Global economic stagnation is weighing on the American economy. Yet rather than pursuing policies that promote growth abroad, the Biden administration is continuing to push a global tax code (GTC) that would do just the opposite, while also costing the United States $122 billion in lost revenue under one scenario, according to a new Joint Committee on Taxation report.  

Despite last year’s Democrat-controlled Congress rejecting the centerpiece of the GTC — a global minimum tax on corporations — the administration is racing to implement the GTC internationally, with the immediate goal of finalizing the GTC’s next step, so-called Pillar One, in July. 

Congress must decide whether to actively resist international efforts to implement the GTC. House Ways and Means Chairman Jason Smith (R-Mo.) recently introduced legislation, sponsored by all Republicans on the committee, threatening retaliatory taxes against companies from countries that implement the GTC. Both parties in Congress and any future White House should support this effort, as international adoption of the GTC would actively undermine U.S. interests, in addition to the massive revenue loss. 

The GTC would directly harm the U.S. Treasury and American companies by increasing their taxes abroad while decreasing Treasury’s share. In order to obtain agreement on the minimum tax, Treasury Secretary Yellen actively promoted taxation of large American firms by foreign governments under “Pillar 1,” while effectively providing exemptions for large foreign firms, including Chinese companies, from the tax. Seeking to prevent unfair harm to the Treasury and American companies is a core responsibility of U.S. policymakers, which is why the Trump administration actively resisted international efforts to take American revenue and unfairly tax U.S. companies. 

The GTC would also further legitimize the fundamentally undemocratic practice that successive Democratic administrations have used to further policies that are unpopular domestically. How to change U.S. tax law is no mystery: The Constitution assigns the power to make domestic law to Congress. The Biden administration’s pursuit of an international agreement against bipartisan opposition is designed to pressure Congress to change domestic law by exposing Congress to false charges that the U.S. is flouting imagined international obligations. 

As with the Kyoto Protocols, the International Criminal Court, the Iran nuclear deal and the Paris Agreement, Congress should make clear it will not tolerate the executive branch’s collusion with foreign governments and international organizations to subvert Congress’ constitutional authority.

More fundamentally, the policy logic for the GMT rests on the flawed premise that it prevents a “race to the bottom” in international taxation. This framework reflects zero-sum economic thinking that does not take into account efficiency gains or greater capital formation as a result of internationally competitive tax policy, nor the realities of international relations. 

Parts of the GTC are based on the Tax Cuts and Jobs Act’s (TCJA) global intangible low-taxed income provision, but their fundamental goals are in tension. The TCJA made the United States more competitive by lowering what had previously been the highest corporate tax rate in the OECD and streamlining our cross-border rules, not by dictating the tax laws of other countries through harmonization. As a result, the exodus of American companies through inversions and foreign acquisitions stopped. An increase in corporate investment supported capital deepening that drove growth and increased wages, notably without inflationary pressures due to the supply-side expansion made possible by the TCJA and the Trump administration’s regulatory reforms.

In contrast, the GTC relies on foreign countries to make their own jurisdictions less attractive in order to increase the relative attractiveness of the United States. The proposition that foreign governments will willfully make their economies less attractive destinations for investment is naïve. It is no surprise countries like Switzerland have promised to compensate companies for higher taxes under the GTC. 

Even if foreign governments actually implement the GTC faithfully, thereby harming their economies to the competitive benefit of the United States, the outcome would not be in long-term U.S. interests. International competition acts as an important constraint on poor U.S. economic policymaking. Market practices frequently change, and governments need flexibility to respond in order to serve their citizens’ needs. And critically, the United States builds long-term alliances and influence by advocating for policies that improve standards of living, not ones that restrain growth by increasing tax rates and encouraging inefficient — and sometimes corruption-inducing — corporate handouts. 

Competition is the fundamental driver of economic progress. The Biden administration’s efforts to stifle global tax competition will merely erode economic growth to the detriment of the American economy and American leadership globally. 

Aharon Friedman served as senior tax counsel for the House Ways and Means Committee (2007-20) and senior adviser for tax policy at the U.S. Treasury Department (2020-21). Dan Katz served as a senior adviser for international affairs at the U.S. Treasury Department (2020-21).