The multinationals’ minimum tax would be entirely unworkable. Even if Congress passed the levy, which it won’t, those firms will find ways around it. Minimum taxes are Band-Aides for a flawed tax system. The solution is not to create a new penalty for firms that learn to manipulate the law, it is to fix the basic law in the first place.
If Obama wants to prevent companies from gaming the system, he could lower the corporate rate and eliminate tax preferences. He raised this in last year’s state of the union address but did nothing about it. That’s too bad. With a low enough domestic tax rate, companies would have less incentive to shuffle income overseas.
This proposal in particular was bewildering. Obama (rightly) acknowledges that American companies face one of the highest corporate tax rates in the world, and it hurts our competitiveness. His solution, perplexingly, is to tax multinational companies a minimum tax rate, while using it (apparently) to lower the tax rate on companies which hire more people in the U.S.
This proposal symbolizes the administration’s general approach: use law to punish people. Instead of lowering our corporate tax rate to be more competitive, Obama wants to increase taxes on companies that don’t repatriate income, and then provide deductions or tax credits (“tax loopholes,” as the president is wont to call them) to companies that stay here to make the too-high corporate tax rate more palatable.
He needs to think through this a bit more. He derides a complex tax system which allows individuals and companies to pay “too low” of an effective tax rate, yet here he is trying to make the problem worse.