Global Minimum Tax Deal: The Flawed Notion of “Fair” Taxes

Posted by: on May 29, 2024 | No Comments

Global Minimum Tax Deal: The Flawed Notion of “Fair” Taxes

What do you call it when someone threatens you with dire consequences unless you pay them a part of your hard-earned money? Maybe mugging or theft? Taxes are not that different. You part with some of your money because you don’t want to face the consequences of tax evasion. While there is probably nothing fair about taxation, it has somehow become a part of our cultural fabric. Governments have managed to sell us the narrative that it’s our duty or moral obligation to pay taxes, with no accountability for how the funds are going to be used. When did we stop questioning the value we receive from spending our money? When did such a system stop being considered destructive, criminal, and immoral? Is it just because this parting with money has been systemized?

The Global Minimum Tax Deal

More than 140 countries have signed the Global Minimum Tax agreement that was proposed by the Organization for Economic Co-operation and Development (OECD). This tax treaty imposes a minimum tax rate of 15% on the profits of multinationals. Who made the OECD the boss of everyone? It’s not an elected legislative body and not all countries around the world subscribe to left-wing policies.

Effects of Taxation

Taxes are equated to death, as both are unavoidable! But this perpetuated notion is fundamentally impaired. Taxes are not formed cosmically. They are neither necessary nor desirable. This is because when people need something to better their lives or living conditions, they will and should pay for it in the marketplace. Taxes rob them of the power to choose what, when, and how they want to consume something.

What justifies giving the “moral high ground” to someone who claims a share of your profits without a day’s worth of effort? Taxes are bad for the global economy, as they dissuade companies from generating more revenues and profits. They also make it more expensive for businesses to invest in R&D, new technologies and equipment. You can bid adieu to the launch of new systems to increase efficiency, innovative solutions, and product breakthroughs. Against this backdrop, companies are unable to create new jobs or increase wages of existing employees. Taxes ignore that the burden of corporate taxation is borne, in part, by labor.

Contrary to the common belief, taxes do not facilitate wealth transfer from the rich to better the lives of the poor. By creating a deadweight loss, taxes increase a company’s cost of production, which is passed onto consumers through price hikes.

Companies produce only what people desire or need. Taxes cause distortions by penalizing the production of certain goods and services that may be needed or desired by people.

Governments claim taxes under the pretext of bettering living conditions, while only a tiny fraction of these funds is allocated for that purpose. A part of the funds collected through taxation is spent on taxpayer audits!

Is It an Equitable Solution?

The Global Tax deal does not represent an equitable solution for allocating global taxes. No deal can address the wealth distribution needs of 195 countries with diverse growth rates, populations, and priorities at any moment. A lot of African, Asian, and even European nations have refused to sign the deal. Of those who have signed, less than 50% plan to implement it. The US estimates that the tax treaty could drain the country’s treasury of a whopping $122 billion in revenues over 10 years.

Even the drafting panel has divided opinions on the 15% minimum tax proposal. While some consider the bar too low, others say it’s too aggressive. Isn’t the notion of ‘one planet one rule’ a little autocratic? Such a body works as a parasite that effectively kills the host – the taxpayer. The longer this goes on, the farther we will be from a free and growth-oriented economic setup. The only way to force the beast back into the cage is to starve it.

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