The United States Secretary Janet Yellen stated on the 4th of April 2021 that she is collaborating with G20 nations to institute a global corporate minimum tax rate. She is seeking to stop the decades-long race to the bottom on corporate tax rates.
In a recent statement to Chicago-based institution, the U.S. Treasury Secretary, Yellen, noted that she would utilize her presence in the IMF and World Bank events over the next few days. She would discuss the environment, vaccine distribution and foster further global economic development.
Yellen reiterated the fact that it was essential for governments across the board to institute a stable tax system that would ensure sufficient revenues for each nation to respond to issues. Further, the hope is that citizens around the world would shoulder the burden of helping the government run with more resources.
At the same time, another representative from the U.S. Treasury noted that it was essential to have leading countries be in line with the global minimum tax to bring about the right results.
At the same time, according to Reuters, the United States is expected to move forward with its respective tax plans to stop corporations from moving profits or their legal home to a tax refuge country. At the same time, they are hoping that other nations also follow the lead.
The Problem with Global Minimum Corporate Tax
The problem with the global minimum tax is that it further prevents or minimizes freedom. At the present moment, corporate and individuals have the opportunity to move the capital to where it is treated well. To be more specific, capital can move to where it does not have to go back to governments that have a solid and robust history of abusing and misallocating funds.
If governments do not have to compete on tax rates, then the capital is generated through private sector initiatives goes to the government. Further, there is no checks and balances. Governments across the board would not have any reason not to adjust taxes upward as there is no competition.
Further, it shows that there’s less freedom as corporations, individuals, and the less private sector have less capital, and more goes to the government to distribute and deploy as it sees fit. These types of proposals are concerning in a time where members of the Biden Administration like Buttigieg suggest plans like tax per mile driven that would affect all citizens. At the same time, inflation fears and reality, also known as a stealth tax on everyone, is also a continued threat as the economy heats up.
Experts are commenting on the changing dynamics of the economy as the Federal Reserve and the Treasury Department align together in more ways to create a more zombified or Japanified economy.
Saylor, the CEO of Microstrategy, commented on the increase in money supply and the effects it has on the corporate hurdle rate. At the same time, he noted how inflation is rising is areas that people desire. For instance, while CPI, the general inflation index seems to tick marginally upward, the actual cost of education, healthcare, transportation via oil prices, and other aspects like housing have gotten out of hand.
While cooler heads note that the United States may not have hyperinflation, it is interesting to note that all asset classes are at significantly elevated levels. That does not bode well for future returns in any of these asset classes. Asset prices can only go up to a certain extent, as their value derives from their future cash flows over the long-term and what someone else is willing to pay for it in the short-term.