OECD Pillar 1/Global Tax Surrender

WM Tax: OECD Pillar 1: Ensuring the Biden Administration Puts Americans First, March 7, 2024

Pillar 1 interferes with how firms do business by taxing profits from one asset differently than it taxes others.  I call foul. Most nations in the OECD, by most, I mean all but the United States, have value added taxes. Such taxes favor domestic workers, but are agnostic on how capital is employed to produce profit. Were it not for inertia, this regime should end the practice of corporate profit taxation entirely - although a separate employer-paid VAT to provide a platform to channel child and health benefits to employees through the employer (rather than the government) serves the same purpose.

Where international agreement is essential is in the replacement of capital gains taxation with an asset value added tax. An asset VAT moves taxation to transactions rather than portfolios. The SEC would collect the tax, not the IRS. This reform is the key to tax simplification. Agreement is necessary to prevent the gaming of rates to reward brokers in one country to attract traders from Wall Street. Wall Street will surely agree and put their PAC money to use in convincing members.

With capital gains taxes handled, the taxation of salaries, interest and dividends could be accomplished without personal income tax filing for most families, outside of business owners and the prepayment of income tax obligations to the Bureau of the Public Debt as an expiring investment (and at a discount). Tax benefits to families for child care, health care and the child tax credit could be distributed through employers. Business taxation would take only one form, regardless of ownership type, with most businesses filing returns to the states where their workers reside - which is how they remit income taxes they collect on the employees’ behalf today.

WM Tax: Biden’s Global Tax Surrender Harms American Workers and Our Economy, July 19, 2023

Our OECD trading partners provide more generous subsidies to their workers, funded in part from their corporate and value added taxes. We propose channeling a Fair Tax style subsidy through two taxes, a (credit) invoice value added tax (turning the deduction for sales taxes paid into a full credit - which is essential the difference between a VAT and income tax based collections) and a subtraction value added tax to channel subsidies for health care and the child tax credit through employers rather than the Social Security Administration (as proposed for the Fair Tax).

Our second attachment, concerning trade, specifies that invoice VAT payments be zero rated at the border (and fully burdened at import), while subtraction VAT payments not be - because these payments benefit families, and therefore final consumers. To make these employer provided subsidies zero rated discourages their use by firms with high exports.

Such a rule should be universal so that U.S. workers are not put at a disadvantage - both due to inadequate pay and unfair price competition. Such unfair competition occurs whenever an OECD nation funds its family and health care subsidies using VAT collections. Standardization does not diminish sovereignty - it simply regularizes trade and does not dictate rates.

Our proposal for an Asset Value Added Tax will require international cooperation, however. Please see the third attachment. Part of trade is moving money around - including financial assets. An asset VAT as a replacement for capital gains and inheritance taxes must go farther than the border. It is too easy to shift to offshore stock exchanges where such taxes do not exist. International agreements on rates and enforcement structures are vital for such a tax to work. 

The model for negotiating the CMT on a multi-national basis can be used for this effort, however it should be by treaty, not agreement, and the rate structure needs to be tighter. Again, please see the second attachment, which has been recently updated.

Taxation of dividends will be included in surtaxes to the Subtraction VAT for payments over $85,000 in taxes plus dividends in a given year, however individual filing for wage. dividend and interest income under $425,000 will not be required. Again, the capital gains tax will be abolished.

Small dollar dividend payments will not be taxed, although they will be reported so that the very wealthy do not use diversification for tax avoidance. Low dollar dividends are already taxed through the subtraction VAT base rate (which is mostly returned to employees). Having a great many diversified investments in order to avoid what would be a small tax on dividends received would cost more in brokerage fees than the taxes being avoided. 

Dividend payments to employee retirement accounts would be taxed as higher incomes, but there would be no taxation of such accounts on the other end, just as Roth IRAs are not taxed.

Attachment: Asset Value Added Tax Video

Attachment: Consumption Taxes (Video links included)

Attachment: Trade Policy Video