Global Minimum Tax Threatens American Sovereignty
Treasury Secretary Janet Yellen is preparing to launch a congressional lobbying blitz to corral support for a “Global Minimum Tax,” which has emerged as a key part of President Joe Biden’s efforts to rehabilitate the liberal international order damaged by the Trump presidency. The Biden administration sees the initiative as a way to build support for his ambitious domestic tax hikes as well as garner favor with liberal-minded allies abroad.
The plan, negotiated by the Organization for Economic Co-operation and Development, is vague, but focuses on two main pillars: first, ending revenue-shifting practices of American tech firms, and second, establishing a global minimum tax of 15 percent on large multinationals. To achieve this, the Biden administration is hoping to ratify two treaties codifying the new minimum tax.
The plan has been vigorously challenged by Republican leadership, including Ways and Means Ranking Member Kevin Brady and Senate Minority Leader Mitch McConnell. Their arguments make a strong economic case against the global tax treaties. However, conservative opposition must also defend the principle of subsidiarity against liberalization and integration. Models, profits, and the endless measures of economic success may change, but the American citizens’ autonomy must be considered absolute throughout.
The proposed global tax treaty, as presented in a characteristically vague five-page memo, should be plainly understood as a threat to American sovereignty. If implemented, it will lead to the erosion of the Constitution’s revenue collection system in favor of a European-style international bureaucracy that will paralyze critical domestic political institutions and allow economic exploitation by foreign rivals.
Our Constitution says plainly that “All Bills for raising Revenue shall originate in the House of Representatives”—not unaccountable, international organizations. In a country founded in resistance to taxation without representation, submitting Congress’s power of the purse to faceless global managers would be ridiculous. Yet the project is sadly just another episode in the Biden administration’s dismantling of traditional American political and social values.
Ongoing negotiations have captured the support of 130 of the 139 member nations of the Organization for Economic Cooperation and Development. If the tax treaty were ratified by the Senate, Americans would be transferring control of their taxation to the diplomatic whims of Parisian leftists, London traders, and Japanese manufacturers. Arbitrary, internationally fixed tax rates would render fiscal decisions by Congress meaningless, and by extension the will of their constituencies meaningless, creating a crisis of federal sovereignty.
More concerning is the scant mention of enforcement and organization in the tax treaty’s plan, leaving open the prospect of European Union-style integration and nightmarish bureaucratic overreach. As a rule, international organizations engage in mission creep that tends to massively expand the power of their charters and decrease the power of the people and nations they are created to serve. Take for examples the failure and abuse inherent in the actions of the WTO, IMF, and litany of E.U. projects.
Like the WTO, a bloated, inefficient international tax bureaucracy could deny Congress the ability to stay nimble in an increasingly competitive economic race with China. In the same way the WTO has allowed China to mock the rules-based order and operate as a rogue mercantile state, the governing authority of the new tax scheme could easily be thwarted by our adversaries.
If China decides to treat the global tax treaty with the same contempt they have historically treated international law and agreements, the rules-abiding U.S. would be obligated to place justice in the hands of an international bureaucracy and hope for fair arbitration. As we have seen with the performance of the World Health Organization, these kinds of recourse are unreliable at best and corrupt at worst. The U.S. could find itself in a state of total paralysis as our remaining industries move overseas and a years-long state of competitive disadvantage wreaks havoc on U.S. output.
Once already in such an agreement, if the American people came to regret their leaders’ poor decision, the U.S. would be forced into a grueling project of unilateral disentanglement for which the current political environment is not suited. The political unraveling would more closely resemble the institutionally wrenching Brexit debate than even the heated debates surrounding the Paris Climate Accord or the Iranian nuclear deal in U.S. politics.
Unwinding a web of complex international treaties, adjusting the already controversial domestic tax code, and cajoling our allies in Europe away from continued integration with China would be a task that would require bipartisan and cross-agency unity unthinkable in our current political climate. Even in a swell of bipartisan action against bad foreign actors, rolling back a key achievement of the liberal international project would be an impossible sell to two-thirds of the Senate. The consequence would be a free hand for China to scheme against indentured nations while U.S. political willpower would be exposed as insufficient to lead the rules-based liberal order it created.
The Biden administration is gambling that a new generation of liberal internationalist projects will save their fledgling ideological pursuits. But a dual disaster in which further globalization allows China and other competitors to land yet another blow to the American worker—and where those afflicted citizens are denied just recourse after being stripped of their representation—is predictable and avoidable. It remains up to Congress to decide if international cooperation on a “Global Minimum Tax” should destroy the American people’s right to self-governance.