Joe Biden Wants To Have A Global Minimum Corporate Tax, India Should Not Entertain His Plan

Reams have been written in the ‘globalists vs nationalists’ debate. Earlier, the battle was thought to be won comprehensively by the former camp with the end of history after the fall of Soviet empire and emergence of the United States as a sole global superpower with global institutions and governance acquiring an all important role.

The European Union (EU), a project in the works for long, became a reality soon after with the signing of Maastricht Treaty which came into force in 1993.

Other global institutions like the International Monetary Fund (IMF) and the World Trade Organisation (WTO) et al were already dictating terms as to how countries should run their economies. EU went further and morphed itself into a continental size legal entity which acquired the power to make rules that went beyond impacting economic policies of the member states.

The march of globalists seemed unstoppable until 2016 when they were rudely awakened by the nationalists voting with their feet ‘to take back control’.

First, the majority of the voters in Britain voted to leave the EU. Then, Donald Trump won the presidency of the United States in a huge upset.

Of course there were many other far more important factors behind the second outcome but Trump’s campaign manager and chief strategist Steve Bannon would frame the emerging ideological schism between Democrats elites and Republican base as that of between globalists vs nationalists rather than the old shibboleths which divided the two parties since the Reagan era.

Trump would go on to pull the US out of many international initiatives such as the Paris Climate deal, Trans Pacific Partnership, put trade tariffs on China which many termed as going against the rules of the WTO and withdraw the US out of the World Health Organisation. These steps were seen also as a response to China’s emergence as a global economic and geopolitical superpower which rose in no small part by shamelessly exploiting the loopholes in the established global order.

The running theme of sudden change in 2016, both in the US and the UK, was taking back control - shifting power centre and decision-making from unelected and unaccountable global institutions back in the hands of the government chosen by the people directly, something that intellectuals like Nassim Nicholas Taleb have been advocating for long.

Taleb has ridiculed both nationalists and globalists as advocating crap and aiming at monoculture. He champions localism which is not the same as nationalism (as he has clarified) but it’s still many degrees closer to globalism and hence would likely be a bigger anathema to his type of libertarians who want to physically cut down the layers between people and the decision makers whose policies directly impact them.

Calling the EU ‘a horrible, stupid project’ in 2012, he had said that ‘the idea that unification would create an economy that could compete with China and be more like the United States is pure garbage. What ruined China, throughout history, is the top-down state. What made Europe great was the diversity: political and economic. Having the same currency, the euro, was a terrible idea. It encouraged everyone to borrow to the hilt.’ His rationale? Size makes one fragile.

‘On paper, it might appear much more efficient to be large — to have economies of scale. But in reality, it’s much more efficient to be small. An elephant is vastly more efficient, metabolically, than a mouse. It’s the same for a megacity as opposed to a village. But an elephant can break a leg very easily, whereas you can toss a mouse out of a window and it’ll be fine. Size makes you fragile,’ he reasoned.

Anyway, while the UK is officially out of the EU, the US is back to where it was when Trump came into office. The Joe Biden administration has overturned all the ‘nationalist’ moves of his predecessor, almost as a payback to how Trump had trashed Biden’s former boss Barack Obama’s legacy.

Not only that, Biden & Co. are doubling down on their globalist worldview, something that will be used by the likes of Trump and Bannon (economic nationalists) to paint him as a villain who is shipping away decision making power from Washington to these global institutions.

The Biden administration’s latest project is to mandate a Global Minimum Corporate Tax of 21 per cent which will ensure an end to competition between countries who lower taxes to attract more companies. This will finish off tax havens where corporate taxes are significantly low. The US has sent its proposal to 135 nations.

As per the plan, the idea is that corporations should pay taxes based on where these companies are earning from rather than where they are located. The US wants to create a level playing field by setting a minimum corporate tax across the world.

This is pretty convenient. As the US currently has the monopoly in not only having the world’s biggest corporations but also the biggest economy by far in terms of consumption, the novel plan it is recommending to the world will benefit it the most. It will also finish off any opportunity for other countries whose only weapon to attract these companies is lower taxes (which is also a big reason that these companies are able to grow).

Now, the US is eyeing to get $2.5 trillion in 15 years by raising corporate tax rates from 21 per cent currently to 28 per cent but it doesn’t want to raise taxes in isolation as that would put it further at disadvantage vis-a-vis tax havens. It wants everyone to follow its lead. The cost of doing business will increase all over the world in one go.

After having built the world’s greatest economy on the back of a tax system rooted in incentives, the US now wants everyone to turn to socialism because that’s what is currently in vogue there.

The reason why the US wants to increase taxes domestically is to finance the ~$4 trillion stimulus it has provided to its people by direct cheques in the last one year alone. And it wants the world to pay for it. Ironically, while the route Biden is taking is globalist in nature, the goal is purely nationalistic (and so opportunistic).

It is no one’s case that the current taxation system is perfect and doesn’t need reforms but the US plan would be a big blow for sovereignty as no country would be able to unilaterally decide its taxation in future.

They will have to navigate concerns of powerful nations and will be held hostage to all sorts of interests. Prime Minister Narendra Modi, the nationalist, should strongly resist the globalist Biden’s tax agenda.

The Modi government did good by lowering corporate tax rates to 25 per cent in 2019 and for domestic new businesses to 15 per cent. We may have to cut the 25 per cent slab to 20 per cent if the situation demands. The power to take such decisions, in national interest, must remain with the government chosen by the people of India and not some international group(s).