For the life of me, I just couldn’t get those Beatles lyrics out of my mind when I read the Wall Street Journal headline, “U.S. Wins Backing for Global Minimum Corporate Tax Rate.”
“If you drive a car, I’ll tax the street. If you try to sit, I’ll tax your seat. If you get too cold, I’ll tax the heat. If you take a walk, I’ll tax your feet. Taxman. Cause I’m the taxman, yeah I’m the taxman.”
Of course, the Beatles’ playful lament was about something serious. At the time, 1966, the United Kingdom’s highest marginal tax rate on investment income meant that the state got 95% of the next dollar earned. Needless to say, the incentive for a wealthy person to keep the nose to the grindstone almost disappears in this situation.
But the words of the song also remind us that there is something about the “taxman” that seems to make him or her always want more, and accordingly to try to stop leakages that develop when income earners seek to limit the government’s sometimes-unreasonable take.
Yes, Treasury Secretary Janet Yellen, who spearheaded the effort, has accomplished a remarkable feat. But what exactly did we Americans win by forming a 130-nation international corporate income tax cartel that, as the good secretary put it, means, “The race to the bottom is one step closer to coming to an end?”
Race to the bottom? Shouldn’t our national leaders be dedicated — or at least more open — to the notion that tax burdens should be lower, not higher? That governments should seek to find lower cost ways of providing services to corporate and other citizens and not the other way around?
There can be no doubt that President Joe Biden and every other president faces a challenge in finding enough revenue to pay for all the goodies promised to those who put them in office. And how do you shear a sheep that can easily move to another pasture?
But this last question is chiefly a problem for policymakers who love to tax. It’s less of a problem for policymakers who see taxes as a necessary evil and less still for those of us who have to pay.
Years ago, economist Charles M. Tiebout, examining state and local taxation patterns, noted that taxpayers vote with their feet. If a city raises taxes, citizens may move out of town; if one state lifts its taxes, people can relocate to another state. This is commonplace, with headlines regularly pointing out the exodus of taxpayers and businesses from the aggressively shearing states to the ones which show a little more sympathy toward the sheep.
The result, Tiebout notes, is lower-cost government. Spatial competition forces politicians to become ever more conscious of the fact that they do not have monopoly power. They have to be accountable just like anyone else and compete for the dollars they seek to spend.
The formation of an international corporate income tax cartel turns Tiebout on his head. Yellen and most of her international counterparts may not choose to think of it this way, but they’re setting up monopoly power. They dislike competition among governments and prefer the good life that comes without having to struggle as much to earn one’s keep.
Bruce Yandle is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a distinguished adjunct fellow with the Mercatus Center at George Mason University and a dean emeritus of the Clemson University College of Business and Behavioral Science. He developed the “Bootleggers and Baptists” political model.
