Biden Administration Supports Global Tax That Favors China

President Joe Biden speaks about the U.S. economy at Steamfitters Local 602 in Springfield, Va., on Jan. 26, 2023. Andrew Caballero-Reynolds/AFP via Getty Images

Commentary

America is scraping the financial bottom of a debt crisis while overloaded with high taxes and navigating between the shoals of inflation and the sandbars of recession. President Joe Biden’s administration, meanwhile, wants to have all the pros without acknowledging any of the cons—by taxing more, spending more, growing the debt and, inscrutably, inventing new giveaways to China.

US Global Tax

U.S. Treasury Secretary Janet Yellen’s attempts to fend off criticism on all of this through denial and deflection were on full display last week at the House Ways and Means Committee, where she single-handedly stared down a raft of Republican house members rabid over America’s deteriorating economic position relative to its chief adversary, China.

Yellen responded to criticism of Biden’s new $6.9 trillion budget request that Senate Minority Leader Mitch McConnell vowed would “not see the light of day.” Over the next 10 years, the budget shortfall of the plan would amount to $17 trillion, according to the White House’s Office of Management and Budget.

According to Republicans, this would in part result from a major new giveaway to China in the form of the Global Minimum Tax, which would hit the biggest U.S. corporations abroad—of which there are many—at a minimum rate of 15 percent, while leaving China’s state-owned enterprises, which also operate abroad, to pay nothing.

The office of Senator Mike Crapo (R-Idaho), the ranking member of the Finance Committee, said in a statement on March 14 that “Despite negotiating a 15 percent global minimum tax rate for the rest of the world, the President’s budget calls for leapfrogging the global minimum tax rate for domestic businesses to 21 percent, giving our biggest foreign competitors—like China—the upper hand to undercut America’s ability to fairly compete.”

The Biden administration, European governments, and the Organization for Economic Cooperation and Development (OECD) are the chief architects and proponents of the plan. All stand to lose out against China.

Beijing already out-competes U.S., European, and allied multinational corporations through bribery, technology theft, subsidies, and economies of scale on the order of 1.4 billion Chinese consumers. China also has the advantage of their many importers and Belt and Road countries in Southeast Asia, Africa, and Latin America, not to mention over $1 trillion of trade annually with the so-called defenders of the free world in the United States, Europe, Japan, and South Korea.

A Global Minimum Tax that leaves Chinese companies nearly untouched will tip the scales even further in favor of history’s most powerful and influential totalitarian state.

Resistance

The U.S. Constitution reserves the right to make U.S. tax law to the nation’s Congress.

“As the American people awaken to the geopolitical and economic threats posed by the Chinese Communist Party, that protection makes more strategic sense than ever,” wrote Aharon Friedman in the Wall Street Journal last week.

“Yet Treasury Secretary Janet Yellen is turning this bedrock principle [of Congress’ right to levy taxes] on its head by writing a global tax code with the help of European bureaucrats that would redound to the benefit of Beijing,” he continued.

The Organisation for Economic Co-operation and Development (OECD) headquarters in Paris, France, is shown on June 7, 2017. Francois Mori/AP Photo

Friedman was a senior tax counsel for the House Ways and Means Committee starting in 2007, after which he was a senior adviser for tax policy at the U.S. Treasury from 2020 to 2021.

142 countries have already signed up for the global tax without much pushback from democracies around the world.

While Congress opposes the tax, Yellen threatens that if not agreed to, foreign governments will seize revenues from U.S. corporations. The law punishes low-tax jurisdictions by allowing other countries to tax their companies’ operations in any third country, thus removing the sovereign right of countries to decide their own tax law while deprioritizing economic growth in favor of high corporate taxation.

British Chancellor of the Exchequer Jeremy Hunt (L) and U.S. Treasury Secretary Janet Yellen take part in a bilateral conference on the sidelines of the G-20 Finance Ministers and Central Bank Governors meeting in Bengaluru, India, on Feb. 24, 2023. Manjunath Kiran/AFP via Getty Images

“Never mind that such provisions violate international law and existing treaties—including with the U.S.—that prevent countries from taxing activities to which they have no connection,” writes Friedman.

The Global Tax supports low-profit and government functions whose practical effect, according to Friedman, will be to favor state-owned enterprises that tend to drive out free market competition.

“This will benefit countries that take a broad view of government power, especially China, where President Xi Jinping is expanding state-owned enterprises under a plan known as ‘the state advances, the private sector retreats,’” he writes.

U.S. national security and U.S. defense contractors, which are private companies, would be disadvantaged by the tax compared to China’s defense contractors, which are state-owned. As China’s low taxes and low wages out-compete U.S. defense exporters, countries will shift their dependence onto China, which will add to their economic reliance on—and exponentially increase the international influence of—the Chinese Communist Party.

Beijing lobbied for—and got—a special exemption for companies that operate in six or fewer countries. Given the CCP’s opaque control over the entire economy, it will be able to structure its companies’ operations to meet this requirement and maximize the tax advantages of doing international business through China.

Friedman notes that the tax requires “an expansive information-sharing regime among countries” that can be further exploited by Beijing to acquire detailed, proprietary, and sensitive information about U.S. companies, including in the aerospace and defense sectors.

Trusting China to follow the new tax is foolhardy, he writes. The books of Chinese companies can be cooked, as indicated by the unwillingness of Beijing over the years to release data on even its publicly-held companies in the United States.

“Does anyone think Mr. Xi and his affiliates will share sensitive information on Chinese companies, especially those in defense and tech, or allow other countries to tax their Chinese operations?” he asks.

“The global tax code is also likely to push low-income countries toward state-owned foreign investment—such as China’s Belt and Road initiative, which itself encroaches on nations’ sovereignty while sapping their natural resources.”

The Biden administration’s promotion of a global tax code that advantages China’s burgeoning economy, to the threat of democracies around the world and at the expense of struggling private companies everywhere, including in the United States, is no less than an abdication of their primary responsibility to defend U.S. sovereignty, national security, our economy, and the democratic way of life.

Congress should not only vote the tax down in the United States, but warn other countries to vote it down globally. Democracy, as always, requires eternal vigilance. Now is no exception.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.