blog    — Press Releases    — Trade   

CLICK HERE for a printable version of this explainer.

 

On June 5th, the Biden Administration and other G7 countries announced a so-called agreement for a “15 percent global minimum tax.” This would push all countries to adopt minimum taxes of at least 15 percent on their own companies’ foreign profits.

For American companies, President Biden would go even further. He would tax American companies at 26.25 percent minimum tax on their foreign profits, 10 percentage points more than the 15 percent G7 rate. The Tax Cuts and Jobs Act already created a U.S. minimum tax at 13.125 percent, half the rate of Biden’s proposal. Biden’s crippling tax increase means fewer American jobs and a windfall for foreign competitors.

Despite the fanfare surrounding the Administration’s foreign tax deal, creation of this global tax cabal is no cause for celebration. It confirms President Biden’s willingness to surrender American jobs and provide protection to foreign competition—not to American companies and workers.

KEY TAKEAWAY: Biden’s plan offers foreign countries a sweetheart deal, while his punitive tax on Americans will send jobs to foreign competitors

  • A minimum tax on foreign profits acts as a “top-up” tax – meaning a country can collect additional tax if companies headquartered within its borders earn profits in lower-tax foreign jurisdictions.

Example 1: If France adopts the 15 percent minimum tax on foreign profits, a French company operating in Ireland will pay the 12.5 percent Irish corporate income tax and a 2.5% “top-up” tax to France (in order to reach the 15 percent minimum tax level).

Example 2: A French company operating in Hong Kong would pay the 16.5 percent Hong Kong corporate income tax, but owe no “top-up” tax to France (because the foreign tax rate already exceeds the 15 percent minimum tax level).

Example 3: An American company would pay higher taxes than the French company in both scenarios. Under the Biden plan, an American company pays 26.25 percent on its profits in either Hong Kong or Ireland, a far higher tax burden than that faced by a competing French company.

  • American companies would pay this higher global minimum tax for operating abroad while also paying Biden’s 28 percent rate for operating at home—making America even less competitive and driving jobs, manufacturing, research, and investment overseas.

Under Biden’s G7 Tax Surrender, it’s better to be a foreign company or foreign worker than to be an American company or American worker. Instead of sending jobs elsewhere, Biden’s top priority should be protecting American workers and jobs.

President Biden’s plan is not a victory for America, but a surrender.

CLICK HERE for a printable version of this explainer.