Will US politicians turn away tax revenue just to thwart opponents?

THE political dysfunction in the United States may be about to produce a spectacular own goal over the global minimum tax proposal. With growth in digital products, firms with income from intangible goods - such as patents, copyrights and other royalties on intellectual property - have shifted their operations to low-tax jurisdictions to avoid paying higher taxes in places where their profits are generated. In turn, every country has cut corporate taxes to compete for their businesses.

To avoid further tax erosion, the Organisation for Economic Cooperation and Development (OECD) proposed new rules to ensure that multinationals pay their fair share of tax in the jurisdiction where they service their customers. The target was set at 15 per cent. It took a huge effort by the OECD to persuade 136 countries, representing more than 90 per cent of global GDP, to agree to the deal. Even the Cayman Islands, which has no corporate tax at all, was set to sign on.

The US, so often the outlier to global agreements, saw the advantages in signing up this time. The Biden administration found that, as a share of GDP, the US collects less in revenue from corporate income, profits, and capital gains than most other OECD countries. The plan was to get the law in place by 2023, but this has since been delayed to 2024 because some European Union nations quibbled over the fine print.