President Obama’s irresponsible 2013 budget proposal is remarkably punishing to economic growth at a time when the U.S. economy, weakened by years of Obamanomics, is about to tumble into a shallow grave of 1.1 percent annual GDP growth. The president’s budget proposal raises taxes on virtually every aspect of investment, from capital gains and dividends, to corporate taxes, to the personal income taxes of investors and business owners.
Now, one member of the administration is proposing a ham-fisted “solution” to capital flight—that is, individuals or U.S. corporations, through international means, escape the grasp of a tax-hungry Obama administration. Gene Sperling, director of the White House National Economic Council, has suggested a “global minimum tax,” which, if implemented, would more or less paralyze capital around the world.
“We need a global minimum tax,” Sperling explained, “so that people have the assurance that nobody is escaping doing their fair share as part of a race to the bottom or having our tax code actually subsidize and facilitate people moving their funds to tax havens.” He compared this idea to the President ‘s “Buffett Rule,” a beefed-up Alternative Minimum Tax, designed to ensure that when the income of rich people is taxed for the third or fourth time, they don’t pay a lower effective rate than their secretaries by taking advantage of legal deductions.
It was not clear whether Sperling envisioned his tax as an international tax imposed through a global body like the United Nations, or a massive penalty applied by the U.S. government against corporations or individuals that invest overseas, or some other tax-catcher. If such a Global Minimum Tax were applied internationally, it seems highly unlikely that every industrialized nation would play along. The result would be a smaller number of high-growth nations with sane tax policy, eating everyone else’s lunch. On the other hand, if the United States imposed the Global Minimum Tax only upon American business concerns, it could spark a trade war—to say nothing of further hobbling American businesses against more agile foreign competitors.
These “One World” global-government initiatives have a poor track record. There weren’t many takers for the suicidal Kyoto Accords on global warming, which pointedly excluded the worst polluters on Earth to go after Western nations where radical environmentalists are taken seriously. International criminal courts dissolved into the idiocy of foreign judges, hurling impotent threats at American policy-makers they dislike. The Euro, an artificially created multi-national currency, is on life support and Greece is about to pull the plug.
Sperling has a history of supporting these global programs, and ending up surprised by the results when America’s “partners” cheat. He was instrumental in getting China into the World Trade Organization. Ten years later, he’s part of an administration that whines helplessly about Chinese currency manipulation. If his Global Minimum Tax daydream came true, he’d end up complaining about all the growth-oriented nations that managed to slip out of the chains slapped on American corporations.
The “gory details,” as Sperling put it, of the Global Minimum Tax will be supplied later.
Generally speaking, the corporate tax debate has revolved around three basic approaches, as outlined by the Washington-based Tax Foundation: the current system of extra U.S. tax lumped onto foreign profits when American corporations bring those profits home. A pure system of global taxation, or a “territorial” approach, in which profits are taxed only where they are earned. The territorial system has been embraced by many of our largest trading partners, and is by far the approach most conducive to economic liberty. Combined with low rates of domestic corporate taxation, it would provide a powerful incentive for companies to keep their operations in the United States.
To find the freest nations on Earth, just follow the flood of refugees. It was easy to find America this way, during the Cold War. Instead of building an economic Berlin Wall and crowning it with the barbed wire of inescapable taxes, we should be focused on making America the freest and most prosperous economy on Earth, and welcoming the stream of capital that would flow voluntarily to our shores.