The Washington Times Weekly
Safe world for big spenders
Joe Biden ushers in a new Imperialist Age
President Biden, his economic advisers and his party’s congressional allies are boldly advocating a new Imperialist Age to be led by the United States and like-mined wealthy industrial nations. Using tax policy as the ultimate weapon, the wealthy will prevent less developed and poorer nations from competing or developing economically.
Several European nations have floated the idea in the past, but until Mr. Biden moved into the Oval Office, this country has valued the sovereignty of other nations to varying degrees. The current scheme grew out of the Biden administration’s desire to raise personal and corporate taxes to finance an unprecedented spending boom while avoiding the political and economic consequences of doing so.
The problem, of course, is that corporate and individual taxpayers have a history of responding to higher and higher taxes in two ways. They either move to places that let them keep more of their money or elect politicians willing to support less confiscatory tax regimes.
Tax competition among the states persuades New Yorkers and Californians to decamp to places like Florida and Texas as they are doing in increasing numbers. Countering this migration and providing cover to liberal Democratic governors like California’s Gavin Newsom is a major Biden goal so Democrats in Congress with Mr. Biden’s backing included a provision in the last stimulus bill that would bar any state receiving stimulus funds from cutting taxes or providing incentives to attract corporations to their states until 2025.
But analysts at the nonpartisan Tax Foundation provide data that shows just how serious a problem our tax lovers face. Mr. Biden wants to raise federal taxes in a way that would once again make the United States the country with the highest effective corporate taxes of any industrialized country in the world. A decade ago, the United States taxed corporations based here at an effective rate 10% or higher than Germany and Japan, and even higher than Mexico and Canada or China.
The tax difference was one of the biggest reasons U.S. jobs were moving overseas.
The Trump tax cuts reduced the nominal corporate tax on businesses operating in the United States to 21% and the effective rate to slightly less than that imposed by other nations. Doing business in the United States became far more attractive than it had been under the higher rate, and jobs and capital began coming back.
Making the U.S. once again the highest-taxed jurisdiction in the world will obviously drive businesses to decamp to other countries just as higher state taxes have led Americans to move to places like Florida and Texas. Mr. Biden and his advisers know this, but think they have a solution. To avoid bleeding jobs, they have come up with a scheme. Political leaders the world over know there are political risks as they raise taxes on those who elect them. If these high-tax leaders simply join together to agree that taxes cannot go below a certain high-tax floor, they can lock in high taxes — and not be blamed.
After all, if Congress can impose only higher state taxes in this country, why not for the world? Countries would still be free to raise taxes on their citizens, but tax competition or what the president and Secretary of the Treasury Janet Yellen like to dismiss as a “race to the bottom” would end.
Famously, Ireland lowered taxes and sparked a boom 20 years ago. Young professionals from higher taxed European nations moved to Ireland as New Yorkers are today moving to Florida in this country. The EU was outraged seeing Ireland’s new-found prosperity as unacceptable if it meant taxpayers and businesses from other European nations began moving there. They sought what the Biden administration wants: a regime in which no nation could compete with others by offering a more attractive tax regime to investors and workers.
What Mr. Biden seeks is a world made safe for big spenders by a cartel like OPEC that will keep taxes, rather than oil prices, high for the benefit of its members. Once the wealthy big countries agree, smaller and poorer nations will have to go along. That’ll keep businesses from moving, stifle economic growth and make it difficult if not impossible for those who haven’t already made it to succeed.
Those developing and poorer nations that have begun to realize that like Ireland 30 years ago they can kick start their economies by creating a more business-friendly environment that will attract capital investment will be stopped in their tracks if Mr. Biden has his way. Creating such an environment requires more than outcompeting others on taxes, but cutting rates is one sure way to begin. Mr. Biden and his fellow big spenders loathe the idea and their policies will consign the poor to stagnation and keep their citizens in their place.
The dictionary defines imperialism as not just annexing territory as Moscow and Beijing are attempting, but also as “gaining indirect control over the political or economic life of other areas.” That, in the proverbial nutshell, is what the Biden administration is attempting.
And as with roses, imperialism by any other name is still imperialism.