Janet Yellen may have succeeded in getting G-7 countries to agree on a 15% minimum corporate tax. The hope is this will mean the US can increase its rate to 28% without creating an incentive for American firms to incorporate abroad. The figure below shows the tax rates of various OECD countries. Most G-7 countries already have tax corporate income tax rates above 15%. If the US increases its rate to 28% it will be among the highest.
However, the tax rate is only one part of a corporation's tax liability. Loopholes, deductions, and subsidies determine how much tax is actually paid. If incentives exist to lower corporate taxes in order to attract foreign corporations, governments will find other ways to compete on taxes.
This will be worse than competing on the tax rate, because adding loopholes, deductions, and subsidies create more distortions and opacity. This will be a boon for tax lawyers around the world. But it would be better for the global economy to encourage countries to have a wider base and lower rates.
Allison Schrager is a senior fellow at the Manhattan Institute. Follow her on Twitter here.
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