This is the main point: what is good for public finances is not the same as what is good for the economy. People talk as if the new income from limiting “tax competition” is a free lunch – a pot of gold just waiting to fill government coffers to invest in “improvement” or “our”. NHS ”.
In reality, it is shareholders, workers and consumers who pay the burden of corporate tax. It’s just that these effects are relatively hidden compared to the politically painful alternative of raising taxes where taxpayers can clearly see it.
Fortunately, this plan still has huge hurdles to overcome. Clifford Chance tax lawyer Dan Neidle noted the slow process of ratifying international tax treaties. In the United States, in particular, Republicans are likely to be concerned about allowing foreign governments to tax American multinational corporations more. This makes it difficult to see how this proposal passes through the US Senate, where a new tax treaty would require 67 of the 100 votes. If pillar 1 fails though, Neidle thinks, it’s hard to see how the deal holds up.
Nonetheless, whatever ultimately happens, the past week has been instructive for the political air. Just a few years ago, policymakers in the US and UK realized that businesses do not bear the ultimate corporate tax burden, that global capital flows are disciplining governments to more efficient sources of revenue, and that it is private sector growth, not government largesse, that produces prosperity.
By accepting such a targeted tax grab and setting in motion the cartelization of corporate tax rates, this deal shows that the new guiding star of tax policy is increasingly generating more revenue through politically fashionable means. If you think shoveling more resources through the political process is the path to economic success, then you should celebrate this deal. If you don’t, well, the next few years of Anglo-American politics will be difficult.
Ryan Bourne is the author of ‘Economics In One Virus’ and an economist at the Cato Institute